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Presented by Hodgson Russ, the Whistleblower Blog is written by a team of lawyers experienced in successfully guiding both whistleblowers and companies accused by whistleblowers of wrongdoing through the False Claims Act process.
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Showing 17 posts in Tax Fraud.
As COVID-19 Strangles State Revenues, Some Legislatures Move to Ax the Tax Bar
Over its 200-year history, the federal False Claims Act (“FCA”) has saved the federal government billions of dollars in false claims for payment. But one type of false claim remains off limits in federal courts. A provision of the federal FCA known as the “tax bar” prohibits suits based on failure to pay federal taxes. See 31 U.S.C. § 3729(d). Whistleblowers who uncover federal tax fraud are limited to the Internal Revenue Service’s whistleblower program.
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More Sales Tax News in the FCA Area: IL Whistleblower Finds Success in NY
Chicago lawyer Stephen Diamond has made quite a name for himself in recent years for his perceived abuse of the Illinois False Claims Act (“FCA”). Many believe Diamond is misusing the FCA or is using it for self-serving reasons not consistent with the FCA’s intent.
IRS Whistleblowers Collect Over $230 Million In 3 Years
The IRS Whistleblower Award Program has paid over $230 million in awards over the last three fiscal years, according to its most recent report to Congress. The awards averaged over $650,000 each, and average about 18% of the amount collected in each case. The program received over 14,000 new claims during FY 2014. According to the report, the award program exists to provide whistleblowers with an incentive to report “significant tax noncompliance” to the IRS.
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IRS Paid $53 Million to 122 Whistleblowers in 2013
According to the IRS Oversight Board’s recent report to Congress, the IRS paid $53 million last year to 122 whistleblowers. This is an average of nearly $435,000 per whistleblower. The whistleblower awards last year average 14.6 percent of the amounts collected by the IRS. As noted in the report, the law requires the IRS to pay awards if the information provided “substantially contributes to the collection of tax, penalties, interest, and other amounts when the amounts in dispute are more than $2,000,000.” The award ranges are based on “percentages of the collected proceeds.” The law is designed to encourage people “with knowledge of significant tax noncompliance to provide that information to the IRS.” According to the report, the IRS “continues to receive submissions from whistleblowers, many of whom claim to have inside knowledge of the transactions they are reporting. They often provide extensive documentation to support their claims.”
John Sinatra is a partner in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
An Attorney Generals Warp Speed Win | The Whistleblower Blog
New York Attorney General Eric Schneiderman announced on March 14, 2014, the successful conclusion of a tax whistleblower case brought under the historic 2010 amendments to the State False Claims Act. Those amendments authorized whistleblowers to earn huge rewards by bringing cases on behalf of the state against those who have engaged in significant violations of the tax law. We have written previously about the 2010 amendments and other New York tax whistleblower developments including the attorney general’s major whistleblower suit against Sprint/Nextel.
In this newly announced case, the attorney general’s press release disclosed that a “tax services provider” became aware of the tax violations and blew the whistle on a medical imaging company, Lantheus Medical Imaging, and its parent company, Bristol-Myers Squibb, for failing to pay more than $2.2 million in New York State franchise taxes, New York City corporation taxes, and MTA surcharges for the period 2002 to 2006.
Because the False Claims Act empowers the state to recover treble damages, the suit was settled with the payment of $6.2 million (which appears to be only a minor compromise by the state), of which $1,137,814 was earmarked for the whistleblower.
The settlement is good news for tax whistleblowers.
The New York State False Claims Act Reaches Tax Violations Prior to 2010
The New York False Claims Act (NY FCA) was amended in August 2010 to expressly apply to knowing violations of the New York State Tax Law. As reported in a previous blog entry, a whistleblower filed an action against Sprint Nextel Corporation alleging that it failed to collect or pay New York State sales taxes on receipts from the sale of certain wireless telephone services. After an investigation, the attorney general for the State of New York, Eric T. Schneiderman, intervened and filed a superseding complaint adopting the FCA claims and alleging additional claims against the mobile telecommunications service provider. Among those claims were claims premised on conduct predating 2010, when the NY FCA was amended to include tax violations.
Is It Time for New York to Consider Augmenting Its Tax Whistleblower Laws to Include a Program Modeled on the Federal Statute?
After years of complaints from whistleblowers and other interested parties, the IRS whistleblower program—which was enhanced in 2006—has finally begun to show some signs of success. Consider:
- As my colleague John Sinatra reported, the IRS recently awarded a whopping $104 million to imprisoned UBS whistleblower Bradley Birkenfeld, the first award under the 2006 program
- Just last month, the IRS awarded $38 million to another whistleblower
Can it be, as Forbes recently reported, that “the days ahead look bright for whistleblowers and the IRS whistleblower program”? With a backlog of significant whistleblower cases filed after 2006 slowly churning through the IRS process, it is a safe bet that more cases are edging closer to completion and that the slow trickle of announcements from whistleblower attorneys about awards will begin to pick up. As more awards are announced, more whistleblowers will come forward.
U.S. Pays $104 Million to Tax Whistleblower | Hodgson Russ
According to numerous media reports citing his attorneys, former UBS Banker Bradley Birkenfeld has received a $104 million tax whistleblower reward for his role in exposing alleged secret Swiss banking schemes designed to enable U.S. taxpayers to evade taxes. The whistleblower’s revelations led to a $780 million settlement from UBS as well as tens of thousands of taxpayer coming forward in exchange for amnesty. The IRS’s tax whistleblower program provides a bounty or reward of up to 30 percent of the government’s recovery. Experts on both sides of these cases believe that the size of the reward will ensure that future tax whistleblowers are encouraged and incentivized to come forward with details of other tax schemes.
Whistleblower Teams Up With the State of New York in Groundbreaking Suit Against Sprint-Nextel Corporation
On April 19, 2012, Attorney General Eric T. Schneiderman filed a groundbreaking lawsuit against Sprint-Nextel Corporation for deliberately under-collecting and underpaying millions of dollars in New York State and local sales taxes. The lawsuit was brought under the New York False Claims Act, which, unlike its federal counterpart, expressly permits cases involving tax fraud.
Misappropriation of Confidential Information or Legitimate Whistleblowing?
There is an obvious tension between the desire to encourage employees to come forward with information necessary to report and expose fraud and the recognition that certain company information is truly private and confidential and should remain so. A recent decision from the U.S. Department of Labor Administrative Review Board further complicates the issue.
Celanese Corporation, an international publicly traded corporation, hired Matthew Vannoy to catalog and reconcile employee expense reimbursement submissions. In 2007, Vannoy filed an internal compliant about employees misusing company credit cards; around the same time, he began talking to an attorney about Celanese’s business practices with respect to its employee credit card-use program. Vannoy then filed a claim with the IRS Whistleblower Rewards Program, and he provided documents to the IRS that included Celanese proprietary and confidential information. A few months later, Vannoy’s supervisor began conducting an investigation into his email communications with employee cardholders and found that he sent a document containing 1,600 social security numbers of Celanese employees to a personal e-mail account. Vannoy was suspended without pay and ultimately terminated.
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