Tax Whistleblowers Encounter Obstacles at IRS

The Internal Revenue Service’s Whistleblower Office is having trouble managing the growing number of claims it has been receiving from informants telling the IRS about tax dodgers.

The Whistleblower Office was created in December 2006 as part of the Tax Relief and Health Care Act of 2006, and has seen a rising number of claims from informants who hope to claim a larger cut of the taxes collected (see Informant Program Spurs IRS Whistleblower Tips). Whistleblowers can now receive up to 30 percent of the collected proceeds if their information leads to additional tax assessments, up from 15 percent before the 2006 act passed.

The old whistleblower program was not as effective because it took an average of more than seven-and-a-half years to pay off claims, according to an audit by the Treasury Department’s Inspector General for Tax Administration. There were also problems with controls, such as instances where TIGTA noted missing copies of key forms, lack of records of letters to informants, and the absence of documentation to justify the award percentage.

With the revamped program now in place, the Whistleblower Office received 1,890 claims alleging $65 billion in unreported income last year, up from 83 claims that alleged $8 billion in unreported income in 2007, according to TIGTA’s latest report on the program.

However, TIGTA also found that the whistleblower program still has problems with both controls and the timely processing of claims. The Whistleblower Office relies on three different inventory control systems to track and process claims and thus has problems generating reports for the entire system. The multiple systems also resulted in inaccuracies and inconsistencies, coupled with processing delays. An estimated 85 percent of the claims received as of October 2008 were not processed and sent to an operating division for examination within 60 days. It took 30 days on average to route claims from the Whistleblower Office to an analyst for review, and 107 days on average to route claims from an analyst to an operating division. It could take up to 507 days to accomplish just that part of the process.

“The IRS has seen a significant growth in whistleblower claims,” said TIGTA Inspector General J. Russell George in a statement. “However, the Whistleblower Office continues to have problems with managing and tracking cases, resulting in inaccuracies and inconsistencies in the tracking of large-dollar claims.”

TIGTA also found that the 2006 legislation does not include specific provisions for employee protection against retaliation by an employer, which can be a significant issue in some whistleblower claims.

TIGTA recommended that the IRS ensure that reporting capabilities are included in the inventory control system, allowing management to track the processing of claims and evaluate the success of the program. The IRS should also make sure the information captured and input into the inventory control system is accurate; written procedures are established with timeliness standards for processing whistleblower claims; a process is developed to monitor the timely processing of claims; and that legislation is proposed to ensure that informants are protected from retaliation by their employers, TIGTA advised.

The IRS agreed with four of TIGTA's recommendations and has taken corrective actions. However, the IRS did not take a position on the legislative recommendation, since it is outside the agency’s jurisdiction.

"Now is the time for leadership from senior IRS officials to end the naysaying bureaucrats who keep trying to find new ways to hamstring the whistleblower reward program," said Dean Zerbe, special counsel for the National Whistleblowers Center.  "The fact remains that billions of dollars have been brought forward by whistleblowers, but not a dime of reward has been paid out and not a single cooperative contract has been entered into with a whistleblower. This has to change. Senior IRS and Treasury officials have a chance to lead and make the whistleblower program a success, bring in the $65 billion and encourage other whistleblowers to come forward as well. Congress can also help by taking the recommendation to pass legislation to protect whistleblowers who come forward under the IRS whistleblower program from retaliation.”

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