The Internal Revenue Service received 87,000 information referrals in Fiscal Year 2015 from the public submitting Form 3949-A to report suspected tax evasion, according to a recent U.S. Government Accountability Office report on the IRS referral programs which also included comments about the Office of the Whistleblower. The report concludes that the IRS may be missing opportunities in the fight against the net $385 billion tax gap because of ineffective internal controls, fragmentation and overlap in the management of the referral process.
As the GAO report details in Table 4, there are nine different referral programs at the IRS including the Whistleblower Office. Potential incidents of identity theft have a different process than tax return preparer fraud and they both have a different process than tax avoidance schemes by small businesses and the self-employed.
In addition to different internal processes, there are also different forms and procedures for the individual reporting them. Some of them require a form to be mailed, others permit faxes, and still others allow not paper or faxed submissions but require tips via email or a call to a hotline. For example, individuals can report suspected noncompliance with the tax laws by a taxpayer (business or individual) by filing Form 3949-A. However, if the individual would like to seek a financial reward, they need to mail Form 211 to the IRS Whistleblower Office instead.
Although the GAO primarily took issue with the Internal Revenue Service’s lack of internal controls in the process and the problems created by fragmentation across different internal programs, the criticism might soon apply more broadly than the IRS. The growing complexity of reporting suspected legal violations to different branches of the U.S. Government through different procedures raises the question of the appropriate time for a global overhaul.
There are only a few major federal whistleblower laws offering rewards right now. The False Claims Act, the Dodd-Frank Act and the IRS section 7623(b), for the most part. But it seems likely that this tool for discovering misconduct will be expanded in the near future. Over the past year or so, there have already been proposed legislation in Congress to create large financial incentives in other areas, such as for auto and bank whistleblowers.
If you add in smaller programs and the dozens of laws offering whistleblowers protection from retaliation, the government’s handling of whistleblowers is quite extensive and complex. There are also a number of programs offering smaller monetary awards for information about specific misconduct. And many of them overlap other laws, such as the Medicare fraud reward system and the False Claims Act.
Whistleblowing has become a more popular tool for the federal government to discover companies engaged in suspect practices. Wouldn’t it be simpler to report all suspected wrongdoing to one place in the U.S. Government and then have that agency distribute the tips to the various government agencies implicated by the misconduct? Does every agency need its own whistleblower program and staff or would it be better to consolidate the intake process in one place?
It seems unlikely that such an overhaul will come to fruition any time soon. At some point in the future though, it could have merit. In the meantime, if you have information about tax evasion that you wish to report to the U.S. Government, please call 1-800-590-4116 to speak to one of our IRS whistleblower attorneys.