IRS Tax Whistleblower Articles

IRS FY 2012 Whistleblower Report Shows Steady Submission of Claims

By Diane Freda

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In fiscal year 2012, the Internal Revenue Service received 332 whistleblower claims related to 671 alleged tax cheats the agency said appear to meet the required threshold of $2 million in tax, penalties, and interest owed.

However, IRS said in its fiscal year 2013 report to Congress that the number of payments made to informants under the program is not projected to grow dramatically in 2013, because it takes years to investigate and audit claims and collect proceeds. In addition, IRS has to wait for taxpayers to challenge its findings. The report, released Feb. 12, showed roughly the same number of claims submitted for 2011 and 2012. Meanwhile, critics of the program, including Sen. Charles Grassley (R-Iowa), focused on the drop and then leveling off of whistleblower submissions, laying the blame on long delays in paying whistleblowers for their information, and an attitude of hostility toward them that discourages them from coming forward.

The 2012 submissions dropped from their six-year high in 2009 of 472 submissions and 2,178 potential tax evaders identified, but remained fairly stable for 2011 and 2012, as did the numbers of taxpayers identified.

The number of alleged tax evaders for FY 2012 is likely to rise as the information submitted is further analyzed, IRS said.

Whistleblowers Still ‘Left in the Dark.'

Grassley, who authored the 2006 updates to the program, and who wrote to IRS as recently as Jan. 28 with a myriad of complaints about it (21 DTR G-6, 1/31/13), said Feb. 13 that, while IRS has made some progress in processing and tracking claims, whistleblowers are still “left in the dark for years” about the status of their claims. Whistleblower rules (REG-141066-09) proposed by IRS in December (241 DTR G-7, 12/17/12) are likely to make matters worse, he said.

Dean Zerbe, senior counsel to the Senate Finance Committee under Grassley and now senior policy analyst for the National Whistleblowers Center, also noted the decline in submissions, saying IRS needs to “hitch up the welcome wagon for whistleblowers.”

He also pointed to IRS's proposed rules, saying they are “a missed opportunity” for IRS to improve communications with whistleblowers about their claims and encourage whistleblowers to make claims based on Report of Foreign Bank and Financial Accounts recoveries, net operating losses, and related parties to tax shelters. For others, there were signs of hope.

In 2012, IRS collected $592.5 million from whistleblowers and paid informants $125.4 million on those claims, the report said.

“Last year, the IRS collected more than half a billion dollars as a result of information provided by whistleblowers, so in spite of all the criticisms and opportunities the IRS has already missed, they have some real results to show for it,” said Gregory Lynam, tax partner at The Ferraro Law Firm, said Feb. 13.

For More Information

Text of IRS's Fiscal Year 2012 Report to the Congress on the Use of Section 7623 is at http://www.irs.gov/pub/whistleblower/2012%20IRS%20Annual%20Whistleblower%20Report%20to%20Co ngress_mvw.pdf. Text of the IRS letter to Grassley on REG-141066-09 is in Taxcore.