IRS whistleblower awards program faulted for delays

A 5-year-old program enhancing cash awards to tipsters who successfully expose tax cheats is beset by delays and inadequate tracking of cases, according to a new report that is prompting debate over whether the Internal Revenue Service has sufficient resources to run the program.

"Whistleblower claims can take years to go through the IRS review and award determination process," the Government Accountability Office reported Friday, noting that 66 percent of claims were still in process even though they were submitted three or four years ago during the first years of a program launched under the 2006 Tax Relief and Health Care Act. That law raised potential cash awards to tipsters from a discretionary and capped award of 15 percent of collected proceeds to mandatory awards of 30 percent, uncapped.

"IRS does not collect complete data on the time each step takes or the reasons claims are rejected," auditors wrote. "Without such data, IRS may be unable to identify potential improvements to claim processing efficiency. Furthermore, not all the IRS divisions that review whistleblower claims have time targets for their subject matter expert reviews. Nor does the Whistleblower Office have a systematic process to check in with the divisions about the time taken for their initial reviews."

GAO acknowledged that IRS officials must allow for appeals and litigation, and noted that they must also protect the privacy of tax returns and hence cannot easily provide whistleblowers with updates on progress on a claim.

Auditors did, however, recommend that IRS improve data tracking, introduce time tables for processing claims, include progress measurements in its annual report to Congress, and study other federal and state government approaches to the task of evaluating tips on possible tax evasion received from whistleblowers.

IRS officials who were shown a draft of the report agreed with most of the recommendations, according to a letter from Steven T. Miller, deputy commissioner for services and enforcement. But the IRS also asserted "that resource availability could affect the implementation of recommended improvements" to its data tracking "and that IRS would make the appropriate improvements as feasible given resource constraints and competing priorities."

Sen. Charles Grassley, R-Iowa, ranking member of the Finance Committee who spearheaded the 2006 law, welcomed the GAO report as evidence "that the whistleblower program has been a success in providing good information to the IRS about big-dollar tax cheats.

"The statistics show the IRS views a significant number of the whistleblower claims as having merit," he said in a statement. "The IRS has received tips on more than 9,500 taxpayers from 1,400 whistleblowers in just five years. The IRS has acted or is acting on almost 8,300 of these claims, so only about 1,300 tips have been rejected so far."

Still, Grassley challenged the agency's claim that it is short on resources. "The IRS commissioner should make that clear to all of his managers and provide the necessary resources so that valid whistleblower claims aren't forgotten," he said. The agency "is doing nothing to take advantage of the resources of the whistleblower and his attorneys….The tax cheats shouldn't be the only ones who can take advantage of outside legal talent. The IRS can't ask for more resources while ignoring the free resources available."

Grassley also said the IRS should take advantage of a confidentiality provision in the laws that would permit more communication with whistleblowers.

Robert Kerr, senior director of government relations for the National Association of Enrolled Agents, agreed with Grassley that "there must be some room to better leverage resources through privacy/disclosure exceptions."

But he acknowledged what the IRS is up against in that "it must manage often complex cases while balancing both taxpayers' and whistleblowers' rights." Though sympathetic to whistleblowers, Kerr said "not all of them are created equal, and this leaves IRS devoting resources to processing claims that must be, to put it kindly, nonsensical."

A question that needs addressing, Kerr suggested, is whether "the culture of the IRS divisions that handle whistleblower claims is one that looks at whistleblowers as partners rather than as a nuisances."

Colleen Kelley, president of the National Treasury Employees Union, said in an email to Government Executive that her organization supports an effective whistleblower program at the tax agency.

"Ensuring that the IRS has sufficient resources, including personnel, in both its enforcement and customer service operations, is a critical element in such efforts," she said. "At the same time, the IRS whistleblower program -- as with all IRS programs -- needs to maintain an appropriate balance between collecting the revenue owed to the government and protecting taxpayer privacy rights. These two requirements go hand-in-hand, and there is no reason to slight one at the expense of the other."