Gunster attorney Martin Press says a colleague recently told him he underwent a metamorphosis.
“‘I’m not just a tax lawyer,’” he said, ‘I’m now a whistle-blower lawyer too.”
The comment was apropos as those in the tax litigation world are filing numerous claims on behalf of clients providing information to the Internal Revenue Service under a five-year-old whistle-blower statute that allows them to share in any bounty recovered.
This can mean millions of dollars not just for the client, but for the lawyers who stick by them through a lengthy process.
“I think it’s the new wave of the plaintiffs’ work,” said Fort Lauderdale tax litigator Jeffrey Neiman. “Those coming forward need good representation and the dollars we are talking about are astronomical.”
The poster boy in this arena remains Bradley Birkenfeld, the international banker and former jail inmate who just raked in a $104 million award in September for the information on Swiss bank UBS’ strategy to hide assets of wealthy Americans.
“The tax bar across the country is looking at this Birkenfeld case,” Press said. “They are saying, ‘If Birkenfeld can get this kind of money with the kind of person he was, maybe this is the kind of thing tax lawyers should be investigating.’”
Even though Birkenfeld was prosecuted in South Florida and sentenced to a two-year prison sentence for trying to protect one client — former Lighthouse Point real estate tycoon Igor M. Olenicoff — his information led to UBS paying a $780 million fine as part of a deferred prosecution agreement.
The Justice Department charged UBS executives and went to court to get the Swiss bank to release the names of Americans with secret accounts.
To an even larger extent, the UBS case launched the Obama Administration’s war against offshore tax havens in Switzerland and elsewhere in the world, shattering a centuries-long tradition of shielding the rich and their money from tax collectors.
The IRS whistle-blower statute allows for the person providing the information to receive between 15 and 30 percent of what the government’s recoups from the tax cheat. Following on the heels of Birkenfeld was another award with a South Florida connection.
The Ferraro Law Firm of Coral Gables announced last week the IRS awarded $38 million to a client, who wished to remain anonymous. The client provided information about a tax avoidance scheme perpetrated by a large corporation.
The law firm says it is working its way through more than 100 claims that bring to the government’s attention entities which have collectively underpaid taxes by more than $100 billion. IRS Commissioner Doug Shulman in July said 10 whistle-blower cases were nearing completion.
Attorney Jim Ferraro’s client received the second highest IRS whistle-blower award after Birkenfeld. He said law firms need to take the long view when it comes to pressing whistle-blower claims.
“It takes five years to get paid and you spend $10 million dollars to get there,” Ferraro said.
Attorney Scott Knott of Ferraro’s firm rode herd on the recent case that landed the payout for the client who he said exposed aggressive corporate tax planning for a Fortune 500 company.
Corporations “are doing their best to do everything they think they can do to reduce their tax bill,” Knott said. “This isn’t even close to one of my biggest cases.”
Press said the U.S. Tax Code unwittingly encourages corporate cheating as companies, especially private ones, seek out shelters and dabble in inventory manipulation. Top executives, meanwhile, write off personal expenses, such as private travel and entertainment.
Knott said the current award is very different from the case that brought publicity to Birkenfeld, who ended up interviewed on the CBS television show “60 Minutes.” Whistle-blower organizations wrongly claimed his sentence would cast a chill on those willing to come froward to the IRS.
Knott said in his case, “the identity and existence of the whistle-blower was never known to the company.” A number of IRS whistle-blowers, he suspects, will remain anonymous to avoid retaliation either by the company they are exposing or within their industry.
Neiman said he feels to some degree that working a whistle-blower claim is similar to what he did as a federal prosecutor.
“The experience of a prosecutor is an advantage. I kind of get to wear my old hat and piece together a case in hopes of serving it up to the IRS on a silver plater to investigate,” he said.
Neiman said he gets about one call from a potential whistle-blower a week. Not all of the cases pan out. But for those that do, he is willing to summon outside investigators and experts to help establish the claim.
“I’ve seen everything from Fortune 500 companies to small mom and pop businesses to a doctor skimming from his business,” he said. “I’m often looking at the testimony of the whistle-blower, but I’m also looking for documents to corroborate what the whistle-blower tells me what happened.”
There are also crucial strategic decisions to be made as to which IRS investigative division to approach with the information. The difference could mean a claim going to the front of the line or lingering on the back burner.
“You have to decide whether you will take the information to the criminal side or the civil side of the IRS,” Neiman said. “What good is providing information if it goes into a black who. So you have to decide: what is your entry point to the IRS?”
He said the government knows there is no better incentive than money to help them make productive cases. The frustrating part for whistle-blowers is knowing where their claim stands. The IRS will only say if it’s active or inactive.
It could be a long wait for nothing. Cases are estimated to take up to seven years. Ferraro’s client, however, was paid in four after making a claim in 2008.
“If you blow the whistle on millions of dollars in taxes owed, but that individual doesn’t have a pot to piss in and he can’t pay the tax bill, then the whistle-blower stands to collect nothing,” Neiman said.
Whistle-blower claims could eventually be the new personal injury lawsuit for plaintiffs’ attorneys or “lawyers looking for the big fish,” he said.
“I think it’s the business of the new generation that didn’t exist 10 or 20 years ago,” Neiman said.
Press said the IRS law has lit a fire under law firms even though these cases have a “long horizon.”
“I am amazed in the renewed interest of many of the bigger firms across the country regarding representing plaintiffs in whistle-blower cases,” he said.