Proposed Grassley Amendment Important for Whistleblowers

Criminal Tax Fraudsters Protected Under Trump Tax Law.

Washington, D.C. December 16, 2017. The final version of the Tax Cuts and Jobs Bill has eliminated a key provision that would have protected whistleblowers who report major criminal tax frauds.

As we have previously reported, the IRS and Department of Justice have argued that whistleblowers who report criminal tax frauds, such as those committed by Swiss banks, should be excluded from the tax whistleblower law. The Senate had unanimously approved Section 11079 (“Clarification of Whistleblower Awards”), which would insure that whistleblowers who testify in Grand Juries, or who report criminal tax frauds, such as those committed by big banks, would be covered under the whistleblower law.

However, Section 11074 was cut from the final version of the bill approved in the House-Senate conference.

“This is a betrayal of the public trust.  Whistleblowers, especially those who work in foreign banks that engage in money laundering (such as Deutsche Bank) are without protection, even as they risk their careers to expose criminal frauds,” explained Stephen M. Kohn, Executive Director of the National Whistleblower Center.

“The elimination of these protections in the tax bill particularly hurts international bankers with direct knowledge of how U.S. citizens illegally hide their wealth overseas.  These whistleblowers face criminal penalties and jail for violating their country’s bank secrecy laws. Ultimately, the America people will lose billions of dollars in tax revenue to tax cheats who use Swiss banks and money laundering schemes promoted in Panama and the Cayman Islands to avoid paying taxes,” Kohn added.

Despite this setback, the National Whistleblower Center continues to fight the arguments advanced by the Justice and Treasury Departments, that whistleblowers who report criminal tax frauds are excluded under current law.  “It is disgraceful that the Justice and Treasury Departments are advocating on behalf of criminal tax cheats in federal court proceedings. We hope that the courts will set this right,” said Kohn.

The House-Senate conference also cut a provision from the Senate version of the bill that would have protected corporate whistleblowers from double-taxation on their awards.  Section 11078 (“Attorneys’ Fees Relating to Awards to Whistleblowers”) involved the taxation of whistleblower rewards. Due to a U.S. Supreme Court ruling, some whistleblowers are subjected to double-taxation.  The decision was overturned by Civil Rights Tax Reform Act, but some whistleblower laws may fall outside the scope this Act.  This amendment would have clarified coverage for all major whistleblower laws and allowed whistleblowers to deduct certain legal fees to stop the double-taxation of corporate whistleblower rewards.

These two provision were critical to whistleblowers and would have addressed issues vital to oversight, accountability and whistleblower protection.

Link: Tax Cuts and Jobs Act Conference Report, whistleblower provisions on pages 689-695.