House passes IRS Whistleblower Program Improvement Act

The U.S. House of Representatives passed bipartisan legislation to strengthen the Internal Revenue Service's Whistleblower Awards Program and provide faster payouts to tipsters.

The IRS Whistleblower Program Improvement Act (H.R. 7959), co-sponsored by Rep. Mike Kelly, R-Pennsylvania, who chairs the House Ways and Means Subcommittee on Tax, and Mike Thompson, D-California, the ranking Democrat on the subcommittee, would provide a more favorable standard of review in whistleblower appeals before the U.S. Tax Court, allowing new evidence to be admitted to the record. The bill would protect whistleblowers from being compelled to identify themselves publicly when pursuing appeals before the court, allowing them to proceed anonymously when challenging an IRS action.

In addition, the bill would encourage timely award payments to whistleblowers by imposing interest if the IRS fails to issue a preliminary award recommendation within 12 months. It would also align the tax treatment of attorney's fees for IRS whistleblowers with the standard applied under other federal whistleblower programs.

The House passed the bill Monday by a 346-10 vote after it advanced in the House Ways and Means Committee last month by a unanimous 41-0 vote. It will next go to the Senate for consideration.

The whistleblower program has helped the IRS collect billions of dollars from individuals and businesses caught avoiding taxes, while also serving as a deterrent against sophisticated tax evasion schemes. The IRS Whistleblower Program Improvement Act would reinforce and modernize the program by improving the appeals process, protecting whistleblower anonymity, encouraging timely award payments, and strengthening oversight and reporting to Congress.

(Read more: "Whistleblower awards from the IRS more than doubled.")

"Today, our tax system depends on voluntary compliance, and that only works when Americans trust the system is fair and enforced evenly," Kelly said during a floor speech Monday ahead of the vote. "When bad actors cheat and get away with it, that trust erodes for everyone else who plays by the rules. The IRS Whistleblower Program Improvement Act builds on a proven program that delivers results for our taxpayers."

He noted that since 2007 the program has recovered more than $7.37 billion in unpaid taxes, while other estimates from the committee put the figure at over $7.5 billion.

"These are complex, high-dollar schemes that would not have been identified without insider information, proving that whistleblowers play an essential role in upholding the integrity of our Tax Code," Kelly added. "When individuals come forward to expose wrongdoing by tax cheats and fraudsters, they help ensure our voluntary tax system remains fair for all Americans. The IRS cannot fully close the tax gap through traditional audits alone. The IRS Whistleblower Program leverages insider knowledge to identify noncompliance that would otherwise have gone undetected. Whistleblowers help the IRS target enforcement resources toward high-value cases, improving efficiency and accountability across the system. ... Strengthening this program is a commonsense way to increase the return on investment, recovering more unpaid taxes without expanding broad based enforcement."

He sees the bill as a way to discourage people from cheating on their taxes.

"Just as important, the program serves as a powerful deterrent, discouraging sophisticated tax evasion before it happens by increasing the likelihood that it will be exposed," Kelly added. "This bill reinforces the program's foundation with targeted practical updates by ensuring the U.S. Tax Court can consider all relevant evidence by providing a more favorable standard of review in whistleblower appeals, establishing a presumption of anonymity for whistleblowers to help protect individuals from retaliation, by encouraging timely administration from the IRS, by requiring the payment of interest on delayed awards."

The bill's co-sponsor highlighted to the issues confronting whistleblowers.

"Whistleblowers often face uncertainty and long delays," Thompson said in a statement. "And in some cases, they face real personal and professional risk just for coming forward. We need to be doing everything we can to fix those problems. The IRS Whistleblower Program Improvement Act will support the IRS's crackdown on tax cheats and protect the brave whistleblowers who are helping to make our tax system more fair." 

The head of Congress's main tax committee lent his support to the bill.

"Whistleblowers play a critical role in government oversight — whether it be uncovering bad actors within government or, in the case of the IRS Whistleblower Program, tracking down those in the private sector who are defrauding American taxpayers," said House Ways and Means Committee Chairman Jason Smith, R-Missouri, in a statement. "At a time when it appears we need an all-of-the-above approach to combatting fraud across various government programs, improving the IRS Whistleblower program will better protect whistleblowers and appropriately award them for their contributions to stopping tax fraud, tax evasion, and other similar crimes."

Last December, the IRS introduced a new digital form, Form 211, "Application for Award for Original Information," that's designed to make it easier for whistleblowers to report noncompliance with the tax laws. Earlier this month, the IRS released its first ever Whistleblower Alert calling on whistleblowers to report any misuse, diversion or fraudulent use of federal funds by tax-exempt organizations, individuals and businesses.