Obama’s Budget Plan: Protect IRS Whistleblowers from Retaliation

President Obama's proposed budget for fiscal 2014 includes good news for whistleblowers: Under his plan, the law finally would protect people who report tax cheats to the U.S. Internal Revenue Service (IRS).

Although the IRS Whistleblower Program has existed since 2006 - encouraging and rewarding tax-fraud tipsters - it has never explicitly shielded whistleblowers from retaliation.

By contrast, the federal False Claims Act (FCA), a classic whistleblower statute, includes a strong anti-retaliation provision that offers victims remedies such as back pay, reinstatement, and special damages including attorneys' fees.

Mr. Obama's budget, submitted last week to Congress, may never become law. Both the U.S. Senate and the House of Representatives already have passed their own budgets, and all three plans are radically different.

But only the White House is looking to protect IRS whistleblowers and grow revenue by targeting tax dodgers. The President's plan would boost overall IRS enforcement spending by $360 million, to $5.7 billion in fiscal 2014. The administration expects that each extra dollar spent will bring in $4 in revenue.

According to the U.S. Department of the Treasury, Mr. Obama's plan would add FCA-style anti-retaliation measures to Section 7623 of the tax code, the IRS whistleblower provision. New language would outlaw retaliation against "lawful acts . . . in furtherance of [a whistleblower claim] or other efforts to stop 1 or more violations" of the code.

Because 7623 currently offers no such protection, it "may discourage whistleblowers from filing claims with the IRS," the Treasury Department admits.

Though welcome, Mr. Obama's proposal is long overdue: It was suggested in 2009, and again in 2012, by his own Treasury Department's Inspector General for Tax Administration. Still, the ball is now in the hands of Congress, where legislators recently strengthened the FCA.

The revamped FCA is a good model with proven results: Whistleblower claims under the FCA rose almost 70 percent in the past year, while IRS claims have stagnated; the IRS has announced only one significant award in the past year.

Mr. Obama's budget also proposes tighter protections for taxpayer information that is shared with whistleblowers during an IRS investigation.

At the U.S. Department of Labor, meanwhile, the President proposes giving the Occupational Safety and Health Administration - which enforces many whistleblower laws - an extra $5.9 million to investigate whistleblower allegations.

And the Labor Department's Wage and Hour Division would get $3.4 million to boost enforcement of the Fair Labor Standards Act and the Family and Medical Leave Act.

Read other articles from the Whistleblower Law Blog

For more information about LexisNexis products and solutions connect with us through our corporate site.