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Whistleblowers Keep Their Fingers Crossed: Current Scrutiny of the IRS Could Lead to Meaningful Changes

By: Douglas K. Rosenblum
June 18, 2013

Not only was the IRS allegedly scrutinizing conservative groups more closely than their liberal counterparts, but apparently the Service was spending enough money to make even the wealthiest world travelers blush.  The Treasury Inspector General for Tax Administration has completed an audit of the IRS' spending over a three-year span beginning in fiscal year 2010.  During that period, the Internal Revenue Service spent an astonishing $49 million on at least 220 conferences.  The most costly of those conferences appears to be an August 2010 conference in Anaheim, California for 2,600 IRS employees who serve in a division that assists small businesses and self-employed individuals prepare their taxes.  The conference cost $4.1 million.

IRS Acting Commissioner Daniel Werfel assumed his new role in the wake of the resignation of Commissioner Steven Miller last month.  Mr. Werfel, a former senior official in the Office of Management and Budget has categorized the IRS' spending habits as "an unfortunate vestige from a prior era."  Citizens providing the Service with information on tax cheats hope that Acting Commissioner Werfel will rejuvenate the whistleblower program of the prior era, as well.

In 2006, Congress passed the Tax Relief and Health Care Act, which created the IRS Whistleblower Office and made rewards to whistleblowers less discretionary than in years past.  Iowa Republican Senator Charles Grassley, a staunch supporter of whistleblowers, was the strongest congressional voice in support of the whistleblower provisions. 

There are two basic tracks currently in place for whistleblower complaints that are filed with the IRS.  On the first track, whistleblowers submit information concerning amounts in dispute (back taxes, interest, and penalties) in excess of $2 million.  In these cases, the IRS is looking for non-compliant taxpayers with annual gross income of more than $200,000.  If the IRS successfully obtains a recovery from a non-compliant taxpayer, the IRS is required to pay the whistleblower between 15 and 30% of the recovery.   Whistleblowers on this track who are not satisfied with the reward may appeal to the United States Tax Court located in Washington, D.C.

The second track applies to cases involving less than $2 million in dispute.  If the IRS obtains a recovery in these cases, payment of a reward to the whistleblower is discretionary, with a maximum of 15% of the recovery.  Whistleblowers on this track cannot appeal to the United States Tax Court.

This program received an impressive 332 informant submissions in fiscal year 2012 alone.  According to the IRS' most recent report to Congress, the Whistleblower Office is currently processing and investigating an inventory of 1,449 submissions, each of which identifies taxpayers accused of avoiding more than $2 million in taxes, penalties, and interest. 

This program has substantial promise in protecting taxpayer funds and in opening an avenue for tax whistleblowers.  Unfortunately, the Whistleblower Office has been slow in pursuing cases and paying awards.  Acting Commissioner Werfel stands in a unique position to restore confidence in the IRS and revamp the Service's whistleblower program.  If the IRS is able to create a system to handle these tips faster and more effectively, the IRS will truly rid itself of the "vestige[s] from a prior era" and add to the coffers of the federal government in a substantial way.