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IRS Threatens to Weaken Whistleblower Program

The Internal Revenue Service (IRS) has proposed regulations that would “hamstring” its whistleblower program, according to Senator Charles Grassley (R-IA), a longtime champion of whistleblowers.

Last month, the Project On Government Oversight (POGO) echoed Senator Grassley’s concerns in a comment letter to the IRS, which the Government Accountability Project (GAP) also joined.

Legislation authored by Senator Grassley in 2006 enabled the IRS to offer a financial award to people who blow the whistle on Americans hiding money from the tax collector. The IRS program is modeled after the False Claims Act, which has recovered $35 billion for taxpayers since 1986.

But the program will only work if whistleblowers are encouraged to come forward. According to Senator Grassley, the IRS’s regulations would do just the opposite.

One proposal would “unduly limit the scope of the program,” he warned, by excluding whistleblower tips “relating to undisclosed foreign bank accounts” if the information does not “directly [relate] to the underpayments themselves.”

Another proposal could “drastically limit the number of corporate whistleblowers,” he said, because it allows the IRS to “claim that the information provided dealt with a topic that was covered in a regularly scheduled IRS audit,” and therefore does not qualify for an award.

Elsewhere in the proposal, the IRS cautioned that awards may be reduced for whistleblowers who “planned and initiated the tax fraud,” even if they only “[k]new or had reason to know that there were tax implications to planning and initiating the underlying act.”

“There is a delicate balance that needs to be struck between weeding out bad actors while not discouraging knowledgeable insiders from coming forward,” Senator Grassley said, and the proposal “fails to properly strike this delicate balance.”

POGO and GAP also raised concerns about a senior IRS official, William Wilkins, who used to lobby the IRS and other agencies on behalf of the Swiss Bankers Association. We asked the IRS to restrict Wilkins from working on the proposal. “Swiss banks such as UBS have been at the center of tax evasion scandals and have a major stake in the IRS’s whistleblower regulations,” the letter said.

We urged the IRS to amend the regulations so that they “expand, not limit, the opportunities for whistleblowers to come forward.”

“At a time when the IRS is struggling with a heavy workload and limited resources, the agency should be doing everything it can to incentivize and protect corporate insiders who are in the position to blow the whistle on tax fraud,” the letter said.

The IRS will be holding a public hearing on April 10 to discuss the proposed regulations.