Prior to February 2018, IRS Did Not Consider Whistleblower Information That May Have Led to FBAR Enforcement Actions in Award Determinations Whistleblowers Likely Identified Millions in FBAR Noncompliance for Which They Were Not Awarded

IRS assessed approximately $10.7 million in FBAR penalties to taxpayers  who were identified in our sample of whistleblower claims. Our analysis  of these 28 claims suggests that if IRS had included FBAR penalties in  the awards, the whistleblowers involved could have received an additional $1.6 million to $3.2 million, assuming an award of between 15 and 30  percent. According to IRS officials, because the OVDP penalty is a Title 26  penalty, these collections were included in collected proceeds for the  purposes of whistleblower award calculations even before the new  definition of proceeds took effect on February 9, 2018. Of the total revenue collected from the 28 whistleblower claims we  reviewed with an FBAR penalty assessed, more than 97 percent came  from 10 cases with willful FBAR penalties. Some Whistleblower Claims Closed between January 2012 and July 2017 Included FBAR Allegations

There is no way to estimate how many whistleblowers would have come  forward had IRS included FBAR penalties in whistleblower awards. To look for how often whistleblowers  submitted claims with allegations of FBAR noncompliance, we identified  401 of the 10,306 IRS whistleblower claims closed between January 1,  2012, and July 24, 2017, as likely to contain allegations of FBAR  noncompliance by an identified taxpayer. IRS Historically Used FBAR Information from Whistleblower Claims for Enforcement Efforts, but the Statutory Change in Award Basis Increases the Importance of Reporting Full Information The Whistleblower Office Forwarded FBAR Information to Other IRS Divisions for Exam Purposes, Even Before FBAR Information Was Required to Be Included in Award Determinations

Even though FBAR penalties were not considered for whistleblower  awards until the February 9, 2018 legislative change, the Whistleblower  Office forwarded allegations it received of FBAR noncompliance to IRS’s  operating divisions for further examination. While having complete information about FBAR exams on the Form  11369 was not needed when IRS did not consider FBAR noncompliance  as part of award determinations, now that it is defined as such by statute,  the Whistleblower Office will need such information on FBAR  noncompliance on Form 11369 to properly determine whistleblower  awards in accordance with the new legal requirements. As of June 28,  2018, the Whistleblower Office had not updated Form 11369 or its  accompanying instructions. IRS Uses Its FBAR Database for Internal and External Reporting but Lacks Sufficient Controls

		IRS Uses Data from Its FBAR Database to Manage Workflow and for Internal and External Reporting

IRS collects and maintains FBAR penalty data in a stand-alone database. A key principle of federal internal control is the use of quality information. The FBAR Database procedures also lack sufficient validity checks to  ensure that the data entered are accurate. Without additional  controls for accuracy and validity, IRS risks relying upon inaccurate  information for some of its reporting and decision making. While IRS  has now taken steps to communicate the need for information about non- Title 26 actions to be included with the Form 11369, updating the form  itself and its instructions will help to better ensure that complete and  accurate information about such actions is reflected on the form to be  provided to the Whistleblower Office for inclusion in award  determinations. Appendix I: Objectives, Scope, and Methodology

Our objectives were to: (1) describe the extent to which the Internal  Revenue Service’s (IRS) Whistleblower Office included Report of Foreign  Bank and Financial Accounts (FBAR) penalties in whistleblower awards  prior to the statutory change; (2) examine how IRS used whistleblower  information on FBAR noncompliance and how IRS responded to the  statutory change in definition of proceeds; (3) describe the purposes for  which IRS collects and uses data from the FBAR Database and assess  the controls for ensuring data reliability; and (4) summarize what is known  about the potential effect exclusions from collected proceeds, including  FBAR penalties, may have had on whistleblowers bringing claims to IRS. This report is a public version of a sensitive report that we issued in  August 2018. In addition we spoke to IRS  Whistleblower Office officials concerning any changes IRS plans to make  in its policies and procedures as a result of the statutory change.
Why GAO Did This Study

Tax whistleblowers who report on the underpayment of taxes by others have helped IRS collect $3.6 billion since 2007, according to IRS. IRS pays qualifying whistleblowers between 15 and 30 percent of the proceeds it collects as a result of their information. However, until February 9, 2018, IRS did not pay whistleblowers for information that led to the collection of FBAR penalties.
GAO was asked to review how often and to what extent whistleblower claims involve cases where FBAR penalties were also assessed. Among other objectives, this report (1) describes the extent to which FBAR penalties were included in whistleblower awards prior to the statutory change in definition of proceeds; (2) examines how IRS used whistleblower information on FBAR noncompliance, and how IRS responded to the statutory change in definition of proceeds; and (3) describes the purposes for which IRS collects and uses FBAR penalty data, and assesses controls for ensuring data reliability. GAO reviewed the files of 132 claims closed between January 1, 2012, and July 24, 2017, that likely included FBAR allegations; analyzed IRS data; reviewed relevant laws and regulations, and IRS policies, procedures and publications; and interviewed IRS officials.

What GAO Found

Prior to February 9, 2018, when Congress enacted a statutory change requiring the Internal Revenue Service (IRS) to include penalties for Report of Foreign Bank and Financial Accounts (FBAR) violations in calculating whistleblower awards, IRS interpreted the whistleblower law to exclude these penalties from awards. However, GAO found that some whistleblowers provided information about FBAR noncompliance to IRS. In a sample of 132 whistleblower claims closed between January 2012 and July 2017, GAO found that IRS assessed FBAR penalties in 28 cases. It is unknown whether the whistleblower's information led IRS to take action in all of these cases. These penalties totaled approximately $10.7 million. Had they been included in whistleblower awards, total awards could have increased up to $3.2 million. Over 97 percent of the FBAR penalties collected from these 28 claims came from 10 cases with willful FBAR noncompliance, for which higher penalties apply.
IRS forwards whistleblower allegations of FBAR noncompliance to its operating divisions for further examination. However, IRS Form 11369, a key form used for making award determinations, does not require examiners to include information about the usefulness of a whistleblower's information FBAR and other non-tax issues. After Congress enacted the statutory change, IRS suspended award determinations for 1 week, but resumed the program before updating the form or its instructions, or issuing internal guidance on new information required on the Form. As of June 28, 2018, IRS had not begun updating the Form 11369 or its instructions. The lack of clear instructions on the form for examiners to include information on FBAR and other non-tax enforcement collections may result in relevant information being excluded from whistleblower award decisions.
IRS maintains FBAR penalty data in a standalone database. It uses these data for internal and external reporting and to make management decisions. Because of the change in statute, IRS will need these data for determining whistleblower awards. GAO found that IRS does not have sufficient quality controls to ensure the reliability of FBAR penalty data. For example, IRS staff enter data into the database manually but there are no secondary checks to make sure the data entered are accurate. Without additional controls for data reliability, IRS risks making decisions, including award determinations, with incomplete or inaccurate data.
This is a public version of a sensitive report issued in August 2018. Information on the FBAR Database that IRS deemed to be sensitive has been omitted.

What GAO Recommends

GAO recommends IRS update IRS Form 11369 and improve controls for the reliability of FBAR penalty data. IRS agreed with all of GAO's recommendations.