Recent Changes in the Whistleblower Program
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2019 TAFEF Conference IRS Whistleblower Panel
Sitting on a panel with the Director of the IRS Whistleblower Office, there is always something to learn. At the Taxpayer Against Fraud Education Fund Conference held October 3, 2019 through October 5, 2019, Director Lee Martin shared some updates with respect to the IRS whistleblower program, for which we wish to bring to your attention and provide commentary.
PARTIAL PAYMENTS - Although the IRS made partial payments of awards during the past ten years, it is now only making partial payments of awards when it is in the best interest of the government and as specifically requested by the whistleblower. In the conference, there were no examples given as to when it would be in the best interest of the government to pay awards and the consensus is that it there is unlikely a situation where one could argue that it is in the best interest of the government to make a partial payment of an award. In addition, there are no published procedures as to how a whistleblower would specifically request a partial payment.
So, what are the downsides to the government to pay partial awards? A partial payment of award would allow a whistleblower to get paid as well as judicially appealing the award upon a final decision made on a subsequent determination by the IRS, certainly something the government does not see in its best interest. However, one should question, what is wrong with the whistleblowers getting paid an award as determined by the IRS and still appealing the abuse of discretion by the IRS in its determination. A partial payment of award could also allow the whistleblower multiple appeals. As the IRS, has been minimizing and rejecting awards by narrowly interpreting the whistleblower statute and its own regulations, only to speed the payment to whistleblowers and shortening the average length of time of 9.32 years in which it takes a whistleblower to get paid, is currently not being viewed as in the governments best interest.
6103(N) CONTRACTS (I.E. A NON-DISCLOSURE AGREEMENT) – Legislative history reflects that to the extent disclosure of return information is required for purposes of assistance of the determination/ collection of tax; the disclosure by the IRS should be pursuant to a section 6103(n) contract for services related to tax administration. Without the non-disclosure agreement, the IRS is prohibited from disclosing taxpayer information to the whistleblower. However, to be clear, the IRS regularly enters non-disclosure contracts when engaging appraisers, valuation experts, engineers etc. for purposes of obtaining an outside expert opinion with respect to a tax examination, Appeals, or tax litigation.
As often is the case, whistleblowers are experts and know more about the facts and the law as to a given tax issue than the IRS as well as the taxpayer and its representatives. Whistleblowers are in a position to greatly assist the IRS in the examination of the tax issue, as well as assisting in evaluating the strengths and weaknesses of the taxpayer’s defenses. However, the IRS has chosen not to utilize 6103(n) contracts despite the fact that the whistleblower’s assistance could maximize tax compliance, tax collected and administrative efficiency. In 2007, when this new whistleblower program was in the beginning stages of development, the IRS always pretended that it was looking for the “perfect case” in which to enter into a 6103(n) contract. This is no longer the case. It appears that the IRS, at the highest level of management, has without any explanation made a decision that it just won’t work with whistleblowers for the purposes of maximizing efficiency, tax collection and tax compliance.
NEW LAW – 7623
On July 1, 2019, President Trump signed the Taxpayer First Act of 2019 authorizing the IRS to disclose, upon request, the “status and stage” of Whistleblower Claims. In addition, the IRS is required to (i) inform the whistleblower, within 60 days of the whistleblower claim being transferred to the Operating Division, and inform the whistleblower, within 60 days of a payment of tax received by the IRS on the whistleblower issue.
The IRS whistleblower office appears to be timely complying with the law without any increase personnel or budget. It should be noted that Director Lee Martin made it clear, that providing such information to the whistleblower is being done before any determination is made as to the whistleblower being entitled to an award. In fact, an example was given that if there were six whistleblowers as to a given tax issue, each would be notified that a payment was received. I believe that this will likely lead to additional and unnecessary litigation in the future. Director Martin also made it clear that the Status and Stage letters sent in response to a request by the whistleblower will be limited to how many requests may be made by the whistleblower. Currently, it is being thought to be limited to once a year.
Author Thomas C. Pliske is a former IRS attorney. He established the Tax Whistleblower Law Firm in 2008. whose sole practice is representing Whistleblowers before the IRS and the U.S. Tax Court