Articles Posted in Tax Fraud

Historically, IRS tax whistleblower cases have been both frustrating and unproductive. In a Bloomberg article in 2012, Michael Fitzgerald was quoted as saying a referral to the IRS of a whistleblower case is akin to being in “purgatory” since there had historically been little to no communication from the service. Well, that may all be changing now.
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Recently, there have been a number of articles on the New Jersey School Construction Corporation. The original “SCC” was charged with building schools in areas of need. However, many years later we are left to wonder about the success of the program. Pundits say that hundreds of millions of dollars have been spent, with no real accounting. Supporters feel that schools have been completed in areas that might not have been otherwise helped.
The original “SCC” was abolished in 2007 and replaced by the School Construction Authority.
Governor Christie recently stopped payments on a Burlington County high school. The reason; the $27 million project was $17 million over budget. Where does all the money go? Some goes to acquiring property. However, in Gloucester City $13 million was spent acquiring 70 properties and no school has been built. In Camden, 34 properties were acquired and no school there either.
Many believe that there is waste and fraud that has siphoned off money. Interestingly, there is now a way for the state to recover the money lost through fraud. In 2008 New Jersey instituted a False Claims Act. The Act allows individuals to be paid for disclosing fraud to the State of New Jersey.

As a New Jersey Whistleblower Attorney I am truly amazing how long whistleblower cases can take! This is best exemplified by the recent IRS announcement of their FIRST award. The time lapse is interesting because the IRS established a whistleblower office in 2006. Nearly five years later, the IRS announces its first award to a whistleblower.

The facts are fairly interesting in that the whistleblower was actually an accountant. The accountant reported the underpayment of in excess of $20 million in taxes and interests from a financial services firm. At the time of the report, the accountant was working for the company he reported.

The “new” IRS program announced in 2006 was designed to encourage tips in larger cases and the awards to the person supplying the information can vary between 15% and 30% of the amount of money recovered by the IRS. The IRS awarded the whistleblower 22% of the taxes recovered.

One of the fascinating aspects of the IRS whistleblower provisions is the possibility of remaining anonymous. Any report of the information is pursued by the IRS and, if the whistleblower so chooses, the name will not be released. This is somewhat attractive to some whistleblowers, who remain in the employ of the entity they are reporting on.

In an interesting piece of irony, the IRS mailed the award check to the whistleblower by first class mail. As if the use of first class mail was not ironic enough in this day and age, the check sent to the whistleblower was in the amount of $3.24 million. The difference between the $4.5 million awarded and the $3.24 million sent was a 28% tax!

The interesting aspect of this recent award is that almost every “fraud” against the government has some “tax fraud” aspect. If there is any underpayment to the government of monies owed and these monies are not reported as income, this can certainly qualify as a “tax fraud.”

The recent announcement of the first award from the IRS and its significant size may prompt others to consider this alternative instead of a more “traditional” whistleblower-type lawsuit.

Also interesting is the fact that the individual whistleblower attempted to pursue the matter himself and the matter languished. After the whistleblower hired an attorney, the matter seemed to move along.

The IRS whistleblower office submits an annual report to congress. The annual report indicates that the IRS whistleblower office receives nearly 1,000 tips per year. The tips received by the office often allege tax underpayments of more than $10 million, and there are some instances of reported underpayments of in excess of $100 million. Needless to say, this will be an interesting subset of whistleblower representation. Knowing the limitations of the whistleblower office, the program is only “accepting” reports of fraud in excess of $2 million.