IRS Whistleblower Program (2015)

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IRS Whistleblower Program

Annual Report to the Congress

Fiscal Year 2014

Publication 5241 (Rev. 7-2015) Catalog Number 68435Z Department of the Treasury Internal Revenue Service www.irs.gov

Whistleblower Program

(Internal Revenue Code Section 7623)

Fiscal Year 2014

Report to the Congress

Table of Contents

II.

III.

IV.

Executive Summary.............................................................................................. 1

Program History.................................................................................................... 2

Prior Law and Policy .................................................................................. 2

2006 Amendments..................................................................................... 3

Program Developments ........................................................................................ 4

Program Guidance..................................................................................... 4

Program Operations................................................................................... 4

Staffing....................................................................................................... 5

Outreach and Communications ................................................................. 5

Administrative Priorities and Issues...................................................................... 6

Administrative Issues…………………………………………………………. 6

Other Issues of Interest………………………………………………………...6

Appendices........................................................................................................... 9

Appendix A Revised Section 7623 and other provisions of law.......................... 10

Appendix B FY 2014 Whistleblower Program Statistical Results........................ 13

Table 1: All Claims Received, by Fiscal Year of Receipt ................................ 13

Table 2: Fiscal Year 2014 Receipts, by Operating Division, All Claims .......... 14

Table 3: Fiscal Year 2014 Closures, by Fiscal Year of Receipt, All Claims .... 15

Table 4: Status of Open Section 7623(b) Claims from All Years..................... 17

Table 5: Days in Current Status, Open Section 7623(b) Claims ..................... 19

Table 6: Awards Paid, Fiscal Years 2010 to 2014 .......................................... 21

Whistleblower Program

(Internal Revenue Code Section 7623)

FY 2014 Report to the Congress

Executive Summary

The Tax Relief and Health Care Act of 2006 (the Act) enacted significant changes in the

IRS award program for whistleblowers. For information provided to the IRS after

December 19, 2006, new section 7623(b) of the Internal Revenue Code (the Code)

generally requires the IRS to pay awards if information an individual provides

substantially contributes to the collection of tax, penalties, interest, and other amounts

when the amounts in dispute are more than $2,000,000. The law sets award ranges

based on percentages of the collected proceeds, and established a Whistleblower

Office within the IRS to administer those awards.

The primary purpose of the Act was to encourage people with knowledge of significant

tax noncompliance to provide that information to the IRS. The IRS receives

submissions from whistleblowers, many of whom claim to have inside knowledge of the

transactions they are reporting. They often provide extensive documentation to support

their claims. The IRS is building on the progress already made in implementing the law,

while remaining mindful of the need to protect taxpayer rights. Goals for the future

included expanding the program’s reach and improving communications with existing

and potential whistleblowers.

The Secretary of the Treasury must conduct an annual study and report to Congress on

the use of section 7623 and the results obtained, and include any legislative or

administrative recommendations for section 7623 and its application (section 406(c) of

the Act). This report discusses program activities for Fiscal Year (FY) 2014. It includes

a review of the law and regulations applicable to whistleblower awards, changes made

in program administration since the Act, a description of internal and external program

guidance, administrative priorities, and data on awards paid. It also reports on

continuing review of the operating guidelines and procedures of the Whistleblower

Office to improve the timeliness and quality of decisions as the Service evaluates and

acts on whistleblower information. This comprehensive review will also ensure more

effective use of the Whistleblower Office’s resources.

The IRS cannot foresee with any certainty which whistleblower claims will result in

collected proceeds, or whether a whistleblower’s estimate of the potential tax

adjustments are accurate. During FY 2014, the Whistleblower Office received more

claim submissions than in any other year. The total claims received in FY 2014 were

14,365, an increase of 3,845 compared to FY 2013.

The IRS pays awards from collected proceeds which result from an audit or

investigation. Payments are not made until the taxpayer has exhausted all appeal rights

and the statutory period for the filing of a claim for refund has expired, or been waived

by the taxpayer. Therefore, typically the IRS does not make payments for five to seven

years after the whistleblower has filed a claim. The IRS paid the first awards under the

2006 Act in FY 2011, and has continued to do so since then. Most of the awards paid

during FY 2014 resulted from claims filed under the prior law.

In FY 2014, the IRS made 101 awards totaling $52,281,628. However, reductions in

expenditures required by sequestration reduced the whistleblower award payments in

FY 2014 by $3,764,722. The total award amount, before sequestration, represented

16.9% of the total amount IRS collected as a result of whistleblowers’ claims.

II.

Program History

Prior Law and Policy

The IRS has had the authority to pay awards to whistleblowers for many years. What is

now section 7623(a) 1 of the Code has its origins in legislation Congress enacted in

1867. The original law provided the Secretary with the authority “to pay such sums as

he deems necessary for detecting and bringing to trial and punishment persons guilty of

violating the internal revenue laws or conniving at the same.” Before 1996, the IRS

made payments from appropriated funds. In 1996, section 1209 of the Taxpayer Bill of

Rights 2 (P.L. 104-168) expanded the purposes for which the IRS may pay awards,

adding “detecting underpayments of tax” as a basis for making an award and changed

the source of funds from IRS operating funds to proceeds of amounts collected from the

taxpayer (other than interest). 2

Before the 2006 amendments to section 7623, awards to whistleblowers were

discretionary, and IRS policy determined the amount. 3 The policy provided a framework

for assessing the contribution of the information to the collection of proceeds from a

taxpayer, and allowed for awards of 1 percent, 10 percent, or 15 percent of proceeds.

The published policy set a cap on awards at $10,000,000, but the IRS waived this cap

from time to time under “special agreements” with a whistleblower.

The Internal Revenue Manual (IRM) provided several grounds for rejecting a claim for

award, including participation in the evasion scheme that was the subject of the

information the whistleblower provided. Other common reasons for rejecting claims

included:

The 2006 amendments re-designated the prior Internal Revenue Code (IRC) section 7623 as section

7623(a), added new provisions as section 7623(b), and included program administration requirements

that were not incorporated into the Internal Revenue Code. The appendix to this report reprints section

7623, as amended, as well as additional provisions in the Act that Congress did not incorporate into the

Code.

The IRS has separate authority to pay informant expenses from appropriated funds available for

confidential criminal investigation expenditures. The IRS makes those payments under authorities

delegated to Criminal Investigation and they are not within the scope of the Whistleblower Office or this

report to Congress.

Regulations implementing what is now section 7623(a) appear at Code of Federal Regulations Title 26,

section 301.7623-1. The last version of the policy issued prior to the 2006 amendments was published in

2004, as Policy Statement P-4-27. The policy was revised in FY 2010, through revisions of the Internal

Revenue Manual that were described in the FY 2010 Annual Report. The FY 2010 Annual Report can be

found at http://www.irs.gov/pub/whistleblower/annual_report_to_congress_fy_2010.pdf.

•

The information provided was of no value. 4

•

The IRS already had the information or the information was available in public

records.

•

No collection of taxes and penalties existed from which the IRS could pay an

award.

2006 Amendments

The Tax Relief and Health Care Act of 2006 (section 406) (P.L. 109-432) created

section 7623(b) of the Code. This section set a new framework for the consideration of

whistleblower submissions and established the Whistleblower Office within the IRS to

administer that framework. Operating at the direction of the Commissioner of the IRS,

the Whistleblower Office coordinates with other divisions of the IRS, analyzes

information submitted, and makes award determinations. The statute provides that the

Whistleblower Office may investigate the claim itself or assign it to the appropriate IRS

office for investigation. After an initial review, the Whistleblower Office assigns claims to

the appropriate IRS office for investigation.

A whistleblower must meet several conditions to qualify for the section 7623(b) award

program. 5 To qualify for a whistleblower award, the information must:

•

Relate to a tax noncompliance matter in which the tax, penalties, interest,

additions to tax, and additional amounts in dispute exceed $2,000,000; and

•

Relate to a taxpayer, and for individual taxpayers only, one whose gross income

exceeds $200,000 for at least one of the tax years in question.

If the information meets the above conditions and substantially contributes to an

administrative or judicial action that results in the collection of tax, penalties, interest,

additions to tax, or additional amounts, the IRS will pay an award of at least 15 percent,

but not more than 30 percent of the collected proceeds resulting from the administrative

or judicial action (including related actions). The award percentage decreases for cases

based principally on information disclosed in certain public sources or when the

whistleblower planned and initiated the actions that led to the underpayment of tax.

Whistleblowers may appeal the Whistleblower Office’s award determinations under

section 7623(b) to the U.S. Tax Court.

The information might be of no value because it did not provide a sufficient basis for initiating an

examination or investigation of the issue presented, or because the examination resulted in no change to

the filed return.

If the submission does not meet the criteria for section 7623(b) consideration, the IRS may consider it

for an award under the pre-Act discretionary authority (now section 7623(a) of the Code).

III.

Program Developments

Program Guidance

On August 12, 2014, final regulations were published in the Federal Register. 6 The final

regulations added necessary clarification and provided additional guidance for

whistleblower submissions under section 7623. Specifically, the regulations provide

guidance on submitting information regarding tax underpayments or violations, filing

claims for award, and the whistleblower administrative proceedings applicable to claims

for award under section 7623. The regulations also provide guidance on the

determination and payment of awards, and provide definitions of key terms used in

section 7623. Finally, the regulations confirm that the director, officers, and employees

of the Whistleblower Office are authorized to disclose return information to the extent

necessary to conduct whistleblower administrative proceedings.

The final regulations made significant changes to the language in the proposed

regulations, including a narrowed list of ineligible claimants, and additional clarification

for the definition of “administrative action” and “proceeds based on.” In addition, the

final regulations addressed additional award payments based on collected proceeds

received after an award determination was made, and clarified the rules for reducing

awards under section 7623(b)(2) and (3). The Deputy Commissioner for Services and

Enforcement issued a memorandum on August 20, 2014, highlighting the value of

whistleblower information, the importance of timely evaluation of that information, and

the need to protect whistleblower and taxpayer rights. 7

Program Operations

The Whistleblower Office evaluates the submissions it receives to determine whether

the information offered may substantially contribute to the assessment or collection of

unpaid taxes, penalties, interest, additions to tax and additional amounts. If an audit or

investigation is conducted based on the information a whistleblower provides, the

Whistleblower Office will determine whether an award is payable under either section

7623(a) or 7623(b) and the amount of any award.

In FY 2011, the Whistleblower Office paid the first claims under section 7623(b). By the

end of FY 2014, eleven claims have been paid under the revised law, including two

separate payments to one whistleblower. Under section 6103, tax return information is

confidential, unless an exception applies. There is no exception in section 6103 that

permits the publication of data on specific whistleblower claims. Also, under section

6103, the IRS may disclose information in aggregate form only if the data cannot be

associated with, or otherwise identify a particular taxpayer. Summary data on awards

paid, receipts, closures, and claim status appear in the appendices to this report.

The proposed regulations were published on December 18, 2012.

https://www.federalregister.gov/articles/2014/08/12/2014-18858/awards-for-information-relating-to

detecting-underpayments-of-tax-or-violations-of-the-internal

http://www.irs.gov/pub/whistleblower/IRS%20Whistleblower%20Program%20Memorandum%20(signed

%20by%20DCSE).pdf

The number of payments made under the section 7623(b) program is expected to

increase in FY 2015. As discussed, it typically takes five to seven years to analyze,

investigate and/or audit, and collect proceeds. At each stage in the tax administration

process, taxpayers have rights to challenge IRS findings, including administrative and

judicial appeals.

Staffing

At the beginning of FY 2014, the Whistleblower Office staff of 40 included 17 senior

analysts with decades of experience in a broad array of IRS compliance programs. In

addition, the IRS Office of Chief Counsel has appointed a senior attorney to serve as

Special Counsel to the Director of the Whistleblower Office. The Special Counsel

provides legal advice to the Director and coordinates support provided by other Chief

Counsel offices. At year end, the total staff of the Whistleblower Office was 43

(reflecting a net increase of 3 senior analysts).

The Whistleblower Office has seen steady and consistent growth from year to year in

both staffing and claim submissions. As the Whistleblower Office implements the

regulations issued in August 2014, the Deputy Commissioner, Services and

Enforcement, directed a program review to ensure the resources committed to the

Whistleblower Office and other IRS components to the whistleblower program are

applied efficiently and effectively. This assessment is expected to be completed in FY

2015.

Outreach and Communications

The IRS has developed an outreach and communications plan to address outreach to

both the public and IRS personnel on changes in the whistleblower program. It

highlights the future goals of expanding the program’s reach and improving

communications with existing and potential whistleblowers. To the extent that statutory

changes are needed to further improve the program, the IRS will work with Congress to

support such changes. The plan’s highlights include efforts to identify opportunities for

improvement and potential barriers to change.

The Whistleblower Office maintains a page on the IRS Intranet to make information

available to IRS personnel, and provides articles for internal newsletters and speakers

for professional education events to reach employees who are most likely to deal with a

whistleblower case. There is also a dedicated page on the public website,

www.irs.gov, 8 which contains information for the public about the purpose of the

whistleblower program, how to make a submission, and what to expect after making a

submission. The website also includes links to the final regulations and Form 211 for

submitting a claim. Significant efforts have been made by the Whistleblower Office to

reach out to the general public via certain social media sites in an effort to provide an

awareness of the Whistleblower Office’s purpose.

http://www.irs.gov/uac/Whistleblower-Informant-Award

The Whistleblower Office makes presentations to professional groups sharing program

developments and in return obtains outside perspectives on the program. The

presentations are made to professional groups involved in the representation of both

taxpayers and whistleblowers, including Taxpayers Against Fraud and the American Bar

Association Tax Section. The Whistleblower Office has also been consulted by other

Federal agencies and the tax administration agencies of other nations, as they evaluate

options for establishing their own whistleblower award programs.

IV.

Administrative Priorities and Issues

The Whistleblower Office continues to work with the IRS Office of Chief Counsel and

Treasury Department to develop appropriate administrative program guidance. Based

on the Whistleblower Office’s experiences in administering the whistleblower program

since its formation in 2007, the IRS identified several areas it addressed through

administrative guidance as well as other issues.

A. Administrative Priorities

1. Guidance

A top priority in FY 2014 was to update formal published guidance for section 7623.

As is noted in the previous section, the IRS published final comprehensive

regulations that implement section 7623, including the 2006 amendments to the

statute. These final regulations became effective on August 12, 2014. The

Whistleblower Office began the process of updating the Internal Revenue Manual to

reflect the final regulations and is also updating its correspondence, policies, and

procedures accordingly.

B. Other Issues of Interest

A number of additional issues exist in the administration of the whistleblower program.

1. Rules on access to and disclosure of taxpayer information could provide

stronger protection for taxpayers. A whistleblower can appeal any

determination on an award under section 7623(b)(1), (2), or (3) of the Code to

the Tax Court (section 7623(b)(4) of the Code). A meaningful right to appeal

to the Tax Court requires disclosure to the whistleblower of the basis for the

award determination, which often will include taxpayer information that is

protected from disclosure under section 6103. Consistent with section

6103(h), the IRM and the final regulations provide for disclosure of taxpayer

information by the IRS to the whistleblower if the whistleblower enters into a

confidentiality agreement and agrees not to disclose the information other than

as permitted in that agreement.

Since FY 2010, these Annual Reports have noted two concerns regarding the

disclosure of taxpayer information to the whistleblower as part of an award

determination. First, current law does not provide an effective sanction if the

whistleblower discloses taxpayer information in violation of the confidentiality

agreement and section 6103(h). Second, the whistleblower may, against the

wishes of the taxpayer, disclose the identity of the taxpayer in a Tax Court or

other judicial proceeding. The taxpayer is not a party to any dispute between

the IRS and a whistleblower over eligibility for or the amount of, an award

under section 7623, but in the past, both pleadings and court decisions in

these cases routinely included details about the taxpayer. This second

concern was addressed in a revision to Tax Court Rule 345, which now

requires that taxpayer information be masked in documents filed with the

Court. However, release of information during discovery in Tax Court

proceedings is not addressed in the new rules and has brought a new set of

concerns.

In cases brought before the Tax Court, whistleblowers who challenge IRS

decisions on their award claims continue to raise questions about the separate

decisions made regarding the taxpayer’s liability, and seek information through

pre-trial discovery on those decisions. While the Tax Court has ruled in a few

cases that its jurisdiction to consider whistleblower award claim appeals does

not include the authority to order IRS action with respect to taxpayer liability,

the scope of permitted discovery is still an open question. The ability of the

IRS to successfully resist expansive or otherwise improper whistleblower

discovery requests related to taxpayer liability issues is unclear and an area of

concern. There appears to be no effective sanction, and no effective restraint,

when a whistleblower obtains confidential taxpayer information in discovery

and chooses to release that information to the public. It is fundamentally unfair

to the taxpayer, whose issues with the IRS have been fully resolved, to have

confidential information revealed in a situation where the taxpayer is not a

party and has no interest—other than in the protection of its private taxpayer

information. Since FY 2014, the President’s Budget submission has included

a legislative proposal to address this issue, by providing a sanction for

disclosure of taxpayer information obtained from the IRS as part of the award

claim process.

2. The law does not provide for whistleblower protection. Unlike other laws

that encourage whistleblowers to report information to the government, section

7623 does not prohibit retaliation against the whistleblower. When the

whistleblower is an employee of the taxpayer, retaliation can take the form of a

job-related action. In other cases, whistleblowers may face threats of physical

harm or damage to economic interests. In such cases, whistleblowers reporting

information under section 7623 may have recourse under state law, but Federal

law does not appear to provide a remedy. Since FY 2014, the President’s

Budget submission has included a legislative proposal to provide whistleblowers

with protection from retaliation.

The IRS, as a matter of policy and as an application of section 6103, has

committed to protect a whistleblower’s identity, including the fact that the IRS

received whistleblower information in a particular case. This commitment is

qualified; however, as the IRS tells whistleblowers it may identify them if they

are an essential witness in a judicial proceeding or if ordered to do so by a court

of competent jurisdiction. Despite the IRS’s commitment to protect

whistleblower identities, litigation has highlighted the conflict between the IRS’s

commitment to whistleblowers and its obligations in civil discovery. Certain

litigants have sought information on informant involvement in tax matters even in

cases where the government did not identify the whistleblower as a potential

witness at trial. The appropriate response to such a request should be to

neither confirm nor deny informant involvement, because a truthful denial in

some cases will allow individuals to draw a conclusion in other cases. The

authority for this approach is premised in case law. An adverse ruling on a

discovery request could open the door to fishing expeditions to identify

whistleblower involvement and targeted requests to determine whether

particular individuals made whistleblower submissions.

3. The Whistleblower Office has limited information about the extent of the

whistleblower’s contribution in some criminal cases. In some criminal

cases, information available to the Whistleblower Office on the extent of the

whistleblower’s contribution may be limited by grand jury secrecy rules. The

Whistleblower Office is not allowed to review and consider grand jury

information protected from disclosure under the Federal Rules of Criminal

Procedure, unless an exception to the secrecy rules is granted, which is done

on a case-by-case basis. Without that information, it may not be possible for the

Whistleblower Office to independently assess the extent of the whistleblower’s

contribution when making a determination regarding an award under section

7623.

Appendices

Appendix A: Revised Section 7623 and other provisions of law

Revised 26 USC Section 7323

TITLE 26 - INTERNAL REVENUE CODE

Subtitle F - Procedure and Administration

CHAPTER 78 - DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

Subchapter B - General Powers and Duties

Sec. 7623. Expenses of detection of underpayments and fraud, etc.

(a) In General- The Secretary, under regulations prescribed by the Secretary, is authorized to pay such

sums as he deems necessary for

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue

laws or conniving at the same,

in cases where such expenses are not otherwise provided for by law. Any amount payable under the

preceding sentence shall be paid from the proceeds of amounts collected by reason of the information

provided, and any amount so collected shall be available for such payments.

(b) Awards to Whistleblowers

(1) IN GENERAL- If the Secretary proceeds with any administrative or judicial action described in

subsection (a) based on information brought to the Secretary's attention by an individual, such

individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more

than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and

additional amounts) resulting from the action (including any related actions) or from any

settlement in response to such action. The determination of the amount of such award by the

Whistleblower Office shall depend upon the extent to which the individual substantially

contributed to such action.

(2) AWARD IN CASE OF LESS SUBSTANTIAL CONTRIBUTION

(A) IN GENERAL- In the event the action described in paragraph (1) is one which the

Whistleblower Office determines to be based principally on disclosures of specific

allegations (other than information provided by the individual described in paragraph (1))

resulting from a judicial or administrative hearing, from a governmental report, hearing,

audit, or investigation, or from the news media, the Whistleblower Office may award such

sums as it considers appropriate, but in no case more than 10 percent of the collected

proceeds (including penalties, interest, additions to tax, and additional amounts) resulting

from the action (including any related actions) or from any settlement in response to such

action, taking into account the significance of the individual's information and the role of

such individual and any legal representative of such individual in contributing to such

action.

(B) NONAPPLICATION OF PARAGRAPH WHERE INDIVIDUAL IS ORIGINAL SOURCE

OF INFORMATION- Subparagraph (A) shall not apply if the information resulting in the

initiation of the action described in paragraph (1) was originally provided by the individual

described in paragraph (1).

(3) REDUCTION IN OR DENIAL OF AWARD- If the Whistleblower Office determines that the

claim for an award under paragraph (1) or (2) is brought by an individual who planned and

initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2),

then the Whistleblower Office may appropriately reduce such award. If such individual is

convicted of criminal conduct arising from the role described in the preceding sentence, the

Whistleblower Office shall deny any award.

(4) APPEAL OF AWARD DETERMINATION- Any determination regarding an award under

paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court

(and the Tax Court shall have jurisdiction with respect to such matter).

(5) APPLICATION OF THIS SUBSECTION- This subsection shall apply with respect to any

action-

(A) against any taxpayer, but in the case of any individual, only if such individual's gross

income exceeds $200,000 for any taxable year subject to such action, and

(B) if the tax, penalties, interest, additions to tax, and additional amounts in dispute

exceed $2,000,000.

(6) ADDITIONAL RULES

(A) NO CONTRACT NECESSARY- No contract with the Internal Revenue Service is

necessary for any individual to receive an award under this subsection.

(B) REPRESENTATION- Any individual described in paragraph (1) or (2) may be

represented by counsel.

based on information submitted to the Secretary unless such information is submitted

under penalty of perjury.

Other provisions of Section 406 of the Tax Relief and Health Care Act of

2006

(a)(2) ASSIGNMENT TO SPECIAL TRIAL JUDGES

(A) IN GENERAL- Section 7443A(b) (relating to proceedings which may be assigned to special

trial judges) is amended by striking `and' at the end of paragraph (5), by redesign a ting

paragraph (6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph:

(6) any proceeding under section 7623(b)(4), and'.

(B) CONFORMING AMENDMENT- Section 7443A(c) is amended by striking `or (5)' and inserting

`(5), or (6)'.

(3) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES- Subsection (a) of section 62

(relating to general rule defining adjusted gross income) are amended by inserting after paragraph (20)

the following new paragraph:

`(21) ATTORNEYS FEES RELATING TO AWARDS TO WHISTLEBLOWERS- Any deduction

allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the

taxpayer in connection with any award under section 7623(b) (relating to awards to

whistleblowers). The preceding sentence shall not apply to any deduction in excess of the

amount includible in the taxpayer's gross income for the taxable year on account of such award.'.

(b) Whistleblower Office

(1) IN GENERAL- Not later than the date which is 12 months after the date of the enactment of

this Act, the Secretary of the Treasury shall issue guidance for the operation of a whistleblower

program to be administered in the Internal Revenue Service by an office to be known as the

`Whistleblower Office' which-

(A) shall at all times operate at the direction of the Commissioner of Internal Revenue

and coordinate and consult with other divisions in the Internal Revenue Service as

directed by the Commissioner of Internal Revenue,

(B) shall analyze information received from any individual described in section 7623(b) of

the Internal Revenue Code of 1986 and either investigate the matter itself or assign it to

the appropriate Internal Revenue Service office, and

legal representative of such individual.

(2) REQUEST FOR ASSISTANCE- The guidance issued under paragraph (1) shall specify that

any assistance requested under paragraph (1)(C) shall be under the direction and control of the

Whistleblower Office or the office assigned to investigate the matter under paragraph (1)(A). No

individual or legal representative whose assistance is so requested may by reason of such

request represent himself or herself as an employee of the Federal Government.

Congress on the use of section 7623 of the Internal Revenue Code of 1986, including-

(1) an analysis of the use of such section during the preceding year and the results of such use,

and

(2) any legislative or administrative recommendations regarding the provisions of such section

and its application.

(d) Effective Date- The amendments made by subsection (a) shall apply to information provided on or

after the date of the enactment of this Act.

Appendix B: FY 2014 Whistleblower Program Statistical Results

Table 1: All Claims Received, by Fiscal Year of Receipt

The table below provides current and historical information on claims received, including

the total number of claims received for each fiscal year and the number of those claims

that are open. The table below provides information on claims recorded in the

Whistleblower Office information system, by fiscal year of receipt. There are often

multiple claims associated with a single whistleblower submission, because the

submission identifies more than one taxpayer. The table includes the number of claims

received each year, and the number of those claims that were open as of May 14, 2015.

As a general rule, the number of claims represents the number of taxpayers identified in

submissions, so that a submission identifying 100 taxpayers is counted as 100 claims.

In 2009, the Whistleblower Office began using a new information system, and began

applying accounting for multiple taxpayers identified in a single whistleblower

submission. This accounting for multiple taxpayers identified in a single submission has

been followed each year since. The following table has been modified to provide a

rolling five year schedule of claims received by fiscal year of receipt with all years prior

to the most recent five being consolidated as one number.

All Claims Received, By Fiscal Year of Receipt 9

(as of 05/14/15)

Pre-2010

2010

2011

2012

2013

2014

Total

Claims

Received

11794

13220

8166

9493

10520

14365

67558

Claims

Open

5125

6211

2016

3017

5101

8682

30152

The data presented in this table may not align completely with reported prior year data. As the IRS

continues to work a claim and learns more about the characteristics of the claim, the case management

information is updated. The data presented in this table is captured as of a certain date and is a snap

shot in time. The data is dynamic and changes can occur after the date the data is presented.

Record keeping procedures for claims received prior to FY 2007 varied. Some of the data captured in

the “Pre-2010” column includes data recorded in tracking systems used prior to 2009. Those systems did

not consistently record information on submissions that identified multiple taxpayers, and some pre-2006

tracking systems were not automated. As a result, the Pre-2010 column does not include all claims

submitted before 2010. It does, however, account for all currently open claims for those years.

Table 2: Fiscal Year 2014 Receipts, by Operating Division, All Claims

The table below provides data on all submissions and claims received in FY 2014. This

table identifies the IRS operating divisions to which the claims are assigned for review

and action, which provides more useful information on where the work is being done

within the IRS. Matters involving taxpayers with assets of more than $10 million are

under the jurisdiction of the Large Business and International Division (LB&I), while

matters involving businesses and individuals that do not meet that threshold are

generally assigned to the Small Business/Self-Employed Division (SB/SE). These two

operating divisions receive the vast majority of whistleblower claims. While the

jurisdiction of the Tax Exempt and Government Entities Division (TE/GE) encompasses

a wide range of taxpayers and tax issues, that division receives relatively few

whistleblower submissions. A claim initially assigned to LB&I, SBSE or TE/GE may be

referred to Criminal Investigation if development of the case by the civil operating

division reveals a potential criminal violation. The Whistleblower Office also makes a

limited number of direct referrals to Criminal Investigation, such as cases where the

allegations relate to illegal source income or other matters where development by a civil

operating division would be unnecessary or inappropriate.

The table includes data on whistleblower submissions and claims associated with those

submissions. As a general rule, multiple claim numbers are assigned when the

submission identifies multiple taxpayers. The table also identifies the claim type.

Claims listed as 7623(b) appear to have the potential to exceed the $2 million threshold

that defines 7623(b) claims in the law, with all others classified as 7623(a) claims.

Fiscal Year 2014 Receipts, by Operating Division

All Claims 11

Operating Division

LB&I

SBSE

TEGE

Not Specified

Total Submissions

Total Claims

Submissions

Claims

Submissions

Claims

Submissions

Claims

Submissions

Claims

Submissions

Claims

Claim Type

7623(a) 7623(b)

357

228

134

1106

881

3219

138

10437

976

200

347

140

162

3814

352

12083

2282

Grand Total

388

362

1987

3357

11413

224

391

154

186

4166

14365

In previous annual reports, the IRS reported only the number of claims received that were designated as potential

7623(b) claims—those that appeared to have the potential to meet the $2 million amount in dispute threshold. The

designation of a claim as a “potential 7623(b) claim” should not be treated as final because it requires speculation,

and is contingent on the results of IRS actions that will often not be known for years.

The operating division is not specified for some claims because there may be more than one operating division with

responsibility for issues identified in the submission.

Table 3: Fiscal Year 2014 Closures, by Fiscal Year of Receipt, All

Claims

Table 3 identifies claims closed in FY 2014, including the year the IRS received the

claim and the reason for closure. As with Table 1, pre-2007 receipts are consolidated.

Arraying the data by fiscal year of claim receipt shows that the largest number of award

paid in full cases was for claims received in FY 2011, consistent with the notice

provided to whistleblowers that awards are typically not paid until several years after

receipt of the submission. Claims received in FY 2014 and the prior year accounted for

80% of closures. The most common reasons for denial were non-specific allegations,

issues that were below the threshold for IRS action, and allegations that did not identify

a tax issue.

In the summer of FY 2012, the Whistleblower Office modified its information system to

capture additional information on the reasons for closing claims. The table below

reports the applicable reason for each claim that closed in FY 2014. For all claims other

than those listed as “award paid in full,” the claim was denied.

•

There are sometimes multiple reasons for closing a claim, such as limited

time remaining on the applicable statute of limitations and insufficient

resources to pursue the matter because of higher priority work in the unit

to which the claim is assigned. In those cases, one reason is noted in the

automated claim record based on the facts and circumstances presented.

•

When a submission identifies multiple taxpayers, different closing reasons

could be applicable to different taxpayers identified in the same

submission, based on the results of IRS actions regarding each taxpayer.

There may be an award paid with respect to one taxpayer, and a “no

change” result with respect to another.

•

The closing reasons distinguish between examinations that find no

additional taxpayer liability, and those in which a liability was found on

issues other than those identified by the whistleblower. Awards are paid if

the information provided by the whistleblower is the basis for assessment

and collection of tax. When the information provided by the whistleblower

has no relevance to the assessments, the claim is denied and the

“Examination Result on Whistleblower Issues Was ’No Change’” closing

reason applies.

Reasons for Fiscal Year 2014 Closures, All Claims

Fiscal Year of Claim Receipt

Reason

Pre

2007

2008

2009

2010

2011

2012

Award Paid in Full in

2014

Allegations

Unclear/Non Specific

Issues Below

Threshold for IRS

Action

Lack of

Resources/Other

Priorities

Examination Result

Was “No Change”

Examination Result

on Whistleblower

Issues Was “No

Change”

No Collected

Proceeds

No Tax Issue

2014

Total

238

276

190

514

237

375

662

167

271

124

938

1535

2584

Information Already

Known

2013

Insufficient Time

Remaining on Statute

of Limitations

131

Statute of Limitations

Expired Before

Whistleblower

Information Was

Submitted

163

Closed - Other

Total

189

116

423

804

1620

112

142

146

165

405

350

2196

2,989

6520

For this table, “Awards Paid in Full” reflects the number of claims (individual taxpayer matters) closed resulting in

payments to whistleblowers. In some cases, these payments reflect collected proceeds from multiple taxpayers,

each of which is reflected as a closed claim with an award paid in this table. However, Table 6 reports as “awards

paid” the number of whistleblower payments. For example, a whistleblower submission could result in collected

proceeds from five taxpayers, with a single award payment to the whistleblower. Table 3 would reflect five “awards

paid in full” claims for that submission, while Table 6 records one award payment.

The data in this table was collected during a period of transition from old definitions to new ones. When the

Whistleblower Office found that the “Closed-Other” closing reason was used more often than expected, additional

training and guidance was provided to properly identify and apply the correct closing reason definitions. The

Whistleblower Office will continue to examine trends in closing reasons, and may adjust definitions or add definitions

to provide a more complete picture of actions taken on whistleblower information.

Table 4: Status of Open Section 7623(b) Claims from All Years

Table 4 provides current status information for claims that were designated as potential

7623(b) claims 15. The Whistleblower Office uses information provided by the

whistleblower to determine whether a submission has the potential to result in an

amount in dispute exceeding the $2,000,000 threshold for section 7623(b). The

designation as potential 7623(b) claims should not be treated as final because it

requires speculation on actions that can take years to complete. Potential 7623(b)

claims are identified during initial review of submissions by the Whistleblower Office,

and then forwarded to subject matter experts (SMEs) in the IRS operating divisions.

The SME then determines whether the whistleblower information will be provided to

field offices for examination or investigation, taking into consideration the quality of the

information provided, IRS enforcement priorities and, in some cases, legal limitations on

the use of the information submitted. Once information is provided to a field office, it

may be incorporated into an on-going examination or investigation, a new examination

or investigation may be started, or it may be deferred or declined in favor of higher

priority cases or issues. Upon completion of an examination or investigation, or after a

decision by a SME or a field office not to act on the information provided by the

whistleblower, the case is returned to the Whistleblower Office. The Whistleblower

Office determines whether a whistleblower is eligible for an award and, if so, the amount

of the award.

The tables below include a category called “Whistleblower Office-Case Suspended.”

Action on claims may be suspended for several reasons. These reasons include

waiting for collection action after tax has been assessed, waiting for the taxpayer to

exhaust or waive appeal rights, and waiting for action on related cases. A related case

suspension would be appropriate when a whistleblower submission identifies multiple

taxpayers, and the IRS decides to take action on some but not others. The declined

cases would be suspended until the actions on other taxpayers are resolved. 16 Another

reason to suspend related cases would be that actions have been completed on some

taxpayers, but the amount in dispute is below the $2,000,000 threshold for section

7623(b). Suspending action to determine whether additional actions could push the

aggregate amount in dispute over the threshold preserves the whistleblower’s potential

Tax Court appeal right. Prior to the August 8, 2012, information system changes, the

Whistleblower Office could not record the reason for suspension within the information

system in a way that would permit statistical reporting. The information systems

changes will now permit collection and reporting on this information going forward, but

required over 20,000 record changes to update previously recorded claims with the new

data fields. The Whistleblower Office is continuing to update records on the remaining

475 claims to reflect the reason for suspension, as the majority of these fields have

been updated.

The Whistleblower Office cannot report similar information on 7623(a) claims (those that do not appear to involve allegations of

an amount in dispute of more than $2 million) because record keeping on those claims is based on different workflows and

processing. If further evaluation of claim initially designated as a 7623(a) claim suggests that the amount in dispute may exceed $2

million, the claim is re-designated as a 7623(b) claim and its status would be reported on Table 4.

The data included in the “Whistleblower Office - Case Suspended for Reasons Other than the Suspense Categories Listed Below”

and “Whistleblower Office - Case Suspended: Related Claims Still in Process” includes submissions which are suspended from

closure until actions on other taxpayers are resolved with either the master or related claims.

Status of Open Section 7623(b) Claims from All Years 17

(as of 05/14/15)

Submissions

Current Status

Taxpayer has sought review by IRS Appeals

CI Initial Review Prior to Accepting for

Investigation

Operating Division Field Examination

Operating Division Subject Matter Expert Review

Whistleblower Office - Admin Proceeding

Preliminary Award Recommendation Letter

Whistleblower Office - Admin Proceeding

Rejection/Denial

Whistleblower Office - Award Evaluation

Whistleblower Office - Case Suspended

Whistleblower Office - Case Suspended: OD

Evaluating Bulk Claim Involving a Large Number

of Taxpayers

Whistleblower Office - Case Suspended: Awaiting

Collection Action

Whistleblower Office - Case Suspended:

Whistleblower Litigation Regarding Award

Determination

Whistleblower Office - Case Suspended Payment

Received, Awaiting Expiration of Statute of

Limitations on Taxpayer Claim for Refund

Whistleblower Office - Case Suspended: Related

Claims Still in Process

Whistleblower Office - Case Suspended for

Resolution of TEFRA Key Case

Whistleblower Office - Final Award Processing

Whistleblower Office - Reviewing Results of Field

Action To Determine Whether There is Sufficient

Information to Make an Award Decision

Whistleblower Office - Initial Review

Whistleblower Office - Rejection/ Denial Letters

and Award Recommendation Memos Sent for

Manager Approval

Whistleblower Office -Manager Approved

Rejection/Denial Letters and Award

Recommendation Memos

Whistleblower Office - PARL Approval Manager

Approval for Preliminary Award Recommendation

Letter

Whistleblower Office - Rejection/Denial Letter

Pending

Total

Taxpayers

Whistleblowers

Claim #s

281

236

682

2632

145

500

2439

139

394

503

392

475

4401

4386

534

479

597

514

305

3178

196

2957

117

104

290

655

221

612

152

314

127

306

1942

14064

1489

13337

The information system has been revised several times to add additional status information, and to reflect changes

in definitions of claim status. For claims that were created prior to those revisions, individual records must be

updated to reflect the changes, requiring manual updates to thousands of records. This work was expected to be

complete in FY 2014. However, staff and system changes were not available for this work, and it was deferred to FY

2015. Table 4 does not yet reflect these changes. After these updates are completed, future reports will more

accurately capture the current status of 7623(b) claims.

Table 5: Days in Current Status, Open Section 7623(b) Claims

Table 5 reflects the number of days in current status from the date that the claim

cleared the previous status. For example, the time that a claim is in “Operating

Division Field Examination” is measured from the date “Operating Division Subject

Matter Expert Review was completed.” The data collection used to generate this data

did not consider the possibility that a claim may not move through the process

linearly. For example, the claim reported as “longest” in “Operating Division Subject

Matter Expert” status was transferred for consideration of an examination after

completion of a criminal investigation.

As previously discussed, the Whistleblower Office has significantly revised the

information system to begin collecting data that will account for circumstances such

as the return of a claim for further review. Changes were also made in the definition

of the “Whistleblower Office-Award Evaluation” status, and four new “Whistleblower

Office- Suspended” statuses were added to Table 5 similar to how the statuses were

added to Table 4 above. The caution regarding the reliability of the designation of

potential 7623(b) claims that applies to Table 4 also applies to Table 5.

Days in Current Status, Open Section 7623(b) Claims 18

(as of 05/14/15)

Current Status

Taxpayer has sought review by IRS Appeals

CI Initial Review Prior to Accepting for Investigation

Operating Division Field Examination

Operating Division Subject Matter Expert Review

Whistleblower Office - Admin Proceeding Preliminary Award

Recommendation Letter

Whistleblower Office - Admin Proceeding Rejection/Denial

Whistleblower Office - Award Evaluation

Whistleblower Office - Case Suspended for Reasons Other than the

Suspense Categories Listed Below

Whistleblower Office - Case Suspended: OD Evaluating Bulk Claim

Involving a Large Number of Taxpayers

Whistleblower Office - Case Suspended: Awaiting Collection Action

Whistleblower Office - Case Suspended: Whistleblower Litigation

Regarding Award Determination

Whistleblower Office - Case Suspended Payment Received, Awaiting

Expiration of Statute of Limitations on Taxpayer Claim for Refund

Whistleblower Office - Case Suspended: Related Claims Still in Process

Whistleblower Office - Case Suspended for Resolution of Tax Equity and

Fiscal Responsibility Act Key Case

Whistleblower Office - Final Award Processing

Whistleblower Office - Reviewing Results of Field Action To Determine

Whether There is Sufficient Information to Make an Award Decision

Whistleblower Office - Initial Review

Whistleblower Office - Rejection/ Denial Letters and Award

Recommendation Memos Sent for Manager Approval

Whistleblower Office -Manager Approved Rejection/Denial Letters and

Award Recommendation Memos

Whistleblower Office - Manager Approval for Preliminary Award

Recommendation Letter

Whistleblower Office - Rejection/Denial Letter Pending

Average

Days

419

395

544

Longest

Days

1912

492

2344

779

Shortest

Days

215

399

400

1046

1034

269

1382

1352

387

955

360

728

1263

1890

566

218

962

218

362

1148

673

191

This table provides current status information for claims that were designated as potential 7623(b) claims. As is noted in

connection with Table 4, the designation as potential 7623(b) claims should not be treated as final because it requires speculation

on actions that can take years to complete. Further, for the same reasons as stated in connection with Table 4, comparable data on

7623(a) claims is not available. The information system has been revised several times to add additional status information, and to

reflect changes in definitions of claim status. For claims that were created prior to those revisions, individual records must be

updated to reflect the changes, requiring manual updates to thousands of records. This work was expected to be complete in FY

2014. However, staff and system changes were not available for this work, and it was deferred to FY 2015. Table 5 does not yet

reflect these changes. After these updates are completed, future reports will more accurately capture the current time in status.

The data included in the “Whistleblower Office - Case Suspended for Reasons Other than the Suspense Categories Listed Below”

includes submissions which are suspended from closure until actions on other taxpayers from either mater or related submissions

are resolved.

The data included in the “Whistleblower Office - Initial Review” includes submissions with complex issues, which may require

additional information from the whistleblower prior to cross coordination with the various business operating divisions or subject

matter expert coordination.

Table 6: Awards Paid, Fiscal Years 2010 to 2014

The table below provides current and historical information on claims paid. The number

and amount of awards paid each year can vary significantly, especially when a small

number of high-dollar claims are resolved in one year. In FY 2014, the IRS made 101

awards, totaling $52,281,628 prior to sequestration. As in previous years, the awards

paid were based on claims covered by the pre-2006 law. By the end of FY 2014,

eleven claims have been paid under the revised law, including two separate payments

to one whistleblower. These have not been segregated from other award payments to

protect taxpayer and whistleblower privacy.

In April 2013, the Whistleblower Office issued a notice regarding the impact of the

Balanced Budget and Emergency Deficit Control Act of 1985, as amended. This law

required reductions in expenditures, also known as “sequestration,” starting March 1,

2013. As applied to payments under section 7623, the required reductions were 7.2

percent of the amount that would otherwise have been payable in FY 2014. Reductions

totaling $3,764,722 were applied to awards paid during FY 2014. The total award

amount before reductions was $52,281,628, representing 16.9% of total amounts

collected. The table below includes data on awards paid and collections attributable to

whistleblower information in those cases. The year in which an award is paid is

generally not the year in which the collections occurred, because the IRS must wait until

the taxpayer appeal rights have been waived or exhausted.

Amounts Collected and Awards Paid under Section 7623

FY 2010-2014

Awards

Paid

Collections

over

$2,000,000

Total

Amount of

Awards

Paid

Amounts

Collected

Awards

paid as a

percentage

of amounts

collected.

2010

2011

2012

2013

2014

128

122

101

$18,746,327

$8,008,430

$125,355,799

$53,054,302

$52,281,628

$464,695,459

$48,047,500

$592,498,294

$367,042,420

$309,990,568

4.0%

16.7%

21.2%

14.6%

16.9%

For this table, “awards paid” reflects the number of payments to whistleblowers. In some cases, these

payments reflect collected proceeds from multiple taxpayers, each of which is reflected as a closed claim

with an award paid in Table 3, which reports closing reason.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.