IRS Whistleblower Awarded $38 Million.
We are excited to share some good news … the IRS has awarded $38,037,899 to one of our clients for providing information about a tax avoidance scheme perpetrated by one of the nation’s largest corporations. We respect our client’s wishes to remain anonymous and are therefore we are not authorized to comment on the specifics of the tax issues that led to this $38 million award. We can say that the issues involved were more akin to aggressive corporate tax planning than outright fraud, and the tax adjustments the IRS made were commensurate with the factual and legal allegations we made in our submission to the IRS.
Both the name of the company and the name of the whistleblower have remained completely confidential throughout this whole process, and remain so even after payment of this award. The company was in the top half of the annual Ferraro 500 list, which reorders the Fortune 500 companies based on the size of those companies’ Uncertain Tax Positions.
Before agreeing to the proposed award, we went through the administrative award determination procedure. During the administrative award determination procedure, we were able to thoroughly review the IRS’s proposed award computation. This is a crucial step for any whistleblower claim involving a complex corporate return. We were able to aid the process by submitting our own proposed award computation to the IRS prior to the IRS coming up with their proposed award computation. Also, as we have written about before on this blog, the IRS is withholding on the award payments that it is making. In order to ensure that the IRS did not over withhold millions of dollars, we negotiated a withholding agreement with the IRS on behalf of our client.
It has been great to see years of work come to fruition. This particular claim was filed shortly after The Ferraro Law Firm began representing whistleblowers in front of the IRS. This is within the 5 to 7 years that the IRS estimates on average it takes to work a whistleblower claim from start to finish. It has been a long journey with a great ending.
Comments (5)
Read through and enter the discussion by using the form at the endBubba Shawn - October 29, 2012 10:24 AM
Congratulations Ferraro Law Firm! Indeed this is very exciting news and confirms the administrative procedures are being followed.
Thank you for sharing this great news and generously continuing to inform 7623(b) whistleblowers.
Disappointed Whistleblower - October 29, 2012 6:44 PM
First of all congratulations. Can you give some generic details? Was it a muti year issue? Was there an appeal by the taxpayer? All I am trying to do is get a sense for timimg . I know you wrote a blog article on this; however this is real precedent.
Scott A. Knott - October 30, 2012 8:53 AM
Thank you. Unfortunately we do not have authorization from our client to release those details because they could be used to further narrow down the list of taxpayers who may have been the subject of the claim. However, I will say that almost all of the time involved in this case was taken up by the normal tax controversy process for an LB&I taxpayer.
Anonymous Tax Amateur - January 14, 2013 9:50 PM
Most likely, your client will have a tax problem of his own because he will be subject to AMT and the courts have ruled that he loses most of his legal fee deduction. Thus, he'll have to pay taxes on the full $38 million, including the amount he paid in legal fees, rather than just on his net income. That's painful.
Have you figured out a way to save clients that tax expense? Most of them won't realize in advance that they need the protection, but they do. Some law firm ought to innovate in getting around it. I saw an article somewhere suggesting that it could be done if the case were brought jointly by a partnership consisting of the claimant and the law firm, which seems reasonable to me.
impatient whistleblower - January 18, 2013 6:39 PM
Not a tax attorney or CPA, but I think IRC 62(a)(21) classifies legal expenses for whistle blowers as an above the line deduction from income. This is different than many other legal expenses which are below the line deductions. If this is correct, they should be exempt from AMT.