Promising Changes to IRS Whistleblower Program – Tax Whistleblowers Now Protected Against Retaliation and Improved Communication when Reporting Tax Violations
Recent legislation marks a potential huge step forward for the IRS Whistleblower Program, which offers rewards of 15 to 30% of government recoveries to whistleblowers who report tax avoidance. The Taxpayer First Act (TFA), which came into force on July 1, 2019 introduced key reforms that should benefit whistleblowers reporting tax evasion and underreporting.
A few months ago, the IRS Whistleblower Office released its Annual Report to Congress highlighting an incredibly successful year in terms of funds recovered and awards paid to whistleblowers. Notably, the IRS issued 217 whistleblower awards totaling over $312 million in 2018, a nearly tenfold increase over the prior fiscal year.
Despite the banner year, however, the Program continues to receive its fair share of criticism, mainly focused on its opacity, the time taken to receive awards (averaging over nine years in 2018), and the lack of federal law protecting tax whistleblowers against retaliation. Fortunately, the TFA tackles some of the key remaining problems in the program, by introducing anti-retaliation protections and requiring greater communication between the IRS and the whistleblowers who provide it with such critical information.
Anti-Retaliation Protections for Tax Whistleblowers
Finally, tax whistleblowers will receive similar anti-retaliation protections to those who blow the whistle on securities fraud or fraud against the government.
Section 1405(b) of the TFA provides significant remedies to whistleblowers who have been subject to retaliation as a result of their whistleblowing. These remedies include compensatory damages like reinstatement, 200% of back pay, and all lost benefits, as well as interest and compensation for other special damages, such as litigation costs and attorney fees.
Specifically, the TFA prohibits any employer, officer, employee, contractor, subcontractor, or agent of an employer from retaliating against a tax whistleblower. Individuals (not just employers) may be held liable for retaliation; and a contractor of an employer that retaliates against a whistleblower for disclosing a customer’s tax fraud or tax underpayment may also be liable for retaliation. Prohibited retaliatory acts include discharging, demoting, suspending, threatening, harassing or discriminating in any way.
Moreover, the whistleblower must file a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days after the date on which the violation occurs. OSHA will then investigate the claim, and if it determines that there is a reasonable cause to believe that a violation occurred, OSHA can order relief.
The new protections cover both disclosures made by employees either directly to the IRS or internally to employers, including supervisors or “any other person working for the employer who has the authority to investigate, discover, or terminate misconduct.”
Improved Communications Between the IRS and Tax Whistleblowers
In an effort to address criticisms about opaqueness and unwillingness to engage with whistleblowers after they submit their tips, the TFA included provisions directing the IRS to provide information to whistleblowers on the status of an investigation and allowing for better channels of communication between whistleblowers and the IRS.
Section 1405(a)(1) of the TFA requires the IRS Whistleblower Office to provide the following status updates to a whistleblower or the whistleblowers’ attorney:
- Inform the whistleblower whether his or her case has been referred for an audit or examination, which must happen within 60 days of that referral.
- Notify the whistleblower in the event a taxpayer makes a payment of tax due to the whistleblower’s disclosure, which must happen within 60 days of such payment.
The IRS now also has to provide updates on demand by the whistleblower or their counsel. Specifically, upon receiving a written request from a whistleblower, the IRS is authorized to provide information about the status of the investigation arising from the whistleblower’s tip, and in the case of a determination of the amount of an award, the reasoning for that determination.
Congress bi-partisan efforts in passing the TFA are certainly commendable. Increased protections for tax whistleblowers, as well as more insight and transparency in whistleblower communications with the IRS, will likely encourage more tax whistleblowers to come forward and report tax noncompliance where they may not have done so otherwise, either out of fear of retaliation or a sense that their information would not be acted upon.
On the whole, these changes, along with the IRS Whistleblower Program’s banner year, suggest that the Program is experiencing a real renaissance, to the benefit of tax compliance, tax whistleblowers, and honest taxpayers everywhere.
Constantine Cannon has vast experience helping tax whistleblowers bring their cases before the IRS. If you have specific and credible evidence about federal tax noncompliance the IRS may want to hear from you.
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