Tax Whistleblower Blog

Two of the Most Asked Tax Whistleblower Questions

December 20, 2008 – 6:00 pm
Is the IRS Whistleblower Reward Taxable?   The most asked tax whistleblower question by clients is, do I have to pay tax on my tax reward for helping the IRS?  The answer is simply, Yes, it is taxable.  A reward received under Code Sec. 7623 is taxable as ordinary income. Rev. Rul. 70-576, 1970-2 CB 331   The IRS has characterized a reward under Code Sec. 7623 as “service income,” presumably for the act of furnishing information to the IRS and the act of uncovering the information as well.   Perhaps without question, the reward is taxable in the year of receipt since individual taxpayers typically report income on the cash basis.  Therefore, despite the fact that “service” could be performed over several years, it is the year of receipt of the reward that determines the year the tax is due.    Because the reward is taxable, the whistleblower should take the necessary steps to maximize the ...

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Whistleblower Office Will Not Enter Into Contracts With Whistleblowers

December 18, 2008 – 4:49 pm
On March 24, 2008, the Treasury Department issued Treas. Reg. § 301.6103(n)-2T, which provides an exception to the anti-disclosure provisions under I.R.C. § 6103.  Generally, an IRS employee is prohibited from disclosing taxpayer-specific information to anyone other than the taxpayer and the taxpayer’s representative.    Treas. Reg. § 301.6103(n)-2T creates an exception, which states that the IRS can disclose limited information to a Whistleblower regarding “the status of the whistleblower's claim for award under section 7623, including whether the claim is being evaluated for potential investigative action, or is pending due to an ongoing examination, appeal, collection action, or litigation.”  The regulation also requires that a contract must be in place prior to any disclosure, and the IRS has discretion to enter into a contract or not. The principals of www.RewardTax.cominterpret Treas. Reg. § 301.603(n)-2T to allow the IRS to keep a Whistleblower informed as to the status of the Whistleblower’s case.  However, the ...

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IRS Publishes Notice on Intermediary Transaction Tax Shelters

December 2, 2008 – 10:53 am
Notice 2008-111 clarifies the IRS's stance on a tax shelter known as Intermediary Transaction Tax Shelters (Intermediary Transaction).  This transaction is being reported here in the hopes that honorable persons who have knowledge of others involvement in such tax shelters, will report what they know under the Tax Whistleblower Reward Program.  A listed transaction is a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified by IRS as a tax avoidance transaction.  Among transactions included as listed transactions are those dealing with the use of an intermediary to sell the assets of a corporation, i.e., an intermediary transaction tax shelter.  This shelter attempts to avoid the corporate income tax from a sale of assets.  Generally it involves transactions in which shareholders of a corporation dispose of their shares of stock of the corporation, one or more persons purchase the corporation's assets in one or more taxable transactions, ...

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Tax evasion robs developing countries of $900bn a year

November 30, 2008 – 6:18 pm
Nearly every country is experience a financial crisis.  Therefore, it seems that the world is in tune to the underpayment of taxes.  As revealed in a recent article, the world's poorest countries lose $900bn each year - nearly 10 times greater than the global aid budget - through illicit flows of capital, new research shows. Illicit capital is defined as money extracted from bribery and corruption, the illegal pricing of goods to avoid taxes, and outright tax evasion by individuals and companies. It's been reported that US President-elect Barack Obama will launch a major drive to stamp out tax-haven abuse. UBS, the world's biggest wealth manager, informed shareholders last Thursday that it was preparing to release the names of an unspecified number of US clients who may have committed tax fraud.  The IRS has stated that the tax whistleblowing program is succeeding beyond expectations.  Therefore, as this new area of the law ...

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The Expanding World of the Whistle Blower

November 24, 2008 – 11:16 am
The new (December 2006) IRS Tax Whistleblower Prgram appears to be successful beyond expectation.  The IRS is nearing 500 open cases (in excess of $2,000,000)since the program began 23 months ago.  In 2005 the IRS had only two cases that exceeded $2,000,000 under the informant reward program.  It appears that the public is lining up to make the world a better place.  However, with respect to protection of the whistleblower with respect to a tax matter, it is important for the Whistleblower to recognize a number of points 1.  Is the Whistleblower somehow involved in the underreporting/underpayment of tax such that there could be criminal implications to the whistleblower? 2.  Is the Whistleblower somehow involved that they could be excluded from receiving the reward pursuant to IRC 7623? 3.  Is the Whistleblower somehow involved that they might be held liable for the underpayment of tax as a transferee/nominee/alter ego of the taxpayer?  Certainly a good analysis by the Tax Whistleblower's attorney ...

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Notice of Third-Party Contacts and Whistleblowers

November 20, 2008 – 11:34 am
The principals of www.RewardTax.com were recently asked a question by a Whistleblower, for which the answer is important enough to include in this blog.  The Whistleblower is very concerned about confidentiality and does not want the target to know that he was turned-in under the Tax Whistleblower Reward Program.  The Whistleblower hopes that the IRS Revenue Agent, assigned to the audit of the target, will interview him and to give him a chance to answer any questions that the IRS has about the Form 211 package submitted under the Tax Whistleblower Reward Program.  However, the client asked whether the IRS Revenue Agent is required to disclose the identity of the Whistleblower in a Notice of Third-Party Contact.  Pursuant to IRC section 7602(c), the IRS is required by law to provide a list of all third-parties whom they have contacted as part of their audit and investigation.  The target of an audit is allowed to view this ...

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IRS Pursues Swiss Private Banker

November 13, 2008 – 1:04 pm
In the on-going saga of the IRS vs. Swiss Banks, the IRS has raised the stakes.  The U.S. has indicted Raoul Weil, a member of the executive board of UBS, for income tax evasion.  The story was reported by the Wall Street Journal on Thursday, November 13, 2008.  The principals at www.RewardTax.com have been closely monitoring the saga over the past few months because this case was likely generated by a referral under the Tax Whistleblower Reward Program.  Despite the efforts of the IRS to obtain records from Switzerland, the Swiss have refrained from cooperating.  Switzerland has long-served as a tax haven for U.S. citizens who fraudulently avoid paying their tax.  The Wall Street Journal reports that the IRS is conservatively plotting its course and fears further disrupting the already-fragile international banking industry if it were to use its full might against UBS.  Never-the-less, the principals of www.RewardTax.com opine that the ...

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Role of the Attorney in Tax Whistleblower Cases

November 11, 2008 – 3:34 pm
At www.RewardTax.com, I frequently receive calls from potential Whistleblowers who are "on the fence" with regard to whether to hire an attorney or "go it alone."  Although it is not necessary to hire an attorney to file a claim under the Tax Whistleblower Reward Progam, an attorney can be an invaluable aid in getting a claim submitted and may be able to transform a case from one that is eligible for a 15-percent award, into a case that is eligible for a 30-percent reward.  An attorney familiar with these cases is in a position to create a file similar to an administrative file that the IRS puts together when examining the case--thereby reducing the examination time and arguably increasing the amount of the reward.  The attorney may even be successful in further developing the facts of a case under the Tax Whistleblower Reward Program.  Also, the attorney can research and consult and ...

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Principals of www.RewardTax.com Complete Presentation to AICPA

November 9, 2008 – 11:03 pm
The principals of www.RewardTax.com, Tom Pliske & Rob Stientjes, completed their presentation regarding the Tax Whistleblower Reward Program to the attendees of the 2008 AICPA Symposium in Washington, DC on October 29, 2008.  The AICPA Symposium is attended by over 400 leaders of the largest and best CPA firms in the country.  After the presentation, several members of the audience raised questions about the application of the Whistleblower Program to CPAs.  Tom Pliske answered, "The Whistleblower Program allows for a reward to be earned for turning in unscrupulous tax return preparers.  Overall, the Whistleblower Program will have a positive effect on the CPA industry because it gives incentives to those with knowledge of inappropriate behaviour to come forward.  Unscrupulous tax return preparers, left unchecked, take business away from honest return preparers."  

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When a Whistleblower Stands Too Close To The Fire To Be Rewarded

November 2, 2008 – 6:18 am
I have blogged on several occassions about former executives of companies who become Whistleblowers against their former employers.  In fact, I have heard more than one IRS employee comment regarding the Tax Whistleblower Reward Program, "The moral of the story is--Don't fire your CFO."  This story, which I'm about to tell, is about a former CFO who likely stands too close to the fire to receive a reward from the Whistleblower Office-- Gene Haas, the former CEO and owner of Haas Automation, Inc., created a phony Nevada company and enlisted the help of his then CFO to commit tax fraud.  After enlisting the help of John Phillips, CFO, Haas created a phony company in Nevada called "Supermill," and then paid the phony company from phony invoices.  Then Haas and Phillips got in a business dispute, Haas sued Phillips for $27 million (apparently related to the phony transactions), and Phillips went to the FBI and told them of the scheme. Phillips was not ...

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