# Professionalism/The IRS Whistleblowers Program

The Internal Revenue Service (IRS) Whistleblower program has been active since 1867 when the US Secretary of the Treasury was given the authority to "pay amounts as he deems necessary 'for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws'". Since that time, billions of dollars in uncollected taxes and penalties have been collected by the IRS, with some of the collection going to those who assisted in proving the payers' fraudulent tax practices.

## What is it?

The IRS Whistleblower program is an incentive program to encourage individuals to disclose to IRS tax fraud, tax evasion, or tax underpayment by their employer, other corporate entities, and individuals.

### Eligibility

The whistleblower is eligible for up to 30% of the IRS collected penalty for claims above 2 million dollars if he or she provides “specific and credible information to the IRS” and only “if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.
For smaller claims the award may be up to 15% of the collected taxes and penalties. Not all tips will be eligible for an award. If the IRS already had the information, an investigation leads to no finding of taxpayer liability, taxpayer liability is found but successfully appealed, a liability is made and upheld but there is no collection because the taxpayer has no known assets to collect from.

### Protecting the Stakeholders

The whistleblowers are required to submit their identifying information to the IRS if they wish to claim a reward. However, there are numerous law firms that seek to protect whistleblower identity. By avoiding any direct testimony in court the whistleblower can remain anonymous to all but the IRS. However, should testimony in court be required the whistleblower's identity will be revealed to the public.
An alternative to claiming an award, the whistleblower has the option of submitting Form 3849A, or the tip form to the IRS. This alternative, gives the whistleblower an opportunity to provide the IRS evidence of tax fraud but remain anonymous to the public. However, submitting this form makes the whistleblower ineligible for the IRS monetary award.
Section 6103 aims to protect the investigated person, but it hinders IRS collaboration with the whistleblower in three ways:
* Lack of meaningful updates and explanations
* Limited collaboration with whistleblower
* Potentially meaningless Tax Court appeal right.
Whistleblowers send in their award claim forms and wait. If they do not receive a reward, they are not told specifically why, because that would divulge information about the investigated person. The whistleblower receives a generic letter stating “The information you provided did not identify a federal tax issue upon which the IRS will take action”. On the other hand, if the whistleblower receives an award he/she does not know what percentage of the award relative to the amount collected; this could be anywhere from 15% to 30%. The IRS cannot follow up with the whistleblower. If the whistleblower has the answer to a question that the IRS needs to divulge information to ask, the IRS cannot ask it. Another problem with the IRS whistleblower program, particularly in its relation to professionalism, is the right of whistleblowers to appeal their cases to the Tax Court. With the lack of communication and explanation by the IRS, whistleblowers may appeal their reward to the Tax Court under the belief that they have not received the proper award amount. However, they have no substantial information to back up this claim.

## Historic Award Case

In 2005, Brad Berkenfeld left his job as a banker at the Union Bank of Switzerland (UBS). In 2007 he sought out the Department of Justice, providing them with information on international tax evasion schemes that the Swiss bank was facilitating abroad. By 2012, Birkenfeld was awarded $104 million from the IRS. The award constituted 26% of the money collected from UBS by the IRS. Senator Grassley says the potential for the IRS Whistleblower program “is tremendous” arguing that “billions of dollars are paid that would have otherwise been lost to major tax evasion”. However, Birkenfeld didn’t just get a monetary reward for the information he provided the justice department, he was also convicted of conspiracy to commit tax fraud and sentenced to 40 months in jail.
The case has broad implications beyond UBS and their clients. 33,000 Americans admitted to to holding undeclared overseas accounts following this case. The IRS collected over $5 billion in taxes and penalties, but public confidence in the whistleblower program was shaken because of the jail time Birkenfeld received. In a 60 Minutes Interview, Birkenfeld’s lawyer, Steven Kohn, stated “the day he walks into prison is the day you will lose a generation of whistleblowers.... because no one will blow the whistle!”
Igor Olenicoff, a real estate billionaire was Birkenfeld’s biggest client. When Birkenfeld’s association with Olenicoff’s tax fraud was revealed both were put on trial. In 2007 Olenicoff pleaded guilty to filing false tax returns, and in 2008 he sued UBS for giving him incorrect advice regarding his offshore tax claims.

## Connections to Professionalism
### Diffusion of Responsibility

With regards to the IRS program, diffusion of responsibility is adopting a mindset similar to “I can't be the only one who sees what is going on, so someone else will take care of it.” A more professional attitude would be to take advantage of the IRS Whistleblower program, or the anonymous tip-off program. By reporting the violation, the whistleblower is being more responsible to the public than to the violator. This is a potential breach of professional ethics. While professionals are held to these standards, when they come into conflict, by one definition of professional, it is their duty to exercise their judgment and choose which to follow.

### Normalization of Deviance

Normalization of Deviance is the practice of accepting an action which by itself is not correct, but through habit, have accepted the action or lack of action as acceptable. Take for example the space shuttle Challenger that was doomed to tragedy by getting too comfortable with poor performing o-rings.
Normalization of deviance can allow tax evasion to occur and even propagate. It can foster tax evasion by letting small changes go unnoticed over time. Eventually, illegal practices become the norm. These norms can be perpetuated by the status quo decision trap. Additionally, if the tax evasion is not constant, (i.e., only happens occasionally) normalization of deviance can allow it to be accepted as part of a natural year to year variance.

### Cooperation and Defiance

Is the whistleblower defying the covenant between the employee and employer? At what point does cooperation shed its veil of deceit? Take the Brad Berkenfeld case. Such corporate deception is reliant on employee cooperation. Is defiance in this instance a bad thing? The U.S. tax code makes an attempt to hold people accountable for their earnings and is based upon accurate reporting of those earnings. When a company or individual mis-reports these numbers the tax burden is shifted to those who are reporting accurate information. That certainly is not fair to those paying their taxes. Can this defiance of one’s company then be considered obedience to the greater population of taxpayers? Then the question becomes, who is the award benefiting? The individual whistleblower, the taxpaying population, both? Senator Grassley states “billions of dollars are paid that would otherwise be lost to major tax evasion” It appears that the majority of the money that would have otherwise gone uncollected is returned to the general public through the IRS. Does taking advantage of an incentive program promoting tax whistleblowing make the whistleblower unprofessional? Should the individual report tax fraud regardless of monetary opportunities? Professionals would report tax evasion. While the IRS Whistleblower Program is an attempt to promote whistleblowing of those less inclined to take the risks of a professional.

### Role of Client Confidentiality

Attorneys and accountants interact with clients through confidential meetings and documents. In the American Bar Association’s ‘Model Rules of Professional Conduct,’ attorneys are held to the standard that “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).” The American Institute of Certified Public Accountants Code of Professional Conduct “prohibits a member in public practice from disclosing any confidential client information without the specific consent of the client”.

## Conclusion

A professional is:
* A licensed or credentialed member of a recognized profession: for example a physician, a lawyer, a professor, a clergyman, or a certified P.E. (Professional Engineer).
* The opposite of an amateur: an athlete, actor, etc., who is paid for his or her work.
* A dutiful and conscientious employee; for example, an employee who dresses appropriately and who is punctual, courteous and productive.
A definition four professional is someone who fits into an undefined definition of professional. They may fit some of the other definitions but they are separate.
Would a professional use the IRS whistleblower program? The answer is unclear. A professional would feel an obligation to turn in tax evasion. However, the inclusion of an award, could provide an unprofessional motivation: greed. This is similar to the distinction between honor and honors. A professional has honor (turns in tax evasion), but does not seek honors (the monetary reward). The ability to anonymously whistleblow partially rectifies this.
Thus, the IRS whistleblower program can enable a real-life enabler of the online disinhibition effect or a ring of gyges.

## References

* ↑ http://www.irs.gov/uac/History-of-the-Whilstleblower-Informant-Program
* 1 2 3 http://www.irs.gov/uac/Whistleblower-Informant-Award
* ↑ www.tax-whistleblowers.com
* ↑ http://www.irs.gov/uac/Confidentiality-and-Disclosure-for-Whistleblowers
* ↑ http://heinonline.org/HOL/Page?handle=hein.journals/vrgtr29&div=20&g_sent=1&collection=journals)
* ↑ http://www.irs.gov/irm/part25/irm_25-002-002.html#d0e1266
* ↑ http://online.wsj.com/article/SB10000872396390444017504577645412614237708.html
* ↑ http://online.wsj.com/public/resources/documents/birkenfeld-determination-letter.pdf
* 1 2 http://www.grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=42397
* 1 2 http://www.cbsnews.com/video/watch/?id=6050245n
* 1 2 http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_300.aspx#et_301
* 1 2 http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_6_confidentiality_of_information.html