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Michael Sullivan

New IRS Offshore Account Disclosure Program Takes Shape

As the IRS continues its increasing focus on international tax issues, a new IRS offshore disclosure program announced in December continues to take shape. While the IRS has not made public a full description of the program, details have emerged in comments of IRS officials over the past weeks.

Using the 2009 IRS voluntary disclosure program as a template, the IRS is apparently tweaking the approach that generated approximately 15,000 disclosures in the 2009 effort.

The IRS Criminal Investigative Division (“CI”)–already quite busy
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Long-Awaited IRS Whistleblower Rule “Fix” Is Released for Comment

We have written previously about Senator Grassley’s pointed criticisms of aspects of the IRS whistleblower rules proposed in June 2010. The IRS’s delay in finalizing those rules is a principal reason why the IRS has not yet paid whistleblowers who have come forward since the December 2006 creation of the new IRS Whistleblower Program.

Today, the IRS took a large step to correct one major flaw that Grassley urged be corrected: re-writing a bizarre rule that would deny rewards to valuable whistleblowers who prevent improper refunds, or reduce a credit balance by a taxpayer. From what we can tell, that nonsensical rule was not the creation of the IRS Whistleblower Office, but of others within the IRS.

The IRS today announced a new IRS whistleblower rule to correct that anomaly, to be published for comment in the Federal Register.

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Activities of IRS Large Business and International Division Earn Its Commissioner Recognition As “Tax Person of the Year”

Citing many developments in the IRS Large Business and International Division in 2010, Tax Analysts this week named IRS LB&I Commissioner Heather Maloy as its “Tax Person of the Year.”

Among those developments that we have followed previously are the international focus of the restructured LB&I division (formerly known as the Large and Mid-Size Business Division (LMSB)), and the creation of the new Global High Wealth Industry Group within LB&I. That group within LB&I is already is working some very significant IRS Whistleblower cases.

Also mentioned by Tax Notes was one of my favorite IRS professionals who assisted the new IRS Whistleblower Program in its infancy, Stuart Mann:
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New SEC Whistleblower Program to Benefit from SEC’s Appointment of New Enforcement Official?

The SEC has just announced that current senior advisor to SEC Chairman Mary Schapiro, Stephen L. Cohen, has been named an Associate Director of the Division of Enforcement.

We hope this is good news for the nascent SEC Whistleblower Program. The SEC recently announced that its delaying creation of an SEC Whistleblower Office for budget reasons.

Steve Cohen has advised Chairman Schapiro on a number of issues including the SEC Whistleblower program, which I have discussed with him briefly earlier this year.

Coincidentally, the announcement came on yesterday’s deadline for comments on the SEC’s proposed rules for SEC whistleblowers, which must be substantially revamped so as not to defeat Congress’ purpose by discouraging meaningful whistleblowers from coming forward. We have submitted our own comments to the SEC on its proposed whistleblower rules, and will discuss later others’ comments here. See our comments

The SEC’s press release is reprinted below:
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IRS Whistleblower Claims Reporting Tax Evasion and “Overlooked” Returns

Tax whistleblowers using the new IRS Whistleblower Program have reported many instances of tax evasion involving domestic and foreign corporations, partnerships, and trusts, in addition to abusive offshore transactions about which we have written previously. These tax whistleblowers will allow the IRS to reduce the more than $300 billion “tax gap”–the difference between what tax cheats owe, but refuse to pay.

Tax evasion generally entails taxpayers understating taxes in the returns they file. In many cases evasion also entails taxpayers failing to file returns, especially information returns (as opposed to tax returns).

For example, partnership returns (Form 1065) are information returns and as such do not report tax payable. Cases of partnership tax evasion sometimes arise where filing Form 1065 is “overlooked.” In many of these cases, the partners continue to file their own income tax returns, which typically understate taxable income and tax payable, as there are no K-1’s to report.

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Special: Article Explaining the 2010 False Claims Act and State False Claims Acts

Three years ago, our whistleblower lawyer blog presented an in-depth article discussing the nation’s major whistleblower law, the False Claims Act, and the wave of new state False Claims Acts.

Since then in 2009-2010, Congress has amended the False Claims Act three times to remove obstacles created by courts, which had limited the law’s effectiveness. To reflect those important and needed changes in the law, I have updated this article to present at the 2010 Fraud and Compliance Forum sponsored by the American Health Lawyers Association and Health Care Compliance Association.

That detailed article is excerpted here to explain the False Claims Act, with its 2009-2010 amendments. For ease of reading, it is divided into six parts:

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Part 1: Introduction: What You Should Know About the False Claims Act And New State False Claims Acts After the 2009-2010 Amendments

This is Part 1 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 1 provides an introduction to the False Claims Act.

In 2010, more than ever, it is essential for lawyers to understand their clients’ potential liabilities under the federal False Claims Act (“FCA”). The health care industry increasingly has become the major focus of the federal government’s enforcement efforts, and usually pays at least two-thirds of the money recovered each year under this anti-fraud statute.

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Part 2: The False Claims Act and the Increasing Number of State False Claims Acts

This is Part 2 of an explanation the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why Have A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

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Part 3: The False Claims Act: Background & History

This is Part 3 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 3 explains the history of the False Claims Act and why effective whistleblower laws are important.

II. Background of the Federal False Claims Act

Although the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.

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Part 4: How the False Claims Act Works After the 2009-2010 Amendments (with Comparisons to Some State False Claims Acts)

This Part 4 of a six part summary explains how the federal False Claims Act works, after Congress amended it three times in 2009-2010. It also discusses similar provisions of some state False Claims Acts.

This is an update from a previously published article by whistleblower lawyer blog author Michael A. Sullivan.

III. Overview of How the Modern False Claims Act Works (with Comparisons to Some State False Claims Acts)

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First Large SEC Whistleblower Award Is Encouraging, As SEC’s “Loss” in Mark Cuban Case May Be

“Government shutdown” month (October 2013) has brought encouraging news from the SEC–including some good news you might not realize.

On October 1, the SEC announced its first SEC whistleblower award of more than $1 million. The Commission’s Office of the Whistleblowerer led by Sean McKessy awarded more than $14 million to a whistleblower who remains confidential. According to the SEC, the whistleblower’s information “led to an SEC enforcement action that recovered substantial investor funds.”

Two weeks later, a Texas jury found against the SEC
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The False Claims Act and the New Georgia “Taxpayer Protection False Claims Act’

After I helped draft Georgia’s new False Claims Act enacted last year, the “Taxpayer Protection False Claims Act,” I have been asked many questions about this new whistleblower law. Like the federal False Claims Act, its “qui tam” provisions allow private citizens to report fraud against public funds and receive a share of the recovery.

What many people may not know is that Georgia’s two False Claims Acts now apply to all spending by the state, and all spending by local governments.

The 2012 Act can be used by a wide array of “local government” bodies, and by citizens who know about fraud against those entities. The Act defines “local government” broadly to include “any Georgia county, municipal corporation, consolidated government, authority, board of education or other local public board, body, or commission, town, school district, board of cooperative educational services, local public benefit corporation, hospital authority, taxing authority, or other political subdivision of the state or of such local government, including MARTA.”

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Liechtenstein Bank Secrecy Gives Way in $23.8 Million IRS Settlement That Exposes US Tax Evaders

Another shoe dropped for offshore tax evaders today, in an encouraging sign for the IRS Whistleblower Office.

A Liechtenstein bank avoided prosecution by agreeing to turn over files on 200 U.S. customers and to pay $23.8 million for assisting U.S. taxpayers in opening and maintaining undeclared bank accounts from 2001 through 2011.

Liechtensteinische Landesbank AG (LLB-Vaduz) helped a significant number of U.S. taxpayers hide these offshore accounts, evade U.S. taxes, and file false tax returns with the IRS, according to today’s announcement.

The Justice Department
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CFTC Whistleblower Program Taps SEC Enforcement Lawyer As New Director

In January, the Commodity Futures Trading Commission (CFTC) lost to the SEC the first director of the new CFTC Whistleblower Office, Vincente Martinez. CFTC Chairman Gary Gensler has announced that he has recruited from the SEC Enforcement Division Christopher Ehrman to lead the CFTC Whistleblower Office’s efforts to attract whistleblowers in the swaps and futures markets.

Mr. Ehrman most recently had been Assistant Director of the SEC’s Office of Market Intelligence. His experience there should serve him well since he “oversaw the processing, review and
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Court Allows N.Y. Tax Whistleblower Case To Proceed Against Sprint-Nextel Corporation

When New York amended its state False Claims Act in 2010, it broke new ground by including tax whistleblower cases. New York’s decision to attract tax whistleblowers bore fruit when the NY Supreme Court recently ruled that New York’s $100 million tax whistleblower case against Sprint-Nextel Corp. may proceed.

If successful, this case may net New York three times the more than $100 million in unpaid taxes that the state alleges Sprint has failed to pay its state and local governments. It may also bring the whistleblower 15%-25% of what the state recovers.

The N.Y. Supreme Court first rejected Sprint’s arguments that the N.Y. Tax Law did not require payment of the sales tax in question. The Court allowed the case to proceed.

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Amid Attacks on the IRS, Recognition of the Best of the IRS Whistleblower Office

Now is the time to tell the story of Bob Gardner. Bob retires this week after 37 years of service with the IRS, most recently with the IRS Whistleblower Office.

Bob understands that public service is a noble calling for so many in our government. He epitomizes all that is good in fairly administering our internal revenue laws.

When IRS Whistleblower Office Director Steve Whitlock began hiring for the first “tax whistleblower” office that Congress had authorized in late 2006, Bob Gardner was
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Reforming the IRS–and Why We Need a Functioning IRS That Follows the Law

Could the IRS and Treasury Department have done a worse job in how they have handled the alleged “targeting” of conservative groups that applied for tax-exempt status before the 2012 elections?

My criticism starts–but does not end–with any IRS personnel who singled out “Tea Party” and similar groups for extra scrutiny based on their political affiliations. Any such acts cannot be tolerated..

But less noticed is what was being done–or not done–since at least mid-2012 by the Treasury Inspector General for Tax Administration (“TIGTA”).

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IRS & SEC Whistleblower Directors Join False Claims Act Officials for Conference on Whistleblower Issues

This week in a rare occurrence, the heads of the IRS and SEC Whistleblower programs and federal and state False Clams Act officials participated in one conference to discuss prosecuting and defending whistleblower cases.

Our firm has organized this “Whistleblower Law Symposium” since 2007 to explore developments in the growing number of federal and state whistleblower laws that seek to stop fraud against taxpayer funds.

“Sequestration” threatened to keep some major speakers from participating because of travel restrictions. The solution was “beaming in” Sean McKessey, Director of the SEC’s Office of the Whistleblower, and Steve Whitlock, Director of the IRS Whistleblower Office, to join our panelists by videoconference.

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Health Care Fraud Institute Discusses False Claims Act Developments

Each December, some of the nation’s top health care lawyers gather to discuss developments in prosecuting and defending health care fraud cases at the Health Care Fraud Institute in Atlanta. Because the qui tam law–the False Claims Act– is the government’s primary civil tool to combat fraud and false claims, the False Claims Act developments are a highlight of the discussion.

This year, I was honored again to be invited to participate as part of the False Claims Act panel with Rick Shackelford, an
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SEC and Justice Department Issue “Resource Guide to the U.S. Foreign Corrupt Practices Act”

The SEC Whistleblower Program authorized in 2010’s Dodd-Frank law has greater significance because the SEC and the Justice Department share jurisdiction over Foreign Corrupt Practices Act cases.

Today, SEC Director of Enforcement Robert Khuzami and Assistant Attorney General Lanny Breuer released the “Resource Guide to the U.S. Foreign Corrupt Practices Act.” They describe the Guide as “a unprecedented undertaking by DOJ and SEC to provide the public with detailed information about our FCPA enforcement approach and priorities.”

FCPA investigations have increased significantly in the past few years, and the dollar amount of these cases is often quite large. FCPA cases brought by SEC whistleblowers will only add to amount of FCPA violations uncovered.

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