Accounting
IRS urged to do more to protect whistleblowers despite NDA
The Internal Revenue Service needs to do more to enable whistleblowers to report on fraud, waste and abuse, even if they’ve signed nondisclosure agreements, which should provide anti-gag provisions allowing them to speak out, according to a new report.
The
The anti-gag provision informs employees that their rights and obligations to report wrongdoing to Congress, the Inspectors General, or the Office of Special Counsel supersedes an NDA, the TIGTA report noted.
The IRS estimates that approximately 500 to 1,000 of its employees and 6,000 of its contractors sign an NDA each year. “Without anti-gag provisions in the NDAs, employees and contractors might be reluctant or discouraged to report on fraud, waste, and abuse activities, which would cause reputational harm for the agency,” said the report.
TIGTA found that the IRS has guidance that references whistleblower protections and addresses prohibited practices of retaliation against whistleblowers. However, specific reference to the anti-gag provision was not included in its NDAs, policies or whistleblower protections training.
In addition, the IRS’s guidance on prohibited personnel practices under the Whistleblower Protection Enhancement Act document states that the NDA policy, form or agreement must include the anti-gag provision before the policy, form or agreement can be enforced. Because NDAs in use by the IRS at the time of TIGTA’s review did not contain anti-gag provisions, they may not be enforceable, according to the report.
TIGTA reviewed 22 NDAs signed from August 2018 to April 2024 and found that five contained a partial reference to the anti-gag provision, but 17 did not contain any reference to the anti-gag provision. Some of teh existing internal guidance referenced NDAs and whistleblower protections. However, TIGTA did not see evidence of a dedicated NDA policy that required the anti-gag provision be included.
The NDA and whistleblower guidance were not easily accessible for employees to find on the IRS intranet site. Training for new hires and annual briefings for all employees, managers and contractors mentioned the Whistleblower Protection Act of 1989, and addressed the prohibited practices of retaliating against whistleblowers. Although it was not required, they did not contain the anti-gag provision. As a result of TIGTA’s evaluation, in July 2024, IRS officials updated the NDA form template for contractors with staff-like access and non-procurement employees involved in procurement activities to include the required anti-gag provision. The IRS also updated its Expert Witness NDA form template in October 2024.
TIGTA made four recommendations in the report. It recommended the IRS should ensure that NDAs, policies, forms and other guidance documents include the required anti-gag provision. It also suggested the IRS should create a dedicated section for NDAs in its internal guidance that contains the anti-gag provision. The IRS should also include information about the anti-gag provision in training programs covering whistleblower protections (such as new employee orientation and contractor training), the report recommended, and add a link to TIGTA’s Whistleblower Protections web page on its internal web page and pertinent information to the Employee Resource page on its internal webpage to ensure employee awareness of the whistleblower protections as it relates to the anti-gag provision.
IRS officials agreed with TIGTA’s recommendations. During the evaluation, the IRS updated its NDA template for contractors with staff-like access, non-procurement employees involved in procurement activities, and expert witnesses to include the required anti-gag provision. The IRS also developed updates to the fiscal year 2025 mandatory Prohibited Personnel Practices and Whistleblower training, and the updates are under final legal review.
“We appreciate your recognition of our references to anti-gag provisions in our documentation and training, and we appreciate your identifying areas where we can improve our notification of whistleblower protections and whistleblower rights,” wrote IRS chief risk officer Michael Wetklow in response to the report.
If financial advisors ask clients the rate of return for their rental real estate investment property, they should expect to hear a number at least 5 percentage points higher than the actual one, according to the founder of The Real Estate Whisperer Financial Planning.
That’s because of calculations based on “optimistic assumptions, untracked costs and the absence of formal benchmarking” among many owners, said
“It’s where ownership bias meets the reality of returns,” Arzaga added. “Whatever they say, knock out at least 5%.”
Despite the substantial role of
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A void in the profession?
Instead, more planners should maximize their value to clients by taking them through a realistic cash-flow estimate incorporating every expense that they can then apply to a long-term forecast of their assets in retirement, Arzaga said. Even for high net worth clients in particular who generate tens of thousands of dollars in rental income each year, the risks and costs of a property that isn’t meeting their investment expectations can eat up their holdings over time.
“I want to propose that this is an idea that you can use that will expand your thinking about the way we approach this business,” Arzaga said. “I think the way we approach it now is great, but I still don’t see it in any of the curriculum — whether it be the licensing certifications, none of the designations — none of them focus directly on real estate investments.”
Arzaga shared the case study of two 58-year-old clients from San Francisco he called Kevin and Lynn who had a net worth of $3.6 million and rental income of $75,000 per year through a property that was separate from their residence. Through debt service payments and other expenses, however, their costs on the property amounted to $76,000. If the couple followed through on their plan to retire when they turned 65 while keeping the same quality of life that cost them $312,000 a year, they would run out of their assets by age 84, Arzaga estimated.
“Somebody with a $3.6 million net worth, this is kind of not what they expect, right?” he said. “So that’s why they come to us. And luckily, they came to us.”
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A better course of action
If the couple were to sell the property in a tax-advantaged 1031 exchange for a better-performing asset or simply spin off their rental holding, absorb the taxes and reinvest the holdings into their long-term portfolio strategy, their assets could amass value hundreds of thousands of dollars or even millions higher than their current scenario.
One of the main misunderstandings stems from the cost of maintaining rental properties, according to Arzaga. In his example, the clients mentioned their amount of income and told him that the number included their expenses. He saw that they had miscalculated when he examined their itemized deductions on Schedule A of their tax returns.
Operating expenses include taxes and the preparation of them, insurance premiums, legal fees related to entity filings and other matters and two major areas — maintenance reserves and property management. In terms of maintenance, the owners should build in costs of about $30,000 to $40,000 every decade for concrete, foundation work, a roof replacement or similar upkeep, Arzaga said. Property management poses difficulty as well.
“Most people like to do that on their own. Most people aren’t capable of that,” he said. “It’s important, and it’s a big asset. And some decisions they’re making are because they’re not professionals in this area.”
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Providing value outside investment portfolios
These realities may be tough for the clients to hear, but they usually come around after planners lay out the cold calculation of the costs and risks involved with a lot of small-scale rental properties. Assisting clients in making smarter choices about their real estate is “more significant than beating the S&P 500” and a “much more noble cause,” Arzaga said.
“Understanding how real estate can impact a family’s finances, I think, is essential to being a comprehensive advisor,” he said. “You’ve got to be comfortable talking about these things. You don’t have to be an expert, but addressing them, to do a service for your clients.
Joel Cooperman, cofounder and former CEO of Citrin Cooperman, left the firm on March 31 after over 40 years.
Cooperman founded the firm, alongside Niles Citrin, in 1979 when two English rock bands provided the seed money needed to open shop in a small New York apartment. Now, the Top 25 Firm reports over $870 million in revenue, with 27 offices, 455 partners and 3,190 employees.
“I can assure you that Niles Citrin and I never had any plans to build a firm larger than the two of us and maybe a couple of others,” Cooperman said in a statement. “In the early years, accounting was still viewed primarily as a profession and not as a full business – this never really made sense to me. We felt that for long-term success it was critical to create a culture and environment that our partners and employees would enjoy as we all worked to build a thriving sustainable business.”
Citrin Cooperman
Citrin Cooperman was one of the first instances of a major accounting firm
Cooperman offered advice to those early in their career: “I have always been surprised that so many people do not really understand how much they have to offer, how much potential they have. If I could offer any advice, it would be to figure out what you are good at and what you love to do, make a plan, write it down, and then go after it every day.”
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