'Tax Tipsters Getting $74 Million Shows IRS Progress, Lawyers Say'

 Whistleblower lawyers who have long complained that the Internal Revenue Service takes far too long to process tips about tax evasion are billboarding a $74 million payout as a sign of improvement.

Three people shared the award after disclosing an offshore tax-evasion scheme that spanned 15 years, enabling the IRS to collect $263 million from an unidentified individual, according to attorneys for Getnick Law, which helped represent the lead whistleblower. Although it took years to resolve the case, recent policy changes significantly shortened the time it took to pay the whistleblowers, the lawyers said.

“We think that this victory that we have achieved together with the IRS Whistleblower Office is a harbinger for the future,” said Neil Getnick, managing partner at Getnick Law, in an interview.

The IRS declined to comment, and lawyers for the tipsters didn’t disclose the names of their clients.

Under the IRS program, which began in 2007, about 2,500 tax tipsters have gotten $1 billion for providing information that led to collections of $6 billion. The biggest payout was to former UBS Group AG banker Bradley Birkenfeld, who got $104 million for telling US investigators how his employer helped thousands of Americans evade taxes.

But a process that typically takes a decade or longer has been criticized by whistleblower advocates, who say the IRS has been far less responsive on paying tipsters than the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission. In its first five years of existence, the IRS program made no payment, after more than 1,300 tipsters came forward. Since then, the program has lurched forward.

“I realized we needed to work on improving the system,” said John Hinman, who became director of the IRS Whistleblower Office in 2022 after 39 years in various roles at the agency.

High-Value Claims

In an interview, Hinman said he has expanded the office to 84 employees from 48, with a goal of reaching 130. They’re improving evaluation of tips and working more closely with lawyers who represent whistleblowers, he said.

“We’ve done a lot of work around systems and processes to improve identification of high-value claims,” Hinman said. “We’re continuing to collaborate with whistleblower practitioners.”

IRS investigations of tax claims can take years to resolve as taxpayers pursue possible appeals, delaying any rewards for tipsters. To address that, the agency has sought to make earlier partial payments in cases initiated by whistleblowers, a process known as “disaggregation,” Hinman said.

“We’re looking at our inventory to see what sort of claims we can disaggregate and break apart when their cases are done and there’s been a final determination of tax,” he said. “We’re really hopeful that we can sort of modify our processes to pay awards even sooner.”

Hinman’s efforts are beginning to pay off, said attorney Dean Zerbe, who helped write the whistleblower law when he worked for the US Senate and now represents tipsters making claims. He wasn’t involved in the most recent case, but said he expects more awards may be announced in the coming days, before the close of the US government’s fiscal year on Sept. 30.

“The program is absolutely heading in the right direction,” Zerbe said. “They’ve had some growing pains, but Hinman has brought in some new energy.”

Lawyers have complained the agency has long battled whistleblowers over their awards. Under the law, tipsters can reap 15% to 30% of any taxes collected. Those awards are now increasing, according to Zerbe, who represented Birkenfeld and has many pending claims.

In the most recent case, the trio of whistleblowers got the maximum, minus several million dollars under US legislation cutting all government payments, according to their attorneys.

Reducing Delay

Chris McLamb, an attorney at Whistleblower Partners who represented another one of the tipsters, said his client benefited from recent improvements to the program. For example, the agency rewarded the whistleblowers for helping it fully recoup money from one taxpayer even as it continues to examine other taxpayers in the case. For years, the IRS typically refused to pay up if there was a chance of recovery from other taxpayers based on a whistleblower’s information.

“That was a major cause for delay,” he said.

Separately, the IRS let the whistleblowers negotiate among themselves on how to divide the award, which helped avoid possible challenges to an agency decision on how to split the bounty, McLamb said. That alone may have shortened the timeframe for collecting the money by years, he said.

“The significant challenge that remains is getting the rest of the IRS, including the investigative arm, to engage more with whistleblowers,” McLamb said.

https://news.bloomberglaw.com/us-law-week/tax-tipsters-getting-74-million-shows-irs-progress-lawyers-say