IRS Whistleblower Program:

Billions Collected, but Timeliness and Communication Concerns May Discourage Whistleblowers

GAO-16-20: Published: Oct 29, 2015. Publicly Released: Nov 30, 2015.

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Contact:

James R. McTigue, Jr
(202) 512-9110
mctiguej@gao.gov

 

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(202) 512-4800
youngc1@gao.gov

What GAO Found

The Internal Revenue Service (IRS) Whistleblower Office (WO) is responsible for processing thousands of tax whistleblower claims annually for two related whistleblower programs: for claims of $2 million or less, the 7623(a) program, and for claims over $2 million, the 7623(b) program. The whistleblower claim review process takes several years to complete, and GAO found that the WO is not using available capabilities to track and monitor key dates in its claim management system. Without available information on key dates related to award review and payments, the WO is unable to assess its performance against timeliness targets and risks unnecessarily delaying award payments.

Between fiscal year 2011 and June 30, 2015, the WO awarded over $315 million to whistleblowers—the bulk of which was for the 7623(b) claims, which were first paid in fiscal year 2011, 4 years after the program started. In a review of the 17 paid 7623(b) award claim files, GAO found that the WO made errors in determining some awards, resulting in over- and underpayments totaling approximately $100,000. In response to errors, IRS began corrective actions, including ensuring total collected proceeds are verified before making award payments. However, the WO has not documented this new procedure, putting it at risk of making additional errors in award payments.

Number of Whistleblower Awards, Proceeds Collected, and Award Amounts Fiscal Year 2011 to June 30, 2015

 

7623(a) claims

7623(b) claims

Total

Total Awards

483

17

500

Total Collected Proceeds

$843 million

$1,039 million

$1,882 million

Total Award Amount

$54 million

$261 million

$315 million

Source: GAO analysis of IRS data. | GAO-16-20

The WO's communication with stakeholders, including whistleblowers, is limited due to delayed annual reports to Congress, incomplete data, and limited program information for whistleblowers. Delays in issuing the annual reports have resulted in last minute revisions that introduced discrepancies and inconsistent reporting periods that preclude year-over-year comparisons. The WO is addressing some data gaps and has published two fact sheets to provide more information to the whistleblower community; however, the fact sheets do not include information on key aspects of the program, such as time ranges for steps in the review process. Until changes are made to the annual report and fact sheets, the utility of these publications is limited.

IRS and the WO take steps to protect whistleblowers and the information they submit, but GAO found gaps in IRS and WO procedures. For example, the WO did not have documented controls in place for sending mail, and at least once sent sensitive mail to an incorrect address that also had a return address indicating the letter was from the WO. This potentially compromised the identities of whistleblowers. The WO has said it has since changed how they label return addresses, but has not documented this policy. Further, tax whistleblowers do not have statutory protections against retaliation from employers. IRS and the whistleblower community support such protections, noting that inadequate protections may discourage whistleblowers from coming forward.

Why GAO Did This Study

Tax whistleblowers who report on the underpayment of taxes by others have helped IRS collect almost $2 billion in additional revenue since 2011, when the first high-dollar claim was paid under the expanded program that pays qualifying whistleblowers a minimum of 15 percent of the collected proceeds. These revenues help reduce the estimated $450 billion tax gap—the difference between taxes owed and those paid on time.

GAO was asked to review several aspects of the whistleblower program. Among other things, this report (1) assesses the WO claim review process, (2) assesses how the WO determines awards, (3) evaluates how the WO communicates with external stakeholders, and (4) evaluates IRS's policies and procedures for protecting whistleblowers. GAO reviewed the files of all 17 awards paid under 26 U.S.C. § 7623(b) through June 30, 2015; reviewed IRS data; reviewed relevant laws and regulations, and the WO's policies, procedures and publications; and interviewed IRS officials, five whistleblowers that independently approached GAO, and nine whistleblower attorneys who were recommended by IRS or other attorneys.

What GAO Recommends

Congress should consider providing whistleblowers with legal protections against retaliation from employers. GAO makes ten recommendations to IRS including, tracking dates, strengthening and documenting procedures for award payments and whistleblower protections, and improving external communications. IRS agreed with our recommendations.

For more information, contact James R. McTigue, Jr. at (202) 512-9110 or mctiguej@gao.gov.

Matter for Congressional Consideration

  1. Status: Open

    Comments: On April 20, 2016, the Senate Finance Committee approved provisions to improve the IRS's whistleblower program and protect tax whistleblowers from retaliation from their employers. The provision extends anti-retaliation provisions to IRS whistleblowers that are presently afforded to whistleblowers under the False Claims Act and Sarbanes-Oxley. We will continue to monitor legislative action in this area.

    Matter: To further encourage whistleblowers to provide information to IRS about serious tax noncompliance and to protect whistleblowers, Congress should consider legislation that would provide protections for tax whistleblowers against retaliation from their employers.

Recommendations for Executive Action

  1. Status: Open

    Comments: In a January 29, 2016 letter, the IRS Deputy Commissioner for Services and Enforcement stated that the Whistleblower Office is developing tools and processes for standardizing and strengthening the award calculation process. The Whistleblower Office plans to review, revise, update, and enhance the whistleblower program's operating procedures to capture, at minimum, the requisite level of supervisory review and verification for award calculations and letters. The Whistleblower Office anticipates completing this work by October 1, 2016.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to strengthen the procedures for calculating award amounts and for the issuance of the preliminary award recommendations and award letters to whistleblowers. Such procedures should include, at minimum, a documented process for: (1) supervisory review prior to the director's concurrence, (2) verifying collected proceeds prior to an award payment for both the 7623(a) and 7623(b) programs, and (3) reviewing preliminary award recommendation and award letters to the whistleblower prior to their issuance.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: The IRS Whistleblower Program Fiscal Year 2015 Annual Report to Congress, issued February 10, 2016, presented data that reflected the activities of the program by fiscal year, with yearly data covering full fiscal years. The report also included a glossary of terms to define the status categories used in the report. Further, the tables and charts included in the report were labeled by the claim type of the data presented. The report also provided overall timeliness information by including the average time from submission to award payment for some paid claims. The report does not include a range for the timeliness of these claims. IRS officials stated that including ranges for timeliness would be skewed by outliers, create confusion, and not provide valuable information.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to provide additional information in the annual report to Congress to better explain the statistics provided and the categories of claim review steps reported. Specifically, the report should (1) include correct, reliable data that reflect only the activities of the fiscal year of the report; (2) describe all status categories and clearly identify claim type in the tables; and (3) include an overall timeliness measure (by providing an average and range) to show how long claims take to go from submission of Form 211 to closure decision.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: In August 2016, IRS published a new fact sheet that outlines the whistleblower claim review process. IRS published a new fact sheet that includes key pieces of information including a flowchart of the entire claim review process, time ranges for each step in the process, key taxpayer rights that a taxpayer may exercise during the process, examples of why claims may be denied, and information on what to include when submitting a claim. IRS published the fact sheet to www.irs.gov and included reference to it in three of the Whistleblower Office's templated letters to whistleblowers. IRS receives thousands of claims annually that are not actionable, and the Whistleblower Office expends significant resources sorting through these claims to identify those that warrant further evaluation. IRS acknowledges, and GAO agrees, that both whistleblowers and IRS stand to benefit greatly from this communication initiative because it could ultimately strengthen claims submission and reduce claims that are not productive.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to develop an additional or revised fact sheet about the whistleblower claim process and/or publish additional information on the IRS website. Such information should include (1) an outline of the entire claim review process, with an average time or time range for the various review steps; (2) a description of the key taxpayer rights that a taxpayer may exercise and how much time this may add to a claim's review; (3) examples to illustrate common circumstances that result in denials; and (4) items to include in a Form 211 submission, and suggestions for the types of documentation that are particularly helpful to the WO.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: Whistleblower Office officials analyzed cost and benefit information on the pilot annual status letter program. They determined that the program should not be fully implemented because the costs and risks of the program outweighed any potential benefit. More than 29 percent of the letters sent in the pilot program sample were returned as undeliverable, increasing the risk of exposing the identity of a whistleblower. Whistleblower Office officials determined this was an unacceptable level of risk. Whistleblower Office officials also determined that the letters did not provide any information to whistleblowers that they did not already have. Further, they determined that fully implementing the annual status letter program would require 2.67 full-time equivalents, which can now be allocated to other responsibilities within the Whistleblower Office. As a result of this cost-benefit analysis and resulting termination of the pilot program, Whistleblower Office officials made other changes to procedures to allow for communication with whistleblowers during the award determination process to start up to 2 years earlier than previously allowed, effective August 1, 2016. Communicating relevant information earlier to whistleblowers will help address a common complaint by the whistleblower community about the lack of timely communication from the Whistleblower Office and could encourage more whistleblowers to come forward with information.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to develop a comprehensive plan for evaluating the costs and benefits of the pilot annual status letter program, including obtaining feedback from whistleblowers in the pilot regarding the usefulness of the letter.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Open

    Comments: In a January 29, 2016 letter, the IRS Deputy Commissioner for Services and Enforcement said that the Whistleblower Office emphasize in education materials, fact sheets, and other communications with whistleblowers the importance of whistleblowers providing updates to the IRS of any address changes, along with reminders of how to submit address changes to the Whistleblower Office. IRS expects to take these actions by October 1, 2016.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to establish a process to ensure whistleblower addresses are being properly updated in E-TRAK to ensure the WO does not send whistleblower mail to outdated or incorrect addresses. This process could include developing a change of address form specific to whistleblowers and including a blank copy of it in every correspondence with whistleblowers or referencing the importance of updating the WO with any address change in every correspondence with whistleblowers.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: On March 4, 2016, the Director of the Whistleblower Office issued a memo to all whistleblower staff directing them to not identify or reference the Whistleblower Office in any way on the return address of envelopes when corresponding with whistleblowers or their representatives.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to formally document a procedure for return address labels for mail originating from the WO that states that external envelopes should not identify the WO as the sender of the correspondence.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Implemented

    Comments: On April 18, 2016, the Whistleblower Office revised procedural guidance to require Whistleblower Office analysts to track a whistleblower claim.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to record refund statute expiration dates in E-TRAK and monitor expiration dates routinely so that the award payment process can start as soon as the claims are eligible for payment.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Open

    Comments: On February 10, 2016, the Secretary of the Treasury issued the IRS Whistleblower Program Fiscal Year 2015 Annual Report to the Congress. The report adopted a new reporting approach and presented data on the operations of the IRS Whistleblower Office and whistleblower program for each of the preceding three fiscal years, from October 1 through September 30. Presenting the data in this consistent format will allow for more consistent comparisons across years.

    Recommendation: To ensure timely and consistent information to Congress and the public, the Secretary of the Treasury should issue its Whistleblower Office annual report to Congress no later than January 31st each year covering the prior fiscal year.

    Agency Affected: Department of the Treasury

  9. Status: Closed - Implemented

    Comments: On July 10, 2016, the IRS Whistleblower Office and the Small Business/Self Employed (SB/SE) operating division entered into an agreement to transfer a number of whistleblower claims process functions from the Whistleblower Office to SB/SE to streamline the intake and initial review process. This realignment gives SB/SE operational responsibility for the Initial Claim Evaluation unit, which performs the intake and initial review functions among other responsibilities, and will allow SB/SE to help ensure the resources of this unit are used efficiently and effectively. The agreement also includes expected time frames for a number of intermediate steps in the whistleblower claims review process. Whistleblower Office and SB/SE officials will meet at least quarterly, share operational data weekly, and within 6 months will evaluate the realignment and corresponding resource needs. Having a more streamlined staffing strategy will allow the Whistleblower Office to review more claims in a timely manner and get information to examiners more quickly to help IRS collect additional revenue.

    Recommendation: The Commissioner of Internal Revenue should direct the Whistleblower Office Director to implement a staffing plan for streamlining the intake and initial review process to make more efficient use of staff resources.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Open

    Comments: In a January 29, 2016 letter, the IRS Deputy Commissioner for Services and Enforcement stated that the Director of the Whistleblower Office has had discussions with upper management in IRS's operating divisions to reiterate the availability of the section 6103(n) contract tool and the IRS's interest in finding cases where it is appropriate and beneficial to enter into such contracts. The Whistleblower Office will also review its existing guidance for examiners on section 6103(n) contracts to determine if any modifications or enhancements are needed. IRS expects to complete this action by October 1, 2016.

    Recommendation: The Commissioner of Internal Revenue should direct the Deputy Commissioner for Services and Enforcement to develop guidance for examiners in operating divisions to use in determining whether an Internal Revenue Code section 6103(n) contract with a whistleblower would be beneficial and outline the steps for requesting such a contract.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  11. Status: Open

    Comments: In a January 29, 2016 letter, the IRS Deputy Commissioner for Services and Enforcement stated that the Whistleblower Office is reviewing its internal controls around whistleblower information to determine the appropriateness of the existing process and protections, and assessing what changes or improvements are needed. When completed, the Whistleblower Office will update its policies and procedures on retention and segregation of whistleblower information, as needed. IRS expects to complete this work by October 1, 2016.

    Recommendation: The Commissioner of Internal Revenue should direct the Deputy Commissioner for Services and Enforcement to strengthen guidance and procedures to ensure whistleblower information is retained only in the proper file locations. Such procedures could include requiring management sign off of taxpayer file reviews to ensure all whistleblower information has been appropriately segregated and sent back to the WO.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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