'Encourage others to squeal': IRS awards $4.5m to accountant after tip off in first ever whistleblower award
Updated: 22:04 GMT, 8 April 2011
He may not have won many friends, but an accountant who tipped off the IRS about a tax lapse his employer ignored, has received $4.5million in the first whistleblower award.
The in-house accountant's tip netted the IRS $20million in taxes and interest from the company thought to be one of the largest financial services firms in the U.S. and a Fortune 500 company.
Yesterday the man's lawyer received a cheque on his behalf for $3.24million from the IRS who had taken off 28 per cent for tax purposes.
Windfall: The accountant's tip netted the IRS $20million from the company thought to be one of the largest financial services firms in the U.S.
But the man's lawyer Eric L Young, a managing partner at firm Egan Young in Philadelphia, revealed his client had hired the firm only after 'exhausting' his own efforts to get the IRS to process the claim.
The man, who has declined to be identified, had originally filed the claim himself. But when more than two years had passed with no response from the IRS after numerous inquiries, he had hired the law firm, according to Accounting Today.
Mr Young found that his client had never even received a 'claims number' after filing his claim - the first step in IRS whistleblower process.
Delay: The accountant had filed his claim two years ago but after exhausting all his efforts got frustrated and hired a law firm to fight his cause
Lawyer: Eric L Young refused to name his client but said he would be continuing with his career
'I don't think the IRS would have ever recovered the money,' Mr Young told MailOnline. 'It took our client to step up.'
Mr Young would not release the name of his client or the client's firm saying: 'He's a simple guy from a small town and wants to keep it that way.'
He did say the man would be continuing with his career and would save the money.
The award represents a 22 per cent cut of the taxes recovered.
The programme, designed to encourage tip offs in large-scale cases, mandates awards of 15 to 30 per cent of the amount recouped.
'It's a win-win for both the government and taxpayers. These are dollars that are being returned to the Treasury that otherwise wouldn't be,' Mr Young said.
'It's very difficult to be a whistleblower,' added Mr Young, who has represented more than a dozen such tipsters, including one in a $2billion Pfizer case involving off-label drug
'Most people would be inclined to turn a blind eye to it. The process can be time-consuming, arduous and stressful, from both a personal and professional standpoint,' he said.
In the accountant's case, the IRS did not deem the issues he raised complex. But the agency said the information he shared pointed out new questions for a routine IRS audit that was already under way.
The whistleblower office has about 17 employees, who refer complaints to IRS agents and investigators around the country to pursue.
Before 2006, the IRS could choose to reward tipsters, but were under no obligation to pay them a share of the taxes recovered.
Many of the tips involved mom-and-pop operations or ex-spouses.
The whistleblower programme only promises awards for returns of $2 million or more.
'This law is not designed to snag the guppies, but to harpoon the whales,' said Patrick Burns, president of Taxpayers Against Fraud, a Washington, D.C.-based non-profit whose members include many lawyers for whistleblowers.
'Whistleblower programmes have been incredibly successful in the arena of health care and defence spending, and now they are being tried as a weapon against tax cheats and Wall Street scoundrels,' Mr Burns said.
Mr Young added his firm was viewing tax violation among large companies as 'the next frontier.'
The Whistleblower Office received nearly 1,000 tips involving more than 3,000 taxpayers in fiscal years 2008 and 2009, according to its annual reports to Congress.
Hundreds of them alleged tax underpayments of more than $10million, and dozens more underpayments of $100million or more.
The accountant's case is the first in the programme to reach fruition.
'It ought to encourage a lot of other people to squeal,' Senator Charles Grassley said.
The Iowa Republican helped get the IRS Whistleblower Office authorized in 2006.
'Quite frankly, I'm shocked that they finally got around to using it,' he added.
The senator has been discouraged by the programme's slow start, which some blame on ambivalence about whether tipsters should receive potentially huge windfalls.
The IRS may also fear embarrassment, the senator said.
'When you got a whistleblower that's saying somebody didn't pay $20million in taxes, that's an embarrassment to the full-time employees of the IRS,' he said.
A spokesman for the IRS said they were unable to comment on individual cases due to a federal law.
However, the annual reports note a new policy of waiting to pay awards until the two-year window for taxpayers to appeal their payments has expired.
Mr Young's case might therefore be the first in a series of awards that are ripe for payment.