Tag Archives: federal taxes

What Public Contractors Should Know About the False Claims Act & Federal Taxes: Qui Tam?

By Coleman Jackson, Attorney & Counselor at Law & Certified Public Accountant
March 03, 2022

What Public Contractors Should Know About the False Claims Act & Federal Taxes: Qui TamThe Latin term Qui Tam in plain English simply means a legal process by which an individual sues or prosecutes in the name of the government and shares in the proceeds of any successful litigation or settlement.  The term individual could be an entity, a state, or a local governmental agency in the case of the federal government, or a natural individual.  There are qui tam rights or proscriptions in numerous federal and state statutes.  Texas and many other States for example have a False Claims Act.  Also, there is a qui tam provision in the Internal Revenue Code proscribing that eligible individuals, as defined in the Code, is eligible to file a claim for award and to receive an award under Internal Revenue Code Section 7623 and U.S. Treasury Regulations Sections 301.7623-1 through 301.7623-4 (The Whistleblower Tax Claims).  I am not going to talk about qui tam claims as it relates to Texas law or any other State’s law in this blog either.  Watch our blogs because if our audience expresses an interest; we could, in the future, write a blog or do a podcast or video on qui tams in Texas.  But for, a brief overview of federal taxation of qui tam awards in this blog; this blog is not about taxation, but it’s all about the qui tam proscriptions found in the federal False Claim Act, which can be found at 31 U.S.C. Sections 3729 through 3733 as expanded in 1986 and again in 2009.  My focus with regards to qui tam in federal law is going to be limited even still because I’m talking about qui tam in public contracting only.  This blog by no means intends to be exhaustive on this complex and arcane subject, nor do I make any attempt to review all of the statute where qui tam proscriptions can be found.

Government contractor, be aware, the King has many eyes.  Let’s look into qui tam and public contracting.

The False Claims Act and Public Contractor Code of Business Ethics and Conduct

The False Claims Act and Public Contractor Code of Business Ethics and Conduct:

The False Claims Act permits a private person, known as a relator, to bring a qui tam civil action “in the name of the [Federal] Government,” 31 U.S.C. §3730(b), against “any person” who “knowingly presents… a false or fraudulent claim for payment” to the Government or to certain third parties acting on the Government’s behalf, §§3729(a), (b)(2).  The Government may choose to intervene in the action.  See §§3730(b)(2), (4).  See Cochise Consultancy, Inc., ET AL. v. United States EX REL. Hunt (139 S.Ct. 1507(2019)).

(1)  Federal Acquisition Regulation (FAR) Part 52.203-13 Code of business ethics and conduct prescribes that (1) “within 30 days after contract award, unless the Contracting Officer establishes a longer time period, the Contractor shall –

  • Have a written code of business ethics and conduct;
  • Make a copy of the code available to each employee engaged in performance of the contract;

(2) The Contractor shall –

  • Exercise due diligence to prevent and detect criminal conduct; and
  • Otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.

(3) (i) The Contractor shall timely disclose, in writing, to the agency Office of Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract there under, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed –

  • A violation of Federal criminal Law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code, or
  • A violation of the civil False Claims Act (31 U.S.C. 3729 –3733).

Government Contractor beware, the King has many eyes.  The Federal Acquisition Regulations (FAR) Part 52.203-14 requires that the Contractor display fraud hotline posters in plain sight at the contract work sites.  Potential whistleblowers from company janitors to company leaders and from casual visitors to subcontractors are all around the work site by day and by night.  Anyone with credible evidence may initiate a civil lawsuit.  The relator receives a share of any proceeds from the action—generally 15 to 25 percent if the Government intervenes, and 25 to 30 percent if it does not—plus attorney’s fees and costs.  See §§4730(d)(1)- (2).  See also Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 769 – 770 (2000).

What should public contractors and relators know about Qui Tam Awards and Taxes?What should public contractors and relators know about Qui Tam Awards and Taxes? 

Both relator and contractor must realize that False Claims Act recoveries tallies in the billions of dollars in the United States.  Qui Tam federal tax fraud claims, on the other hand,may not be as costly or as numerous as claims under the FCA.  Note that federal tax fraud claims are expressly exempted from the False Claims Act.  See § 3729(d) of the FCAAs I mentioned at the top of this blog, the Internal Revenue Code, (IRC) contains special provisions and methods for whistleblower claims involving administration of the United States federal tax laws. Underpaying of tax and tax fraud awards to eligible whistleblowers are filed and handled pursuant to Internal Revenue Code §7623. Awards to eligible relators can range from 15 percent to 30 percent of the proceeds collected as the result of the judgment or settlement of the claim filed in the IRS Whistleblower Office.  Arguably awards under the False Claims Act and Internal Revenue Code are taxable income to the relator or whistleblower and are none deductible losses to the wayward contractor or other violator; few exceptions might apply for certain types of expenses like attorney fees and other investigatory costs and trial costs paid in prosecuting the qui tam matter. See Reg. Sec. 1.61-2(a) __ qui tam payment is the equivalent of a reward or other income to the relator; and qui tam payments paid by a trade or business is none deductible under Internal Revenue Code Sec. 162(f).

 Relators and contractors or taxpayers should be represented by counsel in Qui Tam cases

Stay clear of anti-relator behavior– Relators and contractors or taxpayers should be represented by counsel in Qui Tam cases.  Successful relators under the FCA are entitled to recover, in most instances, attorney fees, expenses and costs.Both the FCA and the IRC contain anti-discrimination provisions which can make the situation worst for alleged violators of the law if they handle the whistleblower situation badly either intentionally or unintentionally.  Contractors and taxpayers alike should maintain tight internal controls, conduct lawful investigations and comply with all applicable laws. A lot of federal statutes—civil and penal;might be implicated in Qui Tam cases cautioning all involved to be represented and exercise due diligence.  See 26 United States Code, Internal Revenue Code; 41 United States Code§4712, Whistleblower Protections for Contractor Employees;Title 48 of the Code of Federal Regulations, 48 CFR 1., The Federal Acquisition Regulations, which covers all federal procurement practices, including solicitations from small business concerns and small business teaming arrangements or joint ventures;Title 31 United States Code and §42121(b) of Title 49, United States Code, Protection of Employees; to reference only a few.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Podcast – Does unemployment compensation recipients have to pay federal taxes on the money received resulting from Covid-19? | LEGAL THOUGHTS

Published July 14, 2020 Podcast - Does unemployment compensation recipients have to pay federal taxes on the money received resulting from Covid-19? | LEGAL THOUGHTS

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses and agencies from around the world in taxation, litigation and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.

The topic of discussion is “Is Unemployment Compensation Received Taxable Income?” You can listen to this podcast by clicking here:  

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or where ever you may listen to your podcast.

 

TRANSCRIPT:

ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
  • Our topic for today is: “Is Unemployment Compensation Received Taxable Income?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our Public Relations Associate, Mayra Torres, will be asking the questions and I will be providing the answers to the questions on this important tax topic: Is Unemployment Compensation Received Taxable Income?

Interviewer:  Mayra Torres, Public Relations Associate

Question 1:

What are unemployment benefits?

Attorney Answers Question 1:

  • Unemployment benefits generally includes any amount of money received under any federal or state law program designed to protect taxpayers against loss of income caused by involuntary loss of employment or decrease in compensation.

Interviewer:  Mayra Torres, Public Relations Associate

QUESTION 2:

Who is eligible to receive unemployment benefits?

Attorney Answers Question 2:

  • Keep in mind that unemployment benefits, as a general policy, is governed by State and federal labor laws and are designed to replace in whole or part the loss of employee wages due to some involuntary lay off or employment disruption.
  • Unemployment programs are administered by the States and each State has its own rules as to who qualifies and how they should apply. In Texas, the Texas Workforce Commission administers the Texas Unemployment Compensation System.

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

  • Well okay, I kind of understand. But there is a lot of talk about the CARES Act and something about$600 dollars people are receiving.
  • What is the CARES ACT? Does it affect unemployment benefits… like, who qualifies and how they apply and how much they get and how long they can get unemployment benefits?

Attorney Answers Question 3:

  • Those are excellent questions!
  • The CARES Act was enacted into law on Friday, March 27, 2020. CARES stand for the Corona virus, Aid, Relief, and Economic Security Act. It is a $12, trillion-dollar economic relief package featuring extensive tax provisions. It is Public Law 116-136 (3/27/2020). And yes it does impact who qualifies for unemployment compensation, how they apply and how much they receive it and for how long if their loss income is related to Covid-19.
  • Employees who lost jobs qualify
  • Self-employed individuals qualify under the CARES Act
  • Qualified individuals impacted by Covid-19 must file unemployment claims through the State governmental agency who regulate unemployment benefits in their State. Residence in Texas must file claims with the Texas Workforce Commission and follow all filing requirements and follow-up guidance that TWC requires to obtain their compensation. Keep in mind that TWC rules and requirements may continue to change as the State continues to reopen its economy during this pandemic.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

Okay…. And what about undocumented workers and self-employed people; can they file for

unemployment benefits with TWC too?

Attorney Answers Question 4:

Yes, workers and self-employed individuals do not have to be United States citizens or lawful permanent residents to qualify for unemployment. All residence of Texas who had employment prior to the Covid-19 Crisis can file for unemployment.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

What about the $600 everybody is talking about; how do unemployed people get that?

Attorney Answers Question 5:

  • The CARES Act not only expanded the eligibility for unemployment to self-employed individuals like I mentioned before; the Act also extended coverage by 13 weeks and provides unemployed individuals with an extra $600 per week of federal assistance on top of the State benefits.
  • Qualified individuals apply for this extra $600 per week federal benefit when they file their State Unemployment Claim. Again, in Texas everything is filed with the Texas Workforce Commission.Contact TWC for help in filing an unemployment claim in Texas. The TWC rules are in flux as the State reopens during this pandemic.

Interviewer:  Mayra Torres, Public Relations Associate

Question 6:

  • Okay, I was just curious; many folks are afraid of going back to work because they might get sick or get their families sick.
  • Can somebody continue to receive unemployment even though their boss tell them that they can come back to work now?

Attorney Answers Question 6:

  • Unemployment benefits are for people who loss their jobs or income due to no fault of their own. People who quit their jobs generally will not qualify for unemployment compensation in Texas. I say generally because facts and circumstances matter. Application of the law can be messy at times because facts matters. Perhaps an unemployed individual can make out a winnable case that it’s too dangerous for them to return to work during the Covid-19 pandemic.
  • But, Keep in mind that people who file initial and continuation claims for benefits with TWC provides self-certification under penalty of perjury that they are otherwise able to work and are available for work under the Texas Labor Code that governs such matters in Texas.
  • The rules concerning this question may change from day to day or week to week as the State of Texas reopens during this pandemic.

Interviewer:  Mayra Torres, Public Relations Associate

Question 7

  • Okay, I understand; it sounds like it just depends on all the facts, and circumstances and State and federal government rules updates.
  • Another BIG QUESTION A LOT OF PEOPLE HAVE IS THIS!
  • Do unemployed individuals have to pay taxes on unemployment benefits that they receive?

Attorney Answers Question 7:

  • The tax treatment of unemployment benefits received depends on the type of program paying the benefits.
  • I am going to try to keep this simple; but folks must understand that the federal and state program funding the compensation can impact whether the amounts received are taxable.
  • I am going to limit my answer to only three types of unemployment benefits that I think are germane to the types of benefits that most people are receiving during this Covid-19 national emergency:
  • Types of Unemployment Benefits that are Taxable
    1. Benefits paid by a State or the District of Columbia from the Federal Unemployment Trust Fund
    2. State Unemployment insurance benefits
    3. Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974
  • Conclusion: Most people receiving unemployment due to Covid-19 falls under one of these programs. The benefits are taxable!

Interviewer:  Mayra Torres, Public Relations Associate

Question 8

I think I’m getting it now! What about the extra $600 per week from CARES Act, is it taxable too?

Attorney Answers Question 8:

  • Yes, unemployment compensation received under the CARES Act is taxable because the CARES Act does not specifically exempt the $600 extra unemployment compensation from federal taxation.
  • In fact, the CARES Act states that in the event there is a conflict in the CARES Act with provisions in the Disaster Relief and Emergency Assistance Act of 1974, then the provisions of the Disaster Relief and Emergency Assistance Act of 1974 controls. As we have seen, benefits received under the 1974 Act is taxable.
  • So, the answer to your question is, yes, unless Congress exempts the $600 from federal taxation, it is taxable under Internal Revenue Code Section 85(a).

 Interviewer:  Mayra Torres, Public Relations Associate

Question 9

When does the taxes on that unemployment money have to be paid?

Attorney Answers Question 9:

  • Those filing for unemployment can ask TWC to withhold the appropriate amount of tax from their unemployment compensation. Make this choice by giving TWC Form W-4V, Voluntary Withholding Request; or
  • They may have to file estimated taxes by the 15th day of the end of each quarter. They can compute this amount on Form 1040-ES and make their estimated payments to the IRS by phone,online or by mail.

Interviewer:  Mayra Torres, Public Relations Associate

Question 10

What if people don’t know and never ask TWC to withhold the money and never do this

estimated tax thing?

Attorney Answers Question 10:

  • If taxpayers don’t pay enough taxes during a year, either by withholding or by estimated tax deposits, or some combination of the two, they may have to pay an underpayment penalty.
  • The federal tax system in the United States is a pay-as-you-go self-certification system. But keep in mind, the IRS and the taxpayer will probably receive a Form 1099-G from TWC for all unemployment compensation paid during the course of the calendar year.

 Attorney’s Concluding Remarks:

This is end of Legal Thoughts for now

  • Thanks for giving us the opportunity to inform you about taxation of unemployment compensation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

 

A Spouse May Be Relieved of Federal Tax Liability under Certain Circumstances

April 08, 2019
By Coleman Jackson, Attorney, Certified Public Accountant

 

Innocent Spouse Relief from Federal Tax Liability

 

Texas is a community property state, which means that income earned by either spouse during their marriage is an item of community income.  Under federal tax law, each spouse is liable for federal taxes on community income regardless of which spouse earned the item of community income.

Under Internal Revenue Code Section 66(b), the Internal Revenue Service can modify the federal tax  outcome resultant from application of community property laws and charge only one spouse with respect to an item of community income if that spouse acted as if they were solely entitled to the  item of income; that is, they used it on themselves and not the community or household benefit,  and they did not notify their spouse of the item of community income before the due date for filing the spouse’s federal tax return for the applicable tax period.

 

Relief from Federal Tax Liability

 

 

This is only one of the many situations where an innocent spouse might be relieved of federal tax liability.  There is also, sometimes equitable relief available for innocent spouses even when the couple filed a joint tax return which created joint and severable liability for both spouses for the entire amount of the tax deficiency, penalties and interest due on the joint return.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432.