Tax practitioners and government officials recently came together at the American Bar Association International Tax Enforcement Conference in New York to discuss international tax enforcement rules and procedures.  Among the topics of discussion was the federal government’s increased arsenal of tools available in combating offshore tax evasion, making its efforts stealthier and less predictable to practitioners and taxpayers, according to a panel of tax controversy practitioners.  These new tools include data mined from voluntary disclosures; cooperation by taxpayers and bankers; and notably, information obtained from whistleblowers.  

Thomas E. Bishop, Assistant Special Agent In Charge, IRS Criminal Investigation division in New York, referred to the 2006 IRS whistleblower law as a “game changer” for the IRS’s efforts to combat offshore evasion.  Bishop stated that the Criminal Investigation division is investigating individuals based on information provided by whistleblowers.  The use of whistleblower information was also discussed by Sandra Brown, Assistant U.S. Attorney/Tax Division Chief (Central District of California), who said that the Justice Department has ongoing investigations because of information provided by whistleblowers.  Brown continued by saying that people tend to picture the jilted ex-spouse as the whistleblower who provides information on individual taxpayers, but that view is antiquated.  Business partners and associates are providing information as well, she said, adding, “Those who lie with dogs know where the fleas are.”

Not only has whistleblower information brought specific information forward, whistleblower information, along with other tools used by the government, has created a situation where practitioners can no longer predict the next wave of enforcement, said Charles P. Rettig of Hochman, Salkin, Rettig, Toscher & Perez PC.  Practitioners used to be able to mine their own data to predict those enforcement efforts, but that’s changed, he said.  Scott D. Michel of Caplin & Drysdale agreed, citing subpoenas recently issued by the U.S. attorney’s office for the Southern District of New York to account holders of Bank Frey & Co., a Swiss bank.  Those subpoenas essentially “came out of the blue,” with no inkling by practitioners that the bank was even on the government’s radar, he said.

We note that this is anecdotal until the IRS publishes statistics on the mater, but it is encouraging to hear from Criminal Investigation and the United States Attorney’s office that they think the whistleblower program is providing them with good cases.  But this is not all together surprising as we have referred a number of cases to the IRS Criminal Investigation Division with good results.  A well-informed whistleblower can be a key asset in any tax case, not just in offshore evasion.  I will be speaking with Stephen Whitlock, Director of the IRS Whistleblower Office, at the ABA Tax Section meeting in January.  One of the talking points of our panel will be the IRS’s great successes in utilizing informant information and its impact on all levels of enforcement both civil and criminal. 

As the calendar year winds to a close we wish you and your loved ones a Merry Christmas and Happy New Year.  We look forward to another year’s hyper-aggressive tax transactions being locked in place waiting for a fresh crop of IRS Whistleblowers to bring the transgressions to justice.