The New York Times recently took the IRS to task for the way it is operating its whistleblower program. The article interviewed a half-dozen people who had acted as whistleblowers, bringing forward information about tax cheats. Rather than have the program work efficiently and lead to big reward payments like the IRS promised, the program has been bogged down, slow moving and paid out little money despite the thousands of useful reports.
In an attempt to attract greater participation and bigger tips, Congress passed a whistleblower law in 2006 as part of the Tax Relief and Health Care Act. The Act set a high bar for what would qualify to receive an award, the amount of taxes at issue for companies would need to be greater than $2 million while individuals would need to have earnings greater than $200,000 per year. Should information brought to the IRS result in a recovery of back taxes or penalties, the government then promised to pay whistleblowers between 15 and 30 percent of the total haul.
Despite the high bar, the program has been flooded with submissions from potential whistleblowers. Back in 2012, it was reported that some 1,967 submissions had already been made under the new law, and that was more than a year and half ago. Even though there have been thousands of eager whistleblowers brimming with useful information, the IRS has made little effort to reward those providing the information.
The NY Times revealed that by the end of 2012, the IRS had only managed to pay out money to five tipsters, a shockingly small percentage given the overall number of submissions received. Rather than act as an incentive to attract people to reveal sometimes dangerous or damaging information, the program appears to be discouraging whistleblowing. Many of those who took the risk of coming forward say they never expected it to be such a long or difficult process and must now contend with years of waiting in limbo before finally seeing any real action.
In other cases, the Times talked to whistleblowers that said they provided useful information to the IRS only to be ignored for years and then have the claims rejected despite the fact that the agency ultimately took action that led to payouts. In one case, a businessman says he provided evidence about a widely used corporate tactic to avoid paying taxes. The man says after he turned over his information there were reports of companies that he named being busted and paying hundreds of millions in penalties. Despite this, he says his claim was ultimately rejected years later, with the IRS claiming that they never used his specific information and thus he did not deserve an award payout.
The man says that the IRS simply takes useful information and then rejects claims, all ways of avoiding paying out a share of the awards. Now not only did the man waste years of his life, he says his reputation as a whistleblower has made it impossible to find work. Despite the apparent validity of his information, he has not received any money from the IRS, a result that would appear to run counter to the stated intention of the whistleblower program, which is to encourage actions precisely like his.
Critics of the program, including Senator Charles Grassley, point out that unless the IRS changes the way it operates it will succeed only in scaring away those with valuable information. Hopefully the IRS learns its lesson before it succeeds in scaring away too many potential whistleblowers.
Sources:
Sounding the Tax Alarm, to Little Applause, by Gretchen Morgenson, published at NYTimes.com on February 8, 2014.
The IRS Whistleblower Program: What To Do When The IRS Isn't Moving On Your Submission, by Dean Zerbe, published at Forbes.com on November 14, 2013.
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