The Internal Revenue Service (IRS) is investigating American Express over allegations that it pitched a questionable tax break to clients, the Wall Street Journal reports. The investigation was launched in response to a disclosure a whistleblower filed with the IRS in the summer of 2021.
According to the Wall Street Journal, American Express told clients that they could deduct card-processing fees from business income for tax purposes, then transfer rewards triggered by those fees to AmEx cards they controlled for personal use without paying taxes on the rewards. This pitch was based on a “shaky interpretation of tax law” and “was part of a strategy to persuade business owners to sign up for costly payment services,” according to the Journal. The pitch was allegedly made to a number of businesses, including eye doctors, McDonald’s franchisees and payroll companies. It was first reported on in November 2021.
A spokesperson for American Express told the Wall Street Journal: “We have already taken a number of actions to change products, policies and personnel and are continuing to cooperate with our regulators and government agencies.”
In July 2021, a whistleblower contacted the IRS about American Express’s pitch, alleging that the company was knowingly persuading business owners to underreport their income and taxes.
Through the IRS Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the agency with original information about misconduct, are able to obtain a financial reward of between 15 and 30%. Since 2007 the IRS has awarded whistleblowers over $1 billion based on the collection of over $6 billion in back taxes, interest, penalties, and criminal fines and sanctions.
Despite its success, the whistleblower program is plagued by a number of issues, including massive delays, and is in need of reform. The bipartisan IRS Whistleblower Program Improvement Act of 2021, introduced by Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR), offers a number of reforms to the program, including the institution of de novo review for whistleblower decisions in Tax Court. It is widely supported by whistleblower advocates.