Note: this article, featuring our Legal Director Tom Devine, was originally published here.
Tax-Cheat Whistleblowers Raking In Record Reward Money Under Expanding Legal Protections
WASHINGTON — Whistleblowers who helped the federal government collect $1.4 billion in unpaid taxes last year reaped a record $312 million in reward money thanks to a new law meant encourage tipsters to step forward. And the payouts could go even higher in the years ahead.
For the first time ever, whistleblowers have been granted legal protection against retaliation under a new law that went into effect in July. And the IRS is now required to notify them about the status of their claims no later than 60 days after a status change or upon written request.
Previously whistleblowers had to wait long periods — sometimes more than 10 years — just to get updates about their claims. They were often left in the dark and some never received a dime.
The new rules are just the latest in a series of laws meant to encourage whistleblowers to step forward. The record payout, for instance, occurred after the government in 2018 made the formula for determining rewards more generous if the IRS recouped back taxes from delinquent individuals or companies.
Although it’s still too early to judge the full effects of new legal protections, 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.”
That wasn’t always the case in the past.
A 55-year-old Texas man, for instance, 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, the lawyer said, 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 not to get any payment at all because the IRS may drop the case or be unable to collect money.
Even if tipsters 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 a larger award might induce high-ranking corporate officials to come foward if their companies are fudging on 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 said a high reward also sends the message to company officials that they are more likely to get caught because of a potentially larger number of whistleblowers.
“The fear of detection triggers compliance,” he said.
Some advocates have misgivings about the large compensation sum, however. 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.