Time Frame for IRS Whistleblower Claims

Published Categorized as Tax Procedure, Whistleblower Claims
Time Frame For Irs Whistleblower Claims
Time Frame For Irs Whistleblower Claims

The IRS is slow in making awards to whistle-blowers. It can take years just to get the final rejection letter from the IRS. This can be very frustrating for informants.

In the Whistleblower 769-16W v. Commissioner, 152 T.C. 10 (2019), case, the IRS asked the court to send the case back to the IRS whistleblower office as the office had failed to adequately develop the case during the four years prior to denying the informants claim. The case is instructive as to what would-be informants should expect in submitting whistleblower claims to the IRS.

Facts & Procedural History

The informant submitted a whistleblower form in 2010. The form reported a tax avoidance transaction. It named three taxpayers. The informant then submitted four additional taxpayers.

It took the IRS whistleblower office almost a year to provide the information to the IRS audit function. A year and a half later, the informant submitted the information to a congressional committee. The committee released a report based on the information.

Two years after submission, the IRS exam function returned the information to the IRS whistleblower office as the information was “dated or unsubstantiated.” Approximately four years after submission, the IRS whistleblower office issued a determination denying the informants claim.

Litigation ensued. The IRS moved to have the case remanded back to the IRS whistleblower office as the case was not adequately developed by the IRS in the prior four years.

The IRS’s Whistleblower Program

The IRS’s Whistleblower program is not new. The program was created by Congress to provide a mechanism for the government to pay informants to turn in tax cheats.

Under the program, the IRS is authorized to pay the informant up to 15-30 percent of the amount collected. The IRS has the discretion to make an award within this range based on how much the informant contributed to the tax recovery. The amount of the recovery can be substantial.

While the program has changed over time, one thing has remained constant. The IRS has administered the whistleblower program so that very few awards are ever paid out. Even when they are paid out, the amount is usually limited and the award is not made until quite a few years have passed. That brings us back to the court case that is the subject of this post.

Delays in Processing Whistleblower Claims

The IRS cannot issue an award until the monies are collected from the taxpayer. This usually means the IRS has to audit the taxpayer and the taxpayer has to exhaust its administrative and judicial remedies. This alone can take several years.

This time period can also be extended due to the IRS’s delay in processing claims. In this court case, a full year almost elapsed before the information was even submitted by the IRS whistleblower office to the IRS audit function. That is a long time to wait when one knows that the IRS would have to go thru its process to assess and collect the tax from the taxpayer.

Even after a final denial letter is issued, can the IRS get a court to remand the case to the IRS whistleblower office for further consideration? The court in this case concludes that it does have the power to remand the case. It did so. This means that the IRS whistleblower office will get the case back. The court ordered the IRS and the informant to agree on a time frame for processing the claim.

This type of case should give would-be whistle-blowers something to think about before submitting claims. To do so, they should expect that the IRS will avoid paying the award, that a decision will be rendered on the claim based on an undeveloped case, and that the decision to deny the claim will not be provided to the informant for several years.

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