To the Editor:
Two weeks ago, IRS Commissioner John Koskinen, sworn into office just six months ago, gave a speech in which he described the myriad challenges posed to the IRS and persuasively articulated the agency’s need for additional resources. However, based on his remarks, it’s unclear whether Mr.Koskinen fully appreciates the value of certain resources provided by Congress that the IRS has thus far failed to tap — namely, the IRS whistleblower program.
Enacted by Congress in 2006, the IRS whistleblower program is a true model of government efficiency, helping the IRS do more with less in the area of corporate tax audits. The program is genius. It induces high-paid private sector tax practitioners to do the heavy lifting for the IRS, and company insiders to provide the IRS with detailed and critical information about significant tax exposures that have eluded the IRS for years. Without the program, the only way the IRS can uncover similarly valuable, smoking gun-type information is through dumping thousands of work hours into large corporate audits.
The advantages of the whistleblower program don’t end there. The short-term benefits to the IRS and the public are obvious — increased tax revenue and closing the tax gap. The government will collect tax liabilities it would have otherwise (and has previously) failed to detect. But the long-term benefits, although less obvious, are even more important. Once companies see that they cannot simply conceal their tax issues due to the considerable incentives for corporate insiders to become whistleblowers, the long-standing corporate cat and mouse game and other more nefarious corporate behaviors, which have roiled the IRS for decades and led to massive inefficiencies in tax audits, will become relics of the past. The program will produce a fundamental positive shift in corporate tax-related behavior, and also ensure that big corporations are paying their fair share.
No matter how much reorganizing, training, and new directives the IRS — and its large-case enforcement arm, the Large Business and International Division — rolls out, the impact of these administrative actions on tax administration and enforcement will be dwarfed by the mountain of actionable evidence an effective whistleblower program could yield. Further, if properly implemented, the whistleblower program will revolutionize tax audits. The IRS would become significantly more efficient and effective in its audits, as program information becomes central to how the IRS identifies and develops issues and IRS exam teams are able to scale back or eliminate many of the antiquated and highly inefficient audit techniques.
However, the IRS must play its part for the whistleblower program to work. These enormous benefits can only be realized if the IRS proves its commitment to the program and develops a track record of rewarding high quality information. First, IRS leadership needs to vocally support the whistleblower program. This is where newly installed Commissioner Koskinen can play a huge role. Second, the IRS must avoid undermining the program through proposed regulations restricting incentives for potential whistleblowers. For example, one of the proposed IRS regulations appears to wrongfully deny credit to whistleblowers who alert the IRS of information pertaining to issues listed on IRS audit plans. This is absurd. In large corporate audits virtually every piece of information or issue falls into one of the very broad categories on the audit plan. Nevertheless, the IRS routinely misses most of the major tax exposures in those broad categories. My hope is that professionals involved in finalizing the IRS’s proposed regulations are actually familiar with case audit plans and will dispel the ‘‘audit plan’’ exemption for whistleblowers.
In sum, the public should be receptive to Commissioner Koskinen’s call for more funding from Congress but, in turn, it should also demand that he and his agency more effectively use the valuable resources and tools already provided by Congress such as the whistleblower program.
Jeffrey A. Neiman
May 28, 2014