Source: https://www.taxwhistleblowerreport.com/page/3/
Timestamp: 2019-04-24 01:59:36+00:00

Document:
Caroline Ciraolo, Principle Deputy Assistant Attorney General, Department of Justice Tax Division, made clear the importance of whistleblower counsel while speaking at the American Bar Association’s National Institute on Criminal Tax Fraud and Institute on Tax Controversy in Las Vegas. Ms. Ciraolo discussed her announcement earlier this year that the Tax Division would be interested in receiving information from whistleblower’s counsel about mandatory award claims under section 7623(b) that have been submitted to the IRS Whistleblower Office if the claim involves a criminal tax matter. Ms. Ciraolo cautioned that before bringing information to the Department of Justice that whistleblowers and their counsel should have serious discussions if the whistleblower participated in the reported conduct.
It is important for whistleblowers to fully understand any consequences that they may have prior to providing information to the IRS, be it liability for additional taxes or potential criminal liability for certain actions. As everyone’s situation is different this is something that should be discussed with an attorney prior to providing information to the government.
Ms. Ciraolo noted that the Tax Division will not be paying a separate award, nor will it be opening its own whistleblower office. However, the channels that are used to submit information about civil tax underpayments to the IRS can still be used for criminal tax matters.
[A] majority of claim closures in FYs 2015 and 2016 (83 and 85 percent, respectively) are rejected or denied before going to an operating division field group for an investigation or examination, with only a small portion (2 percent each year) resulting in an award. Most claims were rejected because the allegations were not specific enough for the IRS to take action or denied because the allegation was below the threshold to justify resources for compliance action.
We understand that about 85% of the submissions that the IRS Whistleblower Office receives are pro se filings, and the problem is that often those claims are speculative or are not developed enough for the IRS to use them as a basis for taking action. Of the remaining 15% on which the IRS does take action and passes the whistleblower’s information to the field agents for examination, approximately 2 out of every 15 are getting an award. We believe a whistleblower’s odds of getting an award can be significantly higher [than 13.333%] for a thoroughly vetted submission with good facts and good law that are clearly laid out. The hurdle of getting the IRS to take action in the first place is certainly a high one but then you have to deliver your information in a way that helps them win their case.
The TIGTA Report spent a lot of time looking at the procedures for the debriefing intake and the claim rejection processes, but in our view that is not the most material weakness of the IRS Whistleblower Program. The biggest weakness is that under the current claim processing system it is still far too easy for the IRS field examination divisions to simply walk away from a good case even when the facts and the law are on their side. Often people have a difficult time convincing the IRS to take even a slam dunk case, no matter how much it costs taxpayers if they give it up. Our mission is to set forth a whistleblower’s information in such a way that it not only convinces the IRS to take action, but it forms the solid foundation of a winning case once they do decide to take action.
IRS Releases an Overview of the Whistleblower Claims Process.
While there are no new procedural changes identified in the overview, this publication does provide a snapshot of the claims process for the uninitiated. In particular, the Process Timeline” flow chart on page 3 is a relatively realistic display of the timelines involved with the claims process. Of course, we could cite numerous, and I mean numerous with a capital N, exceptions to the timeline based on the cases we have seen and been involved with, this is still a good representation of how the claims process SHOULD work. Getting a claim through the system without snags is another story, and is something we work on every day. A copy of Publication 5251 can also be found on IRS.gov.
 For example, in theory the timeline shows the “Administrative Proceeding” starting at the time a payment is made but well before the IRS starts to wait simply for the period of limitations on refunds to expire before paying an award. In practice this has not been happening. This is particularly crucial because it is only the start of this Administrative Proceeding which would trigger the exception to the taxpayer rules of 6103(h)(4).
Section 7623(b)(1) is straightforward and written in expansive terms, namely, where, using information provided by the whistleblower, the Secretary proceeds with an administrative or judicial action regarding underpayments of tax or any action regarding the violation or, or conniving to violate, the internal revenue laws, the whistleblower is entitled to an award based on a percentage of the collected proceeds resulting from the Secretary’s action (as well as any related actions) or from any settlement in response to such action.
We are leery of arbitrarily limiting the meaning of an expansive and general term such as “collected proceeds”. In drafting section 7623(b)(1), Congress could have provided that the whistleblower’s award is to based on taxes and other amounts assessed and collected by the IRS under title 26. But it did not.
The Tax Court held that the phrase “collected proceeds” is sweeping in scope and is not limited to amounts assessed and collected under Title 26 of the United States Code. The Tax Court goes on to hold that criminal fines under Title 18 as well as civil forfeitures under Title 31 are both collected proceeds under section 7623(b)(1).
We had assumed that tax reserves would decrease because corporations would not want to report their uncertain tax positions to the government. This assumption seemed reasonable given the amount of concern and interest in the topic by practitioners. However, the total cumulative uncertain tax positions of the Fortune 500 has been reasonably stable, even increasing on the 2013 Ferraro 500. Using the 2010 Ferraro 500 as the base line measurement for pre-Schedule UTP reserves, as this data reflects uncertain tax positions that were reported in 10-Ks published prior June 15, 2010. As a whole the Fortune 500 has only reduced its tax reserves by 10.8 percent over the last five years.
The 2015 Ferraro 500 can be found here.
* The numbers is the chart are for the Federal government’s fiscal year, October 1 through September 30. Enforcement revenue collected in a fiscal year includes tax, interest, and penalties from multiple years.
Tax Court Rules that FBAR penalties are not “additional amounts” under section 7623(b)(5)(B).
Today the Tax Court released its opinion in Whistleblower 22716-13W v. Commissioner, holding that FBAR civil penalties are not “additional amounts” within the meaning of section 7623(b)(5)(B), and they are not “assessed, collected, … [or] paid in the same manner as taxes”; therefore, FBAR payments must be excluded in determining whether the $2,000,000 “amount in dispute requirement” has been satisfied.
This case appears to be the continuation of the saga of Whistleblower 22231-12W, whose petition to the Tax Court was dismissed for lack of jurisdiction because the IRS had not yet made a determination regarding his case. However, on September 6, 2013, the IRS Whistleblower Office issued a final determination letter informing the whistleblower that his claim relating to Taxpayer 1 had been denied. The letter stated that the claim had been denied because (1) the Government had obtained complete information about Taxpayer 1’s offshore accounts directly from the Swiss bank, without any assistance from petitioner; and (2) petitioner in any event could not qualify for a nondiscretionary award because his claim did not meet the $2,000,000 threshold in section 7623(b)(5)(B). Petitioner petitioned the Tax Court for review of this determination. Respondent moved for summary judgment on the basis of petitioner’s alleged failure to satisfy section 7623(b)(5)(B).
Judge Lauber’s opinion in this case gives a history of the Bank Secrecy Act, and FBAR penalties, and how enforcement of the Bank Secrecy Act came to be delegated to the IRS. From there the case moves on to an analysis of the language of section 7623(b)(5)(B), and specifically the meaning of “additional amounts.” The opinion traces the meaning of “additional amounts” throughout the Internal Revenue Code and how the Tax Court has interpreted this phrase in the past. The Court also looked to Williams v. Commissioner, where the Court ruled that FBAR penalties were not additional amounts for purposes of determining Tax Court jurisdiction to hear deficiency and CDP cases. Judge Lauber concludes that “additional amounts” as used in section 7623(b)(5)(B) means civil penalties set forth in chapter 68, subchapter A, and FBAR penalties are not among the tax penalties enumerated in that portion of the code.
The 2015 IRS Enforcement and Service Report issued this week reveals that both individual and corporate audit rates are declining, with the respective audit rates at a record low .84% and .60% of returns filed. This not only leaves tax dollars on the table for past years but also risks future taxpayer non-compliance by not spending adequate resources to enforce the tax laws as they are currently written.
CNBC: IRS Audit Rates of Large Corporations Hit 10-Year Low.
The Wall Street Journal: IRS Focuses Its Audits More on 1 Million Incomes.
CBS: Afraid of an IRS Audit? Here’s One Reason to Chill.
As it relates to whistleblower claims, we and the Treasury Inspector General for Tax Administration’s Office (“TIGTA”) continue to shout the message that pursuing information from whistleblower claims is among the most efficient uses of scarce enforcement resources. TIGTA’s own studies show that every dollar spent by the IRS on enforcement for whistleblower claims yields $6.88, whereas the normal enforcement return is four to one according to a November 2015 speech by Commissioner Koskinen. However, the reality is that there are less agents now than there were 10 years ago to audit more returns than ever, and the IRS is being very picky about what cases they select for audit and what issues they move forward with in those audits. This means that it is more important than ever that your whistleblower submission to the IRS be tight, concise, thorough, and persuasive to convince the IRS to take action in your case.
The IRS released its “Dirty Dozen” list of the worst tax scams of the year this month. The list is published each year by the IRS as a way to inform and warn taxpayers about the most common tax schemes they encounter during tax season.
While most of the Dirty Dozen list remains unchanged from 2015, there are a couple of notable changes. New to this year’s list is “Falsely Padding Deductions.” In the IRS news release from February 10, 2016, the Service warned taxpayers against the “temptation” to falsely overstate deductions or expenses. The release specifically calls out the practice of some taxpayers to inflate charitable contributions, or business expenses. The artificial inflation of business expenses is typically achieved either by overstating expense items throughout the tax year or improperly including, as a deductible business expense, expenses that are actually personal.
Finally, “Abusive Tax Shelters” made the Dirty Dozen again this year. IRS Commissioner John Koskinen warned taxpayers about the importance of avoiding “unscrupulous promoters who sell phony tax shelters with no real purpose other than to avoid paying what is owed.” Contained within this category were “Abusive Tax Structures,” “Misuse of Trusts,” and “Captive Insurance.” Addressing abusive tax structures, the IRS release noted that multiple flow-through entities are commonly used by taxpayers to “conceal the true nature and ownership of income and assets.” Along similar lines, the IRS called out certain uses of trusts in estate planning to avoid income tax liability and hide assets from creditors and the IRS. Lastly, the IRS warned against promoters of captive insurance schemes whereby promoters assist business owners in creating captive insurance companies that sell insurance policies to closely held entities. The goal of the scheme is to generate up to $1.2 million of premiums annually in order to take improper advantage of an income exclusion.
As with most things in life, if something appears “too good to be true,” it probably is. If you have encountered any of these tax schemes or have information pertaining to improper tax avoidance please contact the tax attorneys at The Ferraro Law Firm to discuss filing a claim for an award for providing this information to the IRS.
Today the IRS Whistleblower Office released their Annual Report to Congress for Fiscal Year 2015. According to the report, which has been substantially made-over in both appearance and content, the total amount of awards paid in fiscal 2015 was $103,486,677 before sequester’s 7.3% reduction. That number is impressive when compared to fiscal years 2014 and 2013 which were approximately $52 million and $54 million respectively. Based on that information, the award amount paid out in 2015 is almost double what it was for the year prior. As should be expected, more award payouts comes with more amounts collected by the IRS. According to Table 1 of the report the IRS collected over $501 million which was up from 2014’s $309 million collected. In even more good news for whistleblowers, awards paid as a percentage of amounts collected was 20.6% – the highest it has been in three years with 2014 and 2013 paying out 16.9% and 15.7% respectively. While 2015 was a welcomed increase in award payouts from prior years, 2016 could be even better. According to Table 2 of the report, there are 176 section 7623(b) claims currently in Preliminary Award Evaluation, a number which is up from the 11 reported in 2014’s annual report.
The report for 2015 is updated both in presentation and content. For example, this year’s report contains a “Message from the Director” as an introduction and summary of the year’s results which is a departure from the report’s historically rigid “Executive Summary.” The Message from the Director piece also includes a picture of Director Lee D. Martin set off beside the article-style recap of notable 2015 numbers, explanation of improvements (including the new style for the annual report), and calls for Congressional action. Even the cover of the annual report, which typically is just font on a blank page, incorporates a stars and stripes design below the title of the report.
This year’s report noted that over half of the rejected claims are rejected because the allegations made in the submission are “not specific, credible, or are speculative in nature.” This ties in with part of the Message from the Director which stated that although the IRS gets thousands of submissions each year, many of them are not actionable because the submission itself is not specific or credible. This fact highlights the importance of submitting whistleblower submissions to the IRS that are factually detailed and include on point and concise legal analysis that conveys credibility.
The lack of statutory protection of whistleblowers from retaliation.
The report gives a detailed description of the problems that the Taxpayer Advocate Service found with the operation of the whistleblower program. I recommend reading this section of the report as validation of observations that we have all made over the years. The discussion of the problems found includes some recommendations that the IRS could make on its own, which the Taxpayer Advocate Service believes would improve the administration of the whistleblower program.
Implicit in the response is the IRS’s position that once a whistleblower submits a claim, further communication with the whistleblower is appropriate only after the IRS determines to make an award (unless the IRS needs information from the whistleblower in the meantime). In view of the lengthy timeframes involved, this approach seems inconsistent with the IRS’s announced support for the whistleblower program and its commitment to finding ways of improving communication with whistleblowers.
Neither IRC § 6103 nor any other statute impedes the IRS and Treasury from defining a whistleblower “administrative proceeding” as beginning with the filing of Form 211, and the IRS and Treasury could revise the regulations under IRC § 7623 to allow annual or bi-annual notifications to whistleblowers with basic information, such as whether the claim resulted in an audit, whether an audit has been concluded, whether proceeds from the audit have been collected, and an estimated time within which the WO expects to send a preliminary award. This would allow the WO to retain significant discretion about what it will disclose and how early. As the WO develops procedures for making periodic updates, the IRS and Treasury could update the applicable regulations to define what and when the WO will disclose. However, these changes should not be adopted unless the appropriate regulations (whether under IRC § 6103 or IRC § 7623) are also revised to require whistleblowers who wish to receive status updates to execute confidentiality agreements that carry the statutory penalties imposed by IRC §§ 7431, 7213, and 7213A, and subject them to the safeguarding requirements of IRC § 6103(p).
Enact anti-retaliation legislation to protect tax whistleblowers.
Make unauthorized disclosures of return information by whistleblowers subject to penalties of IRC §§ 7431, 7213, and 7213A, substantially increase the amount of such penalties, and make whistleblowers subject to the safeguarding requirements of IRC § 6103(p).
Amend IRC §§ 7623 and 6103 to provide consistent treatment of recovered Foreign Account Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) penalties for whistleblower award purposes.
The suggestions would serve to address several of the long standing problems that continue to cause pause for potential whistleblowers as they weigh whether to provide information to the IRS. If these suggestions are implemented the whistleblowers would allow the IRS whistleblower program to operate more similarly to other whistleblower programs with protections that would be on par with the SEC, which can cover IRS whistleblowers in certain situations, and allow for similar updates and communications regarding the status of the claim. These changes would greatly improve the program and entice many whistleblowers that have been waiting on the sidelines with information to come forward.
*Footnotes have been omitted from all quotes from the TAS Annual Report.

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