Do I need a Whistleblower attorney?

Under certain circumstances, the IRS and SEC/CFTC whistleblower programs allow whistleblowers to proceed without an attorney. However, beacuse there are important considerations when deciding how to proceed, it is advisable to contact an experienced whistleblower attorney.

Corporate Tax Fraud

The civil and criminal penalties for corporate tax fraud can be severe. Civil penalties assessed can equal 75% of the total value of taxes underpaid as a result of the fraud. Civil penalties can also be assessed for instances of underpayment that do not constitute fraud.

The burden of proof for criminal tax fraud is much stricter. The IRS must prove their case beyond a reasonable doubt. A corporation is generally held liable in a criminal case when the fraudulent acts are committed in an official capacity, are to the benefit of the corporation, and are authorized by the corporation.

Criminal penalties may be imposed in addition to civil penalties. The criminal penalties vary based on the amount of tax at issue. Under federal sentencing guidelines, the higher the amount of tax evaded, the greater the period of incarceration.

Proving Corporate Tax Fraud

Corporate tax fraud can be very difficult to prove. The Omnibus Budget Reconciliation Act (1989) requires the IRS to clearly prove guilt on the part of a corporation when tax fraud is carried out by its employees. The IRS must present convincing evidence that:

  • Less taxes than legally owed were paid
  • The tax evader demonstrated willful intent to withhold taxes
  • The act committed by the tax evader was specifically intended to achieve nonpayment of taxes

Mere suspicion of corporate tax fraud will not be sufficient to secure a conviction, nor will a preponderance of the evidence. The courts will generally consider the following evidence as proof of corporate tax fraud:

  • Repeated substantial underpayment
  • Lack of records
  • Extensive use of cash transactions
  • Destruction or alteration of financial records
  • Failure to turn over to an accountant all information necessary to prepare accurate income tax returns
  • Guilty plea

Fraudulent Actions on the Part of an Individual

Under special circumstances, the actions of one person from the corporation may result in the entire corporation being held liable for tax fraud if:

  • The individual exerts enough control over the operations of the corporation for it to be considered the individual’s “alter ego” (a significant percentage of stock ownership or control of the corporate entity must exist to establish the corporation as the alter ego of an individual)
  • The individual is acting on behalf of the corporation, and the corporation benefits from the fraudulent acts

Since there are only rare circumstances where a corporation will be deemed the alter ego of an individual corporate agent, the majority of corporate tax fraud cases involve the second criteria listed above. However, in many cases, a whole will not be held accountable for the actions of an individual corporate agent. If the corporation was the innocent victim of unauthorized activities by a shareholder or employee and these actions went against the interests of the corporation, it will generally not be found guilty of tax fraud.

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