The IRS whistleblower program allows taxpayers to obtain payment from the IRS for providing information about alleged tax wrongdoing by other taxpayers. How the IRS has administered the program has drawn criticism from politicians, taxpayers, and others. The IRS’s recent guidance aims to address these criticisms. It provides a three-step process for handling whistleblower claims:
1. IRS’s Initial Review of Claims
First, according to the guidance, the IRS Whistleblower Office will review claims that are submitted. This will involve adding the claim to the IRS’s tracking system. This will also involve verifying that the claims meet the dollar thresholds set out in the Code.
Smaller claims will be forwarded to the IRS’s Ogden Informant Claims Examiner Unit and sent directly to the field for possible audit. The larger claims will be scanned and forwarded to a subject matter expert for a particular Industry.
2. IRS’s Expert Review of Claims
Second, according to the guidance, the subject matter experts, along with the IRS attorneys, will evaluate the claims and determine how the IRS will handle the claims.
In this step, the focus is on reviewing the evidence submitted to determine whether the evidence can be considered or used by the IRS. The IRS is directed to limit contact between the persons reviewing the evidence and anyone that later conducts the IRS audit.
This step will also involve screening the claim for fraud issues and the potential for referring the claim to the criminal investigation division.
3. The IRS’s Recommendation
Third, according to the guidance, the IRS’s expert and IRS attorney will recommend a course of action to the IRS Industry Director. The Industry Director will then decide whether to proceed with the audit examination.
When the case is sent to the field for audit, the IRS Whistleblower Office will continue to monitor the status of the audit.
The guidance does not explain how the IRS Whistleblower Office will process payments to the informants. This missing step is the one that many would-be informants have the most questions about.
Presumably, the Whistleblower Office will monitor the audits close enough so that they are able to make payments to informants in a timely manner.
Just in case this doesn’t happen, it might be helpful if the guidance had required the IRS audit personnel to notify the IRS Whistleblower Office of the resolution of the audit for claims involving informants.