The Internal Revenue Service’s whistleblower program is plagued by delays, vague procedures, overpayments and underpayments, according to a new government report.
The report, from the Government Accountability Office, pointed out that the IRS’s Whistleblower Office is responsible for processing thousands of tax whistleblower claims annually for two related whistleblower programs: for claims of $2 million or less, the 7623(a) program, and for claims over $2 million, the 7623(b) program. Tax whistleblowers who report on the underpayment of taxes by others have helped the IRS collect almost $2 billion in additional revenue since 2011, when the first high-dollar claim was paid under the expanded program that pays qualifying whistleblowers a minimum of 15 percent of the collected proceeds. These revenues help reduce the estimated $450 billion tax gap—the difference between taxes owed and those paid on time.
However, the whistleblower claim review process takes several years to complete, and the GAO found the Whistleblower Office is not doing a good job of tracking and monitoring key dates in its claim management system. Without the available information on key dates related to award review and payments, the Whistleblower Office is unable to assess its performance against timeliness targets and risks unnecessarily delaying award payments.
Between fiscal year 2011 and June 30, 2015, the Whistleblower Office awarded more than $315 million to whistleblowers—the bulk of which was for the 7623(b) claims, which were first paid in fiscal year 2011, four years after the program began. In a review of the 17 paid 7623(b) award claim files, the GAO found that the Whistleblower Office made errors in determining some awards, resulting in over- and underpayments totaling approximately $100,000. In response to the errors, the IRS began ensuring the total collected proceeds are verified before making award payments. However, the Whistleblower Office has not documented this new procedure, putting it at risk of making additional errors in award payments, the GAO noted.
The Whistleblower Office's communication with stakeholders, including whistleblowers, is limited due to delayed annual reports to Congress, incomplete data, and limited program information for whistleblowers, according to the GAO. Delays in issuing the annual reports have resulted in last-minute revisions that introduced discrepancies and inconsistent reporting periods that preclude year-over-year comparisons. The Whistleblower Office is addressing some data gaps and has published two fact sheets to provide more information to the whistleblower community. However, the fact sheets do not include information on key aspects of the program, such as the time ranges for steps in the review process. Until changes are made to the annual report and fact sheets, the GAO said the utility of these publications is limited.
While the IRS and the Whistleblower Office do take steps to protect whistleblowers and the information they submit, the GAO found gaps in their procedures. For example, the Whistleblower Office did not have documented controls in place for sending mail, and at least once sent sensitive mail to an incorrect address that also had a return address indicating the letter was from the Whistleblower Office.
The GAO noted this could potentially compromise the identities of whistleblowers. The Whistleblower Office has said it has since changed how it labels return addresses, but has not documented this policy. Further, tax whistleblowers do not have statutory protections against retaliation from their employers. The IRS and the whistleblower community support such protections, noting that inadequate protections may discourage whistleblowers from coming forward.
The GAO recommended that Congress should consider providing whistleblowers with legal protections against retaliation from employers. The GAO made a total of 10 recommendations to the IRS in its report, including tracking dates, strengthening and documenting procedures for award payments and whistleblower protections, and improving external communications. The IRS agreed with the GAO’s recommendations.
“It is without question that the Whistleblower Program makes an important contribution to the tax system, both by helping encourage compliance (through a deterrent effect on those who may otherwise engage in tax evasion or avoidance) and by contributing to reducing the Tax Gap (through submissions of valuable information that has resulted in a wide range of audits and investigations, and yielded significant collection of unpaid taxes),” wrote IRS deputy commissioner for services and enforcement John M. Dalrymple. “We are committed to maximizing the success of this program. Although staffing across the agency has been declining, with fiscal year 2014 ending with more than 13,000 fewer permanent full-time employees compared with 2010, the staffing for our Whistleblower Office has not incurred staffing reductions, but has grown significantly since the inception of the office in 2007.”
Sen. Chuck Grassley, R-Iowa, who drafted the 2006 provisions that improved the IRS Whistleblower Office to stop tax fraud, said the IRS has more work to do. “The IRS commissioner has told me many times that the whistleblower office is an important priority,” he said in a statement. The GAO report gives the IRS a list of concrete steps to improve the whistleblower office. There’s a matter for Congress to consider as well. We all need to make sure the IRS puts out a welcome mat for whistleblowers. The collection of $2 billion for the federal treasury that otherwise would have been lost to fraud is good news for the taxpayers. The news would be even better if the IRS stepped up its work.”
The IRS had a further comment on the report in a statement emailed to Accounting Today by an IRS spokesperson. “The IRS fully supports the Whistleblower Program and recognizes more work needs to be done to improve this important tool for tax administration,” said the IRS. “We have taken steps to streamline the program and we will do even more following the GAO findings. The program encourages voluntary compliance by helping the IRS catch those willfully trying to avoid paying their fair share, and it also helps the IRS recover taxes that might otherwise never be collected. Since 2007, the IRS has collected more than $2 billion, thanks to information provided by whistleblowers, and in turn has awarded more than $315 million to whistleblowers. The IRS is committed to maximizing the success of the Whistleblower Program.
"Budget cuts have caused staffing reductions across most of the IRS but not in the Whistleblower Office, which has seen significant growth in staffing since its inception in 2007," the IRS statement continued. "The inefficiencies identified by GAO with the Whistleblower Claims Process are ones we had previously identified and are part of what led us to take action to strengthen the program. GAO's recommendations will help us improve the process. Any backlogs in claims throughout the process are being addressed by the appropriate staff and a project is underway to improve and streamline operations. The IRS is also taking steps to address issues with Whistleblower Office communications. The IRS will implement meaningful changes to the content, format and timing of its next annual report to Congress. We are also exploring ways to improve communication with whistleblowers, while adhering to the tax law prohibition against disclosure of taxpayer information. The IRS also recognizes the importance of updating policies and procedures of the Whistleblower Office in general, including strengthening internal controls.”
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