A pair of recently-introduced Maryland bills would create a whistleblower program within the Maryland Comptroller’s office and possibly result in a headache for many taxpayers. The proposed whistleblower bills appear to be modeled after the IRS’ whistleblower program, although they contain a noticeably low materiality threshold and allow for the anonymous reporting of complaints.
The proposed legislation, H.B. 804 and S.B. 916, would establish the “Whistleblower Reward Program,” which provides financial incentives to individuals or entities that supply the Comptroller with “original information” that results in a successful audit, administrative or judicial action. Possible rewards range from 15 to 30 percent of the recovered taxes, penalties, and interest arising from original information supplied to the Comptroller on or after October 1, 2021.
To be eligible for a reward, the whistleblower’s original information must concern $250,000 of taxes, penalties, and interest in dispute and:
- The income tax liability of an individual taxpayer with federal adjusted gross income of at least $250,000; or,
- The tax lability of a business with annual gross receipts of at least $2 million
“Original information” is “information derived from the independent knowledge of analysis of a whistleblower” and not previously known to the Comptroller. Original information cannot be derived from the news media, a judicial or administrative hearing, audit, or investigation, unless the whistleblower is the original source of that information.
A whistleblower may receive a reduced award if the whistleblower planned or initiated the action that resulted in the underpayment of the taxes at issue. Whistleblowers who have been criminally convicted of an action related to the whistleblower complaint are ineligible for awards. Additionally, members of federal, state, or local tax-enforcement agencies are also ineligible for whistleblower rewards.
Whistleblowers may be represented by an attorney and can report whistleblower complaints anonymously through counsel. The bills prohibit employers from retaliating against employees who file whistleblower complaints in any manner. While the bills do not authorize whistleblowers to initiate civil actions against taxpayers, the Comptroller is required to provide regular investigation status updates to whistleblowers.
Finally, in a provision separate from the Whistleblower program, the bills would extend Maryland’s statute of limitations for tax collections from 7 years to 10 years after a timely assessment is made.
Maryland has been at the forefront of many highly-watched and controversial tax proposals this year. On March 14, the state’s sales tax expansion to digital products and streaming services became effective. On March 5, the Maryland Senate passed S.B. 787, which makes several noteworthy changes to the state’s new digital advertising tax, including delaying the tax’s effective date until Jan. 1, 2022. Currently, the first estimated quarterly payment – at least 25% of the “reasonably estimated” tax based on 2021 Maryland digital ad tax revenues – is due to the Comptroller by April 15, 2021. S.B. 787 is currently with the House of Delegates, with a hearing scheduled for March 25, 2021.