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GAO: Problems Persist with IRS Whistleblower Program

Dec 17th 2015
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A recent study of the IRS Whistleblower Program by the US Government Accountability Office (GAO) indicates a range of problems that renders the program a weaker toot than it should have.

Entitled IRS Whistleblower Program: Billions Collected but Timeliness and Communication Concerns May Discourage Whistleblowers, the study spotlights a gamut of issues, such as yearslong delays in processing claims, inadequate use of what's available to manage claims, over- and underpayment of awards, missing data, and insufficient protection of whistleblowers and the information they provide.

The IRS Whistleblower Office is charged with handling thousands of tax whistleblower claims every year for two programs: 7623(a) for whistleblower claims of up to $2 million and 7623(b) for claims of more than $2 million. The program began in 2007.

Since fiscal year 2011, tax whistleblowers who report on the underpayment of taxes by others have helped the IRS collect nearly $2 billion in additional revenue. Under the program, qualifying whistleblowers are paid a minimum of 15 percent of the collected proceeds.

From 2011 to June 30 of this year, $315 million was awarded to whistleblowers for 500 claims – 483 for 7623(a) claims and 17 for 7623(b) claims.

But the GAO's review of the 17 larger awards indicated over- and underpayments of about $100,000. Although the IRS Whistleblower Office began verifying the collected proceeds before awarding payments, the office didn't document that verification process, “putting it at risk of making additional errors in award payments,” according to the study.

“We appreciate your robust review of this IRS program,” said John Dalrymple, IRS deputy commissioner for services and enforcement, in an October letter to James McTigue Jr., the GAO's director of tax issues for the Strategic Issues Team. “The inefficiencies that you identified with the whistleblower claim process are ones that we had previously identified, and they are part of what led us to take action to strengthen this program. Your report findings further confirm for us the existence of efficiency-improvement opportunities, and your recommendations are timely and insightful and will assist us in making progress in our re-engineering of the whistleblower claim process.”

The following are some of the GAO's other findings.

  • The Whistleblower Office lacked controls for sending mail and at least once sent “sensitive” mail to an incorrect address that also indicated the office's return address, which could threaten whistleblowers' identities. The Whistleblower Office has changed how it labels return addresses, but hasn't documented this policy.
  • Whistleblowers are not protected by law against employer retaliation. The study recommends congressional action to provide legislative protection.
  • E-TRAK, the whistleblower claims management information system, tracks the progress of claims and stores information. Prior problems were found in the system's ability to monitor claims and produce management reports. The IRS has said the system wasn't intended to monitor overall program performance. Despite updates, the IRS says the system still is difficult to use.
  • The GAO's exam of the 17 paid 7623(b) claims as of June 30 indicated that the claims took from four to 7.5 years, from the award application to payment.
  • Few claims close with an award payment. Between FY 2013 and Aug. 5, less than 5 percent of 7623(a) and 7623(b) claims closed with an award. During that time, 19,757 claims were closed without any payment.
  • The Whistleblower Office has increased its staff levels since 2007, but the increases haven't kept up with the workload. More than 11,000 cases are backlogged.
  • The Whistleblower Office doesn't monitor a key date in calculating awards, which causes delays in payment and ineffective management.

Dalrymple indicated that the agency has added staff from other divisions to handle the claims backlog, is exploring ways to streamline operating processes and improve technology, assigned a senior manager from his office to work on re-engineering the whistleblower claim process, and brought in a new manager in August to direct the program.

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By FCA Aficionado
Apr 18th 2016 01:04

Despite chatter related to the last WBO report to Congress (much improved but still not very meaty or first drawer), there is no proof that the Service is truly, sustainably, embracing WB's.

Even booting the ineffectual and fake-WB-advocate Whitlock and replacing him with the reportedly process and results oriented Lee Martin (a man with a genuinely impressive resume) is not enough to comfort and incentivize current and potential future WBs.

Replace Dir. Martin's Legal Counsel with an individual biased toward incentivizing WB's and realign IRS Counsel from promoting, and defending in Tax Court, decisions that minimize WB reward payouts.

It is painful to see Sen. Grassley's failure to care for and reform the 7623(b) crop he planted; it is dying in the field due to his neglect. He crows about how much 7623 returns, but if he listened to this County Agent, he could vastly increase his yield rate to Blue Ribbon proportions.
7623(b)* needs to be fertilized and weeded by:

1. Requiring the IRS to investigate all claims;

1a. Require the IRS to reasonably pursue recoveries and penalties under all applicable statutes, regulations and codes (0-tolerance for any investigation prompted or aided by a WB submission);

2. Eliminating the IRS' discretion in rewards by making 30% the starting point with only reasonable deductions for bad acting in the part of a WB;

3. Specifying that regardless of title (26, 18, 31, etc.) all government (not only IRS) recoveries accruing to WB input are part of the reward calculation (I.e. in the event IRS provides WB info to DOJ for FCA prosecution);

3a. In title 31, exempt WB reward portion from being deposited into Victims of Crime Fund;

3b. Prohibit the IRS from ignoring or reducing penalties in any category, or negotiating reductions in any category in trade for increases in any other category (i.e. prevent transferring fines to non-Title 26 categories.);

4. Eliminating sequester penalty and tax obligation on WB rewards (many modest WB's are scared off by a unpalatable risk v reward relationship);

5. Enact anti-retaliation provision as seen in FCA but with unlimited SOL for fraud related retaliation. Consider allowing IRS to collect this directly or on behalf of NLRB;

6. Incentivize the IRS to devote best resources to prosecuting recoveries based on WB tips by allowing IRS to keep a portion of recoveries as an offset for budget cuts;

7. In the event that any of the current or past crop of WB submissions suffered due to any of the above defects, review and award those WB's as if the legislative rectifications were active when 7623 came in to force in 2007. Allow plaintiffs or their heirs to refile in USTC for de novo review;

8. For God's sake, once the WBP and WBO are reformed, prominently display a "WBO is Open for Business" sign on IRS homepage.

*7623(a) needs to be subject to all of the above except point 1.

Only in this way will those far away flowers of good intention bloom and grow into the cash crop to be harvested from those that dare to cheat, and place their share of fiscal burden on, honest citizens by denying what is owed to the public fisc.

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