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Published: Sunday, 4/6/2014 - Updated: 4 months ago

Report confirms decline in IRS tipsters

Advocates say legislation needed to encourage tax-cheat whistleblowers

BY RICH LORD
BLOCK NEWS ALLIANCE

PITTSBURGH — A downshift in the IRS’ tax collections based on whistleblower tips, confirmed in a report issued late Thursday, spurred calls Friday for new legislation to put some of the taxman’s powers into private hands.

The IRS during its 2013 fiscal year paid 122 whistleblower awards totaling $53 million, it reported. That’s down from 128 awards for $125 million in 2012.

The agency converted just six tips into collections of $2 million or more, it revealed — down from 12 multimillion-dollar tips in 2012.

The IRS has long explained the slow flow of whistleblower payments by arguing that it can’t pay until it collects, and complex tax cases often take five to seven years to resolve.

The report had advocates for whistleblowers demanding new legislation.

“The numbers [of tips] coming in are not surprising. The numbers [of payments] coming out are shockingly low,” said Stephen Kohn, executive director of the National Whistleblowers Center, a nonprofit based in Washington.

He said it’s time to allow whistleblowers to sue accused tax cheats on their own, just as individuals can sue when they detect fraud by government contractors.

Business groups responded that individually filed lawsuits accusing others of cheating Uncle Sam would be disastrous.

“Anyone with a political ax to grind could use the full force of the IRS” to settle scores, said Matt Webb, senior vice president at the U.S. Chamber of Commerce Institute for Legal Reform.

In 2006, Congress decided the IRS was not doing enough to award whistleblowers. Since 2007, if someone brings information to the IRS that leads to a recovery of $2 million or more in previously unpaid taxes, the agency has to pay the tipster 15 to 30 percent of the amount collected.

The program burst into the news in 2012 with a $104 million payment to Bradley Birkenfeld. He went to prison for three years for helping people dodge taxes while working for the Swiss bank UBS, but then became very wealthy for telling the IRS how it was done.

Any sense of momentum created by that high-profile award, though, dissipated with Thursday’s report. Though more claims and more potential multimillion-dollar tips came in last year than in 2012, fewer whistleblowers collected and they got fewer dollars.

The 36-person IRS Whistleblower Office noted in its report the agency’s March decision to trim all whistleblower awards by 8.7 percent because of the overall federal belt-tightening known as sequestration. That cost whistleblowers $464,706, according to the report.

The IRS opted Friday not to comment on the report.

The downturn in payments didn’t hearten the Chamber of Commerce, which has opposed the program on the grounds that it could discourage employees from using their employers’ internal reporting systems when they perceive a tax problem.

The numbers concerned the Senate’s most ardent advocate for whistleblower programs.

“My worry is that the slow progress will cause the tips to dry up,” wrote U.S. Sen. Charles Grassley (R., Iowa), who spearheaded the 2006 legislation mandating payments, in an email. “That would harm the whistleblowers who stick their necks out to flag tax cheating and the honest taxpayers who pay what they owe and deserve tax fairness.”

Mr. Grassley compared the recoveries through the IRS program unfavorably with those under another whistleblower law, the False Claims Act. That act allows individuals to sue anyone believed to be defrauding the federal government, and gives the Justice Department the option to join the lawsuit, or just allow it to go forward privately.

When a False Claims Act lawsuit results in a settlement or verdict, the government gets the bulk of the proceeds, but the whistleblower gets a share. In 2013, the government recovered nearly $3 billion through false claims act lawsuits — roughly eight times what the IRS whistleblower program brought in. False Claims Act whistleblowers got $388 million last year, or seven times what IRS tipsters received.

“If the IRS does not start working together with whistleblowers, and start paying out rewards, the law must be fixed,” said Mr. Kohn. “The IRS whistleblower law should be amended to mirror the False Claims Act, and permit whistleblowers to be more involved in the enforcement actions.”

Mr. Webb countered: Do we really want employees, ex-employees, or even interest groups taking tax allegations directly to court?

Under the current system, though, whistleblower-based cases are backing up, with some dying on the vine.

The IRS report indicated that as of a month ago, its Whistleblower Office was tracking 11,531 potential claims for allegedly overdue taxes. Just three of those claims were at the stage at which the IRS evaluates whether to pay an award.

The Block News Alliance consists of The Blade and the Pittsburgh Post-Gazette. Rich Lord is a reporter for the Post-Gazette.

Contact him at: rlord@post-gazette.com or 412-263-1542.



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