Last week, U.S. Senate Finance Committee Ranking Member Ron Wyden and Chairman Mike Crapo introduced the Taxpayer Assistance and Service Act, a bipartisan bill seeking to improve a wide range of Internal Revenue Service (IRS) procedures and administration. Among other notable reforms, the Act incorporates another rare piece of bipartisan legislation: The IRS Whistleblower Program Improvement Act, introduced by Senators Chuck Grassley, Ron Wyden, Roger Wicker, and Ben Cardin in 2023.
The IRS Whistleblower Improvement Act includes critical provisions designed to revitalize the IRS Whistleblower Program. Now that it is attached to a major piece of bipartisan legislation, these overdue reforms could finally become law. Here is why it matters and what it could mean for current and future IRS whistleblowers.
The Promise and Frustrations of the IRS Whistleblower Program
The IRS Whistleblower Program has faced steady, and often well-earned, criticism in recent years. But it’s worth stepping back to look at what it has nevertheless accomplished. Congress established the current whistleblower reward framework in 2006, and in the two decades since, whistleblowers have helped the government recover more than $7.37 billion in taxes, penalties, and interest. For their efforts, whistleblowers have received over $1.3 billion in rewards through the program.
But below the headlines, years of frustrations with the program have led many whistleblowers and their lawyers to abandon it. New leadership at the IRS Whistleblower Office has worked diligently in recent years to address these issues and has made considerable progress, including key policy changes that allowed our client to share in a record-breaking reward in 2024.
However, some internal reforms have been stymied by the way the Tax Court and IRS Counsel have applied existing laws. In response, Senator Grassley, long a champion for whistleblowers, worked with colleagues across the political spectrum to craft legislation addressing these issues. What emerged was the bipartisan IRS Whistleblower Program Improvement Act, first introduced in 2023.
Key Reforms for Revitalizing the IRS Whistleblower Program
Building off this bipartisan work, the Taxpayer Assistance and Service Act currently before Congress includes provisions designed to strengthen the IRS Whistleblower Program by making it work better for whistleblowers.
Under current law, if a whistleblower disputes an IRS award determination, the U.S. Tax Court applies a highly deferential standard of review — meaning judges largely accept whatever the IRS decided. For many years, this was particularly problematic because the IRS had the reputation of trying to find ways to stiff whistleblowers. Although the new leadership at the IRS Whistleblower Office has abandoned many of those practices, this bill would safeguard the program for the long term by mandating “de novo” review. Under this standard, the court examines the facts and law without deference to the IRS’s initial decision, providing a critical check against arbitrary and unfair outcomes.
One of the biggest fears whistleblowers face is exposure. When a whistleblower's identity becomes known — to a current or former employer, to the target of an investigation, or to the public — the consequences can be severe: job loss, harassment, frivolous lawsuits, and worse. The bill would establish a presumption of anonymity for whistleblowers who bring their cases to court, requiring that their identities be protected by default. Currently, the Tax Court does not default to anonymity when whistleblowers challenge an IRS award determination—and we have seen our own clients be forced to drop their cases to avoid having their identities exposed.
For many Americans, “sequestration” is a concept they haven’t considered in a decade. Nevertheless, sequestration — across-the-board automatic spending cuts — continues to apply, and as a result, the IRS has reduced the awards paid to whistleblowers. This year, whistleblowers who receive an award will see it cut by 5.7% due to sequestration. It’s unlikely Congress ever intended this outcome. A whistleblower who agreed to cooperate based on the prospect of a certain award should not see that award reduced because of unrelated budgetary mechanics. The bill would exempt whistleblower awards from sequestration, giving whistleblower claimants clarity about what they can actually receive.
Delays in the IRS whistleblower awards are notorious — claims regularly drag on for a decade or more. This is largely due to the long road of tax enforcement, as IRS investigations and litigation often take many years, and a whistleblower cannot receive a reward until the audit or case based on their information is resolved. However, in certain scenarios, the IRS compounds the problem by delaying award determinations and payments. The bill would require the IRS to pay interest on awards that have not been paid within one year after the underlying case is resolved. This creates a meaningful financial incentive for the IRS to process awards efficiently, and it fairly compensates whistleblowers for the cost of waiting.
Whistleblowers under federal programs — such as the False Claims Act and the SEC and CFTC whistleblower programs, along with many IRS whistleblowers — benefit from favorable tax treatment of their attorney's fees. However, due to a technical error, certain IRS whistleblowers reporting smaller schemes currently do not receive the same favorable treatment. The bill contains language to fix this unintended consequence.
Finally, the bill would require the IRS to identify the top tax avoidance schemes reported by whistleblowers in its annual report to Congress. This will provide meaningful data on the issues whistleblowers are reporting.
What This Means for Current and Prospective Whistleblowers
The current leaders at the IRS Whistleblower Office have recently taken significant steps to improve the program, and those efforts are ongoing. Even if this legislation does not pass, current and future whistleblowers should still see an improved landscape, as long as those efforts are maintained and furthered.
But the passage of the Taxpayer Assistance and Service Act would fix a host of problems that the IRS Whistleblower Office cannot fix on its own. And it would make them law, meaning changes in leadership could not undercut these reforms. They would ensure whistleblowers get paid fairly, promptly, and confidentially, which will further the overall goal of encouraging more individuals to come forward with information about tax violations.
Whistleblowers and their advocates should be working hard to ensure the passage of this important legislation.
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Whistleblower Partners has deep experience shutting down tax frauds. Our team includes a former Department of Justice tax attorney, a former member of the IRS Whistleblower Office, and a law professor specializing in complex tax shelters. Our clients have received tens of millions of dollars under the IRS Whistleblower Program, and we currently have dozens of claims pending, covering a wide variety of individual and corporate tax schemes. If you would like more information or to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
