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Whistleblower Blog

Whistleblower Lawyer Update: Medical Equipment Fraud, Fraudulent Billing by Doctor, and Home Health Care Fraud Highlight Week of Indictments in Health Care Compliance Cases

This past week produced examples of why whistleblowers and their attorneys must continue to insist that false claims and health care fraud not be tolerated. The indictments of Texas medical equipment suppliers–who are alleged to have overbilled Medicare and Medicaid for expensive scooters and chairs while providing cheaper ones –show how prevalent false claims are.

The indictment of a physician in West Virginia for allegedly falsifying the time spent in patient visits shows another common type of health care fraud and false claims.
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Should a Tax Whistleblower in the New IRS Whistleblower Program Use an IRS Form 3949?

Question about the new IRS Whistleblower Rewards Program: if you go to the Internal Revenue Service’s website, the IRS notifies persons that, if they have evidence of suspected tax violations, they should use a Form 3949 and send it to an Internal Revenue Service Office in Fresno, California. While this blog is not legal advice, we have not seen a basis for individuals seeking a reward under the new IRS Whistleblower Program for blowing the whistle to utilize this form. The reason is because
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Justice Department Attorneys Announce $30.5 Million Settlement in Qui Tam Whistleblower Case of Medicaid Fraud

Another False Claims Act Recovery by Government Lawyers Is Part of $42.65 Million Heath Care Fraud Settlement

A qui tam whistleblower case alleging Medicaid fraud by Maximus, Inc. of Reston, Virginia led to a $30.5 million settlement under the False Claims Act this week.

According to the Justice Department, the whistleblower case settlement accompanied a deferred prosecution agreement and corporate integrity agreement by Maximus to end the government’s investigation of Maximus’ contract with the District of Columbia’s Child and Family Services Agency (CFSA).
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The Profile of the New Tax Whistleblower

When the Tax Relief and Healthcare Act of 2006 was signed into law on December 20, 2006, Congress hoped to encourage businessmen and women to come forward with information concerning tax cheats. The new IRS Whistleblower Program (found at 26 U.S.C. § 7623) purposely focuses on large claims. To qualify for whistleblower rewards, a minimum of $2 million in taxes, penalties and interest must be involved. Given this amount of money, the primary targets of the new legislation are businesses whose employees and/or former employees
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IRS to Scrutinize Derivatives–Do They Allow Offshore Investors to Avoid Withholding Taxes on U.S. Stock Dividends?

IRS Seeks Documents from Citigroup and Lehman Brothers Holdings on Derivatives

Now that Congress has created a meaningful IRS Whistleblower Rewards Program, tax whistleblower attorneys took note of yesterday’s report that the IRS is looking into whether derivatives trades for hedge funds and other investors are being used to avoid tax withholding obligations, according to the Wall Street Journal yesterday. The IRS reportedly has issued “Information Document Requests” to Citigroup and Lehman Brothers Holdings to find out.

As Reuters reports, the derivatives trades in
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Pharmaceutical Company Bristol Settles Massachusetts Lawsuit Over Pricing of Drugs

Alleged Overcharging for Prescription Drugs Leads to $13 Million Settlement in Boston

Pharmaceutical fraud harms the Medicare and Medicaid programs–and the citizens who pay for them. Drug companies’ alleged overcharging for prescription drugs has led to fraud investigations and lawsuits by whistleblower attorneys in the past. This week, shortly before trial, pharmaceutical manufacturer Bristol-Myers Squibb Co. reportedly agreed to pay $13 million to resolve allegations that it overcharged for its Taxol cancer medicine and other drugs.

The settlement follows a ruling last month
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In Case Alleging Fraud Against IRS in Misuse of Tax Shelters by Former KPMG Partners, Judge Dismisses Charges Against 13 Defendants

Most Defendants in KPMG Case Escape Prosecution–At Least For Now

As we have written about previously, abusive and fraudulent tax shelters promoted by accounting firms are high on the list of conduct that the IRS (and IRS tax whistleblowers) seek to stop. Today, the government’s prosecution of 13 former KPMG partners and other executives was derailed–at least for now–when the trial judge dismissed charges against them, while allowing the charges to remain against other defendants.

Judge Lewis Kaplan had already ruled that these defendants’
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IRS Declares That Tax Fraud and Evasion from Back-Dating of Stock Options Is a Top Priority

IRS Tax Whistleblowers with Knowledge of Stock Option Backdating Should Take Note

Now that the IRS has an effective IRS Whistleblower Rewards Program for whistleblowers who report tax fraud, tax evasion, or other violations of the Internal Revenue laws, the IRS’ recent announcement of focusing on back-dating of stock options should be interesting. In continuing our past discussions of claims under the IRS Whistleblower Rewards Program, we point out the tax fraud that the IRS has decided to target involving back-dated stock options.

The IRS recently announced that backdating of stock options is a “Tier I Compliance Issue and therefore is a mandatory examination item for taxpayers with backdated stock option grant and/or exercise prices.”

This unlawful practice can produce adverse tax consequences for the corporation issuing the option. As the IRS announcement explains, corporations are subject to a $1 million annual limit on the deduction for compensation to the CEO and four other highest compensated officers in a publicly traded corporation.

Under Treasury Regulations section 1.162-27(e)(2)(vi), there is a “qualified performance based compensation” exception to the $1 million deduction limit for compensation attributable to option exercises if the option exercise price equals or exceeds the per share value on the grant date and certain other requirements are met. A failure to satisfy this requirement may cause compensation attributable to the option exercise to be subject to the $1 million deduction limit.
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False Claims Act Case Against Texas Computer Services Firm Is Settled

Fraud and False Claims by Government Contractor in Dallas Leads to $2.6 Million Settlement with Justice Department

The statute most used by whistleblowers and whistleblower attorneys has resulted in yet another recovery of money for false claims. The Justice Department has announced that Affiliated Computer Services, Inc. (ACS) has agreed to pay more than $2.6 million to settle a False Claims Act case.

The government alleged that ACS, from 2002-2005, inflated its claims for payment of government funds for recruiting and enrolling individuals in various
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New State False Claims Act with Qui Tam Whistleblower Provisions Is Signed in Florida

AARP Applauds State Law to Combat Medicaid Fraud with Qui Tam Whistleblower Approach

We were pleased to see that Florida has joined New York, Georgia, Oklahoma and more than a dozen other states in creating a State False Claims Act with qui tam whistleblower provisions similar to the federal False Claims Act. As we have discussed at length on this whistleblower lawyer blog, Congress has created financial incentives for states to pass whistleblower laws with qui tam
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Federal Contractor Fraud Laws To Get Tougher? ACORN Controversy Casts Spotlight on Larger Contractors That Violate False Claims Act

Outrage over misuse of public funds is a healthy reaction to those who cheat taxpayers. It can also create interesting bedfellows, as newly-introduced legislation in the House demonstrates.

HR 3571, aimed at “de-funding ACORN,” would ban federal contracts and most federal funds to any organization that “has filed a fraudulent form with any Federal or State regulatory agency,” among other things. (Complete bill is below.)

As. Rep. Alan Grayson (D-FL) observed correctly, fraud by those who receive government funds involves much “bigger fish” than ACORN–and bigger dollar amounts of alleged fraud.

“We can’t have a situation where the laws of justice are applied to one organization and not to any of the others, particularly when there are organizations that are polluting water for our soldiers and electrocuting them.” Grayson presumably was referring to allegations that KBR’s performance of government contracts for our troops has caused soldiers to be electrocuted and otherwise endangered.

Rep. Grayson is on target. He saw these abuses as a lawyer vindicating the public’s interest in fighting fraud in pursuing qui tam whistleblower cases under the False Claims Act, the nation’s primary civil statute for combating fraud and false claims against the government.

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Calls Continue for a “False Claims Act” for Wall Street Whistleblowers

Since the Madoff and Stanford scandals, we have written about the calls for the Securities and Exchange Commission (SEC) to establish a meaningful whistleblower rewards program. Currently, no adequate incentives exist for whistleblowers to speak up when they might have a chance to stop large scale fraud and prevent the next Madoff or Stanford debacle. How much better off would so many Americans be if someone had exposed Madoff before he defrauded so many investors?

Forbes has run interesting column by Bill Singer, calling for a statute that apples “False Claims Act” whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

We are already seeing the successes of another innovative law based on the same idea, the IRS Whistleblower Program. To stop those who would have you and I carry their share of the nation’s tax burden, private citizens are stepping forward with better and better information to provide to the IRS about significant tax cheating. The quality of the information that our clients are presenting is compelling, and some of it will help stop major abuses of the tax laws.
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New IRS Group to Address Offshore Accounts and Other International Tax Abuses by Wealthy Taxpayers

Offshore tax abuses and tax evasion have kept the IRS quite busy of late. The fast-approaching September 23 deadline for its “voluntary disclosure program,” and its agreement with UBS that will allow it to identify thousands of American taxpayers with offshore accounts, have added momentum to its efforts to combat offshore tax abuses by high net worth taxpayers.

Now, the IRS is creating a new group to “focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment.” It will
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Protecting Whistleblowers from Criminal Prosecution: The Mystery of the UBS Whistleblower’s Prison Sentence

In one of two prominent whistleblower cases in the news this week, whistleblower John Kopchinski will be awarded more than $50 million for his role in exposing improper “off-label marketing” of the drug Bextra by Pfizer. Other whistleblowers also will be rewarded because of this settlement. That settlement of $2.3 billion is the largest in history ($1 billion to settle False Claims Act allegations, and $1.3 billion in criminal fine and forfeiture).

As large as the Pfizer settlement is, the other whistleblower’s actions seem likely to lead to recovery of dollars that could dwarf this $2.3 billion settlement. UBS whistleblower Bradley Birkenfeld has lifted the shroud of secrecy from thousands of American taxpayers’ offshore accounts at UBS. He has given the IRS a foothold into recovering potentially many billions in unpaid taxes owed.

Yet Birkenfeld was recently sentenced to serve 40 months in federal prison for conspiracy to defraud the United States in a tax fraud scheme while at UBS. His conviction also calls into question his ability to receive a reward under the IRS Whistleblower Program from the billions to be collected by the IRS.

How could this happen?

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Latest State “False Claims Act” Is Enacted in North Carolina

We have followed closely the trend of states enacting their own versions of the nation’s chief whistleblower law the False Claims Act. North Carolina has become the newest state to enact its own False Claims Act, which is reprinted below.

We congratulate the State of North Carolina on a momentous accomplishment.
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UBS and IRS Voluntary Discloure Program: Interesting Convergence for IRS Whistleblower Program

Offshore tax abuses have been an IRS priority for some time, but the impending September 23, 2009 deadline for the IRS “Voluntary Disclosure” program–combined with the recent announcement that UBS has agreed with the IRS to release 4,450 names of U.S. account holders–has created a flurry of activity for the IRS.

Anxious taxpayers with exposure cannot be sure that their names are not on the list being produced. Last week, the IRS added a 52nd “FAQ” about the Voluntary Disclosure Program to explain its application to UBS account holders:

Q52. Are UBS account holders eligible to make a voluntary disclosure under the IRS’s offshore Voluntary Disclosure Practice (VDP) announced on March 23, 2009, and set to expire September 23, 2009?

Yes, provided that the UBS account holder is otherwise eligible under the VDP. However, a UBS account holder becomes ineligible to make a voluntary disclosure under the offshore VDP at the time the IRS receives information from any source, including from the Swiss Federal Tax Administration (“SFTA”), UBS, an informant, or otherwise, relating specifically to the account holder’s undisclosed foreign accounts or undisclosed foreign entities.

As part of the agreement with Switzerland and UBS announced by the IRS and the Department of Justice on August 19, 2009, UBS will be sending notices to account holders indicating that their information may be provided to the IRS under the agreement. If a UBS account holder gets this notification from UBS before September 23rd, this notification will not by itself disqualify the account holder from making a voluntary disclosure under the offshore VDP by the September 23rd deadline. Although many of these notices will not be sent by UBS to account holders until after September 23rd, the September 23rd offshore VDP deadline applies to all UBS account holders even if they have not received a notice by that date.(See https://www.irs.gov/newsroom/article/0,,id=210027,00.html).

The IRS Whistleblower Program adds another element of suspense for non-compliant taxpayers. How many of these taxpayers may learn that the IRS Whistleblower Program has already identified them to the IRS?

And if not yet identified, how many taxpayers who will decline the benefits of voluntary disclosure by September 23 will be revealed to the IRS later through the very effective IRS Whistleblower Program?
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Court Agrees with IRS That Hospital CEO Is Personally Liable for Unpaid Payroll Taxes

Health care cases that our lawyers see most often involve whistleblowers who know of violations of the False Claims Act. While we also pursue many IRS violations under the IRS Whistleblower Program, the health care industry is not the source of most of those claims.

In perhaps a new trend, last week a federal court in Florida agreed with the IRS that a hospital CEO is personally liable for failing to pay over to the IRS close to $2 million in payroll taxes. (Doulgeris v. United States, M.D.Fla., August 03, 2009).

Earlier this year, the chairman of the board of a tax-exempt hospital was held personally liable for the hospital’s failing to collect and pay to the IRS payroll taxes, as the Fifth Circuit Court of Appeals affirmed that decision. (Verret v. United States, 5th Cir., 2009). The board chair, however, had extensive involvement in the operations of the entity.

Payroll tax fraud thus appears to remain an IRS priority. The reasoning of the Florida federal judge explains how the CEO was found personally liable for unpaid payroll taxes;
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The “Program Fraud Civil Remedies Act”–A “Mini-False Claims Act”

For a “webinar” on August 11, 2009, I have been asked to discuss not only potential liability under the False Claims Act for false or fraudulent claims to the federal government, but also what has been called the “Mini-False Claims Act”: the “Program Fraud Civil Remedies Act,” 31 U.S.C. §§ 3801-12,

Because it is not feasible for the government to handle under the False Claims Act every conceivable case of a false claim in procurement, the PFCRA was enacted so that smaller claims could be handled in an administrative process.

A major provision of the PFCRA, section 3802, is reprinted below:

Chapter 38. Administrative Remedies for False Claims and Statements
§ 3802. False claims and statements; liability
(a)(1) Any person who makes, presents, or submits, or causes to be made, presented, or submitted, a claim that the person knows or has reason to know–

(A) is false, fictitious, or fraudulent;

(B) includes or is supported by any written statement which asserts a material fact which is false, fictitious, or fraudulent;

(C) includes or is supported by any written statement that–

(i) omits a material fact;

(ii) is false, fictitious, or fraudulent as a result of such omission; and

(iii) is a statement in which the person making, presenting, or submitting such statement has a duty to include such material fact; or

(D) is for payment for the provision of property or services which the person has not provided as claimed,

shall be subject to, in addition to any other remedy that may be prescribed by law, a civil penalty of not more than $5,000 for each such claim. Except as provided in paragraph (3) of this subsection, such person shall also be subject to an assessment, in lieu of damages sustained by the United States because of such claim, of not more than twice the amount of such claim, or the portion of such claim, which is determined under this chapter to be in violation of the preceding sentence.
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Can IRS Whistleblower Program Help Offset Cost of Health Care Overhaul?

How to pay for health care in the United States, as costs inexorably grow?

The IRS Whistleblower Program may help by narrowing the “tax gap”–the difference between taxes owed and taxes paid each year. Treasury’s latest estimate is that $345 billion owed remains uncollected from those who engage in tax fraud, tax evasion, and other tax noncompliance. (“Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance”).

Senate Finance Committee Chair Max Baucus, D-Mont., raised this tax gap with the next IRS Chief Counsel, William J. Wilkins, on July 14: “We’re right now trying to figure how to pay for healthcare reform,” Baucus told Wilkins. “And it’s ironic that coincidentally, the amount we are trying to raise is that amount.”

The new IRS Whistleblower Program should dramatically improve the IRS’s efforts to close that tax gap. In December 2006, Congress authorized rewards of 15-30% paid to IRS whistleblowers who provide information that assists the IRS in collecting amounts owed to the IRS.

For the first time, IRS whistleblowers have an enforceable “right” to receive a reward. Early indications from the clients who have contacted us are that many substantial claims are being presented, including claims of over $1 billion owed to the IRS. (To see how the IRS Whistleblower Program works, see excerpts of this interview with IRS Whistleblower Office Director Steve Whitlock.)

Even the SEC is examining the success to date of the IRS program, in determining how the SEC might encourage and reward whistleblowers who come forward to reveal the next Madoff or Stanford.

Whistleblowers with solid information will help close the tax gap, and avoid imposing new taxes on the rest of the law-abiding Americans who pay their taxes.
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Whistleblower Attorneys Discuss False Claims Act Amendments & “The Most Pressing Issues in Representing Whistleblowers”

At the 20th Annual Convention of NELA, the National Employment Lawyers Association, I recently had the pleasure of moderating a panel discussion of some of the country’s top “whistleblower” lawyers. The topic was “The Most Pressing Issues in Representing Whistleblowers.”

Joining me in this panel discussion were Richard Renner and David J. Marshall. Richard is an attorney with Kohn & Colapinto in Washington, DC. and also serves as Legal Director of the National Whistleblowers Center. David is a partner with Katz, Marshall & Banks, LLP
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