On January 28, 2013, in a letter to the Internal Revenue Service (IRS) and the U.S. Department of Treasury (Treasury), Senator Charles Grassley (R-IA), co-author of the 2006 updates to Section 7623 of the Internal Revenue Code (IRC), criticized the IRS Whistleblower Program (WBP) and WBP regulations that were presented in the agency’s December 14, 2012 Notice of Proposed Rulemaking (NPRM). Senator Grassley contrasted the WBP with the success of the Federal False Claims Act (FCA), under which over $30B has been recovered for the U.S. Treasury. Unlike that program, the Senator argued, the WBP “regulations, as proposed, will hamstring the program by limiting the whistleblower awards and discouraging knowledgeable insiders from coming forward.”

Collected Proceeds

Senator Grassley expressed concern regarding the NPRM definition of “collected proceeds,” finding the agency interpretation too restrictive. For example, he noted that the regulations do not credit whistleblowers “who provide information that leads to a reduction in [net operating losses (NOLs)] if the reduction in NOLs doesn’t immediately result in taxes collected.” Further, the Senator criticized the IRS determination that such regulations would be too complicated and costly to administer, especially in light of the relatively small number of whistleblower program awards.

The Senator further expressed concerns that “the definition of ‘collected proceeds’ in the proposed regulations is specifically limited to proceeds raised under Title 26[,]” the domestic portion of the U.S. tax code. Limiting the scope of the program to Title 26 claims could reduce reporting of pertinent information, “such as that relating to undisclosed foreign bank accounts[, that] may be indispensible in detecting underpayments of tax … .” Senator Grassley asserted that the language and intent of the law, including “broad use of the word ‘any’ throughout the statute” indicate that awards for non-Title 26 penalties are warranted.

“Planned and Initiated” and “Proceeds Based On”

Senator Grassley also criticized NPRM definitions that reduce whistleblower award determinations and restrict the type of information for which the IRS will grant an award. Under Section 7623(b)(3), the “Whistleblower Office may reduce an award determination if the whistleblower planned or initiated the actions that led to the tax underpayment” or other actions described in Section 7623(b)(2) of the IRC (emphasis added). Currently, the IRS defines one who planned or initiated to include anyone who “knew or had reason to know” that there were “tax implications” to the underlying act. Finding this definition too broad in scope, Senator Grassley advocates reserving award reduction only to “the chief architect or chief wrongdoer[,]” as is the practice under the FCA.

In addition, the IRS will only issue an award where “the Secretary proceeds with an administrative or judicial action (including any related actions) based on the information provided by the individual.” The NPRM further states: “[T]he IRS proceeds based on the information provided only when the IRS initiates a new action that it would not have initiated, expands the scope of an ongoing action that it would not have expanded, or continues to pursue an ongoing action that it would not have continued but for the information provided (emphasis added). Senator Grassley asserts that the use of the word “only” in the implementing regulations “could drastically limit the number of corporate whistleblowers, as the IRS could always claim that the information provided dealt with a topic that was covered in a regularly scheduled IRS audit.” The Senator determined that “[t]he intent of the law is to reward whistleblowers under section 7623(b)(1) who have substantially assisted the IRS even in situations where the taxpayer is already under audit and even if the issue is already under audit . . . .”


Senator Grassley also stated that the regulations would do little to improve or expand communication between the IRS and whistleblowers, which he describes as one of the most common complaints about the agency’s whistleblower program. NPRM regulations provide that administrative proceedings will begin when the Whistleblower Office issues a preliminary award recommendation letter. The regulations do not state when preliminary awards are to be issued, and the Senator recommends “that the IRS should have a standard practice that such a letter should be sent at a minimum 90 days after taxes have been collected.” He also suggests that “the IRS should begin administrative proceedings with the whistleblower and open communication once proceeds have been collected” – the IRS claims that such an action would be prohibited by Section 6103.

Senator Grassley advocates for additional clarity concerning when and what type of information the IRS may share with whistleblowers, finding greater assistance from whistleblowers and their advisers critical to the WBP’s success. He notes that the intent of the law is to ensure that whistleblowers and their advisors “help[] to pull the oars in the examination and investigation.”

Funding and Monitoring

Senator Grassley also admonished the agency for failing to provide the WBP with adequate resources and allowing “whistleblower claims … to languish in the whistleblower office for years.” He advocates “allocat[ing] its resources to get the biggest bang for its buck[,]” which “includes assigning staff according to where their labor will get its highest rate of return.” In the Senator’s opinion, “The IRS whistleblower office has proved pound-for-pound to be the best thing going at the IRS in terms of going after tax cheats.”

Finally, the Senator noted that the IRS has failed to implement Government Accountability Office recommendations “to improve the monitoring of the program and the tracking of claims,” and expects that any increased revenues generated from whistleblower information will offset additional monitoring costs.


Should Treasury and the IRS implement the Senator’s recommendations and broaden the pool of eligible whistleblowers, employers can expect increased government resources—and resources of whistleblower advocates—to be devoted to whistleblower actions and a greater emphasis on investigating tax-related whistleblower claims.