This is a "badges of fraud" case that the Supreme Court will consider.
It is especially interesting because it also deals with the failure to file a tax return
www.irstaxattorney.com (212) 588-1113 email@example.com
Cacheris, United States District Court Judge: For the reasons stated in the accompanying Memorandum Opinion, it is hereby ORDERED that:
(1) United States' Motion to Dismiss  is GRANTED;
(2) accordingly Plaintiffs Alan Zinstein and Jane Silk's Complaint  is DISMISSED WITHOUT PREJUDICE pursuant to Federal Rule of Civil Procedure 12(b)(1);
(3) the Clerk of the Court shall forward copies of this Order to all counsel of record.
October 2, 2013
This matter is before the Court on the United States' (“Defendant” or “United States”) Motion to Dismiss Plaintiffs' Complaint (“Motion”). [Dkt. 5.] The Court granted Defendant's Motion during oral argument for the reasons set forth below.
This case arises out of the Internal Revenue Service's (“IRS”) alleged failure to timely release a tax lien in violation of 26 U.S.C. §6325(a)(1), and the IRS's allegedly wrongful levies in violation of 26 U.S.C. §6331.
A. Factual Background
Plaintiffs Allen Zinstein and Jane Silk (“Plaintiffs”) are United States Citizens who reside in Virginia. (Compl. ¶ ¶15-16.) Plaintiffs allege that on March 18, 2008, they received a “payoff calculator” from the IRS listing balances due on various tax years. (Compl. ¶3.) The “payoff calculator” listed the following balances due: $7,487.39 for tax year 1999; $4276.60 for tax year 2002; $14,259.26 for tax year 2003; $405.68 for tax year 2004; and $13,173.76 for tax year 2005. (Compl. ¶4.)
Plaintiffs allege that prior to March 21, 2008 they filed their 2007 Federal Income Tax Return, Form 1040. (Compl. ¶5.) Plaintiffs allege that this return reflected an overpayment - a refund due - of $15,330.00. (Compl. ¶5.) Plaintiffs aver that they designated this overpayment towards outstanding tax liabilities as follows: $13,179.76 towards their liability for tax year 2005; and $1,774.58 towards their liability for tax year 2003. (Compl. ¶6.) On March 21, 2008, Plaintiffs allege that they hand-delivered a cashier's check in the amount of $24,278.89 to the IRS office in Washington, D.C. (Compl. ¶7.) This check was designated towards outstanding tax liabilities as follows: $7,487.39 towards Plaintiffs' liability for tax year 1999; $4,276.60 towards Plaintiffs' liability for tax year 2002; and $12,514.90 towards Plaintiffs' liability for tax year 2003. (Compl. ¶8.) Plaintiffs allege that based on the designation in their 2007 tax return and the March 21, 2008 payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.)payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.)payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.) 1
Plaintiffs allege that despite having paid off the outstanding balances the IRS continued to take collection actions against them. (Compl. ¶27.) This collection action included levies issued against Plaintiffs between April 7, 2008 and September 27, 2011 and the failure to timely release tax liens. (Compl. ¶ ¶10, 12). Plaintiffs allege that the IRS did not issue a release of lien for tax years 2002, 2003 and 2004 until July 7, 2011. (Compl. ¶19.) Likewise, the lien for tax years 1999 and 2005 was allegedly not released until October 7, 2011. (Compl. ¶19.) 2 Plaintiffs allege that they attempted to discuss these collection efforts with the Taxpayer Advocate, and that on August 31, 2011 they met with IRS counsel to discuss the matter. (Compl. ¶ ¶31-32.)
On March 8, 2013, Plaintiffs filed an administrative complaint with the IRS under 26 U.S.C. §7433. (Mem. Ex. 1 [Dkt. 6-1].) As of the date of Plaintiffs' Complaint, May 23, 2013, the IRS had not processed their administrative complaint. (Mem. Ex. 1.) Likewise, as of August 14, 2013, the IRS had not issued a determination on Plaintiffs' administrative action. (Mem. Ex. 1.)
Plaintiffs allege that as a result of the IRS's improper actions they incurred over $1,000,000.00 in losses and expenses. (Compl. ¶29.) Plaintiffs' alleged losses include: (1) $25,000.00 in legal fees; (2) $250,000.00 in CPA, accounting and consulting fees; (3) $15,000.00 in travel fees; (4) $1,000.00 in postage; and (5) $1,000.00 in courier fees. (Compl. ¶29.) Additionally, Plaintiffs claim losses stemming from “loss of credit, higher interest expenses, lost time from work, loss of income, and deterioration of health.” (Compl. ¶29.)
B. Procedural Background
On May 23, 2013, Plaintiffs filed their Complaint against the United States. [Dkt. 1.] On August 19, 2013, Defendant filed its Motion to Dismiss Plaintiffs' Complaint and accompanying memorandum of law. [Dkts. 5-6.] Plaintiffs filed their opposition on September 4, 2013. [Dkt. 7.] On September 10, 2013, Defendant filed its reply. [Dkt. 8.] On September 27, 2013, the Court heard oral arguments on Defendant's Motion to Dismiss. Plaintiffs' counsel was not present. The Court granted Defendant's motion for the reasons provided below.
II. Standard of Review
Pursuant to Rule 12(b)(1), a claim may be dismissed for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Defendants may attack subject matter jurisdiction in one of two ways. First, defendants may contend that the complaint fails to allege facts upon which subject matter jurisdiction may be based. See Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); King v. Riverside Reg'l Med. Ctr., 211 F. Supp. 2d 779, 780 (E.D. Va. 2002). In such instances, all facts alleged in the complaint are presumed to be true. Adams, 697 F.2d at 1219; Virginia v. United States, 926 F. Supp. 537, 540 (E.D. Va. 1995).
Alternatively, defendants may argue that the jurisdictional facts alleged in the complaint are untrue. Adams, 697 F.2d at 1219; King, 211 F. Supp. 2d at 780. In that situation, “the Court may ‘look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.’” Virginia v. United States, 926 F. Supp. at 540 (quoting Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993)); see also Velasco v. Gov't of Indon., 370 F.3d 393, 398 (4th Cir. 2004) (holding that “the district court may regard the pleadings as mere evidence on the issue and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment” (citations omitted)).
A. Administrative Exhaustion
1. Claims Under Section 7433
Plaintiffs assert a claim under 26 U.S.C. §7433, which provides a civil damages remedy for unauthorized collection actions taken by an officer or employee of the IRS. (Compl. ¶17.) Defendant argues that the claim should be dismissed for failure to exhaust administrative remedies as required under §7433(d)(1). (Mem. at 2.)
Through 26 U.S.C. §7433(a), the United States has waived sovereign immunity for “misconduct by the IRS.” Dawveed v. Belkin, Civil Action Nos. DKC 12-0711, DKC 12-2935, 2013 WL 497990, at *2 (D. Md. Feb. 7, 2013). A plaintiff bringing suit against the United States must comply with the terms of the Government's waiver of sovereign immunity. See Smith v. United States, 507 U.S. 197, 203 (1993). To maintain a suit for damages against the United States for unauthorized collection actions by the IRS, a plaintiff must exhaust administrative remedies. 26 U.S.C. §7433(d)(1). Importantly, “a plaintiff's failure to comply with this prerequisite deprives the court of jurisdiction over the claim.” Marcello v. IRS, Civil Action No. RDB-08-2796, 2010 WL 1663994, at *2 (D. Md. Apr. 21, 2010).
The “administration and enforcement of the Internal Revenue Code is delegated by statute to the Secretary of the Treasury who may prescribe regulations in furtherance the purposes of the code.” Bennett v. United States, 361 F. Supp. 2d 510, 516 (W.D. Va. 2005) (citing 26 U.S.C. §7801(a)(1)). The regulations provide that a plaintiff may not maintain a suit in a federal district court
26 C.F.R. §301.7433-1(d). Paragraph (e) details the procedures that a taxpayer must follow in filing an administrative claim and the information that must be included on the form filed with the I RS. 26 C.F.R. §301.7433-1(e).
In the instant case, Plaintiffs filed their administrative claim on March 8, 2013. 3 (Mem. Ex. 1.) Plaintiffs filed their Complaint in this Court on May 23, 2013. [Dkt. 1.] As of the date Plaintiffs' filed their Complaint, a decision had not been rendered on the claim, as under C.F.R. §301.7433(d)(i). (Mem. Ex. 1 (“As of the date plaintiffs filed their complaint … the IRS has not issued any determination on plaintiffs' section 7433 administrative claim.”).) Likewise, six months had not passed between Plaintiffs' filing of their administrative claim - March 8, 2013 - and Plaintiffs' filing a complaint in this Court - May 23, 2013 - as under C.F.R. §301.7433(d)(ii).
Plaintiffs argue that despite not waiting the requisite six months before filing suit in this Court, they may maintain an action pursuant to C.F.R. §301.7433-1(d)(2). This regulation provides:
C.F.R. §301.7433-1(d)(2). Plaintiffs argue that their cause of action accrued in September, 2011 and that the applicable statute of limitations would therefore expire in September, 2013. (Opp. at 2.) Therefore, Plaintiffs claim that their administrative complaint, filed on March 8, 2013, was filed within the “last six months of the period of limitations” as provided in §301.7433-1(d)(2).
Plaintiffs' arguments are based on a misunderstanding of the accrual date of their cause of action. Plaintiffs argue that “the government's failure to properly release a levy is a continuing violation and the statute of limitations does not run until the improper levy is released.” (Opp. at 2.) The Court rejects Plaintiffs' attempts to invoke a continuing violation theory in the tax levy context.
As Plaintiffs acknowledge, their claim under §7433 is governed by a two-year statute of limitations. 26 U.S.C. §7433(d)(3). “A tax collection right of action accrues ‘when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action.’” Richard v. United States, 746 F. Supp. 2d 778, 782 (E.D. Va. 2010) (quoting 26 C.F.R. 301.7433-1(g)(2)). Courts have interpreted this provision to mean that a cause of action accrues when plaintiffs “possess sufficient ‘critical facts’ to understand their potential injury without knowledge of the appropriate legal remedy.” Id. Additionally, most courts have rejected the application of a continuing violation theory in this context. 4 See Dziura v. United States, 168 F.3d 581, 583 (1st Cir. 1999) (holding that taxpayers' cause of action accrued when they “knew the essential elements of their potential claim” and rejecting a continuing violation theory); Keohane v. United States, 669 F.3d 325, 330 (Fed. Cir. 2012) (once [plaintiff] “knew of the levy, ‘nothing prevented him from recognizing the potential injury at that time, nor would later events provide greater insight into his possible cause of action.’” (citations omitted)). 5
Here, Plaintiffs had a “reasonable opportunity” to know of the essential elements of their claim on April 7, 2008, when the IRS first issued a levy against the Plaintiffs for tax years allegedly already paid off on March 21, 2008. (Compl. ¶ ¶10-11). See Simmons v. United States, 875 F. Supp. 318, 320 (W.D.N.C. 1994) (stating that a plaintiff's cause of action challenging the IRS's levy “accrued when a collection action began. ‘A notice and demand for payment constitutes a collection action, as does the filing of a notice of tax lien.’”) (citations omitted). Indeed, Plaintiffs emphasize that they were subjected to collection actions for “over three and a half years.” (Compl. ¶28.) Thus, Plaintiffs were aware of the IRS's collection actions when they first began in April 2008 and had a “reasonable opportunity” to discover the elements of their cause of action at that time. Richard, 746 F. Supp. 2d at 782. Accordingly, because plaintiffs did not file their administrative claim “during the last six months of the period of limitations,” Plaintiffs cannot rely on the six-month period provided for in C.F.R. §301.7433-1(d)(2).
Moreover, even if Plaintiffs' claims as to the accrual date of their cause of action were correct - which they are not - they would still not be able to rely upon the six-month period provided for in C.F.R. §301.7433-1(d)(2). Plaintiffs allege that the IRS improperly issued levies against them from April 8, 2008 to September 27, 2011. Even if their cause of action accrued on September 27, 2011, as Plaintiffs apparently argue, their administrative complaint was filed on March 8, 2013 - more than six months prior. (Opp. at 2 (“As alleged in the complaint, the cause of action accrued in September of 2011.”).) 6
Thus, because Plaintiffs filed suit in this Court before either of the permitted dates provided in C.F.R. §301.7433(d)(1) and cannot invoke the six-month period provided for in C.F.R. §301.7433-1(d)(2), Plaintiffs failed to properly exhaust administrative remedies before the IRS. The Court is therefore without subject matter jurisdiction over Plaintiffs' §7433 claim. Accordingly, Plaintiffs' claim arising under §7433 will be dismissed.
2. Claims Under Section 7432
Additionally, Defendant argues that to the extent that Plaintiffs assert a claim arising under 26 U.S.C. §7432, such a claim would likewise be barred for failure to exhaust administrative remedies. (Mem. at 7.) Section 7432 provides a cause of action for damages for failure to release a lien under §6325 of the Internal Revenue Code. Like§7433, §7432 contains an administrative exhaustion requirement. 26 U.S.C. §7432(d)(1).
Plaintiffs allege that the IRS wrongfully failed to issue a release of lien as to tax years 1999, 2002, 2003, 2004, and 2005 in violation of §6325(a)(1). (Compl. ¶ ¶2, 12.) Plaintiffs do not, however, explicitly allege a cause of action arising under §7432. Moreover, Plaintiffs have not filed a §7432 administrative claim. (Mem. Ex. 1.) Therefore, Plaintiffs have not properly exhausted administrative remedies as to any claim for failure to timely release a lien. See Bennett, 361 F. Supp. 2d at 517 (finding in the context of a tax refund claim under 26 U.S.C. §7422 that a claim under §7433 “was not intended to supplement or supersede or allow taxpayers to circumvent proper procedures” under another section (citations omitted)). Accordingly, any §7432 claim will be dismissed.
B. Statute of Limitations
Defendant argues that even had Plaintiffs properly exhausted administrative remedies, their claims would be time barred. (Mem. at 5.) As noted above, any suit against the Government requires a waiver of sovereign immunity, and the terms of the waiver define the court's jurisdiction to entertain the suit. See United States v. Dalm, 494 U.S. 596, 608 (1990) (citations omitted). One such condition on the terms of the Government's waiver of immunity is a statute of limitations. See United States v. Mottaz, 476 U.S. 834, 841 (1986). In the tax context, the limitations period of U.S.C. §7433(d)(3) serves as a restriction on the Government's consent to be sued. “Accordingly, this Court does not have jurisdiction over suits filed outside the limitations period… .” Young v. U.S. Dep't of Treasury, No. 02-1644-A, 2003 WL 1909005, at *3 (E.D. Va. Mar. 7, 2003).
As discussed above, Plaintiffs' §7433 claims accrued on April 7, 2008, when the IRS began to levy against Plaintiffs. (Compl. ¶10.) Plaintiffs filed their Complaint on March 23, 2012, outside the two-year statute of limitations. Therefore, Plaintiffs' claims under §7433 would be time-barred even if they had properly exhausted administrative remedies. Accordingly, Plaintiffs' failure to timely file their Complaint provides an alternative grounds for dismissal pursuant to 12(b)(1).
Because the Court finds that Plaintiffs did not exhaust administrative remedies as to any purported §7432 claim, it declines to consider the timeliness of such an action.
For the foregoing reasons, the Court will grant Defendant's Motion to Dismiss.
An appropriate Order will issue.
DEPARTMENT OF THE TREASURY
SECRETARY OF THE TREASURY
October 1, 2013
The Honorable John A. Boehner
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
I am writing to follow up on my previous letters regarding the Department of the Treasury's responsibility to finance the government and to protect the full faith and credit of the United States.
In May of this year, the U.S. government reached the statutory debt limit, and Treasury began taking certain extraordinary measures to be able to continue, on a temporary basis, to pay the nation's bills. Today, I am writing to inform Congress that as of today Treasury has begun using the final extraordinary measures. There are no other legal and prudent options to extend the nation's borrowing authority. The impact of these measures was incorporated into the forecast that I shared with you last week, and Treasury continues to believe that extraordinary measures will be exhausted no later than October 17, 2013.
Each of these measures is authorized by law, and each has been used by previous Secretaries of the Treasury during past debt limit impasses:
As previously noted, all of these measures were incorporated into the estimate that I provided last week and do not provide Congress with more time to act. It is important to note that once the final extraordinary measures are exhausted, no later than October 17, we will be left to meet our country's commitments at that time with only approximately $30 billion. This amount would be far short of net expenditures on certain days, which can be as high as $60 billion. Although the current lapse in appropriations creates some additional uncertainty, we do not believe it will impact our projections materially unless it continues for an extended period of time. If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history. For this reason, I respectfully urge Congress to act immediately to meet its responsibility by extending the nation's borrowing authority.
Identical letter sent to:
cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
September 26, 2013
The Honorable John A. Koskinen
Nominee, Commissioner of Internal Revenue
Internal Revenue Service
111 Constitution Avenue NW, Room 1519
Washington, DC 20224
Dear Mr. Koskinen:
I congratulate you on your nomination as Commissioner of the Internal Revenue Service (IRS). I am writing to bring to your attention the need for greater focus by the IRS on legitimate enforcement and collection activities. There is much the IRS can do in this area by taking full advantage of two important initiatives that will help the IRS fulfill its mission - without the need for additional appropriations. These two initiatives are: the IRS' authority to use private debt collectors; and, the IRS whistleblower program - both programs that I have long championed.
On August 23, 2013, the Treasury Inspector General for Tax Administration (TIGTA) released a report that examined IRS' collection and enforcement activities. According to TIGTA, enforcement revenue has decreased for two straight years and is 13 percent less than the amount in Fiscal Year 2010. 1 There were mixed results in IRS Collection function, but Tax Delinquent Accounts continue to increase with the amount in the Queue growing by 46% over the past 5 years. Additionally, accounts receivable have increased by approximately $100 billion in last ten years.
As TIGTA notes, the IRS has been faced with many challenges these past years due to the fiscal realities we currently face, as well as its role in implementing and enforcing the Affordable Care Act. The primary role of the IRS is to collect the revenue necessary to fund the government. While the IRS' role has been expanded over the years, and vastly so with the implementation of the Affordable Care Act, it is important the chief mission of the IRS is not degraded.
As is evident from recent news reports, whether it's over indulgent spending on conferences or paying out unnecessary bonuses, there are opportunities for the IRS to better use its resources. In the grand scheme of things the additional dollars saved by curtailing these excesses may not be enough to cover all the challenges on the IRS' plate. Yet, given the current fiscal imbalance, the answer cannot solely be ever larger appropriations from Congress. It is incumbent on the IRS to work smarter and utilize all the resources currently at its disposal.
Over the past decade I have sought to provide the IRS with additional tools to track down tax cheats and collect funds through the enactment of the Private Debt Collection (PDC) program and the expansion of the IRS whistleblower program. Unfortunately, both programs have been fought every step of the way by some within Treasury and IRS who have an ideological disposition to oppose any program that seeks to utilize “private” or non-government resources to reduce the burden on the IRS.
As part of the 2004 American Jobs Creation Act, Congress added an arrow to IRS' quiver with the authorization of the PDC Program. This program authorized the IRS to contract with private agencies to collect owed taxes that the IRS wasn't collecting on its own. For two and a half years private agencies were contracted by the IRS to work cases the IRS wouldn't work because they were deemed low yield. In this short time, this fledgling program collected nearly $100 million in revenue that otherwise would have gone uncollected. 2Additionally, IRS' own information showed the private employees' quality ratings were consistently higher than that of IRS employees. However, those with a vested interest in seeing the PDC program fail got their wish in March of 2009 when the IRS chose not to renew contracts with the private debt collecting agencies.
IRS' decision was based on a study it claimed showed IRS employees could collect the tax debts cheaper and better than private employees. However, it is evident from a 2010 Government Accountability Office (GAO) study that IRS cooked the books to get the result it wanted. GAO found the IRS study contained numerous flaws and “was not a soundly designed cost-effectiveness comparison for supporting IRS's decision.” 3 GAO made several suggestions on how to fix the study and any future studies. Yet, the IRS doggedly refused to reevaluate the PDC program in light of GAO's findings.
The IRS decision was further undermined by a 2011 TIGTA report. TIGTA unequivocally found that it was “clear that the Federal Government benefited from PCAs working these…cases.” 4 Despite IRS' assertion that its employees would work the cases and do so more effectively, TIGTA found that IRS worked only 47% of cases that were reassigned to the IRS in 2009 as a result of the cancellation of the PDC. TIGTA further estimated that as much as $516 million could have been collected over the next five years if similar cases would have been assigned to the PDC collection program. This is consistent with Treasury Department's own analysis from 2004 that estimated the program would collect approximately $1.4 billion over ten years.
The PDC Program remains authorized and is a proven tool currently at this Administration's disposal. The IRS has not shown that it has the resources or willingness to go after the “low priority” cases that are eligible to be assigned to PDCs. Thus, as TIGTA recommended in 2011, “the IRS should consider reinstituting the PDC Program and funding all Program costs through Program collections.” 5
I encourage you to show the leadership necessary to set aside narrow-minded ideology that grips some at Treasury and the IRS and put good tax administration first - and reinstate the PDC Program immediately. I ask that you familiarize yourself with the program, provide me your detailed views prior to your confirmation and commit to a decision on this matter within your first 60 days as Commissioner.
The expanded IRS Whistleblower program I authored in 2006 is an additional tool I fear the IRS is not using to its full capability. This program has the potential to be an excellent enforcement tool for tracking down high dollar tax fraud and evasion. Its potential has already been shown by the billions of dollars that have been brought in from illegal offshore accounts. The key for these billions is the work of whistleblowers coming forward and opening the curtain to secret bank accounts.
Yet, despite this success, many at the IRS, and especially Treasury and Chief Counsel have undermined the program and have discouraged whistleblowers from coming forward. Payouts under the program are few and far between and IRS agents refuse to fully utilize the whistleblower's knowledge and expertise to identify and expose tax cheats. Moreover, whistleblowers who often are putting their whole career on the line frequently have to wait for years in the dark with no information as to whether or when the IRS will act on their claim. Finally, Treasury is proposing regulations that will further undercut the whistleblower program - with a shortsighted view that will save a penny today and lose the Treasury much more in the future due to discouraged whistleblowers' not coming forward.
The statute gives the IRS Whistleblower Office clear authority to not only award whistleblowers, but to also enter into contracts with whistleblowers and their attorneys to assist the IRS in its work (while at the same time protecting taxpayer confidentiality). 6 The Department of Justice has found success to the tune of billions of dollars recovered under the False Claims Act (FCA), working with whistleblowers and their representatives. The IRS would find similar success working with whistleblowers and their attorneys - if it would only get out of its own way. Unfortunately, the IRS has taken this opportunity to partner with whistleblowers and buried it. It is my understanding that the IRS has delegated the authority to request whistleblower assistance solely to IRS field offices. To my knowledge, such contracting with whistleblowers has never happened because of the reality that the field has no understanding, guidance or support for such an undertaking. This is inexcusable. Whistleblowers and their representatives stand at the ready to assist the IRS, cutting down enormously the time and effort needed by the IRS to conduct an examination - and instead the naysayers at the IRS find ways to gum up the works. I ask for your commitment to affirm the IRS Whistleblower Office's authority to contract with whistleblowers and their representatives and to provide clear direction that contracting is encouraged and should be a priority.
For the whistleblower program to reach its full potential, the IRS must reassure whistleblowers that they are valued and will be treated fairly. In December of 2012 the IRS issued proposed whistleblower regulations that continue to await finalization. I, as well as many in the whistleblower community, have expressed deep concerns that the regulations as proposed will hamstring the program by limiting whistleblower awards and discouraging knowledgeable insiders from coming forward. Treasury and IRS should work expeditiously to finalize the regulations taking into account all the comments and concerns they have received. The final regulations must assure whistleblowers that it's worth risking their career to come forward to expose those who are skirting our tax laws.
These regulations require your approval before they are made final. I ask that you review closely these proposed regulations, as well as all my correspondence with the Treasury and IRS on this matter overall as well as the regulations, and also the comments on the regulations by the leading whistleblower representatives. Additionally, please provide me your thoughts on the whistleblower program overall, the steps you intend to take to ensure its success is realized - particularly those steps you can take under your own authority such as improved communication with whistleblowers during the process — and your views on the proposed regulations - especially on the issues of “related action,” “collected proceeds,” and “planned and initiated.”
The impact of the proposed regulations as they are written would be to greatly discourage whistleblowers and to give comfort to tax cheats. Time and time again the writers of the proposed regulation turn a blind eye to the plain meaning of the statute I wrote, the policy of the statute of rewarding whistleblowers, and the precedence of the False Claims Act.
Certain actions by the IRS have further fostered a level of distrust between whistleblowers and the IRS. One glaring example is the case of Anonymous 1 and Anonymous 2 v. Commissioner , in which the IRS whistleblower office denied a whistleblower's claim, yet another branch of the IRS opened its own investigation into the same company identified by the whistleblower. 7 This case resulted in the Tax Court Judge admonishing the IRS for misleading the court to believe the new investigation was independent and did not rely on information provided by the whistleblower. While this case may be an isolated incident, it gives pause to any whistleblower who may be debating whether it's worth coming forward.
In this light, I ask for you to review the work and role of the IRS Whistleblower Office. The office has excellent staff. However, the Whistleblower Office is small and needs you to support it in the battles at the IRS and Treasury. I suggest this is especially the case where I am hearing more and more of first-rate cases being submitted by whistleblowers - from whistleblowers who are knowledgeable and well-placed and often involving tens of millions if not hundreds of millions of tax dollars — who are being ignored by IRS field offices as well as Large Business and International Division senior managers.
The IRS Whistleblower Office was given the statutory authority to investigate these good cases itself, or at a minimum to raise them to your attention and review. We cannot have good whistleblower cases go unworked because IRS field agents don't want to be bothered or because senior managers are resistant. And again, staffing is not an excuse when the IRS has the authority to work with the whistleblower and her representatives to assist. I ask for your commitment that you will put in place procedures that will allow the IRS whistleblower office to work cases itself and/or to have good cases that aren't being worked to be subject to review by the most senior management at the IRS. In addition, I ask for your commitment that the work of the IRS whistleblower office will be a priority in your time as Commissioner.
Lastly, let me note that there are a good number of IRS agents that do work well with whistleblowers - and the honest taxpayers have benefitted enormously from those efforts. I ask that the IRS look to recognize and reward those IRS agents and examiners who have had superior accomplishments thanks to working with whistleblowers. Changing the culture at the IRS as it relates to whistleblowers will do much to address the current problems I've cataloged.
The President has made it quite clear that he believes the federal government needs more revenue. But, before increasing taxes on the millions of law-abiding Americans who voluntarily comply with the tax law, Treasury and IRS should make every effort to collect the billions of dollars in taxes that currently go uncollected. The PDC program and the expanded whistleblower program are available tools that the IRS can better utilize to handle its enforcement and collection case load without requiring additional funding from Congress. If this Administration is serious about making individuals “pay their fair share,” and closing the tax gap, it will heed my call to embrace both of these programs.
I look forward to your reply prior to your confirmation hearing.
cc: The Honorable Jacob Lew, Secretary of the Treasury
cc: The Honorable Danny Werfel, Acting IRS Commissioner