When entities and individuals pay less tax than they owe, they are cheating the system. The Internal Revenue Service (“IRS”) estimates that the “tax gap” – the difference between what is collected and what is lawfully owed – at between $450 billion and $500 billion each year. In some circumstances, the IRS whistleblower program provides for rewards to whistleblowers with information about tax fraud exceeding $2 million.
Tax fraud may also give rise to a claim under other whistleblower reward programs. For example, state False Claims Acts may allow whistleblower suits based on violations of state tax laws. The New York State False Claims Act is one example, and the Illinois False Claims Act has been recognized to permit claims based on state sales and excise taxes. Internationally, Canada and South Korea also have reward programs for reporting tax violations.
Tax fraud and tax evasion resulting in underpayment can take many forms, including: