The IRS whistleblower program provides financial incentives for individuals to report tax fraud and evasion. However, the program has drawn criticism for delayed payouts and lack of transparency in processing claims.
Recently issued IRS guidance aims to improve procedures by detailing a multi-step review process. However, questions remain about administering reward payments. This article examines the new guidelines and their implications.
Contents
About the IRS Whistleblower Program
Enacted in 2006, the IRS whistleblower program rewards individuals who provide actionable tips exposing significant tax underpayments. If IRS actions lead to collecting unpaid taxes, the whistleblower may receive up to 30% of the amount recovered.
Informants can file a Form 211 providing detailed evidence of fraud or evasion. Claims are evaluated by IRS experts to determine if an audit is warranted. Awards are only paid if examinations substantiate wrongdoing based on the whistleblower’s information.
Payouts over $2 million require approval by the IRS Whistleblower Office Director. Since its inception, the program has paid over $1 billion in awards. However, processing times and opaque procedures have prompted complaints.
The IRS’s Latest Guidance
To address criticism, the IRS released guidelines detailing how whistleblower claims will be evaluated and directed within the agency. The guidance provides a three-step process for handling whistleblower claims:
1. IRS’s Initial Review of Claims
First, according to the guidance, the IRS Whistleblower Office will review claims that are submitted. This will involve adding the claim to the IRS’s tracking system. This will also involve verifying that the claims meet the dollar thresholds set out in the Code.
Smaller claims will be forwarded to the IRS’s Ogden Informant Claims Examiner Unit and sent directly to the field for possible audit. The larger claims will be scanned and forwarded to a subject matter expert for a particular Industry.
2. IRS’s Expert Review of Claims
Second, according to the guidance, the subject matter experts, along with the IRS attorneys, will evaluate the claims and determine how the IRS will handle the claims.
In this step, the focus is on reviewing the evidence submitted to determine whether the evidence can be considered or used by the IRS. The IRS is directed to limit contact between the persons reviewing the evidence and anyone who later conducts the IRS audit.
This step will also involve screening the claim for fraud issues and the potential for referring the claim to the criminal investigation division.
3. The IRS’s Recommendation
Third, according to the guidance, the IRS’s expert and IRS attorney will recommend a course of action to the IRS Industry Director. The Industry Director will then decide whether to proceed with the audit examination.
When the case is sent to the field for audit, the IRS Whistleblower Office will continue to monitor the status of the audit.
What’s Missing?
The guidance does not explain how the IRS Whistleblower Office will process payments to the informants. This missing step is the one that many would-be informants have the most questions about. Presumably, the Whistleblower Office will monitor the audits closely enough so that they are able to make payments to informants in a timely manner. Just in case this doesn’t happen, it might be helpful if the guidance had required the IRS audit personnel to notify the IRS Whistleblower Office of the resolution of the audit for claims involving informants.
While representing progress, the guidance does not address the payment determination process. This omission leaves informants unclear on timeline expectations. Explicitly requiring auditors to notify the Whistleblower Office on completed cases could improve tracking. By formalizing evaluation steps, the IRS seeks to lend credibility and order to the whistleblower program. But questions around the administration of rewards persist. Ongoing efforts to increase transparency and communication will be key to building confidence.
In 40 minutes, we'll teach you how to survive an IRS audit.
We'll explain how the IRS conducts audits and how to manage and close the audit.