Historic Win for Tax Whistleblowers at International Financial Institutions

DOJ withdraws appeal in criminal tax whistleblower case; whistleblowers to obtain US$12.9 million award

Published on April 04, 2018

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Historic Win for Tax Whistleblowers at International Financial Institutions

The U.S. Court of Appeals for the District of Columbia Circuit last week dismissed an appeal filed by the U.S. Department of Justice (DOJ) and Internal Revenue Service (IRS) challenging the right of whistleblowers to obtain a financial reward based on disclosing information that results in the criminal prosecution of tax evaders. The case concerned a major international financial institution that was sanctioned for illegally assisting U.S. citizens in evading taxes. The IRS had initially denied an award to the two whistleblowers. The whistleblowers challenged the denial in Tax Court and prevailed. However, the DOJ and IRS challenged this finding in the Court of Appeals. Last week, at the request of DOJ, that appeal was dismissed, and the two whistleblowers will become the first persons to obtain a whistleblower reward based on a criminal tax prosecution.

This case is the accumulation of over five years of effort by the NWC to overturn the IRS policy preventing whistleblowers from obtaining rewards based on criminal prosecutions.

“The most important tax evasion cases are criminal, and to exclude these cases from the whistleblower law would have had a devastating impact on enforcement,” said Stephen M. Kohn and Dean Zerbe, in a joint statement issued today by the National Whistleblower Center. Kohn and Zerbe serve, pro bono, as the NWC’s Executive Director and Chief Policy Advocate.

“The dismissal of this appeal marks the end to a destructive policy which was undermining the tax whistleblower laws,” Kohn and Zerbe added.

Over the past five years Kohn and Zerbe have lead a national campaign to close the criminal loophole in the tax whistleblower law. This included:

During the rule making proceeding, providing testimony on behalf of the NWC to the Department of Treasury opposing the IRS rule which created the criminal loophole;
Publishing a comprehensive legal analysis in Tax Notes explaining why the criminal tax loophole was illegal and inconsistent with the clear requirements of the Tax whistleblower law;
Working with Congress to obtain a clarifying amendment explaining that whistleblowers who report criminal tax violations must be covered under the IRS whistleblower law;
Providing representation to the first whistleblowers who challenged the IRS rule in court.
The following statement was issued today by the attorneys representing the two whistleblowers.

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