Tax Underpayment vs. Tax Fraud
International Tax Whistleblower Representation
Under the IRS Tax Whistleblower Program, a reward can be collected for any form of tax underpayment, whether it is the result of fraud, reckless disregard, innocent mistake, or some other level of intent. In other words, there does not have to be tax fraud involved for you to receive a whistleblower reward. Any issue resulting in the underpayment of taxes applies under the whistleblower program.
Sophisticated taxpayers often take overly aggressive positions on their tax returns in the hope that the IRS will not challenge their tax position. While many of these overaggressive positions are not fraudulent, they often result in large scale underpayment of taxes. When the IRS discovers these underpayments, it can lead to very large recoveries. If your knowledge contributes to an IRS investigation resulting in a recovery of $2 million or more, you may be entitled to receive a reward under the IRS Tax Whistleblower program.
Common Underpayment Schemes
The IRS has identified many issues that commonly result in tax underpayments. Some of these issues constitute tax fraud and may result in criminal prosecution, but more often, the IRS pursues tax underpayment cases civilly. Due to the highly complicated, technical nature of many tax schemes, it is often difficult for the IRS to prove willful intent in association with underpaid taxes.
Some of the most common forms of tax underpayment include:
- Upfront fees, milestone payments, and royalties in the biotech and pharmaceutical industries
- Transfer of intangibles off-shore/cost sharing
- §936 exit strategies
- Fuel excise tax underpayments
- Employment tax underpayments
- Offshore Tax underpayments
- Super completed contract method
- Enhanced oil recovery credit
If you have knowledge of an individual or corporation who has committed any of these schemes to underreport their taxable earnings, you should consider reporting them through the Tax Whistleblower Program.
Foreign Earnings Repatriation
Many individuals and corporations engage in off-shore activity as part of their regular business dealings. Some foreign jurisdictions offer financial secrecy laws which make it easy to hide the original source of assets, providing a tax haven for businesses looking to avoid paying taxes. Though off-shore activity is often conducted legitimately, off-shore havens can be used to avoid paying taxes thereby resulting in tax underpayments. When these tax havens are used to repatriate earnings back into the United States without paying income tax on these funds, in most instances off-shore account tax fraud has taken place. In those instances in which the off-shore activity does not rise to the level of fraud, there can still be a reward obtained if the conduct resulted in an underpayment to the IRS.
Common off-shore tax haven abuses include:
- Undisclosed third party transactions
- Shifting or siphoning pre-tax income off-shore
- Lending money to a parent company by off-shore subsidiaries
- Relocating intellectual property off-shore and then charging a U.S. division royalty payment
- Structuring of financial instruments that enable profits to either be moved overseas or onto another accounting category where they will not be taxed
A Commitment to Fighting Fraud against the Government
The IRS tax whistleblower attorneys at Kenney & McCafferty have dedicated their careers to fighting fraud against the government. We recognize the importance of helping the IRS recover tax dollars that will ultimately be used to fund important government programs.
If you have knowledge of large scale tax underpayment, please contact our tax whistleblower attorneys today. Kenney & McCafferty will consult with you about your case, without obligation. All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.
