Informants who turn in tax cheats have to wait years to get their share of any reward from the I.R.S.’s recently expanded whistle-blower program. So hedge funds, private equity groups and other big investors are offering an alternative. They are essentially agreeing to buy a percentage of those future payouts in exchange for a smaller amount upfront to the whistle-blowers.
The surging size of the potential awards is driving all the interest. Three years ago, the I.R.S. began offering bigger rewards — 15 percent to 30 percent of whatever money the government recovered — in a move that has turbocharged the agency’s whistle-blower program.
Where it once handled only a trickle of tips, often involving relatively small amounts of unpaid taxes, I.R.S. offices now receive a torrent of big money claims. Accountants and company employees have taken to trooping in bearing computer records and boxes of documents to back up their claims of underpayment by big companies.
In what is believed to be the first of these structured tax payouts, an I.R.S. informant who reported that an overseas multinational corporation had underpaid its taxes by billions of dollars received $4 million last month from a private equity firm. In exchange, the firm will receive a portion of the award the informant expects to collect eventually.
The whistle-blower’s lawyer, Eric R. Havian, declined to name his client or provide specifics of the deal, such as how much more than $4 million the investor expects to get. But he said the informant needed money to cover living expenses because he had had trouble finding work since filing his claim.
“The investors take a big bite out of the awards because they could get nothing if the I.R.S. decides not to pay,” said Mr. Havian, a partner in Phillips & Cohen, a firm in Washington specializing in whistle-blower cases.
“And for the whistle-blowers, the amount of the potential award is so astronomical — tens of millions, hundreds of millions of dollars — that they have to ask themselves, ‘How many times over do you have to be rich?’ and ‘Would I be better off with the guarantee of some money now?’ ”
Determining the value of a whistle-blower complaint is a risky endeavor for the investors. Confidentiality rules forbid I.R.S. officials from discussing the status of an investigation even with the whistle-blower, so investors are left to gauge the strength, and potential payoff, of any claim by reviewing the documentation provided by the informant and his lawyer.
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