The IRS Whistleblower Office is celebrating its 10-year anniversary this year. The office was created under the Tax Relief and Health Care Act of 2006 to oversee the IRS whistleblower program, which is a critical part of overall enforcement and compliance.
Since the program began, informants have helped the IRS collect $3.4 billion in additional revenue, including tax, penalties, interest, additions to tax and additional amounts in dispute. In turn, the IRS has approved more than $465 million in monetary awards to whistleblowers.
Old Program, New Program
How do today's whistleblower programs compare to previous enforcement efforts? In addition to establishing the IRS Whistleblower Office, the Tax Relief and Health Care Act raised reward percentage amounts for informants. They are currently at least 15%, but not more than 30%, of the proceeds collected from an administrative or judicial action, as long as certain conditions are met. (See "Whistleblowing Basics" below.)
The previous whistleblower program collected a modest $27.3 million in total collected revenue for the five fiscal years that ended in 2005. In contrast, the IRS Whistleblower Office has collected nearly $1.2 billion in additional revenue for the three fiscal years that ended in 2016, though it's also paid out more than $217 million in awards to informants.
The IRS originally hoped that the invigorated program would bring in $182 million in previously uncollected revenue in its first ten years. The IRS views today's enforcement efforts — which collected nearly $369 million in 2016 alone — as "very productive," according to its latest report to Congress, which was released on January 13, 2017.
The number and amount of awards paid each year can vary significantly, especially when a small number of high-dollar claims are resolved in a particular year. For example, though the amounts collected in 2016 (approximately $369 million) were less than the amounts collected in 2015 (approximately $501 million), there were more awards made in 2016 (418 awards totaling about $61 million) than in 2015 (99 awards totaling about $103 million).
The IRS reports that 2016 was a "transformative" year for its Whistleblower Office. It deployed resources from across the agency to help address or eliminate backlogs of whistleblower claims.
As the IRS addressed its backlog, it closed more than 21,000 open claims in 2016, a 99% increase from the previous year. Common reasons for closures include:
Claims being rejected due to a nonspecific, noncredible or speculative allegation,
The issues being below the threshold for IRS action,
Claims being denied due to examination or whistleblower issues, and
The information being already known to the IRS.
In 2016, the IRS re-engineered and streamlined its claims process to avoid future backlogs.
If your boss, neighbor or archenemy brags about underpaying taxes, you may feel an ethical obligation to file a claim with the IRS Whistleblower Office. There are two types of awards. Information for the first type of award must meet the following criteria to qualify:
It must be signed and submitted under penalties of perjury.
It must relate to an action in which the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2 million.
It must relate to a taxpayer, and for individual taxpayers only, whose gross income exceeds $200,000 for at least one of the tax years in question.
If a submission doesn't meet these criteria (for example, it doesn't meet the dollar threshold of $2 million or the case involves an individual with a gross income of less than $200,000), the IRS may consider it for the discretionary whistleblower award program. The awards through this program are less, with a maximum award of 15% up to $10 million.
Your tax advisor can help you file a comprehensive whistleblower claim. Be prepared to provide a written narrative that includes a description of the amounts due and supporting documentation, such as the location of assets and copies of books and records, ledger sheets, receipts, bank records, contracts and emails. The IRS also wants to know how and when you learned about the information that forms the basis of the claim, as well as a complete description of your present or former relationship to the taxpayer you're filing a claim against.
Time Frame for Whistleblower Claims
Starting in 2017, once you submit a claim, the IRS Whistleblower Office will mail you an acknowledgment letter within days of receiving your claim. If the IRS doesn't use the information, the office will send you a claim denial letter. As the claim is investigated, a subject matter expert may contact you to make sure that the IRS fully understands the information that's been submitted.
It's also important to note that awards are based on collected proceeds. So, whistleblowers often must wait five to seven years after filing a claim to receive an award, because the IRS can't make award payments until the accused taxpayer has exhausted all appeal rights and no longer has the ability to file a claim or refund.
Other Whistleblower Programs
"Whistleblower" is a generic term that typically describes someone who reports misconduct by an employer, co-worker or another party. The IRS Whistleblower Program pays money to people who provide specific, credible information to the IRS about those who don't comply with tax laws. But there are also a variety of federal laws that contain provisions that apply to employees and other whistleblowers.
The whistleblower statutes are enforced by the Occupational Safety and Health Administration (OSHA). They protect employees who report violations involving workplace safety, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health care reform, nuclear, pipeline, public transportation agency, railroad, maritime and securities laws. Federal laws that protect employee and other whistleblowers include the:
- Occupational Safety and Health Act,
- Asbestos Hazard Emergency Response Act,
- International Safe Container Act,
- Surface Transportation Assistance Act,
- Clean Air Act,
- Comprehensive Environmental Response, Compensation and Liability Act,
- Federal Water Pollution Control Act,
- Safe Drinking Water Act,
- Solid Waste Disposal Act,
- Toxic Substances Control Act,
- Energy Reorganization Act,
- Wendell H. Ford Aviation Investment and Reform Act for the 21st Century,
- Corporate and Criminal Fraud Accountability Act,
- Sarbanes-Oxley Act,
- Pipeline Safety Improvement Act,
- Federal Railroad Safety Act,
- National Transit Systems Security Act,
- Consumer Product Safety Improvement Act,
- Affordable Care Act,
- Consumer Financial Protection Act of 2010,
- Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
- Seaman's Protection Act, amended by Section 611 of the Coast Guard Authorization Act of 2010, and
- Food Safety Modernization Act.
To reduce the regulatory burden on businesses, the Trump administration has discussed repealing or revising some of these laws, such as the Dodd-Frank Act, the Affordable Care Act and various environmental regulations. Contact a legal or accounting professional for the latest information.
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