NY Times: Hedge Funds Buy Tax Whistle-Blower Claims

New York Times, Whistle-Blowers Become Investment Option for Hedge Funds, by David Kocieniewski:

Hedge funds have found a new market to invest in: whistle-blowers.

Informants who turn in tax cheats have to wait years to get their share of any reward from the IRS’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 IRS began offering bigger rewards — 15% to 30% 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, IRS 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 IRS 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.

(Hat Tip: Ann Murphy.)

About the Author

Paul Caron

Paul Caron was named Duane and Kelly Roberts Dean of Pepperdine University School of Law on June 1, 2017. Dean Caron joined the Pepperdine faculty in 2013 after serving as the Dorothy and Leonard Straus Distinguished Visiting Professor of Law in the spring semesters of 2010 through 2013. He served as Associate Dean for Research and Faculty Development at Pepperdine in 2015-2017. Before coming to Pepperdine, he was Associate Dean of Faculty and Charles Hartsock Professor of Law at the University of Cincinnati College of Law.

3 responses to “NY Times: Hedge Funds Buy Tax Whistle-Blower Claims”