We haven’t written an IRS whistleblower reward post in several months. For years we advocated whistleblowers step forward and report tax cheats engaged in a wide variety of wrong doing including offshore tax violations. Because failure to file a Foreign Bank Account Report (FBAR) carries such huge penalties, the rewards in offshore reporting violations are especially high.
In fact, the highest IRS whistleblower reward to date was paid to our friend Bradley Birkenfeld after he blew the whistle on Swiss bank UBS. As a former director of UBS, Birkenfeld knew the bank was helping wealthy Americans conceal their money from Uncle Sam. The United States ultimately collected $780,000,000.00 from UBS and Bradley received an award of $104 million.
Many of these rewards came to a screeching halt when some judges said that FBAR violations were not subject to IRS rewards. We said the courts were wrong and finally, justice has prevailed.
Not everyone agreed with us. Forbes wrote two conflicting pieces less than five months apart. One was titled, IRS Bounty Hunters Should Not Waste Time on FBAR Penalties while just a few months later another piece said the opposite. Why the confusion? Because tax court judges couldn’t make up their minds and that scared a number of whistleblowers away.
A recent Government Accountability Office (GAO) investigation involved surveying whistleblower lawyers. Many of our colleagues said the IRS interpretation and conflicting tax court opinions kept whistleblowers away. Would-be whistleblowers didn’t want the hassle of trying to sue the IRS to collect a reward.
According to the GAO, “Whistleblower attorneys we spoke with referred to the former exclusion for FBAR and other non-Title 26 collections from whistleblower awards as a significant concern for them and their clients. Their concerns are important to the success of the whistleblower program because if whistleblowers are discouraged from coming forward, IRS risks losing opportunities to identify tax fraud and abuse and ultimately reduce the tax gap. This loss of help in identifying noncompliance could be significant for IRS”.
In fact, eight of nine tax whistleblower law firms interviewed said they had “refused or limited” the number of FBAR whistleblower cases they accepted.
That is unfortunate as the GAO readily acknowledged that the IRS Whistleblower Program helped the agency collect billions in otherwise lost tax revenue. How much money wasn’t brought in and how many tax cheats escaped because of uncertainty surrounding IRS FBAR whistleblower cases?
Whistleblowers step forward mostly because they want to do the right thing. The last thing they want is a lawsuit against the government!
On February 9, 2018, Congress stepped in to resolve the split between the IRS, whistleblowers and a handful of U.S. Tax Court judges. The law was clarified to make it crystal clear that whistleblowers reporting tax cheats with unfiled FBARs or unreported foreign accounts were entitled to rewards.
According to the GAO, tax whistleblowers who report on the underpayment of taxes by others have helped IRS collect $3.6 billion since 2007. IRS pays qualifying whistleblowers between 15 and 30 percent of the proceeds it collects as a result of their information. However, in recent years, whistleblowers who reported certain offshore tax violations including unfiled FBAR forms may not have been paid. As noted above, that problem was fixed in February of last year.
Seven months after the law was clarified, the IRS announced the payment of a $13.6 million award. According the IRS, the whistleblower in that case helped the feds collect $52.6 million in taxes.
We can’t say anything about the case or the whistleblower. And that is actually the good news about both the IRS and SEC whistleblower programs. They almost always keep the identity of whistleblowers secret. (In rare situations, a defendant may be indicted criminally and the whistleblower may be compelled to testify. We have only encountered this once.)
If you are a taxpayer with unreported offshore reports, unfiled FBARs or unreported foreign source income, expect to see more whistleblowers coming forward. That means a higher chance that the undisclosed income or bank accounts will be discovered and an increase in FBAR investigations and penalties.
Collecting an IRS Offshore Reporting / FBAR Whistleblower Award
The IRS Whistleblower Program provides for two types of awards.
If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000.
Whistleblowers in this category have the right to appeal the award decision to the U.S. Tax Court and have their claim heard by a judge.
The IRS also has a second award program for other whistleblowers – that is, those who do not meet the $2 million threshold or a case involving individual taxpayers with gross income of less than $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court.
Of course, you need credible, inside information.
Like some other whistleblower programs, you do not need an attorney. We caution would-be whistleblowers that the IRS historically takes less than 1% of the cases submitted. Simply filling out a form online probably does not get your case on the top of the pile.
The IRS is bombarded with thousands of whistleblower claim forms. Filling out a box on the form probably won’t get you a reward.
At MahanyLaw, we hand file every IRS whistleblower program matter in person. Firm founder Brian Mahany is a former revenue officer and Commissioner of the revenue service in Maine. We also have a former IRS criminal special agent assigned to the offshore unit. In addition to Mr. Mahany’s revenue service experience, he is a former state Assistant Attorney General – Tax.
Having former “insiders” on staff doesn’t give us special powers. But we do who to contact and how to work up a case. That experience is invaluable in helping our clients receive rewards.
Want to learn more? Visit our IRS Whistleblower information page. Want information about other types of offshore tax schemes and whistleblower opportunities? Visit our Offshore Tax Fraud Whistleblower information page.
Have questions or ready to see if you have a case? Contact us online, by email or by phone at (direct). All inquiries are protected by the attorney – client privilege and kept strictly confidential.
MahanyLaw – America’s Offshore Reporting and FBAR Whistleblower Lawyers