Posts Tagged ‘tax fraud’

IRS Pays $104 Million Whistleblower Reward—Largest Whistleblower Payment By IRS Ever

September 12, 2012

From James Bond movies to today’s political debates, the “Swiss Bank Account” has always held an extreme veil of mystery.  The stereotype is that extraordinarily wealthy individuals—often with money that has not been legally acquired—hide their fortunes in secret and inaccessible Swiss bank accounts.  While the truth about these bank accounts is often less dramatic than the stereotype, yesterday’s announcements about what is believed to be the largest payment by the Internal Revenue Service (IRS) to a whistleblower did shed some light on the depth of the fraud involving these accounts that does actually (or allegedly) take place.

UBS, one of the largest banks in Switzerland, was accused of using various schemes to encourage American citizens to evade their taxes by opening and using accounts with UBS.  Bradley Birkenfeld, a former banker at UBS, gave the IRS valuable insider information that helped them uncover the Swiss bank’s illegal offshore banking scheme.  Birkenfeld was called “an unlikely crusader for tax fairness” by the New York Times.  He worked for UBS for five years and managed around $20 billion in assets for his American clients.  Once he learned that the bank was giving illegal advice to his clients though, he decided to report them to the government.  Although he did provide the IRS with information valuable enough to warrant this large payment, Birkenfeld was accused of fraud for withholding information from federal investigators.  In 2008, he pleaded guilty to the accusations and served nearly three years in prison.  Birkenfeld was released on August 1 of this year.

As a direct result of the information Birkenfeld provided, UBS paid the US government $780 million in 2009 to avoid criminal prosecution.  Additionally, the bank agreed to turn over account information for over 4,500 American clients.  Because of the bank’s disclosures, more than 14,000 Americans voluntarily joined a tax amnesty program—resulting in the recovery of over $5 billion in unpaid taxes.  More individual accounts are still being investigated by the IRS.

In addition to the significant recoveries the IRS has made and is continuing to make as a result of this investigation, yesterday’s announcement marks a large step forward for the IRS Whistleblower Office.  The agency has received harsh criticism for its apparent lack of interest in the whistleblower program.  Since being revamped in 2006, there have been few publicized cases where the program paid a whistleblower a reward for insider tax fraud information.  Hopefully, this announcement is a sign that the IRS’s whistleblower program is making progress and is vigorously pursuing tips provided by whistleblowers.

For more information about tax fraud and how best to report it to the IRS, contact the experienced attorneys at Tycko & Zavareei for a free consultation.

We suggest reading some of the following articles for more about Mr. Birkenfeld and the IRS investigation of UBS:

United States Agrees to Intervene in False Claims Lawsuit Against Japanese and US Companies

May 7, 2012

Last week, the Department of Justice announced its decision to intervene in a False Claims Act lawsuit against Japanese company Toyo Ink Manufacturing Co. Ltd. and its three US subsidiaries.  The subsidiaries are Toyo Ink International Corp., located in New York; Toyo Ink America LLC, located in Illinois; and Toyo Ink Manufacturing America LLC, located in New Jersey.  Toyo Ink is the world’s leading printer ink provider with operations across the globe.

According to the allegations, the Toyo Ink companies knowingly lied about the country of origin on customs documents in order to avoid paying antidumping and countervailing duties on imports of a certain type of ink, CVP-23.  Companies who import CVP-23 from China and India have been required to pay these taxes since 2004.  Toyo Ink allegedly listed Japan and Mexico, countries that the United States does not require these taxes for, as the countries of origin for its CVP-23 ink.  By doing this, they were allegedly able to avoid the import taxes.  Notably, Toyo’s CVP-23 ink did undergo a finishing process in Japan and Mexico; however, the complaint suggests that this is not sufficient to alter the country of origin and avoid paying the taxes.

This lawsuit was filed under the qui-tam provisions of the False Claims Act in the United States District Court for the Western District of North Carolina by whistleblower John Dickson.  Dickson learned of Toyo Ink’s alleged fraud and filed his case.  When a whistleblower files a lawsuit under these provisions of the False Claims Act, the government can elect to intervene and take over the case, as it has done in this situation.  If the case is successful, the government can recover up to three times its damages plus civil penalties.  Additionally, depending on the circumstances, the whistle blower may be entitled to up to 30% of the government’s recoveries.

Keep an eye out for more updates on this case and to learn how it plays out.  To learn about other types of fraud, check out our website at www.fraudfighters.net.

Noble Jewelry Limited to pay $3.85 Million for Decade Long Customs Fraud Scheme

September 6, 2011

On August 31, 2011, the Manhattan US Attorney’s Office announced that the United States had filed and simultaneously settled a civil customs fraud lawsuit against Noble Jewelry Limited, an international jewelry company based in Hong Kong, and its related New York State corporations.  The qui tam lawsuit was filed under the False Claims Act by a whistleblower who learned about the company’s fraudulent conduct.  The Manhattan US Attorney’s Office and the Office of US Immigrations and Customs Enforcement’s Homeland Security Investigations conducted an extensive investigation into the whistleblower’s complaint and subsequently intervened in the case.  The whistleblower will receive approximately 19 percent of the 3.85 million dollar settlement as a reward for disclosing Noble Jewelry’s fraudulent activity.

The complaint alleged that Noble Jewelry used fake invoices to cheat the United States out of more than $1 million in customs duties over the course of a decade.  As part of the settlement, the company acknowledged that between 1998 and 2010 it repeatedly submitted false customs declarations that understated the value of the goods being imported, maintained separate invoices reflecting the goods’ correct value, actively tried to avoid detection, and deprived the Government of thousands of dollars in customs duties.

Accountant Who Tipped-Off IRS About Tax Fraud Receives $4.5 Million Reward; The First Award Issued By The IRS Whistleblower Office

April 29, 2011

An in-house accountant disclosed a tax fraud scheme by his former employer, a financial services firm, to the IRS that ultimately resulted in the IRS recovering approximately $20 million in unpaid taxes, penalties, and interest.  As a reward for disclosing the fraud, the whistleblower received a $4.5 award under the IRS Whistleblower Program.  This is the first ever award issued by the IRS under the program, which was established in December 2006.

According to the terms of the program, if a whistleblower provides information that results in the IRS recovering more than $2 million in taxes, penalties, and interest, then the IRS is required to pay the whistleblower between 15-30% of what is ultimately recovered.  Although this was the first such award issued by the IRS, the Whistleblower Office currently has many cases under investigation.

Verizon Pays $93.5 Million To Resolve Allegations That It Overcharged Government Under Telecommunications Services Contracts

April 8, 2011

On April 5, 2011, the U.S. Department of Justice announced that Verizon Communications, Inc. has paid the Government approximately $93.5 million to settle a lawsuit brought under the False Claims Act alleging that the company improperly invoiced the Government Services Administration (GSA) for a variety of federal, state, and local taxes and surcharges in violation of government-wide voice and data telecommunications services contracts.  According to the lawsuit, Verizon submitted false claims for reimbursement of property taxes, common carrier recovery charges, and unallowable surcharges that are not directly reimbursable under the GSA contracts.

New York Attorney General Plans To Use New Whistleblower Law To Crack Down On Tax Fraud

January 21, 2011

Last summer, then senator Eric Schneiderman shepherded through the New York legislature a bill to expand the state’s whistleblower statute to include tax fraud.  Now, as the state’s new attorney general, Mr. Schneiderman has pledged to use the law to aggressively pursue tax evaders.  Under the law, a citizen can bring a lawsuit against an individual or company with annual net revenue of over $1 million for defrauding the state of over $350,000 in tax revenue by making a false claim.  Violators may be held liable for up to three times the amount of money actually owed to the state, as well as being required to pay penalties of up to $12,000 per false claim.  As a reward for disclosing the fraud, whistleblowers can receive up to a 25 percent share of the amount recovered by the state through either settlement or judgment, if the state decides to pursue the case, and up to 30 percent of the amount recovered on behalf of the state if the state decides not to intervene in the case and the whistleblower proceeds on his or her own.

The New York law is the first state provision to allow whistleblowers to receive a reward for disclosing evidence of tax fraud.  Other whistleblower statutes, including the federal False Claims Act, specifically exclude tax fraud – although the IRS has its own whistleblower provision to permit recovery for disclosure of schemes to defraud the federal government out of tax dollars.

We at Fraudfighters hope other states follow New York’s lead end expand their own whistleblower provisions to include tax fraud.

For-Profit College Grand Canyon Education Agrees To Pay $5.2 Million To Settle False Claims Act Lawsuit

August 20, 2010

On August 18, 2010, the for-profit college Grand Canyon Education, Inc. announced that it will pay $5.2 million to settle a lawsuit alleging that the company’s compensation practices with respect to its enrollment counselors were improper and violated the False Claims Act.  The qui tam lawsuit was filed in August 2007 by a then-current Grand Canyon employee.

Mobil Gas Agrees To Pay $32.2 Million To Settle Lawsuit Alleging It Underpaid Royalties On Federal And American Indian Land Leases

April 7, 2010

On April 5, 2010, the U.S. Department of Justice announced that it has entered into a settlement agreement with Mobil Natural Gas Inc. and its affiliated entities to resolve allegations that the companies violated the False Claims Act by underpaying royalties owed pursuant to Federal and American Indian land leases.  Gas companies are required to report the value of natural gas produced from federal and American Indian lands on a monthly basis and pay a percentage of that value as royalties to the federal government.  According to the qui tam lawsuit filed on behalf of the Government by a whistleblower, defendant Mobil engaged in a variety of practices, such as claiming excessive deductions for the cost of transporting the gas, in order to under-report the value of the gas produced each month, thereby decreasing the amount of royalties owed to the Government.  Mobil has agreed to pay the Government $32.2 million to settle the lawsuit, $975,000 of which will be paid to the whistleblower as a reward for exposing Mobil’s fraudulent activity.  Because the whistleblower is deceased, the reward will be passed on to the whistleblower’s heirs.

Oil Giant Chevron Agrees To Pay $45 Million To Settle Allegations That It Submitted False Claims To Government To Reduce Royalties Owed Under Federal And Indian Land Leases

January 14, 2010

On December 23, 2009, the U.S. Department of Justice announced that Chevron Corporation has agreed to pay approximately $45 million to settle a qui tam lawsuit alleging that the company violated the False Claims Act by submitting false claims to the Government in order to reduce the amount of royalties it was required to pay according to federal and American Indian land leases.  More specifically, the lawsuit asserted that for over a decade Chevron systematically underreported the value of natural gas that it was taking from federal and Indian lands in order to decrease royalties owed under land leases.  The whistleblower that brought the qui tam lawsuit on behalf of the Government was entitled to approximately $12 million as his share of the settlement.  Because the whistleblower died while the lawsuit was pending, his share will be distributed to his heirs.

Tax Whistleblower Statistics Reveal A Slow Moving Process

October 10, 2009

In a report issued recently, the Treasury Inspector General for Tax Administration discusses the IRS’s efforts to implement the whistleblower provisions of the Tax Relief and Health Care Act of 2006, which created Section 7623(b) of the Internal Revenue Code.  That section provides that the IRS will pay between 15% and 30% of the amount it collects to a whistleblower if the collection is the result of information provided by the whistleblower.  Section 7623(b) generally applies only to cases where the unpaid taxes and penalties exceed $2 million.  And to claim the 15-30% rewared, the tax whistleblower must follow certain procedures and (this being the IRS) must complete and submit the correct IRS forms.

The report contains some interesting statistics about what has been happening with tax whistleblower claims since Section 7623(b) became law in 2006.  The statistics in the report are as of March 30, 2009. 

First off, the report indicates that the IRS has paid no awards  to whistleblowers under Section 7623(b).  This is not really all that surprising, given how slowly tax proceedings move. 

The report indicates that 1,973 whistleblower claims have been filed under Section 7623(b).  Of those, 297 have been rejected, while 160 have been “reclassified” because they involved amount below the $2 million threshhold.  Of the remaining 1,516 claims, 685 have been referred to the Criminal Investigation Division (CID) for analysis because the information provided by the whistleblowers indicated intentional fraud.  Under IRS procedures, the CID must analyze and investigate these claims for potential criminal liability before the IRS seeks to actually collect the money.  So, for the whistleblowers waiting for their rewards, the referral to CID probably means an even longer period of delay.

That leaves 831 tax whistleblower claims that are somewhere else in the IRS system.  Of those, only 69 have actually reached the stage of an IRS examination (what the rest of us call an audit).  These 69 claims — a mere 3.5% of the claims that have been filed — represent the leading edge of this process.  They are the claims that are farthest along, and most likely to result in the payment of a reward to the whistleblowers.

Unfortunately, the overall message of this report is that the tax whistleblower process — at least as currently implemented by the Whistleblower Office — is extremely slow.  Hopefully, the Whistleblower Office will make the long waits worthwhile by paying substantial rewards to the whistleblowers once the claims result in collections by the IRS.


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