Senate Finance Committee member Chuck Grassley, R-Iowa, in a January 28 letter to Treasury officials sharply criticized recently released proposed regulations on whistleblower awards and urged that his suggestions be implemented in the final regs.
The proposed regs (REG-141066-09 ) “are likely to further concerns in the whistleblower community that the IRS and Treasury view whistleblowers with hostility” and “will hamstring the program by limiting whistleblower awards and discourage knowledgeable insiders from coming forward,” Grassley said in the letter. The regs “mostly ignore issues and concerns raised [by Grassley and his staff] in meetings with officials from Treasury and IRS,” he said.
The proposed regs, issued on December 14, detail the rules for submitting information and filing claims for whistleblower awards, set forth administrative proceedings for claiming awards, and address the computational determination and payment of awards. (Prior coverage .)
Grassley aired a litany of complaints in his letter. He faulted the regs for not rewarding a whistleblower whose information leads to a reduction in a taxpayer’s net operating losses but does not immediately result in taxes collected. In response to a statement in the regs that it would be too complicated and costly to track whether a whistleblower’s work leads to an eventual payment of taxes, Grassley said the claim “does not even pass the smell test.”
“It is hard to find words that express my concerns that the IRS — an agency that has imposed some of the most complicated regulations possible on taxpayers — is now claiming that it would be too complicated to track whether a company has paid taxes,” Grassley said.
Grassley also took issue with the regs’ broad definition of planned and initiated to include anyone who “knew or had reason to know” that there were tax implications associated with an action brought forward by a whistleblower and their limiting the definition of collected proceeds to proceeds raised under title 26, and he asserted that they do little to improve communication between whistleblowers and the IRS.
Further, the IRS has not yet released its fiscal 2012 annual whistleblower report even though Grassley requested in a letter to Treasury and the IRS that it be completed by the end of November, he said.
Grassley said he was concerned that not enough resources were being allocated to the IRS Whistleblower Office, and he requested an account of the monthly staff levels at the office since its inception.
“Each of the concerns I have outlined needs to be addressed to ensure the IRS whistleblower program functions as intended,” said Grassley, who was the author of a 2006 law updating the program under section 7623. “I encourage you to address these matters immediately to ensure that good faith whistleblowers are not discouraged from coming forward.”
Dean A. Zerbe of Zerbe, Fingeret, Frank & Jadav PC, who previously served as Grassley’s senior counsel and tax counsel on the Finance Committee, told Tax Analysts that Grassley’s comments jibe with concerns in the whistleblower community. The IRS should listen to Grassley, who is speaking from years of experience overseeing the successful federal False Claims Act, a separate whistleblower program, Zerbe said.
While the IRS is moving in the right direction with its whistleblower program, it’s “kind of two steps forward, one step back,” Zerbe said. The regulations are too focused on trying to withhold unwarranted whistleblower payments rather than encouraging whistleblowers to come forward, he said.
Grassley is right to call attention to the staffing levels and resources allocated to the Whistleblower Office because it has borne its share of budget cuts along with offices throughout the agency, Zerbe said. IRS employees who can successfully work with whistleblowers can make the rest of the agency’s work easier, he said. Resources allocated to the office pay back more than their cost through taxes collected, he said, adding that the office is “the last place you’d want to be reducing staffing.”