The Internal Revenue Service has begun processing more claims under its whistleblower program, paying over 90 awards since October 2011, after an influential senator held up confirmation of two high-ranking Treasury Department officials.
Sen. Charles Grassley, R-Iowa, the former chairman of the Senate Finance Committee, said he has released his objection to proceeding on the nominations of two Assistant Secretaries of the Treasury, Mark Mazur and Matthew Rutherford, after he received responses from the IRS and the Treasury Department about the delays in paying whistleblower awards.
“The IRS is making progress in paying whistleblower awards under the old statute—over 90 awards paid from Oct. 1, 2011, until now,” Grassley said on the Senate floor Monday. “However, I want to make clear that the responses do not alleviate my concerns about these agencies’ implementation of changes to the tax whistleblower statute I authored almost six years ago. Regulations to implement the new reward program have yet to be issued and only a handful of awards are expected to be paid out before the end of this year.”
Grassley noted that he began asking questions about the program’s implementation in 2010, and he wrote again in 2011 and then again on April 30 of this year. He said he did not receive complete answers until he held up the nominations of Mazur and Rutherford.
“If I hadn’t objected to proceeding to these nominations, Congress would not have received the most recent annual report on the whistleblower program that is mandated by law,” Grassley said. “It was provided to Congress on June 13, 2012, for the fiscal year ended Sept. 30, 2011. That’s almost nine months from the end of the year for which it contains data. If I hadn’t objected to proceeding to these nominations, the IRS likely would not have acknowledged that there is, in fact, a problem with timely processing whistleblower claims. IRS Deputy Commissioner [Steven] Miller’s June 20, 2012, directive to IRS executives and senior managers is a good first step towards correcting this problem (see IRS Plans to Fix Whistleblower Program).
The IRS has been accused of dragging out the process of responding to claims and paying very few of them. Under a 2006 law aimed at encouraging more whistleblowers to come forward, Congress raised the amount of the award that could be paid to between 15 and 30 percent of the proceeds collected from information brought by the whistleblower. The IRS set up a dedicated whistleblower office in 2007, and last April it paid the first award of $4.5 million under the expanded program to an unnamed CPA (see CPA Receives $4.5M Whistleblower Award). It has also paid out awards under an older version of the program that limited awards to 15 percent.
However, whistleblowers and their attorneys complain that the IRS has been slow to process whistleblower claims and in many cases refused to acknowledge them. The IRS paid fewer than 100 whistleblowers in 2011, about half the number it paid two years earlier, even though it received more than twice the number of whistleblower cases (see IRS Paid Fewer Whistleblower Awards Last Year).
IRS Commissioner Doug Shulman wrote a letter to Grassley this month, saying that the Whistleblower Office has approved over 90 awards so far this fiscal year, and is monitoring over 60 claims that may result in future awards.
“I understand your frustration with what may appear to be a relatively low number of payouts of Section 7623(b) claims,” wrote Shulman. “Administrative issues with respect to processing payment of claims are not meaningfully delaying payout of claims that the law otherwise allows the IRS to pay. As you aware, even after an examination is concluded, there are a number of procedural legal hurdles that must be overcome before the law allows payout of a whistleblower claim. For example, after an examination is concluded, taxpayers are legally afforded appeals and judicial rights which can consume significant time periods. In addition, collection issues must be resolved and the statute of limitations on refunds must be exhausted.”
Shulman noted that the most recent awards were generated from claims that came in shortly after creation of the original whistleblower program under Section 7623(b) of the Tax Code. The awards have generally been paid within three months of resolution of the legal issues.
Shulman argued that the IRS has taken a number of steps to ensure more timely processing of cases in the initial stages, and the expected improvements in processing times should be reflected in future payments. He added that there are no current awards for which payment is being delayed because of issues to be addressed in the proposed regulations on the whistleblower program, which have not yet been released.
Acting Assistant Treasury Secretary of Tax Policy Emily McMahon wrote a separate letter to Grassley this month saying that the Treasury and the IRS intend to issue a single, comprehensive package of proposed regulations that address each of the topics listed in a letter last month from Shulman. She could not provide a precise timeline for the regulations, but they may be issued by the fall of this year. The IRS has met with the Justice Department and the Securities and Exchange Commission to discuss their whistleblower programs and share ideas with them, she informed Grassley.
IRS Deputy Commissioner Steven Miller said in a different letter to Grassley last week that a number of meetings with the DOJ and the SEC staff have occurred on whistleblower issues, including several this year, “but specific discussion of the issues to be addressed in the forthcoming regulations has not yet taken place.” He added that IRS staff have contacted these agencies and meetings are currently being discussed to discuss the relevant issues before the regulations are published.
Grassley said that more needs to be done, however. “IRS still has not committed to prioritizing claims raised by whistleblowers,” he said Monday. “In addition, the important protections afforded to taxpayers, including the right to appeal IRS decisions, delay IRS from actually collecting the taxes for years and, as the law is currently written, the taxes must be collected first before a whistleblower can be paid any money. From my long history of oversight of the IRS, I know that it is essential that taxpayers be protected from sometimes overeager IRS employees. Yet, there must be a way to ensure that the process and procedures that exist to protect taxpayers don’t deter whistleblowers from coming forward. The Treasury Department and the IRS have agreed to participate in a roundtable discussion that I hope will help identify solutions.
“It is unfortunate that objecting to these nominees, both of whom were approved by the Finance Committee by unanimous, bipartisan votes, was the only way I could get information about the whistleblower program,” he added. “At least there is now more information than ever before about the IRS whistleblower program.”