On Remand from Supreme Court on Chevron's Demise, D.C. Circuit Holds that Agency Interpretation is Best Interpretation (1/11/25; 1/12/25)

Yesterday, the D.C. Circuit decided Lissack v. Commissioner, 125 F.4th 245(D.C. Cir. 1/10/25), D.C. Cir. here and GS here. The Supreme Court had remanded Lissack to re-consider its previous opinion in Lissack v. Commissioner, 68 F.4th 1312 (D.C. Cir. 2023), here in light of the demise of deference in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), here.

I first describe the current Lissack decision in a straightforward manner. After that, I will discuss Lissack as an example of the type of case where, during the Chevron regime, courts , determined that the agency interpretation was the best interpretation and cited Chevron because best interpretations are necessarily reasonable; in effect, where that phenomenon occurs the courts have not deferred to the agency interpretation even though they may cite and discuss Chevron. But let’s first turn to the current Lissack decision.

Bottom-line, the Lissack panel determines that the agency interpretation is the best interpretation and therefore denies Lissack relief for that reason. Added 1/12/25 1:00pm: The Lissack panel opinion cites (Slip Op. 23-24; 124 F.4th, p. 259) Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) because it found the IRS interpretation had "persuasive value," saying that it "makes good sense." Finding the IRS interpretation persuasive is not deference.

The context, highly summarized, is: Lissack filed a whistleblower claim regarding a condominium group’s treatment of membership deposits. The IRS decided to audit as a result of Lissack’s claim; otherwise, the IRS would not have audited at all. During the audit, the IRS made two key decisions: (i) that the taxpayer correctly reported the membership deposits, thus collecting no proceeds based on the whistleblower's claims; and (ii) that the taxpayer impermissibly claimed a deduction for an intercompany debt, thus collecting proceeds. The interpretive regulation required that, for a whistleblower award, the adjustment and related collected proceeds, the base for the award, must arise from the whistleblower’s claims. In other words, adjustments and collected proceeds unrelated to the whistleblower’s claims do not give rise to an award. The D.C. Circuit panel thus held that the IRS regulation treating separate adjustments as separate administrative actions was the best reading of the statute. (See Slip Op. 17-26; 125 F.4th, pp. 258-260)

The whistleblower argued for a “but for” test that asked whether the IRS discovered the adjustments because of the whistleblower’s claims which was the case here because the IRS started the audit that it would not have otherwise started because of the whistleblower’s claims. The D.C. Circuit panel rejected that argument.

The D.C. Circuit panel also rejected other whistleblower arguments about discovery and trial de novo but I discuss here only the Chevron issue, the basis for the remand from the Supreme Court.

 Agency Interpretation is Best Reading of Statute

DC Circuit Affirms Tax Court on Lack Of Jurisdiction for Awards from Voluntary Disclosures in OVDI (8/12/24)

I previously blogged about a whistleblower claim dismissal in Shands v. Commissioner, 160 T.C. 388 (2023), here. Tax Court Sustains IRS WBO Denial of Whistleblower Claim for Award Based on All OVDI Collected Proceeds (3/13/23), here. The whistleblower (Shands) sought the mandatory and discretionary awards under § 7623(b) for collections in the IRS Offshore Voluntary Disclosure Initiative (“OVDI”) which allegedly exceeded $2.3 billion, with a resulting minimum 15% award that would exceed $345 million. The claim was based on Shands’ cooperation with the IRS in identifying and prosecuting Swiss Bank account enablers (bankers, etc.), actions which allegedly led the IRS to adopt the OVDI which in turn resulted in the IRS collecting substantial FBAR  penalties and income tax, penalties and interest. The Tax Court rejected his claim for lack of jurisdiction because the collections in the OVDI were not administrative or judicial actions based on Shands’ information.

The D.C. Circuit affirmed on appeal.  Shands v. Commissioner, ___ F.4th ___ (D.C. Cir. 2024), DCCir here and GS here. The Court agreed that the collections from taxpayers joining the OVDI were not proceeds from administrative actions (or related actions) from Shands' information. The Court reasoned (Slip Op. 11-12):

     OVDI cases do not generally give rise to Tax Court jurisdiction because they typically are not “against” any taxpayer. Rather, a taxpayer who participates in the OVDI chooses to disclose overseas accounts; calculates the taxes, interest, and penalties associated with the voluntary disclosure; and then pays the amount that is owed. That process is initiated and directed by the taxpayer. It therefore cannot be fairly characterized as the IRS proceeding with an action against the taxpayer. See Li, 22 F.4th at 1017. Indeed, the defining features of the OVDI program are the taxpayer’s voluntary disclosures and payments: The OVDI thus bears no [*12] resemblance to the IRS-driven actions that are listed as examples of “administrative actions” in the applicable regulation, see 26 C.F.R. § 301.7623-2(a)(2) (citing as examples “an examination, a collection proceeding, a status determination proceeding, or a criminal investigation”).

Certain other points:

1. The Court noted that voluntary disclosures which are followed by administrative audits (which was a possibility in OVDI and undoubtedly occurred in some cases such as, for example, when taxpayers opted out or were removed from OVDI) might confer jurisdiction (Slip Op. 12-15, bold face supplied by JAT):

Tax Court Denies WB Claim Made Contemporaneously With Target Taxpayer’s Voluntary Disclosure (2/23/24)

In Whistleblower 14376-16W v. Commissioner, T.C. Memo. 2024-22, GS here, the Court held that the Whistleblower (“WB”) was entitled to no relief from the Whistleblower Office’s denial of an award. The opinion establishes no new precedent, which is why it is a Memo opinion. The opinion does offer some interesting aspects, which I will discuss here.

1. The WB claim targeting several taxpayers was made a couple of months before some of the taxpayers made a request to CI to participate in an IRS voluntary disclosure program.  (It is not clear whether the request was under one of the offshore variants or was under the general voluntary disclosure program (see p. 3 n. 6); it makes no difference, however, for the point I discuss here, so I will just call it a VDP request.) The VDP request was made before any submissions (amended returns, etc.) required to complete voluntary disclosure; those submissions were delayed a substantial period. After the voluntary disclosure request, the WBO processed and sent to the field the WB claim after CI received the VDP request. The IRS subsequently undertook the work required to determine and collect substantial tax based on the taxpayers' submissions. The IRS says that, although its examination function received the WB information, it took no action based on the information. The record before the Court (essentially the record related to the WB claim and related items) supported the IRS’s claim that the proceeds generated from its activity did not rely on the WB claim and information in the WB claim.

2. The Court denied the WB’s sweeping and broadly written discovery requests designed to ferret out all documents and information that could test even tangentially the IRS’s narrative that no collected proceeds resulted from the WB information (including whether the record the IRS submitted to the Court was complete). In part, the WB requested documents and information in the voluntary disclosure package that, it claims, was “indirectly considered” in collecting the proceeds. (See pp. 33-37.) In part, the Court reasoned:

          Petitioner contends, however, that the WBO “indirectly considered” the VDP materials. As one court has aptly observed, “it is not entirely clear what it means to indirectly consider documents or materials.” Amgen Inc. v. Hargan, 285 F. Supp. 3d 397, 404 (D.D.C. 2017) (treating the “indirect consideration” concept as “captur[ing] materials that are necessary to understand the documents that the agency directly relied upon” and denying motion to supplement the administrative record with documents intended to test a decision by the Food and Drug Administration for consistency with previous decisions). The caselaw provides no general test.24 But it does suggest some guiding principles. One court has observed that if an agency's final decision was based “on the work and recommendations of subordinates, those materials should be included as well.” Amfac Resorts, L.L.C. v. U.S. Dep't. of Interior, 143 F. Supp. 2d 7, 12 (D.D.C. 2001) (collecting cases), aff'd in part, rev'd in part 282 F.3d 818 (D.C. Cir. 2002), vacated in part sub nom. Nat'l Park Hosp. Ass'n v. Dep't of Interior, 538 U.S. 803 (2003). On the other hand, it is not always necessary to include in the administrative record source information upon which agency staff relied in making their recommendations to the agency decisionmakers if other information in the record obviates the need to consider the source information independently. See, e.g., James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996) (affirming denial of discovery and record supplementation with respect to source documents that bank examiners had relied upon in making their bank-insolvency reports to the Comptroller of the Currency, where “detailed contemporaneous reports from the examiner-in-charge and members of her examination team explain[ed] how and why they reached their conclusions regarding the banks' reserves”); Cape Hatteras Access Pres. All., 667 F. Supp. 2d at 114 (denying motion to supplement the record with a biological report that the National Park Service had relied upon [*35] in developing an interim strategy that was before the Fish and Wildlife Service when it designated certain critical habitats, even though the biological report was referenced by several other documents in the administrative file).

Tax Court Sustains IRS WBO Denial of Whistleblower Claim for Award Based on All OVDI Collected Proceeds (3/13/23)

In Shands v. Commissioner, 160 T.C. 388 (2023), TC here and TN here, the Tax Court sustained the IRS Whistleblower Office ("WBO") denial of a § 7623(b) claim for nondiscretionary minimum of 15% of collected proceeds with discretionary increases to 30%. (Actually, as described by the Tax Court, his claim was for 30%, but the statute requires only 15% as a nondiscretionary award; I guess he could have thought his contribution was so great that the IRS must exercise its full discretion.) As best I understand, Shands claimed that, based on information he gave federal agents related to the arrest and cooperation of one Renzo Gadola, a misbehaving Swiss banker (misbehaving is perhaps redundant), the IRS created the OVDI program and collected proceeds from many taxpayers, most or even all of whom were unknown to Shands. In his claim letter dated 6/6/12, Shands was unable to name those taxpayers but said he was nevertheless entitled to the § 7623(b) award based on collected proceeds from those taxpayers entering OVDI. "Neither the [Shands] OVDI claim letter nor petitioner's Motion papers claim a share of collections from associated enforcement actions, such as seizures of taxpayer assets or follow-up audits of OVDI participants, taxpayers who opted out of OVDI, or taxpayers not in compliance that the IRS discovered through OVDI disclosures."

The basis for denial was that the creation of OVDI was not an administrative or judicial proceeding as defined in "Treasury Regulation § 301.7623-2(a) [which] defines both terms for claims open as of August 12, 2014. See Treas. Reg. § 301.7623-2(f).” (Emphasis supplied by JAT.) Shands' claim had not been acted on by August 12, 2014, so relying on the regulation seems to be appropriate.

But Shands had another trick up his sleeve. He claimed that the IRS WBO had already decided to deny his claim and in the normal course would have except (he claimed), the IRS improperly delayed issuing the denial until the proposed regulation on August 12, 2014 in order to subject his claim to the Regulation's interpretation of administrative or judicial proceeding. His argument was that the Administrative Procedure Act ("APA" does not permit an agency to effectively make the decision on action (here a denial) and withhold the formal notice of the action pending issuing proposed regulations as a basis for the action.

Proposed Legislation to Enact "IRS Whistleblower Program Improvement Act of 2023" (3/12/23)

Senator Grassley (for himself and for Senators Wyden, Wicker, and Carden) has introduced a bill titled ‘‘IRS Whistleblower Program Improvement Act of 2023,’’ here. Senator Grassley’s press release about the bill is here. If enacted, which I speculate is likely, the following significant changes to the WB Program will apply (note that Senator Grassley’s press release is light on details):

• amend § 7623(e)(7) to change the standard for review of whistleblower awards to de novo based upon “the administrative record established at the time of the original determination and any additional newly discovered or previously unavailable evidence.’’ Bill § 2. This standard and scope of review are the same as for innocent spouse Tax Court review under § 6015(e)(7), which has recently been interpreted in relevant part as to evidence outside the administrative record. Thomas v. Commissioner, 160 T.C. ___ No. 4  (2023), here. The effective date is for cases "pending on, or filed after, the date of enactment."

• exempt whistleblower awards from sequestration by adding 2 U.S.C. § 905(k). Bill § 3. This provision applies to any sequestration order issued after December 31, 2022. The IRS website for Whistleblower Award Sequestration, here, says that the sequestration rate for 2023 is 5.7% that applies “unless and until a law is enacted that cancels or otherwise affects the sequester, at which time the sequestration reduction rate is subject to change.”

• add § 7623(b)(6)(D) to provide a general rule that the Tax Court is to grant whistleblower requests for anonymity absent “a finding by the Tax Court that a heightened societal interest exists for disclosing the whistleblower’s identity, exceeding the normal interest in knowing a petitioner’s identity.” Bill § 4. The effective date is for “petitions filed with the Tax Court which are pending on, or filed on or after, the date of the enactment of this Act.” I am not sure how this will apply to WB petitions already filed naming the whistleblower.

D.C. Circuit Holds Tax Court Has No Jurisdiction To Consider WBO Action in Declining To Consider A WB Claim By Not Forwarding for Examination (1/12/22)

In Li v. Commissioner, ___ F.4th ___, 2022 U.S. App. LEXIS 2022 U.S. App. LEXIS 697 (D.C. Cir. 1/11/22), DCCir here and GS here, the Court held that the Tax Court has no jurisdiction to review under § 7623(b)(4) the IRS Whistleblower Office (“WBO”) determination that the whistleblower (“WB”) has not submitted sufficient specific information for the WBO to refer the matter to an Examination function for possible action (an audit) that might result in a WB award.  The Court of Appeals raised the issue on its own motion as it is entitled to do for lack of jurisdiction.  The Court of Appeals’ jurisdiction is dependent upon the Tax Court having had jurisdiction.

The opinion is short, so I refer readers to the opinion if they want more than the opinion I offer.

In making the holding, the Court specifically rejected contrary holdings in Cooper v. Commissioner, 135 T.C. 70, 75 (2010) and Lacey v. Commissioner, 153 T.C. 146 (2019) which held that the Tax Court had jurisdiction over WB claims that were not forwarded to the Examination function.  Note that, since appeals in WB cases must go to the D.C. Circuit, this opinion will be conclusive unless reversed by the panel, the D.C. Circuit en banc, or the Supreme Court.

The Court recognizes a potential exception to its holding in fn. 2 on p. 7:

   n2 Li does not argue on appeal that the IRS, in fact, did proceed against the target taxpayer based on information in her Form 211 application. So we need not and do not decide whether the Tax Court would have jurisdiction to hear a whistleblower’s claim in a case in which the IRS wrongly denied a Form 211 application but nevertheless proceeded against a target taxpayer based on the provided information.

Whistleblower FYE 2020 Report (1/6/21)

 The IRS Whistleblower Office has released a report titled Fiscal Year 2020 annual report, here.  The opening message from the Director of the WBO, Lee D. Martin, is (have added links for the publications referenced):

The fiscal year (FY) 2020, which began on October 1, 2019, marked the 14th anniversary of the Whistleblower Office and the Whistleblower Program. I am extremely proud of the dedicated women and men in the Whistleblower Office, Small Business/Self-Employed (SB/SE) Initial Claims Evaluation unit, and other divisions across the Internal Revenue Service (IRS). Since 2007, the Whistleblower Program paid awards to whistleblowers totaling more than $1 billion dollars and has led to the successful collection of $6.14 billion from noncompliant taxpayers. 

Statistically in FY 2020, the Whistleblower Office made 169 awards to whistleblowers totaling $86,619,032 (before sequestration), which includes 30 awards under Internal Revenue Code (IRC) § 7623(b). Proceeds collected were $472,080,014. Included in the proceeds collected, as a result of IRC § 7623(c), are the non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements amounting to $110,438,166. The Title 26 amounts collected were $361,641,848. Whistleblower claim numbers assigned in FY 2020 decreased by 20 percent from those submitted in FY 2019, and closures decreased by 33 percent. 

During FY 2020, we continued our focus on operationalizing the whistleblower statutes under the Taxpayer First Act of 2019 (TFA 2019). This included adding four analysts to meet the increased workload due to the new provisions. To educate whistleblowers about the new TFA 2019 provisions, we updated Publication 5251, Whistleblower Claim Process and Timeline, and Internal Revenue Manuals 25.2.1 and 25.2.2. On December 3, 2019, we signed a Memorandum of Understanding (MOU) with Alcohol and Tobacco Tax and Trade Bureau (TTB) that put in place procedures between the IRS and TTB to process claims for whistleblower awards under Internal Revenue laws that are administered and enforced by TTB. On April 30, 2020, the Whistleblower Office held its first ever Whistleblower Program Forum. Lastly, like other organizations and businesses, the Whistleblower Office worked diligently to maintain Whistleblower Program operations that were impacted by office closures due to the coronavirus crisis. 

GAO Report on IRS Whistleblower Processing and Improvement of Data Controls (10/30/18)

The GAO issued a report titled "Whistleblower Program: IRS Needs to Improve Data Controls for Some Award Determinations (GAO-18-698 published 9/28/18 and publicly released 10/29/18).  The fast facts, highlights and recommendations are here.  The full report is here.

I cut and paste the highlights below:

What GAO Found 

Prior to February 9, 2018, when Congress enacted a statutory change requiring the Internal Revenue Service (IRS) to include penalties for Report of Foreign Bank and Financial Accounts (FBAR) violations in calculating whistleblower awards, IRS interpreted the whistleblower law to exclude these penalties from awards. However, GAO found that some whistleblowers provided information about FBAR noncompliance to IRS. In a sample of 132 whistleblower claims closed between January 2012 and July 2017, GAO found that IRS assessed FBAR penalties in 28 cases. It is unknown whether the whistleblower's information led IRS to take action in all of these cases. These penalties totaled approximately $10.7 million. Had they been included in whistleblower awards, total awards could have increased up to $3.2 million. Over 97 percent of the FBAR penalties collected from these 28 claims came from 10 cases with willful FBAR noncompliance, for which higher penalties apply.

Report of Foreign Bank and Financial Accounts (FBAR) Penalties and Potential Whistleblower Awards for Selected IRS Whistleblower Claims Closed between January 1, 2012, and July 24, 2017

FBAR penalty type	Number of claims	FBAR penalty amount (dollars)	Maximum potential whistleblower awarda(dollars)
Willful penalty	10	10,485,847	3,145,754
Non-willful & negligent penalty	18	263,039	78,912
Total	28	10,748,886	3,224,666

Source: GAO analysis of IRS data. | GAO-18-698
a Maximum potential award is defined as 30 percent of the FBAR penalty amount.

IRS forwards whistleblower allegations of FBAR noncompliance to its operating divisions for further examination. However, IRS Form 11369, a key form used for making award determinations, does not require examiners to include information about the usefulness of a whistleblower's information FBAR and other non-tax issues. After Congress enacted the statutory change, IRS suspended award determinations for 1 week, but resumed the program before updating the form or its instructions, or issuing internal guidance on new information required on the Form. As of June 28, 2018, IRS had not begun updating the Form 11369 or its instructions. The lack of clear instructions on the form for examiners to include information on FBAR and other non-tax enforcement collections may result in relevant information being excluded from whistleblower award decisions.

IRS maintains FBAR penalty data in a standalone database. It uses these data for internal and external reporting and to make management decisions. Because of the change in statute, IRS will need these data for determining whistleblower awards. GAO found that IRS does not have sufficient quality controls to ensure the reliability of FBAR penalty data. For example, IRS staff enter data into the database manually but there are no secondary checks to make sure the data entered are accurate. Without additional controls for data reliability, IRS risks making decisions, including award determinations, with incomplete or inaccurate data. 

This is a public version of a sensitive report issued in August 2018. Information on the FBAR Database that IRS deemed to be sensitive has been omitted. 

Why GAO Did This Study 

Tax whistleblowers who report on the underpayment of taxes by others have helped IRS collect $3.6 billion since 2007, according to IRS. IRS pays qualifying whistleblowers between 15 and 30 percent of the proceeds it collects as a result of their information. However, until February 9, 2018, IRS did not pay whistleblowers for information that led to the collection of FBAR penalties. 

GAO was asked to review how often and to what extent whistleblower claims involve cases where FBAR penalties were also assessed. Among other objectives, this report (1) describes the extent to which FBAR penalties were included in whistleblower awards prior to the statutory change in definition of proceeds; (2) examines how IRS used whistleblower information on FBAR noncompliance, and how IRS responded to the statutory change in definition of proceeds; and (3) describes the purposes for which IRS collects and uses FBAR penalty data, and assesses controls for ensuring data reliability. GAO reviewed the files of 132 claims closed between January 1, 2012, and July 24, 2017, that likely included FBAR allegations; analyzed IRS data; reviewed relevant laws and regulations, and IRS policies, procedures and publications; and interviewed IRS officials. 

What GAO Recommends 

GAO recommends IRS update IRS Form 11369 and improve controls for the reliability of FBAR penalty data. IRS agreed with all of GAO's recommendations.

JAT Comments:

Whistleblower Matters - Update (4/21/18)

I have made updates to the working draft of the Federal Tax Procedure book based, in part, on a recent posting on the Procedurally Taxing Blog -- Keith Fogg, Don’t Expect a Whistleblower Award for Giving the IRS Privileged Information and General Information from the Judicial Conference on this Issue (Procedurally Taxing Blog 4/16/18), here.  Also included in the updates are the recent statutory changes to the whistleblower awards program.  I link here a pdf of a red-line of the Whistleblower chapter -- Chapter 19.  Whistleblower Awards -- showing the changes in the working draft from the 2018 edition.  This is a footnoted edition of the draft of the chapter.  The principal new items covered are:]

• The change in the statute from "collected proceeds" to "proceeds" with a broadening of the base for whistleblower awards to clearly encompass non Title 26 collections (such as FBAR penalties and criminal fines related to tax crimes).
• The scope of review for Tax Court whistleblower cases.
• Appellate venue to the D.C. Circuit Court of Appeals for Tax Court whistleblower cases.
• The WBO's fye 2017 statistics for whistleblower cases.

Statistics from the 2016 Whistleblower Office Report (1/16/17)

The IRS Whistleblower Program Fiscal Year 2016 Annual Report to Congress, here, reports the following statistics:

Table 1: Amounts Collected and Awards under Section 7623, Fiscal Years  2014 to 2016 FY2014 FY2015 FY2016 Total Claims Related to Awards 240 204 761 Total Number of Awards fn4 101 99 418 Total IRC 7623(b) Awards 19 18 Collections over $2,000,000 fn5 9 11 16 Total Amount of Awards fn6 $52,281,628 $103,486,236 $61,390,910 Amounts Collected  fn7 $309,990,568 $501,317,481 $368,907,298 Awards as a Percentage of Amounts Collected 16.90% 20.60% 16.60% Average Awards $5,809,070 $9,407,840 $3,836,932 fn4  For Table 1, “Total Number of Awards” reflects the number of payments to whistleblowers. In some cases, awards can include proceeds from multiple taxpayers, which are reflected in the “Total Claims Related to Awards.” fn5  This row includes pre-enactment section 7623(a) claims that were greater than $2 million and section 7623(b) claims. fn6 The “Total Amount of Awards” is prior to sequestration reductions. fn7  The “Total Amount of Awards” [for FY2015] was overstated by $441.84 on the FY 2015 Annual Report, and Table 1 has been revised to reflect the correct amount.
JAT Comments on the Statistics: My own calculations the following averages per award from the numbers above: Average Awards $517,640 $1,045,316 $146,868 These average award numbers are low because of the large number of § 7623(a) awards which generally tend to be significantly less than the § 7623(b) awards.  My inference is that the § 7623(b) awards – 0 in FY 2014, 19 in FY2015, and 18 in FY2016 - would average much more than the indicated average for all awards.  Indeed, I suspect that, although § 7623(b) awards made are a low percentage of total awards, the lion's share of the Total Amount of Awards is under § 7623(b). These numbers for claims awarded under § 7623(b) may seem low, but § 7623(b) is still relatively new (enacted effective 2007) and processing whistleblower claims to fruition with collected proceeds (collections after the refund statute of limitations has expired) takes a long time.  So, the number of awards and the amounts awarded are probably not indicative of the future where awards may be in the pipeline for claims already made or will be received and processed in later years.

Back to the Report:

The Report contains a discussion of "Other Issues of Interest."

Former IRS Agent Charged with Conflict of Interest and Disclosing Return Information Including Whistleblower Name (9/27/12)

Manhattan U.S. Attorney Charges Former IRS Official With Violating Conflict Of Interest Laws And Illegally Disclosing Whistleblower’s Identity (USAO SDNY Press Release 9/27/12), here.

Here is a cut and paste of the described conduct and charges:

From June 2010 until August 2011, LERNER worked as an International Examiner in the New York office of the IRS. For several months leading up to his resignation from the IRS, one of LERNER’s chief responsibilities involved conducting an audit of an international bank (“Bank 1”) related to approximately $1 billion in allegedly unreported income. This audit was triggered by confidential whistleblower information LERNER reviewed during the course of his IRS employment. Shortly before his resignation, LERNER led negotiations on behalf of the IRS which resulted in a proposed $210 million settlement between Bank 1 and the IRS. The settlement was still pending final approval at the time of his departure. Unbeknownst to his colleagues and supervisors, LERNER applied and interviewed for the position of Tax Director at Bank 1 during the time period in which he was representing the IRS in the Bank 1 settlement discussions. He also sent multiple emails to an individual in which he expressed both his dissatisfaction with his job at the IRS and his hope that he would secure the Bank 1 job. At no time did he notify the IRS of his efforts to obtain employment with Bank 1. 

After LERNER announced his resignation from the IRS, he received written notification of certain restrictions imposed on former IRS employees regarding improper contacts with current IRS officials. However, when the IRS sent Bank 1 additional inquiries regarding the audit after he began working as Tax Director in September 2011, LERNER subsequently placed numerous phone calls to IRS employees and initiated meetings with them regarding the continuing audit. LERNER persisted with attempts to encourage IRS employees to provide information regarding the audit, and to approve the settlement between the IRS and Bank 1, despite warnings that he should not be participating in the audit or settlement discussions.
LERNER also engaged in improper disclosure of IRS tax return information during the time period that he worked as an IRS International Examiner. Specifically, LERNER divulged the identity of a whistleblower who had provided the IRS with confidential information regarding Bank 1 that had triggered the audit to someone not employed by the IRS, and provided details regarding pending IRS audits of other companies to individuals who were not employed by the IRS.

Whistleblowers, Carried Interests, Fee Waivers and Swiss Banks (9/15/12)

I previously blogged as to the claim that Revenue Procedures was a legal basis for claiming capital gains for carried interests and the more aggressive fee waivers (the latter of which being the more aggressive strategy to turn ordinary income into capital gains).  See Are Revenue Procedures Influential In Interpreting the Law: Of Profits / Carried Interests and Administrative Billion Dollar Largess (9/7/12), here.  It appears that whistleblowers are busy for the more aggressive of these alchemies.

The Wall Street Journal reports that the recently well publicized investigation by the New York State Attorney General is based on whistleblower information.  The WSJ also reports that whistleblower claims have been made to the IRS and that those claims are "active."

The WSJ article is Reed Albergotti and Laura Saunders, Informer Sparked New York Probe (WSJ 9/12/12), here.  Here are a few of the introductory paragraphs to whet your appetites.

New York state Attorney General Eric Schneiderman's probe of tax practices at private-equity firms is based on information from a whistleblower, according to a person familiar with the matter.

The investigation by Eric Schneiderman, pictured in March, has sent subpoenas to 13 private-equity firms. 

The information came from someone who approached Mr. Schneiderman's office between roughly nine months and a year ago, this person said. Under the state's False Claims Act, the attorney general can investigate alleged fraud against the state based on a whistleblower's allegations.

Birkenfeld Gets $104 Million Whistleblower Award (9/11/12)

Bradley Birkenfeld the Whistleblower who whistleblowing brought UBS to its knees and set in motion the IRS offensive against Swiss and other foreign banks has been awarded $104 million as a whistleblower award under Section 7623(b), here.  Birkenfeld was also convicted and sentenced for crimes related to his alleged reticence in coming fully clean.  Still, he was the man.  He was formerly named Tax Analysts "Person of the Year" for 2009.

This is a stunning development.  I am sure there will be a lot of buzz and hype.  But I do think this signals some significant movement in the Whistle Blower office.

Also, since the Swiss would say that his whistleblowing violated its law, we now know that the IRS admits having used the information in violation of other country law to collect revenue (which is what is required to grant an award).  So for all who thought that our Government might not used illegally obtained information, think again.  See also Payner v. United States, 447 U.S. 727 (1980), here, Government can use against a depositor information from a "flagrantly illegal search."

Resources: