Jesse Eisinger just did a piece today in the New York Times about how we might soon be seeing an increase in the enforcement of our tax laws after an eight year decline in audit and prosecution of tax cases by the IRS.  To recap: Congress has been cutting the IRS’s budget for almost a decade straight now, and without a sufficient budget you don’t have people at the IRS to enforce our country’s tax laws.  Without enforcement, the IRS makes fewer cases against noncompliant taxpayers, and there is little incentive for taxpayers to follow the rules when (and if) they file their tax returns.  More and more taxpayers are taking this opportunity to be brazen by utilizing aggressive tax planning strategies, or by flat out avoiding/evading taxes altogether on the assumption they won’t get caught.

Any smart business person knows that the function of your business that brings in the revenue is absolutely necessary for the rest of the organization to function.  Perhaps President Trump sees the IRS that way now too – that without them bringing in money the rest of the government can’t function.  I’ve personally heard IRS Commissioner Chuck Rettig and the head of IRS Criminal Investigation Division Don Fort give impassioned talks on this topic, and their rationale is compelling and spot on.  They are ramping up and hiring new people at the IRS.  So what does this mean for tax whistleblowers?  It means that now is the time to get information of noncompliance to the IRS.  Why?  Because the “supply” of good cases has increased due a recent lack of enforcement, and the “demand” for good information to bring new cases is finally about to increase.

The IRS Whistleblower Office released it FY 2018 Report to Congress today.  The report comes out one year after Congress amended section 7623 in the Bipartisan Budget Act of 2018, which clarified the definition of proceeds includes non-Title 26 amounts such as criminal fines, civil forfeitures, and violations of reporting requirements.  This change in the statute has clearly transformed the program, increasing the total amount of awards paid in FY 2018 to more than nine times what was paid in FY 2017.

The Whistleblower Office attributes this increase in the amount of awards to the change in the statute.  Under this new definition of proceeds, the Whistleblower Office reports that the proceeds collected for FY 2018 was $1,441,255,859, of which $809,915,922 is attributable to non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements.  Under the law prior to the addition of section 7623(c), the $809,915,922 of proceeds would not have been counted as proceeds, and the whistleblowers who provided information relating to these collections would not have received credit for these amounts when their awards were calculated.

Also notable is the increase in the average days to process awards claims.  The amount of time for claims under both subsections (a) and (b) has increased.  For claims under subsection (b), the time increased to 9.32 years in FY 2018 from 7.32 years in FY 2017.  This increase in not surprising, particularly when coupled with the large increase in awards, because large complex tax cases take longer to process and the change in law has likely resulted in old cases getting an award.

Finally, while it might take the better part of a decade on average to receive an award, the whistleblowers who overcome the hurdles of their information being considered to be speculative, not specific, or not credible, being below the threshold for IRS action, and properly filing a Form 211; the chances of receiving an award is 16 percent.  This is because the most common reason for the closure of a claim continues to be that the allegations made in the claim are not specific, credible, or are speculative in nature.  The percentage of claims closed for this reason in FY 2018 was 64%, up from 57% in FY 2017.

We are looking forward to an equally exciting and productive FY 2019.

Today the GAO released a study wherein they looked at the ability of the IRS to track and then pay awards on monies that are collected by the Government relating to “FBAR” violations.  Recall that FBAR stands for the “Reports of Foreign Bank and Financial Accounts”  and it represents information and return reporting requirements and associated penalties for violations thereof under Title 31’s Bank Secrecy Act.  The law on whistleblower awards changed on February 9, 2018 in the Bipartisan Budget Act of 2018, Pub. L. 115-123, div. D, title II, §41108(a)-(c) Feb. 9, 2018, 132 Stat. 158, so that monies that are paid under those provisions can represent “proceeds” (as defined in section 7623(c)) under section 7623(b) if the whistleblower’s information made a substantial contribution to the collection of these amounts.  So if you have information about FBAR violations, you should consider reporting that to the IRS for an award.


But the GAO reports that things are not so easy in IRS-land.  The report itself is here:  Specifically, before the law changed the IRS did not even collect information from agents about whether or not monies were collected under Title 31 as a result of a whistleblower’s information.  So you may have to look in the IRS files to determine this, which means going through the administrative award determination procedure at best, or litigation with the IRS at worst.  We have done and are currently doing both of those things on behalf of our whistleblower clients.  Be prepared to do the same by getting representation early on in the process, preferably before filing anything so that your IRS filing properly documents your claim.

A report just released by TIGTA (the Treasury Inspector General for Tax Administration) shows that once again IRS audits of taxpayers are in decline.  Enforcement revenues are slightly up this year, but TIGTA says this is due to a small number of large corporate cases.

Some highlights of the TIGTA report:

  • “The number of staff assigned to Examination functions decreased 22 percent from FY 2013 to FY 2017, with a recent decline of 7 percent from FY 2016.”
  • “According to recent statistics, taxpayers filed nearly 196 million returns during Calendar Year 2016, of which less than 1 percent, or 1.1 million returns, were examined during FY 2017. This is a 32 percent decline from FY 2013 and a 9 percent decline from FY 2016, when there were approximately 1.6 million and 1.2 million examinations conducted, respectively.”
  • “The number of examinations performed by the LB&I Division decreased 8 percent from FY 2016 (34,676) to FY 2017 (31,880). This is also significantly less (41 percent) than the 54,211 performed in FY 2013.”
  • “The data show a significant downward trend in the IRS’s proposed audit adjustments over recent years. This may suggest that overall increases in enforcement revenues are not necessarily an effective indicator of how well the IRS’s traditional tax compliance enforcement tools (i.e.,
  • Examination and Collection) are performing under reduced funding.”

What does this mean to potential and current whistleblowers?  Based on my 20 years of experience in dealing with the IRS, it is more important than ever that your information stand out in a crowded field.  The likelihood that the IRS will act on unorganized or unpersuasive information is lower than ever – you have to clearly and concisely show and tell the IRS exactly how your information will lead to the collection of additional taxes (in period for which that statute of limitations is clearly open) if you wish to get anywhere with your award claim.  As always, the IRS must either collect additional tax or deny a refund based on your information for you to get an award.  However, first the IRS must decide to act on your information, and making your information stand out among others is the key to getting it selected to be used by the IRS.

On March 9th, Tax Partner Scott Knott and I attended the Federal Bar Association Tax Law Conference in Washington, D.C.  Known colloquially as the “inside the beltway tax conference,” many high ranking federal government employees from DOJ, Treasury, and the IRS were in attendance and speaking on various new developments in the tax law.

The key note speaker, Don Fort, Chief IRS Criminal Investigation (“IRS-CI”), spoke about the work of his division in the areas of tax evasion, money laundering, the use of cryptocurrencies to conceal income, and terrorist financing. Mr. Fort highlighted that the mission of IRS-CI is to have a maximum deterrent effect and enhance voluntary compliance with the tax laws.  Mr. Fort said maximum deterrent effect comes from working with the DOJ to prosecute tax crimes that generate publicity or are highly visible to the public.  Enhancing voluntary compliance necessarily involves identifying tax crimes in the first place.  In that regard, Mr. Fort stated that whistleblowers are one of the most important sources of information for IRS-CI.

  • Mr. Fort closed by noting that even though his division has the same number of special agents as it had 50 years ago, IRS-CI continually investigates some of the most complicated cases in the agency’s history. According to IRS-CI’s Annual Report for 2017, international investigations have increased substantially from the 186 indictments in 2015, to 221 initiated in 2016, to 283 initiated at the end of 2017.  Indictments have increased correspondingly.

We have spoken to Mr. Fort in the past concerning criminal tax matters, some of which IRS-CI has taken action on, and Mr. Fort has encouraged us to forward relevant evidence of criminal tax evasion to his division. If you have information about criminal tax evasion, please contact The Ferraro Law Firm for a free consultation.


We get absolutely deluged with hundreds of calls a day during tax return filing season about all kinds of fraud, particularly identity related scams and claiming child exemptions improperly.  In 2016, there was a 400% increase in tax related phishing and malware attacks, and 969,000 potentially fraudulent refunds claiming up to $6.5 billion. You may be unaware that you’re a victim until you try to file your taxes and IRS tells you something’s wrong.

Here are four common scams to watch out for this year:

  • Phishing—Fraudsters send fake emails to trick would-be victims into sharing personal data. The real IRS would never initiate contact with you this way.
  • Phone fraud—Identity thieves impersonate IRS agents. But, the real IRS states it will never call to demand immediate payment. You will first receive a mailed bill.
  • Tax preparer fraud—Use tax professionals? Watch out for emails that appear to be from them asking for private information. Delete and call your service directly.
  • Phony IRS agents visit your home—This scam often targets the elderly. Real IRS agents carry photo IDs, and will try to contact you before visiting.

The full list of the recently released “Dirty Dozen” tax scams can be found here.  As for claiming child exemptions improperly, the best defense is a good offence: file early.  Unfortunately, neither of these big problems make for good whistleblower claims under section 7623(b), the IRS whistleblower program we work with.  The Whistleblower Office does not handle the identity theft scams, that is handled by the Treasury Inspector General’s Office.  Claiming of exemptions for children is unfortunately not an issue the Whistleblower Office handles either, that has to be handled directly with the IRS in connection with the filing of your return.

What we do see a lot during tax season that the Whistleblower Office is interested in is non-filing of returns, positions being taken that are clearly non-compliant, abusive transactions, or anything that represents an underpayment of tax of more than $2 million of tax over the last three years.  If you have information about anything you believe may fit in those categories don’t hesitate to give us a call.


Happy New Year! The new year brings a time to reflect back on the past year, on things that went well, things that went not-so-well, and how you would like to do things going forward.  In the spirit of looking back over the last year, the IRS Whistleblower Office released its FY 2017 Annual Report to Congress earlier than usual this year, right after New Year’s. 

In FY 2017, the Whistleblower Office paid $33,979,873 in awards (prior to the sequestration reduction), which was less than the $61,390,910 paid in FY 2016 and the $103,486,236 paid in FY 2015.  The $34 million of awards was spread across a total of 242 awards, 27 of these awards were paid under §7623(b).  The total number of awards paid in FY 2017 falls between the 418 awards paid in FY 2016 and the 99 awards paid in FY 2015. The number of awards paid in FY 2016 was extraordinarily high due to a push by the Whistleblower Office to resolve a backlog of old claims that would be categorized as falling under §7623(a).  Disregarding the number from FY 2016, which is largely attributable to the resolution of the backlog, the IRS Whistleblower Office has continued to grow the number of awards it pays each year.  But more importantly, the number of awards paid under §7623(b) increased by 50% over the number paid in FY 2016.  (The IRS Whistleblower Office paid 18 awards under §7623(b) in FY 2016, which was virtually the same as the 19 awards paid in FY 2015.)

FY2017 Table 1.png

IRS Whistleblower Program has been a success for the IRS and tax administration as shown by the fact that only 6% of claims closed in FY 2017 (down from 7% in FY 2016) were closed because the IRS audited the issue and made no change to the taxpayer’s position.  That means if the IRS acts on a whistleblower’s information there is a very low probability that the IRS will not make an adjustment.  This statistic should be even lower than 6% because the IRS includes adjustments that are made but were non-Title 26 Collected Proceeds – like FBAR penalties within the same statistic.

Nevertheless, the IRS Whistleblower Office should be cautious that the program does not begin to stagnate.  Between the decrease in new submissions, the fact that nearly all new submissions are related to Small Business/Self-Employed Division issues, and the average time to process a claim for an award remained largely unchanged in FY 2017 from FY 2016, which was an increase from FY 2015; the IRS may have trouble making large award payments down the road if the IRS does not address some of the issues within the program and work to build additional support for the program in the operating divisions of the IRS.

The Annual Report made clear that when providing information to the IRS Whistleblower Office, whistleblowers need to ensure that their submissions are specific and credible because more than half (57%) of the claims closed in FY 2017 were closed because the Whistleblower Office found that the allegations in the claim were not specific, credible, or were speculative in nature.  A knowledgeable attorney can help put together a clear and concise submission that will give the whistleblower the best chance of receiving an award.

One final note: The Ferraro Law Firm again accounted for 22% of the §7623(b) awards (by number and by value) of the awards paid by the Whistleblower Office in FY 2017.  We are proud to be seeing success for our clients and happy to see the IRS recognizing the important contribution made by whistleblowers.

Many tax fraud cases also involve securities law violations.  For instance, corporations engaged in tax evasion may also be creating fraudulent financials or offering securities to investors by providing misleading or untruthful information.  The most common compliant categories reported by whistleblowers to the SEC in fiscal 2017 were Corporate Disclosures and Financials, Offering Fraud, Manipulation, and Insider Trading.

The SEC’s whistleblower program is moving full steam ahead according to the 2017 Annual Report of the SEC Office of the Whistleblower.  The Report highlighted the program’s growth, painted a rosy picture for awards into the future, conveyed the value the SEC places on whistleblower information, and underscored the SEC’s commitment to protecting whistleblowers through processes and through enforcement actions.

The SEC received over 4,400 tips in fiscal year 2017, an increase of nearly 50 percent since the program’s first full year in 2012.  In 2017, the SEC ordered awards totaling approximately $50 million to 12 individuals.  Although that award number is about $7 million less than last year, every indication is that the SEC’s whistleblower program is about to hit stride.  Three of the ten largest whistleblower awards were made by the SEC during fiscal year 2017.  Even more interesting than that is the SEC is preparing for a big year of awards in fiscal year 2018, as indicated by the following statement in the SEC’s Financial Report for 2017:

The SEC recognized a contingent liability for the year ended September 30, 2017 of $221 million, which represents a recognized liability for estimated whistleblower awards where the payment is considered probable.

This contingent liability for 2017 will likely include the largest individual SEC whistleblower award ever – an amount that currently sits at $30 million. 

The SEC’s annual report made crystal clear the value whistleblowers have added to SEC enforcement, stating “Whistleblower information has aided the SEC’s efforts to uncover and stop fraudulent investment schemes.” 

The annual report also highlighted the lengths the SEC will go to in order to protect whistleblowers.  The SEC whistleblower program permits whistleblowers to submit information anonymously through an attorney and in any event, by law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  However, the SEC also has weapons to protect whistleblowers and combat whistleblower intimidation and other tactics used by companies and individuals to deter persons from reporting to the SEC.  In 2017, the SEC brought two actions against companies for imposing restrictions in their employee separation and severance agreements that operated to deter whistleblowers from providing information to the SEC or partaking in proceeds of an SEC whistleblower award.  In another enforcement action, a financial services company agreed to a $500,000 civil penalty and to cease and desist from attempting to uncover the identity of a presumed whistleblower and requiring former employees to sign severance agreements that waived potential whistleblower awards. The annual report notes that the SEC will continue to review facts and actions to impede communications with the SEC “to ensure that whistleblowers can freely report information to the Commission and feel comfortable reporting wrongdoing without fear of reprisal.”

An SEC press release at the end of November announced awards of more than $8 million each to two whistleblowers, sending SEC enforcement actions involving whistleblower awards over $1 billion in financial remedies ordered against wrongdoers.

If you have information about large-scale tax underpayments or you would like to know more about reporting securities violations to the SEC anonymously, contact the attorneys at The Ferraro Law Firm today for a free consultation. 

Late on November 16th, the Senate Finance Committee voted to approve its iteration of the Tax Cuts and Jobs Act, passing the measure on a party-line 14-12 vote.  The full version can be found here.  Of particular interest to our readers here is one of the amendments that was added to this in committee.  Senator Grassley submitted a number of amendments to this bill including an amendment that:

modifies section 7623 to define collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting requirements.  This definition would also be used to determine eligibility for the enhanced reward program under which proceeds and additional amounts in dispute exceed $2,000,000.  Collected proceeds amounts would be determined without regard to whether such proceeds are available to the Secretary. 

This is the latest step by Senator Grassley to ensure that the IRS Whistleblower Program is administered as he intended when he initially drafted and stewarded the 2006 amendments to section 7623 through Congress.  Senator Grassley has consistently stated that this has been his understanding of the term and the intent of Congress in enacting the amendments to section 7623(b).  In fact, Senator Grassley has gone so far as to file an amicus brief in the appeal of Whistleblower 21276-13W v. Commissioner, in which he makes the case that at the time of the 2006 amendments the term collected proceeds was used broadly and the IRS had been interpreting the base on which it could pay award broadly and the amendments sought to further broaden the amounts on which an award could be paid, not restrict the payments.

The mark up made it out of committee, but there is not guarantee that the Senate will pass the bill, as written or at all.  Then it will have to go to conference due to differences with the version from the House.  So stay tuned because there is a LONG way to go before the law actually changes.  

The IRS announced that whistleblower awards paid under section 7623 on or after October 1, 2017 and on or before September 30, 2018, will continue to be reduced by the “sequestration reduction rate”, which has now been lowered slightly to 6.6 percent.  The 6.6 percent fiscal 2018 sequestration reduction rate represents a .3 percent decrease from fiscal 2017’s 6.9 percent.  The sequestration reduction will unfortunately continue to be applied to whistleblower payments unless and until a law is enacted that cancels or changes the sequester or a court decides that it is improper.

The IRS and OMB have taken the position that whistleblower award payments are subject to the sequestration reductions required by the Balanced Budget and Emergency Deficit Control Act (“Budget Control Act”).  We have asserted that reducing awards under section 7623(b) is contrary to the letter of the law and also makes little if any fiscal sense as awards are paid from collected proceeds.  The IRS believes that reducing whistleblower awards is part of spending caps that are imposed on defense and non-defense spending by the Budget Control Act.  If those caps are exceeded, spending is cut across-the-board, a consequence that neither Republicans nor Democrats want.

This is a year that we could see some meaningful change in or even elimination of the sequester because President Trump has called for substantial increases in military spending in his budget request.  The House and the Senate passed their respective versions of the annual National Defense Authorization Act (“NDAA”) which authorizes budget appropriations for the Department of Defense.  Both houses passed bills that exceed the President’s budget request and smash through the statutory caps on defense spending established by the Budget Control Act.  Breaking these statutory caps triggers the across the board cuts commonly referred to as “sequestration.”  Congress must either raise the spending caps or eliminate sequestration altogether to avoid the cuts that are despised by both parties.

In fact, Senator Tom Cotton (R-AK) attempted to repeal the sequester spending cuts for both defense and non-defense discretionary spending back in September but his amendment to the 2018 NDAA failed to receive votes and eventually died due to a lack of quorum.  Democrats are taking the position that they didn’t support Cotton’s amendment because it only applied to discretionary spending and would not have repealed the automatic sequester of mandatory spending.

In early September the House and Senate voted on a continuing resolution which funds the federal government through December 8, 2017.  As with years passed, we are likely to see increased political maneuvering between the parties as December approaches and the Senate and House budgets are reconciled.  We are watching this year very closely with the hope that reduction of whistleblower awards becomes a thing of the past.  We further understand that there are docketed cases in the U.S. Tax Court that are challenging the legality of the sequestration reductions to whistleblower award, but these cases have not been resolved yet.  Stay tuned.