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The inadequacies of the program should come as no surprise to those who have filed whistleblower claims with the IRS, as the complaints are common: lengthy delays in processing whistleblower claims, a lack of communication, and claims rejected without explanation.
However, a problem the GAO did not examine is perhaps the most important to whistleblowers and to the long-term success of the program: how the IRS makes decisions about whether to grant awards to whistleblowers.
The IRS grants awards when it finds that the whistleblower “substantially contributed” to a tax recovery. The GAO found that this standard is “inherently subjective,” but did not focus on precisely how those decisions are made.
The GAO may have found cause for concern if it had.
Between 2013 and 2015, the IRS denied 1,175 claims because the information was “already known” to the IRS. This means that many whistleblowers have given the IRS accurate information about tax fraud but have been denied awards because the IRS supposedly already knew about it.
Under its rules, the IRS can deny an award if it could have discovered the fraud on its own, even if a whistleblower actually pointed the IRS to it. It is often the IRS agent, not the Whistleblower Office, who recommends whether to grant or deny an award based on his or her assessment of whether the whistleblower was helpful. Historically, agents have not been quick to share credit with whistleblowers.
As a result, many whistleblowers have been denied awards despite providing the IRS with valuable assistance.
In the rare instances where awards are made, moreover, the chances are good that the award will be calculated based on wrong information and be calculated incorrectly. The GAO found seven of the 17 awards given under the mandatory award regime set forth in 7623(b) contained inaccurate award information and amounts.
The report also demonstrates the IRS’s ongoing failure to communicate sufficiency with whistleblower attorneys and other stakeholders. Although an IRS deputy commissioner has urged the IRS to debrief whistleblowers unless there’s a clear reason not to do so, whistleblower attorneys interviewed by the GAO said debriefing occurred less than half of the time. Because the IRS rarely communicates with whistleblowers, it may miss opportunities to gather further information or receive helpful input from whistleblowers during the course of an investigation.
The GAO does say that shortfalls in staffing and inefficient processes for moving claims through the system also contribute to long delays—a problem that has plagued other enforcement agencies as well.
At the time of publication, the IRS had a backlog of approximately 11,000 cases mired in various stages of the process. As a result, whistleblowers and their attorneys have no way of knowing how their claims are progressing, when they will receive a determination or why a claim was denied.
What’s worse is that it’s starting to have a ripple effect for whistleblowers and the lawyers who want to help them expose fraud. “[W]histleblower attorneys we spoke with stated that they are accepting fewer IRS whistleblowers as clients or have stopped taking on such clients altogether due to their frustration with the program,” the report said.
Following the release of the GAO report came more bad news for IRS enforcement efforts.
The IRS would begin to fulfill the promise of the whistleblower program if it were to follow the GAO’s recommendations. An important first step would be for the Whistleblower Office to do more to ensure that agents are not recommending denials of whistleblower awards improperly.
Edward H. Arens specializes in whistleblower cases at the law firm
