Neil Getnick on the $263 Million IRS Tax Fraud Recovery

A group of whistleblowers has secured the second largest recovery in Internal Revenue Service (IRS) whistleblower program history.

Neil Getnick

Getnick Law and SEC Whistleblower Advocates PLLC led the representation of the lead whistleblower in an historic $263 million tax fraud recovery from an individual taxpayer, the award for which was recently finalized by the IRS.

Getnick Law and SEC Whistleblower Advocates represented the whistleblower along with Outten & Golden LLP. 

The whistleblower, whose identity remains protected, was the primary whistleblower in the case, which involved two additional whistleblowers. 

One of the other whistleblowers was represented by Whistleblower Partners LLP, and one did not have legal representation.

The three whistleblowers will receive 30 percent of the government’s recovery – $74 million – the maximum possible award, a reflection of the importance of the information and assistance provided to the government. 

The whistleblower represented by Getnick Law provided particularly valuable information and assistance, meeting with government officials from multiple agencies on many occasions over a five-year period.

The IRS is not identifying the taxpayer who committed the fraud.

The $263 million settlement concludes one of the largest tax whistleblower cases ever.

By comparison, the IRS collected a total of $338 million from whistleblower cases resulting in 121 awards in fiscal year 2023.

The settlement resolved a matter that was unusually complex due to the size and nature of the fraud and the involvement of three distinct whistleblowers.  

Getnick Law proposed a way to overcome obstacles that often impede the resolution of cases with multiple whistleblowers. 

The IRS Whistleblower Office, under the leadership of Director John Hinman, facilitated and supported the whistleblowers in coming together, enabling them to reach a resolution regarding the allocation of the award, thereby avoiding the possibility of years of litigation in Tax Court.

Getnick Law partner Margaret Finerty led the Getnick Law team, which included Neil Getnick, the firm’s managing partner, partner Richard Dircks and counsel Stuart Altschuler.

Jordan Thomas of SEC Whistleblower Advocates co-led, and partners Jennifer Schwartz and Tammy Marzigliano co-counseled the matter from Outten & Golden. 

The team worked closely with Whistleblower Partners, the unrepresented whistleblower, the IRS Whistleblower Office and its director John Hinman to resolve the matter.

“Together we have demonstrated that when the IRS Whistleblower Program functions as a public-private partnership embracing mutually supportive cooperation, it can produce a win-win-win resolution for the Whistleblower Office, whistleblowers and their counsel, and most importantly, the public,” Getnick said.

Is there anything at all that you can say about the whistleblower or the person or corporation the whistleblower blew the whistle on?

“This much I can say – the taxpayer is an individual, which in and of itself is dramatic,” Getnick told Corporate Crime Reporter in an interview last week. “It’s a $263 million recovery. And the tax evasion scheme was an offshore tax evasion scheme that resulted in this recovery.”

Was it an individual tax evader or a corporate tax evader?

“Let’s simply say that there’s a blurred line there, but the actual tax recovery was from the individual.”

We’ve written in past issues about the IRS whistleblower program historically lagging behind other whistleblower programs, including the SEC’s program and the Justice Department’s False Claims Act whistleblower program. Has that been the case in recent years? And what does this settlement signal in terms of the state of the IRS whistleblower program?

“This case is a breakthrough and may very well be a harbinger of the future. There was an extraordinary degree of cooperation among the whistleblowers’ counsel and the IRS whistleblower’s office. Getnick Law represented the primary whistleblower in the case. But the case involved two additional whistleblowers. One was represented by Whistleblower Partners LLP. And the other whistleblower did not have legal representation.”

“The case required a coming together, which was greatly assisted by the IRS whistleblower office. And the communication that took place led to an agreed upon consolidation of claim forms by the three unrelated whistleblowers into one joint form. That in turn led to an agreed upon proportional division of the IRS whistleblower award among the three whistleblowers.”

“That laid the foundation for a relatively quick resolution of the granting of the award. When the IRS whistleblower office considered the consolidated claim, it took into account the contributions of all three whistleblowers in setting the award percentages according to the three alternatives that exist in that program – 15 percent, 22 percent or 30 percent.” 

“The IRS whistleblower office evaluated the claim and the supporting activity as qualifying for its highest percentage award of 30 percent.” 

“All of that is very, very positive. But I should point out that the foundation for that cooperation and communication was laid by a transformative improvement of the program that was already underway in the IRS whistleblower office since the appointment of John Hinman as its director in mid-2022.”

If we are talking about thirty percent, we are talking $74 million that will go to the three whistleblowers. 

Can you say anything about how that was divided among the three whistleblowers?

“No, other than to say that the three whistleblowers were able to communicate with each other and came to what all of us considered to be a fair and appropriate division. And the reason that that’s very important is that, more typically, the IRS in a multi-whistleblower matter will form its own conclusion – and that does not necessarily sit right with each of the whistleblowers. That, in turn, gives rise to litigation in tax court.” 

“So the most important aspect of this was to come up with a methodology that avoided our need to go into tax court, because everyone – the whistleblowers, the counsel, the IRS whistleblower office – would agree that once you go into tax court, you’re going to be bogged down in years and years of litigation. It’s not unusual to be involved for a decade in that litigation.” 

“The ability to cut through that process and get right to a resolution is what made all the difference here. And at the end of the day, no one is complaining about the allocated percentage to each individual whistleblower because they’ve all come to agree that that’s an appropriate and fair decision.”

And it’s not unheard of in whistleblower cases, where the whistleblower is unhappy with the amount of the award and sues the agency to get just compensation.

“That’s true even when there are not multiple whistleblowers. But again, what was particularly helpful here is that the methodology that we applied in the first instance allowed all of us to communicate with each other. That took some convincing that, in fact, could be done in conformity with the IRS rules and regulations.” 

“At times, the IRS finds itself frustrated by its own rules and regulations. And out of a desire to protect whistleblower anonymity, it becomes difficult to foster communication. But we were able to propose a methodology to the IRS that addressed this concern within the existing rules and regulations. And upon review by the IRS counsel, that was permitted to go forward.”

“That became the foundation for everything that followed. The way the IRS views a consolidated claim is that each contribution of each whistleblower is looked upon as an added contribution to the whole. It’s a rising tide lifts all ships situation. And when you look at the contribution of the whistleblowers together, it was so overwhelming that the IRS itself agreed that it gave rise to the 30 percent award.”

“In addition to co-counseling this with SEC Whistleblower Advocates, we were also involved co-counseling with the law firm of Outten & Golden.” 

“The second represented whistleblower was represented by Whistleblower Partners, and that played a very significant role in allowing us to get this done.”

The IRS brings only a handful of these cases every year, settles only a handful every year. I’m not sure what the exact numbers are, but I’ve read that there is a backlog of 30,000 whistleblower complaints at the IRS. 

That’s a remarkable number. What can be done about that? 

“That’s a very troubling aspect of the situation. Looking backward, there are at least a couple of things that are going on currently to address that.” 

“The first is that the IRS whistleblower office has received a significant increase in their funding so that they will be able to double their staff size. In terms of return on investment, the money spent on the whistleblower office more than pays for itself in terms of the money recovered.”

The staff doubled from what to what?

“As a result of additional funding to the IRS provided by the 2022 Inflation Reduction Act, the 48-person whistleblower office will soon double.”

“The other aspect that goes along with that is that when you have those additional resources, it will help the office to discern high value whistleblower information effectively, and then to prioritize those cases. You need to get through the incoming submissions to select those which have the greatest promise of being successful, and then to prioritize your resources towards them.” 

“If you’re running a private law firm, that’s exactly what you do. And we need some of that same approach in the public sector as well, so that we can look upon this as a return on investment with the program operating as a profit center within the agency.”

Won’t these IRS whistleblower cases eventually become public, because the IRS will publicly pursue in court the alleged tax evaders?

“If it comes down to a court fight, then the answer is yes. If it comes down to a case that’s resolved by mutual agreement, then not necessarily.”

Was that the case here?

“Yes, this case was resolved by mutual agreement.”

How many whistleblower law firms like Getnick Law have some expertise with the IRS whistleblower program?

“I feel I’m on a slippery slope here. As you may know, I’m a former chair of Taxpayers Against Fraud, now The Anti-Fraud Coalition. If I begin to list them, I’m going to miss someone and feel badly about it. So, I’m going to take a pass. But yes, there are a number of firms with expertise in this area. And again, I’ll point out that John Hinman, the director of the IRS whistleblower office, has been very wise in gathering a brain trust of sorts for roundtable discussions involving these lawyers in order to improve the program.” 

Are those sessions in person or by zoom?

“Both.”

But it’s overall a smaller plaintiffs bar than say the SEC whistleblower bar or the False Claims Act bar, right?

“It’s a smaller bar. And up until now at least, it’s been a shrinking bar because it’s been so difficult to crack the program. But the result in this case and the transformative program under John Hinman and his staff are a harbinger of the future. I believe that will create a renewed interest in the program among whistleblower lawyers.”

“I should add that Senator Charles Grassley (R-Iowa) and Senator Ron Wyden (D-

Oregon) have a pending piece of legislation – The IRS Whistleblower Program Improvement Act.” 

“That bill has six specific provisions. I’m not going to go into all of them, but two are particularly worth highlighting. The first would exempt whistleblower awards from reductions due to budget sequestration.” 

“The IRS, as far as I know, is the only whistleblower program that is still applying sequestration to whistleblower awards. The awards get reduced by 5.7% as a result of that policy and practice. This bill would change that.” 

“And then the second would be to require the IRS to pay interest on whistleblower awards if they’re not paid within one year of receipt of proceeds collected from the whistleblower disclosures.” 

“When there’s a dispute between the IRS and the whistleblower, it can take years and years to resolve. In the meantime, the IRS has the benefit of the collected proceeds, and there’s no interest accrual for the benefit of the whistleblowers. That would change under this legislation. Those are two key provisions.”

In this most recent case, was the award reduced by 5.7 percent?

“Yes, that’s why in the reporting to date on this case, the reward has been reported as either $79 million or $74 million. The reality is that the award was for $79 million, but by law it is reduced by 5.7 percent and it becomes $74 million.”

[For the complete q/a format Interview with Neil Getnick, see 38 Corporate Crime Reporter 38(12), September 21, 2024, print edition only.]

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