Posted On Tuesday, September 6, 2016
In a prior post, we blogged about the Third Circuit’s ruling that the political case against Senator Bob Menendez can proceed to trial. Now, in a separate civil matter, the U.S. Court of Appeals for the Eleventh Circuit has denied a rehearing en banc to the Florida opthamologist from whom Menendez allegedly solicited and received bribes.
Vitero Retinal Consultants, a clinic owned by Dr. Salomon Melgen, challenged a Medicare Appeals Council decision that the Centers for Medicare & Medicaid Services overpaid the clinic more than $9 million by extracting multiple doses of the macular degeneration drug, Lucentis, from a single-dose vial. In September 2014, the U.S. District Court for the Southern District of Florida (Judge Marcia G. Cooke) upheld the Council’s decision. A three-judge panel affirmed, rejecting the clinic’s argument that Medicare has established a practice of reimbursing for other multi-dosed drugs with a “single use” instruction. According to the Court, the “single use” instruction for those other drugs was intended to prevent doctors from administering medications stored past the acceptable eight-hour timeframe. Lucentis, in contrast, has a label that states each vial should, under all circumstances, be used just once, and any excess should be drawn into a syringe and expelled.
The clinic petitioned the Court for a rehearing en banc, arguing in part that the panel’s ruling permitted CMS to supervise the “manner in which medical services are provided . . . ,” in violation of the Social Security Act, by making a determination as to the propriety of administering multiple doses of Lucentis. The Eleventh Circuit (Judge Robin S. Rosenbaum) issued an order denying the petition without an accompanying opinion.
Melgen faces separate criminal charges for the alleged overbilling and bribery of Senator Menendez in the U.S. District Court for the Southern District of Florida.
Posted On Thursday, August 11, 2016
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In Whistleblower 31276-13W v. Commissioner, 147 T.C. No. 4 (Aug. 3, 2016) filed last week, the U.S. Tax Court held that criminal fines and civil forfeitures constitute “collected proceeds” for the purposes of determining an award under IRS’s Whistleblower program. Husband and wife whistleblowers – described only as “Ps” as their identities were under seal – reported tax offenses by the targeted taxpayer to the IRS Whistleblower Office which led to a guilty plea for tax evasion and payment of $74,131,694 in tax restitution, criminal fines, and civil forfeitures.
The $74 million collected from the taxpayer included $20 million in tax restitution, $22 million in criminal fines, and $32 million in civil forfeitures. The IRS claimed that criminal fines and civil forfeiture amounts – totaling roughly $54 million – were not “collected proceeds” under the IRS whistleblower program and, thus, were not subject of an award to the whistleblower.
Based on federal laws enacted in 1867, the IRS whistleblower program allows a whistleblower – also termed “claimants” or “informants” – to receive a portion of the money received by the IRS based on the whistleblower’s information. The key provisions of the whistleblower program are found in Section 7623 of the Internal Revenue Code, which allows for either a mandatory or discretionary payment of an award depending on the amount of “collected proceeds.” For instance, under Section 7623(a), a whistleblower may receive a discretionary award of up to 15% of the collected proceeds, capped at $10 million, for tax violations less than $2 million. On the other hand, under Section 7623(b), a whistleblower is entitled to a mandatory award of 15% to 30% of the collected proceeds if the tax violation exceeds $2 million. The IRS determines the amount of the award with limited input from the whistleblower. Only a mandatory payment under Section 7623(b) is subject to review by the U.S. Tax Court, provided the whistleblower appeals within 30 days of the IRS’s decision.
A tax whistleblower claim typically begins with the filing of IRS Form 211 and supporting information with the IRS Whistleblower Office in Ogden, Utah. The IRS performs an initial screening to determine whether to initiate an investigation of the allegation. If so, the matter is forwarded to one of the IRS branches for further investigation, including potential administrative or judicial action. The process typically takes several years from the initial filing until all proceeds are collected. An award is not paid until all taxes, penalties, interest, or other amounts owed to the IRS are collected.
In its ruling for the whistleblower, the Tax Court concluded that the statutory language requiring an award based on the “collected proceeds (including penalties, interest, additions to tax, and additional amounts)” extended to criminal fines and civil forfeitures. The Court stated that permitting an award based on funds obtained via the criminal prosecution process was consistent with the purpose of the IRS whistleblower program – detecting tax underpayments and holding persons accountable through criminal prosecution.
The IRS unsuccessfully argued that only amounts collected under Title 26 should be used to calculate an award and, thus, criminal fines and civil forfeitures are not relevant because they are based on Title 42, Section 10601 (criminal fines) and Title 31, Section 9703.1 (civil forfeitures). However, the Court held that the whistleblower statute was “straightforward and written in expansive terms” with the intent of paying an award based on “administrative or judicial action.” The Tax Court also relied on “broad and sweeping” nature of Section 7623 which uses phrases like “any administrative or judicial action”, “any related actions”, and “any settlement in response to any such action.”
A full copy of the Tax Court’s opinion can be found here.
