Does The IRS Really Support the Tax Whistleblower Program?

The answer to this question is….not a clear yes or clear no.  Like all of us, the IRS must follow the law.  Whether it supports, or not supports, the tax whistleblower program, the IRS can only do what Congress has authorized it to do.  In the end, its actions speak louder than words and give us a clue as to whether or not it supports the program.

The Whistleblower Program was amended and changed in 2006 with the enacted by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, sec. 406, 120 Stat. at 2958. The Whistleblower statute (IRC § 7623) contains no more than 640 words and is subject to interpretation.  Whistleblowers tend to interpret this statute broadly while the IRS interprets it narrowly.  IRS justification might be that it interprets the statute very narrowly in fear that it might pay an award for which it does not have authority to do so.

As an example, the whistleblower statute, IRC § 7623(b)(1) states that the IRS shall pay an

 
“award of at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.”
 

 The IRS, despite telling Congress and the American public that it supports the whistleblower program, obtained legal advice from the Office of Chief Counsel (IRS legal counsel), which advised it that “collected proceeds” did not include criminal penalties or civil forfeitures for which the IRS might be responsible for determining and collecting.  This often occurred with cases involving taxpayers’ with offshore bank accounts (FBAR penalties) and other criminal tax matters.

In 2010 the Internal Revenue Manual was amended and in 2014, Treasury Regulations were issued that made clear that the IRS did not consider criminal penalties under Title 18 (Crimes and Criminal Procedure) or Title 31 (Money and Finance) collected proceeds and therefore, it would not pay an award on “collected proceeds” from penalties collected under laws other than the Internal Revenue Code. 

In the recently decided case of Whistleblower 21276-13W, Petitioner v. Commissioner, 147 TC No. 4 (August 3, 2016), the United States Tax Court had no trouble in deciding that a whistleblower was entitled to an award based upon a criminal penalty and civil forfeiture that might be imposed outside the Internal Revenue Code (i.e. Title 26).  The court determined that Congress did not intend to limit a whistleblower award should the IRS pursue an action, even if it amounted to a penalty which was not ultimately paid to the IRS.

Conclusion

Again, the actions of the IRS will dictate whether it supports the Tax Whistleblower Program.  The IRS now has court authority (i.e. precedent) to support paying individuals that provide information to the IRS with respect to money laundering crimes, offshore bank accounts, etc.  Will the IRS appeal the recent court’s decision?  If the IRS intends to appeal the decision, it must file a Notice of Appeal within 90 days after the decision is entered. 

Actions speak louder than words.  Therefore, if the IRS does appeal the Court’s decision, Congress and the American public will be told loud and clear that the IRS does not support the Tax Whistleblower program.  As a result, whistleblowers will be alerted as to whether their pending claims will be treated fairly or whether the IRS intends to continue to minimize a whistleblower’s reward.

Not even Federal IRS Employees or Federal Tax Court Judges are Immune to Alleged Tax Evasion

In a bit of shocking news, a former federal tax court judge (Judge Diane L. Kroupa) and her husband were indicted on charges for filing fraudulent tax returns and conspiracy to defraud the United States.  As recounted in a recent Forbes article, the shocking facts in the indictment reflect alleged evasion of taxes and obstruction of justice in the examination/audit of Judge Kroupa as follows:

  1. Alleged claimed personal expenses as business deduction including “rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; Pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand;”
  2. Alleged false insolvency claim to avoid discharge of indebtedness income of $33,301;
  3. Alleged failure to report income from sale of property in the amount of $44,520;
  4. Alleged concealment of records from tax return preparer and IRS compliance officer during an audit in 2006;
  5. Alleged submission of misleading documents to an IRS employee in 2012 audit to conceal expenses of Grassroots Consulting; and
  6. Alleged understated income from 2004-2010 of $1,000,000 and understated taxes in the amount of $400,000. 

While the indictment and allegations contained in the indictment have yet to result in a conviction for conspiracy and tax evasion, the mere fact that the indictment and charges against Judge Kroupa have been filed in Court reflects that even federal tax court judges may still have allegedly evade taxes and allegedly defrauded the IRS and the United States of taxes allegedly owed.

In other news, based on a recent Tax Court case, a federal IRS Revenue Agent was indicted and plead guilty to tax evasion.  A summary of the relevant facts are as follows:

  1. Petitioner Husband was an IRS revenue Agent;
  2. Petitioner Husband had side business in which he set up trusts for another taxpayer to reduce taxes but was used to allegedly embezzle funds from the other taxpayer;
  3. Petitioner Husband allegedly embezzled funds from other taxpayer;
  4. Petitioner Husband was indicted and initially plead guilty to tax evasion related to the alleged embezzled funds because he failed to report the income associated with the alleged embezzled funds;
  5. Petitioner Husband tried to recant plea agreement.

In the Tax Court case, the Court determined that while the Petitioner Husband plead to tax evasion and failed to report income for 2003 in the amount of $252,726, the plea does not support improper calculations by another IRS revenue agent that analyzed the tax deficiency of Petitioner Husband because the other IRS revenue agent failed to account for amounts repaid to the other taxpayer by Petitioner Husband.  The Tax Court ultimately determined that there was no deficiency or penalty liability for 2003.  Despite the Tax Court’s holding that there was no deficiency, the facts in this case reflect that even a federal revenue agent is not immune from allegedly under-reporting or allegedly failing to report his/her tax liabilities.

Both cases show that federal employees and federal tax court judges are not immune from committing alleged tax evasion or other tax violations.  Therefore, if you have specific and credible information (specific documents outlining the tax evasion or other tax violations) on any individual which would result in taxes due in excess of $2,000,000, contact us to discuss filing an IRS tax whistleblower claim to claim an award and to alert the IRS to the alleged wrongdoing.

Thomas Pliske to Present at Annual Taxpayer's Against Fraud Boot Camp

Tax Whistleblower Law Firm founder, Thomas C. Pliske will be speaking at the Taxpayers Against Fraud IRS, CFTC and SEC Boot Camp in Washington, DC on November 16, 2015.  Mr. Pliske will discuss important issues under the IRS Tax Whistleblower Program, including:

  1. General Information
    1. Miscellaneous Information
    2. Statistcs
  2. Nuts and Bolts of I.R.C.§7623
    1. Qualifications
    2. Filing a Claim
    3. Amount of an Award
  3. Appellate Process
    1. Administrative Appeal
    2. Judicial Appeal
    1. Recent Court Decisions
    2. Tax Court Litigation
    3. Filing Suit, Tax Court Discovery, etc.
  4. Guidance to IRS Whistleblower Program
    1. I.R.C. §7623

    2. Treasury Regulations

    3. I.R.M.25.2.2 Whistleblower Awards

    4. Tax Court Cases

    5. Miscellaneous Notices

  5. Other Things to Consider
    1. Confidentiality
    2. Criminal Implications
    3. Tainted Information
    4. Whistleblower must be Tax Compliant
  6. Best Business Practice

To register for the November 16, 2015 TAF Boot Camp, please contact Taxpayers Against Fraud.