The IRS Whistleblower Office (WO) collected nearly $2 billion in additional revenue between 2011 and 2015 and over the same period rewarded over $315 million to whistleblowers who exposed tax cheats. But according to a Government Accountability Office (GAO) report, serious WO flaws may discourage future whistleblowers and prevent the IRS from further reducing the $450 billion tax gap.
Poor communication with whistleblowers and their attorneys, award errors, long delays in claims processing, claims rejected without explanation, and a lack of whistleblower protections are the most glaring WO problems, says the GAO report.
While the IRS has had a whistleblower program for more than a century, it was significantly expanded in 2006 with the establishment of a Whistleblower Office that pays qualifying informants between 15% and 30% of proceeds collected from tax law violators. Whistleblower awards were first paid by the WO in 2011.
By some important measures, the IRS whistleblower program has been a success. Patrick Burns of the D.C.-based group Taxpayers Against Fraud points out that more claims were filed during the first four and a half years of the WO than were filed during the first 10 years of the False Claims Act (1,942 compared to 1,674). Over the same time frames, IRS whistleblowers awards also outpaced FCA whistleblower awards ($315 million compared to $282 million).
More discouraging is that 37,000 of the 67,000 claims filed with the WO as of June 2015 were denied. In addition, very few accepted claims resulted in whistleblower awards. GAO found that between the start of fiscal year 2013 and August 5, 2015, 95% of claims did not result in award payment. Over the same period, nearly 20,000 claims were closed with no payment. IRS rules dictate that awards be granted when whistleblowers “substantially contribute” to a tax recovery, but the GAO called this standard “inherently subjective.”
Even in those cases where whistleblower awards are given, they’re often incorrectly calculated. Of 17 high-value case awards handed out over a four and a half year period, GAO found that 7 contained errors totaling around $100,000. Whistleblowers should expect long resolution times, too. These 17 paid claims took from 4 to 7 ½ years from submission to award payment.
Making matters worse, whistleblowers and their attorneys have no way of knowing the status of their claim (beyond whether it is open or not), when to expect a determination, and why a claim was denied. The IRS also provides limited information about what makes a good claim.
WO program stakeholders, say the auditors, “have reported frustrations with the limited information IRS is willing to share with whistleblowers, especially those that have risked their careers or safety to be whistleblowers.” Some whistleblower attorneys, the auditors add, have stopped taking on such clients altogether due to their frustration with the program.
In order to better enforce tax code compliance through the whistleblower program, GAO concludes, IRS needs to improve confidence in the program’s processes and outcomes, shore up inefficient processes, communicate better with external parties, and offer whistleblowers protections against employer retaliation—something it currently does not provide. GAO makes 10 specific recommendations for improving the program, which currently has an 11,000 case backlog.
The IRS said in a statement that, “GAO’s recommendations will help us improve the [whistleblower claims] process. Any backlogs in claims throughout the process are being addressed by the appropriate staff and a project is under way to improve and streamline operations.”
“IRS Whistleblower Program: Billions Collected, but Timeliness and Communication Concerns May Discourage Whistleblowers” can be read in its entirety here.
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