In 2021, the Internal Revenue Service (IRS) Whistleblower Program did not draw the same attention as other whistleblower reward programs. The Securities and Exchange Commission (SEC) Whistleblower Program made headlines for awarding over $500 million to whistleblowers this past fiscal year and the Commodity Futures Trading Commission (CFTC) issued a record $200 million award in October. Meanwhile, the IRS did not publicly announce any whistleblower awards, though awards may have been issued secretly.
That is not to say that there were not important developments that occurred for the IRS Whistleblower Program in 2021. A major reform bill was introduced in Congress this year which whistleblower advocates claim offers much needed fixes to the program. Furthermore, a number of Tax Court rulings were issued concerning whistleblowers which have interesting implications for future IRS whistleblower claims.
The IRS Whistleblower Program Improvement Act of 2021
On June 15, Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR) introduced the IRS Whistleblower Program Improvement Act of 2021. The bill, which is supported by whistleblower advocacy groups, makes several reforms to the IRS Whistleblower Program in order to improve the program’s operations and better protect whistleblowers who expose tax fraud.
The National Whistleblower Center, Taxpayers Against Fraud, Government Accountability Project, and Project on Government Oversight sent a letter to Senators Grassley and Wyden in support of the legislation, which they say “makes several important and much-needed changes and reforms to the IRS Whistleblower Program.”
The bill contains seven reforms to the IRS Whistleblower Program. According to the National Whistleblower Center, the bill would:
- “Provide for De Novo Review of whistleblower decisions in Tax Court;
- Remove sequestration of whistleblower awards;
- Impose interest on whistleblower awards that are subject to significant delay;
- Dedicate funding for the whistleblower office;
- Assume anonymity for whistleblowers appealing to Tax Court;
- Add clarification on deduction of attorney’s fees; and
- Improve annual report to provide greater information on tax evasion to Congress and the public.”
“The IRS whistleblower program has been a genuine success for American taxpayers. We ought to do whatever we can to ensure its continued success, so tax dodgers and fraudsters pay what they owe. Toward this end, it’s vital that whistleblowers who come forward are protected and treated fairly,” said Senator Grassley when announcing the introduction of the bill.
The bill was referred to the Senate Finance Committee upon its introduction. To date, no further actions have been taken on the legislation.
2021 Tax Court Decisions
Throughout 2021, the United States Tax Court issued a number of decisions related to IRS whistleblowers. Some of these decisions have notable implications for IRS whistleblowing moving forward.
In Insinga v. Commissioner, the Tax Court ruled that an IRS whistleblower’s award claim does not expire if the whistleblower dies while the claim is pending. Joseph A. Insinga filed an IRS whistleblower award claim in 2013. He died in March 2021 while his claim was still pending. The Tax Court ruled that his claim shall continue and that his estate may receive any award that is issued in connection with the claim. This issue was one of first impression in the Tax Court, and thus the opinion in the case is precedential. This is particularly notable because of the long delay times in the processing of IRS award claims. Multiple whistleblowers have died before they received their award.
In Rogers v. Commissioner, the Tax Court ruled that the IRS abused its discretion by failing to follow its own rules in rejecting a whistleblower award claim. In 2019 Bobby Rogers filed nine separate Applications for Award for Original Information to the IRS’ Whistleblower Office (WBO) alleging that nine taxpayers had conspired to commit “grand theft through conversion” of the assets of his mother. In response, the WBO sent a letter to Rogers stating that it rejected his claim because it “decided not to pursue the information you provided.”
The Tax Court ruled that the WBO abused its discretion in rejecting Rogers’ claim. That is because there are set regulations outlining the differences between award rejections and award denials. According to the Tax Court ruling, the WBO did not provide justification for rejecting the award claim; not pursuing a whistleblower’s information is cause for a denial not a rejection. The ruling states: “It may well be that Mr. Rogers’ claim is nothing more than a personal dispute that the IRS will decide not to pursue even if Mr. Rogers provides additional information. Nevertheless, the WBO must comply with the regulations, and Mr. Rogers is entitled to transparency and candor as to the reasons for its ultimate determination.”
In Lissack v. Commissioner, the Tax Court ruled that a whistleblower was not entitled to an award after the IRS uncovered an erroneous $60 million deduction claimed by a group of real estate companies because the whistleblower’s information did not directly relate to the misconduct. In 2009, Michael Lissack filed a whistleblower award claim alleging that a group of entities had failed to include in gross income millions of dollars of membership fees. The IRS investigated the claim and found that the entities had acted properly in regards to the whistleblower’s allegations. In investigating the entities, however, the IRS discovered the unrelated misconduct of the $60 million deduction. The Tax Court determined that the IRS was justified in denying Lissack’s award claim because he “did not supply any information about the bad debt issue (or about the other issue that generated an adjustment).”
In McCrory v. Commissioner, the Tax Court held that it does not have jurisdiction over preliminary IRS whistleblower award orders because they are not final determinations. In 2015, Suzanne McCrory submitted 21 separate whistleblower award claims to the IRS. Using McCrory’s information, the IRS collected proceeds resulting from administrative actions against two of the taxpayers she had identified. In 2018, the IRS issued a Preliminary Award Recommendation. In response, McCrory neither agreed nor disagreed with the recommendation but instead filed a petition with the Tax Court requesting “disclosure of the information that would explain IRS decision-making.” The Tax Court determined it does not have jurisdiction over this matter because its jurisdiction is restricted to final determinations, not preliminary recommendations.
Despite the absence of public whistleblower award announcements, 2021 was a noteworthy year for the IRS Whistleblower Program. Whistleblower advocates hope that in 2022 Congress will pass the IRS Whistleblower Program Improvement Act, ensuring that the program will be a success for years to come.