In February, the Internal Revenue Service (IRS) released its FY 2018 Annual Report and announced a record-breaking year for the agency’s whistleblower program. Overall, whistleblowers provided information that contributed to the agency’s recovery of over $1.44 billion during the course of the year. As a result, the IRS awarded $312 million in bounty awards to whistleblowers in FY2018, an almost ten-fold increase from the $33.9 million in awards it made in FY2017. Of the 217 total awards the agency made to whistleblowers in FY 2018, 31 were mandatory awards under Internal Revenue Code section 7623(b) and 186 were discretionary awards under section 7623(a) (which applies to smaller cases). The average award percentage from the total amount collected was 21.7% – up from 16.6% in FY 2016 and 17.8% in FY 2017. READ MORE
On March 16, the Equal Employment Opportunity Commission heard testimony from a variety of advocacy groups, academics and employer representatives on with regard to its proposed revisions to the EEO-1 adding W-2 pay data. Gary Siniscalco from Orrick provided testimony as an employer representative. Click here for Gary’s testimony.
The IRS recently announced that severance payments are taxable wages under FICA, and thus employers who seek tax refunds on those payments will be denied. The IRS’s position reflects the United States Supreme Court’s ruling in United States v. Quality Stores, Inc., issued in March of last year.
Section 7623 of the Internal Revenue Code (the “Code”), added in 1954, authorizes the Treasury Secretary to pay an award as he deems necessary for “(1) detecting underpayments of tax, or (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.” The program was significantly enhanced in 2006 as part of the Tax Relief and Health Care Act with the addition of Code section 7623(b), which provides that if the Treasury Secretary proceeds with any action based on information brought to the Secretary’s attention by an individual, such individual will receive as an award at least 15% but not more than 30% of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action. The determination of the amount of such award by the IRS Whistleblower Office, which was created by the 2006 legislation, depends upon the extent to which the individual substantially contributed to such action.
Employers frequently ask whether the portion of an employment-related settlement allocated to attorneys’ fees must be treated as wages and subjected to income and employment tax withholding and Form W-2 reporting where a plaintiff’s claim is based on statute that provides for the recovery of attorneys’ fees (a so-called “fee-shifting statute”). The answer was not entirely clear based on conflicting guidance from the IRS. Fortunately the IRS recently confirmed its view in LAFA 20133501F (July 11, 2013) that where a plaintiff’s claim is based on a fee-shifting statute, the amount of the settlement that is clearly allocated to attorneys’ fees and that is reasonable in amount is not wages for employment tax purposes. READ MORE
A whistleblower who took sensitive company data from his employer and turned it over to the IRS has won his retaliation claim at the Department of Labor under the Sarbanes-Oxley Act’s (“SOX”) whistleblower protection provisions. In Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064, ARB Case No. 09-118 (ALJ July 24, 2013), an Administrative Law Judge was presented with the question of whether Vannoy’s removal of highly sensitive company data and transmission of that data to the IRS constituted protected activity under SOX. Vannoy, who was formerly employed as the administrator of Celanese’s corporate credit card program, first allegedly complained internally that the company “misstated their financial records and underestimated their required tax burden potentially in millions.” Vannoy sought legal counsel and eventually reported the company’s alleged accounting misconduct to the IRS. READ MORE