According to a Department of Justice press release, the U.S. Attorney’s Office for the Southern District of New York in Manhattan announced the unsealing of a complaint that charged a former IRS official with violating conflict of interest laws during the time he was an IRS employee and continuing to do so after leaving his position with the IRS. Dennis Lerner, a former International Examiner in the New York office of the IRS, was also charged with illegally disclosing confidential IRS information. This sensitive information included pending audit data, along with revealing the identity of an IRS whistleblower. Lerner was arrested on September 27 at his home in Edgewater, N.J., and appeared that day in a Manhattan federal court before Magistrate Judge Gabriel W. Gorenstein.
Details of the Charges
According to the allegations, between June 2010 and August 2011, Lerner worked as an international examiner in the New York office of the IRS. In the months leading up to his resignation from the IRS, one of Lerner’s main responsibilities involved the audit of an international bank and approximately $1 billion in alleged unreported income. The international bank audit was initiated by a confidential IRS whistleblower, which was sensitive information that Lerner had access to and reviewed during the course of his IRS employment. Shortly before his resignation, Lerner spearheaded the IRS negotiations, which resulted in a proposed $210 million settlement between the international bank and the IRS. At the time of Lerner’s resignation, the settlement was still pending final approval.
What Lerner’s colleagues and supervisors did not know, however, was that Lerner had previously applied for and interviewed with the same international bank for the position of tax director. This took place during the same time period in which he represented the IRS in settlement negotiations with the international bank. Lerner also sent numerous emails to an individual during that time, expressing his dissatisfaction with working for the IRS and his hope to secure a job with the international bank. At no time did Lerner notify the IRS of his intention to obtain a job with the bank. According to some initial reports in the media, the international bank in question was the German bank Commerzbank. Commerzbank later confirmed that it is fully cooperating with the investigation.
After announcing his resignation from the IRS, Lerner received a written notice of the restrictions which are imposed on former IRS employees, including improper contacts with current IRS officials. However, when the IRS sent the international bank additional audit questions after Lerner began working as their tax director in September 2011, he quickly called several IRS employees and scheduled meetings with them regarding the continuing audit.
Lerner continued his attempts to persuade the IRS employees to provide inside information about the audit and even pushed the employees to approve a settlement between the IRS and the international bank. Lerner persisted with these activities, despite receiving multiple warnings he should not be participating in the audit or settlement process at all.
IRS Whistleblower’s Identity Revealed
In addition to the above improprieties, Lerner also engaged in the improper disclosure of IRS tax return information while he worked as an IRS international examiner. Specifically, Lerner leaked the identity of an IRS whistleblower who had previously provided confidential information about Commerzbank. Not only was the IRS whistleblower’s name divulged, Lerner went on to provide additional details about pending IRS audits of other companies to individuals who were not employed by the IRS.
Lerner was charged with two counts of violating federal conflict of interest laws and two counts of disclosing confidential IRS information to individuals who were not IRS employees, including disclosure of the identity of an IRS whistleblower.
“As alleged, Dennis Lerner’s violations of basic conflict of interest laws were brazen and continued in the face of warnings about his conduct,” Manhattan U.S. Attorney Preet Bharara said in a statement. “Not only did he flout those laws in order to curry favor with a prospective employer, but he also illegally disclosed the identity of a whistleblower, as the complaint alleges. As this defendant now knows, this office will aggressively prosecute those who violate their legal and ethical obligations as government employees.”
“Dennis Lerner betrayed the trust put in him as a public servant by parlaying his position at the IRS into a high-powered job at a bank he was auditing through a scheme that may now land him in prison,” Bharara continued. “We will not tolerate corrupt government employees and will prosecute and punish them to the full extent of the law.”
Bharara went on to praise the investigative work of the Treasury Inspector General for Tax Administration (TIGTA), which included the assistance and cooperation of IRS management. He also noted that the investigation is continuing with the Office’s Public Corruption Unit. Assistant U.S. Attorney Randall W. Jackson is in charge of the prosecution. Lerner faces up to 20 years in prison if found guilty.