The IRS celebrated National Whistleblower Appreciation Day on July 30 to recognize the important role whistleblowers play in supporting the United States tax administration, but, in issuing his statement of appreciation, IRS Whistleblower Office Director John Hinman clearly used the opportunity to respond to tax professionals’ growing dissatisfaction with IRS decisions that narrowly interpret when a whistleblower award is due.
The IRS issued its first whistleblower award in 2007 and, through June 2024, paid over $1.2 billion in awards based on the collection of $7 billion in unpaid tax from non-compliant taxpayers, the office has noted.
In a July 29, 2024, IRS news release, Hinman stated: “Information from whistleblowers continues to be an incredibly effective aid to IRS compliance efforts, and we are committed to improving our whistleblower program by increasing our capacity to use high-value whistleblower information effectively, awarding whistleblowers fairly and as soon as possible, and keeping whistleblowers informed of their claim’s status and the basis for IRS decisions on claims.”
The Whistleblower’s Office website outlines when it pays awards under the whistleblower statute, 26 U.S.C. § 7623: “In general, the IRS will pay an award of at least 15 percent, but not more than 30 percent, of the proceeds collected attributable to the information submitted by the whistleblower. The award percentage decreases for claims based on information from public sources or if the whistleblower planned and initiated the actions that led to the noncompliance.” More specifically, the statute mandates an award of 15 to 30 percent of the IRS’s collection if the IRS proceeds with any administrative or judicial action that detects underpayments of tax, or punishes a person guilty of violating the tax laws, based on information a whistleblower brings to its attention. A discretionary award of no more than 10 percent of the IRS’s recovery may be paid if the whistleblower’s claim rests principally on publicly available information, taking into consideration the significance of the individual’s information and role in contributing to the IRS’s successful action.
Hinman’s Whistleblower Day statement appeared to be aimed at tax professionals’ increasing frustration with the IRS’s lack of timely award decisions for whistleblowers. Tax professionals have emphasized that issuing fair and timely awards is crucial for the continued efficacy of the whistleblower program. IRS parsimoniousness will ultimately discourage whistleblowers with valid claims from coming forward.
Hinman’s statement also responds to tax professionals’ suggestions that more in-depth communication with whistleblowers will allow the IRS to benefit from a whistleblower’s knowledge and experience of the facts behind a claim. At present, the Whistleblower Office generally conducts a single interview with a whistleblower, who is then left in the dark about what the IRS is doing until the IRS issues a decision about whether it will pay an award. The IRS and a whistleblower working hand in hand may well benefit both parties.
Hinman did not address another issue practitioners have raised—the possibility of anonymous claims. Unlike IRS whistleblowers, who must submit a claim to the IRS signed under penalty of perjury, whistleblowers who submit claims to the U.S. Securities and Exchange Commission’s Office of the Whistleblower may do so anonymously through their attorney, so long as they provide their attorney with a claim signed under penalty of perjury. More potential IRS whistleblowers are likely to come forward if they can do so anonymously without fearing retaliation.
A whistleblower’s claim is submitted on IRS Form 211, Application for Award for Original Information, updated in March 2024 in keeping with Hinman’s aim to improve the IRS’s use of whistleblower information.
A potential whistleblower is well advised to consult an experienced tax professional in order to navigate the complexities of the whistleblower statute and IRS whistleblower program.
