In its latest annual report to Congress on the whistleblower program Feb. 13, the IRS said it received hundreds of submissions during the 2012 fiscal year (FY) that appeared to meet the higher underpayment threshold for enhanced awards, enacted in 2006. Nearly all of the awards paid during the fiscal year for such claims, however, were still under the previous law. The IRS is required to report to Congress each year on the program’s results and legislative and administrative recommendations for improving it.
Under Sec. 7623(b), which was amended in 2006, the IRS is required to pay awards of specified percentages of collected proceeds if a whistleblower provides information that contributes substantially to the collection of tax, penalties, interest, and other amounts when the amounts in dispute are more than $2 million. The law also established an IRS Whistleblower Office to administer those awards. Before the law was amended, the whistleblower awards were determined at the IRS’s discretion.
In the report, the IRS noted that, in FY 2012, it received 332 submissions involving 671 taxpayers that appeared to meet the $2 million threshold. It paid 128 claims in FY 2012, 12 of which were more than $2 million. Of those 12, however, most were under the pre-2006 law because, as the IRS explained, proceeds cannot be distributed to whistleblowers until the taxpayers involved have exhausted all of their administrative and judicial remedies, which can take many years to complete.
Among the issues the IRS noted need addressing are:
- The process of pursuing a whistleblower claim does not provide adequate protection from disclosure of the taxpayer’s confidential return information for the taxpayer whose taxes are at issue in the case.
- Unlike other whistleblower statutes, Sec. 7623 does not protect whistleblowers against retaliation.
- Statutory limitations on the definition of “collected proceeds” prohibit the IRS from paying amounts collected in criminal tax proceedings and amounts collected as penalties for failure to file forms including Bank Secrecy Act and Foreign Bank Account Reports (Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly called “FBAR”).
- Clarification is needed of what is meant to constitute the “amount in dispute” to determine whether it exceeds $2 million and how to determine whether an individual’s “gross income” exceeds $200,000.
- In some criminal cases, grand jury secrecy laws prevent the IRS from knowing the extent of a whistleblower’s contribution to a particular case.