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Taxpayers First Act Increases Rights and Remedies for Tax Fraud Whistleblowers

In July 2019, the Taxpayer First Act ("TFA") was signed into law. It is intended to redesign the Internal Revenue Service to promote consistent application of federal tax laws and enhance the public's confidence in the IRS. Modeled after the whistleblower protection provisions of the False Claims Act and Sarbanes-Oxley Act, the TFA extends anti-retaliation protections to insiders who report employers' suspected tax fraud and non-compliance.

Improving Protection from Retaliation

Although the IRS Whistleblower Program created certain rights (such as an assurance not to reveal a whistleblower's identity) when it was implemented in 2006, the TFA further shields employees and other individuals from retaliation when they step forward and report tax frauds.

The Act gives a whistleblower who reports an employer's tax fraud the right to pursue a civil action if the employer takes adverse action against the whistleblower in retaliation. The suspected wrongdoing can include "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."

The definition of employer encompasses officers, other employees, contractors, subcontractors, or agents of the employer. Adverse action includes termination, demotion, suspension, threats, harassment, or other forms of discrimination, and may also include disclosing the whistleblower's identity.

A claim can be brought if the employer retaliates against the whistleblower for providing information or assisting in an investigation by the IRS or other federal agencies, or for testifying or participating in a legal proceeding brought by the IRS.

Remedies for IRS Whistleblowers

An employee subjected to an employer's retaliation may seek relief by filing a complaint with the Treasury Department, but if the agency does not issue a final decision within 180 days, the employee may file suit in a federal district court with the right to try the case before a jury.

If the employee prevails, they would be entitled to remedies that include:

  • Job reinstatement with the same seniority that existed before the employer's retaliation.
  • Damages equal to twice the amount of any back pay.
  • All lost benefits, with interest.
  • Special damages such as emotional distress and harm to the employee's reputation.
  • Litigation costs, attorney fees, expert witness fees, and other special damages incurred as a result of the retaliation.

No Mandatory Arbitration of Whistleblower Retaliation Claims

Employers have increasingly used arbitration clauses in employment agreements/at the onset of employment to force workers to confidentially resolve workplace disputes out of court and often to the employees' detriment. Anticipating that an employer might compel a whistleblower to submit to arbitration, the TFA makes such provisions unenforceable.

Under the act, a whistleblower's rights and remedies "may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement." The employee may seek relief through the administrative and district court procedure outlined above.

IRS Communication During a Whistleblower Investigation

Another significant improvement is a TFA provision requiring the Treasury Department to update a whistleblower about the commencement and progress of an investigation.

When an employee reports an employer's suspected wrongdoing and the Treasury Department refers the matter for an audit or examination, the agency must notify the whistleblower within 60 days after making the referral. If the employer incurs a tax liability associated with the reported wrongdoing, the Treasury Department must notify the whistleblower within 60 days after the employer pays off the liability.

Whistleblower Protection Attorneys

The attorneys in Outten & Golden's Whistleblower Retaliation Practice Group represent employees at every step in the whistleblower reporting process, from reporting wrongdoing to protecting them from reprisal and retaliation, to filing an administrative complaint or lawsuit seeking relief and compensation.

We view the Taxpayer First Act as a substantial advancement in employee rights. The law incentivizes employees to expose tax fraud and evasion in their workplaces, with greater protection from employer retaliation.

If you suspect your employer has violated state or federal laws and wish to step forward, or if your employer has taken adverse action against you for reporting illegal activities, please contact us today.

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