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Whistle-blowers get no respect from IRS

Agency bureaucracy has stymied the program since it was authorized in 2006. Only one whistle-blower has received a reward.

By MSN Money Partner Mar 5, 2012 8:37PM

This post is by Erika Kelton at Forbes.com.

 

Whistle-blowers are responsible for some of the federal government’s biggest recoveries in fraud cases. The Obama administration recently trumpeted that more than $21 billion has been recovered as a result of “qui tam” (whistle-blower) cases brought under the False Claims Act -- and that total doesn’t include the many billions more recovered as a result of criminal fines related to those civil cases. Nor does it include the tens of billions saved by the powerful deterrent effects of that robust whistle-blower program.

 

With results like that, why would the Internal Revenue Service resist the opportunity to collect billions in tax revenues from scofflaws with the help of whistle-blowers who provide detailed information about major tax frauds and other tax law violations? It’s puzzling, particularly at a time when the federal Treasury needs every dollar it can get.

 

Congress thought it was a great idea to encourage whistle-blowers to inform the IRS about significant tax frauds and other tax law violations by offering them an award from the recoveries and enacted a law to do that in December 2006. But in the past five years, the IRS has given only one known whistle-blower a reward under the program. At the same time, it is sitting on a mountain of whistle-blower claims.

 

The problem with the IRS whistle-blower program isn’t the 2006 law or the quality of whistle-blower information that the IRS is receiving. The IRS Whistleblower Office reports that it has received dozens of whistle-blower submissions concerning matters involving tax losses greater than $100 million and thousands involving tax underpayments that exceed $2 million. The real problems are the IRS itself and institutional resistance to whistle-blowers within the IRS, which is hobbling the whistle-blower program and draining its enormous promise. (Post continues after video.)

The anti-whistle-blower attitude was succinctly expressed by former IRS Chief Counsel Donald Korb shortly after he left the IRS and joined a white-collar law firm that defends companies against the IRS. In a 2010 interview with the publication Tax Notes, he said:

The new whistle-blower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system. I believe that it is unseemly in this country to encourage people to turn in their neighbors and employers to the IRS, as contemplated by this particular program. The IRS didn’t ask for these rules; they were forced on it by the Congress.

Such comments are surprising coming from a former government official who was charged with implementing the laws of this country. But they also reflect a mindset at the IRS that for some has gone unchanged despite the substantial and time-tested success of whistle-blower programs.

 

Congress made it very clear that it wanted the IRS to encourage whistle-blowers to help recover taxes the government is owed. From my vantage point, the IRS Whistleblower Office does its best but faces stiff headwinds from the IRS Office of Chief Counsel, which has stymied the whistle-blower program by interpreting the 2006 law in ways that discourage whistle-blowers and undermine the program’s potential for success.

 

The list of problematic guidance from the OCC is long and includes rules that have:

  • Narrowed the sources of recovery that are the basis of whistle-blower awards.
  • Imposed unprecedented withholding requirements on whistle-blower awards.
  • Created roadblocks to IRS interactions with whistle-blowers, such as the 2008 "one-bite" rule (now relaxed) that limited receipt of information to an initial meeting.
  • Defined "planners and initiators" of the tax scheme -- who by law receive only a reduced award (if any) -- in a manner that could block employees whose involvement is far removed from the true architects of a scheme from receiving a reward.

Whistle-blowers and their lawyers also are frustrated that the IRS has created a black hole for whistle-blower claims, so they get little or no information about the claims’ status.

 

Perhaps the paramount frustration, however, is due to the apparent unwillingness of the IRS to take advantage of whistle-blowers' expertise and allow them to assist the IRS in certain, limited circumstances. This assistance clearly is contemplated by the 2006 law and could be allowed without violating confidentiality restrictions through the use of special confidentiality agreements known as 6103(n) contracts. Why the IRS has ignored resources that it is free to tap is a mystery, especially as the agency suffers through staffing cutbacks.

 

Contrast the IRS attitude with that of the Securities and Exchange Commission, which welcomes the help of whistle-blowers under the SEC’s 19-month-old whistle-blower program, and the Justice Department, which has a long-standing public-private partnership with whistle-blowers to combat frauds against the government through "qui tam" lawsuits brought under the False Claims Act. An SEC enforcement official told Congress last year that high-quality whistle-blower information had saved the SEC six to 12 months of investigative time on a matter the SEC learned about only from that insider. The IRS could benefit in the same way from whistle-blowers.

 

Potential whistle-blowers, particularly those in the executive suite, are well aware that only one known award has been made under the program in five years. Seeing that chances of a reward are hampered by the IRS’s attitude, a painfully slow bureaucracy and an attitude that shuns needed help, whistle-blowers are thinking twice about risking their livelihoods to come forward. The statistics in the IRS Whistleblower Office’s 2010 report to Congress confirm that there has been a drop in the number of whistle-blower submissions.

 

Congress gave the IRS the tools to establish a robust whistle-blower program that could help close the $450 billion annual gap between what is owed in taxes and what is paid. Instead, the IRS is using bureaucratic maneuvers to quietly sideline the whistle-blower program. The ultimate loss will be to taxpayers and the federal Treasury, which could be recovering tens of billions that are sorely needed.

 

More from Forbes.com and MSN Money:

 

VIDEO ON MSN MONEY

75Comments
Mar 6, 2012 11:43PM
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I wonder how many "one percenters" would be brought down if the IRS were to get off their butts or off the golf course and do the job they are being PAID to do. By not doing this work as deemed by law, aren't they "the IRS" in reality stealing from we the paying taxed. Well we all know the answer. Those responsible are also sitting on their hands or  enjoying power lunches or just can't leave the golf course. DOES ANYONE OF IMPORTANCE IN OUR GOVERNMENT TRULY EARN THEIR SALARY AND PERKS ?
Mar 7, 2012 2:33AM
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It's easier to scam $1 from 1 million people then $1 million from 1 person.Eye-rolling

The government seems to think its easier to collect $1 dollar from 10 million middle class Americans then to collect $10 million from 1 rich tax cheaterAngry

Mar 6, 2012 10:56PM
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As each day passes it becomes more evident our Government just can't be trusted.
Mar 7, 2012 12:23AM
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The IRS is an illegal scam with a bunch of worthless freeloaders milking the American taxpayer!!!
Mar 6, 2012 10:41PM
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Some government agencies don't like the program, so they just ignore it.  Much like our Illegal situation in this country, some government agencies just refuse to follow and enforce the laws.  These people need to be held accountable.  Unfortunately our government in totally inept in performing their jobs.  Stupidity just knows no bounds in our elected officals.

Mar 6, 2012 6:17PM
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I don't care what the IRS and upper echelon think of the laW. my response to them is " shut the f*** up and do it. It's your job. Collect the money"
Mar 6, 2012 10:14PM
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I submitted a claim as a confidential informant under the IRS whistleblower program regarding information on a group of corporations under examination.  I did so, assuming my confidentiality with the IRS would be honored regarding the situation.  However, the IRS, in it's wisdom and red tape, actually ended up giving all of the information I submitted (with the understanding of my total confidentiality)  to the individuals involved with the corporations.  Now I am the subject of a law suit.  So much for trusting the IRS!!!!!
Mar 6, 2012 11:05PM
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What??!! The IRS are a bunch of cheaters and liars and crooks??!!  ARE YOU KIDDING ME??!!  NO way!!!
Mar 6, 2012 11:17PM
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IRS sucks!  They could be doing good for this country but they are part of the good ol boy network.  Scammers and ripoffs.
Mar 7, 2012 10:55AM
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Perhaps it is time to retire/fire/lay off/kick out those who have taken it upon themselves to circumvent the process. I'll bet those jobs would be filled quite well in about one day.
Mar 6, 2012 10:25PM
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# 20

 

Some how I just don't quite get the jest of our government setting up a reward system for people to turn in tax cheats and not pay the reward. Same thing happen to me Sept, 2010 when a cop killer was on the run. I spotted him and made the call. The law came down on him and he ran out the back and thru the woods, stole a car and discovered him in town at the bus station when they spotted the car. The bad guy walked to the stolen car and the cop shot him dead. I put in for the reward but was denied because the reward said info leading to arrest and conviction, not flushed out and killed. Now I see the government as bad or worse than many of the so called "bad guys" because we have to work and pay them money for what they do. When government was set up to ("help") build a bridge, or a school, it was NOT intended to take over every little part of our lives. Tax is getting out of hand now. Government is getting bigger and bigger and more and more people making BIG BUCKS and retire sucking the tit of the tax cash cow. Some how a government that says they will pay a reward for doing something like help collect MORE TAX MONEY, and then not pay that reward. NOT RIGHT in so many ways.

Mar 6, 2012 7:33PM
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  It proves my point of how the Internal Revenue Service primarily goes after the little guy that can not defend himself and can not afford to hide behind a squad of lawyers. The rich in this country know where to put the influence of money in the right places to cover their backs. In the meanti the Internal Revenue Sevice will continue to rob the retirement savings of people who make less than $50,000 a year. If you save an amount as small as $30,000 from a lifetime of working they will jump in and between them and the state take at least $7,000 of the money you were planning to help you live for the rest of your life.

Mar 6, 2012 10:31PM
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If we have a system where gaining high office in government is a stepping stone to  high positions in corporate world ,it will never be clean. There must be barriers to jumping to the corporate world or there is no incentive to serve government honestly.
Mar 7, 2012 6:51AM
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Flat tax=  no IRS, now that will save a lot of money brothers and sisters !!!
Mar 6, 2012 7:10PM
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The IRS has been a collection of self-important cowboys since it's inception. They have an institutionalized sense that they're above the laws of the ordinary citizens. They have consistently  refused to admit their responsibility in botched cases as well as their involvement in vendettas carried out against people who speak up. They abuse their powers to try and intimidate and  threaten people and obvuscate the truth. Too bad they're also are used by politicians to hassle opponents as well as groups that have the balls to challenge other institutions that promote intimidation strategies.

I'd rather live in a cave,off the grid and out of reach at times.

What a sadly lacking country we've become. Rotten from Washington to LA.

Mar 7, 2012 11:16AM
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The IRS was created by an act of congress now the head of the IRS believes he should not obey congress?
Mar 7, 2012 2:05AM
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They also allow ILLEGAL ALIENS to collect billions of taxpayer money without SS #s by using taxpayer IDs. They know they are ILLEGAL, but do absolutely nothing about it, becuae they are ordered not to by the Obuttwad admin. We need to get rid of Obuttwad, Holder and the IRS and implement a flat tax and a balanced budget amendment before these idiots completely destroy the country. TEA PARTY 2012
Mar 7, 2012 11:19AM
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Why can't the Administration fire the Chief Counsel for failing to implement the rules, including the intended action and attitude of Congress?
Mar 7, 2012 12:31PM
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You make a deal, you stick with that deal IRS.  Pay the people you owe you pathetic pieces of garbage.
Mar 6, 2012 6:45PM
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Well then I must be that one person who got back 5% of what the IRS got from my former employer. 6 years ago I left a certain business after not getting the raises promised, working OT then not getting paid for it, being doubled charged on my health insurance, etc. The guy grossed $750,000 a year before I started. I made changes to flow of work, documentation, expediting work, quality issues, put in place weekly group leader meetings etc. Within 3 years the company grossed 3.5 million. I heard owner brag everyday how he was cheating this person, that person and the government. I turned him in 6 years ago. IRS recovered $220,000 from him. I got 5% cut 6 months ago. It is your duty to pay your taxes. Period! This guy was getting richer by cheating his employees and the government and his greed got the best of him.
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