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IRS wants to limit whistleblower rewards

Hopes were high when in 2007 the IRS opened its new whistleblower office. New, more generous incentives for tips that help nab tax cheats were announced. A new director for the office was installed.

Now, however, it seems that the IRS is trying to get out of paying folks who have info on tax evaders.

Changes to the whistleblower provisions in the Internal Revenue Manual say that informants aren't entitled to any cash rewards unless the tips lead to payments to the IRS.

That means that whistleblower information that simply halts an improper refund or reduces a too-large credit -- tax situations that most of us, including, I suspect, the IRS, agree are good things -- the tax tipster is simply out of luck.

elevated view of a referee blowing whistle

I'm not saying that the IRS is rewriting the rules in a penny pinching effort to avoid paying informants, but…. OK, that is what I'm saying.

And a member of a Congressional tax-writing committee also thinks the IRS move stinks.

Sen. Charles Grassley (R-Iowa) has asked Treasury to delay implementation of the IRS manual's whistleblower provisions.

The ranking minority member of the Senate Finance Committee spearheaded the 2006 revision of the whistleblower law and he's ticked off about several things in connection with the changes to tipster treatment.

Grassley is irked that, based on a PowerPoint presentation by the IRS Whistleblower Office Director in April, the IRS manual changes "have been contemplated for some time. Yet, neither I nor my staff, were apprised of the changes nor does it appear that public comment was sought."

But Grassley's main complaint in a letter to Treasury Secretary Geithner is that the new manual provisions "will deter whistleblowers from filing claims."

To keep that from happening, Grassley is asking that implementation of the new whistleblower provisions be delayed effective immediately.

"I have learned from my almost three decades of experience with whistleblowers that government agencies will often seek to undermine or undercut the whistleblower," wrote Grassley.

The Senator noted that Treasury and the IRS "moved very quickly" to get the new Whistleblower Office operational after the enacting legislation became law. Now, however, this reward revision is undercutting that.

"Despite this early commitment to the Whistleblower Office, I am very worried that this office is not getting the support it needs and that the program is being undermined by the old guard who would like to see it fail," continued Grassley in his letter to Geithner.

"The potential success of the whistleblower program is indisputable. The question is whether the program will thrive and succeed, or, because of the lack of leadership at the highest levels at Treasury and the IRS, if it will fail. Failure, of course, comes at the expense of the honest taxpayer."

The IRS provides a brief history of its whistleblower/informant program on its website.

Tax Court weighs in on tax tipster money: In related whistleblower news, the U.S. Tax Court this month said it had jurisdiction to review IRS denial of a reward payment for a tax informant's tip.

The IRS had asked the court to dismiss an informant's lawsuit, arguing that in instances where the government collected no money -- that excuse issue again -- the court did not have jurisdiction.

But in her 12-page ruling, Tax Court Judge Diane L. Kroupa declared the 2006 law that established the  Whistleblower Office gave her ample authority to hear the case whether or not an award was made. 

"The statute expressly permits an individual to seek judicial review in this court of the amount or denial of an award determination," she wrote. "Accordingly, we fund that our jurisdiction is not limited to the amount of an award determination but includes any determination to deny an award."

Kroupa also ordered the IRS and the informant to either settle the case or file a joint report detailing its status by Oct 12.

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