IRS Pays 21% to Whistleblower on $71M Owed by 109

An announcement of a $15.1 million reward to a tipster of a tax evasion scheme are actually vague, even the area of the country the scheme occurred!   The details and discussions concerning the tipster and the tax evasion scheme are filtered through two attorney groups hired by the whistleblower, who remains anonymous. The spokesperson refers to the scheme as tax avoidance rather than evasion. 

"Today's award serves to reinforce that the IRS Whistleblower Program is critical in going after wealthy individuals who are evading tax," Zerbe said in a statement. "The IRS would have struggled significantly in bringing an enforcement action against these tax cheats but for the good work of the whistleblower."

Ironically, that whistleblower's windfall is subject to taxes too. Although the amount could be reduced by using IRS Form 14693 "Application for Reduced Rate of Withholding on Whistleblower Award Payment"

The whistleblower's two attorney groups have experience with IRS whistleblowers:

•  Dean Zerbe of  Zerbe, Miller, Fingeret, Frank and Jadav, LLP (zmflaw.com)  - "was Senior Counsel and Tax Counsel for the Chairman of the Senate Finance Committee, Senator Charles E. Grassley, 2001-2008. At the direction of Chairman Grassley, Dean was the counsel responsible for the modern IRS whistleblower law – signed into law in 2006"
  •  The largest reward by the IRS was given to Bradley Birkenfeld, represented by Dan Zerbe . The $104 million dollar reward – 26% of the $400 million in taxes paid – was for Birkenfeld blowing the whistle to the IRS about tax fraud by UBS. The 2009 case mirrored UBS' troubles in France.  Office of Public Affairs | UBS Enters into Deferred Prosecution Agreement |  

•  Stephen M. Kohn · Kohn, Kohn & Colapinto LLP (kkc.com) - "He played an instrumental role in drafting and advocating for the Money Laundering whistleblower law passed in December 2022." His most recent book is Rules for Whistleblowers: A Handbook for Doing What’s Right (Lyons Press 2023).
  • Bradley Birkenfeld ($104 million reward), and the largest ever reward ever paid to an individual under the related action provisions of the IRS, SEC and DOJ programs ($177 million). 
  • He represents Danske Bank whistleblower Howard Wilkinson in the largest money laundering scandal in world history ($230 billion),
  • Represented Greek whistleblowers whose information triggered a $320 million sanction against Novartis drug company under the Foreign Corrupt Practices Act.

The Whistleblower program, now 26 USC 7623(a), has been on the books since March 1867, allowing the Secretary of the Treasury to pay such amounts as he deems necessary “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.” History of the Whistleblower Program

The Whistleblower Program prior to enactment of  the Tax Relief and Health Care Act of 2006 had a maximum award percentage of 15% of collected taxes and penalties.

 It should be noted the qualifiers for receiving a whistleblower reward (IRC section 7623(b) award program) stipulate information must:

• Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional proceeds in dispute exceed $2,000,000; and
• Relate to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.

While the announcement in 2021 of a quest to hire 87,000 IRS agents met with great resistance and concern, the detail not included in most pulse-generating, inflammatory news blurb, was the context and timeline: A May 2021 Treasury report detailed what could be done with $80billion in additional funding, over 10 years, and an additional 86,852 employees.

Meanwhile, a September 2023 announcement by the IRS to hire additional 3,700 was more palatable and received little attention compared to the media incitement in 2021. This is part of a push against "wealthy" tax evaders in addition to $78.9 BILLION dollars funding via the Inflation Reduction Act.   

How Might the Internal Revenue Service Use $78.9 Billion in Mandatory Funding?   IN12050 

The IRA specified that $78.9 billion should be distributed among the IRS’s four appropriation’s accounts, as follows: (but no mention of a whistleblower budget)

• $45.6 billion to expand enforcement activities;
• $25.3 billion to acquire and operate information technologies (ITs) to support critical
  functions;
• $4.8 billion to accelerate the modernization of IRS’s business systems; and
• $3.2 billion to improve taxpayer services.

 FY2022 Whistleblower Report to Congress  p5241.pdf (irs.gov)

Fiscal Year 2022 annual report IRS Whistleblower Office

Fiscal Year 2022 annual report IRS Whistleblower Office

Fiscal Year 2022 annual report IRS Whistleblower Office

IRS Releases 2023 annual report 12/4/23  p3583.pdf (irs.gov)

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