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IRS Threatens to Weaken Whistleblower Program

The Internal Revenue Service (IRS) has proposed regulations that would “hamstring” its whistleblower program, according to Senator Charles Grassley (R-IA), a longtime champion of whistleblowers.

Last month, the Project On Government Oversight (POGO) echoed Senator Grassley’s concerns in a comment letter to the IRS, which the Government Accountability Project (GAP) also joined.

Legislation authored by Senator Grassley in 2006 enabled the IRS to offer a financial award to people who blow the whistle on Americans hiding money from the tax collector. The IRS program is modeled after the False Claims Act, which has recovered $35 billion for taxpayers since 1986.

But the program will only work if whistleblowers are encouraged to come forward. According to Senator Grassley, the IRS’s regulations would do just the opposite.

One proposal would “unduly limit the scope of the program,” he warned, by excluding whistleblower tips “relating to undisclosed foreign bank accounts” if the information does not “directly [relate] to the underpayments themselves.”

Another proposal could “drastically limit the number of corporate whistleblowers,” he said, because it allows the IRS to “claim that the information provided dealt with a topic that was covered in a regularly scheduled IRS audit,” and therefore does not qualify for an award.

Elsewhere in the proposal, the IRS cautioned that awards may be reduced for whistleblowers who “planned and initiated the tax fraud,” even if they only “[k]new or had reason to know that there were tax implications to planning and initiating the underlying act.”

“There is a delicate balance that needs to be struck between weeding out bad actors while not discouraging knowledgeable insiders from coming forward,” Senator Grassley said, and the proposal “fails to properly strike this delicate balance.”

POGO and GAP also raised concerns about a senior IRS official, William Wilkins, who used to lobby the IRS and other agencies on behalf of the Swiss Bankers Association. We asked the IRS to restrict Wilkins from working on the proposal. “Swiss banks such as UBS have been at the center of tax evasion scandals and have a major stake in the IRS’s whistleblower regulations,” the letter said.

We urged the IRS to amend the regulations so that they “expand, not limit, the opportunities for whistleblowers to come forward.”

“At a time when the IRS is struggling with a heavy workload and limited resources, the agency should be doing everything it can to incentivize and protect corporate insiders who are in the position to blow the whistle on tax fraud,” the letter said.

The IRS will be holding a public hearing on April 10 to discuss the proposed regulations.

By: Michael Smallberg
Investigator, POGO

Michael Smallberg, Investigator Michael Smallberg is an investigator for the Project On Government Oversight. Michael's investigations center on oversight of the financial sector.

Topics: Whistleblower Protections

Related Content: Financial Oversight

Authors: Michael Smallberg

Submitted by FCA Aficionado at: May 11, 2014
Would be a dream if there was a section of government capable of doing the job expected if it, but anybody thinking the IRS Whistleblower program is operating as intended will be sadly mistaken. The Keystone Kops of the WBO can't fulfill their mission and the IRS' bureaucracy doesn't want them to. Part 1) The IRS Whistleblower program is moribund. It would almost be more productive to submit a WB tip into a black hole. The IRS complains about a shortage of personnel resources but instead of leveraging WB's tips, it instead handicaps this potential source through sluggishness, incompetence and disincentivising policies. If good enforcement is efficient enforcement, then why does the IRS systematically disincentivize one of the largest potential sources of information that will help them target large scale tax cheats? Doing the right thing is essential to the orderly operation of a free and law-abiding society. Studies repeatedly show most white collar fraud investigations start with a WB's tip. However, WB's can be forgiven for not martyring themselves and risking their family's well-being in an attempt to help law-enforcement, especially when there are so many WB's broken via fraudster retaliation and few properly functioning retaliation remedies, recoveries, or rewards nowadays through law (excepting for FCA qui tam relators) or tax enforcement bodies. No potential WB who's seen what has happened to those who blew the whistle before can be blamed for deciding it is better to hang one's head and move on than to try and right a wrong. There are just too many disincentives, enforcement-fails, or corrupted initiatives (like the IRS WB program, which with every annual report to Congress, increasingly reveals itself as a pernicious pretentious charade.) I am probably the poster child of what Sen. Grassley has feared coming to pass: The IRS WB initiative dying the death of a thousand disincentivising cuts by driving off that which it was established to leverage. Potential WB’s, like myself, who have taken an analytical wait and see approach to the development of the IRS’ WB program, can not be encouraged by the WBO’s 2013 Report (which itself runs less than 30 pages, a vast portion of which is copy/paste from last year’s report, is still wonderfully opaque and took 6 months to produce – talk about a prime indicator of the lack of vigor, attention and priority given to this program.) Suffering retaliation from my employer, damage to my career and professional relationships, and my family’s well-being, by trying to prevent my management from perpetrating fraud, with no subsequent remedy available (as under FCA), has made me loath (translation: afraid) to approach the WB office given their track-record and that the IRS Chief Counsel’s proposed reward regulations seem to codify a game rigged against an expansive view of calculating WB rewards (and to add insult to injury, the IRS claws back massive portions of any long-delayed and scrupulously minimized rewards by deducting a Sequester Surcharge of 7.2% and then taxes the remainder at ~30%). Anybody who has ever had a conversation with the WBO like I had, would be forgiven for thinking they had called into an ADD-affected college surf or pizza shop for the lack of professionalism and knowledge displayed by the folks that I spoke to. (This in severe contrast to my previous calls into competent helpful folks at the IRS’ general 800-number.) (Continued) Part 2) Despite the departures of former Chief Counsel Korb (who famously said “The IRS didn’t ask for these rules; they were forced on it by the Congress”), former Commissioner Schulman and former Director of Enforcement and disgraced Commissioner Miller, it is hard to see any kind of sea change in the institutional resistance or the bureaucrats' apparent viewpoint that, sans whistleblowers, they already possess all the tools necessary (and given infinite time) to find all non-compliances. Despite the ascension of self-avowed "whistleblower fan" Koskinen to the Commissioner's chair, is difficult to detect new institutional enthusiasm for, or a desire to cooperate with, a resource that solely benefits the public fisc. Rather, it feels as if slow-walking and deliberate barriers are intended to discourage that resource from embarrassing the Service by reminding the public that some frauds are not possible to discover, contour or prosecute without the help of a WB. Even that grand old man, the congressional patron of WB’s everywhere, Sen. Grassley, released a very mild statement on the WBO's lackluster 2013 report. It seems as if the Service (in a strategy of frustration, fatigue and waiting-out biological inevitability, or maybe just plain bungling and dumb luck) has finally bested this old warhorse and he is giving up. Much rhetoric is devoted to the importance of the WB programs, but over the last 4 years, there are so few successes and no real actions to optimize legislation to improve protections and incentives and to remove barriers. Sure, Sen. G. has coerced commitments from IRS honchos by putting holds on nominees, but such tactual action is non-sustainable opportunism and can't replace strong strategic legislation. (Nor does it obviate the growing impression that the Service is engaged in a form of malicious compliance while the Congress has run out of gas.) Suggestions for Improvement: 1. Anti-retaliation remedy for any WB making a new submission to the WBO. As under FCA allow WB to be made whole if WB acted in good faith to prevent fraud and suffered as a result of this (regardless of whether there are collected proceeds). Don’t subject this provision to a shorter statute of limitations than the crime it is related to. 2. Force the Service to utilize an expansive reward compensation and Related Proceeds calculation scheme, rather than the stingy and disincentivizing scheme that seems sure to drop any day now; 3. Communications outreach plan? From the organization that seems so adept at hiding its lamp under a bushel? (Go to the IRS’ homepage, where is the link to the WBO?). Best communications outreach are strong protections and incentives for potential WB’s as well as delivering on these in a very generous and timely way. Good would be for Mr. Whitlock to start by hanging out his shingle on the IRS’s homepage (as per SEC’s example) and 1040′s, and to robustly declare the WBO as “Open For Business”; 4. Fix the code to: a) index all penalties for inflation (effective back to the date the penalty was enacted); b) increase the penalty for tax fraud from 75%, to parallel the civil treble damage fines used under the FCA; c) require the Service to amend WBO submission Form 211 to incorporate by reference the responsibility for each WB (and counsel) to be bound by the obligations of the Service’s 6103(n) non-disclosure agreement. Revise the “infrequent and unusual” language from the JCT to authorize “frequent and normal”, to eliminate this as a justification by the IRS for avoiding using 6103(n) NDA’s, and promote “frequent, normal and expected” as the IRS’ new rules for WB engagement; d) make deep engagement and utilization of the WB in investigations a part of each IRS employee’s compensation package. e) revise the tax code to name and shame those brought to justice as a result of a WB’s input. Such action should not be reserved to only those tax scofflaws who have been brought to justice under criminal statutes. Downstream benefits: 1) tax-fraudster deterrence, 2) WB encouragement, and 3) Improved WBO annual report due to less aggregation of data); f) building on e) above, require the WBO to write a synopsis of each recovery due to a WB tip and release these as a press release, then include these in a case-study manual for potential WB’s, such that individuals can be made aware of how schemes are perpetrated be in the lookout for such activity; g) limit the Service’s discretion for reducing or eliminating fines, fees, penalties and interest for tax scofflaws brought to justice due to a WB’s input; h) revise the Victims of Crime statutes to allow WB’s a share of all fines, recoveries, restitution ordered due to a criminal prosecution in conjunction with a WB’s input; i) revise IRC to eliminate taxation of WB rewards (if we want to encourage a universal ethic that whistleblowing is socially beneficial, eliminating this 30% hit should apply to all government-sanctioned WB rewards.); j) enact legislation exempting WB rewards from the 7.2% Sequester Surcharge. (Continued) Part 3/3) The WB system as it is is being abused and frustrated by the IRS culture from top to bottom and from input thru output. What kind of committed and competent enterprise fails to pick low-hanging fruit (or does) but just leaves it to rot? This is the result when the IRS closes WB files because of "lack of resources" or "too short statute of limitations" (despite having policies to extend the SOL with the TP's consent. What should be a closed-loop virtuous cycle resulting in more and better WB submissions and less tax scofflawism, begins and ends with strong anti-retaliation remedies, fat incentives, seamless communication and expeditiously competent processing of WB’s tips, not the polar-opposite approach in use today. Whether the current situation is mostly due to bureaucratic sluggishness, institutional enmity, leadership malfeasance, incompetence, overwork, or congressional neglect is hard to say, but each of these disincentives are in play and being placed before WB’s by both the IRS AND the Congress. Unless real reforms and further optimizations of the protections, rewards and procedures relating to the Service’s WB program are (again) forced upon it by Congress, nothing will change in terms of IRS commitment and involvement or in terms of recovery and deterrence. Until something drastically changes, nothing can change for citizens such as myself that see the personal risks as too great to come forward. I am very disappointed in my government's administrative and legislative branches for practicing bait-and-switch and demolition via neglect respectively. The failure of the WBO program (and this points directly to the dolts, where found and as appropriate, in the Commissioner’s Office, the Chief Counsel’s Office, the WB Office and the rest of the IRS’ bureaucracy in general) well reflects my mashed-up adage of: “He who knows the price of everything but the value of nothing, Is destined to be both penny-wise and pound foolish” This is the ethic that has killed the IRS WB Program. p.s. For kicks, please read the following article from 2006 and see how little has changed: [Link] Thanks and regards, the erstwhile hopeful IRS whistleblower, FCA Aficionado Sun, 11 May 2014 01:58 CDT
Submitted by Roy J. Meidinger at: October 24, 2013
Each of the Whistleblower attorneys have an opinion on the legal issues brought up in This appeals case, but they do not count, unless you submit an Amicus Curie brief to the Appeals Court; Appeal No. 13-14122-E. Any lack of support now will probably cause you future problems in the future. These are the points you should support: a. The Tax Court has the authority and responsibility to investigate all facets, facts, actions, effects, conclusions and correct the situation if any errors occurred. b. Congress enacted the Tucker Act and the Administrative Procedures Act which gave protections to the citizens, the acts guarantee the separation of powers of the Executive Branch and the Judicial Branches are maintained; and all the actions of agencies of the United States Government could be judged by the Courts. The intent of Congress shows that all of the actions of the IRS fall under the scrutiny of the Tax Court. c. In reporting income using the accrual method, it is the right to receive income, and not the actual receipt, that determines inclusion of the amount in gross income. d. An implied contract is formed and the right of revue by the Tax Court, when the Whistleblower Office sends a notice of acceptance, with a claim number. e. The Whistleblower Office has the responsibility of giving a clear reason of why a claim was rejected, including copies of the Whistleblower Office form 11369. f. If the claim is brought to the tax Court review, the information shared are subject to the Tax Court rules of discovery and the Petitioner is not subject to IRC § 6103, which is only meant for federal employees. g. The Tax Court has jurisdiction to compel the IRS to specifically perform contractual obligations, analyze, audit, investigate and to collect taxes. h. Like any citizen, the Internal Revenue Service cannot file a motion with the tax court prior to an audit, not to collect taxes or perform a proper investigation. i. When a new contract is clean, with no contingencies listed, and stands alone, parole evidence may not be introduced to change its considerations. j. The Whistleblower Office must obey its own procedures. k. The Whistleblower Office must be held for damages when the damages are caused by its own delays. l. The base of the reward is 30%, with specified reasons to lower it to 15%. m. In the appellant’s opinion a judicial error was made, if the tax courts do not have the authority or jurisdiction to review or correct the determination made by the IRS, then the tax court should have recused itself and made no decision, rather than make a final decision in favor of the IRS, based on the fact it had no authority, this is not justice for the people. Therefore by making a decision the tax Court is saying it has the authority. The following is a link to the Whistleblower’s appeals brief, Appeal No. 13-14122-E for which he is seeking damages of over a trillion dollars and a reward of several trillion dollars. Although the amounts are very, very, very, large, the legal consequences of a bad ruling may damage your future cases. Please file a supporting brief to the legal questions raised. Copy of Brief
Submitted by somebody at: May 7, 2013
I work for an employer that is reporting "per diem" improperly. I've calculated that this company is paying no less then 15k per year less in payroll taxes then required by law. The whistle blower program doesn't pay the informant unless $2 million or more is discovered to be unpayed in a calendar year. In the field of employment that I'm in this is a common occurrence. There is no incentive to report these kinds of employers.
Submitted by Roy J. Meidinger at: March 23, 2013
Re: Docket No. 016513-12 The following letter has opened an investigation by the Treasury Inspector General for Tax Administration, Complaint No. 55-1302-0029-C: Roy J. Meidinger 14893 American Eagle Ct. Fort Myers, Florida 33912 Tel No. 1-239-694-5597 March 3, 2013 Joint Committee On Taxation To all Committee Members Washington D.C. To whom it may concern; The LMSB Control No.: LMSB-04-0807-056, Impacted IRM 4.51.2, was written to cover up the gross negligence of the IRS of not collecting taxes in the Health Care Industry, of Approximately a Trillion Dollars a year. This document eliminates forgiveness of debt income, bribes, and kickbacks and allows the Hospitals to write off these illegal payments. The document goes against the Constitutional guarantees that all individuals be treated equally under the law, especially the tax laws. In the Health Care Industry all private pay patients are to be treated the same and billed the same for the same services. This is guaranteed by both the State and Federal Antitrust laws and the Social Security Law, under Medicare/Medicaid Programs. These billed amounts are certified correct, when sent to third party payers, by the use of the Uniform Billing Form, UB 04, which if false is subject to fine or imprisonment or both, for every insured patient’s bill submitted. In our legal system and under the Internal Revenue code for accrual accounting a bill is a Promissory Note, with the amount listed on it a material fact and the legal obligation. If a legal discount is to be given it must be listed on the bill at the time of issuance and the net amount listed on the bill. The amount listed on the bill is the recognized revenue for tax purposes. The LMSB document deals with the use of the “Contract Adjustment “accounting procedures. The idea is the health insurance companies bring their members to the hospital and receive a bulk discount because of lowered cost. This is a partial truth and partially false, it is true the more patients a hospital has can lower the average cost of handling services for all patients, also known as economy of scale, but the important point is all patients’ costs go down because it is an average cost, also known as overhead absorption. The health care laws and the State and Federal Price Discrimination laws are very specific in order not to shift costs to one patient all group of patients all patients must be charged the same Price to Cost ratio. Therefore, all patients are charged the same price for the same services and have the same legal obligation. The law that created the HMO’s and PPO’s, Title 42, Chapter 6A, Subchapter XI, § 300e. Requirements of Health Maintenance Organizations: (7) is quite specific in its contractual requirements; It says the health insurance companies must fully pay the legal obligation of its members when they use the services of a hospital the insurance company has a contract with. The insured member of the HMO or PPO is charged the same amount as a non-insured patient and has the same legal obligation. The LMSB makes null and void the Law passed by Congress and therefore makes the IRS more powerful than Congress. The LMSB document goes on to say it is okay to use the contract adjustment methodology, which was meant only for the federal programs like Medicare and Medicaid, for the private side of the business when there is a legal contract in place between the hospital and the health insurance company. But, the IRS Whistleblower office refuses to investigate a single contract to see if they are legal and challenge them in court. If they were to investigate they would find them completely illegal. The contracts call for the following: a. Both parties have signed an agreement to substantially increase the members co-payment if the member uses a health care provider not a member of the insurance companies network, which is financial coercion, price discrimination and are felonies; b. The contract says the hospital will be the only provider in a particular region and the members will encouraged to boycott other health care providers. c. The contract says all the patients will be charged the high “customary charge” for all services, even the non-insured patients which is price fixing and a felony. d. You can determine from the contract the compensation paid to the health insurance companies is a kickback of 85% or more of the debt and the compensation given to the hospital is financial coercion of its members to use the hospital services; e. You can also see that both parties benefit from the use of high bill by getting higher payments for the hospital and higher premiums for the insurance companies. f. The contract does not purchase any medical supplies or medical services or guaranty any number of patients. The Whistleblower Office has used this LMSB document as an excuse to do nothing, not a single investigation has been made, even though the New Whistleblower Law says every claim must be investigated. The Whistleblower Office did not hold an administrative hearing or give a cause for not pursuing the claim when both of these requirements are required by law. It is up to this Committee to fix these problems or Recommend to Congress that the Accrual Method of Accounting will no longer be accepted by the Internal Revenue Service and that all bills made in the future will have no meaning for determining any legal obligations or to be used for tax purposes. The IRS is allowing the Health Care Industry to establish its own accounting methodology, say which bills are real and which amounts must be paid and what the tax liabilities are. There are major players involved in this cover up of the Internal Revenue Services’ gross negligence and I hope you uncover all the people responsible. Please contact me with your findings and let me know what actions you are taking. Roy J. Meidinger /s/
Submitted by Roy J. Meidinger at: March 23, 2013
The new proposals being offered by the IRS go beyond just excluding identifying non-compliant taxpayers hiding revenue overseas, it will also eliminate the rights of Whistleblowers when the IRS decides not to procede wth a claim, because the Whistleblower Office has not sent out an award letter. Dear Ladies and Gentlemen In reviewing the documentation which is offered by the IRS, I am making the following suggestion, prepare a uniform contract for all disclosures and have it signed by the Whistleblower Office before any documentation is given. You have rights. In the documentation specify when the contract goes into effect, i.e. when the Whistleblower Office accepts the the contract and gives you a claim number. Specify the amount of time they have to start an investigation. Specify the percentage of the reward you will receive. Specify the Whistleblower office must be forth coming with all information and tell you why, give the cause for not proceding; this is a requirement of the Administrative procedures act. Specify the Whistleblower Office is subject to the Tucker Act. An important point of the new Whistleblower Law is that the IRS has two investigations it can perform, one is the Administrative investigation and the other is a Criminal investigation, under the Whistleblower Law the IRS must do one or both of these investigations, please specify this information in your contract. You must also include a statement that any funds recovered from your information or leads you provide the Whistleblower must be rewarded. Please write up a uniform contract so that all whistleblowers can use it. Thank you Roy
Submitted by Dfens at: March 20, 2013
Could someone please point out to me where in the US Constitution the Internal Revenue Service was authorized? The fact of the matter is, it's not in there. The very existence of the IRS threatens our liberties. If the government can create a "police force" based solely on an act of collusion between the 3 branches, and give them control of every cent or item of wealth you or I make or own, then what is beyond them? What constitution or law can possibly constrain them?

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