U.S. Tax Court Gives the IRS Whistleblower Program a Boost

On December 28, 2011, the IRS Whistleblower Program received a big boost when the U.S. Tax Court proposed new Tax Court Rule 345 to protect the identity of the Tax Whistleblower.  Those seeking a tax award/reward for reporting tax fraud are assured that their identity is protected by the U.S. Tax Court in the appeal of their IRS Whistleblower claim…”if appropriate.”

The IRS policy is to protect the identity of a IRS Whistleblower that provides information as part of the IRS Whistleblower Program.  However, there does exist the unusual situation in which an IRS Whistleblower may be called to testify in a court proceeding.  However, this situation has not occurred under the new IRS Whistleblower Program since it was initiated on December 20, 2006.  In addition, it is highly unlikely that this situation will happen in the future with the proper representation.

IRS Whistleblower Attorneys/Lawyers should be tax attorneys/lawyers first and whistleblower attorneys/lawyers second.  In every IRS Whistleblower matter the tax whistleblower attorney should evaluate the claim (i.e. 211 Form), as well as the client and make a determination if the IRS whistleblower is a likely candidate for being a witness should the tax claim ultimately result in litigation by the IRS.  The attorneys at the Tax Whistleblower Law Firm use their experience, as former IRS attorneys, to assist them in making this decision.  Since the Tax Whistleblower Law Firm prepares the 211 claim package for submissions into the IRS whistleblower program in a manner similar to what they would expect the IRS to have prepared if they were in a position to litigate the case as if they were still IRS attorneys, they are also in a position to make a judgment if the client/whistleblower is a likely witness should a case end up in litigation.  No tax whistleblower claim should ever be submitted to the IRS in which the whistleblower is not advised as to the likelihood of them having to testify in the matter.

Confidentiality is what makes the IRS Whistleblower Program successful.  Congress, pursuant to I.R.C. § 7623, gave the IRS Whistleblower the right to appeal the IRS determination of award/reward to the US Tax Court.  Until recently, the tax court had not ruled as to whether the tax whistleblower could proceed anonymously in the filing of an appeal.  On December 8, 2011, in the case of in Whistleblower 14106-10 v. Commissioner, 137 T.C No. 15 (2011), the U.S. Tax Court ruled that the openness of a public record must be weighed with the protection and safety of the whistleblower in these matters.  The Tax Court has now proposed a new Rule (i.e. Tax Court Rule 345) to protect the identity of the IRS Whistleblower

Proposed Rule 345. PRIVACY PROTECTIONS FOR FILINGS IN WHISTLEBLOWER ACTONS(a) Anonymous Petitioner:  A petitioner in a whistleblower action may move the Court for permission to proceed anonymously, if appropriate. Unless otherwise permitted by the Court, a petitioner seeking to proceed anonymously pursuant to this Rule shall file with the petition a motion, with or without supporting affidavits or declarations, setting forth a sufficient, fact specific basis for anonymity. The petition and all other filings shall be temporarily sealed pending a ruling by the Court on the motion to proceed anonymously.

Through experience we have worked with IRS whistleblowers that have indicated that if their identity is not protected, they could lose their life, family, careers, employment, licenses (attorneys/CPAs), etc.  Therefore, this proposed rule by the U.S. Tax Court is an important step for the success of the program.  We strongly recommend that a whistleblower work with qualified “tax” attorneys to assist them with the IRS Tax Whistleblower Program as well as an appeal, so as to protect their identity.  There are several tax whistleblower law firms, by guaranteeing the whistleblower’s confidentiality, are willing to forfeit their fees should the law firm or the IRS intentionally or unintentionally disclose their identity.  There are even fewer law firms that are willing to handle the appeal to the U.S. Tax Court as part of the representation.

Should you have any questions to the IRS Whistleblower Program, please Contact our office.

Why Should a Tax Whistleblower Hire a Tax Whistleblower Attorney?

The IRS tax whistleblower program is now five years old and is becoming more and more complex.  Well, that is,  it is only complex if the attorney knows what they are doing … as they must thoroughly understand the tax whistleblower statute (I.R.C. 7623), whistleblower regulations/notices, Internal Revenue Manual (IRM) tax disclosure issues, confidentiality agreement, tax court rulings, administrative appeals, judicial appeals, reward computations, and on top of this, they must understand a similar set of laws, regulations, and rulings dealing with the underlying substantive tax issue for which the entire tax whistleblower case is based.

Remember, any attorney can assist a tax whistleblower in the submission of a claim.  A divorce attorney or a personal injury attorney can fill out a Form 211, Application For Award For Original Information.  The Form 211 is not magical nor is it complicated.  Many tax whistleblowers have filed their own 211 in the past.  It is only after the tax whistleblower files a Claim for a Tax Award/Reward, and if fortunate enough to have their Claim accepted into the IRS Tax Whistleblower Program, that they begin to face the complexity and unknowns of the Tax Whistleblower Program.  It is at this time many tax whistleblowers consider hiring an experienced and knowledgeable tax whistleblower law firm to assist them in such very important matters as -

1. Supplementing the Claim with new “material” and “relevant” facts.
2. Supplementing the Claim with the Law and legal analysis to better the Claim. (i.e. a positive factor).
3. Attending the Taint/Debriefing Conferences with the IRS and preparing the client for nearly every question that will be asked by the IRS in the conference.
4.  Reviewing the reward computations taking into consideration the “collected proceeds,” “tax transcripts,” “Positive factors,” “Negative factors,” etc.
5. Representing the tax whistleblower in the “administrative appeal.”
6. Representing the tax whistleblower in the “judicial appeal” before the U.S. Tax Court.

 The tax whistleblower attorney/lawyer should have the knowledge and experience in all of the above.  The attorney/lawyer/law firm should be successful in the submission of all the Form 211 into the IRS tax whistleblower program on behalf of their clients.

The goal of the Tax Whistleblower Law Firm is to

1. have the case accepted into the IRS Tax Whistleblower Program,
2. maximize the tax rewards/award,
3. minimize the IRS examination time, and
4. protect the whistleblower’s identity/confidentiality which should include guaranteeing the confidentiality of the whistleblower.

The Tax Whistleblower Law Firm has all the experience to assist in the above.  As former IRS attorneys we understand the underlying substantive tax law as well as the whistleblower law.  We have submitted tax whistleblower claims with respect to hundreds of taxpayers for billions of dollars.  To date, every claim submitted by our firm has been accepted into the IRS Tax Whistleblower Program.  Our criteria in submitting a claim is to submit only those claims that we feel that we could litigate and win on behalf of the IRS, if in fact, we were still IRS attorneys.

The Success of the IRS Tax Whistleblower Program (i.e. Payment of Tax Reward) is in the Hands of the IRS.

A recent comment by the Director of the IRS Whistleblower Office indicates that the IRS is serious about ensuring the success of the Tax Whistleblower Program.

“Where There Is A Choice, The [Tax] Whistleblower Should Win.”

This comment says it all.  There are many tough decisions to be made by the IRS, but if the above quote is the true reflection of the attitude of the IRS, then the IRS Tax Whistleblower Program is on its way to being highly successful.   However, as background to the above quote, it was said in the context of considering the “fair” and “right” thing to do in tax whistleblower situation.

IRS Whistleblower Office

Some of the tough issues facing the IRS are ….

Is the term “collected proceeds,” as used in I.R.C. § 7623, going to be narrowly defined in the final regulations that are yet to be issued?

We will see.  The IRS could go with the true meaning of Congress and reward the tax whistleblower for his/her contribution….or it may narrowly define the term “collected proceeds” as it did in the proposed regulation.  For instance, will the term “collected proceeds” include future amounts collected (under certain circumstances) rather than simply past amounts?  Will collected proceeds take into considerations net operating losses (NOLs) or tax credits carried back or forward to the years for which the tax whistleblower provided information?  Will collected proceeds take into consideration offsets as to refunds owed the taxpayer on other years?

Will the IRS recognize that it must make partial payments to a Tax Whistleblower if there are no prohibitions as to making a partial payment….or will the IRS wait as long as possible in making the tax reward payment to the Whistleblower? 

The IRS can always wait until the last penny of tax is collected with respect to a tax liability or until the ten year statute of limitations expires before it feels obligated to paying the tax award/reward to the whistleblower.  In fact there are no statutory (or self imposed) deadlines in which to pay a tax reward/award to a whistleblower.  However, the IRS may realize that if there are no prohibitions (i.e. the assessment of tax is final (i.e. no further avenue of appeal) and/or the collection of tax is not subject to a claim for refund (two year rule)) as to making a partial payment, it will immediately make the partial payment of the tax award/reward to the Tax Whistleblower. 

Currently this office has submitted a request for partial payment of a tax reward/award for which the Form 211 Claim was filed in 1999 and the tax was paid in 2005.   Hopefully the IRS will side with the Whistleblower in this matter and make a partial payment of the tax reward/award in an effort to promote the Tax Whistleblower Program.

Is an “administrative action” as used in I.R.C. § 7623 a “detection of tax” the result of a tax examination, tax assessment, court decision, or is it simply an action by an “administrative agency”, that might include opening a whistleblower file, making a telephone call to the taxpayer, sending a letter to the taxpayer, establishing an “amnesty program” due to the Whistleblower’s Claim, issuing a new Tax Regulation/Notice as a result of the Tax Whistleblower Claim.

Does a “related action” as used I.R.C. § 7623 include subsequent tax years with respect to the same ongoing issues raised in the tax whistleblower claim?  Does it include other tax issues discovered by the IRS in the tax examination for which the whistleblower provided information?  Does it include other taxpayers for which the IRS discovered as a result of the tax whistleblower claim?

How does the IRS allocate the tax reward between two whistleblowers who both substantially contributed to the determination of tax?

As the bottom line to this blog, there are dozens, if not hundreds, of unresolved issues that will be resolved over time.  Let’s hope the IRS lives by the motto…Where There Is A Choice, The [Tax] Whistleblower Should Win.

 Should you have any questions or comments as to the IRS tax whistleblower program or obtaining a tax reward, please post comments to this blog, visit our Contact page or call the former IRS attorneys at the Tax Whistleblower Law Firm at 1-877-404-1040.