Will Whistleblowing be Changing the Tax Game ?

Originally Published on forbes.com on September 22nd,2011

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I have invited a guest post on a topic that to me is about the most disturbing development in tax practice.  Patrick Carmody is withCarrig Counsel which assists whistleblowers in getting the IRS to take action on their information.  His hope is that the IRS will take whistleblowers more seriously and he seems to have a friend in a high place in Senator Grassley.  Why should Congress pay to hire more auditors when there are all these folks out there willing to work on contingency ? Meaning no disrespect to Mr. Carmody, Ifind the whole thing a little distasteful.  My primary motto on tax issues, though, is “It is what it is. Deal with it.”  If this thing really gets rolling I hope I will be retired by then.

Grassley to I.R.S.: “See the light or enjoy the heat, your choice”

Senator Grassley is no shrinking violet and I.R.S. Commissioner Douglas Shulman should heed the hardly veiled threats contained in the great and powerful Iowa senator’s recent letter directly to him about the I.R.S.whistleblower program (WBO).

Senator Grassley re-wrote the I.R.S. whistleblower statute in 2006 to makerewards mandatory (minimum 15%, maximum 30% of amount collected) for high-value tax claims—over $2,000,000 taxes owed.

From the start, whistleblowers, through their vociferous counsel, complained that the I.R.S. had shut out whistleblowers from the claims’ investigation process, and the I.R.S. had not paid out on solid tips in a meaningful way. Their complaints got Senator Grassley’s attention and, last September, he commissioned the Congressional Governmental Accountability Office (GAO) to review the WBO’s progress. The GAO sent its report back to Congress last Friday.

Whistleblowers Not Skunks At A Picnic but….

The GAO found that while the public response to the WBO program had been tremendous–1400 individual whistleblowers have made about 9500 claims totaling hundreds of billions of taxes owned by tax scofflaws and the I.R.S. has ceased its old ways of treating whistleblowers, in Senator Grassley’s words, like “skunks at a picnic,” the I.R.S. had shrouded the WBO program in opacity and larded it with inefficiencies.  Tellingly, GAO investigators themselves were unable to get to the bottom of it all due that self-same I.R.S. opacity (or perhaps worse, I.R.S. institutional ineffectiveness, an unstated thought implied in the report and not lost on Senator Grassley).

“We Are Not Amused.”

Senator Grassley measured and thorough response to the I.R.S. regarding the GAO report suggest that he thinks the I.R.S. is gaming or sandbagging him (pick your poison), and he is taking it personally.  In his initial press release to the report, he told the I.R.S. not to come looking for additional Congressional funding claiming insufficient resources to do its work while it does not use the vast free resources available to it from whistleblowers. His follow-up letter to I.R.S. Commissioner Shulman directed the I.R.S. to enact several sensible reforms for the WBO soon, as in tomorrow.

Is Something Burning Around Here?

The GAO report presents in high relief a resoundingly successful WBO program to which whistleblowers have reported hundreds of billions of taxes owed by scofflaws, but which is hamstrung from achieving its full potential by I.R.S. bureaucracy.

Senator Grassley has illuminated for the I.R.S. how it needs to get the WBO humming. All eyeballs that count are now on Commissioner Shulman, watching for his responsive actions. Or will he instead experience that distinctly uncomfortable sensation of heat being applied to the seat of his office chair?

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I don’t think that it crosses peoples mind that there is an assitant controller who is working on a Masters in Taxation buried in the bowels of their company that can now access contingency based tax counsel to provide the IRS with a neat package with a bow wrapped around it and that if the IRS isn’t quick about paying the reward they will be feeling heat from Senator Grassley and GAO.  My experience over the years in dealing with IRS auditors is that while they are generally quite professional, they are rarely as zealous as the folks on the other side of the table.  If this GAO report and Senator Grassley’s comments are taken to heart, it may be a different ball game in the future.