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IRS blows off tips from whistleblowers

A few former employees of a company prepared a 32-page document for the Internal Revenue Service alleging that their former employer, Alliantgroup LP, helped its clients avoid taxes through false classification of salaries and other expenses under the tax deductible category of research.

An IRS whistleblower program, enacted by Congress in 2006 as a way to boost revenue, rejected those whistleblower claims about two years later, despite the fact that no IRS agents met with or discussed the claim with the whistleblowers. According to news sources, there was about $712.5 million in IRS tax credits that were falsely claimed by Alliantgroup LP clients. The whistleblowers, who could have received $210 million in compensation for their inside information, will instead receive nothing.

Apparently there are very few IRS whistleblowers who receive anything. There have been 1,300 whistleblower claims received by the tipster program since its inception and just three awards have been made. Knowledgeable sources say that the IRS whistleblower program is where insider information goes to die.

In a separate whistleblower claim against Cargill, the insider alleged that the company used inflated real estate appraisals to boost the amount of a charitable contribution when the property was sold. The whistleblower claim was denied without anyone at the IRS speaking to the whistleblower.

The IRS maintains that the issue is taxpayer confidentiality. The IRS claims that its tax audit agents could inadvertently reveal information about the taxpayer in question, and so do not speak to the whistleblowers.

In the case of Alliantgroup LP, the company was charged with helping its clients reclassify high-end wage earners into approved tax credit categories. One example given in the news report quoted an Alliantgroup manager as saying, "Obviously in software design, purchasing has no qualification in R&D. I need you to decide whether we should modify the title or figure out a better job description."

It seems as though the people who may need legal advice to press their case forward are not the company defendants, but rather the whistleblower plaintiffs that allege the tax credit irregularities and whose cases are not given adequate consideration.

Source: Bloomberg News, "IRS Resists Whistleblowers Despite Wide U.S. Tax Gap," Jesse Drucker and Peter S. Green, June 19, 2012

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