February 22, 2020

Whistleblowers needed to uncover offshore tax abuses like the Cayman Islands


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Erika Kelton, www.forbes.com

IRS Commissioner Douglas Shulman

Senator Charles Grassley sent a strongly worded letter last week to Treasury Secretary Timothy Geithner and Internal Revenue Service Commissioner Douglas Shulman criticizing the IRS for the way it is handling various aspects of its whistleblower programme. He also blasted the IRS for sending more than a dozen IRS officials – including the director of the IRS Whistleblower Office — to a prominent conference in Miami concerning offshore financial centres.

Whistleblowers and taxpayers are fortunate to have an ardent champion in Sen. Grassley who has consistently pushed and pressured the IRS to engage and reward whistleblowers. But attacking the IRS Whistleblower Office director for attending this particular conference overlooks the value of his presence there.

It would be better to keep the fire directed at the top of the IRS rather than at Stephen Whitlock, the IRS Whistleblower Office director, who struggles to make the whistleblower program a success in spite of a hostile bureaucracy and shifting internal policies that undercut creation of a robust programme.

Shulman, on the other hand, has failed to provide the leadership needed to make the promising IRS whistleblower a success.  In the five years since the IRS Whistleblower Office was created, Shulman hasn’t said one word publicly about the program.  He has allowed a culture that is dismissive of whistleblowers to continue to flourish, and he has failed to equip the IRS Whistleblower Office director with the tools needed to run an effective program.  Among the most egregious failures is the IRS’s continued insistence that IRC 6103 restrictions on confidentiality prevent communication and collaboration with whistleblowers, even after having insisted to Grassley previously that the statute, as written, permits it.

Ultimately, the IRS whistleblower programme needs a commissioner with the vision to realise the enormous promise whistleblowers hold for effective tax enforcement and who will exert strong leadership in this area.  Shulman’s failure to do so has hurt not only whistleblowers but all taxpayers, as whistleblower matters could lead to the recovery of hundreds of billions in unpaid taxes to the federal Treasury.

Whitlock’s attendance at the Offshore Alert conference was a legitimate use of his time.  Uncovering offshore tax strategies used to dodge U.S. taxation is a top IRS enforcement priority, and whistleblowers are of central importance to that mission. The landscape of tax avoidance and bank secrecy in offshore tax havens changed due to individuals who blew the whistle on private offshore banking practices.

The enforcement and voluntary disclosure initiatives resulting from the UBS, Rabobank and other whistleblowers’ revelations have returned over $6 billion to the U.S. treasury from individuals (more than $4.4 billion) as well as corporations such as General Mills and Cardinal Health, which paid $425 million and $180 million, respectively, reportedly to settle their cases.

But there are certainly billions more hidden offshore.   The conference gave the IRS Whistleblower Office and two other government whistleblower offices an opportunity to make the case directly to high-level, knowledgeable experts from widely utilized offshore financial centres about blowing the whistle on offshore tax abuse and other cross-border frauds that impact the U.S. Treasury and public markets.  (I was part of a conference panel that included the directors of the IRS, Securities and Exchange Commission and the Commodity Futures Trading Commission whistleblower offices.)

The conference audience was the right one from which potential whistleblowers could be drawn: It included representatives from offshore entities, high-net worth individuals and others who have information about offshore strategies, including attorneys, judges, trustees and businesses from the Cayman Islands, the British Virgin Islands, the Bahamas and other offshore financial centers.

There are many critical problems plaguing the IRS whistleblower program.  But the attendance of the director of the Whistleblower Office at the Offshore Alert conference in Miami is not one of them.

For more information and comments on this story go to http://www.forbes.com/sites/erikakelton/2012/05/07/keep-heat-on-irs-commissioner-shulman-whistleblowers-needed-to-uncover-offshore-tax-abuses/

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