Enforcement of tax fraud was revolutionized by the Internal Revenue Service (IRS) Whistleblower Program.
Whistleblowers have helped to successfully collect $6.39 billion from taxpayers who haven’t complied with the law since the program’s inception in 2006.
Accordingly, the IRS has awarded brave people who have come forward with information about tax fraud with whistleblower awards totalling more than $1 billion.
Despite the program’s success, it has been clear for a while that reforms are required. Senator Chuck Grassley (R-IA), wrote the legislation establishing the IRS Whistleblower Program in 2006, and Senator Ron Wyden introduced the bipartisan IRS Whistleblower Program Improvement Act of 2021 in June of that year (D-OR).
To enhance the IRS Whistleblower Program’s operations and better protect those who report tax fraud, the bill makes several changes to the program.
The IRS whistleblower program has been a genuine success for American taxpayers, but it needs strengthening, according to Grassley at the time the bill was introduced.
We should do everything we can to ensure its success, he said, “so tax evaders and fraudsters pay what they owe.”
Although Grassley and supporters of the IRS Whistleblower Program were aware that the program needed improvement, the IRS Whistleblower Office’s Annual Report to Congress for the 2021 Fiscal Year emphasizes the pressing need for the changes made by the IRS Whistleblower Program Improvement Act.
According to the report’s statistics, the program is in trouble. The program’s recoveries and the IRS’s awards are drastically declining, while the time it takes to process a whistleblower claim is steadily increasing.
These numbers are especially shocking because the 2021 fiscal year saw record years for the SEC and CFTC’s whistleblower programs.
The whistleblowing community has strongly condemned the report in response. Dean Zerbe, a tax whistleblower lawyer who collaborated with Grassley on the 2006 law, claimed that “there is no way to make these outrageous numbers look good.
Observing these results is very depressing. The IRS Whistleblower Program Improvement Act, a bipartisan reform bill, needs to be passed immediately, according to whistleblower attorney Stephen M. Kohn.
The report “should be a massive wake-up call to the Congress,” he added. Bradley Birkenfeld was represented by Kohn and Zerbe, both founding members of Kohn, Kohn & Colapinto.
Birkenfeld was given the $104 million IRS whistleblower award, which was the largest.
Grassley has commented publicly on the report. He noted that he “introduced the IRS Whistleblower Program Improvement Act to strengthen the whistleblower program,” but also expressed his “concerns regarding trends in whistleblower payouts and the time it takes for whistleblowers to receive those payouts” in a letter to the director of the IRS Whistleblower Office.
The IRS Whistleblower Program Improvement Act is critically important, as the IRS Whistleblower Office report makes clear.
The proposed legislation aims to improve the whistleblower program’s effectiveness by making several changes, such as allocating funding for the office, charging interest on awards that are delayed, and reintroducing de novo review in cases involving tax whistleblower awards.
The Uncomfortable Statistics
The 2021 Fiscal Year, which covered the period from October 1, 2020, to September 30, 2021, is covered in detail in the IRS Whistleblower Office report.
The IRS Whistleblower Program received $245 million in revenue for the 2021 fiscal year as a result of tips from whistleblowers and distributed $36 million in awards to them.
These numbers are significantly lower than they have been over the past few years and are the lowest since the 2017 Fiscal Year.
The whistleblower awards totalling $36 million represent a significant decrease from the $312 million given to informants during the Fiscal Year 2018 and are only about half of the program’s annual average.
Similar to the $245 million in collections, the $1.44 billion collected just three years ago represents a sharp decline.
Senator Grassley writes in his letter to the IRS Whistleblower Office that “[t]his downward trends started before the pandemic and are contrary to the number of open claims, which at over 27,000 are higher than they’ve been since FY 2018.”
The amount of time it takes to process whistleblower award claims is growing even as the program’s proceeds and awards are still being reduced.
The average processing time for IRC 7623(b) award payments increased by 2.9 per cent over the 2021 Fiscal Year, and for IRC 7623(a) award payments, it increased by 10.4 per cent.
Because over the years, whistleblowers have passed away before receiving their IRS awards, the ongoing rise in delays is particularly alarming.
Revisions to Address Delays
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A number of the provisions in the IRS Whistleblower Program Improvement Act are intended to address the enormous delays that plague the program.
One provision allows money to the Whistleblower Office so that it has the necessary personnel and supplies to promptly handle each tip it receives from a whistleblower.
The clause stipulates that up to $10 million of the tax proceeds obtained as a result of the whistleblower program will be used to run the whistleblower office.
The IRS Whistleblower Program Improvement Act also includes a provision that charges interest on whistleblower awards that are significantly delayed.
Whistleblowers currently do not receive interest when the IRS is holding funds due to it as an award to the whistleblower, in contrast to taxpayers.
The negative effects that the lengthy delays have on whistleblowers would be lessened thanks to this clause.
