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Whistleblower Blog

With Wall Street Bailout, Whistleblowers to Reveal Fraud and Abuses Through IRS Whistleblower Claims and Qui Tam False Claims Act Cases?

Will the IRS Whistleblower Program and the False Claims Act be powerful weapons in redressing the fraud and abuse that led to the current financial crisis–and to the future fraud and abuse that is certain to target the “bailout” billions of taxpayer funds?

Fraud and abuse have never been in short supply. The ongoing financial crisis points to staggering amounts of past financial abuses that now threaten to wipe out Americans’ savings, if not undermine the world economy.

Now, the federal government’s stated
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1st Annual Report on New IRS Whistleblower Program Issued by Secretary of the Treasury

When Congress authorized the new IRS Whistleblower Program in December 2006, it required annual reporting to Congress about how the new whistleblower provisions have been used, what results were obtained, and what recommendations to improve the program should be considered.

The Secretary of the Treasury has recently issued the first such Report, which summarizes the first 12 months of the new IRS Whistleblower Office.

For those who follow the IRS Whistleblower Program, the Report provides a look into the substantial progress made in a short time by this very small group within the IRS. These developments have been followed on this whistleblower lawyer blog since the infancy of the IRS Whistleblower Office.

Much-anticipated data about recoveries and rewards paid under the IRS Whistleblower Program is included in the Report. In FY 2007, the IRS paid $13 million in rewards to “informants” (whistleblowers), but those rewards were based on the lower percentages that applied before the IRS Whistleblower statute was amended effective December 20, 2006, to double the size of rewards available to 15-30% of the government’s recovery. Rewards for IRS Whistleblower claims submitted after December 20, 2006 should be much greater, especially since the new Program has generated a wave of submissions.

The IRS’s priorities for the Whistleblower Program in FY 2008 include revising old policies and procedures concerning whistleblower rewards, developing the criteria to be used in making reward decisions, soliciting feedback to help guide the new Program, and testing and then deploying a new case management system. (Some of the same information will be discussed in an upcoming article on “best practices” in pursuing IRS Whistleblower claims that I was requested to write for the TAF Quarterly Review, based on my interview of IRS Whistleblower Office Director Stephen Whitlock in early September.)

We congratulate the very capable staff of the IRS Whistleblower Office for all of their progress to date. For those interested in reading the full Report, the body of the Report is reprinted below:
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IRS Whistleblower Office Director and Tax Court Judge Gather with Whistleblower Attorneys

For the second time since the new IRS Whistleblower office was created in early 2007, IRS Whistleblower Office Director Stephen A. Whitlock addressed questions from whistleblower attorneys at the Taxpayers Against Fraud annual conference yesterday in Washington. Joining him as panelists were U.S. Tax Court Special Trial Judge Lewis R. Carluzzo; Professor Dennis J. Ventry, Jr. of American University’s Washington College of Law; Erika Kelton of Phillips & Cohen LLP; and as moderator Paul D. Scott of the Law Offices of Paul D. Scott.
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Dismissal of Fraudulent Tax Shelter Charges Against Former KPMG Partners Is Upheld by Appellate Court

As this whistleblower lawyer blog has discussed before, accounting firms that promote fraudulent tax shelters are prime targets of IRS enforcement efforts (often assisted by IRS tax whistleblowers).

In a decision last week, the prosecution of 13 former KPMG partners and other executives for their alleged involvement in fraudulent tax shelters was thwarted–again. A panel of judges from the Second Circuit Court of Appeals affirmed the trial judge’s dismissal of the charges against these KPMG defendants.

The court did not find the
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Attorney Assisting Offshore Tax Evasion Is Rewarded With Prison Sentence and Judgment to PAy of $2.7 Million

As this whistleblower lawyer blog has written about often, abuses of offshore transactions have increasingly become a target of IRS enforcement efforts. A Utah attorney learned this lesson last week when he was sentenced to ten years in prison, and was ordered to pay $2.7 million, for his role in an offshore tax evasion scheme that deprived the government of more than $20 million in taxes.

Attorney Dennis B. Evanson of Sandy, Utah, was convicted of conspiracy to commit mail and wire fraud,
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New Jersey Medicare Contractor Settles Health Care Fraud Case under False Claims Act

The Medicare program depends on the integrity of “trusted contractors” to process and pay Medicare claims. This past week, one of those “trusted contractors” operating in New Jersey, BlueCross BlueShield of Tennessee, agreed to pay the federal government $2.1 million to resolve allegations that it violated the False Claims Act.

BlueCross BlueShield of Tennessee operated as the primary Medicare Part A Fiscal Intermediary for New Jersey, under the name “Riverbend Government Benefit Administrators.”

The government had alleged that BlueCross BlueShield of Tennessee “failed to
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OIG Approves False Claims Acts of California, Georgia, Indiana, and Rhode Island, But Disapproves False Claims Acts of Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma

The wave of new State False Claims Acts has generated a flurry of letters from the Office of Inspector General of HHS this past week. OIG has now “approved” the new State False Claims Acts of California, Georgia, Indiana, and Rhode Island, but has “disapproved” those of six other states: Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma.

As this whistleblower lawyer blog has written about extensively, Congress has created financial incentives for states to enact their own versions of the highly
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New Whistleblower Law Promotes Consumer Product Safety

On July 31, Congress enacted a new Whistleblower Law designed to promote consumer product safety. The new federal legislation specifically was enacted to protect public and private sector employees who disclose to their employers, a regulatory agency or a state Attorney General any perceived violation of the Consumer Product Safety Commission. The law also provides protection for employees who refuse to participate in violations of the Consumer Product Safety Commission Act. Obviously, the purpose of this legislation was to protect employees who, in good faith,
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IRS Announces Process for Review of Whistleblower Claims by IRS Large and Midsize Business Division (LMSB)

As another step toward the further development of the new IRS Whistleblower Program, our friends at the IRS Large and Midsize Business Division (LMSB) in Lower Manhattan have announced a three-step process for IRS Whistleblower claims that are eligible for the new “rewards” authorized by Congress in December 2006.

IRS Commisioner Frank Ng describes it as a “process for analyzing informant information and disseminating it to the field” for claims with at least $2 million in question, which is the threshold amount for whistleblowers
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Judges Address New State False Claims Act in Georgia

At the annual “Continuing Judicial Education” conference in St. Simon’s Island, Georgia this week, I was honored to be invited to speak to the assembled judges about the new state False Claims Act in Georgia, the State False Medicaid Claims Act.

As this whistleblower lawyer blog has written about extensively, there is a wave of new state False Claims Acts across the country, as Congress has urged states to replicate the dramatic successes of the federal False Claims Act in stopping those
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Financial Fraud Cases Under False Claims Act Continue, As Deutsche Bank and MortgageIT Face Mortgage Fraud Suit

The 2008 financial sector collapse has led to another False Claims Act case against financial institutions. Today, Deutsche Bank and MortgageIT were named in a mortgage fraud case under the False Claims Act, filed by U.S. Attorney Preet Bharara of the Southern District of New York.

The government’s Complaint alleges that Deutsche Bank and MortgageIT “repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules
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Tax Whistleblower Rules to “Expand” Whistleblower Program Actually Restrict and Discourage Participation, Say Whistleblower Lawyers

Earlier this week we wrote about our urging the IRS to remain true to Congress’s plain intent to attract a greater number and variety of tax whistleblower claims. Our written comments on changes needed to the IRS Whistleblower regulation were published in today’s Tax Notes.

We will be in Washington on May 11 to address the IRS in person. In the meantime, here is some additional discussion of why these changes are so important.

As the annual deadline for filing state and federal income tax returns has passed, honest taxpayers might be shocked to learn that the government will experience an estimated $350 billion shortfall between what is owed and what is collected, thanks to those who cheat on their taxes. To help plug the multi-billion-dollar tax gap, the IRS has instituted new whistleblower rules, but Michael A. Sullivan, a leading whistleblower lawyer, says the IRS needs to revamp its rules dramatically to encourage participation by the public to help the government recoup what is owed. Sullivan and Richard Rubin, an Atlanta-based federal and international tax attorney, plan to address the IRS in Washington, D.C. May 11 on how the rules can be revised to accomplish the law’s intended goals.

“The new rules are supposed to help citizens participate in closing the almost $350 billion tax gap by removing roadblocks to whistleblowers making claims, and by facilitating reward payments from those claims”

.Earlier this year, the Internal Revenue Service responded to sharp criticism of its existing rules by Senator Chuck Grassley (R-Iowa) by announcing new rules to broaden the kind of claims that will merit rewards to whistleblowers who alert the authorities to fraudulent taxpayers. However, Sullivan, attorney with Atlanta-based Finch McCranie, LLP, and author of the leading whistleblower blog, https://www.whistleblowerlawyerblog.com, says the new rules do not address key obstacles and create pointless delays for whistleblowers, which ultimately discourage citizens from reporting fraudulent taxpayers to the IRS. According to Sullivan, the new rules actually limit payment of whistleblower rewards in certain types of cases and thwart the intent of Congress to expand those rewards.
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New IRS Whistleblower Rules Still Need Substantial Changes

Since tax returns were due today, it was fitting that today was the deadline for comments on an important proposed new regulation for tax whistleblower claims.

We have submitted formal comments today to the IRS excerpted below, and have asked to speak to the IRS to urge important changes on May 11 in Washington. We thought it important to explain the history of Congress’s 2006 changes to the IRS whistleblower law–and emphasize that its clear intent was to attract a greater number and variety of tax whistleblower claims.

We believe the IRS needs to remain true to that principle, and thus amend its proposed regulation to reward any whistleblower who creates a financial benefit to the Treasury. That principle will dramatically simplify–and enhance–the IRS Whistleblwoer rules. We have also advocated to end needless delays in the program.

Exceprpts of our formal comments to the IRS are reprinted below:
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First Reported IRS Whistleblower Award Is Made–Finally!

The floodgates may be opening for the IRS Whistleblower program for tax whistleblowers, which we have written about since its birth in late 2006.Today, a law firm announced that its client received yesterday a $4.5 million award after filing a Form 211 reporting tax violations by a financial services firm.

The IRS Whistleblower Office cannot comment, as whistleblower information is protected by section 6103 of the the Internal Revenue Code. The whistleblower has elected to remain confidential, as the IRS rules allow.

The
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International and Offshore Tax Whistleblower Issues Among Topics for Next IRS Whistleblower Boot Camp

We have written about the first two highly successful “IRS Whistleblower Boot Camps” in 2009 and 2010, at which the IRS Whistleblower Office and whistleblower lawyers gathered to discuss the latest developments in pursuing tax whistleblower cases. It is sponsored by Taxpayers Against Fraud.

The Third Annual IRS Whistleblower Boot Camp will be held on April 12 in Washington, D.C.

Because the IRS has increasingingly focused on international and offshore tax issues, I will be moderating the panel discussion on “International and Offshore Tax Whistleblower Issues.”

Joining me on this panel will be Robert Gardner, IRS Whistleblower Office Senior Program Manager; Donna Hainsbury, Director of the new IRS Global High Wealth Division; and Julio LaRosa, Deputy Director, International Crimes, of the IRS Criminal Investigative Division.

This will be another meaningful opportunity to work with IRS Whistleblower Office Director Steve Whitlock, his staff, and other IRS personnel to discuss the latest developments in the first meaningful IRS Whistleblower program.Whistleblower Lawyer Blog Co-Author Michael A. Sullivan (left) moderates a 2009 IRS Whistleblower Boot Camp panel discussion with IRS Whistleblower Office Director Steve Whitlock (right).For more information about the 2011 IRS Whistleblwoer Boot Camp, feel free to email me here.
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IRS Whistleblower Rules For Disclosure of Tax Return Information to Whistleblowers and Their Attorneys

The IRS announced today final regulations for sharing of tax return information with IRS whistleblowers and their lawyers, as the IRS pursues tax whistleblower claims.

Under these regulations, officers and employees of the Treasury Department may disclose tax return information to whistleblowers and, if applicable, their legal representatives, in connection with written contracts for services. (See our updated comments on why this rule and IRS practice should change dramatically, as the procedure has never been used.)

In theory, that sharing of information should
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Offshore Alert Conference: Protecting Whistleblowers from Criminal and Civil Liability

Of interest to whistleblowers reporting fraud under the False Claims Act, the IRS Whistleblower Program, or the brand new SEC Whistleblower and CFTC Whistleblower Programs is an upcoming presentation, “Avoiding the Mistakes of the UBS/Birkenfeld Case: Protecting Whistleblowers from Criminal and Civil Liability.”

This discussion is part of a fascinating gathering this April in South Beach–the OffshoreAlert Conference. As the brochure promises:

Where else could tax collectors mingle with tax minimizers, asset tracers with asset protectors, regulators with the regulated, whistleblowers with their former employers and crooks with prosecutors?

How to protect whistleblowers from criminal and civil liability was a topic my panel discussed at the 2010 IRS Whistleblower Boot Camp in Washington. Because we had the IRS Chief Counsel’s Office participating in that discussion, we were unable to discuss directly what went wrong for Birkenfeld as he brought important information about tax evasion to the attention of the IRS, but ended up serving a prison sentence of 40 months. (We have written previously about Birkenfeld’s errors revealed in the court record.)

At the OffshoreAlert Conference discussion this year, I will moderate the panel discussion about what can be done to protect whistleblowers from criminal and civil exposure. Joining me are former Justice Department official and former General Counsel of the U.S. Department of Homeland Security Joe D. Whitley; former prosecutor and now whistleblower attorney Marc Raspanti; and federal and international tax attorney Richard Rubin.

The program description is reprinted below:
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SEC Whistleblower Office Has First Director–Sean McKessy

Just as we have followed closely the development of the IRS Whistleblower program since Congress authorized it in December 2006, we are watching the birth of the new SEC Whistleblower program. In 2010’s Dodd-Frank Financial Reform law, Congress mandated the creation of what could be the first meaningful SEC and CFTC Whistleblower programs.

Today, the SEC took a major step in announcing the first head of the nascent SEC Whistleblower Office: Sean McKessy, a former Senior Counsel in the SEC’s Division
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SEC Resolves FCPA Case With Maxwell Technologies, Inc. Alleging Millions in Bribes to Chinese Officials

As we have discussed previously, bribery of foreign government officials is the subject of many cases filed by the SEC under the Foreign Corrupt Practices Act. Those cases, which often bring significant recoveries, will increase in number as a result of rewards to whistleblowers under the new SEC Whistleblower program that we have followed.

The SEC today announced the successful conclusion of an FCPA investigation of Maxwell Technologies, Inc. The SEC announced it had filed a “settled” case through which Maxwell agreed to
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New IRS Offshore Account Disclosure Program Takes Shape

As the IRS continues its increasing focus on international tax issues, a new IRS offshore disclosure program announced in December continues to take shape. While the IRS has not made public a full description of the program, details have emerged in comments of IRS officials over the past weeks.

Using the 2009 IRS voluntary disclosure program as a template, the IRS is apparently tweaking the approach that generated approximately 15,000 disclosures in the 2009 effort.

The IRS Criminal Investigative Division (“CI”)–already quite busy
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