Estate Tax Fraud - Prime Area for Whistleblowers

Some commentators are noting that the recent prosecution of an individual for filing a false federal estate tax return may signal the Service's new "get tough" policy on estate and gift tax fraud. Prior to the Whistleblower Rewards Act of 2006, prosecutions in the area have been lean.

The recent criminal case involved a woman who was the executrix of her mother's estate. She admitted that she intentionally omitted assets worth $400,000 from the Form 706, the federal estate tax return. The executrix faces possible imprisonment, supervised release, and large fines and penalties.

Previously it was thought that the Service might be trying to adhere to the Bush administration's wishes that estate taxes simply disappear. While Bush supported the elimination of the estate tax entirely, administrative proposals met with little support. Some feel that the administration then decided to gut the ranks of IRS employees to de facto eliminate enforcement of estate tax collection. In March 2008, outraged IRS employees sounded off about the Agency's decision to terminate 157 of its 345 estate tax lawyers. The IRS itself had noted that 85 percent of the large taxable gifts it audited were fraudulent and intended to cheat the public. For every hour that the Service's estate tax lawyers work, they uncover an average of $2,200 in taxes that Americans worth $1 million or more illegally withheld from the government. The Service's estate tax attorneys uncover about $1.4 billion in lost tax revenues per year. While the Service appears to be recruiting again, it's unclear whether those lost, and profitable, estate attorneys will be restored to the IRS rolls.

Estate and gift tax claims present an area of opportunity for whistleblowers. With a decrease in IRS estate tax attorneys, the Service will need to increase its reliance on informants to point out fraudulently reported Form 706 claims. Old tax returns and appraisals can help. The more credible the claim, the more likely it will be that the Service will decide to devote resources to the claim's investigation.

If you believe you have a viable estate or gift tax evasion claim, call KEMY for a free assessment today.