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IRS Whistleblower Program (for Tax Whistleblowers)

IRS “Voluntary Disclosure” Program Inundated by More Than 14,000 Taxpayers

November 17, 2009
Michael Sullivan

We have followed with great interest the IRS Voluntary Disclosure Program, especially after the UBS settlement created fear of discovery in many U.S. taxpayers with offshore accounts.

IRS Commissioner Doug Shulman announced that the IRS Voluntary Disclosure Program was flooded with submissions by more than 14,000 taxpayers, according to the Wall Street Journal.

IRS Whistleblower cases have been impacted–and in some cases probably pre-empted–by the submissions of recalcitrant taxpayers to the IRS Voluntary Disclosure Program. The IRS Criminal Investigative Division in certain areas
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New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee–But Improvements Are Needed

November 9, 2009
Michael Sullivan

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful “whistleblower” program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis’ voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

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Part 2: IRS Whistleblower Program Report by Treasury Inspector General for Tax Administration (TIGTA)

October 8, 2009
Michael Sullivan

We wrote yesterday about the just-released report on the new IRS Whistleblower Program by the Treasury Inspector General for Tax Administration (TIGTA). The “rest of the story” should be told.

Some history is essential to evaluate how far the handling of whistleblower (or “informant”) claims has progressed since the newly created IRS Whistleblower Office was formed in early 2007, and what is still needed.

Although information provided by whistleblowers is extremely effective in exposing fraud, before 2006 Congress had not authorized an effective IRS whistleblower rewards program–and some in Congress affirmatively opposed one.

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IRS Whistleblower Program: Inspector General Urges Whistleblower Protection from Retaliation and Administrative Changes

October 7, 2009
Michael Sullivan

Today the Treasury Inspector General for Tax Administration (“TIGTA”) released a Report on the IRS Whistleblower Program that urges Congress to protect IRS whistleblowers from retaliation by employers, and recommends various administrative changes to the Program.

The Report’s title, “Deficiencies Exist in the Control and Timely Resolution of Whistleblower Claims,” is misleading to this writer, who has followed the progress of the new Program since its inception. Before Congress created the new IRS Whistleblower program in December 2006, the Inspector General had observed
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IRS Whistleblower Office Issues Latest Annual Report to Congress

September 28, 2009
Michael Sullivan

The IRS Whistleblower Office has released its Annual Report to Congress, for the fiscal year ended September 30, 2008. Some highlights are below:

First, the IRS Whistleblower Program has experienced explosive growth since Congress authorized these new IRS Whistleblower rewards in December 2006.

According to this Report, “the initial results suggest that whistleblowers with significant knowledge are coming forward as a result of the changes to the award program. We received claims that appear to meet the section 7623(b) criteria on 46
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Calls Continue for a “False Claims Act” for Wall Street Whistleblowers

September 20, 2009
Michael Sullivan

Since the Madoff and Stanford scandals, we have written about the calls for the Securities and Exchange Commission (SEC) to establish a meaningful whistleblower rewards program. Currently, no adequate incentives exist for whistleblowers to speak up when they might have a chance to stop large scale fraud and prevent the next Madoff or Stanford debacle. How much better off would so many Americans be if someone had exposed Madoff before he defrauded so many investors?

Forbes has run interesting column by Bill Singer, calling for a statute that apples “False Claims Act” whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

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New IRS Group to Address Offshore Accounts and Other International Tax Abuses by Wealthy Taxpayers

September 4, 2009
Michael Sullivan

Offshore tax abuses and tax evasion have kept the IRS quite busy of late. The fast-approaching September 23 deadline for its “voluntary disclosure program,” and its agreement with UBS that will allow it to identify thousands of American taxpayers with offshore accounts, have added momentum to its efforts to combat offshore tax abuses by high net worth taxpayers.

Now, the IRS is creating a new group to “focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment.” It will
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Protecting Whistleblowers from Criminal Prosecution: The Mystery of the UBS Whistleblower’s Prison Sentence

September 3, 2009
Michael Sullivan

In one of two prominent whistleblower cases in the news this week, whistleblower John Kopchinski will be awarded more than $50 million for his role in exposing improper “off-label marketing” of the drug Bextra by Pfizer. Other whistleblowers also will be rewarded because of this settlement. That settlement of $2.3 billion is the largest in history ($1 billion to settle False Claims Act allegations, and $1.3 billion in criminal fine and forfeiture).

As large as the Pfizer settlement is, the other whistleblower’s actions seem likely to lead to recovery of dollars that could dwarf this $2.3 billion settlement. UBS whistleblower Bradley Birkenfeld has lifted the shroud of secrecy from thousands of American taxpayers’ offshore accounts at UBS. He has given the IRS a foothold into recovering potentially many billions in unpaid taxes owed.

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UBS and IRS Voluntary Discloure Program: Interesting Convergence for IRS Whistleblower Program

August 30, 2009
Michael Sullivan

Offshore tax abuses have been an IRS priority for some time, but the impending September 23, 2009 deadline for the IRS “Voluntary Disclosure” program–combined with the recent announcement that UBS has agreed with the IRS to release 4,450 names of U.S. account holders–has created a flurry of activity for the IRS.

Anxious taxpayers with exposure cannot be sure that their names are not on the list being produced. Last week, the IRS added a 52nd “FAQ” about the Voluntary Disclosure Program to explain its application to UBS account holders:

Q52. Are UBS account holders eligible to make a voluntary disclosure under the IRS’s offshore Voluntary Disclosure Practice (VDP) announced on March 23, 2009, and set to expire September 23, 2009?

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Court Agrees with IRS That Hospital CEO Is Personally Liable for Unpaid Payroll Taxes

August 9, 2009
Michael Sullivan

Health care cases that our lawyers see most often involve whistleblowers who know of violations of the False Claims Act. While we also pursue many IRS violations under the IRS Whistleblower Program, the health care industry is not the source of most of those claims.

In perhaps a new trend, last week a federal court in Florida agreed with the IRS that a hospital CEO is personally liable for failing to pay over to the IRS close to $2 million in payroll taxes. (Doulgeris v. United States, M.D.Fla., August 03, 2009).

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More Details of UBS Whistleblower Birkenfeld’s Prosecution Explained in Washington Post

May 15, 2010
Michael Sullivan

The Sunday, May 15, 2010 Washington Post will include more details on a perplexing question we have written about: how did UBS whistleblower Bradley Birkenfeld get himself prosecuted for a felony, and earn a prison sentence, while he sought to become an IRS whistleblower?

The story by David S. Hilzenrath explains more of the “dance” between Birkenfeld and prosecutors as he apparently partially told the government what he knew about wrongdoing at UBS.

Birkenfeld blew an opportunity to avoid prosecution for his
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Should SEC Whistleblowers Have Right to Share in Recoveries That They Cause?

May 4, 2010
Michael Sullivan

Congress is at a crossroads in deciding whether there will be a meaningful SEC Whistleblower Program–for the first time.

At this morning’s Offshore Alert conference in Miami, we heard from the SEC Chair’s Senior Advisor Stephen Cohen on this subject, as well as insight from IRS Whistleblower Office Director Steve Whitlock on how the IRS Whistleblower Program is now designed to encourage whistleblower claims.

As we have observed previously about the bills that would create an SEC Whistleblower program, past experience shows that an enforceable right to a meaningful reward is essential to cause whistleblowers to come forward.

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IRS Whistleblower Office Announces Important Changes, New Procedures for IRS Whistleblower Program

April 28, 2010
Michael Sullivan

IRS Whistleblower Office Director Steve Whitlock announced important, long-awaited developments in the new IRS Whistleblower Program yesterday at the Second Annual “IRS Whistleblower Boot Camp” in Washington.

First, Director Whitlock finally announced how the IRS will share information that will allow whistleblowers to understand the Whistleblower Office’s decisions about what awards are made to whistleblowers.

A year ago in my interview with the IRS Whistleblower Office Director, Mr. Whitlock discussed the need to solve the vexing question of how the IRS can share this information with whistleblowers and their attorneys, while also complying with legal requirements for confidentiality of taxpayer information under section 6103 of the Internal Revenue Code.

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New IRS Whistleblower Program Developments Discussed This Week at “IRS Whistleblower Boot Camp”

April 25, 2010
Michael Sullivan

On Tuesday, April 27, 2010, the Second Annual “IRS Whistleblower Boot Camp” will convene in Washington, D.C., sponsored by Taxpayers Against Fraud.

Representatives of the IRS Whistleblower Office will discuss the latest developments in the IRS Whistleblower Program, though which tax whistleblowers can receive up to 30% of recoveries by the IRS. Other IRS and DOJ representatives will take part as well, as they analyze what lawyers representing IRS whistleblowers should know in pursuing these claims.

Like last year’s program, this one is a sell-out. I am looking forwarding once again to moderating a panel discussion, this time on “Protecting IRS Whistleblowers from Criminal and Civil Liability.”

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Well Worth a Read: SEC Whistleblower Harry Markopolos’ “No One Would Listen: A True Financial Thriller”

April 5, 2010
Michael Sullivan

After meeting with the Department of Justice in Washington recently to discuss another whistleblower case, I picked up Harry Markopolos’ recent book, “No One Would Listen: A True Financial Thriller.” It is a fun and engrossing read, with humor that I did not expect to find in this subject.

We have written previously to applaud Harry Markopolos’ work in figuring out Bernie Madoff’s Ponzi scheme, and then in trying to get the SEC’s attention for years. In an era when fraud is being exposed in so many industries through the courage of whistleblowers, his book shows just how paper-thin our government’s resources can be in recognizing and stopping the next huge fraud scheme.

Neither I nor my law firm has any financial interest in recommending this book, and no one has asked me to mention it, but I do believe that any thinking person will enjoy it.

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IRS Whistleblower Program and Confidentiality of IRS Investigations of Whistleblower Claims

March 2, 2010
Michael Sullivan

One of the most interesting and challenging issues in representing IRS whistleblowers is how this promising new IRS Whistleblower Program can co-exist with the limits Congress has imposed on disclosure of taxpayer information–which includes what the IRS does in pursuing claims brought by whistleblowers.

I wanted to pass along that Michelle M. Kwon, Assistant Professor of Law at Texas Tech Law School, has written a law review article about this subject. It discusses recommendations for allowing information to be shared more with whistleblowers
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Next IRS Whistleblower Boot Camp Is Planned for April 2010

February 16, 2010
Michael Sullivan

We have written about the highly successful 2009 IRS Whistleblower Boot Camp in Washington, D.C. The IRS Whistleblower Office gathered with attorneys representing whistleblowers for this conference to discuss in detail many of the issues that arise in representing IRS whistleblowers, persons who report tax fraud or tax noncompliance. This conference is sponsored by Taxpayers Against Fraud.

Planning for the 2010 IRS Whistleblower Boot Camp on April 27, 2010 in Washington is underway, and it should be at least as successful and
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IRS Whistleblower Office Prepares to Make Awards to IRS Whistleblowers Under New Program

January 26, 2010
Michael Sullivan

Since Congress authorized new awards to IRS whistleblowers in December 2006, we have followed closely the progress of the new IRS Whistleblower Office led by Director Stephen Whitlock.

IRS Whistleblower Office Director Stephen Whitlock has just announced that the IRS Whistleblower Office is preparing to make award determinations on whistleblower claims submitted under the “new” rewards program.

The IRS Whistleblower Office (and no doubt the IRS Chief Counsel’s Office) have been working on “guidance” for determining the amount of awards within the range authorized by law.

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Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court

January 22, 2010
Michael Sullivan

How does the IRS treat whistleblowers who receive awards under the False Claims Act’s “qui tam” provisions, which allow private citizens who expose fraud to share in the government’s recovery of money?

The Tax Court this week addressed that question. It held that awards to whistleblowers or “relators” are part of “gross income” and thus are taxable, but that the whistleblower nonetheless may deduct the attorney’s fees paid as a miscellaneous itemized deduction.

Thus, no income taxes were owed on that portion of the whistleblower’s award that was paid as attorney’s fees to the whistleblower’s attorney.

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IRS Whistleblower Rewards to Convicted UBS Whistleblower Birkenfeld? The Rule of Law Will Sort It Out.

November 28, 2009
Michael Sullivan

In “Protecting Whistleblowers from Criminal Prosecution,” we expressed our amazement at how UBS “whistleblower” Brad Birkenfeld got himself prosecuted for a federal felony while attempting to set himself up for rewards through the new IRS Whistleblower Program. Birkenfeld’s case is highlighted in recent articles by Lynnley Browning in Friday’s New York Times and by Martha Brannigan in Saturday’s Miami Herald.

To attorneys with prosecution experience who represent whistleblowers, it is shocking that Birkenfeld apparently missed a clear opportunity to avoid prosecution altogether by simply “coming clean” and telling the whole truth about his own actions at the outset.

We have a much different take on Birkenfeld’s case than those who suggest it should scare away potential IRS whistleblowers. Whistleblowers who are willing to tell the truth from the start can easily avoid Birkenfeld’s fate, so long as they follow the law and counsel’s advice to disclose all. At the same time, we take issue with critics who say Birkenfeld should not even be considered for an IRS Whistleblower reward, since the “rule of law” should determine the answer to that question.

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