WASHINGTON – Whistleblowers who have helped the federal government collect billions of dollars in unpaid taxes received a record high total in reward money last year – about $312 million.
The 10-fold increase from the previous year was the result of a law passed in February 2018 that broadened the definition of “collected proceeds” from the offending company or individual, which would increase the amount of the reward. It was intended to further encourage whistleblowing because of the potentially high cost of retaliation.
Now, legislative signed into law on July 1 offers the whistleblowers legal protections against retaliation for the first time and requires the IRS to notify whistleblowers about the status of their claims no later than 60 days after a status change or upon written request.
It’s still early to judge the effects of the new law yet many advocates see it as a “sea change.”
“So much depends on how much the IRS actually implements and puts these laws into practice,” said Michael Ronickher, an attorney who specializes in representing tax whistleblowers. “That would be a huge benefit if they follow through on that.”
Currently, whistleblowers often have to wait more than 10 years to even get updates about their claims – and can’t find out what’s going on.
A 55-year-old Texas man reported tax fraud at his workplace to the IRS in 2007. More than a decade later, he is still waiting for a decision from the IRS, which says only that his case is still “open and active,” said his lawyer, Phillip Brown of Constantine Cannon in New York. The man declined to be identified due to fear of retaliation by the company.
“You bring [the IRS] the information and then you basically sit and wait for a long time,” Brown said. “It’s up to them to act on it and take it seriously.”
The typical process takes five to seven years or more, as IRS states. It’s also common for whistleblowers to not get any payment because the IRS may drop the case or be unable to collect any money. Even if they do get awards, it’s still a relatively small portion compared to their work, advocates said.
“It might be a lot of money but it’s still a small percentage of the giant amount of money that would not have been collected at all by the government, had that person not come forward,” said Danielle Brian, executive director of Project On Government Oversight, a nonprofit government watchdog group.
Tax whistleblowers often face retaliation and career derailment. Afraid of retaliation, the 55-year-old Texan left his company before revealing irregularities in tax collection. Advocates say the award is generally seen as a “safety net” to encourage more insiders to come forward.
National Whistleblower Center founder Stephen Kohn said that a large award might induce high-ranking corporate officials to provide higher-quality information and at the same time prevent them from fudging taxes.
“Only extremely large awards can induce someone with a lot to lose to come forward,” said Kohn, who has represented several corporate presidents acting as whistleblowers. He noted the high payment also sends the message that company officials are more likely to get caught because of a potentially larger number of whistleblowers. “The fear of detection triggers compliance,” he said.
But some advocates also have misgivings about the large compensation sum. Tom Devine, the legal director of the Government Accountability Project, another government watchdog, has been wary of the “highly destructive impact.”
Devine noted that whistleblowers might be accused of betraying colleagues and being greedy, which could make them reluctant to step forward.
“[The large awards] increase the levels of retaliation because employers are more paranoid and suspicious of whistleblowers,” he said.