The Value of Legislative Change (past, present and future)

Since June 24, 2008 when the first Whistleblower Report was published, the IRS Whistleblower Office has been reporting annually to Congress, the progress of the IRS’ implementation of the Whistleblower Program. In past reports it was difficult to identify the true progress and success of the program. 

However, the Whistleblower Program 2018 Annual Report to Congress (fiscal year ended October 31, 2018) has now provided information that reflects that the IRS is moving forward.  This blog will focus on the value of legislative changes to improve the success of the program.  The program is being implemented “administratively” by the IRS, but as shown below, “legislative” changes are important to accelerate the program and show that the IRS supports the program. 

Past Legislation: Inclusion of Non-Title 26 amounts as "collected proceeds" On February 9, 2018, new legislation was enacted to further clarify the term “collected proceeds” for which a whistleblower award is based. Although the statute appeared to be clear as it was originally written, the IRS interpreted the term “collected proceeds” (i.e., tax, interest, penalties, additions to tax and other amounts) very narrowly and refused to pay an award on non-Title 26 (United States Code) amounts (i.e. criminal penalties, civil forfeitures, etc.) collected by the IRS based upon whistleblower’s information.   As a result of this legislative change, the amount of collected proceeds in 2018 was $1,441,255,859 ($312,207,590 in awards), an increase of 756% over 2017 collected proceeds of $190,583,750. It should be noted that the majority of the 2018 increase to collected proceeds ($809,915,922) was a result of the change in the law, § 7623(c)’s inclusion of the non-Title 26 amounts collected for criminal fines and civil forfeitures. This legislative change was positive for the whistleblower program and will help to promote the program.
Present Legislation: Whistleblower protections In March 2017, Sen. Chuck Grassley and Sen. Ron Wyden introduced legislation to protect IRS whistleblowers from workplace retaliation. This legislation is crucial to effectively prevent honest employees from having their careers destroyed, simply for doing the right thing. Since 2007, whistleblowers have been given credit by the IRS for the collection of over $5 Billion, not including future compliance by these taxpayers. The benefit to the government could be as much as 5 times this amount. Director Lee Martin of the IRS Whistleblower Office restated (Page 7 of the Annual Report) the need for this statutory change for which Congress has to date, failed to act. As stated by the Director: Providing whistleblowers with a zone of protection from economic or physical harm is imperative to the success of any whistleblower program as Congress has recognized in other whistleblower statutes. No individual should suffer any reprisals for providing truthful information to the IRS. Hopefully, we will see a Bipartisan Congress come together to enact the necessary legislation to protect whistleblowers.
Future Legislation: Additional changes (Interest, timelines, stop sequestration) While the IRS has made some progress on its own to improve the whistleblower program, it is clear that IRS management and IRS Counsel, for unknown reasons, continue to narrowly construe the law, fail to interpret the law to achieve the desired goal of the law, and fail to properly use arguably the most powerful law enforcement tool ever given to the IRS by Congress.   Additional Legislation is still needed to:
  1. STOP the reduction of awards for "sequestration" (currently 6.2%).
  2. Shorten the payoff time (currently 9.32Years).
  3. Increase communication between the IRS and whistleblowers (i.e., provide status updates to whistleblowers at significant points in the review process)
  4. Require the IRS to statutorily meet certain deadlines (i.e., processing a claim within 90 days of submission, or payment of an award within 60 days of collecting the tax, etc.)
  5. Paying interest to the whistleblower from the time the IRS and whistleblower are in a debtor/creditor relationship (i.e. from the time the IRS collects the tax based upon the whistleblower’s information.)

The take away is while the IRS whistleblower program had a good year, there is much more to be accomplished by the IRS to the implement the 12 year old Whistleblower Program.  Changes must occur either voluntarily by the IRS in the administration of the IRS Whistleblower program, or statutorily by Congress enacting additional changes to the law (similar to the 2018 change) so that the intent of Congress is recognized by the IRS.

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