Tax whistleblowers and those considering becoming whistleblowers recently got some good news regarding both the IRS whistleblower program and New York’s tax whistleblower False Claims Act.
On the federal front, news broke late last week that the IRS’s enhanced whistleblower program has finally produced a whistleblower award: $4.5 million paid to an accountant who blew the whistle on a former employer. According to published reports in the Wall Street Journal and elsewhere, the accountant came forward in 2007 after his employer ignored his repeated complaints that the employer was failing to pay federal taxes. Based on the whistleblower’s complaint, the IRS ultimately recovered approximately $20 million in back taxes and interest from the unidentified company, described in some articles as a large financial firm and a Fortune 500 company, and paid the whistleblower 22 percent of the amount recovered.
As reported in my last blog post, tax whistleblowers and those considering becoming whistleblowers recently got some good news regarding both the IRS whistleblower program and New York’s tax whistleblower False Claims Act.
On the state side, potential whistleblowers should be encouraged by the swift-moving developments in the New York attorney general’s office.
Federal employees may find themselves with greater whistleblower protection, if a new bill passes through Congress. The Whistleblower Protection Enhancement Act of 2011, introduced by a bipartisan group of senators, is aimed at strengthening protection for federal employees who disclose fraud and misconduct. The legislation would protect employees who blow the whistle on “gross waste or mismanagement, fraud, abuse, or illegal activity,” as well as those who disclose censorship of scientific or technical information. It will not protect disclosures of disagreements over policy.
On March 24, Senate Finance Committee leaders Orrin Hatch and Max Baucus sent a letter to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) deputy administrator requesting data, benchmarks, and updates on the number of fraud cases and the amount of money recovered. The letter requested quarterly reports on how resources allocated for fighting waste, fraud, and abuse are being used and on the results. These reports are sought to better use additional resources to support fraud-fighting efforts in an HHS-based complement to False Claims Act enforcement.
Under Internal Revenue Code Section 7623(a), the IRS shall pay awards to people who provide “specific and credible information” to the IRS if the information results in the collection of taxes, penalties, interest, or other amounts from a noncompliant taxpayer. Guaranteed awards, however, are limited to individuals who provide information about significant tax issues. “Significant” is defined by the IRS as taxes, penalties, and interest owed in excess of $2 million. Thus, to meet the $2 million threshold—including back taxes, interest and penalties—the noncompliant taxpayer should have an annual gross income of more than $200,000. If the IRS successfully obtains a recovery from such a taxpayer, the IRS is required to pay the whistleblower between 15 and 30 percent of the recovery. If the whistleblower is not satisfied with the reward, he or she may appeal to the U.S. Tax Court. In cases involving less than $2 million, payment of an award to the whistleblower is discretionary, with a maximum of 15 percent of the recovery and no right of appeal.
And he’s off!
In the short time since he assumed office on January 1, 2011, New York Attorney General Eric Schneiderman has made unmistakably clear his commitment to combating fraud against the state.
▪ In announcing the settlement of an $18 million Medicaid whistleblower case on January 18, 2011, he proclaimed that “cracking down on those who try to defraud the taxpayers” will be one of his “top priorities.”
Recent government tallies reveal a surge in False Claims Act filings. By fall of last year, there were 1,246 qui tam cases under seal at the Department of Justice (DOJ) (i.e., pending investigation into whether the government will intervene). That number has grown by almost 100 cases as of last month. This growing caseload is reflected in the raw number of 2010 qui tam filings—over 500—which represents a dramatic 51 percent jump from the number of whistleblower cases filed just two years earlier.
The Department of Justice recently intervened in and settled a False Claims Act case filed by two nurses against their employer, CareSource, an Ohio managed health care company. The settlement resolves allegations that the company caused Medicaid to make payments for assessments and case managements they failed to provide. According to the government’s February 1 press release, as part of the settlement, the whistleblower employees will receive a $3 million share of the federal portion of the $26 million settlement.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 brings a new round of sweeping reform to our nation’s financial system. Under the Dodd-Frank Act, a whistleblower who provides “original information” to the U.S. Securities Exchange Commission (SEC) or the U.S. Commodity Futures Trading Commission (CFTC) is eligible to receive a portion of the proceeds recovered by the government as a result of a successful enforcement action.
The False Claims Act’s “public disclosure bar” can sometimes prevent a whistleblower from pursuing a lawsuit based on information that has been disclosed in particular settings, such as government hearings, government reports, and news reports. In light of this provision, a company facing a potential whistleblower action may consider self-reporting potentially unlawful activity to government authorities before a whistleblower files.
“Beating the whistleblower to the punch” may be a useful strategy in some circumstances, but one should seek legal advice before moving forward. Self-disclosure has become a complicated area, and courts disagree on whether it triggers the public disclosure bar.