Wednesday, March 13, 2013

Former IRS Large Case Auditor Pleads to Criminal Conflict of Interest & Wrongful Disclosure (3/13/13)

The USAO SDNY announced yesterday that Dennis Lerner, a former IRS employee, pled to two 5 year felony counts -- (i) criminal conflict of interest and (ii) disclosing confidential audit information (Section 7213).  See USAO Press Release, here.  According to the press release, the following is the USAO summary of the charges.
From June 2010 through August 2011, LERNER worked as an International Examiner in the New York office of the IRS. For several months leading up to his resignation from the IRS, one of his chief responsibilities involved conducting an audit of an international bank (“Bank 1”) related to approximately $1 billion in allegedly unreported income. Shortly before his resignation, LERNER led negotiations on behalf of the IRS which resulted in a proposed $210 million settlement between Bank 1 and the IRS. The settlement was still pending final approval at the time of his departure. Unbeknownst to his colleagues and supervisors, LERNER applied for, interviewed for, and accepted the position of Tax Director at Bank 1 during the time period in which he was representing the IRS in the Bank 1 settlement discussions. He also sent multiple emails to an individual in which he expressed both his dissatisfaction with his job at the IRS and his hope that he would secure the Bank 1 job. At no time did he notify the IRS of his efforts to obtain employment with Bank 1. 
LERNER also engaged in improper disclosure of IRS tax return information during the time period that he worked as an IRS International Examiner. Specifically, he revealed the identity of a bank he was auditing to an individual who was not employed by the IRS.
Bank 1 is identified in the press as Commerzbank AG.  Plea agreements usually require cooperation.  Since the type of conduct for which Lerner was charged take two to tango, so to speak, I wonder whether the shoe will now fall on Commerzbank and/or its employees.

I previously blogged the original complaint, Former IRS Agent Charged with Conflict of Interest and Disclosing Return Information Including Whistleblower Name (9/27/12), here.

Addendum:


Tax Notes Today has an article on this plea:  Eric Kroh, Former IRS Employee Pleads Guilty to Disclosing Audit Information and Conflict of Interest, 2013 TNT 49-5 (3/13/13).  A key excerpt is as follows:
Dennis Lerner, a former international examiner in the New York IRS office and former tax director at Commerzbank AG, on March 11 accepted a plea agreement in which he pleaded guilty to those charges but not to charges of exposing an IRS whistleblower and having improper contact with IRS employees after leaving the agency. 
* * * * 
Lerner's attorney, Sharon L. McCarthy of Kostelanetz & Fink LLP, told Tax Analysts that Lerner "was unable to say that he did what the government alleges" in the dismissed counts. 
The article also quotes a prominent Whistleblower lawyer, Dean A. Zerbe, who speculates that the driving force was the IRS's whistleblower charge for which Lerner did not plead guilty and states his hope that the judge "will find a whole bookshelf at him" at sentencing.  Zerbe argues that "The continuing success of the government's best program to smoke out big-time tax cheats -- the IRS whistleblower program -- depends on whistleblowers having high confidence that the government will do all it can to protect their identity."
It seems that Mr. Lerner has suffered a lot already.  He does need punishment and, depending upon his contrition, I would hope that the judge seasons justice with mercy.  (That's from Shakespeare's Merchant of Venice.)  To continue that allusion, the Government / American people will be able to get their pound of flesh, if such is their due, within the 10 year maximum sentencing allowed with the plea (by stacking the two 5 year counts).  The sentence will depend upon a host of factors in the Sentencing Guidelines and the factors brought to the sentencing judge's attention by the players in sentencing -- the USAO SDNY, the Probation Office and the Defendant (through his counsel).  Based on my admittedly incomplete picture of all the sentencing factors, I still am unable to see the judge "throwing the book" at Lerner.

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