For many people, that headline is probably quite disturbing. The IRS paid an in-house corporate accountant $4.5 million for turning in his or her own employer over an unreported tax debt. To add insult to the injury, the accountant’s identity is protected under the whistleblower rules.
No one likes tax cheats but many folks are under the misapprehension that what they tell their accountant is privileged. It’s not. You can share secrets with your priest, rabbi or lawyer but you better not thin k that whatever misdeeds you share with a CPA are safe from disclosure.
To be clear, accountants have an ethical duty not share your secrets with the public or competitors. In fact, if they do they can be sued for accounting malpractice. And if your lawyer hires the accountant directly, the privilege you have with your lawyer may extend to the accountant.
The rules are pretty complex but the takeaway is simple. What you share with an accountant probably isn’t protected from disclosure to the IRS. In fact, the IRS frequently issues subpoenas to accountants when attempting to get information about taxpayers.
Unfortunately, we may never know the details of this whistleblower reward payout. Whistleblower’s identities are protected under the tax code. Was it intentional evasion that the accountant called to the attention of the IRS or simply a difference of opinion on a complex section of the tax code?
Accountants and lawyers have a duty to their clients. If a client asks us to do something illegal, the correct course of action is to simply find other employment.
IRS Whistleblower Program Pays Cash Rewards for Information About Tax Evasion
The point of this post isn’t to rag on the accounting profession or the IRS. The rules are what they are.
If you have inside information about someone defrauding the IRS, you may be entitled to a cash reward. And in most instances, your identity and participation in the program remains anonymous.
What’s interesting about this case is that it is the first award paid out under the new IRS whistleblower program released in 2007. Does the fact that the award was paid to a CPA have any significance? We don’t know. The effect on the relationship between accountants and their clients could be further jeopardized if the IRS expects that private accountants will become their eyes and ears.
There are a few special rules for accountants that wish to become whistleblowers.
First, an accountant cannot submit information about a taxpayer and also function as the taxpayer’s representative in a pending audit or IRS appeals proceeding or in litigation where the IRS has an interest. Should that occur, the IRS should stop communicating with the accountant and also tell the taxpayer that it needs to find a new accountant.
Once the accountant stops representing the taxpayer in the matter, the IRS should accept their information.
A variation of that rule is that an accountant turned whistleblower also can’t represent that taxpayer in the future with matters before the IRS.
The second special rule applies to privilege. Remember earlier we said that an attorney’s privilege can extend to accountants? If for some reason there is privilege, the IRS won’t accept such information. If you are an accountant and want to blow the whistle on someone cheating on their taxes, we can help determine what you can and can’t do and say.
This post is about accountants and their participation in the IRS Whistleblower Program. Please note the SEC also accepts information from auditors and accountants, and yes, there are also special rules.
To learn more, visit our IRS whistleblower information page. Ready to see if you qualify for a reward? Contact us online, by email or by phone 202-800-9791. (Unlike accountants, what you share with us is privileged and lawyers can’t be made to disclose.)
**Are you a CPA? In 2009 Brian authored The IRS Whistleblower Program: What CPAs Should Know which was published in the Journal of Accountancy.