Corporate Governance

The Jury Is Out on IRS? New Whistle Blowers Policy

By Carol Straw

If you have ever considered whistle blowing on your corporate employer for violating federal laws, risking your job may offer little incentive to do the right thing notwithstanding that Sarbox offers whistleblower protection.  However, if you an accountant considering whistle blowing on your corporate employer for under-reporting taxes, you may have hit the jackpot. The IRS? Whistleblower Office can issue a bounty of up to $10 million to anyone who is the first to tell the taxmen that someone has ducked paying taxes. Even better, you may have played a role in the tax evasion.

The IRS? policy is being questioned in a civil suit between Joseph Francis, former CEO of the company that produced the ?Girls Gone Wild? videos and his former top finance executive, Michael Barrett, whom Francis claims turned him in to the IRS. Last month, Francis sued Barrett in a Los Angeles court, claiming Barrett hid mistakes in corporate tax returns. The suit comes in the middle of Francis? fight against federal charges that he fraudulently deducted more than $20 million in business expenses on the 2002 and 2003 corporate income tax returns of his companies Mantra Films, Inc. and Sands Media Inc. If he is convicted, he faces up to 10 years in prison and $500,000 in fines.

Francis? attorneys hope to poke holes in the IRS? bounty program, which they interpret as rewarding whistleblowers who had a hand in participating in the fraud. In the civil suit, they argue that Barrett ?failed his fundamental duties and tasks? while he was Francis? controller and vice president of financial affairs, and knowingly filed mistake-ridden tax returns with the IRS.

The IRS may reduce the award ?if the whistleblower planned and initiated the actions that led to the underpayment of tax or the violation of the internal revenue laws.? However, if the whistleblower is convicted for participating in the fraud, he or she will not receive the reward.

The Whistleblower Office was created under the Tax Relief and Health Care Act of 2006. In the first year of its constitution, the office received 80 claims.

Full post as published by PomTalk on September 02, 2008 (boomark / email).