Birkenfeld Was an Anomaly

The IRS is still not doing enough to attract whistleblowers and to move whistleblower cases along towards a resolution.

After the IRS awarded Bradley Birkenfeld $104 million for blowing the whistle on UBS last September, I wondered if there would be an increase in whistleblower cases, and there was.  But it was short-lived.  2012 actually saw a total of only 332 tips, down from 472 in 2009.  I also wondered if the Birkenfeld case represented a new era for the IRS Whistleblower Office and if we would continue to see handsome, timely payouts.  Well, if there have been payouts, the IRS isn’t making them public.  A private whistleblower award is almost pointless because it doesn’t spark the desire in others to come forward and it does nothing to deter would-be tax cheats.  So if we’re not hearing about awards, chances are they aren’t happening.

The IRS is a revenue collecting machine and the idea that “you have to spend money to make money” applies just as much to the IRS as it does in the business world.  The IRS understands this reality.  When the IRS pleads for more money for staffing they tend to cite the statistic about how the IRS is able to collect something like $194 for every dollar spent.  Why can’t they embrace this philosophy in other departments of the IRS?  They will collect more in the long term through voluntary compliance if they would just fix what is wrong with the Whistleblower Office.

2012 Whistleblower Awards Top $125 Million

This week the IRS announced that it paid out a total of $125 million in whistleblower claims during 2012 compared to only $8 million in 2011.  But this flashy statistic is not quite as incredible as you might think.  The IRS paid $104 million of that to a single whistleblower, Mr. Bradley Birkenfeld.  Birkenfeld was the guy who blew the whistle on USB which led to a $780 million settlement between the bank and the Federal Government.

If we exclude Birkenfeld, the IRS paid out $21 million in whistleblower claims last year.  Still pretty impressive, but not earth-shattering.  Perhaps a more telling statistic would be the number of whistleblower cases they closed or the average length.  The IRS is still taking far too long to complete their investigations — usually a few years from start to finish.  According to the Whistleblower Office’s annual report to congress, the typical whistleblower tax case sits in the “Award Evaluation” stage of review for 1141 days!

Perseverance Pays Off

It’s difficult to write about tax relief today after witnessing our beloved San Francisco Giants defeat the Detroit Tigers in a four-game World Series sweeeeeep!  What a dramatic series, and what an amazing season!  One of my favorite stories is that of Barry Zito, who didn’t even make the roster in the club’s 2010 World Series appearance.  He never gave up and battled back to become one of the KEY players in the Giants’ postseason.

Anyone who files a whistleblower claim must have similar tenacity and perseverance.  First it was Bradley Birkenfeld — who for his efforts and patience was awarded an unprecedented $104 million.  And now we hear of another whistleblower getting a cool $38 million from the IRS Whistleblower Office.  Only this time we don’t know the guy’s name and we don’t know the name of the firm with the illegal (or overly-aggressive) tax relief plots.  It is IRS policy to keep these details private so the individual may continue to work and maintain a somewhat normal life.  We only know about Birkenfeld because he agreed to allow the details to be publicized.

We have, however, heard from the whistleblower’s attorney who has expressed how pleased he is that the IRS has been able to keep things on the down low.  He gives the Whistleblower Office brownie points (1) for actually following through on a whistleblower payout, and (2) for doing so in a professional manner.

Lots of Whistles Being Blown in Wake of Birkenfeld Payout

IRS paid fat stacks to Bradley Birkenfeld for blowing the whistle on UBS. Image courtesy of

As predicted, the recent $104 million IRS whistleblower payout awarded to Bradley Birkenfeld has resulted in an uptick in new whistleblower claims.  So say the tax attorneys who handle these sorts of cases.

And why would you need an attorney to help you “blow the whistle”?  That’s a very good question.  Often times the whistleblower is not 100% fault free himself, as was the case for Mr. Birkenfeld, who spent time in prison for his misdeeds before the IRS made him rich.  Also there’s the fact that the IRS has a reputation for not making good on its promises of remuneration, or taking an inordinate amount of time to do so.  A whistleblower attorney can help cut through red tape almost as effectively as a tax relief attorney can help you resolve tax debt.  The IRS is trying to change its image, however, and the Birkenfeld case has been a public relations “grand slam.”

Apparently these new whistleblower inquiries are not garbage either.  According to one lawyer, people are coming forward with some high-quality information.

SEC Whistleblower Standards are Higher than IRS

Like the IRS, the SEC also has a whistleblower program.  However, the SEC whistleblower program, initiated just over a year ago, would not have paid out an award to the likes of Mr. Birkenfeld.  Birkenfeld withheld important information from federal prosecutors in the case, which led to a felony conviction and two and a half years in prison.

What do you think?  Should the IRS have paid Birkenfeld even though he had “dirty hands”?

IRS Promises to Start Showing Whistleblowers Some Love

photo courtesy of

The IRS appreciates getting tips that help them catch people who seek tax relief illegally, but they haven’t done a very good job of showing it over the years.  The relationship between the IRS and whistleblowers has been strained, to say the least.

The IRS Whistleblower Office was established in 2007, and for all we know it was set up in an empty warehouse staffed by crickets.  The Whistleblower Office is notorious for dragging out cases far too long, failing to communicate with whistleblowers to obtain key information, not reaching the correct decision on cases, and not paying out when the decision is favorable for the whistleblower.

However, in a June 20th memorandum, the IRS declared that it would make some concrete improvements to the Whistleblower Program (outlined below).

“Let’s Kiss & Make up”:

  1. Improve communication with whistleblowers by debriefing in most cases
  2. Act on cases in a timely manner
  3. Comprehensive review of Whistleblower Office procedures
  4. Established interim guidelines imposing 90-day deadlines at key stages of the review process

AND, if you happen to be an “external stakeholder,” (whoever that might be) then the IRS says it will be working with you to establish more permanent guidelines.



TIGTA Recommendations Need More Teeth

It would seem that TIGTA’s “recommendations” to the IRS have fallen on deaf ears at times.  Perhaps TIGTA needs to be given greater authority so it can lay down some consequences for non-compliance.  Taxpayers face stinging consequences like the bank levy and wage garnishment for failing to abide by our tax laws, but all the IRS has to fear is yet another unfavorable audit report — no more than a slap on the hand.

The Whistleblower program, as we know it, was established in 2007; the same year a separate Whistleblower Office was created.  Two years later TIGTA identified some problems with the program and made its recommendations.  In an audit report made public today, TIGTA states that the IRS still hasn’t complied with the changes that were suggested in 2009.

These are some of the recommendations that the IRS ignored:

  • establish timeliness standards for processing of whistleblower claims
  • establish a quality review process
  • correction of inaccurate data revealed in the 2009 audit

By far my favorite snippet from the audit summary:

“In the prior report [2009], TIGTA found that information captured on three inventory systems was inaccurate. In this review [2012], auditors determined that employees manually transferred claim information from the three systems into a single inventory control system, Entellitrak.  However, IRS officials did not ensure steps were taken to reconcile and correct the inaccurate information that was reported in our Fiscal Year 2009 review.”

This is too good!  The way I read this it’s like the IRS swept the problem under the proverbial rug.  Instead of fixing the problem, they just moved it to a different spot.  This is a familiar approach to problem-solving that trickles down to the IRS call center employees.  They’re punching in and punching out with no real sense of accountability for the quality of their work.

Blowing the Whistle on the Whistleblower Office

The IRS Whistleblower Office, as we know it, was set in motion by legislation written by Senator Chuck Grassley, R-Iowa back in 2006.  Slow motion that is.  And Chuck is not happy.

Senator Grassley recently penned a stern letter to the Commish and Treasury Secretary Tim Geithner asking them to kindly fix whatever is broken at Whistleblower headquarters.  It’s the same story: they are taking too long to process these cases, and whistleblowers are patient, but they begin to lose faith in the system as the months and years pass on their claims without compensation.   If they don’t straighten things out over there, the IRS is going to miss out on a big opportunity to collect the tax debt of some of the biggest tax cheats in the country.  Whistleblowers will just stop coming forward.

According to reports, Grassley’s letter may have been prompted by recent intel that the director of the whistleblower program had spent time as a panelist at the Offshore Alert Conference — an errand seemingly outside the scope of his duties.  He can’t be abandoning his post for gigs like this given the current backlog of cases!  Of course, it probably doesn’t help his case knowing that the conference was held at the Ritz Carlton in Miami Beach!

The “Common Cause” Whistleblower Case

You may have heard about the complaint filed by Common Cause against American Legislative Exchange Council (ALEC) asking the IRS to drop the organization’s tax-exempt status for engaging in lobbying activities.  What you may not know is this complaint was filed under the 145-year-old whistleblower provisions now codified in 26 USC 7623.

Has ALEC been exploiting the tax relief available to non-profits?

Common Cause is characterizing ALEC ‘s activities as an improper tax scheme and is asking the IRS to investigate and assess all taxes due.  If taxes are in fact collected from ALEC, it would seem that Dr. Robert W. Edgar, the president and CEO of Common Cause, stands to gain a large sum of money.  One of the requirements under the whistleblower statute is that the complaint be filed by an individual, and it appears to have been filed on behalf of Dr. Edgar.  Under the 2006 amendments to the whistleblower statute, the maximum award is 15% of the taxes and penalties collected (capped at $10 million).

So far ALEC has responded to the allegations by calling them a “harassment tactic.”

“[I]t’s clear to me that this is a tired campaign to abuse the legal system, distort the facts and tarnish the reputation of ideological foes….Without question, Common Cause is a partisan front group masquerading as an ethics watchdog.

~ Alan P. Dye, attorney for ALEC

IRS Whistleblower Payouts Often Take Seven Years

Deciding to expose the criminal activities of your colleagues is not easy.  Whistleblowers probably grapple with the pros and cons over a period of weeks or months.  Will I lose all respect in my community?  Will I get fired?  Will they deny it?  Will it completely ruin my career?  Will I be implicated if I don’t speak up?  How could I live with myself if I were to keep quiet.

In 2006, Congress passed a law which allows the IRS to reward whistleblowers who expose tax cheats.  Therefore, in the context of tax fraud and tax crimes, there is another layer of questions to consider: will the reward help to offset the negative consequences?  Six years later many whistleblowers are still waiting for an answer to this question because of the IRS’ inaction.  I suppose it should come as no surprise that the IRS is really good at collecting money, but very bad at paying it out.

Such is the case of Joseph Insigna, former executive at Rabobank Group, who exposed his employer for helping several U.S. companies avoid paying taxes.  Insigna filed his whistleblower claim in 2007 and to this date there is still no word from the IRS about whether or not he has a compensable claim.  His patience has finally run thin and he has, with the help of a tax attorney, filed a lawsuit against the IRS to see if he can finally get a determination.