When Congress established a whistleblower award program for the Internal Revenue Service (IRS) in 2006, it did not take long for the program to prove its merits. Incentivized by monetary awards and anti-retaliation protections offered by the new program, UBS banker Bradley Birkenfeld provided a treasure trove of inside information to U.S. authorities about how UBS concealed taxable income for U.S. clients. Birkenfeld’s whistleblowing led to the dismantling of the Swiss banking system as it had existed for decades. Overall, since 2007 the IRS has awarded whistleblowers over $1 billion based on the collection of over $6 billion in back taxes, interest, penalties, and criminal fines and sanctions.
As the Birkenfeld case and overall statistics show, the IRS Whistleblower Program is an immense success. Even so, the program has recently been plagued by a number of issues and is in dire need of reform. The bipartisan IRS Whistleblower Program Improvement Act of 2021, introduced by Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR), offers seven common sense reforms which would drastically bolster the effectiveness of the program. Congress should pass this bill immediately.
One of the major issues which the IRS Whistleblower Program Improvement Act addresses is the massive delays in the issuance of whistleblower awards. According to the IRS Whistleblower Office’s most recent annual report to Congress, the IRS currently takes 10.79 years to process a whistleblower case. This has led to a backlog of over 23,000 cases. The IRS Whistleblower Office has reported that numerous whistleblowers have died before their award claims could be paid. Grassley and Wyden’s bill includes measures to prevent delays and incentivize the IRS to promptly pay whistleblower rewards.
The IRS Whistleblower Program Improvement Act also institutes de novo review of whistleblower decisions in Tax Court. This means that when whistleblowers appeal IRS award determinations, the U.S. Tax Court will make a ruling based on all the relevant facts of the case instead of a limited ruling solely in response to the administrative file of the IRS. De novo review is a vital aspect of any successful whistleblower award program.
Overall, the IRS Whistleblower Program Improvement Act offers several much-need improvements to the whistleblower program and is widely supported by whistleblower advocacy groups. As Senator Grassley said when introducing the bill: “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.”