Ernst & Young has been named by a law firm that has filed a submission with the Internal Revenue Service's Whistleblower Office, claiming that one of the accounting firm's Fortune 500 clients improperly reduced its taxes by $1 billion through a series of transactions.
The Ferraro Law Firm filed the submission under Section 7623 of the Tax Code, which allows whistleblowers to collect between 15 and 30 percent of the amount of taxes owed. That would give the whistleblower and its legal representatives up to $300 million if the IRS decides to proceed with the case. Ferraro took the case on a contingency basis.
Scott A. Knott, a tax partner with Ferraro, declined to identify the Fortune 500 company or the identity of the whistleblower publicly, citing the need to protect the whistleblower from retribution.
"In many of the cases, the whistleblower doesn't want to be identified, nor who the advisors were that were involved in the transaction, and the dates," said Knott. "The companies would be able to narrow it down." His firm has asked the IRS not to tell the company that a whistleblower brought the matter to their attention. An IRS spokesman said he was unable to comment on individual cases.
The submission comes after four partners at Ernst & Young were indicted in May for conspiring to sell fraudulent tax shelters. Knott declined to say if the matter in the whistleblower submission involved tax shelters, but he noted that in many cases involving Fortune 500 companies, tax underpayments often result from taking overly aggressive tax positions that now have to be disclosed under Sarbanes-Oxley. A spokesman for Ernst & Young declined to comment, saying that the firm had not yet seen the submission.
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