Whistleblower Attorneys Announce ‘Historic’ Tax Fraud Recovery

The IRS recovered $263 million in a settlement after three whistleblowers brought a taxpayer’s fraud to the agency’s attention, said attorneys for one of the whistleblowers last week.

The “historic” settlement “concludes one of the largest tax whistleblower cases ever,” Getnick Law, which represented the lead whistleblower, said in a September 18 press release.

The whistleblower attorneys called the case “unusually complex due to the size and nature of the fraud and the involvement of three distinct whistleblowers.” According to co-lead counsel Jordan Thomas of SEC Whistleblower Advocates, “What started out as a run-of-the-mill potential securities concern quickly became an historic tax case.”

In addition to Getnick Law and SEC Whistleblower Advocates, attorneys at Outten & Golden LLP represented the lead whistleblower. A second whistleblower was represented by Whistleblower Partners LLP, while a third had no representation. The whistleblowers’ and taxpayer’s identities have not been revealed.

According to the Whistleblower Office’s annual report released in June, the IRS collected $338 million in proceeds due to whistleblower information in fiscal year 2023. Information provided by whistleblowers allowed the agency to pursue 1,234 claims — top allegations included underreporting of income, overstated and false deductions, and failure to file a return.

Getnick Law partner Margaret Finerty said “[t]his groundbreaking case illustrates the importance of the IRS whistleblower law and how it empowers private citizens to work with the government to uncover massive fraud committed by powerful individuals and generate significant revenue for the government, benefiting honest taxpayers across the country.”

In total, the three whistleblowers will receive 30% of the recovery, Finerty said. She explained that this equates to a $74 million net award, which “was reached after the IRS applied the mandatory sequestration reduction of 5.7%.”

“Thirty percent is the maximum possible IRS award, reflecting the importance of the information and assistance provided to the government by the whistleblowers,” Finerty explained. According to an IRS spokesperson, “the IRS does not announce specific whistleblower awards or the proceeds collected attributable to a specific award.”

Under Code Sec. 7623(b), whistleblowers are entitled to awards of between 15 and 30% of proceeds if the information they submit leads to a recovery in an action concerning an individual whose gross income exceeds $200,000 for the relevant tax year and the total proceeds in dispute is greater than $2 million. Submissions must be signed under penalty of perjury.

One recent critique of the Whistleblower Office is that it is lagging in claims processing. Stephen Kohn, a partner at Kohn, Kohn & Colapinto and co-founder of the National Whistleblower Center, highlighted that the Whistleblower Office’s annual report revealed an average 11-year wait for whistleblower payments.

Kohn called for legislative action, saying “without a congressional fix targeting the delays, the program will be fighting with one hand tied behind its back.” To that end, the bipartisan IRS Whistleblower Improvement Act (S. 625/H.R. 1300) would impose interest on delayed awards payments and exempt awards from reductions due to budget sequestration, among other things.

Getnick Law said the whistleblower they represented met with government officials “on many occasions over a five-year period.” They were not, however, able to speak to the overall timeline in the case.

Finerty told Checkpoint that “making awards in cases involving multiple unrelated whistleblowers is a much more complicated process than in cases where there is a single whistleblower.” She credits the Whistleblower Office for enabling the three whistleblowers in this case “to agree upon an allocation of the 30% award, which greatly sped up the process and avoided many years of potential litigation in Tax Court.”