Kenney & McCafferty Assists Government in $112 million Omnicare Settlement

Kenney & McCafferty, P.C., co-represented one of the whistleblowers in the nation’s largest nursing home pharmacy and pharmaceutical False Claims Act settlement. The Department of Justice announced on November 3, 2009, that Defendants Omnicare and IVAX Pharmaceuticals would pay a total of $112 million to settle litigation initiated by whistleblowers.

The Department of Justice alleged that Omnicare solicited and/or paid four different types of kickbacks:

* First, DOJ alleged that Omnicare solicited and received kickbacks for recommending that physicians prescribe Risperdal to nursing home patients.

* Second, DOJ alleged that Omnicare paid kickbacks to nursing homes by providing them with consultant pharmacist services at below cost rates.

* Third, DOJ alleged that Omincare solicited an $8 million kickback for purchasing $50 million in drugs from IVAX.

* Fourth, DOJ alleged that Omnicare conspired with nursing home for Omnicare to pay the nursing home chains $50 million in exchange for the nursing homes to continue using Omnicare for pharmacy services.

Kickbacks, such as these, are illegal because they subvert the medical judgment of health professionals and result in unnecessary and often, dangerous, changes in medications for the patient. Whistleblowers in the pharmaceutical industry recognized the illegal activity and filed False Claims actions. False Claims Acts allow whistleblowers to report false claims by filing a sealed complaint in court. If the whistleblower prevails, he or she gets a percentage of the recovery, and the remainder returns to the government.

Kenney & McCafferty, P.C. specializes in qui tam and tax whistleblower litigation, and its attorneys have recovered more than $2 billion for the government in False Claims Act and tax whistleblower cases. For more information, visit K&M’s website, www.quitam-lawyer.com

Estate Tax Fraud - Prime Area for Whistleblowers

Some commentators are noting that the recent prosecution of an individual for filing a false federal estate tax return may signal the Service's new "get tough" policy on estate and gift tax fraud. Prior to the Whistleblower Rewards Act of 2006, prosecutions in the area have been lean.

The recent criminal case involved a woman who was the executrix of her mother's estate. She admitted that she intentionally omitted assets worth $400,000 from the Form 706, the federal estate tax return. The executrix faces possible imprisonment, supervised release, and large fines and penalties.

Previously it was thought that the Service might be trying to adhere to the Bush administration's wishes that estate taxes simply disappear. While Bush supported the elimination of the estate tax entirely, administrative proposals met with little support. Some feel that the administration then decided to gut the ranks of IRS employees to de facto eliminate enforcement of estate tax collection. In March 2008, outraged IRS employees sounded off about the Agency's decision to terminate 157 of its 345 estate tax lawyers. The IRS itself had noted that 85 percent of the large taxable gifts it audited were fraudulent and intended to cheat the public. For every hour that the Service's estate tax lawyers work, they uncover an average of $2,200 in taxes that Americans worth $1 million or more illegally withheld from the government. The Service's estate tax attorneys uncover about $1.4 billion in lost tax revenues per year. While the Service appears to be recruiting again, it's unclear whether those lost, and profitable, estate attorneys will be restored to the IRS rolls.

Estate and gift tax claims present an area of opportunity for whistleblowers. With a decrease in IRS estate tax attorneys, the Service will need to increase its reliance on informants to point out fraudulently reported Form 706 claims. Old tax returns and appraisals can help. The more credible the claim, the more likely it will be that the Service will decide to devote resources to the claim's investigation.

If you believe you have a viable estate or gift tax evasion claim, call KEMY for a free assessment today.

TIGTA Cites Deficiencies in Resolution of Whistleblower Claims

The Treasury Inspector General For Tax Administration (TIGTA) issued a report entitled, "Deficiencies Exist in the Control and Timely Resolution of Whistleblower Claims." TIGTA assessed the IRS's implementation of the Whistleblower Office and the controls monitoring whistleblower claims. The report identified three general areas of problems:

1. Multiple inventory systems and inadequate procedures and processes result in ineffective control over Whistleblower claims;

2. Whistleblower claims are not resolved in a timely manner; and

3. The law's lack of employee protection against retaliation places whistleblowers at risk for reporting tax fraud.

The life of a whistleblower claim can be extraordinarily long when compared to most any other kind of agency action. TIGTA noted that the Whistleblower Office recently paid an award on a claim 15 years after the claim was received. Generally, the Whistleblower Office will tell claimants that payments could take 10 years, assuming the claim is successful at all.

TIGTA identified improper delays in notifying claimants when their claims were rejected. The most common reason for rejecting a whistleblower claims was that the targeted taxpayer was already under investigation by the Service. TIGTA estimated that once the IRS made a decision to deny a claim, it took 6.5 months to notify a claimant that his or her request for reward had been rejected. Twelve claimants had not been notified by the time of the TIGTA review, though the Service had rejected the claim 290 days before.

A significant obstacle to timely resolution has been the Service's multiple inventory systems for tracking claims. The Whistleblower Office uses three inventory systems to track rewards claims currently. The systems did not accurately track information about claims, and it was frequently inconsistent in its reports of claims. One problem has been incorrect claim receipt dates. The Service has been working on a single inventory system, called E-TRAK, and hopes that it can capture claim information accurately from the multiple systems currently in place and transfer them to one inventory mechanism for all 7623(b) claims. The Whistleblower Office expects this single inventory system to be fully in place sometime in 2010.

TIGTA made a number of recommendations, including one to add retaliation protection to the statute. Several IRS analysts had reported that whistleblowers requested protection from the targeted taxpayers but the IRS had no way to respond. TIGTA recommends that the legislation be amended to provide specific relief to whistleblowers who become victims of retaliation.

Whistleblower Office Reports $22 Million Paid in 2008

The IRS has yet to pay on any claims under the 2006 IRC 7623(b) mandatory reward program enacted in December 2006, according to its annual report to Congress issued earlier this week. Claims paid in 2008 for the discretionary rewards program (IRC 7623(a)) exceeded $22 million.

The Whistleblower Office has seen an increase in amounts collected and awards paid since FY 2004. That year, the Service paid out more than $4.5 million in awards. In FY 2005, the Service paid whistleblowers $7.6 million. Award payouts spiked in 2006 at just over $24 million. In 2007, the amount paid dropped to $13.6 million, with in increase in 2008 to more than $22 million.

The Whistleblower Office reminded Congress that the 7623(b) program represented a significant change for the Service, requiring the Whistleblower Office to "tool up." For example, during 2008, the Office staff grew from 4 to 14. Currently, ten analysts examine and shepherd meritorious whistleblower claims through the Service's criminal and civil investigation divisions.

Interesting was the Service's report on month by month submissions to the program. In October 2007, the Whistleblower Office received 16 submissions. In September 2008, the Office received 136 submissions. Submissions peaked in July of 2008 with a record 204 claims submitted, identifying 243 alleged fraudsters.

The Whistleblower Office laid out FY 2009 priorities in the report. The four areas of emphasis are 1) revise and update published guidance; 2) develop baseline information; 3) enhance communications; and 4) build program stability.

KEMY maintains regular contact with the IRS Whistleblower Office and monitors changes in whistleblower reward program policy. If you believe you have a potential IRS reward claim, contact KEMY for a free consult today.

Waiving the Privilege - Tax Accrual Work Papers

Have you shared tax accrual work papers with an independent outside auditor? If so, you've waived your privilege to keep those papers from the Internal Revenue Service.

Many tax practitioners have been following the tumultuous progression of the Textron case, in which the First Circuit decided, en banc, to side with the IRS. Textron fought an IRS summons on four grounds - 1) the summons lacked a legitimate purpose; 2) the tax accrual work papers were protected by attorney-client privilege; 3) the papers were protected by tax practitioner privilege; and 4) the papers were protected by the work product doctrine.

The district court found that though the papers were prepared by attorneys, Textron waived its attorney-client privilege when it presented those documents to its independent auditor. Waiver of attorney client privilege occurs when the client opts to share the information with a third party. When shared with an independent third party, such as an independent auditor, the court views the information as no longer protected by the narrow confines of the attorney-client privilege doctrine. The waiver of attorney client privilege by Textron suffered no further scrutiny, but other aspects of Textron's argument temporarily gained some ground within the First Circuit.

The lower court agreed with Textron that the tax accrual work papers were protected by the work product doctrine, a privilege intended to prevent premature disclosure of legal strategy. Concluding the papers were protected by the work product doctrine, the lower court ruled that Textron did not have to provide the papers to the IRS. The IRS disagreed.

Appeals ensued. The First Circuit's Appellate Panel agreed with the lower court, and then the First Circuit, en banc, vacated both lower court decisions. The en banc appeal focused on the narrow question of whether the documents were protected by the work product doctrine and concluded they were not. The First Circuit reasoned that the papers were written in accord with ordinary business practices, and though they described the hotly litigated issue of SILOs, they were not written "in anticipation of litigation." As such, Textron's documents were not protected by the work product doctrine, and Textron had to provide them to the IRS.

Only two Circuits, the First and the Fifth, have addressed work product protection for tax audit work papers; Textron is the most recent. It reflects a change in the Service's long standing history of restraint on requesting tax accrual work papers. Large scale fraud activity has captured the attention of the courts and resulted in an erosion of legal privileges generally. The courts are requiring documents to be provided to fraud investigation entities and protecting only very narrow types of information from judicial and opponent review.

KEMY is up to date on the changing law and its impact on tax work papers. If you have access to legal tax papers and do not know whether or not they can be provided to the IRS in pursuit of uncovering fraud, call KEMY for a free consult today.

UBS Tells Clients to Get an Attorney

Swiss bank UBS sent a letter on September 10, 2009, to several of its US clients warning that their undisclosed income in Switzerland may be reported to the United States Internal Revenue Service. UBS told US clients to appoint a Swiss attorney to represent them or the Swiss government would appoint one for them.

As part of the recent settlement between the United States and UBS, UBS will reveal the identities of 4,450 US account holders that UBS believes have failed to pay US taxes by hiding assets in the Swiss banking system. The settlement resulted from a lawsuit filed by the United States seeking disclosure of all 52,000 account holders. The Swiss government became involved to protect its banking industry and assisted in negotiating the compromise. The international lawsuit against UBS is the second case this year involving undisclosed foreign assets. In February, UBS pled guilty to criminal tax evasion and disclosed 250 names. The two cases will only yield 4,700 US account holders out of 52,000, but those revealed are anticipated to be the largest UBS violators of the IRS tax laws.

Under the settlement agreement, the Swiss have 360 days to process the 4,450 accounts before the names will be released to the United States. UBS account holders who have been targeted for disclosure may appeal the disclosure decision to the Swiss Federal Administrative Court before the information is submitted to the United States. The Swiss govenment has appointed 5 temporary judges to handle approximately 500 anticipated appeals of the bank's disclosure decision. The decision of the Swiss Federal Administrative Court will be final.

In the meantime, record numbers of offshore account holders are taking advantage of a time limited IRS voluntary disclosure period, hoping to reduce their exposure to back taxes and a reduced fine with no criminal penalty. The IRS now averages an unprecedented 500 voluntary disclosures per week. The deadline for voluntary disclosure is September 23, 2009.

Sadly, there are still thousands and thousands of offshore account holders who will not be reported to the Internal Revenue Service, either voluntarily or through the UBS settlement. Those with information about tax evasion and/or tax underpayment can contact KEMY to learn if that information could qualify for a reward from the IRS.

UBS Tax Evasion Cases To Get Special Scrutiny by Elite IRS Auditors

The IRS posted internal job listings recently for a newly created office within its Large and Mid-Size Business division. The Service is looking for auditors experienced in working with international tax treaties and complex cross-border corporate structures. The focus? Wealthy Americans who hid their assets in UBS accounts.

The Service is gearing up for an anticipated 10,000 new tax evasion cases that should result from the UBS settlement and the current off shore income tax amnesty program, set to end on September 23. Wealthy Americans with off shore holdings are scrambling for last minute tax advice, and hundreds are taking part in the IRS's amnesty program.

As part of a settlement, UBS, the United Bank of Switzerland, agreed on August 19, to turn over 4,450 names of its wealthiest US account holders who are the most likely to be engaging in tax evasion. UBS has 52,000 American account holders, and the agreement arose from litigation filed by the United States government to get access to the secret Swiss bank account information. UBS will give information about the 4,450 accounts to the Swiss government, which will screen the information and decide what should be forwarded to the United States.

The new IRS global high-wealth industry group will be one of six industry-specific sectors within the IRS's Large and Mid-Size Business division. IRS spokesman Frank Keith remarked that the establishment of the global high-wealth industry group was the first step in the IRS's long term enforcement strategy. Those selected will be the most experienced IRS auditors in dealing with global entities.