IRS Still Inattentive to Whistleblower Program Deficiencies, TIGTA Says

by Jeremiah Coder

Well over a year after an oversight report on the IRS Whistleblower Office was expected to be released, the Treasury Inspector General for Tax Administration on May 10 finally made its findings public. Delivering more bad news about the Service's handling of the whistleblower program, the TIGTA report says that the IRS continues to experience "internal control weaknesses on the processing of whistleblower claims."

Examining the IRS Whistleblower Office was part of TIGTA's fiscal 2011 audit plan, which established the audit objective: "At the suggestion of the Congress, determine whether the IRS has taken effective corrective actions to address previously identified weaknesses in processing claims from whistleblowers. Specifically, determine if the Whistleblower Office's new procedures are contrary to Congress' intent and will deter whistleblowers from filing claims."

However, the report simply followed up its 2009 findings, rather than following the audit plan, and concluded that the IRS has yet to fix its internal systems to ensure that whistleblower cases are properly handled. "Corrective actions taken [by the IRS] have not been sufficient to appropriately accomplish the mission of the Whistleblower Program," TIGTA wrote. (For the 2012 TIGTA report, 2012-30-045, see Doc 2012-10018. For the 2009 TIGTA report, 2009-30-114, see Doc 2009-22190 or 2009 TNT 193-21.)

In particular, TIGTA said that the IRS Whistleblower Office has failed to "instruct employees to review the received date of a claim" in order to give proper data to internal and external stakeholders. And the report noted that the audit team was "unable to validate the accuracy of the received date [from the IRS] because independent and direct access to the case management system was denied."

In fact, TIGTA said it could not assure the public of the overall reliability of the IRS Whistleblower Office's information management system because the Service denied a request for direct access to the system, despite explicit statutory authority giving TIGTA access.

IRS spokesperson Michelle Eldridge countered the criticism. Addressing the recommendations from TIGTA and the GAO, Eldridge told Tax Analysts, "The IRS recognizes that improvements can be made in collection and the use of data in our management information system and that more can be done to oversee the evaluation of whistleblower claims." She added that the Whistleblower Office "is implementing several of these recommendations."

Timeliness Concerns

Senate Finance Committee member Chuck Grassley, R-Iowa, in a release said that "this report confirms my concern that the IRS isn't serious about processing whistleblower claims in a timely way," adding that "open-ended time frames don't get the job done." In contrast, "taxpayers are subject to strict deadlines and subject to stiff penalties for foot-dragging with the IRS," he said, meaning that "the accountability is one-sided."

TIGTA declined to make any recommendations to the IRS because the Service says it is still implementing the Government Accountability Office recommendations. The IRS seems to be taking its time with that process, saying that it intends to have changes in response to the GAO analysis in place only by the middle of October, 14 months after GAO's report and several months after its initial mid-spring goal. The IRS said it was waiting in order to incorporate comments from both GAO and TIGTA in its processing changes.

The TIGTA report comes after the GAO provided its own blistering assessment of how the IRS Whistleblower Office has operated since its creation after the 2006 changes to section 7623. GAO listed numerous factors that it said have hindered timely processing of claims and external communication with whistleblowers and their representatives. GAO tracks changes made in response to its recommendations, but its website does not yet indicate whether the IRS has implemented any. (For GAO-11-683, see Doc 2011-19195 or 2011 TNT 176-59. For prior coverage, see Doc
2011-19188 or 2011 TNT 176-3.)

Much of the criticism surrounding the IRS and the whistleblower program has centered on the time allegedly needed by the government to process cases and provide appeals rights of the affected taxpayers. TIGTA agreed that "timeliness standards for processing claims are not sufficient and consistent," and said that coordination with the operating divisions fails to "emphasize processing whistleblower claims timely." For example, the Whistleblower Office has no timeliness standard for providing section 7623(b) whistleblowers with a claim acknowledgement letter, or for issuing rejection
letters, the report stated. That contrasts with the process for section 7623(a) claims and with the limited period the Service gives whistleblowers to respond to IRS correspondence.

Gregory S. Lynam of the Ferraro Law Firm said that much of the blame for the delay rests not with the Whistleblower Office but with the subject matter experts (SMEs) and Chief Counsel attorneys who review the cases after intake before passing them along to the field. While the Whistleblower Office tries to pass cases along to SMEs within 60 days of receipt, "there is no control, and no consequence, for cases sitting on SME desks for literally years," he said. Lynam's recommendation is to eliminate SME review in its entirety.

"SMEs and Chief Counsel's Office must be held accountable for grossly negligent
delays," Lynam said, because "there is no mechanism to prevent the statute of limitations
from running" while under that review. "If the IRS cannot review whistleblower material in a timely manner, at the very least, the IRS should seek statute extensions and prevent
audit closures while reviewing whistleblower claims," he said.

IRS Ignoring Advice?

Grassley has expressed deep disappointment with the current situation. He recently chided the IRS for its slow response to the GAO's concerns about handling whistleblower cases, writing that "the lack of progress is demoralizing whistleblowers so that I am now concerned that whistleblowers will stop coming forward." (For the letter, see Doc 2012-9420 or 2012 TNT 86-33. For prior coverage, see Doc 2012-9702 or 2012 TNT 89-1.)

The potential federal income from the revised whistleblower program is substantial. TIGTA said in its report that section 7623(b) has "resulted in an immediate increase in high-dollar claims submitted to the IRS, some alleging hundreds of millions in tax noncompliance." Because section 7623(b) targets upper-earning taxpayers and businesses, the seeming ambivalence the IRS shows toward whistleblowers puts the government at odds with the administration's goals of making high-income taxpayers pay more and reducing the tax gap.

"President Obama should make [the whistleblower program] a priority," Grassley said. "While he promotes higher taxes on millionaires, his own administration is allowing big-dollar tax cheating to continue by letting whistleblower cases sit on the shelf. He could do a lot for tax compliance by lighting a fire under the IRS on whistleblowers."

Tax evasion continues while "whistleblowers who are trying to expose the wrongdoing are left twisting in the wind," Grassley said. "If the IRS and the Treasury Department really want to close the tax gap, they need to focus on cleaning up the processing of claims and issuing awards," he said. "For example, the whistleblower office director's approval of an award apparently has to be reviewed by an executive committee before a whistleblower can be paid. As I said in my letter last week, the IRS needs to get the process moving."

Scott A. Knott of the Ferraro Law Firm agreed with TIGTA that the IRS needs to improve the timely and effective processing of whistleblower cases. However, more attention should be given to the conclusion in TIGTA's 2006 report that those cases were highly efficient from an IRS resource perspective and that the program needed more structure to maximize its results, he said.

"It is important to continuously evaluate the performance of everyone in the IRS whose scope of work affects whistleblower claims," Knott said. "Based on their own data, the IRS should be doubling down on whistleblower cases not just as an enforcement tool, but as a means to discourage noncompliance." One frustrated whistleblower told Tax Analysts that the report's delay was a "detriment to Congress, U.S. taxpayers, and IRS whistleblowers" and would deter future whistleblowers from filing claims.

In response to the draft report, the IRS told the TIGTA audit team that the Service has implemented the new E-Trak case information management system since the 2009 report and that it is working to improve the system.