I attended the first seminar on the new IRS Whistleblower statute last week, and found it very interesting indeed. The seminar was organized by Taxpayers Against Fraud, and featured presentations from the top officials from the newly-created IRS Whistleblower Office, along with top attorneys and accountants from the private sector.
And that, of course, was one of the chief purposes behind the seminar–to begin creating a community around the new IRS Whistleblower law, and to allow the major players to meet each other. As we have seen with qui tam practice under the Federal False Claims Act, such communities enable the free exchange of ideas, and aid the growth of the public-private partnership that is vital to the ultimate success of the program.
Most attorneys in qui tam practice have very little experience with tax issues, and one of the chief lessons I learned from the seminar was the necessity of experience with tax matters to this area of practice–or at least, the willingness, desire, and time to learn tax law.
First, a little background. Section 7623 of the Internal Revenue Code, which generally requires the IRS to pay awards to whistleblowers, was enacted in 2006. The law sets award ranges based on the percentage of proceeds collected as a result of the whistleblower’s information, and also creates a brand-new office within the IRS, known as the Whistleblower Office.
In February of 2007, Stephen Whitlock became the first Director of the IRS Whistleblower Office. His day to day work includes oversight and development of the IRS Whistleblower program, and he is apparently doing a very fine job. I say that because the office handled 80 claims during the first year of the program, and more than 1,500 claims last year. Accordingly, the size of his office has increased 250% to deal with the flood of interesting new cases.
In a nutshell, IRC Section 7623 allows private individuals with first-hand information about tax fraud to take action to stop it, and receive a reward in the process. Such an individual is required to file an IRS Form 211 along with all evidence in that person’s possession. The IRS will then investigate, and if the information results in a penalty or payment of back taxes, the informant is eligible for a reward.
The idea of a reward for turning in tax cheaters is not new. However, prior to 2007, the individual had no mechanism to learn more about the government’s recovery or to protest the government’s award as unfair. In other words, in the past, people could share information about tax cheaters, and they might get a check in the mail, but that was it.
This is due, in part, to IRC section 6103. As someone new to tax practice, I was not aware of the power of IRC Code Section 6103, which places stringent protection on the sharing of taxpayer information. It makes sense to have such provisions, but I was surprised at how open the qui tam process seems in comparison.
Whitlock made no apologies for this. In fact, to drive the point home, he said “The IRS Whistleblower process is not only a one-way street [with regards to the sharing of information], it is a very narrow one-way street.”
The IRS is the one place in the world where “bureaucracy” is not a bad word–there is layer upon layer of protection for the taxpayer. I was pleasantly surprised that, although the IRS investigative process is a closed one, the IRS does make most of its internal process memoranda available on its website.
The IRS Whistleblower law is not a true qui tam provision. Why? Because the individual has no authority to prosecute a claim on behalf of the United States–they only have the potential to get a reward for sharing the information.