Last Friday an accountant from Pennsylvania received a $4.5 million whistleblower award from the IRS Whistleblower Office for reporting that his employer-one of largest financial services firms in the United States-ignored its own underpayments on taxes.
The whistleblower award, which amounted to $3.24 million after taxes, represents 22 percent of the $20 million in unpaid taxes and interest recovered by the IRS from the Fortune 500 Company. Apparently 28 percent of the award was removed for tax purposes. The reward was the first one of its kind in the history of the IRS Whistleblower Office.
According to sources, over two years passed between the time the accountant filed his claim with the IRS Whistleblower Office in 2007 and the time he hired his attorney. During those two years, he apparently attempted to contact the IRS numerous times without response, and did all in his power to get the IRS to process his claim. The man's attorney claims that when his client came to him, he had not yet received a claims number, which is the first step in the process of filing a whistleblower claim with the IRS.
According to the man's attorney, IRS whistleblower claims are beneficial both for the government and for taxpayers, since they recover money for the Treasury that would otherwise have been lost.
He also said that while whistleblower claims are may be attractive, many employees are actually willing to turn a blind eye to illegal activities within their company. Whistleblowers, he said, face various difficulties when they report violations, and the process is often time-consuming and taxing both professionally and personally. Whistleblower may end up facing retaliatory action from their employer as a result of their tip. Accordingly, filing a whistleblower claim is not something to be taken lightly.
Sources say that the tax issues raised by the man's whistleblower claim were not considered to be complex, but that they will inform how the IRS conducts routine audits.
In our next post, we'll continue looking at this story.
Source: Daily Mail, "'Encourage others to squeal': IRS awards $4.5m to accountant after tip off in first ever whistleblower award," 8 April 2011.