IRS Whistleblowers’ $74 Million Payout Shows Two Years of Reform

The IRS’ recent $74 million award to three anonymous whistleblowers, and the $263 million recovered by the agency because they stepped forward, demonstrates the power of the tax whistleblower program and the need to ensure it’s as effective as possible.

Both the size of this award, and the reported speed it was issued, seem to be a sign that the IRS Whistleblower Office is righting the ship. It’s a testament to the dedication of the office’s staff and recent reform efforts initiated by its director, John Hinman.

But there remains a need for congressional reforms to address some of the program’s deep-seated issues that have caused crippling delays and the smaller payouts we are still seeing.

The IRS program for years has endured criticism about low payouts and rising process times. The agency only awarded $36.1 million to whistleblowers in fiscal year 2021 and $37.8 million in fiscal year 2022. Meanwhile, the average time to process an award climbed to 11.1 years, and 11.2 years respectively.

Hinman, who took the role in 2022, saw these issues and took action to fix them. He enacted a number of policy changes and administrative reforms, most notably an increase in staffing. The Whistleblower Office has gone from 48 employees to 84, with a goal of reaching 130. As part of this restructuring, the agency announced that the Initial Claim Evaluation team from the Small Business/Self-Employed Division had joined the whistleblower office.

The program also codified new policies around, and increasingly engaged in, disaggregation—speeding up payouts to whistleblowers by separating an individual action from a larger claim submission when the individual action is ready for an award determination, but other elements of the larger claim are not. This reform has expedited the processing of smaller whistleblower cases, but there remains a need for a broad, statutory fix that will redress stalls in the Treasury.

Most importantly, Hinman and his staff have shown real dedication to working alongside whistleblowers and their representation, moving away from previous tendencies at the IRS to try to argue for the lowest possible award payout to qualified whistleblowers. In September, the IRS played a critical role in securing two significant awards for tax whistleblowers that totaled $14.3 million, signaling the agency’s commitment to working with whistleblowers to combat tax cheats.

The IRS Whistleblower Program is the only government whistleblower program that applies an automatic 5.7% deductionon award payments. This automatic deduction means award payments often fall below the statutory minimum for whistleblowers, displaying an unacceptable insensitivity. Combined with the program’s delays, it disrespects whistleblowers who come forward to the IRS.

Tackling the decades-plus delays hampering the program and restoring the trust of whistleblowers in the agency requires legislative attention. The IRS Whistleblower Program Improvement Act of 2023, introduced by Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.), contains four reforms that will strengthen the program.

These reforms—imposing interest on delayed awards, removing budget sequestration for awards, ending double taxation of attorney fees, and instituting de novo review in award case appeals—would help ensure the program works for brave whistleblowers. The act is stuck in committee, but with new direction from Hinman, passing this legislation is feasible.

“The IRS uses increasingly sophisticated data analytics and other methods to detect noncompliance with tax laws, but we can’t find it all by ourselves,” Hinman said at this year’s National Whistleblower Day celebration on Capitol Hill. “We need help from whistleblowers, people with firsthand knowledge of noncompliance who are willing to share what they know with us so that we can investigate it when warranted.”

The three whistleblowers awarded the $74 million are proof of this. Thanks to their disclosure, the IRS was able to put an end to a 15-year offshore tax-evasion scheme.

The tax gap in the US hit a historic high of $688 billion in 2021; experts estimate this will continue to balloon to $1 trillion. Whistleblowers are key to catching tax cheats, and an effective IRS whistleblower program is necessary to encourage them to come forward.

Recent policy changes and staffing increases are helping improve the program, but for it to reach its full potential, we need the provisions found in the bipartisan IRS Whistleblower Program Improvement Act.

As it stands today, the IRS whistleblower program is like a car running on fumes. The passage of the act, along with Hinman’s dedication, will turn the stalled program into the race car that every American taxpayer needs it to be.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Stephen M. Kohn is a founding partner of the whistleblower law firm Kohn, Kohn & Colapinto in Washington, D.C., and chairs the board of the National Whistleblower Center.

Write for Us: Author Guidelines