Tax Whistleblower Resources
Kirby McInerney advocates for harnessing the power of whistleblowers to report on tax violations. We have collected data on tax whistleblower programs to help legislators and regulators evaluate the programs and see the benefits they provide to their taxpayers.
Tax Whistleblowing Legal Resources
Kirby McInerney advocates for harnessing the power of whistleblowers to report on tax violations. We have collected data on tax whistleblower programs to help legislators and regulators evaluate the programs and see the benefits they provide to their taxpayers.
Tax Whistleblowers Promote Tax Fairness and Help Close the Tax Gap
The federal government and state governments are increasingly realizing that giving incentives to whistleblowers to report on tax violations helps tax law enforcement promote fairness among taxpayers and ensure that everyone pays the taxes they are supposed to pay.
In April 2021, the IRS Commissioner estimated that $1 trillion in federal taxes go unpaid each year. That marks a striking increase over the last analysis of the "tax gap" between the amount of taxes paid and the amount owed. The IRS analysis of 2011 to 2013 showed a $441 billion annual tax gap, with $381 billion of that unpaid even after tax audits and other enforcement efforts. States have large tax gaps of their own. In New York, for example, the annual tax gap is estimated to be about $10 billion.
The government needs new tools to close the tax gap, and whistleblowers can help. Tax whistleblowers often bring forward direct, specific evidence of tax violations and demonstrate how the claims can be proved. Whistleblowers and their counsel can provide ongoing assistance throughout a case by giving their insights and applying their expertise to help the case succeed.
Tax Whistleblowers Help Multiply the Government’s Tax Enforcement Resources
Government tax enforcement is always constrained by government budgets. Tax whistleblowers expand those resources with great returns for little cost.
The 10 years of experience with tax cases under the New York False Claims Act demonstrates that the government's return on investment is about 3,600%.
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Recoveries in tax matters under the New York False Claims Act$585,241,399.67
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Less Whistleblower awards$111,893,710.80
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Less Estimated 10 yr. government enforcement costs$12,949,000.00
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Net gains to New York$473,347,688.87
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RETURN ON INVESTMENT3,739%
The False Claims Act Model vs. the IRS Agency-Based Model
The IRS whistleblower program adds an access point to the IRS’ previously existing structure, which relies in large part on audits of certain taxpayers.
New York and Washington DC’s False Claims Acts explicitly invite tax whistleblowers to bring qui tam cases under their state False Claims Acts for violations of any types of taxes. The Illinois False Claims Act expressly permits cases about sales taxes and any type of taxes other than income taxes. Tax qui tams are also possible under the False Claims Acts of Indiana, Rhode Island, Delaware, Hawaii, Nevada, and New Hampshire.
Additional states have been exploring the creation of tax whistleblower programs using either the False Claims Act model or the agency-based model.
The table below compares features of these two models:
| Issue | IRS Whistleblower Program | Tax False Claims Act Cases |
|---|---|---|
| Tax types | All federal taxes | State and local taxes for the relevant state (in NY & DC, any type of tax; the IL program excludes income taxes) |
| Violations addressed | Any type of tax underpayment or violation, whether by fraud, mistake or otherwise | Limited to knowing violations |
| Agency responsible for pursuing claims | IRS | The state Attorney General, but with certain involvement by the department of revenue |
| Damages that can be imposed | Tax underpayments plus penalties and interest | Treble damages plus False Claims Act penalties per violation |
| Thresholds for action | No thresholds must be met before a claim can be made | Varies by program: IL has no thresholds; NY requires that the defendant have net income or sales of at least $1 million in any tax year and that damages pled are at least $350,000; DC has thresholds similar to NY |
| Whistleblower award amounts | 15-30% of government’s recovery; awards are mandatory for recoveries over $2 million and discretionary for smaller amounts | 15-30% of government’s recovery |
| Anonymity of whistleblower | Anonymity is largely assured | Case is initially filed under seal, but whistleblower should not expect to remain anonymous forever |
| Opportunity for the whistleblower to proceed with case if government does not | None | Whistleblower can choose to proceed with the case if the government declines; if successful, whistleblower award will be 25% to 30% of government recovery |
| Process for starting action | Submitting a Form 211 with supporting information | Filing an under-seal lawsuit and serving the Attorney General (but not the defendant) |
| Penalty for bringing a frivolous action | None | Costs can be awarded to the defendant |
| Length of action | Generally at least 7-10 years | Varies widely, from one year to about 8 |
| Whistleblower participation after initial filing | Generally none after filing of Form 211, but whistleblower will sometimes be interviewed and asked for additional input | Depending on the case, the whistleblower can be very involved in assisting with the government’s investigation; whistleblower can proceed with a declined case |
| Statute of limitations | Generally 3 years; the period continues to run even after the whistleblower filing, and claims may expire while investigation is progressing | Varies by program; in NY, 10 years; the period is stopped by the filing of the lawsuit, so existing claims do not expire during the investigation |
| Fee shifting for attorneys’ fees and costs | None | Whistleblower can recover reasonable attorneys’ fees and costs, in addition to whistleblower’s percentage award |
Program Results to Date
The IRS Whistleblower Program does not release detailed information about its whistleblower cases. The following table shows the available statistics since the program’s inception:
IRS Whistleblower Recoveries by Year
(source: Annual Reports Issued by the IRS Whistleblower Office)| Year | Total No. of Awards | Total Amount of Awards | Proceeds Collected | Awards as a % of Proceeds Collected | Awards Where Collected Proceeds >$2 million | Avg Time to Process Awards |
|---|---|---|---|---|---|---|
| 2006 | 220 | $24,184,458.00 | $258,590,435.00 | 9.35% | n/a | n/a |
| 2007 | 227 | $13,600,205.00 | $181,784,287.00 | 7.48% | 12 | n/a |
| 2008 | 198 | $22,370,756.00 | $155,985,834.00 | 14.34% | 8 | n/a |
| 2009 | 110 | $5,851,608.00 | $206,032,872.00 | 2.80% | 5 | n/a |
| 2010 | 97 | $18,746,327.00 | $464,695,459.00 | 4.00% | 9 | n/a |
| 2011 | 97 | $8,008,430.00 | $48,047,500.00 | 16.70% | 4 | n/a |
| 2012 | 128 | $125,355,799.00 | $592,498,294.00 | 21.20% | 12 | n/a |
| 2013 | 133 | $54,054,587.00 | $343,674,315.00 | 15.70% | 6 | 4.73 to 6.09 yrs |
| 2014 | 101 | $52,281,628.00 | $309,990,568.00 | 16.90% | 9 | 4.81 yrs |
| 2015 | 99 | $103,486,236.00 | $501,317,481.00 | 20.60% | 19 | 6.02 to 8.72 yrs |
| 2016 | 418 | $61,390,910.00 | $368,907,298.00 | 16.60% | 18 | 7.10 to 7.38 yrs |
| 2017 | 242 | $33,979,873.00 | $190,583,750.00 | 17.80% | 27 | 7.32 to 7.49 yrs |
| 2018 | 217 | $312,207,590.00 | $1,441,255,859.00 | 21.70% | 31 | 8.08 to 9.32 yrs |
| 2019 | 181 | $120,305,278.00 | $616,773,127.00 | 19.50% | 24 | 6.56 to 10.31 yrs |
| 2020 | 169 | $86,619,032.00 | $472,080,014.00 | 18.30% | 30 | 8.36 to 10.79 yrs |
In April 2020, the NY Attorney General's Office disclosed that in ten years there had been 204 tax-related matters under the New York False Claims Act, about 85% of which (or about 175) were brought by whistleblowers. The AG's Office declined to intervene in about 90 of those cases, about one-third of which were made public. (Under the NYFCA, relators can choose to keep a declined case under seal if they do not pursue it.) Roughly 70 tax qui tam cases remain under investigation by the AG's Office.
The table below describes the tax New York False Claims Act cases that have settled:
NEW YORK FALSE CLAIMS ACT TAX CASE SETTLEMENTS
| Settlement Date | Defendant | Qui Tam (Y/N) | Declined (Y/N) | Settlement Amount | Description of Allegation | Relator's Share |
Relator % | Length of Case (mos.) |
|---|---|---|---|---|---|---|---|---|
| 10/6/2021 | Fanatics, Inc. | Y | N | $3,095,806.67 | Retail business knowingly under-collecting & under-remitting sales taxes by using a system that failed to include local sales taxes | $464,371.00 | 15.00% | 54 |
| 4/1/2021 | Service Station Vending Equipment, Inc.; William McCabe | Y | N | $4,250,000.11 | Distributor of coin-operated machines for tire inflation failed to collect and remit sales taxes after Tax Dep't & accountant said it must collect and remit the taxes; also paid employees off the books and owner falsified personal returns | $892,500.00 | 21.00% | 48 |
| 3/11/2021 | New Israel Fund | Y | Y | $0 | Not-for-profit claimed to have lost tax-exempt status by engaging in electioneering; settlement was for injunctive relief: not-for-profit agreed to take reasonable steps to ensure its compliance with its obligations under not-for-profit laws | $0 | 0% | 31 |
| 2/19/2021 | Thomas Sandell, Sandell Asset Management Corp., SAMC Partners LP* | Y | N | $105,000,000 | Evasion of NYS & NYC taxes on non-qualified deferred compensation plan by taking affirmative steps to hide that $475 million in income was earned from services performed in NYC | $22,050,000 | 21.00% | 28 |
| 12/4/2020 | Pine Tree Meat & Produce, Inc. d/b/a Food World Flatland, Food Jungle, Inc d/b/a Food World Sutphin, Sonamoo, Inc. d/b/a Food World Jamaica Ave., CNI Meat & Produce, Inc. d/b/a Food World Merrick, Hi Jong Lee | Y | N | $4,700,000 | Supermarket chain falsified income and sales taxes by having a separate cash register system for cash sales of grocery items and by falsely claiming fake returned goods; it also engaged in employment tax violations by paying employees in cash and off the books | $987,000 | 21.00% | 30 |
| 12/20/2019 | Moody's Corp.* | Y | Y | $8,500,000 | Financial company underpaid NY corporate franchise taxes by claiming false deductions for fictitious insurance premiums it paid to a captive offshore reinsurance company | $2,550,000 | 30.00% | 86 |
| 7/9/2019 | Almar Sales Co., Inc. | Y | Y | $750,000 | Corporation falsely deducted amounts it knew to be non-deductible dividends, falsely deducted owners' home maid service, and falsely reported the value of its receivables | $225,000 | 30.00% | 49 |
| 12/21/2018 | Sprint Communications | Y | N | $330,000,000 | Mobile phone carrier failed to collect & pay NYS & NYC sales taxes on the monthly access charges for its cellphone plans after admitting such taxes were required while lobbying for the law | $62,700,000 | 19.00% | 94 |
| 11/13/2018 | Porsal Equities Ltd. | N | n/a | $10,750,000 | Art purchaser falsely represented that art was purchased for resale to avoid sales taxes | n/a | n/a | n/a |
| 9/27/2018 | Harbinger Capital Partners Offshore Manager, LLC, et al. | Y | N | $30,000,000 | Same case as 4/3/17 Harbert settlement; hedge fund with NY source income knowingly and falsely allocated the income to lower taxing Alabama and failed to pay NYS & NYC taxes due | $6,600,000 | 22.00% | 40 |
| 8/23/2018 | Spa Castle, Inc., Steve Chon, Victor Chon, Daniel Chon and Stephanie Chon* | Y | N | $2,500,000 | Spa business in Queens maintained two sets of books to under-report revenues and paid employees in cash and off the books; settlement was accompanied by tax fraud criminal pleas | $575,000 | 23.00% | 46 |
| 7/6/2018 | H. Hunstman & Sons | N | n/a | $250,000 | Tailoring company knowingly failed to pay NYS & NYC sales taxes arising out of trunk shows held in NY | n/a | n/a | n/a |
| 9/7/2017 | Express Hospitality Group, A&R Food Services, Inc., Yankee Clipper Food Services I Corp., Yankee Clipper Food Services, Inc., R&G Food Services, Inc., Rocco Manniello, Michele Manniello, and Lisa Manniello | Y | N | $13,000,000 | Two sets of books scheme leading to underpayment of NYS corporate franchise taxes, failure to withhold employee taxes, and underpaying rent to Port Authority | $2,860,000 | 22.00% | 28 |
| 6/23/2017 | Infosys Corp. | Y | N | $1,000,000 | Global outsourcing company engaged in scheme to underpay withholding taxes based on manipulation of B-1 visas | $200,000 | 20.00% | 24 |
| 4/3/2017 | Harbert Management Corp. and executives | Y | N | $40,073,823 | Hedge fund whose income was related to services performed in NYC knowingly represented that services were not performed in NYC, but in lower taxing Alabama | $8,816,241 | 22.00% | 24 |
| 10/19/2016 | K3 Learning Inc. f/k/a Metropolitan Preschools, Inc., Michael Koffler, Brian & Daniel Koffler, Sunshine Development School | N | n/a | $4,300,000 | Pre-school company knowingly deducted a not-for-profit's expenses from a related for-profit business, and company improperly deducted owner's personal expenses | n/a | n/a | n/a |
| 7/20/2016 | My Pillow, Inc. | Y | n/a | $1,109,000 | Out of state on-line retailer that conducted business in person in NY knowingly failed to collect and pay NY use taxes on internet and telephone orders by NY customers | $221,800 | 20.00% | 24 |
| 7/19/2016 | Gagosian Gallery, Pre-War Art, Inc. | N | n/a | $4,280,000 | Art gallery failed to collect & pay NYS/NYC sales taxes on art sold and transferred to purchaser in NY for his own use | n/a | n/a | n/a |
| 5/3/2016 | Victoria Gelfand | N | n/a | $210,000 | Art sales executive used false resale certificates to avoid sales and use taxes, when art was purchased for own use and displayed in her home | n/a | n/a | n/a |
| 5/3/2016 | Aby J. Rosen | N | n/a | $7,000,000 | Art purchaser used false resale certificates to evade sales and use taxes, when art was purchased for own use and displayed in target's NY homes and offices | n/a | n/a | n/a |
| 3/22/2016 | Asher Roshanzamir | Y | N | $1,135,178 | Real estate developer falsely claiming tax deferral from a purported "like kind exchange" under IRC 1031 that he knew did not qualify for that treatment | $200,000 | 17.62% | 48 |
| 8/22/2014 | Topline Appliance Center; Michael Moretti | Y | N | $1,569,920 | Out of state business doing business in NYS knowingly failed to pay NYS corporate franchise taxes | $313,984 | 20.00% | 24 |
| 3/14/2014 | Lantheus Medical Imaging; Bristol-Myers Squib | Y | N | $6,267,672 | Out-of-state company knowingly failed to pay NYS corporate franchise taxes & NYC general corporation taxes despite conducting business in NYC | $1,137,815 | 18.15% | 24 |
| 3/5/2013 | Mohan Custom Tailors | Y | N | $5,500,000 | Falsifying sales and personal income taxes using two sets of books. Defendants also pled guilty to criminal tax fraud charges | $1,100,000 | 20.00% | 14 |
| Totals | $585,241,399.78 | $111,893,711.00 | ||||||
Kirby McInerney is Here to Help
We have been and will continue to be a resource for government agencies and officials who wish to set up or improve tax whistleblower programs. Our lawyers have written frequently on tax whistleblower issues and have provided information and insights to interested legislators and regulators.
Visit our Whistleblower Practice page for more information on how we can help.