Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

Dean Zerbe and Felipe Bohnet-Gomez, representing the National Whistleblowers Center and Kohn, Kohn, and Colapinto LLP, respectively, presented remarks today at a public hearing on the IRS’s proposed regulations on its Whistleblower Program. Zerbe spoke on the policy implications of the regulations in their current form, and underscored the importance of whistleblowers in assisting the IRS to fight fraud effectively and efficiently. Bohnet-Gomez outlined objections to proposed regulations’ definition of certain key terms, which narrow the scope and effectiveness of the whistleblower program far beyond the language of the 2006 law.

All in attendance at today’s public hearing—including other attorneys and advocacy groups—agreed that the regulations should not be finalized in their current form. In addition to concern over the IRS’s definition of key terms, speakers also disagreed with the Service’s treatment of Net Operating Losses (NOLs) and other tax attributes, as well as a variety of provisions relating to the administration of the IRS Whistleblower Program and the Service’s communication with whistleblowers. Currently, whistleblowers face wait times of several years before their claims are processed, during which they typically do not receive any communication from the IRS regarding the status of their claim.

The National Whistleblowers Center submitted extensive written comments on the proposed regulations on February 19, 2013, and is available here.

A copy of Dean Zerbe’s presentation on whistleblower policy can be found here.

My previous blog post on this issue can be found here.

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Today on Forbes.com, Dean Zerbe, the National Whistleblower Center’s Senior Policy Analyst, explains the potential issues that may be slowing or sidetracking submissions at the IRS Whistleblower Office. He also gives detailed insight into issues that may cause delay that whistleblowers cannot control.  The IRS Whistleblower Program: What To Do When The IRS Isn't Moving On Your Submission tackles the most commonly asked questions in a simple and straightforward way.

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Late Friday, the Department of Treasury posted a notice in the Federal Register regarding the IRS's proposed rules for its whistleblower office (26 CFR Part 301 [Reg-141066-09]. The notice announces a public hearing on the proposed rules for the IRS Whistleblower Program. I previously shared information about these proposed rules here: IRS On Verge Of Crippling Whistleblower Program and here: IRS Whistleblowers Received Record Payouts in 2012, But Future Recoveries At Risk. In addition, the National Whistleblower Center issued an Action Alert regarding these proposed rules encouraging the public to submit comments. New IRS Regulations Hurt Whistleblowers, Help Swiss Bankers!

These proposed rules have caused uproar in the whistleblower community. On March 4 CNN Money noted that “"A grassroots campaign started by the National Whistleblower Center...saw more than 670 barb-laden letters from lawyers and ordinary citizens, an unusually high number, flood Miller's desk over the past two months.” Also see: NWC Threatens Legal Action if IRS Does Not Bend on Whistleblower Rules.

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Whistleblower Advocates Submit Extensive Comment  in Response to Proposed IRS Regulations

Yesterday, the National Whistleblower Center ("NWC"), the National Whistleblowers Legal Defense and Education Fund ("Fund"), Bradley Birkenfeld, Scott Rosen, and Gene Ross jointly submitted a comprehensive 84-page comment on the IRS's proposed rules for its whistleblower office (26 CFR Part 301 [Reg-141066-09]).  Click here to view their comment.

The critical issues addressed in the joint submission include: 

• IRS rules that would severely restrict the scope of the IRS whistleblower program by limiting "collected proceeds" to violations of Title 26 only. The joint comment states that the statute was intended to cover all violations enforced by the IRS, even if they are in Title 31 or Title 18. A strong whistleblower program is needed to prevent tax fraud related to offshore banking.

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The Internal Revenue Service Whistleblower Office announced that it paid a record $125.4 million in 2012 to whistleblowers that provided evidence of tax cheating, but new rule changes place future recoveries at risk.  The IRS report, which was made public on Wednesday, stated that more than 80 percent of the total paid out by the IRS in 2012 went to Bradley Birkenfeld, a former employee of UBS AG who received $104 million.

In total, the IRS issued 128 whistleblower rewards for the 2012 fiscal year, though just 12 of those cases involved more than $2 million in unpaid taxes.  Whistleblowers helped the IRS collect more than $592 million.  

However, proposed rules to the IRS whistleblower law are drawing criticism from the NWC, U.S. Sen. Grassley and others. The IRS’s proposed rules will make it harder for whistleblowers to collect awards and limit the scope of cases that qualify for awards. 

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Yesterday, District of Columbia Councilmember Mary Cheh introduced the "False Claims Act of 2013," which will amend the D.C. False Claims Act to permit whistleblowers to bring tax-related fraud claims. If enacted into law, the bill would permit whistleblowers to seek a qui tam or relator’s share when the amount of uncollected tax is worth $350,000 or more, and brought against taxpayers who have an income above $1 million. 

Councilmember Cheh stated in her press release:

Under current District law, the False Claims Act does not apply to violations of the tax code. Therefore, the District cannot obtain information from whistleblowers that may be relevant to the investigation and prosecution of tax evaders. This bill would allow the District to use the tools of the False Claims Act against the District’s biggest tax evaders in a manner already authorized for other applications of the Act.

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On January 6, 2013 The Urban-Brookings Tax Policy Center was announced as the 2012 Tax Notes Person of the Year. Tax Notes also recognized nine others who were “contenders” for the title. Among the contenders was the National Whistleblowers Center’s Senior Policy Analyst, Dean Zerbe.

Zerbe gained significant recognition in 2012 when he and co-counsel Stephen M. Kohn helped internationally acclaimed UBS whistleblower Bradley Birkenfeld obtain a historic $104 million reward.  Mr. Birkenfeld’s unprecedented disclosure resulted in cracking the illegal offshore Swiss bank system and resulted in over $5 billion recovered for U.S. taxpayers. Birkenfeld’s information forced Switzerland to change its international treaty with the United States resulting in it’s largest bank being forced to turn over the names of over 4,900 U.S. citizens who held illegal offshore accounts.

In Zerbe’s position as Senior Policy Analyst with the NWC he has frequently commentated on the government's development of the revised IRS whistleblower program. He has pressed the IRS to develop guidance on whistleblower anonymity and to define procedures for award payments and timelines for acting on whistleblower information. In addition, Zerbe co-authored with Kohn, on behalf of the NWC, an amicus brief filed with the Tax Court addressing key questions of law governing the IRS Whistleblower program. The brief, linked here, addressed the issue of "collected proceeds" under the IRS whistleblower law. The "collected proceeds" issue impacts hundreds if not thousands of cases in which the IRS must determine whether a whistleblower is entitled to a reward based on monies obtained by the U.S. government related to tax violation.

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On December 6, 2012 Congress passed the Sergei Magnitsky Rule of Law Accountability Act of 2012. (Magnitsky Act). The law was inspired by a Russian lawyer named Sergei Magnitsky, detained in 2008 after he blew the whistle on a $230 million tax fraud scheme involving the collaboration of Russian government officials and convicted criminals. He was arrested for his whistleblowing and detained for nearly a year before he was beaten to death in prison.

In October 2012, Stephen Kohn, Executive Director of the National Whistleblowers Center, interviewed Jamison Firestone, the law partner and friend of Sergei Magnitsky. Mr. Firestone related the horrific yet compelling tale of what happened from the time Mr. Magnitsky uncovered the tax fraud until his death at the hands of the Russian authorities. Listen to the interview.

The passing of the Magnitsky Act is a major step forward in the protection of international whistleblowers. This is the first time the U. S. Government has passed a bill in recognition of the hardship and sacrifice of international whistleblowers. This move sets important precedence for the advancement of increased protections for whistleblowers throughout the world. In addition to the Magnitsky Act, the U.S. Congress has significantly enhanced protections for international whistleblowers through the reward provisions applicable to the Foreign Corrupt Practices Act and under the IRS Whistleblower law, which allows foreign nationals to blow the whistle on U.S. tax evaders in other countries.

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On November 5, 2012, the National Whistleblower Center filed a briefing paper/amicus brief with the Internal Revenue Service addressing key questions of law governing the IRS Whistleblower program. The brief, linked here, addresses the issue of "collected proceeds" under the IRS whistleblower law. The "collected proceeds" issue impacts hundreds if not thousands of cases in which the IRS must determine whether a whistleblower is entitled to a reward based on monies obtained by the U.S. government related to tax violations.

The brief was co-authored, pro bono, by myself and Dean Zerbe. In a statement issued by the NWC, Zerbe explained the importance of the briefing paper: "Whistleblowers are eligible for rewards based on the government recovering ‘collected proceeds.' A narrow definition of this term will devastate the impact of this critical whistleblower law and result in a hardship to hundreds (if not thousands) of whistleblowers who lawfully report tax violations but who are found ineligible for a reward based on a restrictive and hyper-technical definition of the term ‘collected proceeds.' Whistleblowers risk their careers to help detect fraud. They should not be doubly punished for their good deeds."

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NWC nabbed an exclusive interview with Jamison Firestone, the law partner and friend of Sergei Magnitsky – a whistleblower whose disturbing story reveals the ruthlessness and corruption of the Russian government. Sergei was tortured and killed after he exposed the looting of Russian taxpayers’ money.

Mr. Firestone explains how Sergei discovered a $230 million fraud in which legitimate Russian businesses were overtaken, and forged documents were used to obtain tax refunds that fattened the pockets of organized criminals as well as the crooked tax officials who approved the fraudulent transfers. Mistakenly believing that the Medvedev Administration would support his efforts to fight corruption, Sergei took a stand against this massive fraud, and filed numerous complaints with Russian law enforcement agencies. He never expected that his testimony against Russian officials would lead to his arrest and detention without trial for 51 weeks. Mr. Firestone describes the horrifying details of Sergei’s squalid prison conditions, and exposes the vicious cruelty by Russian officials who retaliated against Sergei and his family when he refused to change his story. Mr. Firestone explains the cozy relationships between the investigators and perpetrators of the crime, and reveals the shameful attempts by the Russian government to cover up their horrible actions and intimidate Sergei’s family. You won’t want to miss this explosive story – listen here.

Check out the Russian Untouchable’s website for more about Sergei’s story.

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