Mutual-fund giant Vanguard Group will pay several million dollars in back taxes to Texas, marking the first payout linked to a whistle-blower's contention that the company has underpaid its income taxes.
The Texas comptroller of public accounts found a payment "deficiency" from 2010 to 2014 when it audited Vanguard's payments of the 1 percent corporate franchise tax, state records show.
Texas last month also agreed to pay $117,000 to David Danon, a former Vanguard tax attorney, for his role in helping bring the violations to light. That payment is the first that Danon has collected as a whistle-blower against Vanguard, his lawyer, Stephen Sorensen, confirmed.
Vanguard spokesman John Woerth said that Vanguard's payments to Texas had followed a routine audit, and that Vanguard believes it pays "fair and appropriate" taxes.
The company did not pay penalties when it settled Texas' claims, Woerth said.
Earlier this month, New York State Supreme Court Justice Joan Madden granted Vanguard's request to bar Danon from suing to collect a whistle-blower's cut of any back taxes that New York might collect using Danon's information. Sorenson said his client plans to appeal.
The judge found that Danon was barred under New York attorney ethics rules from expecting to get paid for turning in his employer.
Woerth said Vanguard applauded the judge's ruling, which did not address whether Vanguard paid its taxes properly.
But Sorensen said Danon "could still be paid" by New York state, as he was by Texas, if New York collects back taxes with assistance from Vanguard's information, and if tax officials decide Danon was helpful.
Along with the IRS, states including California and New Jersey also have been reviewing Vanguard's income reporting, Sorensen said.
In 2013, while Danon was still a Vanguard employee, he began telling the IRS, U.S. Securities and Exchange Commission, and state tax agencies that the company was systematically underpaying its taxes. He has said he went outside after the company failed to correct the problem. The company has disputed Danon's account.
Danon told the agencies that the privately held company's practice of pricing professional services it sells to its affiliated mutual funds "at cost" violates income tax rules, which require market-rate prices on payments between affiliated companies.
By charging artificially low prices, Danon alleges, Vanguard was able to wrongly avoid income taxes, charge low fees, and unfairly win business from rivals. Vanguard has said it complies with the law.
Texas tax officials would not say how much Vanguard owed or agreed to repay after it was investigated.
Under Texas' "informant's recovery payment" program, the state pays up to 5 percent of recovered taxes to people who help the state find the money.
If Danon's $117,000 represents the maximum 5 percent award, Vanguard owed at least $2.34 million in Texas taxes. Assuming the tax was assessed at the 1 percent corporate rate, Danon's award implies that Vanguard failed to report at least $234 million in Texas taxable income for 2010 to 2014.