Another Tax Authority allegedly is not doing its job....This time it isn't the IRS

Her Majesty's Revenue & Customs(HMRC) Self Assessment Tax Return

Her Majesty's Revenue & Customs(HMRC) Self Assessment Tax Return

In the news lately, the IRS has been criticized for not doing its job.  Specifically, the Speaker of the House (Paul Ryan) has stated “The IRS is not doing its job. It is looking out for itself instead of looking out for our taxpayers,” when introducing the House Republican agenda for #ConfidentAmerica.  Speaker Ryan’s comments relate to IRS’ alleged inability to protect taxpayer payer information.  See Forbes or Tax Analysts articles re IRS online transcript service hacked by criminals.

News disclosed of IRS inability to protect taxpayer sensitive data, along with recent IRS headlines (including: Lois Lerner and the IRS targeting fiasco, etc. (See TaxProfBlog’s ongoing coverage of the “IRS Scandal and other IRS related news)) continues to undermine the IRS and continues to fuel Congress’ attacks of IRS especially through recent House bills passed aimed at shutting down the IRS.

Given this context, one would assume that news of another taxing authority not doing its job would just be a re-tread of another example of the IRS failing to do its job.  Instead, the recent news from Bloomberg BNA, actually highlights the U.K.’s tax collecting agency’s ((Her Majesty’s Revenue & Customs) HMRC) failure to prosecute tax evaders connected to the HSBC bank leak.  The Bloomberg BNA blog highlights that only one of 3,600 alleged tax evaders has been prosecuted by HMRC, which is costing the U.K. approximately 16 billion pounds ($23 billion) in tax revenue each year.   See the U.K. Public Accounts Committee (PAC) Report criticizing HMRC and its November 2015 Report also criticizing HMRC for its failures.  PAC recommended increasing investigations and prosecutions of wealth individuals, especially given the recent release of the Panama Papers.

With all these attacks on taxing authorities, it begs the question whether the attacks are justified, or whether the people attacking the taxing authorities are providing enough guidance and/or resources to permit the taxing authority to properly do its job.  One such advocate is the editorial board at the Washington Post.  The Washington Post commentary suggests that the source for the IRS’ lack of customer service is the House Republicans (the same group that just passed measures to underfund and restrict the IRS’ authority).  The Washington post article relies on the following facts:

  1. IRS budget is $500 million below the 2010 budget level;
  2. IRS has had to shed 17,000 workers
  3. IRS has increased responsibilities including Obamacare (Affordable Care Act), FACTA (Foreign Account Tax Compliance Act), and the passport law (Fixing America’s Surface Transportation Act, or “FAST Act.”).

The Washington Post commentary concludes that House Republicans are rewarding tax cheats by de-funding the IRS, as the IRS will just conduct fewer audits and cost the U.S. government $8 billion.  The commentary also concludes that Congress should adequately fund the IRS instead of attacking the IRS.

While the Washington Post article makes several key points, the Washington Post article fails to address one area where IRS and IRS management can help in to minimize House Republicans’ attacks against the IRS.  The IRS and IRS management specifically, can utilize one tool Congress has provided the IRS to close the tax gap, namely the IRS whistleblower program.  IRS management could make a priority in taking whistleblower tips and utilizing whistleblowers to track down the tax evaders and collect the delinquent taxes.  Instead, as the GAO has reported in 2015 and as blogged here by Thomas C. Pliske, the IRS has vastly under-utilized the whistleblower program.

Perhaps if the IRS were to feature the whistleblower program, it could increase revenue collected despite the budget constraints, and also turn the tide against the “bash the IRS” movement, by demonstrating that it is doing its job, collecting taxes of the United States.

If you have specific or credible evidence of an individual or corporate taxpayer not paying its tax liabilities, please contact us, to discuss filing a claim for an award with the IRS.  IRS pays between 15-30% of the collected proceeds (in excess of $2,000,000) to a whistleblower.

ARE THE LOBBYISTS FOR LARGE WEALTHY TAXPAYERS SUCCEEDING?

Influencing Congress to curtail IRS abuse seems to have caught on and is supported by many….until we think about it.  On April 4, 2016, the Center on Budget and Policy Priorities recently reported in an article IRS Funding Cuts Compromise Taxpayer Service and Weaken Enforcement that the IRS budge has been cut 17% since 2010 weakening the IRS ability to enforce the tax laws.  In fact with over 13,000 less employee (12,000 enforcement staff) it has resulted in the lowest audit levels in a decade.  These budget cuts are in addition to the IRS increased responsibilities including 9 million more individual returns filed, enforcement of ACA, FACTA, and its focus on identity theft that alone results in $6 billion of fraudulent refunds being issued by the IRS every year.

House Republicans have targeted the IRS for sharp cuts since the Lois Lerner fiasco.  Senator Ted Cruz pledges to keep his promises as he runs for President and then naively promises that he will eliminate the IRS.  We as taxpayers know that there is a cost to living in a civilize society.  However, what is happening is that the large influential taxpayers with their millions to spend to defend their underreporting and underpayment of tax are now just too big for the IRS to successfully audit with its limited budgets and lack of resources.  The IRS has now been reduced to do what it does best, and that is simply going after the little guy (middle and lower class).

One has to wonder if the reduction of enforcement of the tax laws as to the wealthy taxpayers and large multinational corporations is just an unforeseen consequence of cutting the IRS budget or is it the result of an overall plan by the wealthy influential taxpayer and the Republicans. 

In 2010, the IRS was given the most powerful tool for enforcement of the tax laws, IRC §7623(b)…a strengthened Whistleblower program.  The IRS was mandated to pay 15% -30% of the tax collected based upon information that was provided to it from an individual that resulted in the determination of tax.  However, this was with respect to only large taxpayers in which there was more than $2,000,000 of tax in dispute.  Thousands of whistleblower claims have been handed to the IRS on a silver platter every year involving large wealthy taxpayers, but for unknown reasons, the IRS has not used the whistleblower program as it should by working with whistleblowers, expediting these whistleblower cases through the system, and promoting the whistleblower program.  Perhaps with the current limited budget, the IRS will realize that is more important now than ever before to embrace the whistleblower program and work with the true insider to efficiently enforce the tax laws as to the large wealthy taxpayer.