Happy New Year! The new year brings a time to reflect back on the past year, on things that went well, things that went not-so-well, and how you would like to do things going forward.  In the spirit of looking back over the last year, the IRS Whistleblower Office released its FY 2017 Annual Report to Congress earlier than usual this year, right after New Year’s. 

In FY 2017, the Whistleblower Office paid $33,979,873 in awards (prior to the sequestration reduction), which was less than the $61,390,910 paid in FY 2016 and the $103,486,236 paid in FY 2015.  The $34 million of awards was spread across a total of 242 awards, 27 of these awards were paid under §7623(b).  The total number of awards paid in FY 2017 falls between the 418 awards paid in FY 2016 and the 99 awards paid in FY 2015. The number of awards paid in FY 2016 was extraordinarily high due to a push by the Whistleblower Office to resolve a backlog of old claims that would be categorized as falling under §7623(a).  Disregarding the number from FY 2016, which is largely attributable to the resolution of the backlog, the IRS Whistleblower Office has continued to grow the number of awards it pays each year.  But more importantly, the number of awards paid under §7623(b) increased by 50% over the number paid in FY 2016.  (The IRS Whistleblower Office paid 18 awards under §7623(b) in FY 2016, which was virtually the same as the 19 awards paid in FY 2015.)

FY2017 Table 1.png

IRS Whistleblower Program has been a success for the IRS and tax administration as shown by the fact that only 6% of claims closed in FY 2017 (down from 7% in FY 2016) were closed because the IRS audited the issue and made no change to the taxpayer’s position.  That means if the IRS acts on a whistleblower’s information there is a very low probability that the IRS will not make an adjustment.  This statistic should be even lower than 6% because the IRS includes adjustments that are made but were non-Title 26 Collected Proceeds – like FBAR penalties within the same statistic.

Nevertheless, the IRS Whistleblower Office should be cautious that the program does not begin to stagnate.  Between the decrease in new submissions, the fact that nearly all new submissions are related to Small Business/Self-Employed Division issues, and the average time to process a claim for an award remained largely unchanged in FY 2017 from FY 2016, which was an increase from FY 2015; the IRS may have trouble making large award payments down the road if the IRS does not address some of the issues within the program and work to build additional support for the program in the operating divisions of the IRS.

The Annual Report made clear that when providing information to the IRS Whistleblower Office, whistleblowers need to ensure that their submissions are specific and credible because more than half (57%) of the claims closed in FY 2017 were closed because the Whistleblower Office found that the allegations in the claim were not specific, credible, or were speculative in nature.  A knowledgeable attorney can help put together a clear and concise submission that will give the whistleblower the best chance of receiving an award.

One final note: The Ferraro Law Firm again accounted for 22% of the §7623(b) awards (by number and by value) of the awards paid by the Whistleblower Office in FY 2017.  We are proud to be seeing success for our clients and happy to see the IRS recognizing the important contribution made by whistleblowers.

The IRS released the IRS Whistleblower Program Fiscal 2016 Annual Report to Congress recently. There were some interesting statistical revelations, some surprising and some not.  Among the more important, if not surprising, takeaways was the fact that nearly 60% of all cases are rejected for not being specific, credible, or for being too speculative.  Getting over this hurdle should be the number one goal of all IRS whistleblowers.  The best way to get over that hurdle is to have experienced tax lawyers working for you.  We have over a hundred billion dollars in active submissions to the IRS.  I have only seen one case where one of our submissions was initially rejected for being perceived as too speculative and we got the IRS to reconsider that position. 

A surprise from the 2016 report was that we represented nearly a quarter of all 7623(b) awards made by the IRS last year.  We are proud to be seeing success for our clients and happy to see the IRS recognizing the important contribution made by whistleblowers.

Today the IRS Whistleblower Office released their Annual Report to Congress for Fiscal Year 2015.  According to the report, which has been substantially made-over in both appearance and content, the total amount of awards paid in fiscal 2015 was $103,486,677 before sequester’s 7.3% reduction.  That number is impressive when compared to fiscal years 2014 and 2013 which were approximately $52 million and $54 million respectively.  Based on that information, the award amount paid out in 2015 is almost double what it was for the year prior.  As should be expected, more award payouts comes with more amounts collected by the IRS.  According to Table 1 of the report the IRS collected over $501 million which was up from 2014’s $309 million collected.  In even more good news for whistleblowers, awards paid as a percentage of amounts collected was 20.6% – the highest it has been in three years with 2014 and 2013 paying out 16.9% and 15.7% respectively.  While 2015 was a welcomed increase in award payouts from prior years, 2016 could be even better. According to Table 2 of the report, there are 176 section 7623(b) claims currently in Preliminary Award Evaluation, a number which is up from the 11 reported in 2014’s annual report. 

The report for 2015 is updated both in presentation and content.  For example, this year’s report contains a “Message from the Director” as an introduction and summary of the year’s results which is a departure from the report’s historically rigid “Executive Summary.”  The Message from the Director piece also includes a picture of Director Lee D. Martin set off beside the article-style recap of notable 2015 numbers, explanation of improvements (including the new style for the annual report), and calls for Congressional action.  Even the cover of the annual report, which typically is just font on a blank page, incorporates a stars and stripes design below the title of the report. 

The report also significantly changed the way data is shown by now reporting data for the preceding three years on a fiscal cycle.  The new data reporting measure will make year to year comparisons easier and more reliable.  Typically, past annual reports included an “Appendices” section that was made up of six or so tables that showed data in a simple chart format.  This year’s report forewent the “Appendices” in favor of tables and figures under the heading of “Fiscal Year 2015 Whistleblower Program Statistical Results.”  Although the data shown in this year’s report overlaps the data provided in past reports, this year’s report simplifies the way data is shown by using bar graphs to depict certain data and consolidating information within certain tables such as the “Status of Open Section 7623(a) & 7623(b) Claims” in this year’s Table 2 as compared to 2014’s Table 4.  Another noteworthy addition to this year’s report is the “Glossary” found at the end of the report which provides definitions of terms and phrases used throughout the report such as “Intake/Classification,” “Final Review,” and “Interim Award Assessment.” 

This year’s report noted that over half of the rejected claims are rejected because the allegations made in the submission are “not specific, credible, or are speculative in nature.”  This ties in with part of the Message from the Director which stated that although the IRS gets thousands of submissions each year, many of them are not actionable because the submission itself is not specific or credible.  This fact highlights the importance of submitting whistleblower submissions to the IRS that are factually detailed and include on point and concise legal analysis that conveys credibility.

The IRS Whistleblower Office made leaps forward in fiscal year 2012.  Fiscal year 2012 marked the year that the IRS made a $104 million payment to Bradley Birkenfeld, which is believed to be the largest award paid to a single whistleblower.  This was one of three awards paid in Fiscal Year 2012 and one of five paid under the new law.  Fiscal 2012 was also the year that the IRS issued final regulations that clarified the definitions of “proceeds of amounts collected” and “collected proceeds” for purposes of section 7623.  The IRS also issued interim guidance that incorporated the Treasury Regulations and added additional provisional timing of award determinations and for award computation, established procedures for tax withholding on award payments, and revised and updated procedures for administrative proceedings.  Some of the highlights from the report are:

  • The number of submissions in fiscal year 2012 (332) remained relatively stable from fiscal year 2011 (314), as did the number of taxpayers identified (2011 – 734 Taxpayers Identified, 2012 – 671 Taxpayer identified).  See the charts below.

  • Three awards were paid under section 7623(b).
  • The IRS issued proposed regulations and is seeking comments on the comprehensive regulations that are intended to revise the current regulations implanting section 7623 to reflect the remaining 2006 amendments to section 7623. 
  • The IRS Whistleblower Office incorporated the Informant Claims Examination (“ICE”) Unit.  The ICE Unit is responsible for case management and administration of the discretionary award program under what is now section 7623(a).

Going Forward

The Fiscal Year 2012 Whistleblower Office Report indicates that the IRS whistleblower program also has significant changes planned in fiscal year 2013.  According to the annual report, the IRS Whistleblower Office appears to be moving away from sorting whistleblower cases as 7623(a) claims and 7623(b) claims, and moving towards classifying claims based on the Operating Division responsible for making the tax administration decisions with respect to the issues raised by whistleblowers.  “With LB&I and SB/SE general examination programs receiving the vast majority of whistleblower claims and each processing their inventory differently because of differences in the characteristics of the typical claims referred to those organizations, the Whistleblower Office will change its intake process in FY2013.”  The IRS will stop projecting potential results for claims when they are received, as claims will stay in the Whistleblower Office regardless of size.  Instead, assignment of claims to a Whistleblower Office analysts for monitoring and coordination will be based on factors such as the need for coordination within or among operating divisions to address multiple issues or taxpayers identified in a whistleblower submission.  It is expected that future reports will separate statistics for each Operating Division.

There appears to be some concern over the ability of the IRS to control what is released to whistleblowers in discovery and the ability to limit additional disclosures of confidential taxpayer information after the IRS has disclosed such information.  The IRS has sought protective orders from the Tax Court in some cases, but the Tax Court has not ruled in those requests. 

Fiscal year 2011 was a big year for the IRS whistleblower program according to the IRS Whistleblower Office’s Fiscal Year 2011 Report to the Congress on the Use of Section 7623. Some of the highlights from the report are:

  • The number of submissions in fiscal year 2011 dropped by approximately 25 percent from the number of submissions in fiscal year 2010 and the number of taxpayers reported in the submissions dropped by 87 percent for the same time period.  See the charts below.

Fiscal year 2011 charts Submission.bmpFiscal year 2011 charts Taxpayers.bmp 

  • The first awards were paid under section 7623(b).
  • The IRS issued proposed regulations and sought comments on regulations to define the term “collected proceeds,” which were finalized on February 22, 1012.
  • For the first time, the IRS included tables that detail the number of open claims that in are in each of the nine status designations; and the average time, the longest time, and shortest time that claims spend in each status.

Going Forward

The Fiscal Year 2011 Whistleblower Office Report indicates that the IRS whistleblower program also has significant changes planned in fiscal year 2012.  According to the annual report, the IRS Office of Chief Counsel is working with the Assistant Secretary of Tax Policy, the Whistleblower Office, and other IRS offices on the drafting of comprehensive proposed regulations.  These regulations are expected to revise the current regulations implementing section 7623 to reflect the remaining 2006 amendments to the statute.  Also, the IRS Whistleblower Office is looking for ways to improve the administrative process for evaluating whistleblower contributions, and for communicating with the whistleblower about a proposed award determination based on its experiences with the initial cases that have proceeded through the award determination phase.  The timeliness of subject matter review was also the subject of a field directive released on the same day, which is discussed here.

On December 13, 2010, the IRS Whistleblower Office published its annual report to Congress for fiscal year 2009 (PDF). The report revealed that the IRS Whistleblower Office has received a steady stream of information about multi-million dollar tax underpayments over fiscal years 2008 and 2009. The IRS reported receiving 460 submissions relating to 1941 taxpayers in their fiscal year 2009 that meet the criteria for section 7623(b), which is the mandatory award program for multi-million dollar cases. The IRS had previously reported receiving 476 of these submissions relating to 1246 in fiscal year 2008. The report failed to discuss several sensitive issues that have not been resolved internally, are awaiting public guidance, or have been criticized by practitioners.

The report did address an internal change in policy in the timing of payment of award determinations. In the past, the IRS processed the award determination after collecting the unreported tax liabilities discussed in the whistleblower claim. However, as of a July 2009 decision by IRS Chief Counsel’s Office, the IRS is now waiting to making an award determination until after the time the taxpayer has to appeal or seek a refund has passed.

In the report, the IRS notes that it has yet to pay an award under the new program. Stephen Whitlock, Director of the IRS Whistleblower Office, recently stated that he expects the first awards to be paid in 2011. Once the awards start being paid, we believe the floodgates will open and new whistleblower submissions will pour into the IRS. Those who come forward with information early are in a better position to collect an award because award determinations are based in part on when the whistleblower came forward.  If someone else beat you to the punch, you may not be entitled to an award at all.