Rewards for Reporting Fraud

Shifting of profits overseas

One of the more lucrative areas of tax evasion for you to report is improper shifting of profits offshore. Consider this example:

A large pharmaceutical company paid the IRS .3 billion to resolve allegations that it engage in tax evasion. The IRS alleged that a U.S. drug company underpaid federal income taxes by transferring ownership of two patents for its popular drugs to a company it formed in Bermuda. The IRS contended that the entity in Bermuda was really just an empty shell of a company, with no real employees and performing no real work. According to the IRS, the Bermuda company would charge the U.S. company huge royalties for being allowed to sell the drugs in the United States. The U.S. drug company claimed large deductions for the so-called royalties, thereby reducing the amount of taxes owed. However, the IRS did not consider the expenses to be proper because it did not consider that the Bermuda company perform services justifying the royalties..

In 2006, the IRS also collected $3.4 billion in unpaid taxes from another pharmaceutical giant for purpored underpayment of taxes. The company allegedly made inter-company transactions to foreign affiliates relating to patents and trademarks on just a few of its drugs. If someone had properly reported this tax evasion scheme, they would have received as much as$1 billion as a reward!

Today, many drug companies and high tech companies are seeking to shift profits offshore. In addition to concealing ownership of patents, other schemes include transferring ownership of logos, manufacturing processes, and other intangible property rights, such as rights to frahchises, to offshore companies, then paying large fees to its offshore company. These schemes have increased in the last few years, and are ripe for being reported under the new IRS reward program paying up to 30% of the amount the IRS recovers.