IRS Whistleblower Rewards in FY 2015 Nearly Double

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Fed building facade against stairs in city, representing the IRS whistleblower program

The Internal Revenue Service Whistleblower program has released its annual report to Congress for Fiscal Year 2015. The office awarded just over $103 million to informants for information about tax evasion, nearly double the amount paid in FY 2013 or 2014. Since 2007, the program has now awarded more than $400 million to whistleblowers for helping the IRS recover more than $3 billion in tax revenue.

In FY 2015, there were 19 award payments under section 7623(b). Section 7623(b) is the mandatory whistleblower law created by Congress as part of the Tax Relief and Health Care Act of 2006. This section applies when there are more than $2 million in taxes, fees and penalties at issue due to tax noncompliance. Out of the 7623(b) claims and any claims that preceded its enactment handled under section 7623(a), there were 11 claims that resulted in collections from taxpayers of over $2 million. This number represents a slow and steady rise over the past few years. In FY 2014 for example, there were only 6 collections over $2 million. Overall, there were 99 awards paid to individuals for information in FY 2015.

The number of tax claims submitted by individuals fell this year compared to last year. In the past, Senator Grassley has expressed concern that the lack of awards would result in less information being provided to the government. However, each claim involves suspected unpaid tax by one taxpayer so this decrease does not necessarily mean that there has been a fall in the number of submissions. The average tip currently provides information related to three taxpayers, so there is some possibility that there were fewer offending taxpayers named.

The Whistleblower Office also encouraged Congress to adopt additional protections for both informants and taxpayers. For several years, the Obama Administration has asked Congress to add retaliation protections under federal law to tax whistleblowers. In addition to these protections, the IRS is also seeking to further protect taxpayer information disclosed to whistleblowers as part of the award determination process. The IRS called the current procedure inadequate to ensure confidentiality after the process has completed and the administrative record closed.

The IRS program has been subject to criticism over the past few years from Senator Grassley, whistleblower attorneys and the media. However, more individuals started to express optimism about the potential for rewards after a few different award announcements by law firms last year. Following the release of the report this year, Senator Grassley issued a statement expressing optimism about the progress the IRS whistleblower office is making in the fight against tax fraud. These included the uptick of awards, additional information provided about the handling of tips and the more timely release of the annual report.

Part of the frustration with the IRS process has no doubt been the comparison to the DOJ and the False Claims Act, where there have been recoveries of several billion dollars a year for the past few years. The DOJ has been paying whistleblowers hundreds of millions of dollars a year. There is also some greater transparency in the process, as relators can proceed on behalf of the government in litigation if the United States declines to take action. The IRS program, on the other hand, is younger and only the Government can take action to recover the unpaid taxes.

The IRS has consistently pointed to the length of time in the investigation and prosecution of tax enforcement actions. This year in the report, it published the average length of time to reward payment. The chart offered ranges of 4.73 years to 6.02 years for 7623(b) tips over the past three years and 4.81 to 8.72 years for 7623(a) tips over the same period. If the IRS continues to grow the number of awards as the program matures and tips proceed through the system, then Senator Grassley’s optimism will be warranted.

If you have questions about the process of reporting tax evasion, call 1-800-590-4116 to one of our IRS whistleblower attorneys.