Tax Whistleblower Rules to “Expand” Whistleblower Program Actually Restrict and Discourage Participation, Say Whistleblower Lawyers

Earlier this week we wrote about our urging the IRS to remain true to Congress’s plain intent to attract a greater number and variety of tax whistleblower claims. Our written comments on changes needed to the IRS Whistleblower regulation were published in today’s Tax Notes.

We will be in Washington on May 11 to address the IRS in person. In the meantime, here is some additional discussion of why these changes are so important.

As the annual deadline for filing state and federal income tax returns has passed, honest taxpayers might be shocked to learn that the government will experience an estimated $350 billion shortfall between what is owed and what is collected, thanks to those who cheat on their taxes. To help plug the multi-billion-dollar tax gap, the IRS has instituted new whistleblower rules, but Michael A. Sullivan, a leading whistleblower lawyer, says the IRS needs to revamp its rules dramatically to encourage participation by the public to help the government recoup what is owed. Sullivan and Richard Rubin, an Atlanta-based federal and international tax attorney, plan to address the IRS in Washington, D.C. May 11 on how the rules can be revised to accomplish the law’s intended goals.

“The new rules are supposed to help citizens participate in closing the almost $350 billion tax gap by removing roadblocks to whistleblowers making claims, and by facilitating reward payments from those claims”

.Earlier this year, the Internal Revenue Service responded to sharp criticism of its existing rules by Senator Chuck Grassley (R-Iowa) by announcing new rules to broaden the kind of claims that will merit rewards to whistleblowers who alert the authorities to fraudulent taxpayers. However, Sullivan, attorney with Atlanta-based Finch McCranie, LLP, and author of the leading whistleblower blog,, says the new rules do not address key obstacles and create pointless delays for whistleblowers, which ultimately discourage citizens from reporting fraudulent taxpayers to the IRS. According to Sullivan, the new rules actually limit payment of whistleblower rewards in certain types of cases and thwart the intent of Congress to expand those rewards.

“The new rules are supposed to help citizens participate in closing the almost $350 billion tax gap by removing roadblocks to whistleblowers making claims, and by facilitating reward payments from those claims,” said Sullivan. “The fact is that only one reward has been announced since the special IRS office to pay whistleblowers was formed.”

Rubin, who has worked with Sullivan on a number of IRS whistleblower cases, agrees: “The rules need to be expanded rather than restricted. The intention was to make the whistleblower program more rather than less effective, but the opposite has occurred.”

Sullivan and Rubin believe the ongoing difficulties stem from internal disagreements within the IRS between those who favor whistleblower rewards and those opposed to the program. They say opponents within the IRS are exploiting the undefined term “collected proceeds” in the IRS Whistleblower statute to exclude a variety of claims.

“In the past, the IRS was authorized to pay rewards to whistleblowers in many situations, including the collection of criminal fines and prevention of improper refunds and credits by lawbreaking taxpayers. Now, some in the IRS seem to be working to weaken the program by excluding certain types of whistleblower cases from rewards and imposing mandatory two-year delays on payments. For example, criminal fines levied on fraudulent taxpayers used to be included, but now they are excluded, with no basis in the law for doing so. And whistleblowers who help the IRS reduce improper credit balances, net operating losses, net capital losses, foreign tax credit carryovers and similar items should also be compensated. Unless the new rules are changed, we can expect greater delays in reward payment, additional costs and ultimately the defeat of the very purpose of the statute. The bottom line is too many valuable potential whistleblowers will be discouraged from coming forward,” Sullivan said.

As the federal government struggles to reduce the deficit, Sullivan believes the IRS has the opportunity to promote a program that could bring in much-needed revenue and ease the pressure to raise taxes. “A well-designed whistleblower program could easily help shrink the nearly $350 billion tax gap. We need to encourage the reporting of fraudulent taxpayers by rewarding whistleblowers in a timely fashion. And determining who receives rewards should be relatively simple: Did the whistleblower information bring money into or prevent money being paid out of the United States Treasury? It’s really that simple,” he said.

About Finch McCranie

Finch McCranie, LLP is an Atlanta-based trial practice law firm that represents whistleblowers worldwide in cases under the False Claims Act, the IRS Whistleblower Program and the new SEC and CFTC Whistleblower Programs, and publishes a blog on whistleblower issues, Founded in Atlanta over 45 years ago, the firm consists of former federal prosecutors. Partner Michael A. Sullivan participated in the drafting of Georgia’s new False Claims Act enacted in 2007, the State False Medicaid Claims Act. Finch McCranie has earned the highest rating from Martindale-Hubbell, which rates law firms nationwide. The firm’s website is

About Richard Rubin

Richard Rubin is a federal and international tax attorney based in Atlanta. Formerly with Arthur Andersen, Rubin has worked closely with Finch McCranie, LLP on diverse IRS whistleblower matters, many involving international and offshore issues. For more information, visit

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