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The Tax Prophet Newsletter   Issue # 62 June 2008

REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S Action Guides


In This Issue:
Introduction
Whistleblower Statute
Requirements
Instant Millionaire
Attorney's Fees
Tax Court
Conclusion


Wheel of Fortune
IRS Style


Introduction

A press release from the Ferraro Law Firm trumpets that it could earn a whopping $1.32 billion in rewards from IRS! How?

The firm has filed a number of "whistleblower claims" based on non-public information it has obtained involving the alleged non-payment of $4.4 billion in taxes, penalties and interest and IRS is willing to pay huge sums for that information.

Whistleblower Statute

Congress wanted IRS to receive high-quality inside information regarding large-dollar tax cheats, so it significantly increased monetary incentives for whistleblowers. IRC Sec. 7623 (enacted in 2006) allows awards of not less than 15% or more than 30% of the amount recovered by IRS, based on relevant information supplied by individuals.


Requirements

The information needs to implicate an individual whose gross income exceeds $ 200,000 for the relevant year; also, the tax, penalties, interest in dispute must top $2 million.

Whistleblower claims are submitted under penalty of perjury on Form 211 (Application for Award for Original Information). In general, the whistleblower's identity is kept confidential.


Instant Millionaire

Surprisingly, the size of an award or cumulative payments to a whistleblower have no limits. Thus, if an individual identifies a "big-fish" tax cheat and provides IRS with sufficient ammunition to proceed with an administrative or judicial action, he or she could collect millions.

IRS Whistleblower Office makes the final determination whether an award will be paid and the amount thereof. Awards are determined in proportion to the value of information with respect to proceeds collected, including penalties and interest.


Attorney's Fees

Any awards are fully taxable and the whistleblower receives a Form 1099. The statute specifically permits contingent fee arrangements with attorneys and allows a deduction for attorneys' fees and costs.


Tax Court

The Tax Court has jurisdiction to decide disputes between whistleblowers and IRS. The Court will allow a full hearing, rather than just a review of the administrative record, a clear victory for whistleblowers.


Conclusion

If IRS enthusiastically embraces this new statute, individuals with inside information regarding tax cheats could become extremely rich. At a minimum, the level of paranoia for those engaging in abusive tax shelters or other devious means to escape taxes, should rise a couple of notches.



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All contents copyright 2008 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.