New York Times DealBook: A Strategy of Tattletales at the IRS, by Victor Fleischer (Colorado):
No one likes a tattletale. But tax whistle-blowers sure are getting compensated for the animosity they evoke.
Bradley
Birkenfeld, a former UBS banker, was awarded $104 million for bringing
information to the IRS about tax evasion strategies
at the Swiss bank. The New York attorney general’s investigation into
private equity management fee conversions appears to have originated from a whistle-blower claim. Dean Zerbe, a former legislative aide on
tax issues, now works at the National Whistleblowers Center, which has
claims outstanding on $25 billion of tax underpayments.Are whistle-blowers the new IRS business model?
Enforcement of tax laws requires finding a fair and effective way to
overcome the information asymmetry between taxpayers and the IRS. The
government starts off at a disadvantage. While the IRS has broad
powers to demand information from taxpayers, it doesn’t always know what
to look for. Furthermore, because of privacy laws, private individuals,
academics, reporters and public interest organizations cannot
effectively serve as watchdogs.Relying on whistle-blowers is one
approach. The ramped-up IRS program is still new. Building on the
success of the False Claims Act at rooting out fraudulent Medicare
billing practices and similar scams, Congress in 2006 increased the
awards to whistle-blowers. They can now receive up to 30 percent of the
taxes collected. …In my view, whistle-blowers or qui tam actions will remain a small
part of the overall tax enforcement strategy. Relying on whistle-blowers
means providing bounties to insiders willing to turn against their
clients or employers. The strategy relies on bad blood — a crumbling
business partnership, office politics, a divorce or some other source of
conflict — to bring information to the government’s attention. In many
cases, the IRS will have to team up with someone with unclean hands
or a hidden agenda. Moreover, whistle-blowers will target
black-and-white cases of tax fraud, while many aggressive tax planning
techniques reside in the gray.Meanwhile, changes in corporate
governance and accounting have ushered in a quiet revolution in
corporate tax compliance. It’s hardly the stuff of headlines, but the
changes have proven effective in changing the mind-set of corporate
executives. …For further reading on tax whistle-blowers, see Dennis J. Ventry Jr., Whistleblowers and Qui Tam for Tax, 61 Tax Lawyer 357 (2007).
For
further reading on schedule UTP, see Bret Wells, New Schedule UTP:
Uncertain Tax Positions in the Age of Transparency, 63 Baylor Law
Review 392 (2011).
