• “Highest Possible Rating
    in Both Legal Ability
    & Ethical Standards” – AV Preeminent™ Rating
  • ONE OF THE FIRST LAW FIRMS
    TO REPRESENT
    “TAX WHISTLEBLOWERS”
    IN THE NEW IRS
    WHISTLEBLOWER PROGRAM
  • consulted by congress
    in creating the new sec
    whistleblower program
    and cftc whistleblower
    program
  • experienced in both
    prosecuting and defending
    whistleblower cases
    under the false
    claims act
  • unique civil and criminal
    experience - lawyers
    who have prosecuted
    and defended
    fraud and tax cases

The just-released FY 2013 IRS Whistleblower Office Annual Report reveals clues to what the future holds for tax whistleblowers.

Steve Whitlock, Director of the IRS Whistleblower Office, gave a preview last Fall. Listening to an audience react enthusiastically to his SEC counterpart Sean McKessy discuss awarding more than $14 million to a whistleblower, Whitlock wryly observed that the IRS had “only” awarded $50 million to whistleblowers in FY 2013.

To those who follow the IRS Whistleblower Program closely, Whitlock’s comment was a rare moment to take a bow of sorts. It was a brutal year in which Whitlock’s boss, Acting Commissioner Steve Miller, lost his job as the IRS faced attacks that it had politicized reviews of organizations claiming tax-exempt status. Although the Whistleblower Office played no role in that controversy, Sen. Grassley and others also scorned the IRS and Treasury for obstructing Congress’ mandate to establish a robust whistleblower program.

In a momentous decision that will impact many future cases, New York Attorney General Eric Schneiderman has just won a major victory in his pioneering tax fraud case against Sprint Nextel Corp.

The Appellate Division unanimously affirmed the trial court’s 2013 ruling (background discussed here) to allow Schneiderman’s first tax enforcement case under the New York False Claims Act to proceed.

The Complaint alleges that Sprint unlawfully failed to collect and pay $130 million in New York sales taxes on a portion of its revenue from fixed monthly access charges. Like the federal False Claims Act, the New York False Claims Act provides for recovery of three times the amount of damages incurred–“treble damages.”

A major aspect of Schneiderman’s victory was that it makes Sprint potentially liable under the New York False Claims Act for tax fraud that preceded the Act’s 2010 amendments to include tax violations. In fact, the court affirmed the trial court’s decision allowing the case to proceed in all respects:

The court properly denied the motion to dismiss the complaint in its entirety. Plaintiffs’ complaint adequately alleges that defendants violated New York’s False Claims Act (State Finance Law § 189[1][g]), Executive Law § 63(12) and Article 28 of the Tax Law by knowingly making false statements material to an obligation to pay sales tax pursuant to Tax Law § 1105(b)(2). Contrary to defendants’ interpretation, the Tax Law provision is not preempted by the Federal Mobile Telecommunications Sourcing Act (4 USC 116 et seq.).

The court also properly rejected defendants’ argument that the New York False Claims Act with respect to statements made under the Tax Law should not be given its stated retroactive [*2]effect. Defendants fail to show that the Act’s sanction of civil penalties, including treble damages, is so punitive in nature and effect as to have its retroactive effect barred by the Ex Post Facto Clause (US Const, art I, § 10).

We once again applaud the efforts of Attorney General Schneiderman and his office to protect the public’s purse though the New York False Claims Act. The case shows the value that tax whistleblowers can bring to stop those who refuse to pay their fair share of the tax burden.

The Attorney General’s announcement is linked here.
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“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 in its insider trading case against Dallas Mavericks owner Mark Cuban. Although some see the verdict as a setback for the SEC, the Commission needs to bring cases that it believes have merit.

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.”

To answer many questions, we have uploaded here our summary of these laws, titled “The False Claims Act and the New Georgia ‘TaxProtectionection False Claims Act,'” which you may download here.

Please feel free to contact us with any questions about the False Claims Act or the new Georgia Taxpayer Protection False Claims Act.
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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.

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 assignment of all tips, complaints and referrals received by the SEC, ” according to the CFTC’s announcement.

He also served as the Co-National Coordinator for the Microcap Fraud Working Group, which sought to develop “novel ways to detect, disrupt and prosecute fraud relating to securities quoted on the OTC Market.”

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.

Sprint was successful in limiting the time in question to March 31, 2008 forward, but now faces discovery and a potential trial over allegations that include whether Sprint knowingly made “false records or statements” and repeatedly engaged in “fraudulent or illegal activity.”
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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 one of his most important finds. Bob has a wealth of knowledge and perspective on tax issues, built through broad experience as an IRS revenue agent, and then in positions in what is now the IRS Large Business and International Division.

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”).

The Senate Finance Committee’s official “timeline” states that, in May 2012, “TIGTA briefs [IRS] Commissioner Shulman on the targeting by the IRS of tea party applications for 501(c)(4) status.”

So the Inspector General’s Office knew, at least six months before the 2012 elections, that “targeting” of these applicants had occurred? If TIGTA told Commissioner Shulman that it was auditing the problem, why did it take TIGTA another year to issue its May 2013 report?

And did Commissioner Shulman, a Bush appointee with no reason to “hide” any “targeting” of conservative groups, rely on the Inspector General’s staff to gather evidence and take appropriate action? Shouldn’t TIGTA have acted expeditiously? TIGTA’s other FY 2013 reports reveal nothing so pressing that it should have taken it another year.to complete its work.
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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.

The conference began with an overview I provided of the country’s major whistleblower law, the False Claims Act. Its successes since 1986 inspired Congress to create both the new IRS Whistleblower Program in 2006, and the new SEC Whistleblower Program in the 2010 Dodd-Frank Act.

An excellent discussion of the False Claims Act in health care followed, led by Rick Shackelford of King & Spalding, LLP. Rick was joined by my former partner John E. Floyd of Bondurant, Mixson & Elmore, LLP; Daniel P. Griffin of Miller & Martin, PLLC; and Marlon Wilbanks of Wilbanks & Bridges, LLP.

Another panel then analyzed Georgia’s New 2012 “Taxpayer Protection False Claims Act, a 2012 state False Claims Act that I helped draft. This law encompasses all spending by state, county, municipal, and other local governments in Georgia. Nels Peterson, who as Georgia’s Solicitor General is charged with overseeing the implementation of the new statute, explained the framework of the law.

Because the new state FCA applies to fraud against local governments as well, we also heard how the Act might be used by cities and counties. Mary Carole Cooney, former Atlanta Deputy City Attorney, and Bill Linkous, former Dekalb County Attorney, provided their perspectives on how the new whistleblower law might expose fraud in various areas of local government spending.

SEC Whistleblower Chief Sean McKessey then joined us electronically to discuss the most pressing issues in bringing (and defending) SEC Whistleblower claims.
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