Since its inception in 2006, the IRS Whistleblower Program has facilitated the recovery of over $6.6 billion from wealthy tax defaulters and non-compliant corporations. This effort has resulted in rewards amounting to $1.1 billion being paid to over 2,500 whistleblowers. However, in recent times, the program has grappled with delayed award claims and a climactic decrease in collections, bringing the average wait time to nearly 11 years according to the U.S Government Accountability Office .
In light of these challenges, the IRS Whistleblower Program Improvement Act of 2023 was introduced. The Act proposes four key provisions which aim to strengthen the program.
- Imposition of interest on delayed awards: The Act proposes an interest on whistleblower awards delayed for more than a year, incentivizing the IRS to issue awards promptly while compensating whistleblowers for any delays.
- Removal of budget sequestration for whistleblower awards: Currently, the IRS is the only institution that reduces award payments through budget sequestration. The Act seeks to end this practice, thereby increasing the value of the awards issued to whistleblowers.
- Ending of double taxation of attorney fees: The Act plans to eliminate the present practice that requires whistleblowers to be doubly taxed on their lawyer’s fees — a practice already abandoned by other whistleblower award laws such as the Dodd-Frank and False Claims Acts.
- Institution of de novo review in award case appeals: The Act would implement a de novo standard of review in cases where whistleblowers appeal award decisions before the US Tax Court, allowing whistleblowers to challenge award denials on a factual basis.
While these reforms may appear technical, they’re essential to the proper functioning of the IRS Whistleblower Program. Vague practices, like budget sequestration and double taxation, create a perception among whistleblowers and their attorneys that the program is unfair, thus discouraging them from coming forward with vital information.
The detrimental effect of delaying whistleblower awards was outlined in a 2006 report by the Treasury Inspector General for Tax Administration (TIGTA). Concern was raised over the average processing time of 7.5 years that potentially undermines the effectiveness of the awards as an incentive — a critical finding that fueled the passage of the Tax Relief and Health Care Act in 2006, overhauling and modernizing the IRS Whistleblower Program.
With the gap in US tax collection expanding, there is growing need for effective tax enforcement. As such, core reforms like those provided for in the IRS Whistleblower Improvement Act need to be instituted if the IRS Whistleblower Program is to play a central role in combating tax evasion.
Note: The author of this article, Stephen M. Kohn, is a founding partner of the whistleblower law firm Kohn, Kohn & Colapinto in Washington, D.C., and also the chairman of the board of directors of the National Whistleblower Center.