Is the IRS Systemically Averse to Whistleblowers?

Since the Internal Revenue Service (IRS) instituted a new whistleblower program in 2006, only one award has been made to a whistleblower, according to Mike Hudson from iWatch News. In yesterday’s article, “Red tape, old guard slow whistleblowing on corporate tax cheats,” Hudson explains why the IRS has been so disinclined to give monetary awards to whistleblowers. The primary reason, it seems, is a bureaucratic avoidance to receive help from whistleblowers in the IRS.

A law passed in 2006 requires the IRS to pay a reward of 15 to 30 percent for whistleblowers who report cases of unpaid taxes totaling at least $2 million. However, the lone person to receive an award under the new program is an “accountant of a Fortune 500 firm.” The only reason we know of this award is because attorney Eric Young issued a press release announcing his client’s award of $4.5 million for reporting approximately $20 million in unpaid taxes.  The lack of announcement by the IRS may underscore their reluctance to work with whistleblowers.

However, an aversion to whistleblowers may not be agency-wide. The IRS Whistleblower Office “is widely praised by attorneys representing whistleblowers.” Dean Zerbe, NWC Special Counsel, agreed. “The Whistleblower Office is great,” said Zerbe. “But you obviously have people in the IRS and Treasury who, instead of trying to make this program work, wake up in the morning trying to put sand in the gears.” 

Cases can also last “six, seven, eight, ten years” according to Donald Korb, the IRS chief counsel when the new program was required by law to be implemented. Before the new program was created, claims took an average of 7 ½ years to issue a reward, according to a June 2006 inspector general report. As Hudson points out, whistleblowers often get stuck in limbo waiting for a decision.  Here, there appears to be an institutional deterrent to whistleblowing. Hudson also tells the stories of attorneys and whistleblowers who have made claims with the IRS but have been kept waiting due to the lengthy process. One whistleblower died of natural causes while waiting for the IRS to close the case, but his case is still ongoing with the whistleblower’s widow, according to the his attorney. 

Moreover, though the law was passed with the intention of producing better tips, even those coming from persons involved with the wrongdoing themselves, the IRS has tried to set up institutional road blocks to prevent those reports. The law only “disqualifies from bounties any individuals who ‘planned and initiated’ evasion schemes and are convicted of criminal conduct.” However, the IRS policy manual updated last year goes one step further than “planned and initiated” and may disqualify subordinates even if they are not the principal wrongdoer. This could keep those with the best information of massive evasion schemes from coming forward. 

Perhaps Korb best summed up the agency’s reasoning. “The Senate Finance Committee just did it. The IRS didn’t ask for it,” he said. But, maybe Senator Grassley, who was the Chairman of the Senate Finance Committee at the time, decided the IRS needed the new program because statistics suggested it was necessary. In approximately one year (2008 to 2009), the IRS paid 110 rewards under its whistleblower rules prior to the 2006 law, totaling $5.9 million. On average, that is about $54,000 per award. That is hardly enough to warrant risking your career and livelihood for reporting a tax cheat. However, the amount the IRS recovered in that time span was $206 million, which means whistleblowers only received 3 percent of the recoveries. Not only did whistleblowers only receive pennies for their claims, but the IRS also chose to not share any of the cake with the starving baker.

*Philip Barrett (NWC Public Interest Fellow) drafted this posting

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