The Internal Revenue Service (IRS) Whistleblower Office pays monetary awards of 15% – 30% to eligible individuals whose information is used by the IRS to stop tax fraud where the amount involved exceeds $2 million. This program is extremely important, but unfortunately, the recently released annual report shows that the program is currently undergoing its biggest crisis to date, one of the biggest being that there is a backlog of 23,000 cases and it takes an average of 10 years to process a claim. This is, unfortunately, the result of many factors, among them the fact that the program is barely over a decade and a half old, being implemented in 2006.
Another big factor that influenced this backlog is the fact that Congress and the IRS severely underestimated the positive reception the whistleblower program would receive and the number of cases people immediately began to file; this basically overwhelmed the program to the point that it became severely underfunded and undermanned, the IRS literally could not provide the resources necessary to run the program in a more efficient matter. This has caused unforeseen consequences that undermine the effectiveness of the program; for example, many people are less likely to submit cases since there is basically no way of knowing if it’ll take 5 years or 10 years to resolve the case and get a reward, or even worse, as the IRS Whistleblower Office has reported before, many whistleblowers have died before being able to claim their award.
To be clear, that’s just one of the problems that the IRS Whistleblower Program is suffering. The other big issue is the drastic reduction, to not call it a collapse, in the number of awards and money recovered from whistleblower cases. The report states that the amount recovered went from $1.44 billion in 2018 to only $245 million in fiscal year 2021, while the number of awards went from $312 million in 2018 to $36 million in 2021. This, of course, raised many flags in Congress, which thankfully is already working on addressing many of the problems the program has been facing. Still, the report was a call to action to some members of Congress, with Senator Chuck Grassley sending IRS Director John W. Hinman a letter detailing his thoughts on the report and highlighting the rise in the time it takes to process and the payments and awards, that showed an increase of 2.9% for IRC § 7623(b) cases and 10.4% for IRC § 7623(a) cases.
Senator Grassley also used the letter to reaffirm his commitment to improving the Whistleblower Program stating that “I am eager to work with you to improve the IRS Whistleblower Office to further incentivize and encourage whistleblowers to come forward and in doing so further shrink the tax gap. Last year I introduced the “IRS Whistleblower Program Improvement Act” in order to strengthen the whistleblower program by exempting whistleblower awards from sequestration, imposing interest on awards not paid within a year, and through other reforms.” Hopefully, Congress can come together and improve the program as it is one of the most important tools available to address tax fraud.
Do you have a valid claim?
If you witnessed any widespread suspicious activity within your workplace, you might have a chance of becoming a whistleblower by reporting an ongoing fraudulent scheme. However, to increase your chances of success, you must be sure to back up your claim with substantial evidence or privileged information.
A Quick Whistleblower Checklist
Is the fraudulent scheme widespread enough?
Has the fraud been perpetuated for years or involves large sums of money?
Do you possess any physical evidence of the fraud (documents, forged signatures)?
Do you have access to privileged information which may help our investigators?
Do you work as an insider within the company perpetrating the fraud?
Did you witness any ongoing illegal behavior within your workplace?
Have you been forced into taking part in any suspicious corporate activity?
