In 2006, Congress attempted to increase tax revenue by creating a whistle-blower program. The goal was to pay tipsters for identifying instances of tax evasion that led to successful prosecution. After more than five years, the program has led to three awards being paid to tipsters. During that time, more than 1,300 claims have been filed by people making allegations of tax fraud. Some members of Congress and of the general public are wondering why the whistle-blower program has been so roundly ignored by the Internal Revenue Service.
A sponsor of the whistle-blower law indicated that the IRS is having trouble processing and compensating whistle-blowers. A tax litigation attorney implied that the problem is one of perception: the IRS fears it will be accused of heavy-handed enforcement if it acts on whistle-blower tips. What is clear is that the review and award process had led to countless tips going unrewarded.
According to a report from the Government Accountability Offices, the information collected by the IRS about why it rejects a whistle-blowers claim is not sufficient. The IRS deputy commissioner responded by saying that taxpayer privacy laws are the cause of so many tips being ignored. The agency said that a tipster should be ready to wait as long as seven years even if his or her claim is investigated.
Whether it is because of a paucity of agents assigned to whistle-blower cases, or flaws in the process itself, internal reports about tax evasion are not leading to awards from the IRS.
Source: Bloomberg News, "IRS Resists Whistle-Blowers Despite Wide U.S. Tax Gap," by Jesse Drucker and Peter S. Green, 19 June 2012