Today the Tax Court issued an opinion, Whistleblower 4496-15W v. Commissioner of Internal Revenue, granting the IRS’s motion for summary judgement.  In this case, the informant had received a preliminary award determination for an award of $2,954,933.  Congratulation to the informant in this case on the receipt of an award.  The award was computed as follows in the Summary Report, which is attached to the Preliminary Award Determination letter:

  1. Tax, Penalties, interest, and other amounts collected based on information provided by Whistleblower: $14,489,227
  2. Recommended Award Percentage: 22%
  3. Collected proceeds (Line 1) x recommended award percent (Line 2): $3,187,630
  4. Budget Control Act reduction (Line 3 amount x 7.3 percent): $232,697
  5. Award after Budget Control Act Reduction (Line 3 less Line 4): $2,954,933

The informant in this case ultimately chose to accept the award amount in the preliminary award recommendation by checking the box captioned:

I agree with the preliminary award recommendation and accept it as the award determination.  I waive all of my administrative and judicial appeal rights with respect to the award determination, including my right to petition the United States Tax Court.

The petitioner made this choice after his counsel consulted with the IRS for options of receiving the award but keeping the option to appeal just the Budget Control Act Reduction (more commonly referred to as the “sequester cut”).  The IRS Whistleblower Office processed the paperwork and sent the informant a check for $2,135,826 ($2,954,933 – $819,107 of withheld taxes).  Within 30 days of receiving the check the informant filed a petition with the Tax Court.

The IRS filed a motion to dismiss for lack of jurisdiction, which the Court found that it had because the petition was timely filed within 30 days of the IRS making an award determination in this case.  The motion also urged the Court to dismiss because the petitioner had agreed to waive their right to appeal the award when they accepted the preliminary award recommendation.  The Court treated the acceptance of the preliminary award recommendation as a settlement where the right to further administrative or judicial appeal has been waived.  The Court pointed to the fact that the informant could have elected not to accept the award and when a final award determination was made by the IRS Whistleblower Office, they could have appealed to the Tax Court then.  However, this would have delayed the receipt of the award.

4 Responses to Tax Court holds that waiver of right to seek judicial review in accepting an award is binding.

So after (1) 35% withholding tax, and (2) attorney’s fees the whistleblower would have ended up with about;

$ 1,250, 000. (less than 9% of amount collected by IRS)

After waiting 7-9 years and risking their career and personal safety.

No wonder the whistleblower unsuccessfully challenged the waiver.

Better to fight the F%|%&ers in court and get a full 30 % award to properly compensate for all the deductions that make the actual final sum so disproportionately impoverished compared to the risk, time involved and sum the IRS finally gets.

To my knowledge nobody has received the 30% reward.

Look at Whistleblowers 276/7. They went to considerable lengths and risk to help the USG land Wegelin bank in Switzerland. This was the step needed after Birkenfeld to break the big tier of non multinational Swiss banks that had absorbed the illegal business shed by the top tier.

This couple wore a wire, travelled internationally to set a sting, left children to do this, reassured and got target to cooperate after cold feet developed.

Yet even as the IRS shafted 276/7 on rewards related to Title 18 & 31 recoveries, they shafted them by a) not paying them 30% on the Title 26-related rewards, b) hit them with 7.6% sequester cut to the reward, and a c) 30% tax hit on the reward. All this after they tried to stiff them on technical grounds of d) not having filed a 211 at the start of their WB process, e) their attempts to spike the USTC suit with summary judgement chicanery and f) their continued shafting via their USCA appeal of Judge Jacob’s Title 26 rewards ruling.

The Service, through its malicious compliance, outright hostility, counter-productive stinginess and obsession with restrictive rewards and legal delay tactics has turned Grassley’s hobby project into a giant bait & switch that puts WB’s lives, livelihoods and families at risk even as the IRS reduces overall audits and doesn’t embrace the single method capable of delivering more accurate audit targets (i.e. whistleblower referrals.)

The only remedy to maximize recoveries and voluntary compliance while reducing WB traffic in the tax court is to eliminate the IRS’ avenues to abusing their discretion:
A) if amounts in dispute are under 2M$, allow the IRS it’s sole 7623 discretion, namely whether to investigate or not, else pay all rewards as per the guidelines below;
B) all 7623b referrals must be investigated;
C) if a referral results in an audit being opened, all recoveries result in 100% contributory credit for the WB;
D) all monies, regardless of title or statute, are collected proceeds;
E) although D above would limit collusion between the IRS and target taxpayer to structure penalties by biasing toward the criminal side, with no admission of guilt agreements, DPA’s, or consent agreements, the IRS and DOJ should be required to press the full gamut of civil and criminal penalties with reduced discretion for cutting deals;
F) if deals are cut, WB reward is calculated on the basis of the maximum possible recovery, not the recovery from a plea deal;
G) target taxpayers are required to be named and shamed, no more dodging the public spotlight;
H) if the Yates’ Memo is still operative and corporate officials are personally indicted, the whistleblower is to receive a share of monies as below;
I) all additions to tax, penalties, fines, restitution, etc are to be calculated with maximum possible interest;
J) whistleblower’s reward rate is 30%, this can be reduced only when the whistleblower has impeded or endangered an investigation;
K) deductions from the whistleblower’s reward are prohibited;
L) whistleblower rewards are tax free;
M) IRS management encourages agents to be communicative with whistleblowers in order to benefit from the insights (this together with the 100% and 30% fixes above would eliminate agent concern that by communicating with the whistleblower somehow the whistleblower would be able to get a bigger slice of the recoveries);
N) IRS management and rank and file is encouraged to fully embrace an enhanced whistleblower process by allowing the service to retain a portion of the recoveries for either defined discretionary spending or paying staff bonuses;
O) each successful recovery is accompanied by a certificate signed by the Commissioner thanking the WB and inviting them (if not remaining anonymous) to a Commissioner’s annual thank you and medal award luncheon), with a short summary to be posted on the IRS WBO web page);
P) link to the IRS WBO web page to be prominently displayed on the IRS main home page;

Some might say that my Max-Max strategy is extreme and will lead to absurdly large awards but I see nothing absurd in an approach that massively incentivizes whistleblowers to come forward and to maximize IRS recoveries even as these two things promote demonstrable increased risk to would-be tax cheats.

True absurdity is what is being practiced in the name of 7623 and voluntary tax compliance. The true absurdity and stupidity of the current approach of auditing fewer and fewer taxpayers without fully energizing and leveraging the main resource that improves the targeting of likely tax cheats. (Conversely, clean audits are a waste of time and resources for both the IRS and the taxpayer, while highly accurate targeting and Max-Max auditing and penalties will cause many potential cheats to stay on the straight and narrow.)

When the argus of whistleblower eyes are opened through the feelings of palpable respect, demonstrable acceptance, heartfelt appreciation and fat reward payouts, we all get quicker to what we desire, massive voluntary compliance due to incalculable risk and certain strict penalties and exposure through effective targeting aided by the insight and courage of whistleblowers who emerge from the shadows.

Hello Erica,

Thank you for your feedback, I appreciate it.

Naturally, this begs many questions related to the 30% award(s):
– was the calculation starting from the midpoint 22%?
– what resulted in the 30%?
– was this achieved by several adds or a big jump?
– were they a A or B awards?
– were they larger or smaller awards?
– generally, how do the reward %-multipliers relate to the tip usefulness %-multipliers? Were low usefulness multipliers possibly showing an inverse relationship to the reward multipliers?
– similarly, is there a relationship between higher reward multipliers and the size, or priportion of Title 26 recoveries to denied Title 28 & 31 recoveries?
– did the speed with which cases closed have a relationship to higher/lower reward levels?
– have the reward levels been higher under Mr. Martin than skinflint Whitlock? (Did Whitlock ever Pay 30%?)
– were the higher reward % ; A) used to offset against some other factor? B) used to forestall a WB from going to USTC? C) used for submissions classified as “sensitive”? D) related something else not covered in the other questions?

Have you folks thought about issuing your own statistical report but with more granular but anonymized detail than the WBO annual report to Congress?

Thank you in advance for your reply to the above, or and additional feedback you deem relevant.


Leave a Reply

Your email address will not be published. Required fields are marked *