In 2016, the Internal Revenue Service (“IRS”) whistleblower reward program marked its 10th anniversary. The program has helped ensure that businesses and wealthy individuals pay their fair share of taxes by rewarding people who come forward to report underpayment and tax evasion.  Under the program’s guidelines, whistleblowers are eligible to receive a significant share (15 to 30 percent) of the amount the IRS recovers from the defrauding party.

IRS Whistleblower Claims on the Rise

On January 11, 2017, the IRS Whistleblower Office published its 2016 Annual Report, which notes the tremendous success of the program over the last decade. Since the program’s creation in 2006, information submitted by whistleblowers has led to the collection of $3.4 billion in revenue from businesses and individuals who attempted to evade their tax obligations.  Of this collected sum, the IRS Whistleblower Office has awarded a total of $465 million to qualified whistleblowers participating in the program.

The 2016 Annual Report confirms that the IRS reward program continues to be exceptionally active.  As the chart below documents, the IRS processed more claims related to awards in 2016 than the previous two years combined, and the total number of awards more than tripled from 2015 to 2016.  While the monetary payouts in 2016 fell to just over $61 million, the volume of tips and total number of awards indicates that the program continues to grow.

U.S. Department of Treasury, Internal Revenue Service, IRS Whistleblower Program Fiscal Year 2016 (January 17, 2016), https://www.kkc.com/assets/site_18/files/blog/fy16_wo_annual_report_final.pdf.

Delays Continue Due to Lack of Resources

Although the reward program is clearly successful, the Whistleblower Office investigates and processes these tax fraud cases with a considerable deficiency in resources that leads to long delays and a large backlog of claims. While 2016 saw a jump of more than triple new claims from 2015, a reorganization in July reduced Office staff by almost half, from 61 to 37 personnel.  This reduced staff currently manages a queue of approximately 29,835 open cases.  It is therefore unsurprising that the IRS often does not determine awards for at least five to seven years after a whistleblower has filed a claim.  Despite these delays, the 2016 Annual Report makes clear that whistleblower claims are investigated thoroughly and can lead to sizeable awards in time.

Cutbacks to the IRS Whistleblower Office during a dramatic increase in tips and award applications indicates that the program can succeed in exposing tax fraud, but only to the extent that the Office receives administrative resources.  The IRS whistleblower program is an integral component of the agency’s mission of enforcement and compliance, and whistleblowers can play a crucial role in exposing abuse of the tax code. The result is a more prosperous and efficient tax compliance system, in which the IRS – and the government at large – should continue to invest.  As the 2016 Annual Report shows, rewarding whistleblowers promotes the fair application of our nation’s laws and has important benefits to the public as a whole.