Recent Developments: IRS Whistleblowers

In a famous case, Bradley C. Birkenfeld was awarded the largest whistleblower award in U.S. history – a $104 million payout from the IRS in 2012. Birkenfeld was credited with providing information about a UBS program designed to help US taxpayers hide assets in Switzerland to the IRS that reportedly led to the recovery of $5 billion in unpaid taxes and $780 million in fines to UBS to resolve criminal charges. This case set precedents on who can benefit monetarily from IRS Whistleblower statute and paid a whooping sum in reward to a convicted criminal. Spurred by this case, the number of claims filed have increased steadily over the years but the amount of awards paid has seen a decrease in 2014 as compared to the previous year.

The year 2014 saw 14,365 claims received and 8682 claims opened.1 In the year 2013, 9268 claims were received and 5417 claims were opened, making the number of cases filed roughly sevenfold more as compared to the same figures for the year 2007. According to the Tax Whistleblower Report, there were 101 awards paid in FY 2014 which is down from 2013’s 122 and 2012’s 128. The total amounts of awards paid in 2014 was down slightly from 2013 at $52,281,628 (from $53,054,302 in 2013). However, collections of $2 million were up in 2014 to 9 from 6 in 2013. Also the awards paid as a percentage of amounts collected was up to 16.9% in 2014 which is a nice increase from 14.6% in 2013.

In 2014, sequester required reductions that were 7.2% of the amount that would have otherwise been payable as per the sequestration requirements of the Balanced Budget and Emergency Deficit Control Act of 1985 (“BBEDCA”). Reductions totaling $3,764,722 were applied to awards paid during FY 2014. Thus, the total amount of payments, after reduction, was $48,516,906. In 2013, roughly 14.6% of the $367,042,420 was collected. These payments were reduced by $464,706 per the BBEDCA.

The report cited that a total of 238 claims were closed in FY 2014 as a result of awards being paid in full. That number is significantly increased from the number reported in the 2013 report, where only 130 awards were paid in full

For the 2015 fiscal year, all awards are subject to mandatory reduction by the 7.2% sequestration rate per the BBEDCA, as amended. This affects cases filed on or after October 1, 2013 and on or before September 30, 2014.

According to the FY 2014 Tax Whistleblower report the law does not provide the same whistleblower protection provisions that other whistleblower laws do encouraging information disclosure. The report notes that “Rules on access to and disclosure of taxpayer information could provide stronger protection for taxpayers.” – Noting two concerns:

  1. Current law does not provide a sanction if a whistleblower discloses taxpayer information in violation of a confidentiality agreement and 6103(h).
  2. The whistleblower may disclose the identity of the taxpayer in Tax Court or other judicial proceeding.
    • The report notes that the second concern was addressed in a revision to Tax Court Rule 345 which now requires the taxpayer information to be masked in documents filed with the Court.
  3. As a third (3) concern – the report states that “release of information during discovery in Tax Court proceedings is not addressed in the new rules and has brought a new set of concerns.” (p. 7).

It was noted that the President’s FY 2014 Budget has included a legislative proposal to address this issue by providing a sanction for disclosure of taxpayer information obtained from the IRS as part of the award claim process.

1 See Fiscal Year 2014 Tax Whistleblower Report

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