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Audit Finds Faults in Whistleblower Program Run by IRS

September 12, 2011 ( Whistleblowers who offered tips to the Internal Revenue Service about corporate tax dodgers got a boost five years ago, when Congress passed a law requiring the tax agency to give tipsters up to 30 percent of the money it recoups in unpaid taxes.

But a new audit by the Government Accountability Office concludes that the revamped program is hampered by red tape, lengthy delays and incomplete data collection by the IRS. And corporations and individuals under review for tax fraud can exercise rights that add years to the process.

The GAO found that whistleblower claims take years to go through the tax agency's review and award process: Almost two-thirds of claims submitted in 2007 and 2008 are still in bureaucratic limbo.

Auditors also concluded that the IRS does not have a strong system to evaluate the stepped-up whistleblower program. And whistleblowers have little access to the status of their claims because of laws protecting taxpayer privacy.

When the IRS sends rejection letters to whistleblowers, the letters do not state why their requests for awards were denied. IRS officials told auditors that providing the information violates the tax agency's rules: A claim may be rejected because a review did not result in additional tax collections. But the IRS cannot disclose that it conducted an audit.

The new program, championed by Sen. Charles E. Grassley (R-Iowa), targeted potential fraud of $2 million and more. The IRS has received tips on more than 9,500 taxpayers from 1,400 whistleblowers since the law passed. It has rejected 1,300 claims.

"Silence between the IRS and the whistleblowers only helps the tax cheats," Grassley said Friday in a statement on the audit. "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."

Dean Zerbe, special counsel to the National Whistleblowers Center, said in a statement, "The IRS will do a better job of going after tax cheats if good whistleblower claims are given open and full consideration - and not subject to a rubber stamp denial."

Auditors recommended numerous changes to improve the program, from better tracking of claims to targets for how long review should take.

IRS officials generally agreed with the audit's conclusions in a draft response, and they said they would implement the recommendations. They added, however, that implementing them will be difficult because of limited staffing.

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