While the Internal Revenue Service has had an informant program for years, only recently have legislation and administrative developments put significant teeth into it. Most notable are the mandatory monetary awards now required for significant information equal to between 10 percent and 30 percent of the tax, interest and penalties collected.“The new rules have the potential to bring billions of dollars into the Treasury,” predicted Sen. Charles Grassley, R-Iowa, on the passage of the enabling provision within the Tax Relief and Health Care Act of 2006. At least several law firms that specialize in Federal Claims Act litigation are now branching out into whistleblower representation, reporting several billion dollars in suits already pending.

While the danger of strategies going awry has always accompanied tax practice, the prospect of being second-guessed unquestionably increases when people have a financial incentive to call those strategies to task. It’s important, therefore, for business tax planners to know the whistleblower rules, where they are headed and, most important, how to develop procedures that keep problems contained within the organization.

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