August 20, 2019
Last month, tax whistleblowers received good news when the Taxpayer First Act (TFA) became law. This new law strengthens the IRS whistleblower program in two important ways – it adds anti-retaliation protections for whistleblowers, and it requires the IRS to notify whistleblowers when certain important developments occur in their cases.
Congress created the IRS Whistleblower Reward Program in 2006 to encourage whistleblowers to provide information to the IRS about unpaid taxes. Where a whistleblower’s tip results in the IRS recovering over $2 million, the reward can be up to 30% of the amount collected. Just last year, the IRS recovered over $1.4 billion, and whistleblowers received $312 million in awards. See Whistleblower Program Fiscal Year 2018 Annual Report to Congress.
Unlike most federal whistleblower programs, the IRS program did not previously include anti-retaliation protections for tax whistleblowers. Without such protections, persons with knowledge of tax fraud might be reluctant to report wrongdoing. Now, thanks to the TFA, tax whistleblowers are entitled to protections similar to those afforded to persons who report wrongdoing to the SEC or who file actions under the False Claims Act.
The TFA protects whistleblowers from retaliation when they report tax violations to the IRS and also when they blow the whistle internally to their supervisor or to “any other person working for the employer who has the authority to investigate, discover, or terminate misconduct.” 26 U.S.C. § 1405(d)(1)(A). An employee who has experienced retaliation is required to file a claim initially with the Secretary of Labor. This claim must be filed within 180 days of the retaliation. If the Secretary does not issue a decision within 180 days, the employee can file an action in federal court. If successful, the employee is entitled to reinstatement, lost benefits, double back pay with interest, and “special damages” including attorney’s fees and the costs of litigation.
In the past, IRS whistleblowers often waited years for their cases to be resolved while having no idea of their status. The TFA now requires the IRS Whistleblower Office to provide whistleblowers with updates within 60 days when either of these significant events occur:
In addition, upon receiving a written request, the IRS must provide a status update to the whistleblower while the investigation is pending. See Whistleblower Reforms Under the Taxpayer First Act.
These recent changes are most welcome. The anti-retaliation protections make it more likely that insiders with knowledge of tax fraud will come forward, and improved communications with the IRS will make the process more transparent and less frustrating for those who do blow the whistle. Making the process easier for whistleblowers is good news for taxpayers and bad news for tax cheats.