Paul L. Caron

Monday, November 30, 2009

Tax Whistleblowers Gone Wild

Following up on Saturday's post, Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes: the cover story of this week's Forbes is Tax Informants Are on the Loose, by Janey Novack & William P. Barrett:

For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million--only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.

The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants "often provide extensive documentation to support their claims,'' the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged. ...

Joseph R. (Joe) Francis, the Girls Gone Wild video impresario, last year was convicted of child abuse and prostitution charges in Florida. He just pleaded guilty in Los Angeles to nonfelony charges of filing false tax returns, was fined $10,000 and paid $250,000 in back taxes but got no new jail time. Light punishment? In a pending civil lawsuit filed in the name of his company, Francis claims three now-ex-executives plotted to embezzle money from his company and "began contacting" the IRS on an informant basis hoping Francis would be convicted and jailed and their own frauds would go undiscovered. Francis' pleading says one defendant e-mailed another a copy of a news story headlined, "IRS Pays Informants to Squeal on Tax Cheats." With that civil case still in its early stages, defendants have not answered in court and couldn't be contacted. ...

Are you ready for the new world of tax snitching? If you are chiseling, you can't trust anybody.

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