Law Office Management
Jun. 2, 2007
The Bounty Doubles
Qui tam actions just got more attractive. By Chuleenan Svetvilas
Edited by Thomas Brom & Martin Lasden
Qui tam lawyers may be getting a flood of new work as a result of the Tax Relief and Health Care Act of 2006 (26 U.S.C. § 7623), which became law in December. The act provides additional incentives for whistleblowers to come forward with information about companies or high-salaried individuals who have underpaid their taxes. Now informants may receive up to 30 percent of the IRS's recovery?double the previous percentage?with no limit on the collected proceeds. (The information must not have been previously disclosed.)
"The False Claims Act has worked so successfully in uncovering fraud that it made sense to have the same mechanism give people incentives to come forward about underpayment of taxes," says
John Phillips, principal in the qui tam firm
of Phillips & Cohen in Washington, D.C. Phillips helped Senator Charles Grassley (R-Iowa) draft the IRS whistleblower section of the new law.
Although the IRS has had an informant-reward program since 1954, attorneys working on contingency have had little incentive to help clients pursue such cases. "Before the changes to the law, there was nothing you could do if the government decided not to give a whistleblower an award," says Paul D. Scott, who handled fraud cases in the U.S. Department of Justice in Washington, D.C., before opening his own whistleblower practice in San Francisco in 1995. "Now a whistleblower can appeal to U.S. Tax Court and enforce his or her right to the award."
Scott expects to add IRS whistle-blower claims to his practice. "I've had a cavalcade of calls in response to the change in the law," he says.
Phillips says his office has received a similar response. However, he notes that the new law has very high jurisdictional minimums that are intended to weed out junk or spite cases. The amount of alleged underpayment?including taxes, penalties, and interest?must exceed $2 million.
According to Phillips, the impetus for congressional action was an acknowledgement of widespread tax fraud involving corporations and their executives, including abusive tax shelters.
In February the IRS appointed Stephen Whitlock, former head of the IRS Office of Professional Responsibility, as director of its new Whistleblower Office. Whitlock says the office has already received several cases in which the claimant is represented by counsel.
Megan Kinneyn
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