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IRS Whistleblower Office collected $472M from tax cheats

Boys-tattling-Stay-At-Home-Educator

Remember when you were a kid and you told mom about the latest misdeed committed by your little brother. Oh, wait. Maybe that's just me reminiscing.

And as I recall, while my mother was glad to know when my younger sibling did or was about to do something (I was a proactive big sister!) that was dangerous (he was the more adventurous one), she emphasized that continually tattling about everything Ben did that annoyed me was not productive.

And I never got rewarded for my snitching observations.

My mother would not have made a very good Internal Revenue Service Whistleblower Office employee.

Tracking tax money with some help: That office was created in 2006 to provide the Whistleblower Program with a more efficient framework for receiving reports of tax misdeeds.

While there periodically are complaints about how well the office works and its decisions in handing out rewards, it still has had some major successes.

"Since 2007, the Whistleblower Program paid awards to whistleblowers totaling more than $1 billion dollars and has led to the successful collection of $6.14 billion from noncompliant taxpayers," according to Lee D. Martin, Director of the IRS Whistleblower Office, in the preface to his group's Fiscal Year 2020 annual report.

Pandemic effect on efforts: IRS efforts to track and collect from those hiding their income obviously was affected during 2000 by the coronavirus pandemic. The Whistleblower Program, like other federal agencies and private businesses, had to adjust.

That meant the bulk of the IRS' whistleblower workers shifted to fulltime telework status. However, that also resulted in delays, since some of its processes are dependent upon other operating divisions whose offices were closed due to COVID-19 precautions.

That meant whistleblower-related activities were understandably down a bit. OK, more than a bit.

The annual report notes that whistleblower claim numbers assigned in FY 2020 decreased by 20 percent from those submitted in FY 2019. Case closures decreased by 33 percent compared to the previous fiscal year.

IRS Whistleblower collections and awards fy18-20_annual FY20 report2Total Amount of Awards is prior to the sequestration reduction mandated by the Budget Control Act of 2011, as amended by the American Tax Relief Act of 2012

Less money, more awards: Still, when the final FY20 tally was taken, the Whistleblower Office made 169 awards to whistleblowers totaling $86.6 million. That included 30 awards under Internal Revenue Code §7623(b), which provides for awards or at least 15 percent and as much as 30 percent of the proceeds the IRS collects from the information.

As the table shows, while the dollar amount was lower, the actual number of awards was up a bit from FY19, even though the Whistleblower Office had to deal with COVID-19.

Now about those collections which provide the basis for awards. Those proceeds come from not just the tax that wasn't paid, but also penalties, interest and, per IRC § 7623(c), "additional amounts provided under the internal revenue laws."

And they came to more than $472 million during the last fiscal year. Of that amount, just more than $110 million was collected from criminal fines, civil forfeitures and violations of reporting requirements.

The ability to still bring in $472+ million, thanks to tips from whistleblowers, earns this week's first of 2021 By the Numbers honors.

Upgrading whistleblower efforts: Naturally, the IRS Whistleblower Office and those who had the goods on tax scofflaws are hoping operations get at least back to normal in 2021. Resumption of regular activities will help the IRS get the money it's owed, as well as help the remuneration to whistleblowers.

"The IRS whistleblower law continues to demonstrate the importance of whistleblower reward laws. Whistleblowers are the eyes and ears of enforcement, and their disclosures are essential for prosecuting tax cheats," said whistleblower attorney Stephen M. Kohn, partner at Kohn, Kohn & Colapinto.

To increase its effectiveness, the IRS Whistleblower Office report also notes that it will continue its efforts begun during fiscal 2020 that bulk up its activities as called for under the Taxpayer First Act of 2019.

Last year, that included adding four analysts to meet the IRS reform law's new provisions, updating IRS Publication 5251, Whistleblower Claim Process, and revising Internal Revenue Manuals dealing with the whistleblower process.

Other agency partnerships: The Whistleblower Office also established a working framework with the Alcohol and Tobacco Tax and Trade Bureau (TTB) that will allow for the IRS and TTB to process claims for whistleblower awards under Internal Revenue laws that are administered and enforced by TTB.

"The whistleblower program gives us another tool to fight for the level playing field that our law-abiding industry members expect and deserve," said Nicholas Colucci, TTB's Assistant Administrator, Field Operations. "We appreciate this opportunity to partner with our colleagues at the IRS."

And the Whistleblower Office also used its latest report to ask for more public participation in tattling on tax cheats.

"In closing, the Whistleblower Office continues to encourage all individuals with specific and credible information about tax noncompliance to provide this information to the Government by filing a claim on Form 211, Application for Award for Original Information, with the Whistleblower Office," said the director Martin.

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