Last week, the IRS awarded a check for $3.24 million to a small-town CPA as payment under the tax whistleblower program. The check represents an award of $4.5 million with about 28 percent withheld for taxes. While the whistleblower remains unidentified, his attorney Eric L. Young, from the law firm of Egan Young in Pennsylvania, announced this monumental award and shared the relevant details.
While working at a financial services firm, the in-house CPA discovered an underpayment of taxes of more than $20 million due to accounting errors. The CPA reportedly noted this discrepancy first to the management of the company but after no action was taken, he reported the situation to the IRS’ Whistleblower Office.
The Whistleblower Office was created in 2006 under Internal Revenue Code 7623 in order to receive and process tips from informants regarding individuals, companies, or organizations that failed to pay taxes. Previously, the IRS had the discretion to determine whether or not it would bestow a monetary award on an informant. Now, however, if specific requirements and parameters are met and money is recovered, the informant is legally entitled to receive an award.
While the maximum amount to be awarded any informant is 30 percent of the collected proceeds, attorney Eric Young reports that the 22 percent received by this unidentified whistleblower is actually a large percentage for a qui tam case (those in which an individual assists in prosecution and receives an award himself). Since this is the first award coming from the Whistleblower Office, it is undetermined whether this amount will be high or low in comparison with any future payments. The Whistleblower Office has received thousands of tips for underpayment of taxes amounting to hundreds of millions of dollars in some cases and has fewer than twenty employees available to process such tips. Perhaps this is the reason for the delay in making awards. But it is also possible that the IRS waits until the two-year window for taxpayers to dispute their payments has ended.
The now-millionaire whistleblower first filed a Form 211 without an attorney in April of 2007. More than two years had passed and he did not receive any communication from the IRS. It was then that he contacted attorney Eric Young who began a dialogue with the Whistleblower Office and helped disclose the information that exposed the fraud committed by the CPA’s employer. If handled correctly, whistleblower cases have the potential to be very lucrative for both the government and the informant.
Effectively, the IRS whistleblower program or its various titles/identities with federal and state taxing agencies act like a police reward for information leading to an arrest. The implications of the reward as well as the program itself are important to consider when building a defense in a tax crime case. Since both the prosecution and the defense will be utilizing the information the whistleblower provides, it may be in fact very important for the whistleblower to be represented by counsel.
We can see far-reaching implications of the IRS and taxing authorities utilizing such a program. For instance, implications will be seen in the employment law aspects of various individuals, and very well could impact professional ethical considerations as well. For instance, the whistleblower, in this case, was a CPA with professional ethical responsibilities to uphold.
Before you decide to join the IRS Whistleblower Reward Program you should carefully evaluate the risks of your own exposure to potential criminal liability. Under the IRS Whistleblower Program, the IRS might deny the tax whistleblower reward if the tax whistleblower was involved. It is important to evaluate your exposure to criminal liability before a decision is made to join the Tax Whistleblower Reward Program. Further, if a tax whistleblower is a current or former employee who learned of the taxpayer’s financial and tax information while employed by the taxpayer, you should consider any civil liability you may be exposed to by filing a claim.
To that end, if you are governed by professional standards, i.e., if you are an attorney, accountant, or financial/investment advisor, you have additional considerations to consider in order to protect your professional license or fiduciary duties.
We represent many individuals and businesses from many industries, including but not limited to, real estate management, construction, professional service firms, medical practices, manufacturing, retail, technology development, etc. We provide comprehensive tax litigation, planning, and defense representation. We invite you to contact our tax law firm to discuss your legal questions. Please feel free to use our contact form or phone us at (415) 394-7200.