A report just released by TIGTA (the Treasury Inspector General for Tax Administration) shows that once again IRS audits of taxpayers are in decline.  Enforcement revenues are slightly up this year, but TIGTA says this is due to a small number of large corporate cases.

Some highlights of the TIGTA report:

  • “The number of staff assigned to Examination functions decreased 22 percent from FY 2013 to FY 2017, with a recent decline of 7 percent from FY 2016.”
  • “According to recent statistics, taxpayers filed nearly 196 million returns during Calendar Year 2016, of which less than 1 percent, or 1.1 million returns, were examined during FY 2017. This is a 32 percent decline from FY 2013 and a 9 percent decline from FY 2016, when there were approximately 1.6 million and 1.2 million examinations conducted, respectively.”
  • “The number of examinations performed by the LB&I Division decreased 8 percent from FY 2016 (34,676) to FY 2017 (31,880). This is also significantly less (41 percent) than the 54,211 performed in FY 2013.”
  • “The data show a significant downward trend in the IRS’s proposed audit adjustments over recent years. This may suggest that overall increases in enforcement revenues are not necessarily an effective indicator of how well the IRS’s traditional tax compliance enforcement tools (i.e.,
  • Examination and Collection) are performing under reduced funding.”

What does this mean to potential and current whistleblowers?  Based on my 20 years of experience in dealing with the IRS, it is more important than ever that your information stand out in a crowded field.  The likelihood that the IRS will act on unorganized or unpersuasive information is lower than ever – you have to clearly and concisely show and tell the IRS exactly how your information will lead to the collection of additional taxes (in period for which that statute of limitations is clearly open) if you wish to get anywhere with your award claim.  As always, the IRS must either collect additional tax or deny a refund based on your information for you to get an award.  However, first the IRS must decide to act on your information, and making your information stand out among others is the key to getting it selected to be used by the IRS.

Today the Treasury Inspector General released a Report titled “The Whistleblower Program Helps Identify Tax Noncomplicane; However, Improvements Are Needed to Ensure That Claims Are Processed Appropriately and Expeditiously” about the IRS Whistleblower Program.  It contained some interesting statistical analysis of various processes relating to the inner workings of the Program but a quote from page 7 of the Report stuck out:

[A] majority of claim closures in FYs 2015 and 2016 (83 and 85 percent, respectively) are rejected or denied before going to an operating division field group for an investigation or examination, with only a small portion (2 percent each year) resulting in an award. Most claims were rejected because the allegations were not specific enough for the IRS to take action or denied because the allegation was below the threshold to justify resources for compliance action.

We understand that about 85% of the submissions that the IRS Whistleblower Office receives are pro se filings, and the problem is that often those claims are speculative or are not developed enough for the IRS to use them as a basis for taking action.  Of the remaining 15% on which the IRS does take action and passes the whistleblower’s information to the field agents for examination, approximately 2 out of every 15 are getting an award.   We believe a whistleblower’s odds of getting an award can be significantly higher [than 13.333%] for a thoroughly vetted submission with good facts and good law that are clearly laid out.  The hurdle of getting the IRS to take action in the first place is certainly a high one but then you have to deliver your information in a way that helps them win their case.

The TIGTA Report spent a lot of time looking at the procedures for the debriefing intake and the claim rejection processes, but in our view that is not the most material weakness of the IRS Whistleblower Program.  The biggest weakness is that under the current claim processing system it is still far too easy for the IRS field examination divisions to simply walk away from a good case even when the facts and the law are on their side.  Often people have a difficult time convincing the IRS to take even a slam dunk case, no matter how much it costs taxpayers if they give it up.  Our mission is to set forth a whistleblower’s information in such a way that it not only convinces the IRS to take action, but it forms the solid foundation of a winning case once they do decide to take action.