A report just released by TIGTA (the Treasury Inspector General for Tax Administration) shows that once again IRS audits of taxpayers are in decline.  Enforcement revenues are slightly up this year, but TIGTA says this is due to a small number of large corporate cases.

Some highlights of the TIGTA report:

  • “The number of staff assigned to Examination functions decreased 22 percent from FY 2013 to FY 2017, with a recent decline of 7 percent from FY 2016.”
  • “According to recent statistics, taxpayers filed nearly 196 million returns during Calendar Year 2016, of which less than 1 percent, or 1.1 million returns, were examined during FY 2017. This is a 32 percent decline from FY 2013 and a 9 percent decline from FY 2016, when there were approximately 1.6 million and 1.2 million examinations conducted, respectively.”
  • “The number of examinations performed by the LB&I Division decreased 8 percent from FY 2016 (34,676) to FY 2017 (31,880). This is also significantly less (41 percent) than the 54,211 performed in FY 2013.”
  • “The data show a significant downward trend in the IRS’s proposed audit adjustments over recent years. This may suggest that overall increases in enforcement revenues are not necessarily an effective indicator of how well the IRS’s traditional tax compliance enforcement tools (i.e.,
  • Examination and Collection) are performing under reduced funding.”

What does this mean to potential and current whistleblowers?  Based on my 20 years of experience in dealing with the IRS, it is more important than ever that your information stand out in a crowded field.  The likelihood that the IRS will act on unorganized or unpersuasive information is lower than ever – you have to clearly and concisely show and tell the IRS exactly how your information will lead to the collection of additional taxes (in period for which that statute of limitations is clearly open) if you wish to get anywhere with your award claim.  As always, the IRS must either collect additional tax or deny a refund based on your information for you to get an award.  However, first the IRS must decide to act on your information, and making your information stand out among others is the key to getting it selected to be used by the IRS.

On March 9th, Tax Partner Scott Knott and I attended the Federal Bar Association Tax Law Conference in Washington, D.C.  Known colloquially as the “inside the beltway tax conference,” many high ranking federal government employees from DOJ, Treasury, and the IRS were in attendance and speaking on various new developments in the tax law.

The key note speaker, Don Fort, Chief IRS Criminal Investigation (“IRS-CI”), spoke about the work of his division in the areas of tax evasion, money laundering, the use of cryptocurrencies to conceal income, and terrorist financing. Mr. Fort highlighted that the mission of IRS-CI is to have a maximum deterrent effect and enhance voluntary compliance with the tax laws.  Mr. Fort said maximum deterrent effect comes from working with the DOJ to prosecute tax crimes that generate publicity or are highly visible to the public.  Enhancing voluntary compliance necessarily involves identifying tax crimes in the first place.  In that regard, Mr. Fort stated that whistleblowers are one of the most important sources of information for IRS-CI.

  • Mr. Fort closed by noting that even though his division has the same number of special agents as it had 50 years ago, IRS-CI continually investigates some of the most complicated cases in the agency’s history. According to IRS-CI’s Annual Report for 2017, international investigations have increased substantially from the 186 indictments in 2015, to 221 initiated in 2016, to 283 initiated at the end of 2017.  Indictments have increased correspondingly.

We have spoken to Mr. Fort in the past concerning criminal tax matters, some of which IRS-CI has taken action on, and Mr. Fort has encouraged us to forward relevant evidence of criminal tax evasion to his division. If you have information about criminal tax evasion, please contact The Ferraro Law Firm for a free consultation.

 

The 2015 IRS Enforcement and Service Report issued this week reveals that both individual and corporate audit rates are declining, with the respective audit rates at a record low .84% and .60% of returns filed.  This not only leaves tax dollars on the table for past years but also risks future taxpayer  non-compliance by not spending adequate resources to enforce the tax laws as they are currently written. 

Lots of well written articles have been released about the Report that are worth checking out:

 CNBC: IRS Audit Rates of Large Corporations Hit 10-Year Low.

 The Wall Street Journal: IRS Focuses Its Audits More on 1 Million Incomes.

 CBS: Afraid of an IRS Audit? Here’s One Reason to Chill. 

As it relates to whistleblower claims, we and the Treasury Inspector General for Tax Administration’s Office (“TIGTA”) continue to shout the message that pursuing information from whistleblower claims is among the most efficient uses of scarce enforcement resources.  TIGTA’s own studies show that every dollar spent by the IRS on enforcement for whistleblower claims yields $6.88, whereas the normal enforcement return is four to one according to a November 2015 speech by Commissioner Koskinen.  However, the reality is that there are less agents now than there were 10 years ago to audit more returns than ever, and the IRS is being very picky about what cases they select for audit and what issues they move forward with in those audits.  This means that it is more important than ever that your whistleblower submission to the IRS be tight, concise, thorough, and persuasive to convince the IRS to take action in your case.  

I bet that every person reading this blog – people with an interest in the IRS Whistleblower Program – has seen that the IRS has been under fire this summer due to the exempt organization application processing scandal, and is wondering how this situation impacts their tax whistleblower claim or the IRS Whistleblower Program.

Caveat: I’m not a political person.  Despite having practiced tax law in Washington DC for the first dozen years of my legal career, my interest in politics is largely limited to what changes Congress is going to make to the Internal Revenue Code.  I.e., amending section 7623 in December of 2006 caught my attention!  With that said, my first reaction to the current IRS scandal wasn’t: “how could that noxious but revenue-irrelevant situation have been allowed to develop without someone asking themselves how it would look politically once it came to light.”  No, my reaction was: “uh oh, this is going to cause serious problems the next time the IRS needs something from Congress.”  How right I was.

All tax whistleblower cases, and the success of the IRS Whistleblower Program along with them, are wholly dependent on the IRS enforcing the violations of the Internal Revenue Code that we bring to their attention.  We have said from day one that the biggest risk in any whistleblower case is that the IRS will not act on your information, or they will not act with sufficient tenacity and resources to carry the case through to a successful conclusion.  In short, we’ve said the old analogy applies: “You can lead the horse to water but you can’t make him drink,” and the Cooper and Cohen cases have confirmed that analogy applies here.  If the IRS doesn’t act on your information, you get no award.

Fast forward to this summer… the IRS blunders in the total-waste-of-enforcement-resources exempt organizations area, and now it needs next fiscal year’s budget approved by Congress.  Surprise surprise, now some outraged members of Congress want to cut the IRS budget by 30%.  Never mind the fiscal stupidity of cutting the IRS budget in the first place – because it is the principal collector of the money our civilization runs on –  this cut would decimate the IRS’s ability to enforce the Code.  Whistleblower cases could simply have to be abandoned for lack of enforcement resources, e.g. because there are no agents or lawyers available to prosecute the case. 

Now, most political experts will say that this massive IRS budget cut proposal will not be accepted, and the Senate has proposed a budget that restores the funding the House of Representatives wants to slash, but it still highlights the biggest risk that we all have, that the IRS will do nothing with a whistleblower’s information.  The IRS has unfortunately shown that it is willing to ignore whistleblower cases even while the nation is running huge deficits.  The excuses why don’t really matter, although we continue to believe that some IRS officials will ultimately be held accountable for intentionally ignoring specific instances of large-scale non-compliance, what matters is that to have any chance of success in this landscape a whistleblower has to do everything they can to make their case attractive to the decision makers at the IRS.  Those officials in the IRS who decide how their scarce enforcement resources will be allocated hold your case in their hands, along with many other cases competing for those resources.  Budgets that make those enforcement resources even more scarce are a huge threat to a whistleblower case.  Helping them pick your case in spite of that scarcity is what we continue to strive to do.