Most Americans are familiar with the Internal Revenue Service, or the IRS. During tax season, the IRS is the entity that reviews everyone’s federal income tax returns and issues refunds and credits or collects payment. They are responsible for all federal tax management and the enforcement of the Internal Revenue Code set by Congress.
Tax fraud is a widespread problem in the United States, especially around tax season. In order to curb the issue, the IRS set up its own whistleblower office for people to let them know about occurrences of tax fraud. The IRS whistleblower lawyers of Tycko & Zavareei LLP can help individuals in Michigan and elsewhere understand what goes into blowing the whistle on tax fraud.
A Brief History of the IRS
The modern-day IRS is the result of over a century and a half of changing tax laws. As a newly independent nation, the United States did not have a tax system set up in its infancy.
The first federal tax system was established in 1862 under the Department of Treasury, and instead of having an entire department, a single Commissioner of Revenue was hired. Personal income tax, however, was not levied until 1913 in the 16th amendment of the Constitution, to be enforced by what was known at the time as the Bureau of Internal Revenue. Under President Harry Truman, the agency was assigned the name Internal Revenue Service in 1953.
What is Tax Fraud?
When you think of tax fraud, you might think of Al Capone. After all, Capone’s case is one of the most famous instances of tax evasion in American history. However, tax fraud is a crime that can be committed by individuals as well as organizations.
The IRS defines tax fraud as “an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing.” They also specify that in order to qualify as tax fraud, there must be fraudulent intent and a tax “due and owing,” which means a debt that is yet to be paid.
Is there a Difference between Tax Fraud and Tax Evasion?
Tax evasion is a type of tax fraud. Tax evasion is considered a serious type of fraud, and holding someone accountable for this type of tax fraud requires the government to prove willful evasion beyond a reasonable doubt. Tax fraud, on the other hand, requires “clear and convincing evidence” rather than evidence beyond a reasonable doubt.
Impact of Tax Fraud
On average, tax fraud costs the US government over $450 billion annually, which averages over $1.2 billion being lost per day. In 2021, this number was even higher – IRS officials estimated a loss of $1 trillion.
The government uses tax funds for defense programs, infrastructure maintenance, social programs, healthcare, and more. The billions of dollars lost to fraud could be used to serve citizens and ensure that everyone’s needs are met. As such, tax fraud takes something away from everyone, regardless of whether they were aware of the loss.
Identifying Tax Fraud
In order to spot and identify tax fraud, you must know how it works. In some Michigan IRS whistleblower cases, tax fraud is as simple as neglecting to file a necessary tax return. However, there are several ways that people and corporations in Michigan commit tax fraud, including the following:
Underreporting
Underreporting is one of the most common tax evasion methods, and there are two ways to do it:
- Reporting a lower income than what was actually earned during the year
- Falsely claiming deductions, exemptions, or credits when filing taxes
Either way, the idea is to make it look like someone has less taxable income than they really do in order to lower the taxes they will be required to pay.
Offshore Loopholes and Tax Havens
Corporations attempting to circumvent tax laws may do so by putting their money in tax havens, which are places that have relaxed tax laws, very low taxes, or no taxes, and offer foreigners access to those rates. Tax havens may be entire countries, territories, or cities. Corporations or individuals may hide money in these tax havens by setting up a presence in them and moving money over there. This presence may be as small as a PO box.
While offshore banking alone is not illegal, it must be disclosed. When offshore bank accounts and the money in them are hidden and therefore not taxed by the US or Michigan state government, this constitutes tax fraud.
Reach out to a Michigan IRS Whistleblower Attorney Today
The IRS established a specific office to address whistleblower disclosures about tax fraud in 2007. When a whistleblower comes forward with information about fraud they have witnessed in the Great Lakes State, they must bring the evidence to a qualified Michigan IRS whistleblower lawyer. The False Claims Act requires whistleblowers to retain a lawyer, who will take their disclosure, review the evidence, and decide whether the case is strong enough to file a qui tam lawsuit on behalf of the United States or Michigan state government against the individual or business entity in question. If the lawsuit is successful and the government is able to recover a financial settlement, the whistleblower who brought the information forward may be entitled to between 15 and 30 percent of that settlement.
Tycko & Zavareei LLP has been working with whistleblowers across the US for years, taking down fraud and fighting for maximum compensation for brave citizens who bring fraud to light. Contact us today to set up a free and confidential case evaluation.
