This report  focuses on the expanded program. IRS is clarifying the definition of collected  proceeds. IRS withholds tax to reduce the  risk of tax underpayment on what can potentially be large amounts of  income. Whistleblower Claims Can Take Years to Process but the Whistleblower Office Does Not Have Complete Data on Claim Processing Time

Whistleblower claims can take years to go through the IRS review and  award determination process. For example, as of April 25, 2011:    about 66 percent of claims submitted in the first 2 years of the  program, fiscal years 2007 and 2008, were still in process;  less than 7 percent of claims submitted in fiscal years 2007 and 2008  that were still in process were in the Whistleblower Office final review  or Whistleblower Office award evaluation steps; and    447 claims submitted in fiscal year 2010 had been in the  Whistleblower Office initial claim review step at least 200 days. The Whistleblower Office and some  operating divisions have time targets for their initial claim reviews;  however, other operating divisions do not have targets and the  Whistleblower Office does not have a systematic process to check in on  claims once they are with the operating divisions for review. Restrictions on Disclosing Tax Information Limit IRS Communication on Specific Claims, but Increased Communication on Overall Results Could Improve Program Transparency

IRS is limited in what information it can share with whistleblowers and  other stakeholders throughout the whistleblower claim process. According to IRS, disclosing to a whistleblower that  IRS is examining a taxpayer reveals tax information; therefore, IRS does  not inform whistleblowers on the progress of their claim other than to  confirm that the claim is either open or closed. For example, the 2010 annual report, the most  recent report available, included the number of whistleblowers and the  number of taxpayers identified, but did not provide data on the time taken  for claims to move through the process or specific information on rejected  claims. The lack of such data limits Congress’s ability to effectively  oversee the program. Other Agencies and Whistleblower Attorneys Identified Options That Could Potentially Improve IRS’s Whistleblower Program but Involve Trade-Offs

Federal and state whistleblower programs we reviewed have features  with potential benefits that could improve IRS’s expanded whistleblower  program. While there are potential advantages to all identified options, it is difficult  to determine if the advantages outweigh the disadvantages for many  options. Other steps could improve whistleblower submissions and reporting to  Congress. Recommendations for Executive Action

To improve the effectiveness of IRS’s expanded whistleblower program,  we recommend the Commissioner of Internal Revenue direct the  Whistleblower Office Director to take the following seven actions:  record time-in-step information for all claims by identified taxpayer in  E-TRAK;    adjust E-TRAK’s tracking feature to more accurately count the number        establish a process by which the Whistleblower Office routinely  of days claims remain in each step;  track the reasons for claim rejections by broad categories;  track the reasons claims are listed as suspended by broad categories;  follows up on claims that have been in the operating division SME  initial review step more than a targeted number of days;  redesign Form 211 to include stand-alone questions on the following  information:        whether the whistleblower has submitted the information to any  the relationship of the whistleblower to the target taxpayer,  the employer of the whistleblower,  other federal or state agencies, and    whether the whistleblower has included all information relevant to    provide additional summary statistics in future annual reports to  Congress, including data on the length of time claims remain at each  step of the review process, data on the length of time from claim  receipt to payments, reasons for claim rejections, aggregate  information on awards paid, and total amount of whistleblower  payments. Appendix I: Scope and Methodology

To assess how the Internal Revenue Service (IRS) manages the  expanded whistleblower program, including communicating within IRS,  we reviewed the Tax Relief and Health Care Act of 2006, which required  that IRS establish the Whistleblower Office and administer the expanded  award program; reviewed IRS documents on the whistleblower program,  including Internal Revenue Manual section 25.2.2, which outlines roles  and responsibilities in the expanded whistleblower program; and reviewed  GAO’s body of work on internal control standards.
Why GAO Did This Study

The Tax Relief and Health Care Act of 2006 expanded the Internal Revenue Service's (IRS) whistleblower program, increasing rewards for submitting information on others' tax underpayments to up to 30 percent of collected proceeds. The expanded program targets tax underpayments over $2 million and could reduce the gap between taxes owed and taxes paid. IRS's Whistleblower Office has received over 1,300 submissions qualifying for this new program since 2007. GAO was asked to assess (1) how IRS manages the expanded program, (2) how IRS communicates with whistleblowers and the public, and (3) any lessons from IRS's or other government whistleblower programs that could improve IRS's expanded whistleblower program. GAO analyzed IRS documents and data and interviewed IRS officials, whistleblower attorneys, and federal and state whistleblower program officials.

What GAO Found

Whistleblower claims can take years to go through the IRS review and award determination process. As of April 2011, about 66 percent of claims submitted in the first 2 years of the program, fiscal years 2007 and 2008, were still in process. According to IRS officials, claims can take years to process because IRS must take various steps to ensure the integrity of claim reviews and resulting taxpayer examinations. Further, taxpayers subject to examination can exercise rights that can add years to the process. IRS does not collect complete data on the time each step takes or the reasons claims are rejected. Without such data, IRS may be unable to identify potential improvements to claim processing efficiency. Furthermore, not all the IRS divisions that review whistleblower claims have time targets for their subject matter expert reviews. Nor does the Whistleblower Office have a systematic process to check in with the divisions about the time taken for their initial reviews. IRS is limited in what information it can share with whistleblowers about the status of claims because of statutes protecting the privacy of tax information. For example, because IRS cannot disclose if it is examining a taxpayer, it cannot inform whistleblowers on the progress of their claims or the reasons their claims are rejected. One mechanism through which the Whistleblower Office can communicate program results is its mandated annual report to Congress. However, the most recently released report, for fiscal year 2010, did not contain information on case processing times or specific data on why IRS rejected claims. Collecting additional data and including it in the report could improve the transparency of the program and Congress's ability to oversee it. Federal and state whistleblower programs have features with potential benefits that could improve IRS's expanded whistleblower program, including options that increase interaction or information shared with whistleblowers and options that attempt to improve the accountability for claim processing. While there are potential advantages to all identified options, it is difficult to determine if the advantages outweigh the disadvantages for many options. Furthermore, IRS would be limited by taxpayer data protections in implementing some of the options.

What GAO Recommends

GAO recommends that IRS collect more information--including data on the time each step takes for all claims and reasons for claim rejection--in its claim tracking system, establish a process to follow up on claims that exceed review time targets, and include more information on these issues in its annual reports to Congress. In written comments on a draft of this report, IRS generally agreed with our recommendations.