The IRS Whistleblower Program has seen the mountain top before – with tax dollars collected in 2018 of $1.4 billion and $312 million dollars in awards made. Unfortunately, the whistleblower program now has seen the valley – with the most recent annual report showing collections dropping dramatically to only $245 million and whistleblower award payments of only $36 million.
To outgoing IRS Commissioner Rettig’s credit – he didn’t simply accept these troubling results – and as one of his key actions before leaving the IRS he has invigorated the whistleblower program, in part, by appointing a new Director of the Whistleblower Office (WBO) – Mr. John Hinman. Commissioner Rettig has given Director Hinman his full support – with a clear mandate to strengthen the whistleblower program (and to overhaul the program where necessary), better integrate the whistleblower program with the overall work of the IRS and – as important – get awards out to whistleblowers – where I’ve already seen improvement firsthand with three of my clients recently getting awards (more on that below).
IRS Whistleblower Summit – Help Us Help You
As part of getting the whistleblower program moving forward, the IRS Whistleblower Office recently held a summit that was widely attended by practitioners. This summit was most helpful in providing a forum for representatives of whistleblowers to better understand how they can effectively interact with the IRS. While the summit covered a wide range of topics and issues – here are some of the relevant highlights for whistleblowers:
Commissioner Rettig began the summit with a forceful discussion of the importance of the IRS Whistleblower Program –stating simply that the IRS needed the whistleblower program to do its job. Commissioner Rettig ultimately recognized that the IRS needed to get better when it comes to the whistleblower program – and was open to hearing new ideas and approaches – as well as looking at best practices of other agencies and their whistleblower award programs.
Director Hinman then touched on a number of key subjects – with a particular emphasis on areas the Whistleblower Office was looking to improve – including: status and stage letter responses; partial payments (and other possibilities of accelerating award payments – with disaggregation); and easing the process for reviewing administrative file reviews. In addition, allowing for electronic filing of Form 211 (as well as reworking the Form 211 and Form 11369 are also being considered). One reform that has already taken place is allowing for direct deposit of whistleblower awards (as opposed to a check sent regular mail) – which eliminates a significant source of angst for whistleblowers.
Two points that Director Hinman particularly emphasized:
1) Current address. The WBO is struggling with contacting a number of whistleblowers because they do not have good/current addresses. Understandably, the WBO is reluctant to just use a taxpayer’s address filed with the IRS for tax purposes – due to concerns of security and anonymity. Bottom line – make sure the IRS WBO has your current address (or your attorney’s address) for mailing.
2) Death. A sad statement of how long it is taking to get awards out the door (to be fair – reflecting also the long process of fully resolving some tax examinations) – the WBO is confronting problems with deceased whistleblowers entitled to an award. The good news is that a whistleblower’s estate can still receive an award. However, the bad news is that often it’s a hot mess as to: a) who is authorized to speak on behalf of the estate to the IRS as to the whistleblower submission; and b) who is the beneficiary of the award. Whistleblowers need to make sure their estate planning is clear on these issues (also good to let the trustee know there is a whistleblower claim . . .).
When a Whistleblower Has a Lot of Data/Documents
While the panel discussions were all useful and informative – one that particularly stood out for me was from a senior official with IRS Criminal Investigations (CI) providing detailed guidance on whistleblower submissions involving large amounts of data (something I see a great deal of this in my practice) – for example an offshore service provider. Some of the suggestions include:
1) Provide a brief overview and description of what is being provided (to allow the IRS to better direct who should review the material); explain how large the dataset is; provide all passwords clearly
2) A clear description of the allegation (including code sections) and give as many facts as possible
3) A table of contents explaining what kind of documents are being provided
4) The tax years involved (and I would add to that — useful to put the most current documents first; or segregate the taxpayers with the most recent documents from those with older documents – remember “new” is big for the IRS
5) If privileged information (or even possibly privileged) – what is the privilege; what is the material – and look to segregate privileged from non-privileged (and don’t forget Section 7525 material)
6) Foreign language – look to translate or at least segregate
7) Multiple taxpayers – separate out by taxpayers (and then separate out by type of document – contracts; emails; etc.)
The panel also emphasized that whistleblower submissions that are low dollar; speculative; and old (six years or longer – unless continuous and ongoing) are going to face a (steep) uphill run. In my own work, it is clear that the IRS is interested in high dollar cases; from recent (and even better ongoing) cases; from informed knowledgeable insiders – with specific information about tax violations (and documents are certainly a plus).
Additional Best Practices
The doyen of the Whistleblower Office, Ms. Dawn Applebaum, provided a number of thoughtful and insightful comments as well – including reminding whistleblowers and their attorneys to be sure and update the WBO with all additional submissions/material (including from the public record – say a court decision) of their case. Ms. Applebaum also noted that as part of moving forward on awards – that they will be looking at closing claims (i.e., making award decisions) as a taxpayer audit cycle is closed on an issue (even if the same issue is being examined in a new audit cycle) – this would be a key commonsense reform and be most helpful in getting awards out the door.
I also note that an attorney from IRS Counsel presented – and provided a sobering discussion of taint review from counsel’s perspective – i.e., whistleblowers who are attorneys; subject to Section 7525; taxpayer representative; etc. Best practices include segregating (or removing) information that is potentially taint – for example segregating out just the facts of the transaction. It’s a thicket.
Words, Words, Words – Show Me (Some Awards)
There is no question that there is a new energy at the Whistleblower Office and a commitment to getting the program on track. But I understand cynicism and skepticism. That is why I’m particularly pleased to see recent award decisions by the IRS Whistleblower Office that have matched the good words with action.
I recently announced that two of my clients had received an $8.8 million dollar award (based on $35 million in tax dollars recovered thanks to their efforts). But more importantly, in making this award, Director Hinman reversed an earlier decision as the whistleblowers award – and tripled the award amount (the issue involved the joyous world of whistleblower submissions that involved, in part, public information). It is always difficult for anyone (or any agency) to reverse an earlier decision) – but to his credit Director Hinman and his team considered our protest closely and reversed the earlier decision.
In addition, my co-counsel Steve Kohn, of Kohn, Kohn, & Colapinto, and I also announced that a whistleblower we jointly represent received an award of $16.8 million dollars – for turning in 86 wealthy individuals involved in a tax evasion scheme – returning over $70 million dollars to the Treasury.
Good news.
While it has been difficult days for the whistleblower program at the IRS – with the new leadership it is clear that better days are ahead.