Whistleblower Behind Caterpillar Tax Headache Could Make $600 Million

Caterpillar, the world’s largest maker of bulldozers and other construction equipment, faces a $2 billion IRS bill and possible criminal charges, while the accountant who tipped off the feds may make a windfall, Bloomberg BusinessWeek reported.

Daniel Schlicksup, an accountant who had been with Caterpillar for 16 years, sent emails in 2008 to top executives with the subject line, “Ethics issues important to you, the board and Cat shareholders.” This occurred after a meeting in which he concluded that no one had passed his tax concerns on to the CEO. He had been telling his bosses that the company was engaged in an overseas tax arrangement that he figured had helped it illegally avoid more than $1 billion in taxes.

BusinessWeek reported, “He alluded to his concerns about the tax strategy and described, in emotional terms, a systematic effort to shut him down. ‘I am now an example to my colleagues, peers and others that they made the correct choice when they chose to not report ethical issues and ignore company policy,’ he wrote. Attached to the email was a 15-page memorandum describing how his superiors had retaliated against him for speaking out. The next morning he sent 137 pages of documents purporting to show how, with the help of its auditor, PricewaterhouseCoopers, Caterpillar had devised a way to shift billions in profit to Switzerland to avoid U.S. taxes.”

Since then, the IRS has demanded $2 billion in back taxes and penalties, a U.S. Senate committee has concluded Caterpillar avoided taxes on more than $8 billion in revenue, and federal agents searched the Peoria, Ill., headquarters and took away computers, documents and other evidence that could be related to false financial statements. Caterpillar executives could face jail time if criminal charges are brought.

The IRS typically pays whistleblowers 15% to 30% of what it collects. If Cat pays the full $2 billion, Schlicksup may receive $300 million to $600 million. But nothing is guaranteed. The IRS determines how much a whistleblower contributed to a case and, in turn, how much he or she is paid.

A company spokeswoman says, “Caterpillar believes its tax position is right. We are in the process of responding to the government’s concerns and hope to be in a position to bring this matter to resolution within a reasonable time frame.”

Read the full story here.

IRS Completes the “Dirty Dozen” Tax Scams for 2015

The IRS wrapped up the 2015 “Dirty Dozen” list of tax scams with a warning to taxpayers about aggressive telephone scams continuing during the early weeks of this year’s filing season.

The aggressive, threatening phone calls from scam artists are reported on a daily basis in states across the nation. The IRS urged taxpayers not to give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

View an infographic on the “Dirty Dozen” Tax Scams

Phone scams and email phishing schemes are among the “Dirty Dozen” tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers.

“We are doing everything we can to help taxpayers avoid scams as the tax season continues,” says IRS Commissioner John Koskinen. “Whether it’s a phone scam or scheme to steal a taxpayer’s identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams.”

Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task. For more, see the Choosing a Tax Professional page.

Here is a recap of this year’s “Dirty Dozen” scams:

  • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things.  (IR-2015-5)
  • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. (IR-2015-6)
  • Identity Theft: Taxpayers need to watch out for identity theft, especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front, but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
  • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service, but there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers.  (IR-2015-8)
  • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
  • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promises a big refund before looking at their records, or charges fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony storefronts and word of mouth via community groups and churches to find victims. (IR-2015-12)
  • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
  • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam. A paid tax return preparer should never suggest falsifying documents to reduce tax bills or inflate tax refunds. Taxpayers are legally responsible for what is on their returns regardless of who prepares them. (IR-2015-18)
  • Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
  • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)
  • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)
  • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)

AICPA Sues IRS to Stop Return Preparer Program

The American Institute of CPAs (AICPA) has filed a federal lawsuit challenging the IRS’s voluntary tax return preparer program, blasting it as an “illegitimate exercise of government power” and calling for the court to declare the rule unlawful.

The IRS recently issued a rule for its Annual Filing Season Program, a voluntary initiative offering certification to unenrolled preparers who complete educational requirements, in the wake of losing a lawsuit in a ruling declaring an earlier attempt to regulate tax preparers as an overreach of power.

The IRS said in a statement it has the “authority to implement a voluntary continuing education program for uncredentialed tax return preparers, and this does not conflict with any administrative or legal requirements. We have reviewed the matter and believe that it does not violate the court’s decision in the Loving case.” AICPA, meanwhile, said in its filing that the IRS’s program represents an “obvious attempt to bypass the Court’s binding decision and to assume powers Congress has not given it.”

Find out more.

Ex-BDO Partner Gets 3 Months in Prison

A former partner at Chicago-based BDO (FY13 net revenue of $683 million), Robert Greisman was sentenced to prison after defrauding the government in a tax shelter scheme, according to Reuters.

Greisman was sentenced to three months in prison by U.S. District Judge William Pauley in Manhattan. He pled guilty to charges of conspiracy, tax evasion and IRS obstruction. In this case, four other partners or employees have pled guilty.

“My regret is ever-present in my mind each and every day,” Greisman told Pauley at the sentencing.

After his jail term, Greisman will have three years of probation which includes six months of home confinement. He is required, along with the others that were convicted, to repay $69 million to the IRS.

Grant Thornton Ordered to Pay $100 Million

A circuit court judge in Kentucky has ordered Chicago-based Grant Thornton (FY12 gross revenues of $1.25 billion) to pay $100 million in damages related to sale of an offshore tax shelter that the IRS considered to be abusive.

The Wall Street Journal reported that the accounting firm must pay Bill Yung, president of a Kentucky-based hotel company, his wife and his family trust a total of more than $100 million, including $20.22 million in compensatory damages, and $80 million in punitive damages, ruled Kenton Circuit Court judge Patricia Summe on Nov. 15.

In a statement, Grant Thornton said it was “disappointed” in the ruling and believes it has “strong grounds for an appeal.”

According to court papers, in early 2000 Grant Thornton sold Yung a tax shelter to move offshore money into the U.S. with few tax consequences at a time when the IRS was cracking down on what it considered to be abusive tax shelters. The advice cost Yung and his family millions of dollars in taxes, penalties and interest, the lawsuit contends.

“We argued successfully that Grant Thornton had no business selling this product, knowing the previous position of the IRS when other accounting firms had previously tried and failed with this type of strategy,” said attorney Kevin Murphy in the Cincinnati Enquirer.

The case is one of many associated with offshore tax shelters sold not only by Grant Thornton, but KPMG, Ernst & Young and BDO. Some firms have already paid huge settlements. The judgment is believed to be the largest ever in the county and one of the largest in Kentucky.

IRS Briefly Exposes ‘Tens of Thousands’ of Social Security Numbers on Website

The IRS has exposed “tens of thousands” of Social Security numbers on a government website, according to the public interest group, Public.Resource.org.

The data breach relates to transactions made by nonprofit political groups, according to Atlantic magazine. The organization said it learned of the breach while working on an unrelated audit of an “improperly vetted shipment” of IRS data on DVDs and informed the agency, Fox News reported. The IRS shut down the site the next day. The group said the Social Security numbers were mostly those of donors, though some were also from people who prepared tax returns to furnish to the IRS. Public.Resource.org. founder Carl Malamud told FoxNews.com that roughly 100,000 Social Security numbers were exposed.