What the Taxpayer First Act means for the IRS Whistleblower Program

by Maya Efrati, Policy Counsel

Published on July 02, 2019

What the Taxpayer First Act means for the IRS Whistleblower Program

July 2, 2019 –  Under the bipartisan leadership of Sens. Chuck Grassley (R-IA) and Ron Wyden (D-OR), Chairman and Ranking Member of the Senate Committee on Finance, Congress has passed the Taxpayer First Act, which includes important reforms to the Internal Revenue Service (IRS) whistleblower program. The bill was signed into law by President Trump on July 1, 2019, and full text of the law can be accessed here.

The National Whistleblower Center was proud to assist in the drafting of this important law as well as working to encourage Congress to pass this legislation.

The bill includes two major reforms for the tax whistleblower program:

  1. Providing protection to tax whistleblowers against retaliation
  2. Improving communication with tax whistleblowers about the status of their submission.

Anti-Retaliation Provision

Tax whistleblowers already benefit from the IRS’s commitment to protecting the identity of the whistleblowers. The National Whistleblower Center, whose leadership and associated counsels work directly with tax whistleblowers and litigate their cases, have seen first-hand the sincere effort of the IRS to protect the identity of whistleblowers.

However, there were no anti-retaliation provisions for tax whistleblowers – until today. The protections included in the Taxpayers First Act essentially follow the robust protections provided under the False Claims Act, which has enormously successful whistleblower provisions.

The National Whistleblower Center was honored to be asked to provide comments and suggestions to the Congress’ efforts to provide meaningful protections for tax whistleblowers. 

The new law protects persons who have been retaliated against – discharged or otherwise subject to reprisal – for providing information to the IRS about violations of the tax laws. The whistleblower may file a complaint with the Secretary of Labor, and if after 180 days the Secretary has not issued a decision the whistleblower may go to the district court. The remedies for the whistleblower include compensatory damages of reinstatement, and 200 percent of back pay and all lost benefits, with interest and compensation for other special damages including litigation costs, expert witness fees, and reasonable attorney fees.

Stephen M. Kohn, the leading whistleblower law expert and Board Chair of the National Whistleblower Center, noted,

The good IRS program just got better. Today brings terrific news for individuals who want to blow the whistleblower on big-time tax cheats. Tax whistleblowers already benefit from the IRS’ commitment to protecting their identity – but today’s new law giving protections against retaliation should provide strong encouragement for individuals to come forward and inform the IRS about major tax cheats.

Improved Communication

Tax whistleblowers have often been frustrated that the IRS does not often provide meaningful updates or information about the status of a whistleblower claim. It can be years before a case is resolved and the whistleblower receives their award. In the meantime, the whistleblower will often know nothing.

That is because the IRS is very reluctant to inadvertently release information about third-party personal tax information, even in situations where there is simply no such risk. The IRS should be empowered to be more communicative to whistleblowers for their peace of mind and a greater understanding of the process.

The new legislation directs the Secretary to notify the whistleblower as to the status of their case, including when the case has been referred for an audit or exam and when the taxpayer makes a payment of tax, and in general for the Secretary to provide information on the status and stage of the investigation upon written request. It does not detract from nor in any way reduce the IRS’ functions with crucial discretion to make these important decisions as to the process of whistleblower cases and communication with whistleblowers. These commonsense reforms will shed much-needed light into the tax whistleblower program and encourage greater confidence in the program.

The IRS has released guidance on how whistleblowers can access information about their case under thew new law; access it here.

Dean Zerbe, who is Alliantgroup’s National Managing Director and Senior Policy Analyst at the National Whistleblower Center, is the former Senior Counsel to the U.S. Senate Finance Committee. He noted,

Today’s IRS reform bill also includes a much-needed reform in the tax whistleblower program to allow improved and greater communication with tax whistleblowers. Currently, it can be frustrating for the whistleblower – who commonly gets little to no information about the status of her submission to the IRS. Today, Congress directs the IRS to open the kimono a little bit so that whistleblowers can know the key facts about their submission – such as whether the IRS has referred the matter for exam and whether the taxpayer has made a tax payment. The improved communication with the whistleblower will be a big help to the IRS whistleblower program – providing comfort to whistleblowers and encouraging new whistleblowers to come forward.

The IRS whistleblower reward program has proven to be a source for generating significant funds for U.S. government coffers, at no cost to taxpayers. Over the years, whistleblowers have given the IRS high-quality information about significant schemes to cheat tax laws.

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