LETTERS TO THE EDITOR
tax notes®
Whistleblowers With Clean
Hands Should Be Treated Fairly
To the Editor:
They say crime does not pay. Well, the IRS
Whistleblower Office sees things differently.
If you participate in a tax crime, you stand to
potentially collect millions of dollars under the
IRS whistleblowing statute. By contrast, the SEC
bans whistleblower payments to participants in
the crimes they report. So does the Justice
Department when dealing with a qui tam relator.
The IRS holds its nose when making such
payments, and they are not to blame. They are
simply implementing the law Congress passed.
This law compels the IRS to make a payment to a
whistleblower whose information leads to the
collection of tax penalties and interest. The law
was recently clarified in January 2018, when the
definition of proceeds was broadened to include
penalties associated with the failure to declare
certain foreign assets and criminal forfeiture.
While the IRS cannot be blamed for rewarding
criminal defendants with substantial
whistleblower payments, the IRS can be blamed
for treating innocent whistleblowers with clean
hands worse than criminally culpable
whistleblowers. This defies common sense.
Under governing IRS regulations, the
Whistleblower Office has discretion to determine
what percentage of collected proceeds to pay over
to a whistleblower. In deciding upon this figure,
the IRS considers a number of factors, including
the timeliness, clarity, and detail of the
information provided as well as the nature and
helpfulness of the whistleblower’s actions. After
applying these positive factors, the IRS
recommends a payment percentage of either 15,
22, or 30 percent. The IRS then applies negative
factors, including the involvement of the
whistleblower in the underlying conduct, to
reduce the recommended award.
Applying these factors, a criminal defendant
who actively participated in a multimillion-dollar
tax evasion scheme may then provide the
information to the IRS. Having been directly
TAX NOTES, DECEMBER 24, 2018
involved in the tax evasion scheme, a criminally
culpable whistleblower will often have substantial
access and information about the scheme. They
also may be asked to participate in the criminal
investigation process, including appearing before
a federal grand jury, wearing a wire, recording
phone calls, providing a statement under oath,
meeting with IRS Special Agents, and —
ultimately — testifying before the trial jury.
Under this scenario, the criminally culpable
whistleblower has a strong case that when
applying the positive factors, they are entitled to
an initial award determination of 30 percent. The
award will then undoubtedly be reduced by a
negative factor because of the whistleblower’s
criminal culpability, which would likely lead to a
recommended award payment between 22 and 30
percent.
On the other hand, an innocent whistleblower,
with clean hands, may provide lethal information
to the IRS in a timely and efficient manner. But
because they were not criminally involved in the
tax evasion scheme, there would be little
opportunity for them to participate in the criminal
investigation process. By not participating in the
criminal investigation process, an innocent
whistleblower will have fewer opportunities to
provide the IRS with information. This could
make it more difficult for the innocent
whistleblower to receive an initial award
recommendation of 30 percent. Having not
participated in the criminal investigation process,
and because there are no negative factors to apply,
an innocent whistleblower will ultimately receive
a recommended award of 22 percent of collected
proceeds — less than that of a criminal
whistleblower.
The IRS says in its own regulations that
determining the award percentage is not an exact
science. The IRS actually has the freedom to weigh
certain factors more heavily than others. The IRS
Whistleblower Director also has the authority
under the existing regulations to award a
whistleblower any award between 15 and 30
percent that he sees fit.
1633
LETTERS TO THE EDITOR

With IRS criminal tax prosecutions at record

lows, it is more important than ever that the IRS
treat whistleblowers fairly. With their assistance,
big-dollar, presently ongoing, complicated tax
evasion schemes will be more readily exposed in
an efficient manner. This will ultimately save the
IRS countless hours of resources, and it will bring
in millions of dollars in newly found tax revenue.
While the IRS will have to pay the criminally
culpable whistleblower, they should not treat
them better than the innocent whistleblower with
clean hands. To do otherwise would only
encourage those with otherwise clean hands to
actively participate in tax evasion schemes.
Under current IRS whistleblower law, crime
pays. But it should pay less than acting
responsibly.
Jeffrey A. Neiman
Marcus Neiman & Rashbaum LLP
Dec. 18, 2018 

1634 TAX NOTES, DECEMBER 24, 2018