GAO critiques IRS handling of tax whistleblower cases

by Ben Vernia | September 12th, 2011

On August 10, the Government Accountability Office made public a report reviewing the Internal Revenue Service’s handling of tax fraud whistleblower claims, which were authorized by the Tax Relief and Health Care Act of 2006. The GAO summarized its findings as follows:

Whistleblower claims can take years to go through the IRS review and award determination process. As of April 2011, about 66 percent of claims submitted in the first 2 years of the program, fiscal years 2007 and 2008, were still in process. According to IRS officials, claims can take years to process because IRS must take various steps to ensure the integrity of claim reviews and resulting taxpayer examinations. Further, taxpayers subject to examination can exercise rights that can add years to the process. IRS does not collect complete data on the time each step takes or the reasons claims are rejected. Without such data, IRS may be unable to identify potential improvements to claim processing efficiency. Furthermore, not all the IRS divisions that review whistleblower claims have time targets for their subject matter expert reviews. Nor does the Whistleblower Office have a systematic process to check in with the divisions about the time taken for their initial reviews.

The GAO noted that the IRS was hampered in its ability to communicate with whistleblowers by federal privacy laws, and concluded that greater communication would improve transparency. It also reviewed features of several federal and state whistleblower programs for possible use by the IRS. The GAO concluded:

The goal of the expanded whistleblower program is to encourage whistleblowers to come forward with information on substantial tax underreporting that, collectively, could help IRS reduce the tax gap and encourage greater voluntary compliance. For the program to be successful, whistleblowers need to have confidence in the program’s processes and outcomes. IRS’s claim review process is designed to ensure the integrity of the program, and the many steps involved can take years to complete. Some of the steps in the process are necessarily outside the Whistleblower Office’s control in order to, for example, protect the independence of examinations and avoid superseding other enforcement priorities.

However, without more complete data about claim processing time and outcomes, IRS has limited information about the efficiency of the program. Such data could help IRS management assess the efficiency of current processes and evaluate potential improvements. In addition to collecting more complete data, establishing time targets for all operating division initial reviews and following up on claims that exceed these targets could serve to indicate the priority whistleblower claims should receive, set expectations for the length of time they should generally take to review, and focus attention on claims exceeding time targets.

Other steps could improve whistleblower submissions and reporting to Congress. Collecting additional information on Form 211 could aid IRS in evaluating whistleblowers’ credibility and perhaps speed up the claim review process. Including more information in the annual Whistleblower Office report to Congress could enhance Congress’s ability to oversee the program and increase public confidence in the program, which could encourage more whistleblowers to submit claims.

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