Opinion

IRS keeps ignoring tax whistleblowers

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The Obama administration is diverting half a billion dollars to the IRS for the new health care law this year, even though the Supreme Court has yet to decide if the legislation is constitutional. But why is the White House providing so much help for an agency that has failed to help itself?

Over the last five years, the IRS could have easily recovered $500 million in unreported corporate and personal income taxes under new whistleblower legislation that took effect in December 2006. Instead of shooting these easy fish in a barrel, the agency has floundered.

More than five years ago, Congress increased the rewards for blowing the whistle on tax cheats. They are now in line with percentages awarded to Qui Tam whistleblowers who report false billing for goods and services under the federal False Claims Act. And in the time since, tax whistleblowers and their attorneys have filed more than 10,000 IRS Forms 211 with the agency's Whistleblower Office.

Yet to date, the IRS has paid out one measly reward under the law: $4.5 million to a corporate auditor who tried, unsuccessfully, to get an employer to do the right thing and pay more than $20 million in taxes owed but unreported.

Thousands of similar cases remain in limbo. No wonder an IRS whistleblower recently filed suit, to force the agency to pay him and reveal tax recoveries that he suspects the IRS has already made from his disclosures.

A recent Forbes.com commentary by a Washington-based attorney for whistleblowers cited the demoralization of tax whistleblower attorneys and their IRS-whistleblower clients. Cases ripe-for-the-plucking appear to be sitting, untouched, and apparently because IRS executives are dragging their feet out of spite for Congress and other misplaced concerns. In the words of former IRS Chief Counsel Donald Korb, "The IRS didn't ask for these rules; they were forced on it by the Congress." He cited an aversion to having people "turn in their neighbors" over tax debts, even though this law only applies when taxpayers dodge very large sums.

An earlier, August 2009 critical report by the Treasury Inspector General for Tax Administration paints a troubling portrait, as does a more recent report to Congress by the U.S. Government Accountability Office entitled, "Tax Whistleblowers, Incomplete Data Hinders IRS's Ability to Manage Claim Processing Time and Enhance External Communication."

There is no reason for leaving all this easy money on the table. The IRS and Congress should take two simple steps to help open the hidden tax liability floodgates:

Whether 1,000 or 10,000 new IRS agents will be needed to enforce the new health care reform law, just hire and train 1,000 temps today, and give each of them 10 whistleblower cases to investigate. If Obamacare gets the Supreme Court's OK, just shift most of the temps to health care.

IRS rules and federal law should also be revised to mandate that the agency identify whistleblowers who receive IRS rewards, and the persons or entities that paid up. The model should be the False Claims Act, under which Qui Tam whistleblowers, the rewards they receive and who paid are public data.

The Whistleblower Office should also launch a website in which each filing and its status is posted. Even with pending case personal data redacted, the website would reassure whistleblowers that their cases are actually being considered. It would convince others who know of $2 million or more in unreported corporate taxes, or $200,000 in personal taxes, that they, too, can file Form 211 and the government will take their case seriously.

Two months ago, the IRS secured national news coverage for its "Dirty Dozen" tax scams release. It was a thinly veiled message to tax preparers and taxpayers to do the right thing on tax day. But sadly, the IRS continues sending a mixed message by failing to investigate whistleblower-identified cases of those who did not.

Richard Lavinthal, a media relations consultant for whistleblower attorneys, assisted a Philadelphia law firm in the only whistleblower case to result in an IRS award.

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