27/02/18

New IRS Task Force + Whistleblowers Could Mean Tougher International Tax Enforcement

(Forbes) -- In recognition of the growing number of offshore tax fraud and abuse cases, the IRS is creating a task force of 10 agents dedicated exclusively to international tax enforcement as part of the IRS criminal investigations unit.

The new task force – which, with a staff of just ten, is seriously under-resourced –should start with investigating some of the thousands of whistleblower claims filed with the IRS that include detailed reports of offshore tax schemes that cheat the US Treasury of billions in tax revenues.

Indeed, starting with whistleblower information already in the hands of the IRS could jump-start the task force. Whistleblowers – often well-placed and sophisticated insiders – can provide detailed insight into offshore tax violations, saving the IRS much investigative time and resources.

Just look at the impact of one IRS whistleblower, Bradley Birkenfeld. As a result of the information he provided about schemes Swiss banking giant UBS used to help American citizens hide their money offshore and avoid taxes, the IRS launched a massive investigation.

UBS paid $780 million to the government to settle charges stemming from that investigation and turned over account information for more than 4,500 American clients. The disclosure of account information so worried offshore account holders that 14,000 joined an IRS amnesty program and paid more than $5 billion in back-taxes. In an indication of how valuable his information was, the IRS awarded Birkenfeld a whistleblower award of $104 million, the largest ever paid by the IRS.

Unfortunately for whistleblowers and taxpayers, the successful outcome of Birkenfeld’s case didn’t change the institutional resistance the IRS has to working with whistleblowers.

When Congress expanded the IRS whistleblower program in 2006 it envisioned the IRS working with whistleblowers to stop tax fraud and to collect funds that are rightfully owed to the US Treasury, which would benefit all taxpayers. This is something the IRS has yet to learn, even 12 years into the program.

While the Securities and Exchange Commission and the Commodity Futures Trading Commission have fully embraced their whistleblower programs and celebrated their successes, the IRS continues to view whistleblowers as more of a hindrance than a help.

In the IRS’s most recent annual report to Congress about the whistleblower program, IRS Whistleblower Office Director Lee D. Martin says the IRS “continued our ambitious efforts to implement improvements and enhancements.” But the numbers and whistleblowers’ experiences with the IRS tell a different story.

The IRS took seven-and-a-half years on average in fiscal 2017 to process whistleblower claims, from the time that the whistleblower claim is filed until the IRS conveys the outcome to the whistleblower. This is up from an average of six years in fiscal 2015.

The long delays are made even worse by the IRS’s continued failure to communicate with whistleblower and their lawyers during that time, and its inability to develop effective working relationships that will help resolve matters more quickly.

Under the whistleblower program for cases of tax fraud and abuse exceeding $2 million, the IRS has about 14,400 outstanding whistleblower claims that have not been resolved.

At the same time the IRS ignores whistleblowers’ help in recovering hundreds of millions of dollars, it paid private debt collectors $20 million in fiscal 2017 to pursue individuals for amounts of $50,000 or less in back taxes. But that effort brought in just $6.7 million, according to a report by the IRS Taxpayer Advocate.

The report noted that of more than 4,000 taxpayers who made payments to the IRS after their debts were assigned to private collection agencies, the median income was about $41,000 and 28 percent had incomes under $20,000.

The IRS was required to hire the private debt collectors by Congress in legislation passed in 2015. This was a curious move by Congress since the last time the IRS used private debt collectors, the effort failed miserably.

US taxpayers would be best served if the IRS would recognize the value that whistleblowers bring to its investigations and use them as an important tool to help the IRS collect billions that are owed the US Treasury. Having the new international enforcement task force investigate whistleblower claims about offshore accounts would be a good start.