Tax Whistleblower Blog

Who Gets Paid When There Exists Multiple Claims: Part Two

Several weeks ago, I wrote a blog about the topic of who gets paid when there exists multiple claims.  After having additional time to mull over the question and after discussions with other former IRS attorneys about the issue, I decided that another blog regarding the issue is merited.  I, and other Tax Whistleblower Attorneys, have determined that this issue is one of the major issues that remains unanswered in this area of the law–What happens when the Whistleblower Office receives multiple claims for reward on the same taxpayer from separate informants?  There does not exist a clear answer to this question based on current published guidance.

This question was posed to Steven Whitlock, head of the Tax Whistleblower Reward Program, at the January 9, 2009 Conference of the American Bar Association–Division of Taxation.  Whitlock responded to the hypothetical by stating that his office has not yet run into this issue because no claims for reward under the new statute are at the stage of determining award amounts.  However, he stated that his office WILL NOT be giving out multiple awards.  Thus, it appears from Whitlock’s statements that the IRS will be choosing between two informants–the victor will receive a full reward, and the loser will receive nothing.  The big question that remains is how will the Whistleblower Office determine who to choose?  Previously, I presumed that the Whistleblower Office would lay a great deal of emphasis on timing–whoever “blows the Whistle first” would be the one who gets paid.  However, Whitlock made comments that seem to suggest that timing is not going to be the driving factor.  Rather, Whitlock stated that the Whistleblower Office would have to determine how each claimant contributed independently to the collection of unreported tax.  Therefore, Whitlock appears to be stating that he will make such determination, of who gets paid, based upon which informant provides the most helpful material to the IRS.  It can be assumed from Mr. Whitlock’s comments that timing will only be a factor where the informants provide equally valuable material.  

Now, let’s attempt to apply Mr. Whitlock’s thought process to a few examples:

Example (1):  On January 1, 2008, Informant A, who is a secretary at Corp. B, files a Form 211 Whistleblower claim with the Whistleblower Office.  Informant A provides credible and substantial information to show that Corp. B is involved in an abusive tax shelter.  Informant A’s information is good information, but general.  However, with a substantial amount of work, the IRS could use the information of Informant A to collected underreported tax of Corp. B.  On January 1, 2009, and while the IRS is still auditing Corp. B because of the tip provided earlier by Informant A, Informant C files a Form 211 Whistleblower claim with the Whistleblower Office.  The Whistleblower claim of Informant C is for the same taxpayer, Corp. B, for the same years, and is for the same abusive tax shelter.  However, Informant C is the former tax director of Corp B.  The information provided by Informant C is very specific and extensive.  Informant C provides contracts, logs, and other documents that clearly show that Corp. B was involved in the abusive tax shelter.  Based on the information provided by Informant C, the IRS is able to immediately issue a statutory notice of deficiency to Corp. B.  It would have taken another year of the audit to obtain the same information if Informant C had not come forward.

The information provided by Informant C is clearly more helpful to the IRS when compared side-by-side with the information provided by Informant A.  Thus, at first glance, one might say that Informant C should receive the reward and Informant A should not.  Interpreting the comments of Mr. Whitlock, this is the answer that I presume he would reach in this factual situation.  However, now consider Example (2):

Same facts as Example (1) except the Informant A does not complete a claim for reward under the Whistleblower program.  Instead, Informant A voluntarily provides the information to the IRS utilizing Form 3949-A and does not request a reward.  Do you still think that Informant C should get a reward?  No.  Clearly, in this situation the IRS Whistleblower Office would use one of its standard reasons for rejecting the Whistleblower claim of Informant C–that the IRS already had initiated an audit of Corp. B and already had identified the issue–with the help of Informant A–that is the subject of Informant C’s claim.  Based on established practices of the IRS, the IRS would not reward Informant C for information that the IRS would have obtained on their own, and the audit was already begun and the issue identified.

So, why does the Whistleblower Office obtain a different answer based on whether Informant A is seeking a reward or not?  I maintain that the answer of the Whistleblower Office should be the same for both Examples.  To bring fairness and stability to the Whistleblower program, I believe that timing should be the overriding concern.  If the Whistleblower Office obtains credible and specific information that would lead to the collection of underreported tax, the Whistleblower’s office should be rewarding the first Whistleblower and rejecting the claim of the second Whistleblower even if the second Whistleblower’s information is more complete.  As stated in my earlier blog, timing also brings a bright line test rather than a blurred facts and circumstances analysis to the issue.