Tax whistleblower collects $11.5 million award

September 20, 2019

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The Trump Administration currently is embroiled in a whistleblower controversy. But another situation where a witness to tax wrongdoing — not any alleged Donald J. Trump activity! — has worked out much more satisfactorily.

A $11.5 million award has been presented to a person whose information led to the government collecting over $44.4 million in taxes, penalties and interest, according to the whistleblower attorneys involved in the case.

In announcing the award, attorneys Stephen M. Kohn of the Washington, D.C. firm of Kohn, Kohn and Colapinto and Dean Zerbe of the Houston-based firm Zerbe, Miller, Fingeret, Frank & Jadav, lauded the involvement of their client, who wishes to remain anonymous.

Even with the possibility of a large reward for helping catch tax cheats, the lawyers cited the whistleblower's "courage to come forward and blow the whistle on these millionaires and billionaires seeking to evade their tax obligations."

The two lawyers also praised the IRS Whistleblower Office, its director Lee Martin and the unit's personnel, including "anonymous IRS examiners and auditors" whose "diligence and effort in utilizing the information provided by the whistleblower" resulted in the recovery of funds stashed by wealthy tax evaders in illegal offshore accounts.

Whistleblower enhancements effective July 1: Even Congress got a shout out for its role in recent enhancements to the IRS whistleblower program as part of the Taxpayer First Act, which became law on July 1.

"Congress recently made improvements in the IRS whistleblower program that provide protections for whistleblowers from retaliation and expanded communication between the IRS and whistleblowers. Good news all around for tax whistleblowers and strong encouragement for whistleblowers to come forward," said Kohn, who's also chairman of the board of the National Whistleblower Center.

Those whistleblower enhancements under the new IRS reform bill include:

"The Taxpayer First Act closes the largest loophole in corporate protections. For the first time employees who expose tax fraud, which often include violations of the Bank Secrecy Act and anti-money laundering law, are protected from retaliation. Whistleblowers have uncovered tens of billions of dollars in tax frauds yet lacked minimum job protections," said Kohn.

In addition, the new IRS reform bill's whistleblower protections include:

  • The right to reinstatement and double back-pay;
  • No mandatory arbitration;
  • Expeditious administrative remedies with the right to go to federal court for a jury trial; and
  • Compensatory damages such as special damage, attorneys' fees, and costs, awarded only to a whistleblower who prevails in an employment case.

The new law also now permits full and open communication between the IRS Whistleblower Office and whistleblowers.

Before this change, such interaction was limited due to a broad reading of other provisions in the tax code concerning taxpayer secrecy. Now, say whistleblower advocates, better cooperation between whistleblowers and the IRS should lead to more and more complete prosecution of tax evaders.

Even better for whistleblowers, the new law now requires the IRS to notify them about the status of their claims no later than 60 days after a status change or upon written request.

Previously whistleblowers had to wait long periods — sometimes more than 10 years — just to get updates about their claims. They were often left in the dark and some never received a dime, noted MarketWatch's Lu Zhao.

2018 already productive: The hope among both tax collectors, legislators who supported the Taxpayer First Act and whistleblowers and their attorneys is that the new law will make tax whistleblower efforts even more successful than the noteworthy 2018 fiscal year.

"The IRS continues to have a high interest in whistleblowers coming forward with knowledgeable information about wealthy individuals with illegal offshore accounts," said Zerbe, who also is a senior policy analyst to the National Whistleblower Center.

The federal tax agency, added Zerbe, "has rolled out the welcome mat for good tax whistleblowers."

Last year, the whistleblower program reward program triggered collections of more than $1.4 billion in sanctions against tax cheats, according to the IRS' 2018 annual report on the program.

Whistleblowers were paid an average reward of 21.7 percent in 2018, which was a significant increase from fiscal year 2017's average whistleblower reward of 17.8 percent.

In real dollars, last year's real dollar rewards to those who provided information leading to tax recoveries came to more than $312 million.

"This was the best news of the year for whistleblowers," said Kohn of the 2018 report. "The IRS program is now working, and working remarkably well."

Now Kohn, Zerbe and tax whistleblowers are watching to see how much better the IRS program can become under the new law.

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