This month, the Internal Revenue Service (“IRS”) released its plan to spend the approximately $80 billion in new funding authorized by Congress.
In its write-up, the IRS highlighted goals of improving the agency’s technology, customer service and enforcement efforts.
According to the IRS Strategic Operating Plan overview, the agency’s “shrinking workforce has made it more difficult for taxpayers to get the service they deserve,” and “increasingly complex tax administration and limited” personnel has led to diminished enforcement capabilities. The new funding may be used to address these issues, including enforcement.
In written answers to the Senate Finance Committee last month, Commissioner Danny Werfel also made it clear that enforcement efforts, particularly targeting wealthy tax cheats, would be a top priority.
The IRS collects around $5 trillion per year, which equates to about 96 percent of our country’s gross revenue. However, the tax gap for the next decade the difference between what taxes are owed and what will actually be paid, has been estimated at approximately $7 trillion over the next decade.
Not surprisingly, the IRS wants to address the tax gap with enforcement efforts, including through its whistleblower program.
According to Werfel, the IRS’s intake system for whistleblower tips related to tax noncompliance will be important to revamping the agency’s enforcement efforts.
“It is critical that the IRS’s Whistleblower Program be treated with the highest priority,” he said.
Unfortunately, The IRS Whistleblower Program, has seen brighter days.
The program, which recovered approximately $1.4 billion in taxes owed in 2018, has seen dwindling proceed and award numbers, as well as incredible delays in timing for award determinations that, ultimately, have led to whistleblowers not coming forward with critical information at all.
Werfel isn’t the only one who has taken notice. Members of Congress, including Reps. Kelly, Thompson and Sens. Grassley, Wyden, Wicker, and Cardin, have introduced a bipartisan bill aimed at strengthening the IRS Whistleblower Program.
The IRS Whistleblower Program Improvement Act looks to fix the issues facing the program by:
– Improving whistleblower appeals at the U.S. Tax Court by enabling a de novo review standard, which would allow for new evidence to be admitted for the record
– Creating a presumption of anonymity for whistleblowers who choose to appeal their determination to the U.S. Tax Court
– Exempting whistleblower awards from budget sequestration thereby ensuring IRS Whistleblowers will get their just awards
– Providing that interest on awards be paid to whistleblowers if the awardee has not been paid within one year of the agency collecting proceeds
– Ensuring the tax treatment of whistleblower attorney fees is consistent with other programs such as the SEC Whistleblower Program
– Improving the IRS Whistleblower Office Annual Report to Congress
In short, the legislation would increase a tax whistleblower’s ability to appeal determinations they do not agree with, a vital aspect of due process that has so far been missing since the program’s creation.
The legislation also affords greater protections for whistleblowers in terms of their identity and financial interests, both areas of which have traditionally dissuaded those with critical information from coming forward.
As the IRS works to implement its budget plan, taxpayer and practitioner’s eyes will be on two main buckets: improved taxpayer service, which requires a more modernized agency, and enforcement.
Although the IRS Whistleblower Program is just a piece of the enforcement pie, it’s a critical one and has the potential to dramatically shrink the tax gap in the coming years. As the IRS continues its fight to convince Congress that the more they invest in the agency, the more return it will yield.
Matthew Beddingfield is a Senior Associate at Zerbe, Miller, Fingeret, Frank & Jadav LLP