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Intense Focus on Foreign Accounts – Beware the Whistleblower!

It could be your business partner, a former employee with an axe to grind; it could be your ex-spouse…. Or worse, your current spouse who is planning to leave you.  Potential whistleblowers all.  They have the opportunity to earn handsome sums by turning you in and exposing your unreported foreign holdings.  All of these persons frequently have intimate knowledge of a noncompliant taxpayer’s business dealings and affairs, as well as having access to sensitive documents and information that can build a case. 

The Internal Revenue Service (IRS) operates a whistleblower program under which it will issue monetary awards to persons providing information that results in the collection of significant unreported tax dollars. In my practice, I am seeing more and more employees working abroad taking an interest in the IRS Whistleblower Program in cases with US employers or business owners. Given the IRS’ and Department of Justice (DOJ) intense focus on unreported foreign assets and accounts  it seems likely that the IRS would take a very strong interest in such cases assuming the general Whistleblower requirements were met. 

Prior to the watershed following Bradley Birkenfeld’s 2007 revelations about UBS assisting Americans in tax evasion, and prior to the advent of FATCA in 2010, noncompliant US taxpayers doing business or working overseas basked in a false sense of security about their tax transgressions.  Catching a “big fish” noncompliant US taxpayer abroad would serve as a “model” to deter other similarly situated taxpayers.  The IRS/DOJ are keen to have such persons exposed and prosecuted to the fullest extent possible in order to make models of them to deter others; this is especially the case when unreported foreign holdings are involved.

IRS Whistleblower Program 

The IRS Whistleblower Program has undergone significant changes since 2006 when new laws were enacted making the program far more attractive to informants.  Under the new rules, the IRS can pay an award of up to 30% of the tax recovered plus interest and penalties to those who “provide specific and credible information” about people or businesses who fail to report their taxes properly. In order for a claim to be processed, certain requirements must be met. The IRS just indicated on August 20th that it is trying to speed up reviews when a whistleblower provides information so that rewards can be paid more promptly.  Below is an  overview of the Whistleblower program:

Who is eligible for an award?

The IRS may pay awards to persons providing specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts. The IRS is looking for solid information, not an “educated guess” or unsupported speculation.

What is required in order to obtain an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000.

The IRS also has an award program for other whistleblowers – generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less than $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million.

All whistleblower claims must be submitted under penalty of perjury.

Individuals must submit information on Form 211, application for Award for Original Information.

What About FBAR Penalties?  Eligible for Whistleblower Award?

In the foreign context, it should be noted that the IRS does not consider FBAR penalties that are collected as eligible for the Whistleblower award because FBAR penalties are assessed under Title 31 (Bank Secrecy Act) of the US Code and not Title 26   (Internal Revenue Code) of the US Code.  The courts have not yet weighed in on this issue.  See Whistleblower 22231 Aug 4 2014 US Tax Court.

The IRS issued finalized Treasury Regulations on August 7 which provide rules for whistleblower awards under Secs. 7623(a) and (b), as well as rules governing the disclosure of return information under Sec. 6103(h) to pursue these claims (T.D. 9687).

See here for information on how to file a whistleblower award claim   

More useful information is here and here. 

 

 

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3 thoughts on “Intense Focus on Foreign Accounts – Beware the Whistleblower!

  1. Thanks for this complete rundown on what is involved in the Whistleblower program. I believe this information will be useful to help any “minnows” have one less thing to worry about. Most certainly do not make $200,000 per year and good to know IRS makes the Title 31 distinction.

  2. To Patricia — Minnows may certainly take some comfort, but don’t forget that the IRS also has an award program for those whistleblowers who do not have information that meets the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less than $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. Given the budget cuts to IRS funding, I am not so sure the IRS will have the manpower to pursue such smaller cases.

  3. My definition of a “minnow” (as a retired U.S. Foreign Service Officer and sometime consular officer and a retired tax attorney is this: someone who was born (like Boris Johnson) by accident in the USA and hardly ever went back, or someone born abroad perhaps of one Amcit parent who has no assets, income or heirs in the USA and has never lived there and perhaps has never visited their either. As I understand it, rewards are based on collected tax and penalties. Furthermore the IRS is not interested in those who have an arguable case that they never were, or ceased to be, an Amcit. Although new provisions for reciprocal collection are being negotiated and new extradition treaties may allow for extradition for tax crimes that doesn’t mean that treaty partner countries will honor those provision with respect to their own (or, arguably where relevant, other EU/EEA/Swiss) citizens. The IRS is a collection agency similar in some ways to any other. Let us not overstate their sovereign power.

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