The Internal Revenue Service said it plans to improve the timeliness and responsiveness of its Whistleblower Office to claims of tax underpayments.
In a memo issued Wednesday by IRS deputy commissioner for services and enforcement Steven T. Miller wrote, “My office is working with the Whistleblower Office and with internal and external stakeholders on a comprehensive review of operating guidelines and procedures. The objective of the review is to improve the timeliness and quality of decisions as the Service evaluates and acts on whistleblower information.”
Miller said that under new guidelines, claims received by the Whistleblower Office should be initially evaluated by the office within 90 days. Operating divisions and Criminal Investigation review by subject matter experts should be completed within 90 days of receipt. Whistleblowers should be notified of an award decision within 90 days of when the collected proceeds can be finally determined.
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).
Senator Charles Grassley, R-Iowa, has repeatedly pressed the IRS to do more to improve its whistleblower program (see Grassley Faults Slowness of IRS Whistleblower Office). On Tuesday, he threatened to place a hold on nominees for two high-level Treasury Department positions until the IRS provided him with satisfactory responses to his concerns.
A Bloomberg article published Tuesday also raised questions about whether IRS officials were being unduly pressured to ignore whistleblower claims in the case of a tax attorney who worked for the alliantgroup, where former IRS Commissioner Mark Everson serves as vice chairman. According to the Bloomberg report, in the past five years, over 1,300 claims have been filed against nearly 10,000 companies and individuals, alleging tax underpayments of at least $2 million, but only three whistleblower awards have been paid so far under the new program.
In his memo, Miller noted that since the IRS set up its Whistleblower Office in 2007, thousands of whistleblowers have reported hundreds of millions of dollars in suspected tax compliance issues, resulting in a wide range of audits and investigations. “Some of these audits and investigations have yielded significant results, demonstrating that whistleblower information can be an important tool in our compliance programs,” he noted.
Miller acknowledged that whistleblowers can provide valuable leads, and often offer unique insights into taxpayer activity. “The IRS will act on specific and credible information regarding tax compliance issues when that information can be corroborated, as part of our balanced tax enforcement program,” he wrote.
Miller noted that timely action is essential, and substantive review of the information offered by whistleblowers, and legal review of any evidentiary issues, needs to be a priority for those assigned to this work.
“Some whistleblowers have insights and information that can help the Service understand complex issues or hidden relationships,” Miller acknowledged. “Debriefing, whether in person or by telephone, is an important component of the evaluation of whistleblower information prior to a decision on whether the information should be referred to the field for audit or investigation. My expectation is that debriefings will be the rule, not the exception. Further, with appropriate controls, interaction with a whistleblower during an examination can assist in timely and correct resolution of issues.”
Miller noted that a federal contract for services may be used when disclosure of taxpayer information is necessary to obtain a whistleblower's insights and expertise in complex technical or factual issues.
The 90-day timelines he is now recommending for responding to whistleblower claims is not going to be an absolutely firm deadline.
“I understand that there will be times when these timelines cannot be met, and exceptions will be necessary to ensure that the decision on whether to proceed to an audit or investigation considers all relevant information,” said Miller.
Grassley complained that the IRS and the Treasury need to act sooner on whistleblower requests. “The way the IRS and Treasury Department have handled the whistleblower program enacted more than five years ago is inexcusable,” he said in a statement Thursday. “Any improvements have been made only under duress and in response holds I’ve put on administration nominees, and those changes are far less than what ought to be the standard. The lack of progress is demoralizing valuable whistleblowers who often put their own livelihoods at risk to speak up about wrongdoing.”
Grassley, who authored the 2006 overhaul of the IRS whistleblower program, said the IRS continues to go out of its way to limit the applicability of the updated statute at a disservice to honest taxpayers and good government. “The 2006 legislation was intended to obtain valuable information about major tax fraud and prevent the IRS from shortchanging whistleblowers,” he said. “So far, the IRS is using questionable tactics like the Justice Department did when the False Claims Act was updated 25 years ago to limit whistleblower awards, including now saying that collections of penalties under the Bank Secrecy Act aren’t eligible for whistleblower awards, for example.”
Grassley made his latest request for information Thursday in a letter to Treasury Secretary Timothy Geithner and IRS Commissioner Doug Schulman. It follows a June 15 response from the IRS to an April letter from Grassley and the IRS’s release of several other documents, including a much delayed Whistleblower Annual Report to Congress and new timelines for processing whistleblower claims.
“Ironically, the sliver of good news is that the IRS admits it has trouble processing whistleblower claims in a timely manner,” said Grassley. “Even so, the agency fails to establish accountability measures for its leaders and senior executives to pay out awards. Those checkpoints are clearly needed if the program is to work as Congress intended.”