On June 13, Senator Chuck Grassley (R-IA) sent a letter to John W. Hinman, Director of the Internal Revenue Service (IRS) Whistleblower Office, expressing concern about the state of the IRS Whistleblower Program. On June 10, the IRS Whistleblower Office released its annual report to Congress for Fiscal Year 2021 (FY 2021) which revealed a massive drop-off in the amount of money collected by the program as well as a continuing downward trend in the amount of money awarded to whistleblowers.
In the letter, Grassley, who authored the provisions that created the IRS Whistleblower Office in 2006, states that “the IRS Whistleblower Program is an important tool that helps the IRS identify and target those attempting to abuse the tax system.” However, he notes that “[f]or the program to be successful, it is vital that the Whistleblower Office efficiently and timely process claims and awards so whistleblowers can be confident that coming forward is worth the risk they face.”
“I have concerns regarding trends in whistleblower payouts, and the time it takes for whistleblowers to receive those payouts,” states Grassley in the letter. The IRS report revealed that in FY 2021 the average processing time for IRC § 7623(b) award payments increased by 2.9% and the average processing time for IRC § 7623(a) award payments increased by 10.4%.
The report further disclosed that the IRS only paid out $36 million in whistleblower awards in FY 2021. According to Grassley, “this represents the continuation of a trend since FY 2018, when the total dollar amount of whistleblower awards began to steadily decline. After reaching more than $312 million in FY 2018, awards declined to around $120 million in FY 2019, and continued to decline to around $87 million in FY 2020.”
The total amount of money collected by the IRS Whistleblower Program has similarly decreased. In FY 2018, the program collected a record $1.4 billion from delinquent taxpayers. These numbers dropped to $600 million in FY 2019 and $500 million in FY 2020. In FY 2021, the program only recovered less than $250 million.
“I am eager to work with you to improve the IRS Whistleblower Office to further incentivize and encourage whistleblowers to come forward and in doing so further shrink the tax gap,” writes Grassley. “Last year I introduced the ‘IRS Whistleblower Program Improvement Act’ in order to strengthen the whistleblower program by exempting whistleblower awards from sequestration, imposing interest on awards not paid within a year, and through other reforms.”
Grassley introduced the bipartisan IRS Whistleblower Program Improvement Act of 2021 alongside Senator Ron Wyden (D-OR) on June 15, 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.
Grassley’s concerns about the IRS Whistleblower Office report have also been echoed by whistleblower advocates. Whistleblower attorney Stephen M. Kohn of Kohn, Kohn and Colapinto stated: “The IRS whistleblower report should be a massive wakeup call to Congress that it needs to take action now and pass the bipartisan and bicameral reform legislation – the IRS Whistleblower Program Improvement Act. Passage of this legislation will send a strong signal of support for the program to the IRS and to whistleblowers. It isn’t a coincidence that the number of awards has gone down and down since the Tax Court changed the standard of review for tax whistleblower decisions to a rubber stamp. Whistleblowers need to have confidence – and IRS managers need to know — that whistleblowers will get a full independent review of any denial of a whistleblower award.”