TIGTA-2016-26 Press Release

October 24, 2016
TIGTA-2016-26
Contact: Karen Kraushaar, Director of Communications
Karen.Kraushaar@tigta.treas.gov
(202) 622-6500

The Whistleblower Program Helps Identify Tax Noncompliance; However, Improvements Are Needed to Ensure That Claims Are Processed Appropriately and Expeditiously

 WASHINGTON — The Internal Revenue Service (IRS) Whistleblower Program can be a powerful tool to assist the IRS in identifying violations of tax law and collecting funds that might otherwise be lost to tax evasion.  However, improvements are needed to monitor the timeliness of whistleblower claims processing and ensure that program decisions are properly supported, according to a new report issued publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

Internal Revenue Code Section 7623 authorizes the IRS to pay monetary awards to whistleblowers for information leading to detecting underpayments of tax or bringing to trial and punishment persons guilty of violating tax laws.  However, whistleblowers and members of Congress continue to express concerns with the operation of this program.

In its review, TIGTA found that the Whistleblower Program has helped the IRS collect significant amounts of revenue by facilitating whistleblower claims reporting violations of the tax laws that may otherwise go unidentified.  From Fiscal Year 2011 through February 2016, the IRS collected more than $2 billion because of information that whistleblowers provided.  In addition, the Whistleblower Office has recently reduced inventory backlogs.  However, the Whistleblower Office does not have appropriate controls in place to allow for sufficient oversight of claims processing, and whistleblowers are not always contacted to clarify allegations.

TIGTA recommended that the Director, Whistleblower Office, implement the Balanced Performance Measurement System for the Whistleblower Program and implement controls to ensure that whistleblower claims are appropriately and timely evaluated before being rejected, denied, or referred to operating divisions for investigation or examination.  In response to the report, IRS management agreed with and plans to implement corrective actions for nine of TIGTA’s 10 recommendations.

“The IRS Whistleblower Program plays an important role in reducing the Tax Gap by providing an avenue for reporting tax evasion,” said J. Russell George, Treasury Inspector General for Tax Administration.  “It is important for the IRS to make every effort to implement controls to ensure the consistent, appropriate, and expeditious processing of whistleblower claims.”

Read the report.

###

Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

ARE THE LOBBYISTS FOR LARGE WEALTHY TAXPAYERS SUCCEEDING?

Influencing Congress to curtail IRS abuse seems to have caught on and is supported by many….until we think about it.  On April 4, 2016, the Center on Budget and Policy Priorities recently reported in an article IRS Funding Cuts Compromise Taxpayer Service and Weaken Enforcement that the IRS budge has been cut 17% since 2010 weakening the IRS ability to enforce the tax laws.  In fact with over 13,000 less employee (12,000 enforcement staff) it has resulted in the lowest audit levels in a decade.  These budget cuts are in addition to the IRS increased responsibilities including 9 million more individual returns filed, enforcement of ACA, FACTA, and its focus on identity theft that alone results in $6 billion of fraudulent refunds being issued by the IRS every year.

House Republicans have targeted the IRS for sharp cuts since the Lois Lerner fiasco.  Senator Ted Cruz pledges to keep his promises as he runs for President and then naively promises that he will eliminate the IRS.  We as taxpayers know that there is a cost to living in a civilize society.  However, what is happening is that the large influential taxpayers with their millions to spend to defend their underreporting and underpayment of tax are now just too big for the IRS to successfully audit with its limited budgets and lack of resources.  The IRS has now been reduced to do what it does best, and that is simply going after the little guy (middle and lower class).

One has to wonder if the reduction of enforcement of the tax laws as to the wealthy taxpayers and large multinational corporations is just an unforeseen consequence of cutting the IRS budget or is it the result of an overall plan by the wealthy influential taxpayer and the Republicans. 

In 2010, the IRS was given the most powerful tool for enforcement of the tax laws, IRC §7623(b)…a strengthened Whistleblower program.  The IRS was mandated to pay 15% -30% of the tax collected based upon information that was provided to it from an individual that resulted in the determination of tax.  However, this was with respect to only large taxpayers in which there was more than $2,000,000 of tax in dispute.  Thousands of whistleblower claims have been handed to the IRS on a silver platter every year involving large wealthy taxpayers, but for unknown reasons, the IRS has not used the whistleblower program as it should by working with whistleblowers, expediting these whistleblower cases through the system, and promoting the whistleblower program.  Perhaps with the current limited budget, the IRS will realize that is more important now than ever before to embrace the whistleblower program and work with the true insider to efficiently enforce the tax laws as to the large wealthy taxpayer.

IRS Identifies Problems with the Whistleblower Program

Internal Revenue Service

The Tax Whistleblower Law Firm fully supports the recommendations stated in 2016 report by the IRS National Taxpayer Advocate with respect to improving the IRS Whistleblower Program.  Although much more can be done administratively as well as legislatively to improve the whistleblower program, this is the first real effort by the IRS to identify the problems of the program.

It appears that “lack of communication” by the IRS is the most serious problem.  However just as important is the length of time from the submission of a Whistleblower Claim to the time in which an Award is paid (currently running 6-8 years).  Although much can be done to speed up the process, the Taxpayer Advocate failed to address this very important issue.

The National Taxpayer Advocate recommends that the IRS:

1. Revise the regulations under IRC § 7623 to provide that a whistleblower “administrative proceeding” within the meaning of IRC § 6103(h)(4) commences with the whistleblower’s submission of Form 211.  (Currently the Regulations provide that an administrative proceeding begins when a preliminary award recommendation letter is sent….which in fact is the end of the administrative proceeding).
2. Revise the regulations under IRC § 6103 or IRC § 7623 to provide that the IRC §§ 7431, 7213 and 7213A penalties apply to re-disclosures of returns or return information by a whistleblower who has executed a confidentiality agreement as part of an IRC § 6103(h)(4) administrative proceeding, and that the IRC § 6103(p) safeguarding requirements also apply to such a whistleblower.  (Currently there are no stated penalties to a Whistleblower for the disclosure of taxpayer information, although penalties (i.e. forfeiture of the Award) could be stated within the Confidentiality Agreement).
3. Revise the regulations under IRC § 7623 to require the IRS, upon the whistleblower’s execution of a confidentiality agreement as part of an administrative proceeding under IRC § 6103(h)(4), to provide bi-annual status updates sufficient to allow a whistleblower to monitor the progress of the claim (e.g., whether the claim resulted in an audit, whether the audit has concluded, the existence of any collected proceeds, and whether the case has been suspended) according to procedures developed by the WO.  (Currently the IRS has a pilot program to simply inform the Whistleblower that the Claim remains open).

For unknown reasons, (budget, lack of IRS managerial support, etc.) the IRS is slow/reluctant to act in improving the whistleblower program.  Therefore, it is suggested that Congress look into the matter of enacting legislation to improving the program by changing the law and enacting these recommendations as well as many other recommendations that have been made. 

After all, even the IRS defined its Mission as -

“Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

— Internal Revenue Service

Therefore, a bipartisan Congress should support these changes in an effort to collect the billions of underreported and underpaid taxes.