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New Relief for Tax Fraud Whistleblowers

New Tax Relief For Tax Fraud Whistleblowers

 

Sometimes employees get gifts from the most surprising sources.  Here, it is President Trump and Congress. On July 1, 2019, President Trump signed the Taxpayer First Act into law. With this, Congress added protection for employees who blow the whistle on tax fraud similar to the whistleblower protections in the Sarbanes-Oxley Act and False Claims Act.

TFA Section 1405(b) creates a private cause of action for people who report violations of IRS rules or tax fraud and suffer retaliation. This statute protects a broad array of disclosures. And it protects not just disclosures to the IRS but also internal disclosures of potential violations of IRS rules or tax fraud.

Under the statute, “protected conduct” includes “any lawful act done by the employee—(A) to provide information, cause information to be provided, or otherwise assist in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information or assistance is provided to the Internal Revenue Service, the Secretary of the Treasury, the Treasury Inspector General for Tax Administration, the Comptroller General of the United States, the Department of Justice, the United States Congress, a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discovery or terminate misconduct . . . .”

An employee who engages in this conduct is protected from a wide range of retaliatory acts including discharge, demotion, suspension, threats, harassment, or any other acts that would discriminate against the whistleblower in the terms and conditions of employment.  It also protects the whistleblower from non-tangible employment actions, such as ostracism or hostility from co-workers.

To pursue a claim under this statute, the whistleblower must establish that the protected conduct was a contributing factor in the adverse action taken by the employer. As in all retaliation cases, the whistleblower can establish causation by using direct or circumstantial evidence. An employee pursuing this claim can seek “make whole relief” such as reinstatement, double back pay with interest, special damages (which can include emotional distress and damages to reputation), attorney’s fees, and costs. But the statute of limitations for filing this claim is short.  It must be filed with OSHA within 180 days of the adverse action.

This law became effective on July 1, 2019. It fills a gaping hole in the protection that had been available to whistleblowers who reported tax fraud or the violation of IRS regulations. Before this law was enacted, a person could report tax fraud and try to recover under the IRS Bounty program—but had no private cause of action available for retaliation. Surprisingly, this game-changing law has gotten little publicity and many employers may not yet know of the broad protections it grants. As a lawyer representing employees, however, we won’t look a gift horse in the mouth.