Tax Whistleblower May Get $300 Million Award

The IRS Whistleblower Office Pays for Information on Tax Underpayments

Each year, the U.S. federal government loses around $345 billion in tax underpayments according to estimates made by the Government Accountability Office (GAO). The Internal Revenue Service (IRS) wants to collect on that money and a new law authorized the IRS Whistleblower Office to help with that effort. In the largest action submitted to date, The Ferraro Law Firm in Washington D.C. filed a $1 billion tax whistleblower action against a Fortune 500 client of Ernst & Young LLP.

In a press release issued by The Ferraro Law Firm, founding partner James L. Ferraro says, "The tax law is not always black and white and taxpayers are all too often more than willing to use an extreme interpretation that drastically reduces taxes. There is not necessarily an element of fraud and people at these companies know the weak spots in their positions."

The action submitted on October 9, 2007 to the newly formed IRS Whistleblower Office involves a company that entered into a string of transactions that improperly reduced its taxes by over $1 billion. The tax whistleblower, whose identity remains confidential, stands to receive an award of up to $300 million if the IRS successfully collects the $1 billion in underpaid taxes.

The new tax whistleblower program was enacted under the Tax Relief and Health Care Act of 2006 (P.L. 109-432). The law gives increased financial incentives to individuals who have any knowledge about companies, trusts, partnerships, or other individuals that underpay taxes. There is no dollar amount cap on the awards to the whistleblowers and awards can earn the whistleblower up to 30% of the underpaid tax that the IRS collects. By law, the minimum award the IRS must pay to a tax whistleblower that makes a substantial contribution to the success of the tax collection is 15% of the amount collected.