A couple of decade ago, an American lawyer with roughly $50 million stashed within the Cayman Islands went in search of one other place to cover it. His problem, allegedly, is that he had never declared the accounts and paid his taxes. His solution was to buy nearly a dozen villas in Spain through shell corporations, plus tens of millions of dollars’ price of gold bullion.
The lawyer might never have come to the eye of U.S. tax authorities if not for the proven fact that the person he had hired to assist him load up on Spanish real estate blew the whistle. In 2016, with assistance from a former IRS agent named Robert Mazur, that person handed over detailed documentation of the alleged tax evasion scheme to the IRS whistleblower office.
That was nearly seven years ago. To today, the IRS has yet to take any enforcement motion.
“It defies logic to me that it could take that long,” Mazur said. But that’s lower than the typical period of time it takes the IRS whistleblower office to research a claim, which ranges from eight and a half to greater than 11 years.
“The IRS whistleblower program is one in all the best wastes of presidency opportunity that’s on the market,” said Jeffrey Neiman, who represents whistleblowers as a partner on the Florida law firm Marcus, Neiman, Rashbaum & Pineiro. “You’ve gotten this stubbornness inside the IRS where they consider they need to find a way to do every part on their very own. Despite Congress giving them this amazing tool to crack down on tax evasion.”
In keeping with the IRS’s own data, for each $1 it does eventually award to whistleblowers, it collects not less than $6 from noncompliant taxpayers. Since 2007, whistleblowers have helped the service get well $6.39 billion from wealthy and company tax cheats.
And yet this system has been shrinking. From 2018 to 2021, the dimensions and variety of whistleblower awards plunged from 423 awards totaling $312 million to 179 awards price $36 million. The sum of money the office recovered from noncompliant taxpayers also fell, from $1.4 billion to $245 million. A recent report from the Senate Finance Committee blasted the IRS for opening just six criminal investigations based on whistleblower complaints in fiscal 12 months 2020.
A serious perpetrator is huge delays in paying out whistleblower awards and a deep-seated resentment contained in the IRS toward working with informants. Within the years it takes for the IRS to vet a claim, investigate and take motion, whistleblowers typically remain in the dead of night. Waiting for a tax case to take shape, Mazur said, is like watching a glacier form.
“I actually have a former CFO-type who submitted a claim a few real estate developer around six and a half years ago,” Neiman said. “We’re talking about tens of tens of millions of dollars. And sooner or later, I’m gonna go to the mailbox, discover a letter, and it’ll tell me they’ve either decided to offer my client a reward or not.”
“I’ve had billion-dollar claims rejected though they were completely meritorious since the IRS just gave up on them.”
– Bryan Skarlatos, a whistleblower attorney
John Hinman, who became the office’s newest director in May, said he’s aware of the whistleblower program’s fame and is keen on improving it.
“We absolutely do value whistleblowers and their contributions,” he said. “I’m really coming into the position with a desire to search for opportunities for improvements and alter.”
The challenge facing him is steep. This system is a shadow of what lawmakers imagined after they created the whistleblower office in 2006. Inspired by the awesome scale of malfeasance behind the Enron scandal, Sen. Chuck Grassley (R-Iowa) helped pass a bipartisan law that arrange the office and made monetary awards for successful whistleblowers mandatory. They’re entitled to between 15% and 30% of what the IRS collects based on their information.
Under the law, the whistleblower has to substantially contribute to the investigation as a way to be eligible for an award, normally by providing emails, PowerPoint presentations and memos that help make the case. Individuals who initiated or planned the criminality usually are not eligible.
The law took effect on Dec. 6, 2006.
“We had submissions coming within the door on December 7,” recalled Bob Gardener, a retired IRS agent. By the point the office had a everlasting director the next February, the guidelines numbered greater than 400. “And so they just kept rolling in,” he said. “Daily we might get five, ten recent submissions.”
The standard, he said, was improbable. Whistleblowers clued the IRS in to every part from garden-variety secret offshore accounts to varieties of tax evasion the agency didn’t even know existed. Informants hailed from virtually every high-flying industry, like banking, finance, manufacturing, construction, pharmaceuticals, and military contracting.
A tip from Brad Birkenfeld, a former UBS banker who would collect the biggest IRS whistleblower award in this system’s history, resulted in a watershed investigation of Americans hiding taxable assets within the Swiss banking system. UBS agreed to pay a $780 million wonderful and switch over the names of 1000’s of Americans with undeclared accounts. Birkenfeld was also sentenced to 40 months in prison for withholding the name of a client implicated within the scandal.
But just just a few years into this system’s existence, the pace of latest whistleblower claims began to slow. Suggestions were taking ages to research — so long that some whistleblowers died before a conclusion was reached on their claims, Gardener said. The IRS, hamstrung by budget cuts and outgunned by accused tax cheats who had the power to rent formidable legal teams, began avoiding claims involving complex issues like transfer pricing or complicated financial instruments, critics said.
“People cannot consider that the IRS won’t exit of its solution to collect $20 million, but the reality is, often they won’t,” said Bryan Skarlatos, a whistleblower attorney on the Washington, D.C., firm Kostelanetz & Fink. “I’ve had billion-dollar claims rejected though they were completely meritorious since the IRS just gave up on them.”
The agency’s top brass, meanwhile, made no secret of the proven fact that they resented that Congress had forced them to work with people they saw as unscrupulous.
“We were fighting a continuing battle against this institutional feeling of, I don’t need any person to inform me the way to do my job and find the problems,” Gardener said. “And so they were in search of ways to make it harder for whistleblowers to get awards.” Many whistleblowers have taken the IRS to court over their shares of an award, a process that may last so long as the initial investigation.
“If the IRS doesn’t wish to pay whistleblowers, well, who’s going to dime out the Russians for just a few million dollars? I wouldn’t.”
– A Democratic aide with oversight of the whistleblower program
The grinding realities of blowing the whistle have led many would-be informants to conclude that the downsides are only too great. Attorneys have, too: The variety of law firms willing to represent whistleblowers has collapsed from greater than 60 white-shoe law firms doing that work when the whistleblower law was passed to simply a handful of boutique operations today.
Whistleblowers who’ve gotten caught by their employers have been demoted or fired and have suffered spurious lawsuits, Skarlatos said. Birkenfeld — who’s now having fun with something of a everlasting vacation in Europe — has advised whistleblowers who’ve been followed and had their phones tapped. One man asked for asylum in the US.
“In the long run, what do you get?” Birkenfeld asked. “Only a few individuals who have the courage to come back forward.”
“They’re on the market, and so they come to us,” said a Democratic aide with oversight of this system. “Loads of individuals who work in Swiss banking are willing to blow the whistle on big accounts. … But when the IRS doesn’t wish to pay whistleblowers, well, who’s going to dime out the Russians for just a few million dollars? I wouldn’t.”
On the opposite side of the ledger, critics of the office say, tax cheats are feeling emboldened.
“Without delay there’s still a mindset of, all I actually have to do is outfox the blokes on the IRS, and so they’re all wearing cardigans and reading glasses,” said Dean Zerbe, who helped draft the whistleblower statute as a Grassley aide and now represents whistleblowers as an attorney. “What you would like is for people to fret about every one they work with — their banker, their banker’s secretary, the guy in Panama, the guy within the Caymans.”
Some critics have pinned their hopes on Hinman to enhance things. Hinman told HuffPost that he’s attempting to speed up whistleblower payments in ongoing cases where the IRS has already collected some back taxes and said he’s pressing the office to trace down hard-to-locate whistleblowers and the descendants of whistleblowers who’ve died.
“We now have been pondering hard about what we will do to hurry up awards,” he said. “We usually are not tilted toward saying our job is to make awards as small as possible.”
In September, Hinman approved an $8.8 million award for 2 informants who helped the IRS get well $35 million in corporate income taxes; it was a reversal of an earlier decision to offer them a much smaller award.
The Inflation Reduction Act, the multibillion legislative package that President Joe Biden signed into law this August, incorporates $78 million over 10 years for the IRS to backfill and shore up crucial positions. Hinman said any additional field agents will give the IRS more bandwidth to research whistleblower claims.
Individually, Sen. Ron Wyden (D-Ore.) and Grassley have introduced a bill that may increase funding for the office itself, penalize the IRS for long delays in issuing awards and, when whistleblowers sue the IRS over award money, make the legal standard courts use in those lawsuits more favorable to the whistleblower.
But none of that immediately addresses the arduous waits whistleblowers face today.
“It’s unlucky how this system is floundering,” Mazur said. He periodically asks for updates on his client’s case, but the reply is at all times some version of “hang tight.”
“They’re very polite on the whistleblower’s office, but nothing seems to ever occur.”