Sen. Chuck Grassely, R-Iowa Alex Brandon/AP
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The Internal Revenue Service needs to boost resources for investigating tips about tax cheats the architect of the agency’s whistleblower reward program said Friday.

Sen. Charles Grassley, R-Iowa, who wrote a 2006 expansion of the whistleblower program, said a new Government Accountability Office report says the agency needs to do more to make sure that delays don’t discourage whistleblowers from reporting companies and fat cats who cheat on their taxes.

He said the IRS also needs to circumvent internal agency politics by giving the IRS Whistleblower Office more clout within the bureaucracy.

“I’m concerned that the IRS management still might have too many opportunities to say ‘no’ to a whistleblower, even when the whistleblower office believes a claim has merit,” Grassley said in a statement. “The IRS commissioner has to make it clear that he expects the director of the IRS whistleblower office to speak up if it thinks an IRS office is foot dragging on a good whistleblower claim.”

The GAO report, released Friday, generally takes a “he said-she said” approach – reporting what critics say about the program and the IRS’s responses. But the report does assert that incomplete record keeping has hindered the agency’s ability to manage whistleblower complaints and ensure that claims are handled in a timely manner.

The 2006 law championed by Grassley requires the IRS to pay a reward of 15 percent to 30 percent of money recouped by the agency when tipsters identify cases involving $2 million or more in unpaid taxes. As iWatch News reported in June, whistleblower advocates complain that the tipster program has been hampered by delays, excessive secrecy and lingering animosity toward whistleblowers by the agency’s old guard.

Since the IRS Whistleblower Office was established in early 2007, the IRS has fielded 1,300 whistleblower submissions qualifying for the expanded program, involving more than 9,500 corporations and individuals. So far, the agency has paid “a small number of awards” under the expanded program, according to the GAO, but it won’t say exactly how many or how much money has been paid out.

So far, one cash award under the new rules has been made public — a $4.5 million payout to an accountant who reported a $20 million tax underpayment by a Fortune 500 firm. In that case, the whistleblower’s attorney announced the reward without revealing the name of his client or the identity of the company.

Grassley said the GAO report “makes clear that the whistleblower program has been a success in providing good information to the IRS about big-dollar tax cheating. . . . Now the challenge is for the IRS and Treasury to make the changes needed to provide assurance to existing and future whistleblowers so they’re not discouraged by the time needed to process their claims.”

IRS leaders have said they’re committed to working with whistleblowers and that they have reduced red tape and delays. In a letter to Grassley last year, the IRS said it had “committed significant resources” to the whistleblower program and that the agency considers it “a critical part of the IRS strategy to uncover tax cheats and to vigorously and appropriately administer the nation’s tax laws.”

Steven T. Miller, deputy IRS commissioner for services and enforcement, said in a letter in response to the GAO report that it “takes significant time to fully process whistleblower claims.” This is due to a number of issues, Miller said, “most notably the requirement that allows taxpayers the appeals and litigation rights that the law affords.”

IRS officials also told the GAO that the agency was limited in what it can tell whistleblowers about the status of their claims because of laws requiring the confidentiality of taxpayer information.

Grassley said he was concerned that the IRS hasn’t been taking advantage of a confidentiality provision within the law that would allow informants and their lawyers to communicate with investigators. In essence, the whistleblowers and their attorneys can be deputized to work in tandem with the IRS in investigating and prosecuting a claim against a tax evader.

Similar provisions, Grassley noted, have been used with success when it comes to another federal whistleblower law, the False Claims Act, which offers rewards to informants who expose federal contractors that are ripping off taxpayers. That law has returned an estimated $27 billion to the Treasury since it was amended in 1986.

As of late April, the IRS had not entered into any such agreements with whistleblowers or their attorneys, the GAO said. IRS officials “stated they have not yet had a claim that necessitated this increased level of interaction with a whistleblower to gather information about the taxpayer,” the GAO said.

Given that the IRS is “short on resources” to investigate whistleblower complaints, Grassley said, it’s “worrisome that the IRS hasn’t taken advantage of this provision even once. The tax cheats shouldn’t be the only ones who can take advantage of outside legal talent. The IRS can’t ask for more resources while ignoring the free resources available.”

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