$22 Million Whistleblower Award

$22 Million Whistleblower Award for Company Insider Who Helped Uncover Fraud
FOR IMMEDIATE RELEASE
2016-172
Washington D.C., Aug. 30, 2016 —

The Securities and Exchange Commission today announced the award of more than $22 million to a whistleblower whose detailed tip and extensive assistance helped the agency halt a well-hidden fraud at the company where the whistleblower worked.

The $22 million-plus award is the second-largest total the SEC has awarded a whistleblower. The largest, $30 million, was awarded in 2014.

“Company employees are in unique positions behind-the-scenes to unravel complex or deeply buried wrongdoing. Without this whistleblower’s courage, information, and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own,”

— said Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower

The SEC’s whistleblower program, which has been rewarding valuable information from tipsters since its inception in 2011, has now surpassed $100 million in total money awarded. More than $107 million has been awarded to 33 whistleblowers who became eligible for an award by voluntarily providing the SEC with original and useful information that led to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip: www.sec.gov/whistleblower.

Does The IRS Really Support the Tax Whistleblower Program?

The answer to this question is….not a clear yes or clear no.  Like all of us, the IRS must follow the law.  Whether it supports, or not supports, the tax whistleblower program, the IRS can only do what Congress has authorized it to do.  In the end, its actions speak louder than words and give us a clue as to whether or not it supports the program.

The Whistleblower Program was amended and changed in 2006 with the enacted by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, sec. 406, 120 Stat. at 2958. The Whistleblower statute (IRC § 7623) contains no more than 640 words and is subject to interpretation.  Whistleblowers tend to interpret this statute broadly while the IRS interprets it narrowly.  IRS justification might be that it interprets the statute very narrowly in fear that it might pay an award for which it does not have authority to do so.

As an example, the whistleblower statute, IRC § 7623(b)(1) states that the IRS shall pay an

““award of at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.” ”

 The IRS, despite telling Congress and the American public that it supports the whistleblower program, obtained legal advice from the Office of Chief Counsel (IRS legal counsel), which advised it that “collected proceeds” did not include criminal penalties or civil forfeitures for which the IRS might be responsible for determining and collecting.  This often occurred with cases involving taxpayers’ with offshore bank accounts (FBAR penalties) and other criminal tax matters.

In 2010 the Internal Revenue Manual was amended and in 2014, Treasury Regulations were issued that made clear that the IRS did not consider criminal penalties under Title 18 (Crimes and Criminal Procedure) or Title 31 (Money and Finance) collected proceeds and therefore, it would not pay an award on “collected proceeds” from penalties collected under laws other than the Internal Revenue Code. 

In the recently decided case of Whistleblower 21276-13W, Petitioner v. Commissioner, 147 TC No. 4 (August 3, 2016), the United States Tax Court had no trouble in deciding that a whistleblower was entitled to an award based upon a criminal penalty and civil forfeiture that might be imposed outside the Internal Revenue Code (i.e. Title 26).  The court determined that Congress did not intend to limit a whistleblower award should the IRS pursue an action, even if it amounted to a penalty which was not ultimately paid to the IRS.

Conclusion

Again, the actions of the IRS will dictate whether it supports the Tax Whistleblower Program.  The IRS now has court authority (i.e. precedent) to support paying individuals that provide information to the IRS with respect to money laundering crimes, offshore bank accounts, etc.  Will the IRS appeal the recent court’s decision?  If the IRS intends to appeal the decision, it must file a Notice of Appeal within 90 days after the decision is entered. 

Actions speak louder than words.  Therefore, if the IRS does appeal the Court’s decision, Congress and the American public will be told loud and clear that the IRS does not support the Tax Whistleblower program.  As a result, whistleblowers will be alerted as to whether their pending claims will be treated fairly or whether the IRS intends to continue to minimize a whistleblower’s reward.

Historic Win for Tax Whistleblowers

FOR MORE INFORMATION, CONTACT:
Mary Jane Wilmoth
National Whistleblower Center
(202) 342-1903
mjw@whistleblowers.org
http://www.whistleblowers.org

Editorial For Immediate Release

Four-Year Campaign Results In Historic-Win For Tax Whistleblowers

On August 3, 2016 the U.S. Tax Court ruled that tax whistleblowers were entitled to a reward based on monies collected in criminal fines and penalties. This landmark decision reversed the position of the Department of Treasury that severely limited the “collected proceeds” upon which a whistleblower reward could be based.The decision ruled that two anonymous whistleblowers, identified only as Whistleblower 21276-13W and Whistleblower 21277-13W were entitled to a reward of $17,791,607.00, based in part on $54 million obtained in criminal fines and civil forfeitures for which the IRS had illegally claimed were outside the whistleblower reward program.

The decision is the accumulation of four years of advocacy by the NWC, led by its Senior Policy Analyst Dean A. Zerbe and its Executive Director, Stephen M. Kohn, both of whom have actively and effectively represented tax whistleblowers since undertaking the representation of Swiss banker Bradley Birkenfeld in 2009.

Since the rule stripping tax whistleblowers who disclosed evidence of criminal tax violations from obtaining a reward was first announced by the IRS/Dept. of Treasury, the National Whistleblower Center has waged an extensive campaign to reverse this illegal and dangerous ruling. For example:

November 29, 2012: The NWC filed an extensive brief to the IRS strongly urging the Service to reward whistleblowers who exposed criminal tax frauds.
February 19, 2013: The NWC filed an 84-page comment on the proposed IRS whistleblower rules, strongly opposing the criminal disqualification.
April 16, 2013: The NWC testified at the IRS rulemaking hearing opposing the criminal reward disqualification.
June 5, 2014: The NWC provides the Secretary of Treasury with and exhaustive 55 page scholarly article co-authored by Kohn and Zerbe explaining in detail the legal basis as to why the criminal reward disqualification was illegal and should not be approved by the IRS. A copy of this article, published in Tax Notes, is linked here.
Finally, Dean Zerbe and Steve Kohn, through their respective law firms, agreed to work with the legal team representing anonymous whistleblowers 21276/77-13W, in order to ensure that the IRS program properly implemented the whistleblower reward law, and criminal fines and penalties were included in any reward calculation.

The importance of the August 3rd Tax Court ruling, in case 147 T.C. 4, was explained in a June 13, 2014 Action Alert issued by the National Whistleblower Center, calling on the public to strongly oppose the IRS’s plan to block whistleblower rewards, if the tax crimes were so serious as to result in criminal prosecution, and the payment of criminal fines and penalties:

“The Department of Treasury is poised to approve a final rule that will have a devastating impact on the IRS Whistleblower Program. The Treasury Department, along with the IRS office of general counsel, have concocted a rule to exclude whistleblowers from coverage if the violation of law they report is criminally prosecuted. Tax fraud whistleblowers will only receive rewards for information that results in civil or administrative penalties. If a whistleblower has solid evidence of a major fraud that triggers a criminal prosecution, he or she will get nothing.”

“The proposed regulation undermines Congress’s intent that whistleblowers who report tax fraud be protected and rewarded.

This proposed rule, which we have learned is on the verge of final approval, could not have come at a worse time. The IRS and the Justice Department are effectively using the threat of whistleblower disclosures to force international banks to plead guilty to tax fraud violations for illegally harboring non-disclosed offshore accounts. If the proposed rule is approved, the threat that international bankers will become whistleblowers will become toothless.”

What is clear is that the August 3rd landmark ruling, effectively saving the international tax fraud whistleblower program, was the result, in large part, of a long-term campaign of the NWC and its leaders who conducted extensive research into the history and law behind the IRS tax whistleblower program, and thereafter engaged in an extensive public and legal battle to ensure that whistleblowers are fully protected.

This battle is not over. The Department of Treasury can still appeal the Tax Court’s landmark ruling. All Americans who want to hold the millionaires and billionaires who illegally stash an estimated $3 trillion dollars in offshore accounts accountable should join with the National Whistleblower Center in making sure that this key decision is upheld, and that the Department of Treasury change its current regulations to comport with the law.

In addition to the leadership Dean Zerbe and Stephen Kohn gave to this successful campaign, the NWC would also like to thank the whistleblowers who risked all to expose wrongdoing and the attorneys, staff and interns at the NWC who tirelessly worked on this campaign, and the members of the public who strongly supported these efforts.

Related links:

 Tax Court decision in Anonymous Whistleblowers 21276/77-13W, 147 T.C. 4 (August 3, 2016)
Zerbe and Kohn, “The Legality of the IRS’ Proposed Rule,” Tax Notes and Letter to Secretary of Treasury (June 5, 2014).
Sign up to receive updates about the NWC’s Tax Whistleblower Campaign, click here.