Whistleblower Lawyer Blog

The IRS Whistleblower Office has released its Annual Report to Congress, for the fiscal year ended September 30, 2008. Some highlights are below:

First, the IRS Whistleblower Program has experienced explosive growth since Congress authorized these new IRS Whistleblower rewards in December 2006.

According to this Report, "the initial results suggest that whistleblowers with significant knowledge are coming forward as a result of the changes to the award program. We received claims that appear to meet the section 7623(b) criteria on 46 taxpayers in the first three months of FY 2008. By the end of the fiscal year, that number grew to 1,246. Of the 994 claims in which the individual made a specific allegation about the amount of the underpayment, 228 alleged the underpayment of $10 million or more, and 64 alleged the underpayment of $100 million or more. Many of the individuals submitting this information claim to have inside knowledge of the transactions they are reporting, and often provide extensive documentation to support their claims. It is too early to tell how many of the 1,246 cases will result in collected proceeds, and whether the whistleblowers' estimates of the amounts in dispute are accurate."

In our experience from submitting early claims even before the new Whistleblower Office had hired any staff, because the IRS Whistleblower Office's first Director Steve Whitlock immediately assembled a team of extremely able professionals from elsewhere in the IRS, the Whistleblower Office hit the ground running. "During this fiscal year, the Whistleblower Office staff grew from 4 to 14. The current staff includes ten analysts with decades of experience in a broad array of IRS
compliance programs."

As claims poured in, the Director and staff essentially had to "invent" the new Whistleblower Program with all that entails, in addition to keeping up with submissions of more and more claims.

Integrating the Whistleblower Program with the various divisions of the IRS also was a predictable challenge.

"Working with the IRS Operating Divisions, the Criminal Investigation Division, and the Office of Chief Counsel, the Whistleblower Office designed an intake process that includes initial review by Whistleblower Office staff and an evaluation by Operating Division subject matter experts. The Operating Division subject matter experts determine whether the information the whistleblower submitted warrants initiation of an examination of the reported issues. Each IRS Operating Division also has a Division Counsel. Division Counsel attorneys provide advice on technical tax issues as well as any legal issues that could limit the IRS's ability to use some or all of the information the whistleblower provided. For example, information a whistleblower provided may be subject to an evidentiary limitation such as the "attorney-client privilege" or the "federally authorized tax practitioner" privilege under section 7525 of the Code. A Division Counsel attorney assists the subject matter expert in reviewing the information provided to determine if any of the information is subject to an evidentiary limitation and whether an exception to that limitation may apply. In addition, as part of the subject matter expert's analysis, the whistleblower may be asked to meet to discuss the submission, to ensure that the IRS fully understands the issues and that the individual has submitted all relevant information.

From our observations in dealing with the Whistleblower Office, the staff has been very capable and diligent in creating and running the new program, and in coordinating with the other divisions of the IRS. "The IRS established a working group led by the Whistleblower Office, with representatives from the Operating Divisions, Criminal Investigation Division, and the Office of Chief Counsel. The working group addresses the detailed steps needed to
implement the changes in the relevant law, including updates, revisions or replacements for regulations, policies, operating procedures, and forms for whistleblower awards.
This year, the IRS completed a comprehensive review of Internal Revenue Manual
(IRM) provisions of section 7623, and published revisions on December 30,2008. In
addition, the IRS published a Privacy Impact Assessment and a Privacy Act System of Records Notice for the whistleblower program. Publication of both the Privacy Impact
Assessment and the Privacy Act System of Records Notice are essential steps in
establishing program controls as required by the law and regulation.

As to money collected and paid out through the IRS Whistleblower Program, the Report provides information on claims submitted before the law changed in December 2006, and doubled the range of payments authorized to whistleblowers. Given that the claims submitted under the new program are now maturing, we look forward to future reports that show the success of the new IRS Whistleblower Rewards.

From the size of the claims we have seen from our firm's clients, the IRS Whistleblower Program should be a source of significant recoveries that will benefit all honest taxpayers, as well as the IRS Whistleblowers who come forward.

At the "Advanced Health Law" seminar on October 9, attorneys prosecuting and defending cases of alleged health care fraud will discuss the important new amendments to the False Claims Act. I am honored to be the panelist who will discuss these important new provisions from the perspective of representing whistleblowers (known as "relators") who bring qui tam whistleblower cases under the False Claims Act.

These significant changes to the False Claims Act took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law. Among the most important changes, Congress corrected and clarified the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

The False Claims Act, as amended, now has these provisions:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be held liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims.

Health care fraud lawyers on this October 9 panel include government counsel Christopher J. Huber (Assistant U.S. Attorney, Atlanta); defense counsel Richard L. ("Rick") Shackelford (King & Spalding LLP, Atlanta); and this whistleblower lawyer blog author Michael A. Sullivan (Finch McCranie, LLP, Atlanta). Our moderator will be Summer H. Martin (McKenna Long Aldridge LLP, Atlanta). The program will be chaired by Tracy M. Field, Chair, Health Law Section, State Bar of Georgia (Arnall Golden Gregory LLP, Atlanta). I look forward to working with this distinguished group.

These health care attorneys will discuss which aspects of the amendments to the False Claims Act will be most significant to hospitals, physicians, pharmaceutical companies, and others in the health care industry.

It has been interesting to discuss with our colleagues which of the changes are likely to have the greatest impact, not only in health care fraud cases, but in cases involving contractor fraud in the Iraq and Afghanistan wars and reconstruction, other military contracts, NASA programs, Hurricane Katrina and other disaster relief, the new TARP and "Stimulus" programs (the American Recovery and Reinvestment Act), and other federal contracts, which are among the cases clients have brought to our firm.

Outrage over misuse of public funds is a healthy reaction to those who cheat taxpayers. It can also create interesting bedfellows, as newly-introduced legislation in the House demonstrates.

HR 3571, aimed at "de-funding ACORN," would ban federal contracts and most federal funds to any organization that "has filed a fraudulent form with any Federal or State regulatory agency," among other things. (Complete bill is below.)

As. Rep. Alan Grayson (D-FL) observed correctly, fraud by those who receive government funds involves much "bigger fish" than ACORN--and bigger dollar amounts of alleged fraud.

"We can't have a situation where the laws of justice are applied to one organization and not to any of the others, particularly when there are organizations that are polluting water for our soldiers and electrocuting them." Grayson presumably was referring to allegations that KBR's performance of government contracts for our troops has caused soldiers to be electrocuted and otherwise endangered.

Rep. Grayson is on target. He saw these abuses as a lawyer vindicating the public's interest in fighting fraud in pursuing qui tam whistleblower cases under the False Claims Act, the nation's primary civil statute for combating fraud and false claims against the government.

On the other side of the aisle, Rep. Dan Issa (R-CA) appeared to agree with this principle--"abuse and fraud will not be tolerated," as his spokeperson told ABC News.

Battling fraud against taxpayers can and should be a universal concern of both parties. Let's see whether this bill is weakened by those who reap the most rewards from cheating the public. The full text of the proposed legislation is below:

Continue reading "Federal Contractor Fraud Laws To Get Tougher? ACORN Controversy Casts Spotlight on Larger Contractors That Violate False Claims Act" »

Since the Madoff and Stanford scandals, we have written about the calls for the Securities and Exchange Commission (SEC) to establish a meaningful whistleblower rewards program. Currently, no adequate incentives exist for whistleblowers to speak up when they might have a chance to stop large scale fraud and prevent the next Madoff or Stanford debacle. How much better off would so many Americans be if someone had exposed Madoff before he defrauded so many investors?

Forbes has run interesting column by Bill Singer, calling for a statute that apples "False Claims Act" whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

We are already seeing the successes of another innovative law based on the same idea, the IRS Whistleblower Program. To stop those who would have you and I carry their share of the nation's tax burden, private citizens are stepping forward with better and better information to provide to the IRS about significant tax cheating. The quality of the information that our clients are presenting is compelling, and some of it will help stop major abuses of the tax laws.

Continue reading "Calls Continue for a "False Claims Act" for Wall Street Whistleblowers" »

Offshore tax abuses and tax evasion have kept the IRS quite busy of late. The fast-approaching September 23 deadline for its "voluntary disclosure program," and its agreement with UBS that will allow it to identify thousands of American taxpayers with offshore accounts, have added momentum to its efforts to combat offshore tax abuses by high net worth taxpayers.

Now, the IRS is creating a new group to "focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment." It will be part of the IRS Large and Midsize Business Division.

The IRS is also seeking additional resources from Congress to step up its enforcement efforts.

The new group will not deal solely with taxpayers who are UBS clients, but will address a broad variety of international tax issues.

This added expertise should be a positive development for the IRS Whistleblower Program, as it will allow the IRS to take on more and more complex investigations. The public will benefit from the greater results produced in cases of high-dollar tax evasion, as that money owed is finally paid.

In one of two prominent whistleblower cases in the news this week, whistleblower John Kopchinski will be awarded more than $50 million for his role in exposing improper "off-label marketing" of the drug Bextra by Pfizer. Other whistleblowers also will be rewarded because of this settlement. That settlement of $2.3 billion is the largest in history ($1 billion to settle False Claims Act allegations, and $1.3 billion in criminal fine and forfeiture).

As large as the Pfizer settlement is, the other whistleblower's actions seem likely to lead to recovery of dollars that could dwarf this $2.3 billion settlement. UBS whistleblower Bradley Birkenfeld has lifted the shroud of secrecy from thousands of American taxpayers' offshore accounts at UBS. He has given the IRS a foothold into recovering potentially many billions in unpaid taxes owed.

Yet Birkenfeld was recently sentenced to serve 40 months in federal prison for conspiracy to defraud the United States in a tax fraud scheme while at UBS. His conviction also calls into question his ability to receive a reward under the IRS Whistleblower Program from the billions to be collected by the IRS.

How could this happen?

There are tried and true steps lawyers representing whistleblowers must take to protect their clients from the risk of prosecution. This was one of the topics of the "IRS Whistleblower Boot Camp" panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock--how to protect the whistleblower who has potential criminal liability, but who has valuable information.

If adequate protection cannot be obtained, often the whistleblower with real criminal exposure should choose not to go forward. If the information is important enough to the government, however, protection for the whistleblower often can be negotiated, so long as the whistleblower is truthful and forthcoming. As former federal prosecutors who have also defended clients in white collar criminal prosecutions, we have represented many clients in obtaining this type of protection.

Continue reading "Protecting Whistleblowers from Criminal Prosecution: The Mystery of the UBS Whistleblower's Prison Sentence" »

We have followed closely the trend of states enacting their own versions of the nation's chief whistleblower law the False Claims Act. North Carolina has become the newest state to enact its own False Claims Act, which is reprinted below.

We congratulate the State of North Carolina on a momentous accomplishment.

Continue reading "Latest State "False Claims Act" Is Enacted in North Carolina" »