Monthly Archives: January 2020

On June 5, 2019, we posted IRS Whistleblower Office Collects Over $1.44 Billion & Paid a Record $312M to Tipsters where we discussed that the Internal Revenue Service’s Whistleblower Program made 217 awards to whistleblowers totaling $312,207,590 and collected $1,441,255,859 in fiscal year 2018, according to a new report. the in its 2019 Annual Report to Congress, the Whistleblower Office reported that it made 181 awards to whistleblowers totaling $120,305,278 (before sequestration), which includes 24 awards under IRC § 7623(b).

Proceeds collected were $616,773,127. Included in the proceeds collected, as a result of § 7623(c), are the non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements amounting to $110,003,100. Title 26 amounts collected were $506,770,027.

Whistleblower claim numbers assigned in FY 2019 decreased by 7.3 percent from those submitted in FY 2018, and closures increased by 29.8 percent.

The Tax Relief and Health Care Act (TRHCA 2006) added IRC § 7623(b), which enacted significant changes in the Internal Revenue Service (IRS) award program for whistleblowers. TRHCA set a new framework for the consideration of whistleblower submissions and established the Whistleblower Office within the IRS to administer that framework. The TRHCA 2006 requires that the Secretary of the Treasury conduct an annual study and report to Congress on the use of IRC § 7623. The annual study and report to Congress includes any legislative or administrative recommendations for IRC § 7623 and its application. This report discusses the IRS Whistleblower Program activities for FY 2019 in satisfaction of the reporting obligations under the TRHCA 2006.

The Whistleblower Office coordinates with other IRS units, analyzes information submitted, and makes award determinations. If a submission does not meet the criteria for IRC § 7623(b) consideration, the Whistleblower Office may consider it for an award pursuant to its discretionary authority under IRC § 7623(a). A whistleblower must meet several conditions to qualify for the IRC § 7623(b) award program. The information must be:

• Signed and submitted under penalties of perjury, 
• Related to an action in which the proceeds in dispute exceed $2,000,000, and 
• Related to a taxpayer, and for individual taxpayers only, one whose gross income exceeds     $200,000 for at least one of the tax years in question.

If the information meets the above conditions and substantially contributes to an administrative or judicial action that results in the collection of proceeds, the IRS will pay an award of at least 15 percent, but not more than 30 percent, of the proceeds. 

The award percentage decreases for cases based principally on information disclosed in certain public sources or when the whistleblower planned and initiated the actions that led to the tax law violations. Whistleblowers may appeal the Whistleblower Office’s award determinations under IRC § 7623(b) to the United States Tax Court (Tax Court).

The IRS pays awards from proceeds, and as such, award payments cannot be made until the taxpayer has exhausted all appeal rights and the taxpayer no longer can file a claim for refund or otherwise seek to recover the proceeds from the government. Therefore, the IRS generally cannot make award payments for several years after the whistleblower has filed a claim. 

 A district court has found in Agrawal, (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522 that a taxpayer was liable for nonwillful FBAR penalties and that the reasonable cause exception did not apply because the taxpayer did not act with ordinary business care and prudence when he prepared some of his own returns and when he had an accountant prepare others.

The penalty for violating the FBAR requirement depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC § 5321(a)(5)(B)(i)) The maximum penalty amount for a willful violation "shall be increased to the greater of" $100,000 or 50% of the balance in the account at the time of the violation. (31 USC § 5321(a)(5)(C), 31 USC § 5321(a)(5)(D))

The district court points out that neither 31 USC § 5321 nor its corresponding regs define "reasonable cause" in the FBAR reporting context, but the regs implementing Code Sec. 6651 equate the reasonable cause standard with a standard of "ordinary business care and prudence." (Reg. § 301.6651-1(c)(1)) The regs interpreting Code Sec. 6664(c)(1) state that the determination whether a taxpayer acted with reasonable cause "is made on a case-by-case basis, taking into account all pertinent facts and circumstances," and further that "generally the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper liability." (Reg. § 1.6664-4(b)(1))

Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.

Mr. Agrawal testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.

The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.

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