In February, the Internal Revenue Service (IRS) released its FY 2018 Annual Report and announced a record-breaking year for the agency’s whistleblower program. Overall, whistleblowers provided information that contributed to the agency’s recovery of over $1.44 billion during the course of the year. As a result, the IRS awarded $312 million in bounty awards to whistleblowers in FY2018, an almost ten-fold increase from the $33.9 million in awards it made in FY2017. Of the 217 total awards the agency made to whistleblowers in FY 2018, 31 were mandatory awards under Internal Revenue Code section 7623(b) and 186 were discretionary awards under section 7623(a) (which applies to smaller cases). The average award percentage from the total amount collected was 21.7% – up from 16.6% in FY 2016 and 17.8% in FY 2017.
Lee Martin, the Director of the IRS’ Whistleblower Office, highlighted recent enhancements in the IRS’s whistleblower program, including providing whistleblowers with information about their pending claims earlier by means of Preliminary Award Recommendation Letters (PARLS). The Report also explained that the addition of Internal Revenue Code section 7623(c) as part of the Bipartisan Budget Act of 2018 has been a game-changer in the size of bounty awards. It defines “proceeds” broadly for purposes of a whistleblower award to include penalties, interest, additions to tax, additional amounts provided under the internal revenue laws, criminal fines and civil forfeitures, and violations of reporting requirements. The new 7623(c) further provides that the amount of proceeds is to be “determined without regard to whether such proceeds are available to the Secretary.” Prior to the change, the IRS would routinely take the position that the recovery percentage should exclude criminal fines and civil forfeitures paid under Title 18.
Unlike the SEC’s and CFTC’s whistleblower schemes, which contain statutory anti-retaliation provisions (as discussed in our prior blogs here, here, and here), the IRS program does not provide such protections to whistleblowers. Director Martin states that the “IRS remains committed to protecting the identity and even the existence of whistleblowers”; nevertheless, his Report urges Congress to enact legislation that provides IRS whistleblowers “with a zone of protection from economic or physical harm,” stating that it is “imperative” to the success of the program.
With or without the specific anti-retaliation protections, the IRS whistleblower program appears to have been a success in FY 2018. And despite concerns that the IRS program does not contain explicit whistleblower protections, it is important to recognize that the Sarbanes-Oxley Act protects employees of SOX-covered companies from retaliation for blowing the whistle based on a reasonable belief of mail fraud, wire fraud, and violations of federal law relating to fraud against shareholders, among other categories. See, e.g., Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064, ARB Case No. 09-118 (ALJ July 24, 2013) (finding that IRS whistleblower’s removal of confidential company data to support his whistleblower complaints constituted protected activity under SOX). Moreover, retaliation against IRS whistleblowers could have criminal implications: 18 U.S.C. § 1513(e) provides that “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.” Thus, employers should handle IRS whistleblowing with the same level of care, consideration, and escalation that it would any other type of whistleblowing.