IBM asks for more time to respond to whistleblower’s false audit complaint involving IRS

IBM requested more time to respond to a former senior sales representative’s False Claims Act (FCA) complaint concerning a $265 million software license agreement with the IRS in D.C. District Court.

According to court documents, the company’s attorneys wanted their deadline extended to Sept. 30, as they’re still determining the manner and content of their response to whistleblower Paul Cimino’s allegation that IBM used a false audit to secure an agreement extension.

D.C. District Court previously dismissed Cimino’s case in September 2019, but he successfully appealed in the Circuit Court and had it remanded July 6. The Circuit Court initially gave IBM’s attorneys until Sept. 1 to respond to Cimino’s complaint, but this is the first they’re having to address the particulars. Their motion for the deadline extension was unopposed by Cimino’s counsel.

Cimino filed his original complaint in June 2013 but amended it in July 2018, after the government declined to intervene. The FCA allows whistleblowers to prosecute fraud on the government’s behalf in return for 10% to 30% of the money recouped, and IBM could owe up to $10,000 and treble damages if found to have committed fraud.

The IRS paid between $23 million and $30 million annually for IBM software from 2007 to 2012. But when it became clear the agency would only seek an agreement extension for the products it was using, the company conducted an audit looking to charge compliance penalties for overuse, according to Cimino.

When Deloitte’s audit only found $500,000 in penalties, IBM included software licenses on discontinued servers as being in constant use to raise the number to $292 million, according to Cimino.

The IRS initially rejected IBM’s findings but ultimately caved to a $91 million figure and the company’s offer to waive the penalties in return for an agreement renewal, according to court documents.

While the investigation into Cimino’s complaint was ongoing in 2015, the agency even extended the license another six months for $16 million. Part of the reason the District Court initially dismissed Cimino’s case was the implausibility the IRS “sat idly by” and continued paying for the software amid a fraud investigation.

“[T]he IRS may have felt obligated to pay until it received a legal determination that it was relieved of the agreement’s terms,” wrote Circuit Court Judge Neomi Rao, in reversing the dismissal.

IBM did not respond to a request for comment.