Taxpayer First Act - A Powerful Remedy for Victims of Employer Retaliation
In the United States, companies are always looking for ways to save money on taxes. There are many legitimate techniques for doing so. However, many business obtain an unfair advantage in the marketplace by cheating on their taxes. "Tax evasion – the act of not paying taxes that are owed – is illegal and is an underappreciated problem in the United States," according to the Brookings Institution. This particular article states that one out of every six dollars owed in federal taxes is not paid.
In 2019, Congress passed the Taxpayer First Act (TFA) to address noncompliance with United States tax laws. In the TFA, Congress recognized that company insiders are often in the best position to detect and report violations. TFA therefore provides a financial incentive to employees who report tax crimes to the government - "whistleblower bounty" law. Here is a link to the IRS' 2020 report about its whistleblower reward program.
The TFA also provides robust protections to employees who report to their employers or government agencies suspected underpayment of taxes or violations of federal tax laws. Specifically, 26 U.S.C. § 7623(d)(1) provides:
(1) ANTI-RETALIATION WHISTLEBLOWER PROTECTION FOR EMPLOYEES. No employer, or any officer, employee, contractor, subcontractor, or agent of such employer, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee's duties) in reprisal for 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.
Thus, the TFA protects employees from reporting suspected underpayments or violations within the company, as well as reports made to outside government agencies. As with other significant whistlelbower protection laws, Congress has directed OSHA to investigate TFA reprisal claims. 26 U.S.C. § 7623(d)(2). In litigation of TFA whistleblower retaliation claims, whistleblowers enjoy the favorable burden-shifting regime of the AIR 21 law, which only requires employees to prove that their protected activity was a "contributing factor" in the adverse event (termination, suspension, etc.). 26 U.S.C. § 7623(d)(2)(B)(i) (incorporating AIR 21 procedures into TFA); 49 U.S.C. §42121(b)(2)(B)(i) (describing employee's prima facie case).
After such a demonstration is made, the employer must prove prove by clear and convincing evidence that the adverse action would have happened anyway, irrespective of the employee's protected activity. 49 U.S.C. §42121(b)(2)(B)(ii). This is a difficult standard for employers to meet. It reflects the significance that Congress attached to protecting individuals who take a stand against federal tax fraud.
In TFA retaliation lawsuits, the prevailing employee is entitled to recover double back pay, the value of lost benefits, reinstatement (or front pay), expert witness fees, attorneys fees, and litigation costs. 26 U.S.C. § 7623(d)(3).
PLEASE NOTE: there is a 180 day statute of limitations to report an unlawful reprisal to OSHA. 26 U.S.C. § 7623(d)(2)(B)(iv).