What the Just-Released 2013 IRS Whistleblower Office Annual Report Means for Future Tax Whistleblowers

The just-released FY 2013 IRS Whistleblower Office Annual Report reveals clues to what the future holds for tax whistleblowers.

Steve Whitlock, Director of the IRS Whistleblower Office, gave a preview last Fall. Listening to an audience react enthusiastically to his SEC counterpart Sean McKessy discuss awarding more than $14 million to a whistleblower, Whitlock wryly observed that the IRS had “only” awarded $50 million to whistleblowers in FY 2013.

To those who follow the IRS Whistleblower Program closely, Whitlock’s comment was a rare moment to take a bow of sorts. It was a brutal year in which Whitlock’s boss, Acting Commissioner Steve Miller, lost his job as the IRS faced attacks that it had politicized reviews of organizations claiming tax-exempt status. Although the Whistleblower Office played no role in that controversy, Sen. Grassley and others also scorned the IRS and Treasury for obstructing Congress’ mandate to establish a robust whistleblower program.

The 2013 Whistleblower Office Report has provoked similar criticism, in part because the $50 million paid to whistleblowers in 2013 was less than half the amount paid in 2012. Yet, in 2012, $104 million went to a single whistleblower, former UBS banker Bradley Birkenfeld, in an historic claim that produced a massive recovery for the IRS.

IRS agents who worked the UBS case long ago told me they abhorred the idea of paying Birkenfeld an award because of his misdeeds that led to his felony conviction, and yet Whitlock refused to succumb to great pressure to deny Birkenfeld an award. Instead, he applied the law as written by Congress–which is evidence that Whitlock is not the problem.

The Report reveals that the IRS has paid only nine claims under the “new” whistleblower statute enacted in December 2006. The IRS can do much better, as Sen. Grassley regularly reminds the Service. Obstruction and delay by persons outside the Whistleblower Office appear the reasons more whistleblower awards have not yet been paid.

The danger for future tax whistleblowers–at which the 2013 Report hints–is that new IRS regulations to be released in 2014 will effectively contradict and undermine the tax whistleblower statute. As we have testified before the IRS, it appears that some within Treasury, Chief Counsel, and the IRS have already sought to impede development of the whistleblower program that Sen. Grassley believed Congress was creating in 2006. The Report mentions in passing earlier examples such as refusing to pay awards on criminal fines, and adding a two year delay to essentially every claim..

I remain optimistic that, with someone like Director Whitlock who has shown the backbone and principle to follow the law in difficult decisions, the IRS Whistleblower Program will be successful. To overcome the obstructionists, that success may yet require Congress to act decisively to ensure that IRS Whistleblower Program is allowed to follow the tried and true path of the False Claims Act.

The False Claims Act, the nation’s leading whistleblower law long championed by Sen. Grassley, has been immensely effective in combatting fraud through encouraging and rewarding whistleblowers. The new IRS Whistleblower regulations to be announced will likely sound the alarm to Sen. Grassley once more to take action.