FATCA is being implemented in a number of countries outside the U.S., with the result that U.S. individuals who hold foreign bank or financial accounts and have not disclosed these accounts in the U.S., are about to be reported to the IRS.
(This post is by Richard Rubin of Rubin Law (www.rubinlaw.us), a tax attorney with significant experience in U.S. cross-border matters, including FATCA and U.S. international compliance.)
Bank accounts in countries outside the U.S. can cause headaches when owned by U.S. taxpayers. While owning foreign accounts has always entailed a reporting headache for U.S. taxpayers, the problem has recently heightened as a result of the FATCA legislation that is being implemented in a number of countries outside the U.S.
FATCA is a set of U.S. tax reporting rules that impact U.S. citizens, Green Card holders and other U.S. tax resident individuals who have accounts with non-U.S. banks or financial institutions.
An acronym for the Foreign Account Transactions Compliance Act, FATCA requires banks and financial institutions in countries outside the U.S.to provide the IRS with details of accounts that are owned by U.S. taxpayers. Although the mechanism varies slightly by country, in most countries where FATCA has been implemented banks and financial institutions are required to report these details to the Revenue Authority of that country, and the Revenue Authority is required to pass this information along to the IRS.
Since 2007, top officials from federal and state agencies and many of the country’s experts in whistleblower cases have gathered in Atlanta to discuss and debate anti-fraud efforts at the Whistleblower Law Symposium.
Today I was excited to chair our Whistleblower Law Symposium once again, as these experts explored the latest developments in qui tam cases under the False Claims Act, and SEC whistleblower, CFTC whistleblower and IRS whistleblower claims. The breadth of expertise of today’s speakers was unusual.
First, top enforcement officials from California, Georgia and Texas shared their approaches and priorities under their state False Claims Acts. We were honored to hear from Britt Grant, Solicitor General of Georgia, about Georgia Attorney General Sam Olens’ impressive new efforts to stop the theft of taxpayer funds.
Joining Britt Grant were California’s Nicholas Paul, Texas’ Ray Winter, and Georgia’s Van Pearlberg, who described how their offices battle Medicaid fraud that is brought to light in state False Claims Act cases. A special thanks goes to Jim Breen for moderating this discussion and sharing his own experiences in working with the states in pursuing large health care fraud cases.
At today’s Whistleblower Law Symposium, Jim Breen joined me in presenting former Rep. Edward Lindsey with the “Integrity in State Government Award” from the Taxpayers Against Fraud Education Fund.
The just-released FY 2013 IRS Whistleblower Office Annual Report reveals clues to what the future holds for tax whistleblowers.
Steve Whitlock, Director of the IRS Whistleblower Office, gave a preview last Fall. Listening to an audience react enthusiastically to his SEC counterpart Sean McKessy discuss awarding more than $14 million to a whistleblower, Whitlock wryly observed that the IRS had “only” awarded $50 million to whistleblowers in FY 2013.
To those who follow the IRS Whistleblower Program closely, Whitlock’s comment was a rare moment to take a bow of sorts. It was a brutal year in which Whitlock’s boss, Acting Commissioner Steve Miller, lost his job as the IRS faced attacks that it had politicized reviews of organizations claiming tax-exempt status. Although the Whistleblower Office played no role in that controversy, Sen. Grassley and others also scorned the IRS and Treasury for obstructing Congress’ mandate to establish a robust whistleblower program.
The 2013 Whistleblower Office Report has provoked similar criticism, in part because the $50 million paid to whistleblowers in 2013 was less than half the amount paid in 2012. Yet, in 2012, $104 million went to a single whistleblower, former UBS banker Bradley Birkenfeld, in an historic claim that produced a massive recovery for the IRS.
IRS agents who worked the UBS case long ago told me they abhorred the idea of paying Birkenfeld an award because of his misdeeds that led to his felony conviction, and yet Whitlock refused to succumb to great pressure to deny Birkenfeld an award. Instead, he applied the law as written by Congress–which is evidence that Whitlock is not the problem.
The Report reveals that the IRS has paid only nine claims under the “new” whistleblower statute enacted in December 2006. The IRS can do much better, as Sen. Grassley regularly reminds the Service. Obstruction and delay by persons outside the Whistleblower Office appear the reasons more whistleblower awards have not yet been paid.
The danger for future tax whistleblowers–at which the 2013 Report hints–is that new IRS regulations to be released in 2014 will effectively contradict and undermine the tax whistleblower statute. As we have testified before the IRS, it appears that some within Treasury, Chief Counsel, and the IRS have already sought to impede development of the whistleblower program that Sen. Grassley believed Congress was creating in 2006. The Report mentions in passing earlier examples such as refusing to pay awards on criminal fines, and adding a two year delay to essentially every claim..
I remain optimistic that, with someone like Director Whitlock who has shown the backbone and principle to follow the law in difficult decisions, the IRS Whistleblower Program will be successful. To overcome the obstructionists, that success may yet require Congress to act decisively to ensure that IRS Whistleblower Program is allowed to follow the tried and true path of the False Claims Act.
The False Claims Act, the nation’s leading whistleblower law long championed by Sen. Grassley, has been immensely effective in combatting fraud through encouraging and rewarding whistleblowers. The new IRS Whistleblower regulations to be announced will likely sound the alarm to Sen. Grassley once more to take action.
Another shoe dropped for offshore tax evaders today, in an encouraging sign for the IRS Whistleblower Office.
A Liechtenstein bank avoided prosecution by agreeing to turn over files on 200 U.S. customers and to pay $23.8 million for assisting U.S. taxpayers in opening and maintaining undeclared bank accounts from 2001 through 2011.
Liechtensteinische Landesbank AG (LLB-Vaduz) helped a significant number of U.S. taxpayers hide these offshore accounts, evade U.S. taxes, and file false tax returns with the IRS, according to today’s announcement.
The Justice Department praised the bank’s cooperation including its support for a 2012 change to Liechtenstein law that allowed DOJ to obtain the bank’s files of non-compliant U.S. taxpayers.
The government’s press release may be found here.
Offshore bank secrecy is giving way slowly, but surely–as long as the U.S enforcement effort continues. Although the government’s announcement does not state whether a tax whistleblower was involved, whistleblowers are uniquely able to ferret out such tax evasion.
This case–like the UBS case–shows the just-being-tapped promise of the IRS Whistleblower Program.
When New York amended its state False Claims Act in 2010, it broke new ground by including tax whistleblower cases. New York’s decision to attract tax whistleblowers bore fruit when the NY Supreme Court recently ruled that New York’s $100 million tax whistleblower case against Sprint-Nextel Corp. may proceed.
If successful, this case may net New York three times the more than $100 million in unpaid taxes that the state alleges Sprint has failed to pay its state and local governments. It may also bring the whistleblower 15%-25% of what the state recovers.
The N.Y. Supreme Court first rejected Sprint’s arguments that the N.Y. Tax Law did not require payment of the sales tax in question. The Court allowed the case to proceed.
Sprint was successful in limiting the time in question to March 31, 2008 forward, but now faces discovery and a potential trial over allegations that include whether Sprint knowingly made “false records or statements” and repeatedly engaged in “fraudulent or illegal activity.”
Now is the time to tell the story of Bob Gardner. Bob retires this week after 37 years of service with the IRS, most recently with the IRS Whistleblower Office.
Bob understands that public service is a noble calling for so many in our government. He epitomizes all that is good in fairly administering our internal revenue laws.
When IRS Whistleblower Office Director Steve Whitlock began hiring for the first “tax whistleblower” office that Congress had authorized in late 2006, Bob Gardner was one of his most important finds. Bob has a wealth of knowledge and perspective on tax issues, built through broad experience as an IRS revenue agent, and then in positions in what is now the IRS Large Business and International Division.
I met Bob when the new IRS Whistleblower Program was in its infancy in 2007. With grace and humor, Bob was always willing to share his experience and knowledge about how the new whistleblower program would operate–well before any “guidance” was announced.
Bob cares about people. Bob has regularly returned calls from me at night, even on federal holidays. Emails from him before 6:00 a.m. were common.
More than once I deliberately called his office on weekends so as not to bother him with non-urgent messages, only to have Bob answer the phone in his office. He had great responsibilities with the Whistleblower Office, but never seemed too busy to try to help with any question or problem.
His co-workers praise Bob as approaching each facet of his work with integrity and fairness. “What is the right thing to do” is his guiding principle, just as it is with every one of the best public servants. The answer is not always favorable to any individual client, but we can ask for nothing more from those who serve in government.
To Steve Whitlock’s credit, Bob’s approach is shared by the other professionals in the Whistleblower Office. They have worked hard to implement Congress’s direction that the first meaningful tax whistleblower program be successful.
We whistleblower attorneys–and the IRS Whistleblower Office–will miss Bob’s deep institutional knowledge.
More broadly, you true IRS professionals who may be discouraged by the current attacks on the IRS should recognize that those who know the heart that you put into your work admire and appreciate you. Any responsible American knows that you serve a vital function in our government. If tax cheats avoid paying their fair share, the rest of us must pay more to make up their share.
Bob, we applaud your service to the American public.
Could the IRS and Treasury Department have done a worse job in how they have handled the alleged “targeting” of conservative groups that applied for tax-exempt status before the 2012 elections?
My criticism starts–but does not end–with any IRS personnel who singled out “Tea Party” and similar groups for extra scrutiny based on their political affiliations. Any such acts cannot be tolerated..
But less noticed is what was being done–or not done–since at least mid-2012 by the Treasury Inspector General for Tax Administration (“TIGTA”).
The Senate Finance Committee’s official “timeline” states that, in May 2012, “TIGTA briefs [IRS] Commissioner Shulman on the targeting by the IRS of tea party applications for 501(c)(4) status.”
So the Inspector General’s Office knew, at least six months before the 2012 elections, that “targeting” of these applicants had occurred? If TIGTA told Commissioner Shulman that it was auditing the problem, why did it take TIGTA another year to issue its May 2013 report?
And did Commissioner Shulman, a Bush appointee with no reason to “hide” any “targeting” of conservative groups, rely on the Inspector General’s staff to gather evidence and take appropriate action? Shouldn’t TIGTA have acted expeditiously? TIGTA’s other FY 2013 reports reveal nothing so pressing that it should have taken it another year.to complete its work.
This week in a rare occurrence, the heads of the IRS and SEC Whistleblower programs and federal and state False Clams Act officials participated in one conference to discuss prosecuting and defending whistleblower cases.
Our firm has organized this “Whistleblower Law Symposium” since 2007 to explore developments in the growing number of federal and state whistleblower laws that seek to stop fraud against taxpayer funds.
“Sequestration” threatened to keep some major speakers from participating because of travel restrictions. The solution was “beaming in” Sean McKessey, Director of the SEC’s Office of the Whistleblower, and Steve Whitlock, Director of the IRS Whistleblower Office, to join our panelists by videoconference.
The conference began with an overview I provided of the country’s major whistleblower law, the False Claims Act. Its successes since 1986 inspired Congress to create both the new IRS Whistleblower Program in 2006, and the new SEC Whistleblower Program in the 2010 Dodd-Frank Act.
An excellent discussion of the False Claims Act in health care followed, led by Rick Shackelford of King & Spalding, LLP. Rick was joined by my former partner John E. Floyd of Bondurant, Mixson & Elmore, LLP; Daniel P. Griffin of Miller & Martin, PLLC; and Marlon Wilbanks of Wilbanks & Bridges, LLP.
Another panel then analyzed Georgia’s New 2012 “Taxpayer Protection False Claims Act, a 2012 state False Claims Act that I helped draft. This law encompasses all spending by state, county, municipal, and other local governments in Georgia. Nels Peterson, who as Georgia’s Solicitor General is charged with overseeing the implementation of the new statute, explained the framework of the law.
Because the new state FCA applies to fraud against local governments as well, we also heard how the Act might be used by cities and counties. Mary Carole Cooney, former Atlanta Deputy City Attorney, and Bill Linkous, former Dekalb County Attorney, provided their perspectives on how the new whistleblower law might expose fraud in various areas of local government spending.
SEC Whistleblower Chief Sean McKessey then joined us electronically to discuss the most pressing issues in bringing (and defending) SEC Whistleblower claims.
Today marks the end of IRS Commissioner Doug Shulman’s tenure, just as President Obama and Congressional leaders shift to addressing the looming “fiscal cliff.” Rather than disrupt the process of narrowing the deficit, Shulman’s departure could actually assist it–in an important way that does not depend on raising tax rates.
The timing is perfect for a new IRS leader to back fully a bipartisan effort long advocated by Republican Sen. Chuck Grassley (R-Iowa) to tackle the “tax gap”–the more than $300 billion owed but not paid by tax cheats each year. Grassley seeks to expand the IRS Whistleblower Program to fulfill the promise of changes to the tax whistleblower law that Grassley sponsored almost six years ago.
Grassley should enlist as a ready ally President Obama, whose Justice Department is about to announce a record year of fraud recoveries in False Claims Act cases brought by whistleblowers. Grassley also has been the driving force behind that highly successful law since at least 1986.
Although the IRS has assembled highly skilled professionals to staff its Whistleblower Office led by Director Steve Whitlock, Grassley’s efforts have been stymied by bureaucratic resistance among others in the IRS. Those naysayers create endless obstacles to attracting whistleblowers–even though the Treasury Inspector General has determined that whistleblower information is essentially twice as effective as other sources for uncovering tax violations.
The Justice Department has learned over the past quarter century that working closely with “insider” whistleblowers and their counsel is the key to unravelling significant fraud schemes. In contrast, too many in the IRS refuse to learn from the DOJ’s experience and to heed Congress’ directive to expand the use of whistleblowers. For example, after convincing Grassley’s staff in 2006 that they could and would work closely with whistleblowers, the IRS Chief Counsel’s Office over almost six years has refused to approve even a single agreement with a whistleblower to allow that cooperation.