Tax Whistleblowers Are Entitled to Award When There Are Civil Forfeitures and Criminal Fines, Rules Court
The U.S. Tax Court has ruled that tax whistleblowers are entitled to a reward when criminal fines and penalties are collected. The ruling in this particular case found that two whistleblowers had a right to receive a $17.7M reward in the wake of the $54M in civil forfeitures and criminal fines that resulted.
The Internal Revenue Service had argued that the fines and forfeitures were not under the realm of the IRS Whistleblower Program. The IRS and the U.S. Treasury Department had been seeking to approve a rule that would not award whistleblowers if the violation they reported ends up being criminally prosecuted. The rule would allow tax whistleblowers to be reward only for resulting administrative or civil penalties.
The IRS had previously decided that “collected proceeds” in a tax whistleblower case was only limited to taxes paid under Title 26. This decreased the incentive for whistleblowers to come forward and inform on criminal tax activities and illegal offshore accounts. Now, however, the Tax Court has said that “collected proceeds” in a tax whistleblower case includes not only Title 26 taxes but also civil forfeitures and criminal penalties.
In other whistleblower news, the U.S. Securities and Exchange Commission has imposed a $340K penalty against Health Net Inc. for using severance agreements that obligated outgoing employees to waive their right to receive monetary rewards under the regulator’s whistleblower program. The SEC said that the requirement is illegal and violates federal securities laws.