Whistle-Blowers Get No Favors From IRS


Despite a cavernous tax gap, the IRS does seem to be particularly fond of whistleblowers who blow the cover of major tax cheats and tax evaders. Under the law, whistleblowers could be awarded up to 30% of the taxes that are collected from the subjects. But the sad reality is that over the past 5 years, only 3 awards have been paid to whistleblowers out of a staggering 1,300 claims filed against almost 10,000 companies and individuals that amount to an underpayment of more than $2 million each.

The tax gap is the difference between the amount actually owed by taxpayers and the amount actually collected by the IRS. It currently stands at a mammoth $385 billion annually. In addition, there is the federal budget deficit of $1.2 trillion. Shouldn’t the IRS do more to nab tax cheats and recoup some of these losses? Senator Charles Grassley who sponsored the whistleblower law is critical of the IRS. In a letter to Treasury secretary Timothy F. Geithner, he said the agency is “demoralizing whistle-blowers” and further commented, “The IRS does not have a problem attracting whistle-blowers. The IRS’ current problem is processing and compensating whistleblowers in a timely manner.” As a result, Grassley expressed his fear that whistleblowers will stop coming forward.

Many believe the reluctance of the IRS to pursue tipoffs from whistleblowers stems from the fear of reprisal from Congress of heavy-handed enforcement. The IRS themselves readily admit their administration of the whistleblower program is wanting. IRS deputy commissioner for services and enforcement who is in charge of the whistleblower office, Steven T. Miller said, “It’s fair to say the whistleblower program isn’t where we would like it yet. And I think it’s fair to say we are working hard on it.”

In the normal process of investigating information given by whistleblowers, the IRS does not speak much to the informant(s) in order to abide by strict laws governing taxpayer privacy. As such, whistleblower claims can take many years to go through the review and award determination process by the IRS. Miller said what slows the process down further are the appeals by taxpayers against IRS rulings. Therefore, whistleblowers should be willing to wait as long as 7 years to be awarded anything from their tipoffs. The entire process is strictly confidential and the subjects of the tipoffs are not told that there is a claim against them.

According to Miller, the IRS expects to pay out another 3 to 5 awards this year.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Darrin Mish, Tampa Tax Attorney, The Law Offices of Darrin Mish, P.A. | Attorney Advertising

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