IRS Whistleblower Program: Changing of the Guard

Effective August 3, 2015, Director of the IRS Whistleblower Office, Stephen Whitlock, was replaced by Lee Martin from the IRS Office of Professional Responsibility.  Although Mr.  Martin is neither a lawyer nor an accountant, he was selected by Deputy Commissioner John Dalrymple, perhaps in an effort to bring (good) change the IRS Whistleblower program.

In February 2007, Director Stephen Whitlock was given the responsibility to establish the IRS Whistleblower Office.  His accomplishments include centralizing the whistleblower program in Washington DC, where whistleblower claims are now being reviewed and paid in a consistent and objective manner.  Current claims are no longer being lost in the system as they were before the enactment of I.R.C. § 7623(b).  Mr. Whitlock can be credited with a great many accomplishments including establishing a qualified team consisting of 43 personnel as of September 30, 2014.  Many of the whistleblower analysts in this office process and monitor whistleblower claims and often act as whistleblower advocates fighting on behalf of the whistleblowers.  Mr. Whitlock has been responsible for providing on going guidance to IRS personnel as well as whistleblowers and practioners.  The Internal Revenue Manual and Treasury Regulations have been updated under his reign.  Mr. Whitlock has put a good team together and will be missed within the IRS as well as from the IRS whistleblower attorneys for whom he gave so much guidance.

Although lacking a tax background, Director Martin is known for his organizational skills and for being an independent thinker.  He brings his ethics background to the Whistleblower Office from his time with the Office of Professional Responsibility.  In addition, Mr. Martin has significant experience with Information Technology which could be utilized to better organize the flow of information within the IRS Whistleblower Office.  As time will tell, Mr. Martin will begin the next chapter of making the IRS whistleblower program even more successful as it is quickly being recognized as the most powerful tools ever given to the IRS by Congress for the enforcement of the Internal Revenue Code. 

Director Martin likely will be facing similar oppositions from within the IRS that has been plaguing the program since the program started.  There seems to be ongoing resistance by Counsel as well as IRS executives to promote the program.  Many within the IRS continue to interpret the law narrowly resulting in the lack of communications with the Whistleblower, delaying payment of awards as well as diminishing and or eliminating awards altogether.  We hope that the new Director will only build on the program for which he took over and garner the support of the Commissioner and Secretary of Treasury. 

The Tax Whistleblower Law Firm (TWLF) has the deepest respect for Director Whitlock and wishes the best of luck to him in his new position as well as thanks him for his past leadership.

Disclosures of Return Information in the IRS Whistleblower Program

On February 2, 2010, Deborah A. Butler, Associate Chief Counsel, provided legal advice in PMTA 2011-31, advising the employees of the IRS Whistleblower Office that they are authorized to disclose [taxpayer] return information in making tax reward payment determinations pursuant to Section 7623 or providing status updates to IRS whistleblowers regarding pending, unprocessed, or dismissed claims under Section 7623.

 However, the office stressed, the specific taxpayer return information that may be disclosed to an IRS whistleblower in a particular instance will depend on the facts and circumstances of the matter.  In the legal opinion, Ms. Butler stated,

"Neither section 7623 nor any other Code section specifically authorizes the disclosure of taxpayer return information in the course of the whistleblower award review and determination process.  Nonetheless…Congress presumably did not intend to create an irreconcilable conflict between the IRS Whistleblower Office’s non-disclosure obligations and its obligation to convey appealable determinations to whistleblowers."

The legal opinion from the IRS Office of Chief Counsel concluded that IRC § 6103(h)(4), which authorizes disclosures of such information in judicial and administrative proceedings, authorizes the IRS Whistleblower Office disclosures, as the whistleblower award review and determination process would be considered an administrative proceeding.

PMTA 2011-31 was dated Feb. 1, 2010.

Despite the above legal opinion from the Office of Chief Counsel, we note that in the nearly two years that has passed since the advice was given; the IRS Whistleblower Office is reluctant to provide status updates as to the open whistleblower cases.  It is important that the whistleblower engage a knowledgeable and experienced tax whistleblower attorney to assist them.

The IRS wants IRS whistleblower lawyers and their clients to assist in IRS in the enforcement of the law.

IRS whistleblower lawyers have brought a large number of previously unrecognized tax issues to the attention of the IRS.  A prior report by the Treasury Inspector General of Tax Administration (TIGTA) determined that the cost of assessing and collecting tax is approximately 40% less that what the cost would be without the inside information from IRS whistleblowers.  A number of good tax issues have been brought to the IRS attention by IRS whistleblower lawyers and their clients and the success of the program is up to the IRS.  Some of the more recent large tax issues are -

1.  Offshore Accounts (IRS has instituted several “amnesty” type programs and is expected to reach $5 billion in collection since this issue was brought to its attention of the IRS by a Whistleblower).

2.  Employee v. Independent Contractors - many businesses aggressively classify their employees as independent contractors to avoid billions of dollars of payroll taxes.  A significant number of IRS Whistleblower lawyers and their clients have brought these matters to the attention of the IRS and in response the IRS decided again the best way to handle this tax issue is again to offer an amnesty program.

3  Identity theft.  This area of the law has gotten lots of attention from the news media for the underlying theft issue, but there are hundreds of millions of dollars of tax that are not being paid by the thieves on the income and the IRS is looking for whistleblowers to bring to its attention large identity theft matters.

4.  Gift Tax.  Most of the population is aware that the very wealthy are transferring great wealth to their children.  This is often done through legitimate tax planning.  However, this can be done through a common means of simply transferring real estate to family members at no cost.  In fact valuable real estate can be transferred at no cost (i.e. a gift) and there are no reporting requirements.  That is, no 1099s, or any other information type returns, are issued to report the land transfers between family members.  In fact, a number of whistleblowers have simply scoured the recorder of deeds, either locally or on the internet, finding land transfers of wealthy individuals to family members that are actually identified as “gift deeds” or simply reflect that the land is being transferred for $1 or the love and affection of the grantee (i.e. the children). 

The IRS recognize that this last issue exists due to the information brought to its attention by IRS Whistleblower lawyers and their clients and have determined that it will put its resources into this issue.

As part of a new initiative in finding gift tax evaders, the Internal Revenue Service asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration.

In response, the federal district court judge gave the IRS permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money. The IRS wants those names as part of a crackdown on what it believes is the widespread failure to file required gift tax returns when real property is passed between family members.

The IRS has already received information about intra-family property transfers from county or state officials in Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin.

In an affidavit filed in the California case in October, Josephine Bonaffini, the Federal/State Coordinator for the IRS’ Estate and Gift Tax Program, said the agency has so far examined 658 taxpayers identified as transferring property to relatives and concluded that 238 of them should have, but didn’t, file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Twenty of those delinquent filers have already been assessed extra tax because they had exceeded the amount each person is allowed to transfer gift tax free, she said. Through 2010, that lifetime gift tax exemption was just $1 million. For 2011 and 2012, it has been raised to $5 million. Anyone can give anyone else property or cash worth up to $13,000 a year without that gift counting against the lifetime exemption, but gifts above that $13,000 “annual exclusion” amount must be reported on a Form 709 so the IRS can keep track of how much of his or her lifetime exemption each taxpayer has used up.

With a normal summons (i.e. Form 2039), the IRS seeks information about a specific taxpayer whose identity it knows. A John Doe summons, by contrast, allows the IRS to get the names of all taxpayers who are members of a certain group it has reason to suspect might have broken the law. In the past the IRS has used John Doe summons to seek lists of American taxpayers who have used aggressive tax shelters and of those who have unreported offshore accounts at Swiss Bank UBS and at HSBC’s bank in India.

Again, the IRS whistleblower program is and will continue to be a great success as it brings facts and issues to the IRS

The Tax Whistleblower Law Firm (1-877-404-1040) consisting of former IRS lawyers assist whistleblowers in filing acceptable claims into the IRS Tax whistleblower program by providing well developed facts, issue and law, evaluating the continued confidentiality of the client, as well appealing administratively and judicially the determination by the IRS.