IRS Tax Whistleblower Articles
IRS Sets Timelines for Action on Whistleblower Claims
by Jeremiah Coder
The IRS is adopting temporary timelines for acting on whistleblower submissions while it conducts a review of the whistleblower program, according to a memorandum sent to all the agency's operating divisions on June 20.
In the memo, Steven Miller, IRS deputy commissioner for services and enforcement, said the Service is engaging in a "comprehensive review of operating guidelines and procedures" for the IRS Whistleblower Office with the goal of making timelier and better decisions about whistleblower submissions. (For the memo, see Doc 2012-13286.)
The IRS recognizes the valuable contribution of whistleblowers to tax enforcement, Miller said, adding that resulting investigations from claims so far have yielded significant results. Stressing the importance of timely action, the memo tells the heads of the operating divisions that substantive and legal review of whistleblower claims is an agency priority. Consequently, until the whistleblower program review is complete, Miller set forth expected timelines for completing specific steps in handling whistleblower claims.
According to Miller, the Whistleblower Office should conduct an initial evaluation within 90 days of receiving a submission. Once the Whistleblower Office forwards a case to one or more operating divisions, including Criminal Investigation, each affected division would have 90 days in which to conduct a subject matter expert review.
Importantly, the memo states that the Whistleblower Office should also notify whistleblowers "of an award decision within 90 days of when collected proceeds can be finally determined."
Those timelines, if followed, would greatly affect whistleblower case resolution. In an agency report on the whistleblower program released the same day, the IRS admitted that the average time the whistleblower office takes to initially review a submission is 131 days, field examination averages 299 days, and an award determination takes 285 days. (For the 2011 annual report on the IRS Whistleblower Office, see Doc 2012-13293. For related coverage of the report, see Doc 2012-13311.)
The memo comes after the IRS has received sustained criticism from the tax bar and members of Congress for failing to timely act on whistleblower claims and award payments. (For prior coverage, see Doc 2012-10562 or 2012 TNT 98-4.)
Also, several whistleblowers have filed suit in the Tax Court complaining that IRS inaction on their claims has resulted in effective denials that should be treated as determinations for jurisdiction purposes governing section 7623(b) appeals. (For prior coverage, see Doc 2012-6254 or 2012 TNT 59-3.)
Practitioners praised the IRS for finally setting timelines for acting on section 7623 whistleblower claims. Scott A. Knott of the Ferraro Law Firm said, "Routine long delays in the initial review of whistleblower information have been a debilitating hurdle for the IRS because no statute of limitation protections are put in place during this process, and often the information is stale by the time it gets to the field." Although the memo's timelines probably won't affect the many cases that have been filed since the revised whistleblower statute was enacted in 2006, "they should help make sure that future cases are given the timely consideration they deserve," he said.
"The deadlines should also help prevent the section 6501 assessment period from expiring before the IRS can even investigate the tax underpayment that a whistleblower has revealed," Knott said.
Erika A. Kelton of Phillips & Cohen LLP said that Senate Finance Committee member Chuck Grassley, R-Iowa, deserves most of the credit for the change. "His forceful advocacy for the IRS whistleblower program and his unrelenting criticism of the IRS for its failure to take advantage of such a promising enforcement program has yielded positive results," she said. "While this memo makes me cautiously optimistic, neither I nor my whistleblower clients are going to believe the IRS will truly change its attitude until we actually see some action; memos are easily ignored."
Bryan C. Skarlatos of Kostelanetz & Fink LLP regarded the memo as a positive development. "The IRS should be commended for taking these steps as the memo is a clear directive from the top down recognizing the importance of the whistleblower program and demonstrating institutional support for the program," he said. "The creation of expected timelines for evaluation and review of incoming claims and notification of award determinations is very helpful.
Skarlatos added, "Of course, the devil is always in the details, so it remains to be seen how the timelines will be implemented and followed, but this is a good start."
"This memorandum is a very positive step forward for the IRS whistleblower program," said Dean Zerbe, national managing director at Alliantgroup LP and a former Senate Finance Committee aide who worked on the 2006 revisions to the whistleblower law. "Now the key is to ensure that the operating divisions and the Whistleblower Office fully embrace and meet the good words and guidance put forward" by the IRS, he said.
"Commissioner Miller's memorandum on the IRS whistleblower program -- clearly prompted by all of Senator Grassley's good work -- provides what has been dearly sought by the whistleblower community: set deadlines for decisions," said Zerbe. "I've stated before that Steve Miller was the blocking fullback for the IRS whistleblower program -- well, the fullback delivers."
Whistleblower representatives had some criticism of the memo, however, calling it long overdue and arguing that it should have clearly established that cases involving whistleblower claims are a top priority for examination. "The memo does state that substantive and legal review of whistleblower claims is a priority, but it does not state that revenue agents in the field should prioritize examinations involving such claims," Skarlatos said. "I believe that the IRS should consider prioritizing most whistleblower claims because such examinations have a very high likelihood of revealing tax noncompliance and generating revenue."
Skarlatos commended the IRS for encouraging field agents to interact with whistleblowers in appropriate circumstances. "Again, the hope is that field agents will actually follow up on the suggestions in the memo and engage the whistleblowers more frequently," he said.
Other Interim Guidance
On June 7 the IRS released other interim guidance affecting Internal Revenue Manual provisions covering the Whistleblower Office. In one memo (WO-25-0612-03), the IRS made changes that allow for reduced withholding on whistleblower awards. Withholding on whistleblower award payments has been controversial since the IRS first announced it in September 2010 (PMTA 2010-063), because section 7623 does not specifically mention withholding. The new IRM provisions provide a process for reduced withholding when a whistleblower demonstrates that her taxable award will be offset in part by an above-the-line deduction for attorney fees. (For WO-25-0612-03, see Doc 2012-12345 or 2012 TNT 111-23. For PMTA 2010-063, see Doc 2011-8491 or 2011 TNT 77-12.)
"We're happy that this new withholding guidance at least eliminates the harm caused by overwithholding, although we're still curious why whistleblowers were singled out by the IRS for their own extra-statutory withholding regime," Knott said.
Another memo (WO-25-0612-01) affecting the IRM changes procedures for corresponding with the whistleblower and the representative, confirming termination of representation, determining the timing of payments, processing the award claim form, determining collected proceeds and the award amount, and funding awards. Knott said the most important part of that guidance is that it lays the groundwork for partial awards to be paid to whistleblowers. "We've always said that each taxpayer and each year of each taxpayer should stand alone for award purposes," he said. (For WO-25-0612-01, see Doc 2012-12342 or 2012 TNT 111-24. For the Ferraro Law Firm's comments on the section 7623 proposed regs, see Doc 2011-8482 or 2011 TNT 77-17.)