More IRS Whistleblower Procedures Announced by IRS Large and Midsize Business Division (LMSB)

The IRS Large and Midsize Business Division (LMSB) has published a new memorandum on how it will handle IRS Whistleblower claims, the process for citizens to report tax fraud, tax evasion, and other tax noncompliance–and share in the government’s recovery of money. (https://www.irs.gov/pub/foia/ig/lmsb/lmsb-4-1108-052.pdf).

The LMSB Division has responsibility over corporations, subchapter S corporations, and partnerships with assets greater than $10 million. This IRS Division is divided by industry groups, including (1) Communications, Technology, and Media; (2) Financial Services; (3) Heavy Manufacturing and Transportation; (4) Natural Resources and Construction; and (5) Retailers, Food, Pharmaceuticals and Healthcare. (The IRS Financial Services group, as well as the IRS overall, will be especially busy as the troubled economy and the TARP “bailout” motivate more citizens to report tax cheating through IRS Whistleblower claims.)

Among the procedures discussed are measures to protect the confidentiality of the whistleblower and the whistleblower’s information:

Protection of Whistleblower’s Information

The identity of persons who furnish information regarding possible tax violations must be protected. All employees must handle such information in strict confidence. Such information must be given special handling to avoid disclosure to anyone other than those employees who have an absolute “need to know”. All memoranda of oral interviews with whistleblowers, or any other communications which might, in any way identify whistleblowers, including information provided by the whistleblower, must be sealed and handled in the strictest confidence.

In order to ensure the confidentiality of the whistleblower, it is important that no mention is made of the whistleblower to the taxpayer, in the Revenue Agent Report or in the workpapers. All information related to the whistleblower should be maintained in a whistleblower award claim file which is kept separate from the tax file and other audit workpapers.

It is a longstanding practice of the Service that the identity of a confidential source of information, including a whistleblower, will not be disclosed, except to those officials with a “need to know” in the performance of their official duties. This practice applies whether the request is made under the Freedom of Information Act or in the context of an administrative or judicial proceeding. If anyone outside the Service asks if a whistleblower has provided information impacting the examination, examiners should neither confirm nor deny that a whistleblower is involved in any matter. This response must be provided in all cases because the knowledge that a whistleblower provided information may, in fact, identify the whistleblower.

The IRS Whistleblower Program is an excellent initiative that states should emulate to recover scarce taxpayer dollars from those who cheat the law-abiding public, by not paying their fair share of the tax burden.