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From potential clients seeking information about the new IRS Whistleblower Rewards Program that our attorneys have written about extensively, questions have been asked about the statute of limitations for tax whistleblower cases.

If a whistleblower informant possesses information concerning false of fraudulent tax returns filed with the intent to evade taxes, 26 U.S.C. § 6501(c)(1) provides for no statute of limitations. In the case of a willful attempt in any manner to defeat or evade income tax obligations, once again, the IRS may assess such taxes at any time without regard to a specific statute of limitations.

Thus, in cases involving fraud, these provisions provide no statute of limitations. The same is true in the case of a failure to file a return. If the taxpayer fails to file a return and has earned income on which taxes are owed, once again, these provisions provide for no specific statute of limitations.

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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.

A Virginia home health care provider’s indictment for allegedly using unqualified nurses and nurses aides is yet another example of health care fraud that whistleblowers can help stop.

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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 this form is not necessarily connected to the new IRS Whistleblower Program which came into being in December of 2006.

The Information Referral Form 3949A utilized by the IRS is a form that generically describes suspected tax fraud, but does not include within its provisions an application for a reward under the new IRS Whistleblower Program. The same is true for the old Form 211. While the IRS Form 211 arguably still applies to claims less that $2 million, because the new program pertains specifically to those seeking rewards concerning information for the payment of back taxes in excess of $2 million, we have not seen requirements that individuals applying for rewards use the Form 3949-A or send it blindly to the IRS in Fresno. While the information contained within the Form 3949A can be included in an application for a reward under the new Whistleblower program, simply sending in the Form 3949A may not be the equivalent of applying for the reward under the new Whistleblower Program as described in 26 U.S.C. § 7623.

Regulations on the new Whistleblower Program this fall may shed light on these questions. And again, since the facts vary from case to case and a blog cannot provide legal advice, please contact an attorney with experience with the IRS Whistleblower Program for guidance–either our firm or someone else with this experience.

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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). Maximus had contracted to assist CFSA in submiting claims to Medicaid for services that the District allegedly provided to children in its foster care program. The services were known as “target case management “(TCM) services, which were intended to help foster children with their medical, social and educational needs.

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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 are willing to report them for tax violations.

Under the old IRS Whistleblower Program, the typical whistleblower tipster was an ex-boyfriend, girlfriend, and/or ex-spouse. In spite of information from these sources, over the years the IRS was unable to collect very much by way of back taxes. Indeed, between the fiscal years 2001 and 2005, nationwide the IRS collected a grand total of $27.3 million based on such tips. With the new law now in place, the profile of the tipster has changed. Those coming forward now typically are former Controllers, Chief Financial Officers, and other high ranking executives.

Here at our firm, our experience has been exactly that which Congress attempted to encourage. We have received calls from former CFOs and controllers of companies, accountants and other high ranking executives who are turning in their present or former employers for alleged tax violations. Thus, the kinds of cases that we see now reflect a new profile of the average whistleblower. Unlike the old days where the typical tipster was the ex-boyfriend, girlfriend or spouse, the new whistleblower informant is typically a businessman or woman with significant and verifiable insider information concerning the under reporting of significant amounts of income. This is exactly what Congress intended when it enacted into law the new Tax Whistleblower provisions.

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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 question are when securities firms buy stocks from offshore hedge-fund clients; the banks then pay their clients any principal return and dividends that these stocks generate. Because the fund technically does not hold the stock, the funds escape paying up to 30 percent in taxes on the dividend, according to sources discussed by Reuters.

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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 ordering Bristol Myers-Squibb, AstraZeneca Plc and Schering-Plough Corp. to pay damages for allegedly overcharging on drugs by inflating the “average wholesale price” (AWP).

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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’ constitutional rights had been violated when the government pressured KPMG not to advance the legal fees and expenses of the defendants.

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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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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 government programs funded by the U.S. Department of Agriculture (USDA), the U.S. Department of Labor (DOL), and the Administration for Children and Families of the U.S. Department of Health and Human Services (ACF).

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