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Today the GAO released a study wherein they looked at the ability of the IRS to track and then pay awards on monies that are collected by the Government relating to “FBAR” violations.  Recall that FBAR stands for the “Reports of Foreign Bank and Financial Accounts”  and it represents information and return reporting requirements and associated penalties for violations thereof under Title 31’s Bank Secrecy Act.  The law on whistleblower awards changed on February 9, 2018 in the Bipartisan Budget Act of 2018, Pub. L. 115-123, div. D, title II, §41108(a)-(c) Feb. 9, 2018, 132 Stat. 158, so that monies that are paid under those provisions can represent “proceeds” (as defined in section 7623(c)) under section 7623(b) if the whistleblower’s information made a substantial contribution to the collection of these amounts.  So if you have information about FBAR violations, you should consider reporting that to the IRS for an award.

But the GAO reports that things are not so easy in IRS-land.  The report itself is here: https://www.gao.gov/assets/700/694825.pdf  Specifically, before the law changed the IRS did not even collect information from agents about whether or not monies were collected under Title 31 as a result of a whistleblower’s information.  So you may have to look in the IRS files to determine this, which means going through the administrative award determination procedure at best, or litigation with the IRS at worst.  We have done and are currently doing both of those things on behalf of our whistleblower clients.  Be prepared to do the same by getting representation early on in the process, preferably before filing anything so that your IRS filing properly documents your claim.

The US Treasury just released a Report authored by Natasha Sarin, Deputy Assistant Secretary for Economic Policy, titled “The Case for a Robust Attack on the Tax Gap” , and it provides new information on what the Government views as to what constitutes the “Tax Gap” and what needs to be done about it. The “Tax Gap” is the difference between taxes paid and taxes owed by law, so it basically shows the annual difference between what the IRS fails to collect that it should have collected. During April 2021 testimony before the Senate Finance committee, Chuck Rettig, Commissioner of the IRS, put the Tax Gap at as much as $1 trillion per year. Now this report claims that as much as 28% of the total Tax Gap is attributable to the top 1% of taxpayers.

“Currently, an under-staffed IRS, with outdated technology, is unable to collect 15 percent of taxes that are owed, and a lack of resources means that audit rates have fallen across the board, but they’ve decreased more in the last decade for high earners than for Earned Income Tax Credit (EITC) recipients. For the IRS to appropriately enforce the tax laws against high earners and large corporations, it needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings. It also needs access to information about opaque income streams—like proprietorship and partnership income—that accrue disproportionately to high-earners.” See “The Case for a Robust Attack on the Tax Gap” Report at pg. 1.

Whistleblowers are ideally situated to uncover exactly this kind of information about high income earners and large corporations that the IRS is hoping to crack down on in their attempt to close the Tax Gap. The Report further adds: “tax evasion is concentrated toward the top of the income distribution because higher-income taxpayers have the ability to tap into the services of accountants and tax preparers who help shield them from bearing their true income tax liability.” It is this kind of sophisticated tax schemes and avoidance or evasion techniques that the tax whistleblower lawyers at Lynam Knott can help the IRS unravel. With the information of a well prepared and well advised whistleblower, the IRS can be better equipped to succeed in their desired “robust attack” on the large portion of the Tax Gap attributable to the top 1% of taxpayers.

Our tax whistleblower attorneys know how to deal with the IRS. They know what types of information and documentation the IRS needs; they know how and to whom that evidence should be presented in order to maximize your reward.

If you have information about large-scale tax underpayments of ANY type, contact us for an honest evaluation of your case.

1. The tax whistleblower program only applies to tax evasion and fraud.

The new law that created the Tax Whistleblower Office and drastically amended Section 7623 of the Internal Revenue Code covers more than just cases involving tax evasion and fraud. Under the new law, information about any underpayment of tax is eligible to lead to the payment of an award to a tax whistleblower. It does not matter if the underpayment is due to evasion, fraud, an aggressive or negligent application of the law, or even an innocent mathematical error or mistake. Your tax lawyer can help you ferret out the information that is going to maximize your award determination. If you limit yourself to thinking that you can claim a reward only if it relates to “tax evasion and fraud,” you are missing the boat.

2. My employer is going to fire me.

At Lynam Knott P.A., we will work tirelessly to protect your identity. We have a number of ways in which we can help maintain the confidentiality of your identity. It is our goal for clients to provide their information and collect their reward without the taxpayer ever finding out. Besides, firing a tax whistleblower is the last thing a company should do. In many states, firing an employee who provided information pursuant to a federal statute (such as 26 U.S.C. §7623 at issue here) would be an unlawful discharge in violation of public policy that would subject the employer to a lawsuit by the discharged employee. It would be like winning two lotteries, one for the tax whistleblower case, and one for the unlawful discharge.

3. Anybody can help me.

You should choose your lawyer very carefully. By having tax controversy lawyers who have worked on defending the very types of tax underpayment, evasion or fraud you have information about work for you, you will increase your chance of obtaining the maximum reward from the government. If the IRS does not understand what to do with the information you provide, and your counsel cannot explain it, it is unlikely you are going to get any reward, never mind the maximum reward of 30 percent of the amount collected as allowed by the new law.

4. Foreigners cannot get rewards for Reporting Tax Underpayment

Everybody is eligible to get rewards under the IRS whistleblower program. If you are a non-U.S. person with information about ways a company or high net-worth individual underpaid U.S. taxes or engaged in deceptive tax avoidance schemes like tax evasion or fraud, you are eligible to receive a reward from the U.S. government if you come forward and report the tax underpayment. For example, foreigners working in the headquarters of a foreign multinational are ideally placed to identify underpayments by U.S. subsidiaries or branches. In addition, foreigners working in foreign subsidiaries or branches of a U.S. multinational are also in a great place to discover information about how the subsidiary or related entity is being used to underpay U.S. taxes. This commonly occurs through the use of inter-company loans, rents, royalties, license fees, transfer pricing, or the use of tax haven countries.]

5. A Whistleblower Case is just like a qui tam suit.

A “qui tam” suit, which is an abbreviation of a Latin phrase meaning “he who brings a case for the king and himself” does not have anything to do with tax whistleblowers. While there are many skilled qui tam lawyers who bring suits against fraudulent government contractors, they do not bring qui tam tax cases because there is no such thing for federal taxes. As a tax whistleblower, you do not sue the taxpayer. The IRS does all that. Your job is to work with your tax lawyer to provide high-quality information to the IRS. If you feel an award determination is too small, your tax lawyer, who must be licensed to practice before the U.S. Tax Court, can bring suit on your behalf against the government to challenge the award amount.

6. The IRS will not take this tax whistleblower case seriously.

It will—especially when you have an experienced tax lawyer help you present the information in a way that lays it all out for them. The IRS is very interested in receiving high-quality information. In fact, at the May 2007 meeting of the American Bar Association’s Section of Taxation, the newly appointed director of the IRS Whistleblower Office, Stephen Whitlock, said that the IRS’s examining agents are eager to receive this new flow of good information.

7. My company is broke so there is no point in blowing the whistle.

Do not let the dire financial situation of the taxpayer you have information on deter you from blowing the whistle. The government’s ability to lien and levy property is extraordinary. The IRS often is paid first even in bankruptcy cases. In addition, there may be assets of which you are not aware that the IRS can use to settle a taxpayer’s bill. In certain situations, the assets of the shareholders or partners of a closely held company will be found liable for the tax underpayment.

8. All tips are the same.

The fact that your boss just bought an expensive truck is not worth much as a tax whistleblower tip. However, utilizing a lawyer to help you develop the information you have and put it in a format that the IRS can understand and easily act upon can make all the difference in the world to your ability to collect the maximum reward. For example, maybe you have an email that says, “We need to come up with a business purpose for this transaction.” This is a good start and a tax lawyer can help you develop the information about the transaction that will assist the IRS in understanding why this information is relevant to a potential underpayment of taxes. Properly presented information is more likely to lead to an IRS investigation and audit, and a collection of the TOTAL tax underpayment.

9. I do not know enough to blow the whistle.

With all due respect, let us be the judge of that. Underpayment of tax is a frequent occurrence in the business world. It is the rule rather than the exception. Sometimes it is on purpose and sometimes it is simply a mistake. You could collect on either of them. If you feel something seems off—overstated expenses, debt/equity issues, inflated basis—follow your gut. We have the ability to help you figure it out and we would be happy to help you determine if you have an item worthy of submitting to the IRS. To get started, review the other information we have provided on this site, or simply submit a request for more information concerning how the tax whistleblower program may work for you.

10. The tax whistleblower program has been around a long time and has not been successful.

While it is true that the IRS has rewarded informants for quite some time, the December 2006 amendments to Section 7623 of the Internal Revenue Code provide increased financial incentives and protections for tax whistleblowers to encourage them to come forward with good information. Acting with a fresh mandate from Congress, the IRS is more focused than ever on utilizing information obtained from tax whistleblowers. Even under the old “Informant Rewards” program, the IRS paid out millions of dollars in awards to whistleblowers. Under the new tax whistleblower program, the government expects to pay out a much higher dollar amount of rewards to many more potential whistleblowers.

Confidential Consultations, Nationwide Practice — (202) 775-1630

For answers to other questions about the new tax whistleblower statute or to discuss a potential claim, call our Washington, D.C. or Miami, Florida, area offices or contact us online.

A recent article in the NY Times caught our attention because it describes how many of the S&P 500 companies are drastically reducing their US taxes. Columnist David Leonhardt also discusses this issue in the Economix blog.  The story relates to the low overall rate of taxation of many of the largest US companies as disclosed in their most recent financial statements.  A study done for the NY Times by Capital IQ, a research firm, indicated that thirty-nine of those companies paid a rate less than 10 percent.  How do those companies pay such a low overall rate when the corporate tax rate here in the US is 35%?  In our experience in representing many of the world’s largest companies, the answer has several parts: 1) good tax planning and using all available credits/deductions/depreciation the law allows, 2) moving intellectual property and business activities to low tax countries, 3) taking aggressive tax positions on the corporate tax return.  Notice we didn’t say “loopholes.”  That’s another topic for another day, but in short the term “loophole” is often used for both legitimate tax reduction strategies and for improper tax avoidance or evasion techniques.  There is a big difference.

Companies arguably should exploit every legal means to reduce their overall tax rate.  If for example Congress passes a law which says businesses can write off a new solar power system over a shorter period than the solar power system will actually last them, that’s fine, every company should take advantage of that law if it applies to them.  However, if the company decides to deduct it all at once by either ignoring the law or relying on an overly technical interpretation of the law, they are improperly avoiding taxes.  Many companies gamble by taking that kind of unsupported or weak position on their corporate tax return and hope they don’t get caught before the statute of limitations expires.   

When a company takes such an aggressive position of their tax return that the securities regulators don’t allow them to recognize the tax savings on their books, the accounting rules require them to establish a “tax reserve” for this position (called an uncertain tax position).  As shown in the “Ferraro 500” list, a reordering of The Fortune 500 by tax reserves compiled by The Ferraro Law Firm, there is approximately $200 billion of uncertain tax positions for those companies alone, and those reserves will get released when the statute of limitations expires assuming they don’t get caught first.  These aggressive tax positions will remain undisclosed under the final uncertain tax position regulations. We think that whistleblowers who come forward now with information regarding these kinds of significant tax underpayments are more likely to receive awards than those who wait because awards are given to the informant who first provides the information to the IRS.