During the 2015 filing season, John Oliver, the host of HBO’s “Last Week Tonight” argued on the program that the IRS is not only a necessary agency with a difficult job to do but is also a smart investment of public money.  Oliver makes some great (and funny) points about why the IRS budget should be increased rather than decreased.  The whole segment is imbedded below.

Enjoy. 

 

 

A consequence of several years of budget cuts at the IRS is a decline in their enforcement efforts.  The Wall Street Journal has recently run several stories detailing these statistics, noting new data that shows an overall decline in IRS audit rates for individuals as well as a decline in the number of large corporate tax audits.   The context for all the press releases and news stories on this topic is the current debate on Capitol Hill regarding the future budget of the IRS.  Commissioner Koskinen has been asking for a budget that at least brings the IRS back to where it was in 2010.

 

Where does this leave prospective whistleblowers?  There is no doubt that a climate of reduced IRS enforcement leads to a lack of accurate self-reporting and more aggressive tax return positions being taken by individuals and even by large corporations, even in a post SarBox world.  While this means that there will be even more fodder for potential whistleblowers to blow the whistle on, it also means that the IRS has less resources to pursue claims.  In such a case, we believe it is more important than ever before that your submission to the IRS be concise, that your allegations be factually and legally accurate, and most of all your submission must compel the IRS to act.  The IRS considers itself fully busy, especially now, and your submission must convince them that it is worth acting on instead of doing something else.   That’s a tough challenge to face when considering making an IRS whistleblower submission… but we like challenges.

As we have written about in the past, for the last few years IRS whistleblower awards under section 7623 have been subject to sequestration reductions of between 7.2% and 8.7% (currently 7.3% for fiscal year 2015 awards) pursuant to the Balanced Budget and Emergency Deficit Control Act.  We believe these cuts are contrary to law, and furthermore make bad fiscal sense, much like cuts to the IRS enforcement budget.  However, the budget that President Obama released today would put an end to these automatic across-the-board spending cuts.  He said:  “I’m not going to accept a budget that locks in sequestration going forward. It would be bad for our security, and bad for our growth.” 

Now a budget proposal is pretty far from law, and with the Republicans in control of both chambers of Congress they are really calling the shots on the budget, but it is a good sign that an end to sequestration is on the table.  We believe that the legality of sequestration cuts to whistleblower awards under section 7623 is currently being disputed in the US Tax Court, but it would be great if that issue became moot through legislation.

If there was ever a question whether IRS Commissioner, John Koskinen, believed in the IRS Whistleblower Program, that question was answered affirmatively in his remarks before the Taxpayers Against Fraud Education Fund.  At one point, Koskinen even referred to the information provided by whistleblowers as “a godsend.”  The remarks, given September 15th in Washington D.C., focused on IRS support of the whistleblower program and, of course, budget concerns.

Notably, Koskinen acknowledged concerns about the pace of whistleblower award payouts and said that he expects the pace of awards to pick up in the coming year.  To back up that prediction, Koskinen pointed to his decision to increase staffing for the whistleblower program by more than 70 percent even in the face of tight budget constraints.  Moreover, Koskinen said that the additional 31 employees will “help us continue implementing the 2006 law and working to increase the pace of award payouts.”  Added to this, Koskinen said that the delegation order issued in August, which allows smaller awards to be approved by a senior manager in the whistleblower office, should help pick up the pace of award payouts because everything doesn’t have to flow through to the Director’s office. 

Koskinen also praised the IRS Whistleblower Office and Director Steve Whitlock for paying out over $186 million in awards and collecting more than $1 billion based on whistleblower information over the last three fiscal years.  Professing his support for the program, Koskinen said:  

“By helping the IRS improve tax compliance, the whistleblower program also helps to ensure the integrity and fairness of our tax system.” 

He also noted that while being a whistleblower is not always supported in our society, “if people are cheating on their taxes, it is a public service to let us know.”

Understandably, Koskinen closed his remarks by voicing his concern over the decreased IRS budget he has to work with.  The House passed legislation that would reduce the IRS budget by more than $1 billion below 2014’s budget, forcing the IRS to make “extremely difficult choices on both services and enforcement.”  Specifically, Koskinen said that if the House’s budget were enacted, the IRS would face “a very serious shortfall in personnel, in taxpayer services, in enforcement, and in information technology.”  That shortfall makes the assistance of tax whistleblowers that much more important to successful enforcement actions. Tax Partner, Scott Knott’s comments on Comissioner Koskinen’s speech appear in a recent Tax Analysts article in which he emphasizes that whistleblower information is key to efficient IRS enforcement as supported by data in a TIGTA study