IRS Rewards For Tax Whistleblowers

Tax penalty home forfeiture
The Tax Court yesterday in a key case (Whistleblower 21276-13W v. CIRPY +% – 147 TC 4) held that IRS whistleblowers can get awards not only in situations where taxes are collected under Title 26 but also when the taxpayer pays criminal fines and civil forfeitures.   Great news not just for the whistleblowers involved in this case (and for me as well — as the whistleblowers’ lead attorney in this case). But great news as well for all whistleblowers and the whistleblower program. Potential whistleblowers with information about offshore accounts and big time tax fraud should especially be heartened by this decision.

As background, a cloud has been hanging over the IRS whistleblower program ever since the IRS decided upon a very narrow reading of “collected proceeds” – limiting that term to just taxes paid under Title 26. This limited view by the IRS brought a great deal of uncertainty for whistleblowers who are deciding whether to come forward about illegal offshore accounts and criminal tax activities. Would they actually see an award? Needless to say some whistleblowers decided not to come forward at all. The whistleblower program was in an odd situation that in cases where a whistleblower had really good information about very bad people – the whistleblower was actually in jeopardy of not getting an award (or more likely only a partial award).

Protecting whistleblowers from retaliation.
The Tax Court, in a carefully reasoned opinion by Senior Judge Jacobs, went through each of the IRS’ arguments and dispatched them point-by-point (there is a fair amount of subtle humor in the opinion – and worth the read). At the core – the Tax Court found that the language of the statute is broad and sweeping (example:  “proceeds” is a word of great generality) and that “collected proceeds” encompasses not just title 26 tax, but criminal penalties and civil forfeitures as well.

Particularly helpful for everyone is that the Tax Court’s opinion is not couched with the typical caveats and exceptions you sometimes see – example, “in these facts,” “in this situation,” “in cases where . . .” The opinion doesn’t leave corners or shadows for lawyers to hide or engage in hair-splitting.   Just as the Tax Court found that the IRS whistleblower statute is “broad and sweeping” – the Court’s decision is broad and sweeping.

That the Court so covers the waterfront is particularly good news because it gives the Treasury and IRS a golden opportunity to now revisit and reexamine their guidance in this area. The Treasury and IRS officials have repeatedly stated that they are not against a more expansive view of what is encompassed by “collected proceeds” – they just in good faith have stated that they don’t read the statute that way. Fair enough. Happily now the Tax Court has with this decision plowed the field for them and given the IRS and Treasury ample authority to state that they will as a matter of policy for all whistleblowers make awards for Civil Forfeitures, Criminal Penalties (including FBAR penalties).

The Commissioner of the IRS, Mr. Koskinen, has been to his credit a vocal supporter of the IRS whistleblower program. This is now a golden opportunity for him to make a lasting change that will have a dramatic impact in making this successful program even better. It couldn’t come at a better time. It is clear that there has been a positive shift in thinking about tax whistleblowers at Department of Justice and with Large Business at IRS. Putting in place policy changes in keeping with the Tax Court’s decision regarding the definition of “collected proceeds” will go far in sending a signal that whistleblowers are welcome – particularly for offshore cases and tax fraud.


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Helmer Friedman LLP helping you navigate through the state and federal whistleblower programs that may reward you for reporting fraud.

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