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A former employee has filed a lawsuit charging that Vanguard Group, the gigantic ($2 trillion under management) and very successful mutual fund company, provides services to the funds it manages at "artificially low," "at-cost" prices, which may be beneficial to investors in those funds but (the suit argues) results in lowering the federal and state income taxes it pays. 

New York's False Claims Act, under which the employee is suing, entitles him to a generous share of any tax proceeds as well as attorneys' fees if successful.

The Philadelphia Inquirer and Wall Street Journal have more; the complaint is here courtesy of TaxProf. The company denies wrongdoing, and the general question of transfer pricing on which the claim hinges is very well aired in the tax and accounting literature, which makes it seem unlikely that auditors would have neglected the issue.

If it sounds like you're hearing about more cases where discontented employees are turning in their bosses on tax charges for a share of the bounty, you're right. Bradley Birkenfeld got a $104 million check for informing on his employer, Union Bank of Switzerland, on charges of helping Americans conceal overseas accounts; the prize was presented when he got out of jail, since he had been part of the scheme. Will the spread of a culture of informants sow distrust and disloyalty in the workplace, while encouraging dissident executives and their lawyers to shake settlements out of risk- and publicity-averse targets by seizing on doubtful, gray-area legal theories? That's part of the game too. Lately hedge funds and litigation finance firms have moved in to bankroll the filing of likely "whistleblower" cases.

It's worth noting that the action against Vanguard, like most of the new wave of litigation, does not rest on the IRS's own tipster program. Instead, clever lawyers are turning to pro-plaintiff state versions of the federal False Claims Act, charter for bounty-hunting litigators. As the Vanguard complainant's attorney explained to the Philadelphia paper, he filed in New York because it's "the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes"; it also allows the litigant to collect a share of the unpaid taxes. (Both Vanguard and the complaining employee are based in Philadelphia.) The Attorney General of New York, incidentally, had a choice whether to prosecute Vanguard himself but decided not to.

So by getting pro-plaintiff laws through the legislature in just a few states—New York liberalized its law four years ago—advocates can set the stage for a nationwide informant push.

In Illinois, a single Chicago lawyer was reported in 2012 to have used that state's whistleblower law to file at least 238 lawsuits against retailers, pocketing millions in settlements, over alleged failure to charge sales tax on shipping-and-handling. The state's revenue director, to quote Greg Hinz of Crain's Chicago Business, said the episode "'has given Illinois a black eye' and victimizes those who have made only an 'inadvertent mistake.'"

Inevitably, efforts are mounting in Washington, D.C. to build direct litigation rights and bigger bounties into the IRS's own tipster program, which is said to be languishing and thus inadequate by comparison with the hot action in the states. If you think the situation is ominous now, watch out then:

"Anyone with a political ax to grind could use the full force of the IRS" to settle scores, said Matt Webb, senior vice president at the U.S. Chamber of Commerce Institute for Legal Reform. "It's a horrible, horrible idea."

NEXT: Baylen Linnekin: The FDA's Idiotic Attack on 'Added' Ingredients

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  1. Holy God, this is retarded. This is like saying that if you charge lower prices, you’re stealing sales tax money from the government.

    Incidentally, Vanguard is well-regarded because they do not charge fee on their mutual funds, which is why they are popular 401(k) investments.

    Basically this dick wants to deprive millions of 401(k) investors of billions of dollars in retirements savings.

    1. Disclosure: About 25% of my 401(k) is invested in a Vanguard fund at the moment.

      1. We use John Hancock as our 401k administrator. It pisses me off because if I wanted a low cost Vanguard fund, JH charges a fee on top which is more than what Vanguard charges to operate the fund.

    2. We are all really just sources of revenue to them. I used to think that 401k confiscation was a dream but it almost seems like a foregone conclusion now.

    3. That was my first impression. It is like charging a local gas station for having the lowest price on beef jerky and saying sales taxes are being under collected.

      On those Vanguard funds, any fees needed to operate the fund will be “mid-loaded” rather than front or end loaded. They are still there, just not in a lump sum and may well be lower than others.

      1. Well, many states charge sales tax on the full price rather than the discounted or rebated price. FYTW.

    4. Vanguard is well-regarded because they do not charge fee[s] on their mutual funds

      They charge fees, but they are relatively low. That’s why they’re well-regarded by me.

    5. I had to read that twice to understand what the complaint is.

      “This is like saying that if you charge lower prices, you’re stealing sales tax money from the government.”

      No Hazel, it is not ‘like’ that.

      The guy doesn’t give a shit who gets hurt or even if the complaint is justified. He just wants his millions, fuck everyone else.

  2. How much will the IRS tipster program pay for someone who can expose what actually happened to the missing IRS E-Mails?

    1. Ooh, burn!

      1. 8% of the emails? Pass.

  3. My Employer steals billions of dollars in tax monies every year, taking it from its rightful owners and squandering it on wastrels and inefficiencies.

    1. I didn’t know you worked for GE?…

      ***throws ninja smoke and runs***

      1. Worse. He works for the Government.

  4. Question for the minarchists here, isn’t the real question the amount and type of taxes? It seems to me in minarchist Libertopia there will be some taxes, some agency to collect them and some way of investigating tax evasion. Would whistleblowers informing on violators be out? It seems to me it actually privatizes some of the enforcement by creating ‘private attorney generals’ to bring actions.

    1. In libertopia all enforcement officers will be held personally liable in both civil and criminal courts. And they can only serve if they have no unpaid personal judgements against them. This is to encourage them to get liability insurance.

    2. My vision of libertopia has a low level of government funded by user fees and seigniorage. Very little need (although not zero) for tax collectors and enforcement actions in that scenario.

      1. I tend to lean generally in that way too, but certainly not everyone who posts here does, and I think they would have to figure something out on it.

        1. I say we simply allow the state governments to pay the federal government based upon representation.

          A user fee, sort of thing. I see this as fair, because with the freedom of travel that libertopia would bring, people would seek out lower tax states until the population swell brought about the addition of more representation.

          Of course, each state will also have its own idea of sales tax and suchlike. Once places like California and Illinois (where I live) completely emptied out, they may learn that they’re doing something wrong.

  5. OT Catholic Official Confuse About First Amendment, Supports Hate Speech Restrictions

    “Satan worshippers are planning to stage a “black mass” next month in Oklahoma City, prompting outrage from the leader of the city’s 120,000 Catholics, who also condemns municipal officials for allowing the event to be held in a public venue…

    ‘I’m disappointed by their response,” Archbishop Paul Coakley of the Archdiocese of Oklahoma City told Friday. ‘If someone had come to them to rent the Civic Center to stage a burning of the Koran or to hold an event that was blatantly and clearly anti-Semitic, I think they might find a way to prevent it. Not all speech is protected if there is hate speech and it is intended to ridicule another religion,’ he said. ‘I don’t believe it is a free speech matter.'”…..-religion/

    1. Don’t forget that the Satanists are toning down their performance in deference to Oklahoma laws:

      “On its website, Dakhma of Angra Mainyu says the black mass at the Civic Center has been toned down to allow it to be performed in a public government building. “The authenticity and purpose of the Black Mass will remain intact while allowing for slight changes so that a public viewing can occur without breaking Oklahoma’s laws based on nudity, public urination and other sex acts,” the website says.”…..s-outrage/

      So even the Satanists acknowledge there are legal limits to what they can do – even to the extent that they’re willing to modify their most sacred ceremonies!

      No nudity, no public sex acts, no public urination – I mean, it takes all the fun out of being a Satanist!

      And the leader of the sect performing the Satanic rite is law-abiding…he made sure to register as a sex offender as the law requires.…..s-outrage/

      1. Just for fun, perhaps Bo could tell us the purist libertarian position on public urination, public sex acts, and public nudity?

        1. And satanism.

          1. I wasn’t aware that you could separate those things.

            1. All public excretory activists are not satinists.

              See Occupy Wall Street as an example

              1. I mean separate those things from Satanic practice.

        2. I imagine there are various views on those subjects, but I bet that even those who favor prohibitions would like them to be more narrow and less harsh than they are currently.

          But perhaps you would now favor us with the purist SoCon position on those topics?

          1. Your answer is a bit vague, so my own answer will be vague also – maybe, maybe not, depends on circumstances.

      2. “So even the Satanists acknowledge there are legal limits to what they can do – even to the extent that they’re willing to modify their most sacred ceremonies!”

        Most sacred, well surely Eddie you will be leading the Religious Freedom Act charge to have them exempted in your pursuit of religious liberty for (ahem) all?

        1. How can I lead the charge when they’ve already pre-emptively surrendered their sacred right to public urination, etc.?

          1. But surely they were put a choice, following their sacred beliefs or face the coercion of the law. Dont you believe in free exercise exemptions?

            1. Shorter Bo: “fap fap fap fap”

      3. “…Dakhma of Angra Mainyu…”

        The image of the guy from the cell phone ‘frailly’ commercial pops in my head.
        “It is pronounced Gor-DON!”

        Yeah dude, you are important and interesting. NOT.

        “no nudity, no public sex acts, no public urination”

        Why bother then?

        As for the idiot priest, shut your fuckin’ mouth. All you are doing it giving these clowns publicity and making them more significant than they really are. Just ignore them.

      4. If I remember correctly, GKC, you’re a catholic, no?

        If so, let’s have a discussion.

        If God has preordained our lives, that means God has created certian people for the express purpose of suffering eternalyl in hell.

        If god does not preordain our lives, and we have free will, then why would he allow us to choose for ourselves to believe without offering one shred of proof beyond a book that is contantly manipulated and used to deceive?

        Why, if either answer is “because faith” or somesuch bullshit answer, is God worth worshiping at all?

        Is God not just another form of totalitarian, abusing his power to arbitrarily punish us if we do not precisely conform to his wishes?

        And how does the above fit into your libertarian views?

        1. Rather than explain all this over the Internet, I recommend you talk to one of your Catholics friends, or if you don’t have any, look up a reliable and virtuous priest, monk, nun or layperson in your local area who can discuss this with you in person. God bless.

          1. But if you want to hear it from me, im flattered and heres the summary:

            A guy named Calvin said God created people to be damned, but we disagree with Calvin.

            Pope Francis has reached out to atheists and said some atheists can be saved by God’s grace even if they’re kept from the full knowledge of God’s plans.

            The Bible is often manipulated, and the Church’s authoritative interpretations, believe it if you will, are to avoid these sorts of misapplications, but study it yourself, and the Church’s interpretations, and see it makes sense!

            God’s gift of free will is a great mystery, but I’ll just say it lets us be what we’re designed to be, not totalitarian slaves but bound by love of God and each other. If God were totalitarian, He wouldn’t have taken on our humanity to suffer for and with us.

  6. Linda Greenhouse, the NY Times’ learned and impartial Supreme Court reporter, wonders why the constitutional right to abortion is being treated less respectfully that other constitutional rights.

    I mean, if you can ignore the plain requirements of the Abortion Clause, what’s to stop you from ignoring the right to bear arms and the right not to be discriminated against based on race?…..=eta1&_r=3

    1. I’m still waiting for an explanation as to why the penumbra of privacy that makes abortion a sacrosanct right does not also preclude Obamacare.

      1. Because FYTW.

        Does that address your concerns, peasant?

      2. Isn’t the penumbra of privacy the one that allows you to murder someone in the privacy of your bedroom too? AKA the Paul Lynde/Phil Spector amendment.

    2. “I mean, if you can ignore the plain requirements of the Abortion Clause”

      Derp. There are clearly unenumerated rights, and I’m betting you’re not so hostile to quite a few with as little textual support (see Pierce v. Society of Sisters for one).

      I think you’d make a good shopper Eddie, because you’re excellent at picking and choosing in this area.

      1. You may want to take a look at the history of the Due Process clause, especially its take on arbitrary outlawry.

        It’s far from “clear” that the 9th Amendment shifted the Constitution from forbidding arbitrary outlawry to requiring it.

        1. Are you a member of a mendicant order, because you begged that question pretty hard there.

          1. So you *aren’t* familiar with that history?

  7. I would love to see a program whereby an citizen can complain of a government program to Congress or the Courts, and if the complaint is found justified the program is shut down (not adjusted) and the citizen receives the program’s budget for one year as a reward. Obviously some details need to be worked out; some way to require Congress to consider the complaints (objections that the complaints might keep Congress from doing anything else should be answered “so?”). Maybe a proviso such that if the Complaint is not heard, the reward of one year’s budget is made, out of the Program’s budget, so that complaints unheard would halt the program until a hearing was held.

    Oh, well. Pipe dreams?..

    1. They do have some whistleblower protections and incentives for detecting fraud and waste in government programs in state and federal laws.

      1. Tell that sack of shit lie to Edward Snowden.

  8. Good luck finding a next employer, whistleblowers.

  9. Vanguard is awesome. And they have too much juice to get fucked over by this so called whistleblower.

    What they do is well established, and of course they have funds that minimize taxable dividends and capital gains. I even have one of their municipal bond funds where I pay *GASP* no taxes at all.

  10. You know, people who complain that people–and/or companies–aren’t paying enough taxes…aw screw it.

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