The U.S. Government Accountability Office has issued a report on the IRS whistleblower program following a year long audit of the program, its operation and the underlying data generated. The 2015 report concludes that the financial incentives of the rewards program have led to billions collected but that delays and communications problems may discourage whistleblowing.
The Swiss divisions of BNP Paribas and Deutsche Bank AG have agreed to resolve Justice Department investigations into their role in offshore tax evasion by American customers. BNP Paribas agreed to pay nearly $60 million and Deutsche Bank agreed to pay $31 million.
The Internal Revenue Service and its parent, the Treasury Department, have adopted new rules to block companies from moving abroad for lower taxes. The new rules, as well as additional strategies still under consideration to block corporate inversions, are a stopgap measure by the Treasury Department until Congress decides to take legislative action.
If you receive an IRS whistleblower award during the next two years, you will get less than the percentage you are awarded by the Internal Revenue Service. As a result of budget bills imposing sequestration on federal agencies, IRS awards for FY2015 are being reduced 7.3% and FY2016 awards (from October 1, 2015 to September 30, 2016) will be reduced 6.8%, which is the federal budget sequestration rate for the next fiscal year.
There have been a number of big cases in New York dealing with tax law making headlines in the past few days. The False Claims Act in NY does not explicitly exclude false claims concerning taxes, as the Federal FCA does, so whistleblower seeking to bypass concerns about the IRS whistleblower program may file here as well to seek recovery for a smaller set of tax noncompliance.
A decision from the New York Court of Appeals is allowing the State to proceed in its False Claims Act lawsuit against Sprint for damages of around $300 million because of unpaid taxes by the cell phone carrier. The company reportedly failed to collect more than $100 million in taxes from New York customers and provide them to the State. Attorney General Eric Schneiderman’s office is leading this litigation.
In another case out of New York State, a professor at Indiana University is proceeding with a whistleblower lawsuit claiming Citigroup owes New York State $800 million in taxes as a result of the TARP bailout. With treble damages, the amount sought in the lawsuit under the New York False Claims Act is $2.4 billion.
The case stems from a decision by the U.S. Treasury to allow deductions for corporate losses. The whistleblower published a discussion paper on the Treasury’s exemption in 2011. Citigroup applied the Federal exemption to its state taxes as well. According to the individual, the Treasury exemption was not proper under federal law and even if it was, New York was not required to honor it.
New York declined to intervene and prosecute the case itself, but the lawsuit can continue on behalf of the people of New York under the whistleblower law. If the Indiana economist is able to recover, he will be entitled to a percentage of the reward between 25 and 30 percent (standard in these types of cases).
To finish out the trio of big cases in New York, there is a whistleblower lawsuit against Vanguard for unpaid taxes. The case brought by a former in-house tax attorney, claims improper transfer pricing in violation of NY tax law. Last month, a report commissioned by the whistleblower’s attorneys was sent to the IRS and SEC detailing the billions owed by the company for its wrongdoing.
The Wall Street Journal is reporting that internal and government investigations into suspected violations of the Foreign Corrupt Practices Act (FCPA) by Wal-Mart Stores have not turned up the evidence of a massive bribery scheme that many commentators expected. Instead, the FCPA investigation discovered millions of dollars in improper payments to Indian officials to speed goods through customs or secure real estate permits but most of these payments were in small amounts of between $5 and $200.
However, there is still time for additional evidence to be uncovered before government officials make up their mind as to the potential size of any fine for the FCPA violations. One event that might alter the landscape of potential penalties would be if a whistleblower came forward with additional evidence and testimony concerning. The SEC whistleblower program incentivizes individuals with the promise of rewards of between 10 and 30 percent of monetary sanctions over $1 million that result from the information provided.
This series of events happened during the Government’s investigation into Countrywide. One of the mortgage whistleblowers in the case came forward with information about the Hustle loan program after the government investigation did not reveal the major misconduct.
The Government investigation of Walmart started in 2012 following public revelations by the New York Times and involved two dozen attorneys, investigators and agents at the DOJ, SEC, FBI and IRS. The results of the federal investigation reportedly match the results of the company’s own investigation.
Wal-Mart has spent more than $650 million as part of its investigation and efforts to bolster compliance. Initially starting in Mexico, it expanded to include, at a minimum, China, India and Brazil. Siemens AG, which paid $800 million to settle the investigations by the DOJ and SEC into its own bribery charges, reportedly spent more than $1 billion on its investigation and global remediation.
The article predicts that the potential government fine of WalMart will be well below previous estimates. In 2012, a Business Insider article calculated how the penalty imposed on the world’s largest retailer could reach over $13 billion. Instead, the Wall Street Journal surmised that because most of the bribery occurred in India and the company earned little profits in the country, there would be a relatively limited fine.
The WSJ story also suggests that there may not be any criminal charges against executives of Wal-Mart. Following the New York Times story concerning the potential cover up of millions of dollars of bribery in Mexico, this seemed unlikely. A grand jury was convened in the case but the status of it was not revealed by the article.
If you have evidence of bribery by a publicly traded corporation, contact one of our FCPA whistleblower attorneys for assistance reporting it to the U.S. Government. An attorney can be reached via our contact form or by calling 1-800-590-4116.
The IRS Whistleblower program has recovered more than $1 billion since the Internal Revenue Service expanded its tax whistleblower program in 2007, according to Gene L. Dodaro, the Comptroller General of the United States in prepared testimony before the Senate Finance Committee.
However, that amount is a drop in the bucket compared to the annual net tax gap, which is estimated to be $385 billion. The tax gap is the difference between the amount that should be collected by the IRS and what is actually taken in by the U.S. Government.
The IRS has taken a number of initiatives in recent years in order to reduce the tax gap. Many of these relate to offshore tax evasion, where there has been extensive focus. Most recently, the IRS has been implementing FATCA, the law which requires reporting of offshore assets and incomes of American citizens. We think that this could potentially be a big area for whistleblowing in the future – similar to the Foreign Corrupt Practices Act for the Securities and Exchange Commission.
On that note, there have been some signs that the IRS program for whistleblowers is picking up recently, as two law firms have announced rewards for clients recently. However, the office had been heavily criticized last year due to the lack of communication with individuals submitting tips and a perception of insufficient numbers of awards based on .
Part of that blame may lay with Congress. Lower funding of the agency has reportedly led to less resources for collecting money owed and pursuing enforcement actions. The IRS budget was cut more than $1.2 billion between fiscal years 2010 and 2015.
The $1 billion collected from whistleblowers is still a great accomplishment. Yet, the figure reveals just how much larger the False Claims Act is then the IRS program. Every year recently, whistleblowers have helped the federal government recover more than a billion dollars under the False Claims Act. The law did get a substantial head start with its amendment by Congress in 1986, nearly 20 years before the IRS program was expanded in 2006-2007.
If you have questions about the whistleblower law, or have evidence of corporate wrongdoing that you wish to report, feel free to contact one of our IRS whistleblower attorneys via our contact form or by calling 1-800-590-4116.
Coca-Cola recently announced that the Internal Revenue Service is seeking $3.3 billion in extra taxes plus interest following an audit of tax years 2007 through 2009. The dispute involves how profits from foreign countries are recorded and taxed because of the licensing of properties to overseas businesses in countries with lower taxes.
This issue could produce huge tax whistleblower rewards, as Coke is not the only business to be in a dispute of this sort with the IRS. Amazon and Microsoft are also involved in disputes over transfer pricing, the amount of income that is properly attributed to different jurisdictions in intracompany transactions. It is unlikely they are the only businesses with this issue. If businesses book income in low-tax countries and leave the profits there, they are able to avoid being taxed at the higher rates applied to income in the United States.
IRS whistleblowers are eligible for rewards of between 15 and 30 percent of the amount recovered by the IRS after the individual submits the information through the tax whistleblower program when the amount in dispute exceeds $2 million. If there was an individual behind this enforcement action, the resulting award could be the largest ever.
For years, the IRS has been going after individuals and businesses for offshore tax evasion. And this led to the largest reward in the history of the program, just over $100 million to one individual. However, in the past, the issue has involved unreported income and assets overseas. These disputes involve the allocation of the income and profits for tax purposes.
Coca-Cola disclosed the information in a filing to the SEC. The chief counsel at the IRS has recommended the matter be litigated. It will probably be several years before we find out whether there are whistleblowers behind these types of cases.
If you have questions about this aspect of tax law, or have evidence of corporate wrongdoing that you wish to report, feel free to contact one of our IRS whistleblower attorneys via our contact form or by calling 1-800-590-4116.
The Internal Revenue Service has issued new guidance on taxation of corporate spinoffs in light of a number of announced spinoffs of investment or real estate assets by publicly traded companies in order to unlock shareholder value.
The guidance indicates that the tax authority has concern about these spinoffs. The deal is tax-free when it follows IRS rules, but it must include an “active trade or business.” Real estate and investment assets generally don’t qualify as an active business, so companies have been including a small business unit along with it to make it tax free. For retailers and restaurants spinning off property to investors, the IRS is concerned the transaction is nevertheless more like a dividend payment than it is a splitting of two businesses. The size of the business unit in some examples is dwarfed by the investment asset. The IRS plans to stop pre-approving deals while it considers the best way to handle these transactions for tax purposes.
Earlier this month, the IRS refused to give advance approval to Yahoo’s spinoff of Alibaba. Yahoo asked the IRS to indicate whether the web company would be required to pay taxes on the spinoff. The IRS did not issue an adverse ruling, but did not declare that the company would not be charged a multibillion-dollar tax bill if it proceeded with the spinoff. Yahoo was not mentioned specifically in the new IRS guidance.
A company that proceeds with a transaction in spite of the tax consequences and does not pay taxes on the event could be reported through the IRS whistleblower program, which pays 15 to 30 percent of the tax proceeds collected by the agency as a result of the information, subject to eligibility and other rules developed for the program. If you have questions about this, or have evidence of corporate wrongdoing, feel free to contact one of our IRS whistleblower attorneys via our contact form or by calling 1-800-590-4116.
After years of facing criticism for its handling of the IRS program and a dearth of rewards, two law firms have now announced payouts in the last month by the IRS whistleblower program. Both have expressed optimism that the Internal Revenue Service is starting to get on track with the investigation and payment of rewards based on tax whistleblower tips.
Unlike the SEC, the IRS does not typically announce payouts due to privacy issues. Instead, it issues an annual report to Congress which details the number of tips received and the number of payouts annually. The one exception was the $104 million award to Brad Birkenfeld, which the IRS confirmed pursuant to a waiver signed by Birkenfeld.
The most recent announcement involves the payout of rewards to three clients of a local Philadelphia law firm in cases of corporate tax fraud. The rewards were paid out under section 7623(b), which is the mandatory whistleblower reward program developed in 2006-2007 at the direction of Congress. The rules were finalized last year.
The latest announcement indicated that their three clients helped the IRS acquire more than $48 million for the U.S. Treasury because of the information provided about the tax noncompliance. The IRS program pays between 15 and 30 percent to eligible whistleblowers as a reward.
In a letter this summer to Senator Chuck Grassley concerning the IRS program sent from IRS Commissioner John Koskinen, former Director Stephen Whitlock estimated that 6 to 12 awards would be paid out in FY2015. Prior to this year, there had only been 12 payouts under the mandatory program. However, the office has repeatedly emphasized that process can take 5 to 7 years to reach a successful enforcement action and whistleblower reward.
If you have questions about this or another aspect of the IRS whistleblower program rewards, feel free to contact one of our tax whistleblower attorneys via our contact form or by calling 1-800-590-41