IRS Tax Whistleblower Articles

Legislation Aims to Improve Communication With Whistleblowers

By Matthew R. Madara

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Practitioners praised bipartisan legislation introduced March 29 in the Senate intended to improve communication between the IRS and whistleblowers and provide them protection against workplace retaliation.

The IRS Whistleblower Improvements Act of 2017, introduced by Senate Finance Committee member Chuck Grassley, R-Iowa, and committee ranking minority member Ron Wyden, D-Ore., seeks to improve communication by allowing the IRS to exchange information with whistleblowers and provide status updates at significant points in the review process. It also extends to IRS whistleblowers anti-retaliation protections already available under other whistleblower laws, such as Sarbanes-Oxley and the False Claims Act.

Dean Zerbe of Zerbe, Miller & Fingeret PC said the legislation is particularly helpful on the communication issue. "This has been a long grind for whistleblowers to not have good communication about the status of their cases, and I think Wyden and Grassley have proposed a reasonable fix that's still mindful of taxpayer protections," he said.

Scott A. Knott of the Ferraro Law Firm said the lack of anti-retaliation protection and communication have been two items of concern and that this legislation will be "welcome news to whistleblowers." The absence of anti-retaliation provisions protecting tax whistleblowers are "glaring compared to other whistleblower statutes such as Sarbanes-Oxley," he said.

In a release, Grassley said whistleblowers "need assurances that putting their jobs at risk carries protections" and "better communication about where their cases stand so they're not sitting in limbo."

Grassley added, "This bill will offer a welcome mat to those who are too often treated like skunks at a picnic."

"Whistleblowers are a crucial line of defense against waste, fraud and abuse," said Wyden. "This legislation will strengthen protections for employees of companies who come forward to report tax evasion."

Zerbe said the legislation would provide relief to whistleblowers who often wait years not knowing how their claim is proceeding. "I think it's frustrating for the [IRS] Whistleblower Office, too," he said. "I think they'd like to be a little more open about where things are in the process."

Knott explained that section 6103(n) permits disclosures in judicial and administrative tax procedures, but that the IRS has taken the position that it can only disclose information under a confidentiality agreement if it is paying the whistleblower an award. The IRS does not share much or any information if the claim is denied, he said.

"Anything that improves the communication during the administrative phase should reduce the number of cases that are getting litigated," Knott said. Whistleblowers with denied claims are forced to litigate to learn why the claim was denied, he said.

Zerbe said the anti-retaliation protections in the bill will provide a level of comfort to whistleblowers. "Most whistleblower programs do have protections for whistleblowers, so I think this will be helpful so whistleblowers in the tax area can have similar protections," he said.

"The IRS does a very good job of protecting whistleblower identity, so for most whistleblowers they can be comforted knowing their name isn't going to come out from the IRS," Zerbe said.

Knott said the legislation does come with a 180-day limitations period for asserting a retaliations claim, so the "clock is ticking and you really need to be on top of what your rights are as a whistleblower."

Zerbe noted that the legislation does not cover all issues facing whistleblowers. Advocates of the program are waiting to see if the new administration will challenge the win whistleblowers had in Whistleblower 21276-13W v. Commissioner and Whistleblower 21277-13W v. Commissioner, 147 T.C. No. 4 (2016), on collective proceeds, he said, adding, "I think everyone is hoping the new administration will see the common sense in embracing that win for the whistleblower program and a victory over tax cheats."

Zerbe said the collective proceeds issue was raised during the Finance Committee's confirmation hearing for Treasury Secretary Steven Mnuchin. "I think the expectation is Mnuchin will make the right decision and agree with the Tax Court decision and change the IRS regulation in this area," he said.