Will 2017 Be a Good Year for IRS Tax Whistleblowers?

Out of all the whistleblower laws in America, the IRS program has had perhaps the hardest time gaining traction. The program has been making important strides in the last couple of years, however, and in 2016 rewarded more whistleblowers than ever before.

2016 Victories for Tax Whistleblowers

The IRS Whistleblower Program has helped the government recover more than $3 billion in defrauded taxes. Since companies and individuals that cheat the tax system are responsible for an estimated hundreds of billions of dollars in lost taxpayer contributions annually, $3 billion is just the tip of the iceberg.

Fortunately, 2016 was one of the most successful years for the IRS whistleblower program so far. In 2015, 99 whistleblowers earned financial rewards for their reports of tax fraud. In 2016, that number rose substantially to 418 whistleblowers. The total reward amount for those whistleblowers was $61 million, compared to $101.3 million in 2015.

In August, a court also ruled that IRS whistleblowers could collect a greater portion of the recovery than before. The reward amount is now a percentage of all “collected proceeds” including court fees and any other costs recovered in the lawsuit.

More important than the number of rewards was the IRS’ commitment to addressing some of the institutional challenges that have consistently hurt whistleblowers. Backlogs are a significant problem, because they can cause significant delays. That means that it is very difficult for tax whistleblowers to know when and how their complaints are being handled.

Now, whistleblowers can expect to receive timely acknowledgement that their complaints have been received. These types of improvements were sparked in large part by recommendations from the Government Accountability Office.

Still, whistleblower advocates like Senator Chuck Grassley and attorney Stephen Kohn have suggested further improvements to the IRS program. According to Kohn, the IRS Whistleblower Office has suffered from detrimental staffing shortages.

There were 61 staff members dedicated to addressing whistleblower complaints in 2015, and only 37 in 2016. Kohn also noted that there is a backlog of almost 30,000 open cases, though the IRS says it has eliminated that backlog.

About the IRS Whistleblower Program

The IRS Whistleblower Program is designed to root out large-scale tax fraud and tax evasion. The parameters of this program have historically limited the types of whistleblowers who could come forward, which could partially be the cause of some of the challenges the program has faced.

Whistleblowers can only be eligible for a financial reward if they report fraud involving more $2 million in taxes or penalties. If an individual committed the fraud, his or her annual income would also need to be over $200,000. Whistleblowers that meet these criteria can receive up to 30% of the IRS’ total recovery as a reward.

In addition to those limitations, the IRS’ anti-retaliation protections are not quite as strong as the ones provided by the False Claims Act. Having a qualified attorney is always important in whistleblower cases, but it is especially critical for tax whistleblowers. The process of reporting tax fraud is far from seamless, even with 2016’s improvements.

Learn more about IRS tax fraud here.