The promising new IRS Whistleblower Program that Congress authorized in December 2006 is the subject of a long-anticipated GAO Report released this morning.
Disappointingly, the report raised, but did not attempt to answer, fundamental questions that will determine whether the IRS realizes the full potential of the new program in helping close the "tax gap"--or settles for a fraction of what it can accomplish.
Inspired by the dramatic successes of the False Claims Act in combating fraud against the government through rewarding whistleblowers, Sen. Charles Grassley spearheaded the effort to create the first meaningful IRS Whistleblower Program in 2006.
Relying on data showing that whistleblower information had already proved extremely effective for the IRS (four cents invested produced one dollar in recoveries), Congress doubled reward percentages and made awards mandatory for whistleblowers. A small but impressive staff came together to run the program through the first IRS Whistleblower Office, led by Director Steve Whitlock.
Unfortunately, some in the IRS resisted implementing Congress' direction that the IRS expand the number and types of whistleblower claims that the IRS pursues, and are instead creating obstacles and delays that never existed before. Thus, Congress prompted GAO to inquire.
I was one of several attorneys whom GAO contacted, at the IRS Whistleblower Office's suggestion, to discuss these issues. I spent considerable time in more than one interview discussing what has made the False Claims Act so successful, and how the IRS can achieve similar success. We shared our written comments to the IRS at its recent hearing on the IRS Whistleblower rules.
The essential elements of any successful whistleblower program start with predictable and meaningful rewards to whistleblowers that are not left to the government's discretion. In addition, the success of the False Claims Act is in its "public-private partnership" model, which allows the government to leverage its scarce resources by working hand-in-hand with whistleblowers and their attorneys to address fraud. These principles translate to the IRS whistleblower claims process under existing law, and if needed Congress can tweak the privacy statute (26 U.S.C. section 6103) and still preserve appropriate taxpayer privacy.
GAO's report touches on these fundamental questions, but leaves them unanswered. Instead, it focuses on what its title suggests: "TAX WHISTLEBLOWERS:
Incomplete Data Hinders IRS's Ability to Manage Claim Processing Time and Enhance External Communication."
With no offense to the report's authors at GAO, better data collection by the IRS Whistleblower Office will not determine whether the next big tax fraud scheme remains undetected, or is exposed by a whistleblower. These fundamental principles underlying any successful whistleblower program must be incorporated, so that the IRS Whistleblower Office is empowered to do its job most effectively.