Kansas City Whistleblower Lawyer Blog

On average, there is a $450 billion annual gap between the taxes that are owed to the federal government and the taxes that are actually paid. In theory, those who help the government find those who cheat on taxes and contribute to the shortfall should be the heroes that the federal government wants to reward. After all, the people who underreport income or hide assets can cost the government millions of dollars. At first glance it seems that Congress wanted to create incentives to report potential income tax fraud. Back in December 2006, Congress passed legislation that increased the reward for reporting tax fraud to the heights typically reserved for Qui Tam whistleblowers. During the last five years, potentially $500 million dollars in unreported or falsely deducted corporate and personal income tax could have been recovered thanks to this legislation.

Sadly, only one reward has been given under the new law since 2006. Four and a half million dollars was awarded to a corporate auditor who tried to convince his employer to pay the $20 million in taxes they rightfully owed.

The problem is not a shortage of claims nor is it the quality of the information. The problem appears to come from the IRS itself. In a 2010 interview, former IRS chief Donald Korb had this to say in Tax Notes:

The new whistle-blower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system. I believe that it is unseemly in this country to encourage people to turn in their neighbors and employers to the IRS, as contemplated by this particular program. The IRS didn't ask for these rules; they were forced on it by the Congress.

Such a statement speaks to a great institutional resistance to change, especially change that is, in the words of Korb, "forced on it by Congress."

However, due to decades of case law about "agency deference," the IRS has a great deal of leeway in interpreting just how to implement these new rules forced on it by Congress. Every opportunity that the IRS had to interpret these rules, it chose the path of most resistance. Some examples of problematic guidelines include:

• Narrowed the sources of recovery that are the basis of whistle-blower awards.


• Imposed unprecedented withholding requirements on whistle-blower awards.


• Created roadblocks to IRS interactions with whistle-blowers, such as the 2008 "one-bite" rule (now relaxed) that limited receipt of information to an initial meeting.


• Defined "planners and initiators" of the tax scheme - who by law receive only a reduced award (if any) - in a manner that could block employees whose involvement is far removed from the true architects of a scheme from receiving a reward.

Lawyers who work with such whistle-blower claims frequently complain of the "black hole" that seems to consume them before a resolution can be reached. Recently a whistleblower filed suit against the IRS to not only pay him, but also disclose how the information he provided contributed to finding and collecting from those he reported as committing tax fraud.

That a whistle-blower should have to sue an agency to learn how his information helped uncover fraud is the height of absurdity. It's not as if all federal agencies are as recalcitrant - the SEC has been quite amenable to whistleblower information. They understand that citizens who help uncover fraud are allies and not antagonists. There's no need for the IRS to get defensive about citizens "turning in their neighbors" or for attorneys representing whistle-blowers to become demoralized at the complete lack of progress due to some power struggle between Congress and the IRS.

Source:
IRS Keeps Ignoring Whistleblowers, by Richard Lavinthal, published at WashingtonExaminer.com, April 12, 2012.

See Our Related Blog Posts:
Federal Crack Down on Medicare Fraud Reaps Record Recovery of $4.1 Billion
$25 Billion Agreement Reached on Mortgage Fraud

For the fiscal year ending September 30, 2011, the US Department of Justice (DOJ) recovered more than $3 billion under the False Claims Act. Of this amount, recoveries for fraud against US health care programs amounted to $2.4 billion. This is the 2nd year in a row that justice has recovered greater than $3 billion and the grand total amount recovered for all claims since 2009 was $8.7 billion.

The provisions of the False Claims Act allow individuals to file claims on behalf of the government. These individuals are known as relators and/or whistleblowers who report fraud, oftentimes an act that is fraught with risk and personal sacrifice. Assistant Attorney General West thanked these citizens with the following statement. "We are tremendously grateful to whistleblowers who have brought fraud allegations to the government's attention and assisted us in this public-private partnership to fight fraud."

US healthcare programs that sustained fraud include Medicare and Medicaid programs, health programs for Federal employees and Veterans, as well as the TRICARE program, which is administered by the Department of Defense for the benefit of Uniformed Service members, retirees and their families. Use of the False Claims Act for the recovery of federal health care dollars has yielded in excess of $6.6 billion dollars just since January 2009, which is the most recovered under this act during any previous 3 year period.

This was a top priority for the Obama administration. In support of this goal, the Health Care Fraud Prevention and Enforcement Action Team (HEAT) was created in May of 2009 in order to improve coordination between agencies and to step up enforcement.

Of the amounts recovered for healthcare fraud, the feds report that claims against the pharmaceutical industry represent the largest source of recoveries. Allegations against drug companies include illegal pricing for the purpose of profit maximization as well as criminal and civil charges against GlaxoSmithKline for adulterated drugs paid for by federal healthcare programs. Unfortunately, industry executives define these payouts, off-the-record, as a cost of doing business. Patrick Burns of Taxpayers Against Fraud, writes, "We are not seeing a decline in pharmaceutical fraud cases. Instead we are seeing the addition of other fraud streams, such as medical devices and pension fraud."

Justice also continues to aggressively pursue fraud in government procurement and financial fraud in the housing and mortgage industries in the aftermath of the financial disaster. To this end, the Financial Fraud Enforcement Task Force was established by President Obama in 2009 and is tasked with the pursuit of individuals and corporations contributing to the crisis. Nearly $358 million of the $3 billion collected in fiscal year 2011 resulted from this effort.

Senator Charles Grassley (R-Iowa) and Representative Howard Berman (D-California) have been leading the way since 1986 when they successfully led Congress to amend the False Claims Act, which included enhanced qui tam provisions that incented individuals to blow the whistle on fraud when they saw it. These individuals, along with Senator Patrick J. Leahy, chairman of the Senate Judiciary Committee, also supported the Fraud enforcement and Recovery Act of 2009. This act made possible additional improvements to the False Claims Act and many other fraud statutes.

Assistant Attorney General West stated that, "Twenty-eight percent of the recoveries in the last 25 years were obtained since President Obama took office. These record-setting results reflect the extraordinary determination and effort that this administration, and Attorney General Eric Holder in particular, have put into rooting out fraud, recovering taxpayer money and protecting the integrity of government programs."

Sources:

Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011, Department of Justice, December 19, 2011.

Pharma Fraud Continues to Fill the US Treasury, by Ed Silverman, Pharmalot.com, December 19, 2011

At the beginning of February, the Department of Justice, in conjunction with the Department of Health and Human Services, released a number of statistics regarding qui tam cases filed under the false claims act. As of January 4, 2011 there were 1,341 qui tam actions under investigation in the United States; each of them awaiting a decision as to whether or not the government will intervene.

Qui Tam cases are filed "under seal" meaning that the case is filed in secret so that the public and even the defendant are unaware that the case has been filed. This allows the government to investigate the case prior to any allegations being made public.

Just of 66% of all qui tam actions currently on file allege some form of health care fraud. The whistleblowers who have brought these actions come from a wide variety of backgrounds and professions, from hospital administrators to pharmaceutical sales representatives. 98% of all sealed health care cases allege fraud against Medicare or Medicaid.

From October 1, 2006 to January 4, 2011, the government made intervention decisions in 1,644 cases and actually intervened in approximately 1 out of every 5 cases. Of the cases that have had intervention decisions in the past 5 years, the average time under seal is 13 months.

Health Care and Government contractor fraud can potentially bankrupt America's health care benefit programs and defense funds. These actions only enrich those commiting the fraud. The damages can be staggering and the ongoing actions of many perpetrators suggest that these damages are simply a cost of doing business in these industries. The major types of fraud include:

• Medicare and Medicaid Fraud
• Pharmaceutical Fraud
• Defense Contractor Fraud
• Federal Government Contractor Fraud

All of these types of fraud are violations of the False Claims Act. Businesses that provide services for which reimbursement may be sought from Medicare and Medicaid funds are subject to the False Claims Act. Likewise, businesses that enter into contracts with the Government for the procurement of equipment and services are also subject to the False Claims Act. Normally, these businesses are considered to be Government Contractors.

American taxpayers and consumers of medical and pharmaceutical services should pay particular attention to the associated billing for these services. Actions such as billing for services that are not provided, incorrect data on health care provider cost reports, the provision of substandard care, and fully charging for partially filled prescriptions could be violations of the False Claims Act. Other violations can include:

1. Kickbacks to a Medical provider in exchange for prescribing particular drugs.
2. Medicare or Medicaid patients that are charged a higher rate for the same prescription.
3. Substandard products and services that are intentionally provided.
4. Prescribing unnecessary drugs and treatments.
5. Marketing drugs for uses not approved by the FDA.

Equipment and services provided by defense contractors can include everything from computers and vehicle parts to multi-billion dollar weapons systems. Defense contractors provide these products and services via contract with the Government. These contractors can run afoul of the False Claims Act by supplying substandard parts and equipment and by participating in bidding schemes that involve price rigging, to name a few. Additionally, failing to adhere to the terms of the contract can also trigger violations. Contract terms can include billing and labor rates as well as contract performance requirements and provision of equipment and labor that meet federal statutes and regulations.

Recent lawsuit filings naming for-profit colleges as defendants would indicate there is a disconnect between the value of course credits and the cost of the course credits.

Time and time again students are too late discovering that course credits they were assured would transfer to public and private universities and contribute to a useful education, in fact, will not. In many cases students have taken on debt of many thousands of dollars to pay the for-profit college for these course credits.

About 9% of all college students now attend for-profit colleges. Most attend schools owned by one of 15 large, publicly traded companies. In the last year federal student loans and grants made up an average 77% of revenue at the five largest for-profit colleges.

There is a proposal by the Education Department to penalize for-profits whose students graduate with more debt than they can afford. Congress has been holding hearings on whether federal aid to for-profit colleges - over $24 Billion in 2008 and 2009 - is being put to good use.

In their defense, the for-profit colleges say their programs serve a key role in educating students who juggle work and family demands. The U.S. government has stepped up its scrutiny amid growing concern that for-profits are reeling in billions of dollars in federal aid by using aggressive, deceptive practices to lure students to programs that may not contribute to a useful education.

For a lot of students the problems with for-profits begins with accreditation. Accreditation is an assurance of educational quality, and is a third-party seal of approval, if you will, designed to protect consumers and taxpayers from diploma mills. It is important to colleges because the Education Department relies on it to determine which schools may get federal student aid or not. Accreditation is important to students because it can help them transfer credits from one college to another and can signal that a candidate's academic training has met certain standards.

For-profit colleges historically have been accredited mostly by national groups that have focused on short-term college programs in fields such as the culinary arts, medical billing or business administration.

On the other hand, most non-profit, degree-granting public and private institutions are accredited by one of six regional bodies.

These two distinctions are important because regional accreditation, which takes at least two years for a college to earn and must be renewed every 10 years, is considered the most rigorous and most prestigious of the two.

To further confuse things it is up to institutions to decide whether to accept or deny transfer credits. Many use accreditation status as a guideline. Even when a school does become regionally accredited, other non-profit schools will often take a discriminatory attitude simply because the other school is for-profit.

Regional and national accreditors were questioned by lawmakers this summer about whether colleges found to engage in questionable practices - such as encouraging students to lie on financial aid forms or pressuring students to sign binding contracts - should be allowed to keep their accreditation.

Until accreditation is sorted out and penalties established for violations of student trust, misleading guidance and answers to student questions will continue to plague the for-profit education industry. Students will continue to take on more debt while being misled by guidance counselors and not receiving correct information in response to their questions about course transferability.

Our firm, Brady & Associates, has spoken with for-profit college counselors that are working off the clock in the performance of their duties. Many are working through a lunch or returning a student call after business hours and not being paid for that time.

Source:
For-profit colleges under fire over value, accreditation, USA Today, September 29, 2010