TAX COURT DECISION GIVES WHISTLEBLOWERS ADDITIONAL REWARD
In what is being hailed as a landmark decision, the U.S. Tax Court recently sided with a pair of whistleblowers who provided information that assisted the U.S. government in a high-stakes tax evasion investigation. The decision allowed the whistleblowers for the first time to collect a percentage of the taxpayer’s criminal penalties and civil forfeitures, in addition to the unpaid taxes recovered by the IRS.
Despite the IRS’s reluctance to further reward whistleblowers, increased rewards may end up acting in the government’s favor by ultimately allowing it to collect significantly more information on delinquent taxpayers. This may end up being relevant for U.S. expats who have been the target of IRS scrutiny in recent years.
THE WHISTLEBLOWER PROGRAM
Under the government’s whistleblower program, those who have knowledge of tax indiscretions can make confidential claims with the IRS and receive up to 30% of what the government collects from the taxpayer. The program applies to cases in which the amount in dispute exceeds $2 million. If the taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year at issue in a claim.
The program has been relatively successful in recent years. In fiscal 2015, for example, the IRS paid 99 rewards totaling more than $103.5 million.
THE WHISTLEBLOWER DECISION
In the Whistleblower case, the IRS agreed that it owed the whistleblowers a percentage of the $20 million of back taxes paid by the guilty taxpayer. It argued, however, that it did not owe a percentage of the $22 million in criminal penalties and $32 million in civil forfeitures, because they should not qualify as so-called “collected proceeds.”
The Court disagreed and held that the IRS should pay the whistleblowers close to $17.8 million, which is a little less than one-fourth of the total $74 million paid to the IRS.
THE IMPACT ON U.S. EXPATS
As we’ve written previously, there are a number of reasons why expats should remain compliant with the IRS. Highly-incentivized whistleblowers are now an additional reason for expats to stay tax compliant or become compliant if they have not done so already. While the qualifying thresholds for the Whistleblower program are relatively high, an expat taxpayer’s amount in dispute can grow rapidly due to the many potential penalties that can be imposed by the IRS, especially those associated with delinquent foreign reporting.
If you are a delinquent taxpayer living abroad, a number of options are currently available to you, but it is critical that you understand which options are best under your circumstances. The IRS is closing in on non-compliant expats, so the time to act is now. Our experts at Expat Tax Professionals are available to help discuss your options and implement the option that is best for you.
