Whistleblower Law Blog : Whistleblower Lawyer & Attorney : LaBovick Law Firm, Florida : Federal False Claims Act, Qui Tam

Former UBS Banker, Bradley C. Birkenfeld was recently sentenced to 3 years and 4 months in prison for assisting a client at UBS to evade taxes. However, due to Mr. Birkenfield's assistance, the government was successful in reaching the February settlement of UBS agreeing to pay $780 million in fines, penalties, and restitution relating to tax fraud.

In response to the sentencing of Bradley Birkenfeld, Qui tam Attorney Brian F. LaBovick, Esq. stateted the following:

"This is a major issue within the Qui Tam paradigm. I recognize that Mr. Birkenfeld was likely a bad actor and that the government had a good reason to hold him accountable for his part in the fraud. But in the context of how terrible whistleblowers are treated post service of process; this is another good reason why people "in the know" may fail to come forward to report fraud. Without bad actors looking for a "pay day" literally billions of dollars will be lost to the intricate fraudulent schemes created in the wake of big government contracts with dishonest vendors and service suppliers.

I am deeply troubled by this prosecution. Had this occurred in a criminal context, the results would have been different. Seldomly are we able to combat and bring down  organized crime rings without the help of the criminals who are given an immunity deal from the government."

The case, U.S. v. Birkenfeld, 08-cr-60099, U.S. District Court, Southern District of Florida, occured in Fort Lauderdale, Florida. Sadly enough, the support from U.S. Senator Carl Levin of Michigan, representatives of the Securities and Exchange Commission and IRS, did not help to give Mr. Birkenfeld leniency in his sentencing. One can only hope, that this will not deter other whistleblowers from coming forward and working with the government to report fraud against the government. 

Click on the following to learn more on the UBS Tax Fraud sentencing of Whistleblower Birkenfield or the DOJ's release on the former UBS Banker being sentenced to prison.

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On January 19, Senator Charles Grassley filed an Amicus Curiae ("friend of the court") brief in the U.S. Supreme Court case of Allison Engine Co., Inc. v. United States ex rel. Sanders. The Sanders case will have far-reaching impact on the viability of America's most important whistleblower protection law: The False Claims Act.

According to Stephen Kohn, President of the National Whistleblower Center, "If the Supreme Court were to find against the whistleblowers in this case, it will open a loophole by which fraudulent companies will launder their dirty contracts through subcontractors, thereby defeating the presentment requirement."

The Whistleblower Protection Blog and TAF generously provided the briefs filed by the Petitioner's, Respondents, Senator Grassley and Tax Payers Against Fraud.

Click here to see the release issued by the Whistleblower Law Center.

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The New IRS announcement released on December 19, 2007 details procedures of the IRS Informant Award program for information regarding underpayment of taxes. Since  December 2006, the IRS has received about 80 claims, half of those submitted in just the last two and a half months. I imagine these statistics will go even higher in the coming months. Why is this important in a qui tam blog? Under the new procedures, the amount of the qui tam award will be at least 15%, but no more than 30%, of the collected proceeds in cases in which the Whistleblower Office determines that the information submitted by the informant substantially contributed to the collection of tax. The award percentage can be reduced depending upon the circumstances. See the IRS guidelines for specifics.

Another interesting thing to note, is that eligibility for an award under the new procedure requires the dispute to exceed $2 million for any taxable year for a corporation and an individual with a gross income in excess of $200,000 for any taxable year in question.

IRS informants should also read  IRS Notice 2008-04 and Form 201, since it gives guidance on filing  claims under Internal Revenue Code section 7623 as amended by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432 (120 Stat. 2958) (the Act) enacted on December 20, 2006.

In a recent WSJ article, Tipster Rewards Require Patience by Tom Herman, there was recently a  claim filed by a Florida based law firm that alleges a large international company underpaid its U.S. taxes by more than $2 billion, including penalties and interest. This case could make history if turns out to be true.

It is nice to see that qui tam laws can help the government capture money from fraudsters and pay what is owed to the government. Whistleblowers do not be afraid to speak up, if you have proof of a company not paying corporate taxes, you could be rewarded for your information, if the information can help the IRS build a case against a tax fraudster. 

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Earlier this year I saw Stranger than Fiction, which is a great movie about an IRS tax agent played by Will Ferrell who plays a really nice and honorable person.  Just the name of the movie and the dichotomy of a likeable IRS auditor was humorous.  Not that I think every IRS tax agent is bad, but they are scary nonetheless. Earlier this week, I met the Director of the new IRS Whistleblower program, Mr. Stephen Whitlock, at the TAF Conference in D.C. In an earlier post on this Whistleblower Law Blog, I wrote about Mr. Whitlock in his new role. At the TAF Conference he explained the the new IRS Whistleblower program.  Mr. Whitlock is an impressive person at all levels.  Not only is he likeable, but he is competent, articulate and displays unusual candor as to what he actually knows and what is still up in the air under the new law.

 

As a quick history: the IRS has had a whistleblower program in place for many years.  It is a relatively unknown, unused, and unloved program.  It gave huge discretion of the IRS on who qualified as a relator and how much, if anything, a relator would be paid for their information.  In 1998 at the height of IRS abuse allegation, the Senate started examining the program.  Senator Harry Reid then named the unknown program "Rewards for Rats". 

 

Isn't it interesting how time and a revised frame can color the lens of what is happening.  In 1998 the frame was overly aggressive IRS.  People believed the IRS auditor and investigators were unjustifiably harassing the poor citizen/public for minor tax inconsistencies.  This led to some internal reforms at the IRS for better public relations. 

 

However, time changes the lens.  By 2005 people realized major corporations were creating illegal schemes to avoid paying taxes.  New efforts were placed into reviving the unknown whistleblower program  for the IRS.  The effort was led by the well-loved patron saint of whistleblowers and strong anti-fraud Republican Senator Charles (Chuck) Grassley.  Senator Grassley felt that a whistleblower was a patriot infused with the courage to risk losing their jobs by "exposing fraud, waste and abuse in an effort to protect not only the health and safety of the American people but the federal treasury and the taxpayer dollars." (Senator Grassley's floor statement at National Whistleblower Week 2007).  Now that is a far cry from Senator Reid's "Rate" analogy.

 

With words like that, who could resist passing a new program (created in 2006) to encourage the patriotic act of blowing the whistle on tax cheats?  Well, they didn't want to prosecute just your basic low value tax cheat.  The IRS wants to go after high value tax cheats.  Therefore, they put some parameters on the new program that would keep low value claims at a minimum.  The threshold is that the tax fraud must add up to more then $2,000,000.00 and the net earnings of the tax cheat must be in excess of $200,000 in the year the fraud occurred.  This threshold will hopefully keep nutty neighbors from reporting other nutty neighbors just to be vindictive of some dog droppings on the one neighbor's lawn.

 

As it turns out, the IRS is already prosecuting these claims.  The program rolled out and the regs were supposed to be done by the end of August, which didn't happen.  Mr. Whitlock assured the TAF conference attendees that he and his team were working on them.  However, until that time, he and three other national processors are reviewing the claims and dolling out the work to IRS field agents.  In fact, they have already paid some pretty big claims out to relators in the past year.

 

After his seminar speech I found myself with a new respect for the IRS and their agents.  I found that if the agency is as sincere and bright as Mr. Whitlock, that this program is going to work well. 

 

Actually trusting the IRS.  Now that is Stranger than Fiction.

 

Brian

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I thought this would be useful information to readers of the Whistleblower Law Blog interested in learning more about the IRS Whistleblower Provision 26 U.S.C. § 7623.

IRS Whistleblower Provision 26 U.S.C. § 7623.

(a) In general.--The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for--

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same,


in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.


(b) Awards to whistleblowers.--

(1) In general.--If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by an individual, such individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action. The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action.

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The new whistleblower law is a huge success for IRS on catching tax cheaters.  The reward claims have been piling in since the December law was passed. According to Steve Whitlock, head of the IRS Whistleblower office there have been claims involving hundreds of millions of dollars. The informants can collect up to 30% of whatever the IRS collects. The Internal Revenue Service received an increase in valuable tips from informants hoping to cash in on a law offering sharply higher rewards in cases involving large amounts of tax cheating and other violations.

According to a recent Wall Street Journal article, Iowa Senator Chuck Grassley was quoted as saying "So far, it looks as if the whistleblower-program changes were well-directed. It's important for people with concrete information about tax fraud to be heard and not treated like skunks at the picnic."  This is an interesting comment being that Senator Grassley is on the Senate Finance Committee and is a high ranking Republican.

To file a claim under the law, use IRS Form 211, available on the IRS Web site at www.irs.gov. "Provide as much information as you can about the alleged tax noncompliance," the IRS's Mr. Whitlock says.

ClickHere to read more of the Wallstreet Journal Article on the new IRS Whistleblower Law.

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Smart Money magazine article summed it up appropriately in their headline: The IRS is paying more if you turn in your friends.  The author, Lisa Scherzer, contacted a few law firms that publish  qui tam blogs and handle qui tam and tax fraud issues. Our very own, Brian LaBovick, former U S Attorney for the Department of Justice, Managing Partner, LaBovick LaBovick & Wald, and publisher of the Whistleblowerlawblog was quoted as saying "You have to come to the government with new and valuable information. The more information you have, the better the results of your recovery."  Other other qui tam attorneys and qui tam bloggers were:  Michael Finch, The Whistleblowerlawyerblog, and Paul Scott, Taxwhistleblowers.org.

The Smart Money article highlighted the fact that if your employer, co-worker, landlord, neighbor or father-in-law is raking in fistfuls of cash and bypassing Uncle Sam, you can anonymously report the abuse to the IRS and snag a windfall from their dishonesty. As long as the total amount of tax fraud comes out to at least $2 million (including penalties, interest, and whatever else the government ultimately collects based on your report), you can get a 15% to 30% cut.

Click Here to read more on the Smart Money magazine article covering the IRS and tax cheaters.

 

 

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Poorly written Justice Department documents cost the federal government more than $100 million in what was supposed to have been the crowning moment of the biggest tax prosecution ever. Walter Anderson, the telecommunications entrepreneur who admitted hiding hundreds of millions of dollars from the IRS and District of Columbia tax collectors, was sentenced to nine years in prison and ordered to repay about $23 million to the city.

U.S. District Judge Paul Friedman stated he could not make Anderson repay the federal government $100 million to $175 million because the Justice Department's binding plea agreement with Anderson listed the wrong statute.

Channing Phillips, a spokesman for the U.S. attorney's office, said the government would bring civil charges against Anderson.  "The IRS still has ample civil remedies available to recoup the money which are, in some respects, more efficient and quicker," Phillips said. "

Click here to read more about this subject on WahingtonPost.com

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I never thought I would be so happy as to hear about a new high quality employee at the Internal Revenue Service. For as much we communally complain about the IRS, the new rules for Tax cheats getting caught through whistleblower claims is a reason to sing the IRS praises.

The new director of the IRS Whistleblower Office is Stephen A. Whitlock. Mr. Whitlock will be in charge of designing a program to process whistleblower’s information about tax cheats. It will also provide an “an appropriate reward” to those whistleblowers.

Like I said in a prior Blog. I don’t like paying taxes, so I really don’t like people who don’t pay their taxes. What could be better then turning in some tax cheat and getting paid enough to pay your own taxes with the reward money. Boy, that IRS sure has a lock on the money, don’t they.

As background, Mr. Whitlock has over 27 years in government. He previously headed the IRS Office of Professional Responsibility. In the past he assisted in the anti-fraud programs at the Defense Department. Here Mr. Whitlock will establish a strategy for the program, define the goals for the first years of the program and create an operations guide.

If you want to know more about the IRS Whistleblower Office read the Tax Relief and Health Care Act of 2006. It’s joyful reading. The purpose of the office is to process tips received from individuals who learn about tax cheating in their workplace or anywhere else cheating may be encountered. The reward will be 15% as a floor and 30% as a ceiling of the entire proceeds the IRS collects.

At a personal level I am wondering just how many people the IRS can really investigate. This type of law could lead to a crush of cases; all of them would need to be investigated. I think Mr. Whitlock should put a minimum dollar amount before he institutes a fraud investigation; say $100,000,000.00 in gross revenue. That way the IRS won’t be wasting our tax dollars chasing a tax dodger for $500.00 while paying a government agent $50,000.00

Brian

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I hate paying taxes. I know, intellectually, all the good that our tax dollars do for this great Country, but it still is hard to swallow paying a huge chunk of change to the government. But I do it. So, what do I hate worse then paying taxes? Tax dodgers!

Well, if you also hate tax dodgers, then your life is about to get more rewarding.

President Bush is about to authorize a new Internal Revenue Service rule directing the service to pay greater rewards to informants who report tax cheats on large amounts of taxes due. The new reward can rise to 30% of whatever the government collects. The idea is to provide some significant incentives for people to tattletale on people or businesses who cheat the government out of money. The IRS hopes to reduce what they call the tax gap. The Tax Gap is the gap between what the IRS should actually collect and what people actually send in. That Gap is almost $300 BILLION dollars.

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