The IRS released two documents today on their website, Commissioner Koskinen Statement regarding Whistleblower Program and Deputy Commissioner for Service and Enforcement Memorandum.  

The Commissioner’s statement reaffirmed his commitment and support of the IRS Whistleblower Program.  The Commissioner says that he is “committed to expanding the program’s reach and improving communications with existing and potential whistleblowers.”  I sincerely hope that he follows through with this commitment in real and concrete ways.  One way that the Commissioner could improve the program would be to give whistleblower cases priority for audit.  In making cases where a whistleblower has provided information to the IRS a priority for audit will ensure that more of the information provided by whistleblowers is used by the IRS, which will in turn lead to more collected proceeds and more awards.  After all the way to promote the IRS Whistleblower Program is to pay awards. 

The Commissioner went on to mention that to the extent that statutory changes are necessary to improve the program, he intends to work with Congress to ensure that the changes are enacted.  While the Final Regulations highlighted a number of places where statutory changes could improve the way section 7623 is implemented, the most pressing statutory change should be the addition of anti-retaliation provisions in the statute.  The addition of anti-retaliation provisions would bring section 7623 in line with the other Federal whistleblower provisions. 

The Deputy Commissioner for Service and Enforcement Memorandum is largely an update of the Steven Miller Memorandum, published on June 20, 2012.  The update of this memorandum after two years was necessary.  The memorandum outlines highlights some of the administrative changes that have been implemented in the last two years and incorporates some of the preamble of the final regulations.  These changes do not always make their way into other guidance, so it is nice to have this memorandum updated to reflect the current operations of the IRS Whistleblower Program.  The Memorandum also reaffirms the guidelines how long certain parts of the administrative process should take and adds:

The Office of Chief Counsel has established controls and reporting requirements for its risk analysis opinions.  BPR reports should include data on cases for which a risk analysis has been requested but not received for more than 30 days.  Chief Counsel has concurred in making this area a priority. 

The inclusion of the new guideline should ensure that the Office of Chief Counsel is making its determinations is a timely manner to ensure that the information can be passed along to the field before the information becomes stale. 

While these two documents will not have as large of an impact in shaping the IRS Whistleblower Program as the Regulations will, these documents do show that the IRS is committed to improving the IRS Whistleblower Program.

The IRS has finally released the Final Treasury Regulations that we have all been waiting for. While, there were not as many in the Final Regulations as we would have liked to have seen; the changes that were made were important ones. Some of the pros and cons of the Final Regulations are:


Change in the definition of “Proceeds based on.” The final definition is more inclusive and removes the word “only” that had been read in. The new definition provides examples of when the IRS proceeds based on, but does not limit when the IRS will have proceeded based on.

Change in the definition of “Collected Proceeds.” Now includes amounts on amended returns that are filed after the IRS proceeds with and administrative or judicial action based on a whistleblower’s information. The IRS will continue to monitor the taxpayer’s tax account for additional collected proceeds in cases where this is a possibility. This will allow for whistleblower to collect on tax assets that are reduced based on their information, but have not yet lead to additional payments at the time the WBO makes a final determination of tax. There is a downside to this change, the WBO will also monitor timing issues in future years to determine if there are offsetting reductions to collected proceeds.

There is now an administrative review process for the rejection or denial of claims for awards under section 7623(b) that are rejected or denied. Administrative Procedures for denied/rejected claims:

1. WBO sends a preliminary rejection letter that states the basis for the rejection or denial of the claim.

2. Whistleblower has 30 days from the date that the letter was sent to respond with comments.

3. WBO will review the comments and either (a) provide written notification to the whistleblower of the rejection of the claim, including the basis fro rejection; or (b) go through the administrative review process provided for in paragraph (c)(1) through (6) of Treasury Regulation section 301.7623-3.

The administrative review is of the items in the administrative claim file that are not privileged, before it was limited to the “pertinent information.”


The Final Treasury Regulations kept the fixed percentage award structure and still start the evaluation at the statutory minimum.

The Final Regulations failed to adopt the “principal architect” standard for planned and initiated. This remained section of the Final Regulations remained largely unchanged from the Proposed Regulations. However, using this test is functionally reinventing the wheel.

In the general rule for “Administrative Record,” the administrative record definition is still limited to the information that is relevant to the award determination. By limiting the administrative record to what the IRS deems to be relevant, whistleblower and their representatives will forever be fighting about what is relevant and what they are not being provided when there is concern that monies or circumstances are not being properly considered.

Collected Proceeds still does not include criminal fines or FBAR penalties.

The Tax Court held that it has jurisdiction to review the IRS’s whistleblower claims award determinations where the informant has alleged that they provided significant information to the IRS before and after December 20, 2006, the effective date of section 7623(b).  Whistleblower 11332-13W v. Commissioner, 142 T.C. No. 21, is a continuation of one of the cases where the whistleblower that was allowed to proceed anonymously and have the record sealed in one of the three cases released on May 20, 2014. 

In this case, the whistleblower first provided generic information regarding the tax fraud scheme engaged in by the whistleblower’s employer and several related entities and subsidiary companies to IRS and the Department of Justice in June of 2006.  The whistleblower had several more meetings with the IRS and DOJ in 2006.  The whistleblower continued to provide additional information relating to the tax scheme and those involved to the IRS and Department of Justice until the fall of 2009.  The whistleblower alleges that the information provided after 2006 was not simply confirmatory details.  The Government entered into a Non-Prosecution Agreement with one of the targets that led to a recovery of more than $30 million in taxes, penalties, and interest.  The Whistleblower Office granted that whistleblower an award under section 7623(a) and denied the whistleblower’s request for an award under section 7623(b).

The Court held that the whistleblower had satisfied the “pleading burden by alleging facts that respondent proceeded with an action against the targets using information brought to respondent’s attention by the whistleblower both before and after December 20, 2006.”  The Court held that the allegations are sufficient to establish jurisdiction. 

The Tax Court also released a second opinion, Whistleblower 10949-13W v. Commissioner, T.C. Memo 2014-106.  The Tax Court held, on similar facts as Whistleblower 11332-13W, 142 T.C. No. 21, that the Tax Court also had jurisdiction to hear their appeal of the IRS Whistleblower Office’s denial of their award under section 7623(b).

It is good to see that the Tax Court continues to broadly interpret its jurisdiction when it comes to appeals of whistleblower award determinations.  These cases demonstrate the Tax Court’s continued fairness in providing whistleblower with a venue to appeal award determinations under section 7623.

Judge Kroupa of the U.S. Tax Court issued three memorandum opinions on Tuesday concerning whether or not the whistleblowers in those cases could proceed anonymously under Rule 345(a).  All three memorandum opinions, T.C. Memo 2014-92, T.C. Memo 2014-93, and T.C. Memo 2014-94 were in favor of the whistleblower’s motion to proceed anonymously.  

We believe that these decisions are consistent with what our experience has been to date as far as whether or not the Tax Court will allow docketed whistleblower cases to proceed anonymously or under seal.  So far, the Tax Court is generally willing to let whistleblowers be anonymous if the requirements of Whistleblower 14106-10W v. Commissioner are met, so whistleblowers should take comfort in knowing that they can proceed anonymously in Tax Court to challenge their award determination on that basis. 

However, the Tax Court has not been so willing to seal whistleblower cases on anything more than a temporary basis, although T.C. Memo 2014-92 shows that an exception to this general rule exists if unsealing the case could likely cause physical harm to the whistleblower.  

On a final note, it looks like T.C. Memo 2014-92 and 2014-94 are related cases. This probably resulted from two different EINs and claim numbers for the targets, and that it ended with the whistleblower getting an award under section 7623(a).  That would happen either where the original information was provided to the government before 12/20/06 or the case resulted in collected proceeds of less than $2 million. 

There seems to be a trend of interpreting SOX in a way that extends the whistleblower protections to a widening circle of persons. Most recently, a judge in Eastern District of Pennsylvania had allowed a retaliation lawsuit under SOX against non-publicly traded subsidiary of a publicly traded corporation to proceed after examining the agency relationship between the subsidiary and the parent in Wiest v. Lynch. The opinion relied heavily on the U.S. Supreme Court’s 2014 ruling in Lawson v. FMR LLC, which held that Section 806 covers “any officer, employee, contractor, subcontractor or agent of” a publicly held company.

The IRS Whistleblower Office has released its Annual Report to Congress for Fiscal Year 2013.  We had a good year with the IRS Whistleblower Program because they paid one of our clients a $38 million award, but overall the report certainly shows that there is a lot of room for improvement.  While fiscal year 2012 gave many whistleblowers a lot of hope for the program with its first big award payout, fiscal year 2013 was somewhat flat.  Some of the highlights from the Fiscal Year 2013 Whistleblower Office Report are:

  • The number of submissions in fiscal year 2013 (355) remained relatively stable from fiscal year 2012 (332).  

 Submissions Fiscal Year 2013.jpg 

  • Four awards were paid under section 7623(b) in fiscal year 2013.  However, one award was $38 million, leaving $15 million to be shared among all other award recipients (including those receiving awards under 7623(a)).

Awards Fiscal Year 2013.bmp

  • The IRS planned to finalize the proposed regulations in the second quarter of fiscal year 2014, which ended on March 31, 2014.  We are expecting these to be finalized shortly.
  • The IRS Whistleblower Office increased the number of senior analysts in fiscal year 2013 by three and is actively recruiting four additional staff members.  This increase in staff for the Whistleblower Office is good news for the IRS Whistleblower Program because it shows that the IRS believes that by increasing the staff of the Whistleblower Office it can increase collection of tax in other operating units which are still suffering from hiring freezes.
  • There has been an overall decrease in “collected proceeds” last year from $592 million in FY2012 to $367 million in FY2013.  However, we are aware of much larger cases working their way through the process and those kinds of large corporate cases often take longer than that to resolve.  This is consistent with what the Whistleblower Office has said many times before: it takes on average five to seven years to analyze, investigate and/or audit, and collect proceeds; and that the larger the amount at issue the greater the incentive is for the taxpayer to exercise all of their rights to challenge the IRS determinations.  However, even $367,042,420 of collected proceeds is a drop in the bucket compared to the $385 billion tax gap, or the $191.7 billion of tax reserves for uncertain tax positions set aside only by the top 500 U.S. companies, which demonstrates that the IRS still needs all the help with enforcement of the law that it can get.
  • The Fiscal Year 2013 Whistleblower Office Report indicates that the IRS has developed a communications plan to address outreach to both the public and IRS personnel on changes to the program.  It states that the communication plan “includes efforts to identify opportunities for improvement and potential barriers to change.”  Hopefully the communication plan will allow the IRS staff in the operating divisions to become more comfortable with whistleblowers in general.  Additionally, this may improve the relationship between the public and the IRS and give the public an opportunity to have their concerns heard and addressed by the Whistleblower Office.  
  • The Fiscal Year 2013 Whistleblower Office Report outlines some areas that are likely ripe for litigation, including the definition of “collected proceeds” and amount in dispute.  The report also outlines some areas that need additional guidance or legislative changes, such as providing statutory protection for whistleblowers that provide information to the IRS.
  • The Fiscal Year 2013 Whistleblower Office Report states that Subject Matter Expert review is still on average 190 days.  This means that more than 6 months is lost on average before the field even sees the information.  Depending on the years at issue, this delay could cause the field not to open an audit due to lack of time. 

One of the numbers in the Fiscal Year 2013 Whistleblower Office Report that may require some explanation is the number of claims listed with a current status of “Whistleblower Office – Case Suspended: Whistleblower Litigation Regarding Award Determination” found in Table 4 of the report.  The report shows that only five 7623(b) claims are in suspended status while the whistleblower challenges their award determination in the U.S. Tax Court, but in reality more than 50 whistleblowers have sued the IRS so far.  Many more than five cases are still active, and even more cases have been filed that are still under seal by the Court and will therefore be invisible until they become unsealed by the Court.  We are representing whistleblowers in both sealed and unsealed cases before the Tax Court, and there are a lot of interesting things going on in discovery, but we’ll save that discussion for another day.  The five cases in Table 4 are apparently those cases where the whistleblower is contesting the amount of the award, rather than contesting the denial of an award.  Hopefully, the administrative review process for denied claims in the proposed regulations will be in the final version.  We believe that this administrative review will save the IRS, the whistleblower, and the U.S. Tax Court time and resources by not having cases filed in the U.S. Tax Court that are dismissed once the parties exchange discovery.

Fiscal Year 2014 looks as though it will be a more productive year for the IRS Whistleblower Program.  The Tax Court is preparing for what is supposed to be the first whistleblower case to determine if the whistleblower’s information should result in an award.  The proposed regulations are expected to be finalized soon.  These are both large milestones that will help shape the program.  The IRS Whistleblower Program is taking shape and, hopefully, fiscal year 2014 will bring better news than fiscal year 2013. 

The United States Supreme Court issued its opinion in Lawson v. FMR LLC on March 4, 2014.  This case looked at whether the whistleblower protection provisions of Sarbanes-Oxley, found at 18 U.S.C. § 1514A, protect the employees of a privately held contractor or subcontractor that provides services to a public corporation.  The opinion expressly holds that:

based on the text of §1514A, the mischief to which Congress was responding, and either legislation Congress drew upon, that the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.

The facts involve two former employees, Jackie Hosang Lawson and Jonathan M. Zang, who separately initiated proceedings under section 1514A against their former employers, privately held companies that provide advisory and management services to the Fidelity family of mutual funds.  The mutual funds, which are public companies, are not parties to either case because the Fidelity funds have no employees themselves but instead contract with investment advisors to handle the day-to-day operations.  Fidelity Brokerage Services, LLC employed Ms. Lawson as a Senior Director of Finance.  She alleges that after she raised concerns about certain cost accounting methodologies, believing that they overstated expenses associated with operating the mutual funds, she suffered a series of adverse actions by her employer, which ultimately amounted to constructive discharge.  FMR Co, Inc. employed Mr. Zang as a portfolio manager for several funds.  He alleges that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds.  The entities that had employed Ms. Lawson and Mr. Zang moved to dismiss both suits, arguing that they are privately held and that section 1514A only protects employees of public companies.

In delivering the opinion of the Court, Justice Ginsberg clearly explained that the language of the statute is interpreted by giving the words used in the statute their ordinary meaning and the operative language of the statute means what it appears to mean.  In this case, that means that a contractor may not retaliate against its own employee for engaging in protected whistleblowing activity.  The opinion goes on to discuss how this interpretation fits with Congress’ goals at the time of enactment, namely to prevent another fraud on shareholders similar to Enron, and by protecting the employees of those that contract with the public company these goals would be meet because the contractor’s employees are likely to be aware of potential fraud.  On the other hand, the narrower interpretation, that contractors and subcontractors are prohibited from retaliating against the employees of the public company, does not make logical sense because contractors and subcontractors are unlikely to be in a position where they can retaliate against the public company’s employees.

Director Whitlock spoke along with Christopher Ehrman, the Director of the Commodity Futures Trading Commission’s whistleblower program, and Sean McKessy, the Director of the Security and Exchange Commission’s whistleblower program, at a webinar put on by the ABA Criminal Justice Section and Center for Professional Development.  During this webinar, Director Whitlock gave a bit of a preview of what will be in the annual report to Congress when it comes out.  First, Awards.  Director Whitlock said that the IRS Whistleblower Office paid approximately $50 million in whistleblower awards in fiscal year 2013.  While this number is not final, it should be a good estimate.  This make fiscal year 2013 the year with the second highest payouts in the history of the program.  Roughly, three quarters of that amount was paid to our client.  Also, they are working on finalizing the regulations that were proposed in December of 2012. 

Finally, Scott Knott’s question about the IRS Whistleblower program’s ability to act as a deterant prompted Director Whitlock to acknowledge that the actions of whistleblowers have been recognized, particularly in the case of offshore compliance, internally, in press releases, and in sentencing.  It is great to hear that the contributions of whistleblowers are being acknowledged, especially internally at the IRS.

An order issued yesterday by the U.S. Tax Court in the case of Albert G. Hill, III v. Commisioner of Internal Revenue (No. 25539-10W) gave the Whistleblower (who is the Petitioner in the case) access to documents in the administrative file of the taxpayer who was the subject of a whistleblower claim. The order is a big win for the Whistleblower in the case because the determination of whether the Whistleblower is entitled to an award or not centers on how and when the IRS discovered information that led to collection of taxes from the taxpayer who is the subject of the whistleblower claim.

The question of whether or not the Whistleblower in the case is entitled to an award is further complicated by the fact that the IRS was conducting an examination of the underlying taxpayer at the time the Whistleblower provided information to the IRS. With access only to the documents that the Whistleblower initially provided to the IRS concerning the underlying taxpayer and a single document written by the IRS examiner containing that examiner’s thoughts on the Whistleblower’s claim, the Whistleblower was at a disadvantage in trying to show that it was his information the IRS utilized that led to the collection of taxes from the underlying taxpayer.

Although the IRS took the position that the Whistleblower was not entitled to documents from the underlying taxpayer’s administrative file, the Tax Court sided with the Whistleblower and directed the IRS to submit the underlying taxpayer’s administrative file to the Court. The order also instructed the Whistleblower to submit a list of specific documents or types of documents he sought to obtain from the underlying taxpayer’s administratrive file.  After an in camera inspection of the administrative file, the Court granted the Whistleblower’s motion to the extent of the Bates numbered and redacted documents listed in the order. 

In conclusion, the discovery order is a nice win for whistleblowers going head to head with the IRS on the issue of whether or not the collection of proceeds resulted from the use of whistleblower information.  An even greater appreciation for the discovery order in this case can be obtained when there is pause to consider that if the Tax Court sided with the IRS on this issue and prevented the Whistleblower access to the underlying taxpayer’s administrative file, it would have been tantamount to forcing the Whistleblower to fight for his award with one hand tied behind his back. In that respect, the Whistleblower in this case can keep swinging.



Last year we wrote about several welcomed memoranda issued by the IRS Whistleblower Office on June 7, 2013.  These memoranda outlined temporary changes and expired a year after issuance.  The new memoranda are simply reissuances of the memoranda that were released last year and are set to expire on June 7, 2014.  While these memoranda do not add anything new, it is important that they be reissued annually until the changes are permanently made to the Internal Revenue Manual.


The reissued memoranda are: