IRS Tax Whistleblower Articles

IRS Failure to Dialogue With Whistleblowers Creates Unwelcome Climate, Witnesses Say

By Diane Freda

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Witnesses at an Internal Revenue Service hearing on proposed whistleblower rules told a government panel that it must do more to encourage informants to give up their information, pay for that information at a higher rate, and tell them sooner whether their claims might lead to an award.

Lack of communication with the whistleblower was one of the top problems cited by many of the eight witnesses who spoke. Some witnesses accused IRS of hiding behind the taxpayer confidentiality restrictions of tax code Section 6103.

The proposed rules lay out how IRS will pay awards and how the Service defines certain key terms in making awards, such as what proceeds are based on and what constitutes a “related action” (241 DTR G-7, 12/17/12).

Several of the witnesses who spoke on the proposed rules (REG-141066-09) said IRS should start paying awards at 22 percent—the middle of the current scale—rather than 15 percent, and go forward with plans to issue preliminary denial letters that would keep informants from waiting in the dark for up to seven years to find out if their claims have been accepted.

“The award system and communication are all geared toward how the IRS can grind the whistleblower in terms of their award instead of looking at the long term policy impacts of the awards and how they can be encouraged,” Dean Zerbe, speaking on behalf of the National Whisleblowers Center, told the panel.

Using False Claims Act for Guidance

IRS should look to the False Claims Act for guidance in structuring its program, Filipe Bohnet-Gomez said on behalf of Kohn, Kohn & Colapinto LLP. Under that act, when false claims relators bring an action, the government cannot sidestep them and bring its own action, thereby denying them an award.

The proposed rules do not follow the plain language on the statute, according to Erica Brady, with the Ferraro Law Firm. “The proposed rules seem to leave absolutely no room for an individual who comes forward with additional facts that will lead to a larger assessment of tax,” she said.

Aggregating several taxpayers in several tax years into one final award determination is causing major delays in paying claims, Bryan Skarlatos, with Kostelanetz & Fink, told the panel. A final award determination should be made with respect to each year, with respect to each taxpayer, he said.