New rules will make it easier for people who blow the whistle on tax cheats to get a reward from the Internal Revenue Service. It remains to be seen when they can start to collect, though.
Treasury Department rules issued last week broaden the kinds of claims the agency accepts, smoothing the way for more people who want to collect. Tips are now good even if they just involve an improper tax refund or a tax credit.
Dean A. Zerbe, who represents whistleblowers, said tipsters are heartened by the development. "This is finally the cavalry coming in to help," he said. He believes the change shows senior IRS management is serious about removing any roadblocks to the program.
Zerbe previously helped write whistleblower law while Republican tax counsel to the Senate Finance Committee under Sen. Charles Grassley (R., Iowa). He is representing former UBS AG (UBS, UBSN.VX) banker Bradley Birkenfeld, now serving time in prison for aiding in tax evasion, in a whistleblower claim.
The special IRS office that pays tipsters is working on many claims but has yet to pay out any rewards, though it was formed back in 2006, under the Tax Relief and Health Care Act. It aims to let tipsters pocket between 15% and 30% of the taxes the IRS collects based on their information.
In a report to Congress in 2009--the most recent of its kind it has made--the office said it got 476 tips about 1,246 taxpayers in fiscal year 2008, each of which appear to meet the requirement that at least $2 million in taxes were evaded. The same year, the Treasury Inspector General for Tax Administration said there were big deficiencies in the handling of claims.
The office has hoped to attract many sophisticated informants, such as highly placed corporate executives who are more likely to know of the complex transactions used to evade very big tax payments. Cracking those cases means big money for the IRS in back payments and penalties.
Critics have said the office isn't doing enough to help people through what often turns into a long and frightening ordeal after they hand over information. They can lose jobs and friends, and feel isolated, even from the IRS.
David B. Blair, an attorney at Miller Chevalier in Washington, said his firm is monitoring developments at the IRS office closely. His colleagues are trying to make sure that everyone is educated on the law.
The dynamics of tax enforcement are changing as a result of the whistleblower office. A new group of firms has sprung up to handle whistleblower claims, and is soliciting employees and former employees of corporations that may have engaged in tax evasion or helped tax evaders.
Some tax advisers predict a kind of feeding frenzy could occur after the office pays out its first award. Any firm involved in winning the first award is likely to publicize the victory, drawing in other informants.
"It used to be the IRS and the taxpayer, and now we have this third party," says Blair. "That changes everything."
Copyright (c) 2010, Dow Jones.