Nina Olson, the Taxpayer Advocate, and the staff at the Taxpayer Advocate Service (TAS) work tirelessly to aid taxpayers in resolving issues with how the IRS interacts with taxpayers. Every year the TAS files an annual report to Congress. This year’s annual report includes a look at the IRS Whistleblower Program as Most Serious Problem # 13. The report states:
Despite the increased willingness of whistleblowers to come forward, the effectiveness of the whistleblower program has been undermined by conditions such as:
- The length of time it takes to resolve whistleblower cases, which averaged almost six years for awards paid in 2014;
- Statutory provisions that impede the IRS from communicating effectively and regularly with whistleblowers; and
- The lack of statutory protection of whistleblowers from retaliation.
The report gives a detailed description of the problems that the Taxpayer Advocate Service found with the operation of the whistleblower program. I recommend reading this section of the report as validation of observations that we have all made over the years. The discussion of the problems found includes some recommendations that the IRS could make on its own, which the Taxpayer Advocate Service believes would improve the administration of the whistleblower program.
The report provides clear balanced recommendations that would both protect taxpayer information and allow better communications with whistleblowers. The report provides:
Implicit in the response is the IRS’s position that once a whistleblower submits a claim, further communication with the whistleblower is appropriate only after the IRS determines to make an award (unless the IRS needs information from the whistleblower in the meantime). In view of the lengthy timeframes involved, this approach seems inconsistent with the IRS’s announced support for the whistleblower program and its commitment to finding ways of improving communication with whistleblowers.
Neither IRC § 6103 nor any other statute impedes the IRS and Treasury from defining a whistleblower “administrative proceeding” as beginning with the filing of Form 211, and the IRS and Treasury could revise the regulations under IRC § 7623 to allow annual or bi-annual notifications to whistleblowers with basic information, such as whether the claim resulted in an audit, whether an audit has been concluded, whether proceeds from the audit have been collected, and an estimated time within which the WO expects to send a preliminary award. This would allow the WO to retain significant discretion about what it will disclose and how early. As the WO develops procedures for making periodic updates, the IRS and Treasury could update the applicable regulations to define what and when the WO will disclose. However, these changes should not be adopted unless the appropriate regulations (whether under IRC § 6103 or IRC § 7623) are also revised to require whistleblowers who wish to receive status updates to execute confidentiality agreements that carry the statutory penalties imposed by IRC §§ 7431, 7213, and 7213A, and subject them to the safeguarding requirements of IRC § 6103(p).
In addition to describing the most serious problems that taxpayers face in their interactions with the IRS, the annual report serves as an opportunity for TAS to propose new legislation to Congress. The report makes the following legislative recommendations:
- Enact anti-retaliation legislation to protect tax whistleblowers.
- Make unauthorized disclosures of return information by whistleblowers subject to penalties of IRC §§ 7431, 7213, and 7213A, substantially increase the amount of such penalties, and make whistleblowers subject to the safeguarding requirements of IRC § 6103(p).
- Amend IRC §§ 7623 and 6103 to provide consistent treatment of recovered Foreign Account Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) penalties for whistleblower award purposes.
The suggestions would serve to address several of the long standing problems that continue to cause pause for potential whistleblowers as they weigh whether to provide information to the IRS. If these suggestions are implemented the whistleblowers would allow the IRS whistleblower program to operate more similarly to other whistleblower programs with protections that would be on par with the SEC, which can cover IRS whistleblowers in certain situations, and allow for similar updates and communications regarding the status of the claim. These changes would greatly improve the program and entice many whistleblowers that have been waiting on the sidelines with information to come forward.
*Footnotes have been omitted from all quotes from the TAS Annual Report.