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IRS Whistleblower Rewards Make Headlines

The IRS whistleblower program is relatively new, but it has had a few notable, that is to say very large, successes. Big business not paying taxes is, well, big business. The IRS has to use whistleblowers if they want to do anything about that. Under the law, such whistleblowers can collect a reward of 15-25 percent of the amount the government collects.

The idea of cracking down on fortune 500 companies that use secret off shore tax havens has made more people excited about the prospect of using this law. The latest rundown of what is happening appears in Newsweek, which published an enthusiastic but measured article on IRS whistleblowers. The article states:

“High-level whistle-blowers are the newest players in the vastly rich world of offshore tax evasion. The tax gap – the amount by which U.S. corporations underpay their federal income taxes – is $385 billion, according to the most recent IRS estimates in 2006. But deep inside multinational financial services, technology and pharmaceutical corporations, and at smaller family-run companies in everything from manufacturing to real estate, high-level insiders are stealthily exposing them.”

The program was created because the traditional Federal False Claims Act does not allow for reporting tax issues. So, the IRS whistleblower program is relatively new. Newsweek notes both the high rewards that a few successful whistleblowers (the article uses a term for whistleblowers I find offensive and will not use) have earned. It also points to the long and difficult road whistleblowers may face before they do collect a reward.

“Tax lawyers hope more special payouts are in the pipeline, given that the program only began in December 2006 and many claims are now winding their way through the final stages of the process. They say that as the IRS struggles to ferret out corporate tax abuses, whistle-blowers in corporate tax departments hold the key. It’s not enough to have suspicions, anger or moral outrage – the IRS needs confidential internal work papers that drill down on what the federal tax returns of the companies bury or hide altogether.”

Ah yes the information that proves the case. That is what the IRS really needs.

The thing to keep in mind is that there are a lot of taxes not paid each year. Companies don’t like paying them, or at least not all of them. Therefore, as major corporations continue to concoct major tax havens to save on the bottom line, and if the IRS does want to crack down on them, the federal agency will have to use the information provided by whistleblowers and there will be future rewards for Newsweek to write about.