The Internal Revenue Service has paid an unidentified CPA $4.5 million as the first award under its newly expanded whistleblower program.

Eric L. Young

The CPA’s law firm, Egan Young, announced the whistleblower award on Friday. The law firm declined to identify the CPA, but said he was an in-house corporate accountant at one of the largest financial services firms in the U.S., a Fortune 500 company. The CPA discovered a tax liability of more than $20 million at the firm that had been previously underreported. Under the newly expanded IRS whistleblower program, he stands to collect up to 22 percent of the proceeds of whatever the IRS collects from his employer.

The IRS recently expanded its whistleblower program, expanding the maximum reward to 30 percent of the proceeds collected. The CPA was given the third highest category of IRS whistleblower reward under the new law, 22 percent, according to the whistleblower’s attorney, Egan Young managing partner Eric L. Young.

“Because this is the first-ever reward being paid out of the IRS whistleblower office, there is nothing to judge the percentage against,” said Young. “That being said, in my experience in having done qui tam cases under the False Claims Act over the last eight years, a 22 percent reward is substantial and is indicative of the quality of information that our client presented to the IRS in enabling it to recover the $20 million. In most qui tam cases under the FCA, whistleblowers get between 15 percent and 20 percent. “

Last month, another law firm announced that one of its clients had won a $1.1 million whistleblower award from the IRS in a case involving Enron and Bankers Trust, but that was under the older program (see Enron Whistleblower Scores $1.1M Award from IRS). The CPA who won the new $4.5 million award is the first to collect under the new whistleblower program, according to Young.

“This groundbreaking IRS $4.5 million reward originated like many of our government fraud whistleblower cases in health care, defense contracting, pharmaceutical sales and marketing, and other sectors,” Young said. “Our client discovered that the financial services firm was failing to pay taxes but after speaking up was simply ignored. As such, the right thing was done in deciding to report this employer’s tax misconduct to the IRS.”

For tax and qui tam whistleblowers, the case underscores the importance of working with an experienced whistleblower lawyer, Young noted. His client originally had filed an IRS Form 211 with the new Whistleblower Office without the assistance of counsel, known legally as “pro se.” When more than two years had expired since the original filing and no IRS response had been received after numerous client inquiries, the client reached out to Young, an experienced whistleblower attorney in state and federal courts.

After assessing the client’s case and concluding that it indeed appeared to be in limbo, Young immediately contacted the IRS Whistleblower Office. He determined that his client had never received a “claims number” after the original Form 211 filing. Assigning this number is only the first step in IRS whistleblower procedure.

“In our subsequent contacts with the Whistleblower Office we provided the original case documents and information that fully exposed the financial services firm’s tax misconduct,” said Young. “We also clearly and convincingly demonstrated to the IRS Whistleblower office how effective our client’s efforts were in advancing this case. As a result, we believe our efforts enabled our client to earn this enhanced, 22 percent reward in America’s first IRS Whistleblower case under the new program.”

In fiscal years 2007 through 2009, when rewards under Section 7623 were mandated, the IRS Whistleblower Office reported receiving more than 12,000 new cases. Earlier this year the Whistleblower Office modified its award criteria to allow whistleblower rewards based not just on taxes and penalties received but when improper refunds or credits have helped to offset taxpayer liability.

The Tax Relief and Health Care Act of 2006 required the IRS to set up a Whistleblower Office by December 2006 and then pay rewards to tax whistleblowers. Prior to this legislation, now Section 7623 of the Tax Code, the IRS had the option to pay rewards to individuals it previously referred to as “informants.”

“The IRS and its Whistleblower Office have restrictive confidentiality standards, and our client welcomes this cloak of anonymity,” said Brandon J. Lauria, an Egan Young attorney who also represented the whistleblower. Young and Lauria said the client continues to work as an in-house CPA and never wants to be known as the source of detailed information that cost the employer more than $20 million, nor will the law firm disclose the taxpayer’s identity.

Throughout the years-long investigation of the whistleblower’s allegations, the IRS Large Case Examination office never officially revealed to the taxpayer that a whistleblower had provided the tax liability information, nor did the company officially learn the client’s name, Young noted.

Young credited Stephen Whitlock, director of the IRS Whistleblower Office, office analysts, and other professional staff for their help in working with him and Lauria to bring this first-ever IRS tax whistleblower case under the new program to settlement.

“I don’t envy the daunting challenges Mr. Whitlock faced in starting the IRS Whistleblower Office from scratch, then being inundated with 12,000 Forms 211 filings,” Young said. “The IRS whistleblower floodgates have opened a tiny bit with our groundbreaking case. Egan Young looks forward to more tax whistleblower rewards for our clients, as are whistleblower attorneys across the U.S.”

The firm has developed a reference microsite for the historic case. Potential whistleblowers and their attorneys can visit http://www.First-Tax-Fraud-Reward.com to learn more about the case.