The Whistleblower Behind Caterpillar Tax Commotion (6/2/17)

I wrote before on the execution of a search warrant on Catepillar' Headquarters.  Search Warrant Executed Against Caterpillar HQ, Apparently Related to Tax (Federal Tax Crimes Blog 3/6/17; 3/8/17), here.  I concluded that discussion with the following speculation:

I will raise one possibility, though, and I caution that this is entirely speculation.  I wonder whether her report could have been submitted along with a whistleblower claim?  I have no idea, but given the numbers involved, a whistleblower claim is likely to be very lucrative indeed.  But, I certainly have no idea whether that is the case.

Bloomberg reports that a whistleblower claim is behind the Caterpillar commotion.  Bryan Gurley, David Voraceos and Joe Deaux, The Whistleblower Behind Caterpillar's Massive Tax Headache Could Make $600 Million (BloombergBusinessweek 6/1/17), here.

The article identifies the whistleblower as Daniel Schlicksup, a Caterpillar accountant, and summarizes his saga from company curmudgeon trying to get the attention of superiors on the matter to finally whistleblower.  A very good read.

Schlicksup's journey is consistent with my experience with whistleblowers or persons considering becoming whistleblowers.  All too often the company is just not interested in listening before the problems get out of hand.  The wizards in the company buttressed by their outside professional enablers will not listen to naysayers, and often the internal mechanisms to elevate problems can be thwarted by power structures in the firm.  That is not the way it is supposed to work, particularly for public companies, but unfortunately that is the way it sometimes works.

Now, for a brief review of the tax whistleblower possibilities.  Section 7623(b), here, allows whistleblower awards of from 15% to 30% of collected proceeds from the whistleblower information.  In this case, the collected proceeds would include the tax, the interest on the tax, any penalty (either 20% or 40% accuracy related penalty under § 6662, here, or the 75% civil fraud penalty under § 6663) and interest on the penalty, here).  The article says that the underlying tax bill may be $2 billion and apparently derives a $600 million potential reward based on the maximum award of 30% of that amount.  Of course, the amount of the reward between 15% and 30% is discretionary (although subject to review by the Tax Court), but my experience suggests that an award in this case would probably be at least 22.5% (splitting the difference for a rough and ready solution).  And, of course, if the $2 billion amount does not include interest or penalties, then the reward base would be increased.  In any event, assuming the same $2 billion base, even a 15% reward of $300 million would be sweet.

For more discussion of the whistleblower reward program, see Michael Saltzman and Leslie Book, IRS Practice and Procedure, ¶ 12.05[4][a][iv] Informants (including whistleblowers seeking rewards) (Thomsen Reuters 2015) (online edition).  (Note, I am the principal author of that Chapter of the Saltzman and Book text).