In a report issued recently, the Treasury Inspector General for Tax Administration discusses the IRS’s efforts to implement the whistleblower provisions of the Tax Relief and Health Care Act of 2006, which created Section 7623(b) of the Internal Revenue Code. That section provides that the IRS will pay between 15% and 30% of the amount it collects to a whistleblower if the collection is the result of information provided by the whistleblower. Section 7623(b) generally applies only to cases where the unpaid taxes and penalties exceed $2 million. And to claim the 15-30% rewarded, the tax whistleblower must follow certain procedures and (this being the IRS) must complete and submit the correct IRS forms.
The report contains some interesting statistics about what has been happening with tax whistleblower claims since Section 7623(b) became law in 2006. The statistics in the report are as of March 30, 2009.
First off, the report indicates that the IRS has paid no awards to whistleblowers under Section 7623(b). This is not really all that surprising, given how slowly tax proceedings move.
The report indicates that 1,973 whistleblower claims have been filed under Section 7623(b). Of those, 297 have been rejected, while 160 have been “reclassified” because they involved amount below the $2 million threshold. Of the remaining 1,516 claims, 685 have been referred to the Criminal Investigation Division (CID) for analysis because the information provided by the whistleblowers indicated intentional fraud. Under IRS procedures, the CID must analyze and investigate these claims for potential criminal liability before the IRS seeks to actually collect the money. So, for the whistleblowers waiting for their rewards, the referral to CID probably means an even longer period of delay.
That leaves 831 tax whistleblower claims that are somewhere else in the IRS system. Of those, only 69 have actually reached the stage of an IRS examination (what the rest of us call an audit). These 69 claims — a mere 3.5% of the claims that have been filed — represent the leading edge of this process. They are the claims that are farthest along, and most likely to result in the payment of a reward to the whistleblowers.
Unfortunately, the overall message of this report is that the tax whistleblower process — at least as currently implemented by the Whistleblower Office — is extremely slow. Hopefully, the Whistleblower Office will make the long waits worthwhile by paying substantial rewards to the whistleblowers once the claims result in collections by the IRS.