Wednesday, February 20, 2013

IRS needs to do more to make tax whistleblower program successful

Statistics in the Internal Revenue Service’s annual report to Congress on the IRS whistleblower program for fiscal year 2012 reflect whistleblowers’ frustration with the IRS.

In FY 2012, only 332 whistleblowers submitted information about tax violations exceeding $2 million – the threshold for the reward program. That is down from a high of 472 in FY 2009. As Sen. Chuck Grassley(R-IA) noted, “. . . the delay in awards and the way the IRS treats whistleblowers might be contributing to the leveling off of whistleblower cases.”

Only five claims have been paid under the tax whistleblower program Congress created in 2006, the report said. The program promises whistleblowers rewards of 15 percent to 25 percent of what the IRS collects based on their information when recoveries exceed $2 million. A Phillips & Cohen client received one of the few tax whistleblower rewards made in FY2012 under the previous IRS whistleblower  program, which limited rewards to a maximum of $2 million.

By creating obstacles to whistleblower rewards and failing to embrace the whistleblower program, the IRS is missing out on an opportunity to narrow the $450 billion gap between what is owed in taxes every year, and what is actually paid.

It is ultimately the taxpayers and the federal treasury that will pay for this failure to foster a successful whistleblower program.  If the IRS would do more to give whistleblowers the confidence to come forward, rather than make it increasingly difficult to receive rewards or even information about their claims, then the IRS would make substantial recoveries.