Tax Whistleblowers: Incomplete Data Hinders IRS's Ability to Manage Claim Processing Time and Enhance External Communication
Highlights
The Tax Relief and Health Care Act of 2006 expanded the Internal Revenue Service's (IRS) whistleblower program, increasing rewards for submitting information on others' tax underpayments to up to 30 percent of collected proceeds. The expanded program targets tax underpayments over $2 million and could reduce the gap between taxes owed and taxes paid. IRS's Whistleblower Office has received over 1,300 submissions qualifying for this new program since 2007. GAO was asked to assess (1) how IRS manages the expanded program, (2) how IRS communicates with whistleblowers and the public, and (3) any lessons from IRS's or other government whistleblower programs that could improve IRS's expanded whistleblower program. GAO analyzed IRS documents and data and interviewed IRS officials, whistleblower attorneys, and federal and state whistleblower program officials.
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. IRS is limited in what information it can share with whistleblowers about the status of claims because of statutes protecting the privacy of tax information. For example, because IRS cannot disclose if it is examining a taxpayer, it cannot inform whistleblowers on the progress of their claims or the reasons their claims are rejected. One mechanism through which the Whistleblower Office can communicate program results is its mandated annual report to Congress. However, the most recently released report, for fiscal year 2010, did not contain information on case processing times or specific data on why IRS rejected claims. Collecting additional data and including it in the report could improve the transparency of the program and Congress's ability to oversee it. Federal and state whistleblower programs have features with potential benefits that could improve IRS's expanded whistleblower program, including options that increase interaction or information shared with whistleblowers and options that attempt to improve the accountability for claim processing. While there are potential advantages to all identified options, it is difficult to determine if the advantages outweigh the disadvantages for many options. Furthermore, IRS would be limited by taxpayer data protections in implementing some of the options. GAO recommends that IRS collect more information--including data on the time each step takes for all claims and reasons for claim rejection--in its claim tracking system, establish a process to follow up on claims that exceed review time targets, and include more information on these issues in its annual reports to Congress. In written comments on a draft of this report, IRS generally agreed with our recommendations.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to record time-in-step information for all claims by identified taxpayer in E-TRAK. |
On July 2, 2012, the IRS Whistleblower Office updated its E-TRAK claim tracking system to include a new field for recording when each claim changes status. The new tracking feature allows IRS staff to see the date a claim moves into and out of each step of the whistleblower claim review process and to track status changes for claims by each identified taxpayer.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to adjust E-TRAK's tracking feature to more accurately count the number of days claims remain in each step. |
On July 2, 2012, the IRS Whistleblower Office updated E-TRAK to record time-in-step information for all whistleblower claims. As a result, the Whistleblower Office now has the capability to run reports that more accurately count the number of days claims remain in each step.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to track the reasons for claim rejections by broad categories. |
On August 29, 2012, the Whistleblower Office added several codes to E-TRAK to track reasons for claim rejections. The update also includes a field to record which area made the rejection decision, such as Whistleblower Office or subject matter expert. Whistleblower Office officials stated they would track rejection reasons going forward.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to track the reasons claims are listed as suspended by broad categories. |
On August 29, 2012, the Whistleblower Office added five new reason codes to E-TRAK to track reasons for claims that are in the suspended status. These reason code updates allow the Whistleblower Office to track claims suspended due to waiting periods for refund statutes, collections, and litigation, as well as waiting for the results of related claims or audits.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to establish a process by which the Whistleblower Office routinely follows up on claims that have been in the operating division SME initial review step more than a targeted number of days. |
According to Whistleblower Office officials, they follow up on any claims that are in the subject matter expert review status longer than 90 days by e-mailing an aged claim report to the business operating divisions monthly. The business operating divisions then report the oldest claims on a monthly business performance report to the Deputy Commissioner for Services and Enforcement, and include an explanation for why the claim has been in the subject matter expert review status longer than 90 days and an action plan for each aged claim.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to redesign Form 211 to include stand-alone questions on the following information: (1) the relationship of the whistleblower to the target taxpayer, (2) the employer of the whistleblower, (3) whether the whistleblower has submitted the information to any other federal or state agencies, and (4) whether the whistleblower has included all information relevant to the claim. |
In April 2014, IRS released a new Form 211 to collect more information from whistleblowers. The revised Form 211 has specific questions to document (1) the relationship of the whistleblower to the target taxpayer, (2) whether the whistleblower has submitted information about the targeted taxpayer to other federal or state agencies, and (3) whether the whistleblower has provided all information relevant to the claim. However, the revised form does not ask for the employer of the whistleblower, which is important in determining if the whistleblower is otherwise ineligible to participate in the whistleblower program. The Director of the Whistleblower Office stated that IRS did not include this question because asking for the employer of the whistleblower would take up space on an already crowded form and not yield additional useful information for the claim review process, except in rare circumstances. If the whistleblower is either currently or formerly employed by the targeted taxpayer, that information is captured in the question discussion the whistleblower's relationship to the targeted taxpayer.
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| Internal Revenue Service | To improve the effectiveness of IRS's expanded whistleblower program, the Commissioner of Internal Revenue should direct the Whistleblower Office Director to provide additional summary statistics in future annual reports to Congress, including data on the length of time claims remain at each step of the review process, data on the length of time from claim receipt to payments, reasons for claim rejections, aggregate information on awards paid, and total amount of whistleblower payments. |
In its Fiscal Year 2011 and 2012 Reports to the Congress on the Use of Section 7623, the Whistleblower Office included additional data on the whistleblower program not reported in previous annual reports, such as a table showing the status of and average time-in-step information for open whistleblower claims. On April 3, 2014, the Whistleblower Office released its Fiscal Year 2013 Annual Report to Congress which included additional data, including information on reasons for claims rejections and suspensions and aggregate data on awards paid, including total amounts paid to whistleblowers.
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| Internal Revenue Service | The Commissioner of Internal Revenue should direct the Commissioners of Large Business and International Division (LB&I) and Tax Exempt and Government Entities Division (TE/GE) to develop targets for how long subject matter expert (SME) reviews should take before being flagged for follow-up. |
In a June 20, 2012 memo, the Deputy Commissioner for Services and Enforcement directed the operating divisions, including LB&I and TE/GE, and Criminal Investigations to implement a 90-day subject matter expert review target. He also directed that claims taking longer than the 90 day target be included on Business Performance Review reports, which are reviewed monthly by each operating division's commissioner as well as the Deputy Commissioner for Services and Enforcement.
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