Tax Analysts published a letter to the editor written by Phillips & Cohen partner Erika A. Kelton in response to comments by the former chief counsel for the IRS, who was critical of the IRS whistleblower program.
Korb wrong about whistleblower program, writer says
It's amazing -- and unseemly -- that the former chief counsel for the Internal Revenue Service who was charged with enforcing tax laws would express what sounds almost like contempt for Congress and a program it enacted with bipartisan support -- particularly one that is as effective as the IRS whistleblower program. When asked about the program, which Congress created in 2006, Donald Korb declared in an interview (Tax Notes, Jan. 18, 2010, p. 310, Doc 2010-836, 2010 TNT 11-7) that the program was "forced on [the IRS] by the Congress" and has "the potential to be a real disaster for the tax system."
Yet Korb acknowledges elsewhere in the interview that the agency needs help with enforcement. "My philosophy during my time as chief counsel was that the IRS couldn't be everywhere, so you need to have a system of pressure points that build up outside the IRS to help the IRS to achieve certain goals," he said.
Korb's dismissive attitude toward whistleblowers was clear from the interview and clear from decisions he made while chief counsel. But the data show how wrong he is. In a 2006 report examining the IRS informants' reward program before the new whistleblower program was created, the Treasury Inspector General for Tax Administration said, "Our analysis of IRS data indicated that examinations initiated based on informant information were often more effective and efficient than returns initiated using the IRS' primary method for selecting returns for examination."
Korb belittles the IRS whistleblower program set up under section 7623(b), saying it "contemplates" people turning in neighbors and employers. Congress was not looking for people to turn in neighbors, which is why it set $ 2 million as the minimum amount in dispute for a whistleblower claim to be considered under the new program. However, people should turn in employers when those employers are cheating the government out of billions of dollars in taxes through a myriad of abusive -- and often extremely complex -- tax avoidance schemes. In most instances, insiders who are willing to blow the whistle are the only way the IRS will become aware of those schemes.
Insiders are more willing now to risk their careers and livelihoods to provide the IRS with important information solely because of the new whistleblower program, which guarantees them a reward if the IRS recovers funds as a result of their information. In fiscal 2008 (the latest year statistics are available), the IRS Whistleblower Office received 228 claims alleging underpayments of $ 10 million or more and 64 claims alleging the underpayment of $ 100 million or more. And many of those claims are solid. "Many of the individuals submitting information to the IRS claimed to have insider knowledge of the reported transactions, often with extensive documentation to support their claims," the IRS Whistleblower Office said in its 2009 report to Congress.
Senator Chuck Grassley, R-Iowa, proposed the new IRS whistleblower program based on the success of the modern-day False Claims Act, which he coauthored. That law, passed by Congress in 1986, allows whistleblowers to file qui tam lawsuits against companies that are defrauding the government (except through tax fraud) and recover funds on the government's behalf. As with the IRS program, False Claims Act whistleblowers are rewarded with 15 to 30 percent of the amount the government recovers as a result of the whistleblower's case. In just the past five years, the government has recovered $ 7 billion as a result of whistleblower cases brought under the False Claims Act, according to the Department of Justice. Without doubt, the False Claims Act has become the Justice Department's primary tool for civil fraud enforcement.
Grassley had the foresight to recognize that truly effective tax enforcement requires the same kind of public-private partnership created by the False Claims Act. "One well-positioned whistleblower could expose millions of dollars of fraud. It might take IRS auditors years to catch that much cheating on their own," Grassley said shortly after the IRS set up the Whistleblower Office in 2007. "The taxpayers have reaped the success of the False Claim Act whistleblower rewards program. They'll benefit from the same concept applied to tax cheating."
Despite some weaknesses, the IRS whistleblower program is a huge step toward helping the IRS recover billions in taxes owed the government. The negative attitude Korb expressed toward the whistleblower program is similar to that held by some government officials after Congress enacted the False Claims Act. Those naysayers have been proven wrong, and Korb will be, too.
Erika A. Kelton
January 21, 2010
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