Are whistleblowers protected against retaliation for disclosing tax fraud?
Yes, the Taxpayer First Act (TFA), which was signed into law on July 1, 2019, protects tax whistleblowers against retaliation, including whistleblowers that have provided information to the IRS through the IRS whistleblower reward program. The purpose of the TFA whistleblower protection law is to encourage whistleblowers with high-value inside information about tax noncompliance to come forward.
Who is protected against whistleblower retaliation under the TFA whistleblower protection law?
Section 1405(b) of the TFA prohibits any “employer, officer, employee, contractor, subcontractor, or agent” of an employer from retaliating against a whistleblower.
What whistleblowing is protected under the Taxpayer First Act?
The TFA protects a broad range of disclosures about potential violations of IRS rules or tax fraud. It protects not only disclosures to the IRS, but also internal disclosures, including an employee’s disclosure to a supervisor or “any other person working for the employer who has the authority to investigate, discover, or terminate misconduct.” In particular, 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, discover, or terminate misconduct, or
(B) to testify, participate in, or otherwise assist in any administrative or judicial action taken by the Internal Revenue Service relating to an alleged underpayment of tax or any violation of the internal revenue laws or any provision of Federal law relating to tax fraud.
Does the tax fraud whistleblower law protect only disclosures of actual tax fraud?
TFA whistleblower protection is not limited to disclosures of actual tax fraud. Instead, DOL and federal court precedent construing similar whistleblower protection laws protect a whistleblower’s reasonable but mistaken belief that the conduct complained of constituted a violation of relevant law. The whistleblower, however, must demonstrate that they had an objectively reasonable belief, which is assessed based on the knowledge available to a reasonable person in the circumstances with the employee’s training and experience.
What type of retaliation is prohibited against tax fraud whistleblowers?
The TFA prohibits a wide range of retaliatory acts, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment.
The catch-all category of retaliation (“in any other manner” discriminating against a whistleblower) includes non-tangible employment actions, such as “outing” a whistleblower in a manner that forces the whistleblower to suffer alienation and isolation from work colleagues. See Menendez v. Halliburton, Inc., ARB Nos. 09-002, -003, ALJ No. 2007- SOX- 5 (ARB Sept 13, 2011). An employment action can constitute actionable retaliation if it “would deter a reasonable employee from engaging in protected activity.” Id.at 20.
What is the burden of proof for a tax fraud whistleblower in a TFA whistleblower retaliation case?
Section 1405(b) of the TFA applies the causation standard and burden-shifting framework set forth in the AIR21 Whistleblower Protection Law. Under that framework, the whistleblower prevails by proving that their protected whistleblowing was a contributing factor in the unfavorable personnel action taken by their employer. The DOL ARB has emphasized that the standard is low and “broad and forgiving”; protected activity need only play some role, and even an “[in]significant” or “[in]substantial” role suffices. Palmer v. Canadian Nat’l R.R., ARB No. 16-035, ALJ No. 2014-FRS-154, at 53 (ARB Sept. 30, 2016)(emphasis in original). Examples of circumstantial evidence that can establish “contributing factor” causation include:
- temporal proximity;
- the falsity of an employer’s explanation for the adverse action taken;
- inconsistent application of an employer’s policies;
- an employer’s shifting explanations for its actions;
- animus or antagonism toward the whistleblower’s protected activity; and
- a change in the employer’s attitude toward the whistleblower after they engage in protected activity.
Once the whistleblower proves that their protected conduct was a contributing factor in the adverse action, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same adverse action in the absence of the whistleblower engaging in protected conduct.
What remedies or damages can a whistleblower recover in a tax fraud whistleblower retaliation case?
A prevailing TFA whistleblower is entitled to make-whole relief, which includes:
- double back pay with interest;
- uncapped “special damages,” which courts have construed as encompassing damages for emotional distress and reputational harm; and
- attorney fees, litigation costs, and expert witness fees.
These remedies are substantially similar to the relief authorized in the anti-retaliation provision of the False Claims Act. Neither statute authorizes an award of punitive damages, but double back pay and uncapped special damages can be a potent remedy.
What is the deadline or statute of limitations to file a tax fraud TFA whistleblower retaliation case?
The statute of limitations for a TFA whistleblower retaliation claim is 180 days from the date that the employee is first informed of the adverse action.
Where are tax fraud whistleblower retaliation cases adjudicated?
The claim must be filed initially with OSHA, which will investigate the claim. If OSHA determines that there is reasonable cause to believe that a violation occurred, OSHA can order relief, including reinstatement of the whistleblower.
Either party can appeal OSHA’s determination by requesting a de novo hearing before the DOL Office of Administrative Law Judge (OALJ), but an employer’s objection to an order of preliminary relief will not stay the order of reinstatement. Once a TFA retaliation claim has been pending before the DOL for more than 180 days, the whistleblower can remove the claim to federal court and try the case before a jury.
If my employer requires arbitration of employment disputes, can I file a TFA whistleblower claim with the Department of Labor?
Yes. TFA retaliation claims are exempt from mandatory arbitration.
Can a whistleblower qualify for an award for reporting tax fraud to the IRS?
Under 26 USC § 7623(b), the IRS is required to issue an award to tax whistleblowers of 15% to 30% of proceeds collected from tax fraud or tax underpayments if:
- the whistleblower provides a tip that the IRS decides to take action on (a whistleblower cannot force the IRS to act on a tip);
- the amount in dispute (the tax underpayment, including interest and penalties) exceeds $2 million (if the taxpayer is an individual, his or her gross income must exceed $200,000 for at least one of the tax years in question); and
- the IRS collects tax underpayments resulting from the action (including any related actions).
During fiscal year 2018, the IRS awarded $312M to tax fraud whistleblowers, and whistleblowers enabled the IRS to recover $1,441,255,859.
Click here to learn more about the IRS Tax Fraud Whistleblower Reward Program. The whistleblower lawyers at Zuckerman Law represent whistleblowers before the IRS, and the Director of our Whistleblower Rewards Practice is also a Certified Public Accountant and Certified Fraud Examiner. To discuss potential representation in a tax fraud whistleblower case, click here or call us at (202) 930-5901.
Does the Sarbanes-Oxley Act protect whistleblowing about tax fraud?
Some disclosures about corporate tax fraud can also constitute mail fraud, wire fraud, or securities fraud, and could therefore also be protected under the Sarbanes-Oxley whistleblower protection law. For more information about the SOX whistleblower law, see our guide titled Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.whistleblower_lawyers_012017_infographic