Interview with IRS Whistleblower Office Director Steve Whitlock on “Best Practices in Pursuing IRS Whistleblower Claims” Is Released

Last Fall, and again in March 2009, whistleblower lawyer blog co-author Michael A. Sullivan had the pleasure of sitting down with IRS Whistleblower Office Director Steve Whitlock, for an in-depth interview on the “best practices” for lawyers in pursuing IRS Whistleblower claims for their whistleblower clients.

The interview has just been published in the April 2009 False Claims Act & Qui Tam Quarterly Review. It includes some of the important points made by Director Whitlock at the IRS Whistleblower Boot Camp sponsored by Taxpayers Against Fraud in March, 2009, about which we have written previously.

The interview covers the progress of the IRS Whistleblower Office since it was established in early 2007, how the IRS process differs from pursuing qui tam cases under the False Claims Act, and the “best practices” for attorneys who pursue IRS Whistleblower claims.

We appreciate how generous Mr. Whitlock has been with his time in helping educate lawyers who wish to bring IRS Whistleblowers claims, which was the reason for the IRS Whistleblower Boot Camp in March.

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IRS Whistleblower Office Director Steve Whitlock (right) participates in a panel discussion moderated by Whistleblower Lawyer Blog Co-Author Michael A. Sullivan (left) at the IRS Whistleblower Boot Camp.

Some excerpts from the interview are below (more will follow later), and the entire interview should be available through Taxpayers Against Fraud on a subscription basis:

Michael Sullivan: Steve Whitlock, thank you for agreeing to speak with me for the TAF Quarterly to discuss the “Best Practices for Lawyers in Pursuing IRS Whistleblower Claims.”

. . . For lawyers screening cases, are there particular types of cases that the IRS is interested in, or particular industries that are more attractive to the IRS?

Steve Whitlock: The IRS puts out an annual plan and has a strategic plan that reaches out five years, which is posted on www.irs.gov. We describe our enforcement priorities. We try to touch a little bit of everything in different ways because the tax system is that complex. We try to have some presence in every aspect of the tax law.

The largest corporations tend to be under audit nearly continuously. Issues on international tax noncompliance are getting more attention in recent years because of globalization of the economy. There have been some congressional hearings recently about those kinds of questions where large corporations –multinationals–have the ability to take advantage of the tax code and their business structure to reduce their tax liability. Sometimes that is permitted by the tax code, and sometimes it is not. That is an area of focus-to identify those areas where it is not permitted, but somebody is pushing the envelope.

Someone who is not filing and paying-that is always of interest to us. High-income non-filers are especially interesting to us. Define “high income” how you want to, but we generally look at six figures, $200,000, $250,000 in gross income.

We have concerns in the areas of “trust funds,” where a taxpayer is an employer and is withholding from their employees, in order to cover the employees’ personal tax liability. When you have someone who is acting in effect as a trustee for the federal government by withholding tax from employee wages, but then says “You know, I’m having a little trouble with the business. I’m going to pay my bills before I pay the tax bill.” That’s an area that has been an enforcement priority for many years.

We have a whole series of abusive transactions that are identified in our enforcement priorities. CI, on their part of the website, will identify the “Dirty Dozen.” Some of those are at the retail level, and some of them are not. Some of them involve fairly sophisticated schemes. So, the Service is interested in a lot of different areas.

Fundamentally if there is serious tax noncompliance, if there’s evidence that there is real money involved in it, the Service is going to be interested. If it is below the $2 million threshold in the statute, we still have the backup of the pre-amendment rule, subsection (a) of the statute. We still pay, we still accept, we still process those claims.

* * * *
Michael Sullivan: What should TAF’s lawyers look for in screening clients and screening cases?

Steve Whitlock: Documents are helpful. Having “been there” is helpful. The kinds of things that you would look at and say, “Do I believe this person? Can I prove this case? Is evidence going to be available to corroborate this?” Corroboration may not be available to the whistleblower, but the IRS may be able to obtain information directly from the taxpayer or from another source that can prove or disprove the issue raised. The issue raised needs to be something that we can get proof on.

Another thing is it needs to be “material.” The IRS has many more taxpayers than we have the resources to audit. We routinely make choices about which taxpayers to audit, knowing that some of those we choose not to audit might have understated their tax liability. So, one of the questions that I would want to understand from the whistleblower is, “Why should the IRS take this case? What is in it for the IRS?” Is it a substantial amount of money? Is this a topic that has a lot of abuse ramifications outside the particular company? Does this whistleblower give us some insight into the company that we wouldn’t otherwise have?

Sometimes we’ll go in and do an examination of a taxpayer and we’ll say, “We’re going to look in this particular aspect of the operation. We’re concerned about depreciation,
we’re concerned about executive compensation.” The whistleblower comes in and says, you really need to be concerned about their entertainment expenses in this division because that division has been really playing fast and loose, and here’s what’s going on. We might not have looked at that division, but for the information the whistleblower is able to provide us. Do we look at every entertainment item on a tax return? No, we can’t possibly, but if somebody can point us to one that really makes a difference, that is material, that’s something we take a look at.