The IRS Whistleblower Office recently released its annual report to Congress reflecting a pretty good year, with hope for a better year to come.
Since 2007, whistleblowers have helped the IRS collect more than $3 billion in tax revenue and have been awarded more than $403 million for their efforts. The IRS reported that in fiscal year 2015, it made 99 awards to whistleblowers totaling more than $103 million – more than double the amount of money it awarded whistleblowers in the previous year. And the total claims closed by the IRS increased by 27 percent, which is a significant improvement over last year.
The apparent success of the program, however, is tempered by widespread problems – recently noted in an October 2015 report from the US Government Accountability Office (GAO) – in the timeliness and accuracy of providing awards, the lack of clear communication and claims-review procedures, a failure to provide protections against retaliation, and an unwillingness to enter into cooperation agreements with whistleblowers.
The IRS is well-aware of its reputation as a “black hole” for whistleblower claims, but explains that many of the steps in the claims-review process cannot be expedited or shortened given the complexity of the issues and taxpayer cooperation and documentation. Further lengthening the process is time required for the expiration of appeals rights and refund rights, which the IRS admits can add several years to the waiting period before an award is paid.
Despite these hurdles, the IRS reported it is committed to improving the whistleblower program, including reducing the lifecycle of whistleblower claims through process improvements. The IRS last year initiated a program review of the whistleblower office to identify opportunities to maximize the efficiency and effectiveness of the claims process. The report identified several opportunities, including leveraging IRS expertise and resources, both within and beyond the whistleblower office, to strengthen the overall program.
The IRS also noted that it intends to work on educating whistleblowers on filing quality claims so that it does not spend time investigating claims that have a low chance of success. The IRS says many of the thousands of claims it receives each year are not actionable because the information is not specific and credible. To reduce the number of low-quality claims it receives, the IRS reported that it is diligently working on updating and expanding educational materials to provide robust detail and insight into best practices for submitting a successful claim.
Aside from procedural issues, the IRS called out two fundamental legislative shortcomings inhibiting the success of its whistleblower program:
- No whistleblower protections against retaliation.
- No effective sanctions on whistleblowers who improperly disclose taxpayer information.
The IRS has urged Congress to enact legislative proposals that would address these key issues. The first is to enact whistleblower protections against retaliation akin to those found under the Dodd-Frank Act and the False Claims Act. As the report noted, “whistleblowers may be putting their careers at risk by coming forward with information, which is not an easy step to take. Providing whistleblowers with protection from retaliation by their employer would help make the IRS Whistleblower Program more effective and help bring to light additional violations of tax laws that may otherwise go undetected.”
The second is to provide stronger protections for taxpayers by imposing a sanction on whistleblowers who improperly disclose taxpayer information. This key issue is related to one of the stronger recommendations highlighted in the GAO report – to include whistleblowers in the investigative process by executing cooperation agreements. The IRS has historically been reticent to execute such agreements, sticking by its policy to provide whistleblowers updates on a claim’s status limited to whether the claim is still open. This means whistleblowers may not hear anything from the IRS for several years and have no opportunity to provide the IRS with helpful information during the review period. The report stated that the IRS recognizes the benefit of including whistleblowers in the review process, but intends to continue its policy until there is an effective sanction when a whistleblower obtains confidential information and chooses to release that information to the public.
The report shows that the IRS is taking the whistleblower community’s concerns seriously and has promised to work hard to ensure a brighter future for the whistleblower office. As it works on tackling the various procedural and legislative hurdles, the IRS previewed that it expects the upward trend in award payouts will encourage whistleblowers to file quality claims. Sen. Charles Grassley (R-IA) commented on that point, noting that “whistleblowers have long been frustrated with the lack of awards … I hope the increase in awards will reverse this trend and send a signal of things to come.”
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Marlene Koury is an associate in the New York office of Constantine Cannon LLP. Marlene joined the firm in 2007 and concentrates her...
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The most important piece is a retaliation protection. Hopefully, Grassley, and others in DC who support whistleblowers as a force against corruption, can get some legislation passed to protect IRS whistleblowers.
No disrespect intended, but well-meaning and optimistic folks have been forecasting the light at the end of the IRS WBO tunnel for a long time now.
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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