News & Articles

Changes to IRS Whistleblower Law Certainly Help, But.........

07 / 25 / 2019

Tax Form:      Form 211

Tax Form Troubles:  New Law will allow whistelblowers to make written requests for updates on status of IRS pursuit of the same.  But, how effective will IRS be in notifying whistleblowers about payments being made by the targeted taxpayer?

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Major Reforms Made to IRS Whistleblower Law by Taxpayer First Act Signed by President Trump on July 1, 2019

As part of the Taxpayer First Act signed by President Trump on July 1, 2019, two major reforms have come to the IRS Whistleblower laws, and the disclosure laws under Section 6103. 

First, for the first time, IRS whistleblowers will have protection against retaliation, by and through enactment of new IRC Section 7623(d)(entitled Civil Action to Protect Against Retaliation Cases), and the rights and remedies provided to employees may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. 

Second, dissemination of information and communication about a whistleblower claim have been been addressed, by and through a new Section 6103(k)(13)(entitled Disclosure to Whistleblowers). 

The amendments apply to disclosures made after the date of enactment of the new law (July 1, 2019), and the civil protections afforded to IRS whistleblowers apply as of such time (July 1, 2019).  Taxpayer First Act, Section 1405(c).

New Protections Against Retaliation 

When whistleblowers provide information to the IRS about violations of the Federal tax laws, whistleblowers need protection against discharge or reprisal.  Now, with enactment of new Section 7623(d), protections are afforded to IRS whistleblowers, and the rights and remedies may not be waived by any agreement, policy form, or condition of employment including by a predispute arbitration agreement. See 7623(d)(5).

First, against whom do the protections apply?  Certainly, employers, but extensions of those employers as well.

Under Section 7623(d)(1), it is stated:

"No employer, or any officer, employee, contractor, subcontractor, or agent of such employer, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee's duties) in reprisal for any lawful act done by the employee--to provide information, cause information to be provided, or otherwise assist in the investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information is provided to the IRS, Treasury, TIGTA, Comptroller General, DOJ, Congress, or a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discvoer, or terminate misconduct,or to testify, participate in, or otherwise assist in any administrative or judicial action taken by the iRS relating to any such alleged violations.

When construing the retaliation provisions, one is reminded that it applies only to "employees."  A factual analysis is likely to unfold, under the common law, if there is some question as to whether or not the whistleblower claiming protection under the anti-retaliatory provisions is, in fact, a protected employee. See, e.g., Neal v. ASTA Funding, Inc., 2019 U.S. Dist. LEXIS 21861 (D.N.J. 2019).  This is necessary because the remedies to be afforded to the whistleblower employee against whom retaliation has occurred can only be enforced against the employer with the prior history of having made payments of compensation that then allow for back-pay to be awarded.  Id.  Also, because the term does not appear to be defined under the new law, the common law is to be applied by the Secretary of Labor when determining whether or not the whistleblower is an "employee" of the retaliating "employer."  When construing what is (or is) not a proper application of the common law, it should be noted that agencies do not appear to get Chevron-deference with respect to the same.  See, e.g., Browning-Ferris Industries of Calf., Inc. v. NLRB, 911 F.3d 1195 (D.C.Cir. 2018)(when construing the term "employer" under the NLRA, in a joint employer situation, NLRB interpretations of the common law are NOT entitled to any deference; it is a pure question of law).  The IRS currently uses a categories of evidence approach, taking relevant facts and putting them into three categories: behavioral control, financial control, and the relationship of the parties, with the admonition that it is very important to consider all the facts.  Publication 1779 (Rev. 3-2012).  The 20-factor test previously set forth in Rev. Rul. 87-41 presents difficulties for the IRS because of the fact that its issuance was tied into the enactment of Section 530 which works to protect against reclassification of workers as employees when treatment decisions (as other than employee) are made in good faith, which is a remedial statute against employment.  Also, the ruling was implemented at a time when the IRS subscribed to a presumption of employment, aspects of the economic realities test, and a narrow construction of Section 530.  The 20-factor test does not put forth factors focused on the relationship of the parties and intent, and is often utilized by the IRS to further claim that "doubtful questions should be resolved in favor of employment in order to accomplish the remedial purposes of the legislation involved." citing to Texas Carbonate Co. v. Phinney, 307 F.2d 289, 292 (5th Cir. 1962).  However, some states continue to adhere to the 20-factor test. See, Mallory v. Merkel & Kenny, Inc., 2018 WL 3811786 (Mich. WC App. Com. 7/30/2018)(MIchigan statutorily adopts 20-factor test in M.C.L.A. 418.161(n)).

The changes now permit an IRS whistleblower to file a complaint with the Secretary of Labor, and if, after 180 days, the Secretary has not yet issued a decision, the IRS whistleblower can then go into Federal district court.  The remedies include compensatory damages for reinstatement and 200 percent of back pay and all lost benefits, with interest and compensation for other special damages inclusive of litigation costs, expert witness fees and reasonable attorneys fees.  

Changes in Dissemination of Information and Communication

Little is to be gained by keeping IRS Whistleblowers in the dark.  Yet, whether intentional or not, concerns for what information can or cannot be shared with whistleblowers and their representatives have made the monitoring of one's claim very frustrating.  Now, because of changes made under the Taxpayer First Act, the IRS is required to notify the whistleblower as to the status of their case, including when the case has been referred for audit or exam, and when the targeted taxpayers makes a payment of tax.  In addition, upon written request, the IRS is to provide information as to the status and stage of the investigation being pursued.  Requests are to include the claim numbers in the request, and are mailed to:  

Internal Revenue Service, 1973 N. Rulon White Blvd., M/S 4110, Ogden, UT 84404.

It is anticipated that Publication 5251 (Whistleblower Claim Process and Timeline) will soon be updated.