As stated in a prior blog, IRS audits and enforcement help ensure the voluntary compliance by all taxpayers to report and pay their proper tax liability. Additionally, as previously stated in this blog, the IRS’ use of the whistleblower program to target enforcement and audits helps further reduced the Tax Gap (i.e., difference between taxes owed and taxes paid, which is estimated at over $450 Billion annually).
Now, there is further support as to why the IRS needs to utilize the IRS Whistleblower Program: In the May 30, 2019 ProPublica article by Paul Kiel, “It’s Getting Worse: The IRS Now Audits Poor Americans at About the Same Rate as the Top 1%”, the author states that the IRS audits the Top 1% at about 1.56%, and the poorest taxpayers (those that utilize the Earned Income Tax Credit, “EITC”), at about 1.41%.
Mr. Kiel states that one rationale for the increase EITC audits is due to the fact that the EITC audits are easier to conduct by the IRS. In these tax adjustments, the IRS only has to issue a letter requesting supporting information, instead of utilizing a team of investigators to uncover any tax wrongdoing, citing a statement by Senator Ron Wyden.
Mr. Kiel’s article also cites IRS spokesman Dean Patterson’s acknowledgement that the IRS’ decline in audits of wealthy taxpayers is due to the IRS having lost so may skilled auditors.
There are two unintended consequences for the IRS’ shift of focus to poorer taxpayers, namely:
1. The poorer taxpayers are more disinclined to take the EITC in future years to avoid further scrutiny/audits, and
2. The poorer taxpayers just fail to respond to the paper audits.
This leads to the obvious question, why isn’t the IRS taking advantage of the whistleblower program, which is designed to assist the IRS to shorten the audit process by specifically targeting wealthy taxpayers with potential tax violations exceeding at least $2,000,000. It seems to reason that if the IRS is having trouble targeting audits of wealthy taxpayers because of the manpower and costs associated with such audits, wouldn’t it make sense for the IRS to use the Whistleblower Program to better focus their limited resources? This would generate a better return on the IRS’ investment of manpower and resources.
As noted in this blog previously, the IRS spends about 4 cents per dollar collected by utilizing the IRS whistleblower program, and about 10 cents per dollar collected by using its traditional audit methods. The lower costs should mandate that the IRS start prioritizing whistleblower claims and encourage them to shorten the time processing those claims. Both of these steps would help the IRS to better attack the tax gap, hopefully negate the need to target the poor and stem the tide of wealthy sophisticated taxpayers cheating the system.
If you have credible information that will substantially contribute to the IRS in collecting large tax liabilities (over $2,000,000) from a taxpayer, please contact us to discuss your case.