State False Claims

The IRS Whistleblower Act allows individuals to file qui tam lawsuits against persons that do not pay their federal taxes fully, or who violate tax law. A qui tam lawsuit, better known by most people as a "whistleblower" lawsuit, originates from the Latin phrase "qui tam pro domino rege quam pro se ipso in hac parte sequitur." This phrase means "he that sues for the king sues for himself," and is a reference to the fact that the person filing a qui tam suit is entitled to a portion of the damages awarded in these cases.

In the case of the IRS Whistleblower Act, the plaintiff may earn from 15 to 30 percent of the total damages awarded in a case. These new amounts actually represent an increase from the way the law was originally written, where the plaintiff could only be awarded 10 to 15 percent of the damages. These damages are not just an incentive to report underpayment of taxes, they also serve to compensate the plaintiff for physical and mental damages incurred by the defendant's activities, as well as protect them from retaliation for their whistleblowing. The importance of this law is that other whistleblower laws, like the False Claims Act, do not apply to matters of the Internal Revenue Service, so until this law was passed, there was no easy way for citizens to press charges if they knew of tax-related illegal activities that were being conducted.

Although similar on the surface, the IRS Whistleblower Act and the False Claims Act are quite different in the way that they handle allegations. For cases made under the False Claims Act, allegations are presented in a lawsuit in federal court, and the Attorney General or a local United States Attorney serves them. Whistleblower claims made under the IRS Whistleblower Act are handled by the IRS Whistleblower Office, and a Tax Court is responsible for handling disputes that may arise from the case.

The IRS Whistleblower Act provides that claims against individuals must meet certain conditions. They include that an individual taxpayer must have had a gross income of over $200,000 for the given year in which the alleged offense occurred, and the amount of the tax, interest, penalties, and other values in dispute must exceed $2 million. Under the False Claims Act, there are no monetary conditions that the fraud must meet in order to be prosecuted.