Unlike qui tam claims filed under the Federal False Claims Act, tax whistleblower claims do not involve the filing of a suit against the responsible taxpayer (or tax evader). Rather, the whistleblower typically hires an attorney to research the tax issues in question, hire and advance the costs of experts in tax law and accounting, prepare forms and disclosures to be filed with the IRS Whistleblower Office, and to interface between the Office and expert witnesses for the duration of the investigation, which may require several years to conclude.

The types of tax claims that may be presented to the IRS Whistleblower Office are as varied and complex as the Internal Revenue Code itself. Areas of particular interest include:

• Transfer pricing of pharmaceuticals manufactured in foreign countries and sold by U.S. subsidiaries of international pharmaceutical firms.
• Schemes to shift corporate or individual income to offshore tax havens or jurisdictions with lower tax rates.
• Tax shelters designed to generate deductions rather than legitimate business transactions.
• Tax avoidance schemes involving capital gains on large real estate holdings.
• Tax avoidance schemes involving the federal estate tax on large estates.

In April 2011, the IRS Whistleblower Office paid out its first-ever reward — a check totaling $3.24 million after taxes, based on a 22 percent cut of the $20 million in taxes and interest that was recovered roughly four years after the whistleblower’s initial complaint. There are reportedly many high-quality whistleblower claims that have been filed since the new law was put into place in 2006 that remain under active investigation. It will be only a matter of time before those investigations begin to be concluded, tax liabilities begin to be collected, and large rewards to whistleblowers begin to be announced on a regular basis. However, potential whistleblowers should be aware that it may take years for the typical IRS whistleblower claim to reach a conclusion.

In selecting counsel to pursue a tax whistleblower claim, an important consideration may be the financial resources available to the whistleblower’s counsel to retain the very best experts in the fields of accounting and tax law to substantiate the whistleblower’s claims before the IRS Whistleblower Office. As a mid-size plaintiffs’ firm with a national presence, the lawyers of Waters Kraus Paul & Siegel routinely work with expert witnesses in all of their cases. We do not hesitate to secure the services of renowned experts in order to bring cases to successful resolution.