The IRS Inspector General (TIGTA) recently reviewed the IRS whistleblower program. IRS whistleblower awards are through either § 7623(a) or § 7623(b). The program collected nearly $3 billion through information provided by whistleblowers and awarded over $589 million to 988 whistleblowers from fiscal year (FY) 2017 to 2021. Section § 7623(b) claims must be for disputed proceeds (taxes, penalties, interest, etc.) over $2 million. Additionally, the subject of the claim must have a gross income of over $200,000 if the subject is an individual. However, awards are required for successful § 7623(b) claims. These awards range from 10% to 30% of the proceeds, depending on the significance of the whistleblower’s contribution. Information that does not meet the threshold requirements (§ 7623(a) claims) may be compensated at the discretion of the IRS. Whistleblower awards are subject to the sequestration rate for the fiscal year (5.7% for FY 2022).
The average processing time for § 7623(b) claims, from claim submission to payment, is 11 years, while for § 7623(a) claims, it is 9 years. Such durations are usually attributable to the length of the associated litigation. A single form submitted by a whistleblower may give rise to multiple claims. A total of 22,400 Forms 211 (the form used to submit information and make a claim) were received from FY 2018 to FY 2022. These were used to form 59,400 claims. Forms 211 are first reviewed by the “Initial Claim Evaluation” (ICE) for prima facie faults of the form.[1] After this initial filter, Subject Matter Experts review claims to determine whether to refer to examination or not.
Full information regarding FY 2022 was unavailable for the TIGTA report. Of the 46,802 claims from FY 2018 through FY 2021, 9% were referred to examination. Claims pertaining to IRS Criminal Investigation (often involving income from illegal sources) enjoyed a 55% referral rate. Only about 12% of the total claims from FY 2018 through FY 2021 were § 7623(b) claims. However, the § 7623(b) claims had significantly higher referral rates than § 7623(a). The rate for Small Business/Self-Employed (SB/SE) Division claims increased by nearly doubled to 13%, while the Large Business & International (LB&I) Division’s rate sextupled to 19%. A whistleblower should expect that the IRS would take half a year to decide whether the claim should be examined at all, prior to any action being taken. Most of the subsequent stages are subsumed in the general assessment and collection process. However, the whistleblower’s commission of the proceeds is received only after the government receives the proceeds plus two years for the statute of limitations. It is therefore possible that the 10-year limitation for collecting proceeds would elapse.
It is also possible that an audit triggered by a whistleblower would result in a refund for the subject of the whistleblower claim. The monetary figures of the Whistleblower Office tend to be erratic. For example, the FY 2018 assessments on whistleblower-prompted examinations totaled over $2.5 billion for the LB&I Division. Yet another net $2.5 billion was assessed in the following year, except that amount was in refunds rather than collections. This means that LB&I Division’s productivity per hour for auditors working on whistleblower examinations swung from $6,544 to -$7,907 in just a year. TIGTA concluded, “if whistleblower-related examinations result in more taxpayer refunds than assessments, the IRS should attempt to analyze the data and the whistleblower issues in an effort to better select cases for examination.”
The Whistleblower Office is obligated by statute to keep the whistleblower informed of the claim’s progress. Specifically, the Whistleblower Office is required by law to mail a letter to the whistleblower to inform the whistleblower that the claim was referred for examination within 60 days of the referral. This was not accomplished in 35% of the cases sampled by TIGTA. Tax payments as a result of the claim must similarly be reported to the whistleblower within 60 days of the payment. This requirement’s failure rate is approximately 32%, according to TIGTA’s judgment sample. The whistleblower is also entitled to a letter explaining the status and stage of the claim after the whistleblower sends a written request. Such a request’s response time is not subject to a deadline. By administrative policy, the IRS answers only one request per year.
TIGTA found that the Whistleblower Office compiles insufficient data for its operations. For example, “the office does not capture the data needed to identify factors that make a whistleblower claim more productive than another potential examination.” The data systems of the IRS tracking taxpayer payments also “do not differentiate between payments related to a whistleblower claim and those not related to a whistleblower claim” or whether the payment was of taxes, interest or penalties. Whistleblowers are reliant on the Whistleblower Office’s manual research.
The Whistleblower Office must report annually to Congress. Concerned with the habitually late releases, the Government Accountability Office in 2015 recommended issuing this report by January 31 at the latest. The FY 2022 Annual Report has yet to be issued. FY 2022 ended on October 1, 2022.
If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.
[1] Despite its function, it is within the SB/SE Division. The Whistleblower Program “retains procedural and policy
oversight of the ICE unit” and “[t]he SB/SE Division has operational responsibility for the ICE unit.” Report at 8.
Contact Us
We look forward to hearing from you.
California has required employers to “indemnify” employees for “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer” in substantially the same terms since 1937 under Labor Code § 2802.
