In 2006, Congress enacted a law allowing Texans and other Americans who turn in alleged tax cheats to reap a percentage of what the Internal Revenue Service ultimately could collect, a reward for extending the power of the IRS, and which could cause normal taxpayers undue stress.
It hasn’t been the benefit some whistle-blowers could have imagined, however. The IRS has paid just three awards among the almost 1,300 allegations of tax fraud it has received that have named nearly 10,000 individuals and businesses.
The U.S. senator who sponsored the legislation said he fears that concerned citizens will stop reporting suspected tax frauds if the IRS does not take the reports seriously. Take, for example, the case of a report the IRS received from two Houston-area whistle-blowers, who said their former employer had helped its clients duck out on as much as $712 million in taxes.
Within a week of receiving the reports of tax fraud in summer 2009, an IRS analyst began digging. She found that IRS offices in Houston previously had received reports about potential misdoings and she continued looking into it, eventually requesting a grand jury be convened. Superiors denied that request, and while an investigation went on, it didn’t include the whistle-blowers.
The IRS never interviewed the whistle-blowers and rejected their claim nearly two years later. Since the law requires that whistleblowers reap as much as 30 percent of the funds the government takes in from the information, these whistleblowers could have walked away with more than $200 million.
An IRS official acknowledged that the tax agency has been slow to enforce the law and is working on investigating more claims. But it owes the people being accused the right to a fair investigation. It can be too easy for people looking for money to point the finger at someone else.
Source: Bloomberg, “IRS Resists Whistle-Blowers Despite Wide U.S. Tax Gap,” Jesse Drucker and Peter S. Green, June 19, 2012