Deciding to become a whistleblower either under the qui tam provisions of federal or state false claims acts or under the IRS Whistleblower Reward statute is not a decision to be taken lightly. While reporting fraud on the government can be personally rewarding from a moral, ethical and financial standpoint, it can also be very difficult in terms of the stress and anxiety associated with standing up to powerful corporate interests. Quite simply, deciding to become a whistleblower can be a life-altering experience. As such, it is important that the whistleblower consult with attorneys who are experienced in whistleblower litigation in order to assure that all of your questions and concerns are identified and addressed before making a decision to become a whistleblower.
One of the most rewarding aspects of becoming a whistleblower is standing in the shoes of the government while pursuing a recovery for taxpayers as a result of damaging corporate fraud. Whistleblowers are courageous individuals who recognize a wrong and are willing to take risks in order to see that the wrongs are corrected – it is a matter of integrity. Taking such an extraordinary step can be extremely gratifying, particularly when the whistleblower’s claims are corroborated and result in a recovery.
Of course, personal gratification isn’t the only benefit of becoming a whistleblower. For example, in qui tam cases under the federal False Claims Act, Congress decided to give whistleblowers (or “relators”) a share of the recoveries that result from their lawsuits to encourage people to step forward and take the risks involved in reporting fraud. The amount that the relator can receive most often ranges from 15% to 30%, depending on whether the government intervenes in the case and the extent to which the relator substantially contributes to the prosecution of the action. The Department of Justice contends that the average relator share is approximately 17% depending upon the factors referred to above. Rewards for claims brought under state and local False Claims Acts mirror those under the federal law.
Tax Fraud whistleblowers are likewise entitled to rewards for recoveries by the Internal Revenue Service (“IRS”) resulting from the whistleblower’s efforts. The Tax Relief and Health Care Act of 2006 specifies that rewards for informants be at least 15% and as much as 30% of the total taxes, penalties and interest collected by the IRS. The final determination is dependent upon the whistleblower's actual contribution to the case. Under certain circumstances, the IRS does have the power to award lesser amounts. Such circumstances could occur when the whistleblower was not the original source of information in a tax fraud investigation.
To qualify under the new statue providing the higher percentages, an individual must report a tax violation that results in the recovery of back taxes, penalties and interest totaling at least $2 million. In cases where the taxpayer is an individual, their taxable income must exceed $200,000. If the amount due does not meet the above threshold the informant may still be entitled to a reward, however the amount of the reward is not covered under the new statute. Regardless of the amount of the tax fraud, the IRS does have some discretion in limiting or denying cash rewards. If this happens, an appeal can be made to the U.S. Tax Court.
Filing a qui tam or whistleblower suit is not for the light-hearted. In addition to the stress and anxiety associated with reporting a fraud, qui tam cases are filed under court seal which prohibits the whistleblower from disclosing the existence of the lawsuit to anyone. The purpose of the seal is to allow the government to covertly investigate the allegations made in the whistleblower’s case. Accordingly, until the government’s investigation is complete, the relator is prevented from discussing the case with anyone, including family, friends or co-workers. This can be very difficult and may lead to feelings of isolation. Conversely, once the government’s investigation is complete, at some point thereafter the qui tam case will be unsealed and the relator’s identity will become a matter of public record which, of course, could have an adverse effect on the whistleblower’s employment, social activities, and other aspects of his or her life. In addition, while becoming a whistleblower can certainly be rewarding both personally and financially, qui tam and tax fraud suits often take years to resolve and the results cannot be predicted all of which can be incredibly taxing on the whistleblower.