The following is from the National Whistleblower Center:
On August 3, 2016 the U.S. Tax Court ruled that tax whistleblowers were entitled to a reward based on monies collected in criminal fines and penalties. This landmark decision reversed the position of the Department of Treasury that severely limited the “collected proceeds” upon which a whistleblower reward could be based.
The decision ruled that two anonymous whistleblowers, identified only as Whistleblower 21276-13W and Whistleblower 21277-13W were entitled to a reward of $17,791,607.00, based in part on $54 million obtained in criminal fines and civil forfeitures for which the IRS had illegally claimed were outside the whistleblower reward program.
The decision is the accumulation of four years of advocacy by the NWC, led by its Senior Policy Analyst Dean A. Zerbe and its Executive Director, Stephen M. Kohn, both of whom have actively and effectively represented tax whistleblowers since undertaking the representation of Swiss banker Bradley Birkenfeld in 2009.
Since the rule stripping tax whistleblowers who disclosed evidence of criminal tax violations from obtaining a reward was first announced by the IRS/Dept. of Treasury, the National Whistleblower Center has waged an extensive campaign to reverse this illegal and dangerous ruling. For example:
- November 29, 2012: The NWC filed an extensive brief to the IRS strongly urging the Service to reward whistleblowers who exposed criminal tax frauds.
- February 19, 2013: The NWC filed an 84-page comment on the proposed IRS whistleblower rules, strongly opposing the criminal disqualification.
- April 16, 2013: The NWC testified at the IRS rulemaking hearing opposing the criminal reward disqualification.
- June 5, 2014: The NWC provides the Secretary of Treasury with and exhaustive 55 page scholarly article co-authored by Kohn and Zerbe explaining in detail the legal basis as to why the criminal reward disqualification was illegal and should not be approved by the IRS. A copy of this article, published in Tax Notes, is linked here.
- Finally, Dean Zerbe and Steve Kohn, through their respective law firms, agreed to work with the legal team representing anonymous whistleblowers 21276/77-13W, in order to ensure that the IRS program properly implemented the whistleblower reward law, and criminal fines and penalties were included in any reward calculation.
The importance of the August 3rd Tax Court ruling, in case 147 T.C. 4, was explained in a June 13, 2014 Action Alert issued by the National Whistleblower Center, calling on the public to strongly oppose the IRS’s plan to block whistleblower rewards, if the tax crimes were so serious as to result in criminal prosecution, and the payment of criminal fines and penalties:
“The Department of Treasury is poised to approve a final rule that will have a devastating impact on the IRS Whistleblower Program. The Treasury Department, along with the IRS office of general counsel, have concocted a rule to exclude whistleblowers from coverage if the violation of law they report is criminally prosecuted. Tax fraud whistleblowers will only receive rewards for information that results in civil or administrative penalties. If a whistleblower has solid evidence of a major fraud that triggers a criminal prosecution, he or she will get nothing.”
“The proposed regulation undermines Congress’s intent that whistleblowers who report tax fraud be protected and rewarded.
This proposed rule, which we have learned is on the verge of final approval, could not have come at a worse time. The IRS and the Justice Department are effectively using the threat of whistleblower disclosures to force international banks to plead guilty to tax fraud violations for illegally harboring non-disclosed offshore accounts. If the proposed rule is approved, the threat that international bankers will become whistleblowers will become toothless.”
What is clear is that the August 3rd landmark ruling, effectively saving the international tax fraud whistleblower program, was the result, in large part, of a long-term campaign of the NWC and its leaders who conducted extensive research into the history and law behind the IRS tax whistleblower program, and thereafter engaged in an extensive public and legal battle to ensure that whistleblowers are fully protected.
This battle is not over. The Department of Treasury can still appeal the Tax Court’s landmark ruling. All Americans who want to hold the millionaires and billionaires who illegally stash an estimated $3 trillion dollars in offshore accounts accountable should join with the National Whistleblower Center in making sure that this key decision is upheld, and that the Department of Treasury change its current regulations to comport with the law.
In addition to the leadership Dean Zerbe and Stephen Kohn gave to this successful campaign, the NWC would also like to thank the whistleblowers who risked all to expose wrongdoing and the attorneys, staff and interns at the NWC who tirelessly worked on this campaign, and the members of the public who strongly supported these efforts.