IRS FY 2016 Whistleblower Program Report to Congress
The Report outlines the laws and regulations applicable to whistleblower awards, changes made in the program, an internal and external program description, administrative priorities, data on awards paid, and reviewed guidelines to improve timeliness and quality of decisions made by the IRS Whistleblower Office.
The 2016 fiscal year (“FY 2016”) was a productive and transformative year for the Whistleblower Program. The IRS Whistleblower office has succeeded in fully addressing a backlog of whistleblower claims over the past year, in response to recommendations from the Government Accountability Office (“GAO”) and the Treasury Inspector General for Tax Administration. The Whistleblower office has also put in place a more streamlined process to avoid future backlogs.
Whistleblower Program
Internal Revenue Code (“IRC”) §7623(a) originated in 1867. This original law provided that the Secretary had authority “to pay such sums as he deems necessary for detecting and bringing to trial punishment persons guilty of violating the internal revenue laws or conniving at the same.” Prior to 2006, whistleblower awards were discretionary and determined by IRS policy.
Significant changes in the IRS Whistleblower Program were brought about by The Tax Relief and Health Care Act of 2006 (“Act”). The purpose of the Act was to encourage those with knowledge of tax noncompliance activity to report findings to the IRS. There is the potential for individuals to receive awards based on the percentage of the collection proceeds.
IRC §7623(b) was added by the Act and enacted significant changes in the Whistleblower Program which apply to claims filed after December 20, 2006. The statutory award percentages range from 15% to 30%, with some exceptions; however, there is no limit with respect to potential amounts to be paid under the Whistleblower Program. This law applies to cases that provide information that substantially contribute to the collection of tax, penalties and other amounts that exceed $2,000,000.
Conditions to Qualify
As noted in the Report, if a submission does not meet the criteria for IRC §7623(b) consideration, the IRS may generally consider it for an award under the pre-Act discretionary authority (now IRC §7623(a)). In order to have the opportunity to qualify for the award program under IRC §7623(b), a whistleblower must meet several conditions including the following:
- Signed and submitted under penalties of perjury;
- Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000; and
- Relate to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.
The IRS generally does not pay out awards for approximately five to seven years after the initial claim is filed. This is a result of an extensive process involved with taxpayers exhausting all appeals and allowing for all statutory periods to expire or be waived. For example, the first claims to be paid under the 2006 amendments were made in FY 2011.
Report Highlights
Ten years since the creation of the IRS Whistleblower Office, $3.4 billion has been recovered through the program and $465 million has been awarded to IRS whistleblowers since the program’s inception. In FY 2016, the IRS made 418 awards totaling over $61 million, including 18 awards under IRC §7623(b). This represents a 322 percent increase in the number of awards from the 99 in FY 2015. Also, whistleblower claims assigned in FY 2016 were up 6.4 percent from those submitted in FY 2015, and closures increased by 99 percent. Inventory backlogs identified by the GAO in FY 2015 have been fully addressed or eliminated, allowing for faster movement of current cases.
FY 2017 Budget Tax Proposals
According to the Report, two legislative proposals have been included in the IRS’ FY 2017 budget proposal, which include (i) retaliation protection for whistleblowers and (ii) stronger protections for taxpayers whereby sanctions would be imposed on whistleblowers for improperly disclosing taxpayer information obtained from the IRS in connection with the whistleblower’s claim.
Tax-Exempt Organizations
Tax-exempt organizations should continue to utilize IRS Form 13909, Tax-Exempt Organization Complaint (Referral) Form, to report whistleblower submissions; however, the regulations provide comprehensive guidelines with respect to the process and awards associated with the program.
If an individual is concerned that he/she may face retribution if their identity is disclosed, they may check the box on Form 13909 to indicate such. Additionally, any individual submitting a whistleblower claim has the option of submitting an “Anonymous” claim in lieu of their actual name.
Conclusion
The Whistleblower office continues to make significant efforts to reach out to the general public utilizing social media sites to try and increase awareness of the Whistleblower Program. In addition, the Whistleblower officer makes presentations to professional groups to provide insight on program developments.
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