An annual report on criminal investigations in Fiscal Year 2014 released by the Internal Revenue Service today shows a 19% decrease in the number of investigations initiated due to reduced budget and staffing over the prior year. This statistic doesn’t bode well for potential movement on cases initiated by tax whistleblowers. It seems to be more evidence that the IRS whistleblower program will have a tough time proceeding to a successful resolution.
There isn’t a direct corollary because whistleblowers don’t directly benefit from the work of the criminal investigations unit. The IRS whistleblower program does not allow individuals to recover a percentage of the money obtained by the agency through criminal prosecutions. It only covers civil enforcement actions according to the IRS rules. However, if the criminal side is experiencing cuts and problems, the civil side is probably also dealing with insufficient resources.
Early last year, there were significant discussions in the media and pressure from Senator Chuck Grassley for the IRS to shape up and take action on whistleblower cases or risk losing them. However, there haven’t been many articles discussing it since a bevy of activity that spring. We should get a peek at the success or failure of the program over the past year soon. We are still waiting for the IRS to release its annual whistleblower report recapping the program for the last fiscal year. If a report with few rewards is released, there will probably be more calls for changes to the system.
The obvious place to turn for comparison is the SEC whistleblower program, which had a great year despite the fact that the Office of the Whistleblower has only been open at the securities regulator for three full years. It made incentive awards to nine whistleblowers including its largest reward to date: $30 million to an international whistleblower.
There was some good news in the IRS report, though. Despite the decrease in investigations, the criminal unit has worked on some of the largest cases of corporate misconduct over the past year, including the BNP Paribas, Bank Leumi and Credit Suisse investigations. These investigations resulted in significant fines for the corporations engaged in misconduct, so there is still some hope that the IRS will take action in cases of tax evasion and corporate wrongdoing.
The staffing figures in the report just don’t look good, though. They show a 3% decrease in the number of Special Agents and a 5% decrease in criminal personnel over the last year. A chart predicting the number of Special Agents the agency through FY 2016 shows nearly a 40% decrease from the high in FY 1995. If you remember from last year, Congress significantly cut the budget of the IRS in the Cromnibus bill for this year. So if they had problems last year, there will probably be even more during this year.
Most telling in the report may be the fall in identity theft investigations between FY 2013 and 2014. This is reportedly one area where tax fraud is exploding and the sharp decline in investigations is particularly troubling.
If you have questions about this post or have evidence of tax noncompliance, feel free to contact one of our tax whistleblower lawyers via our contact form or by calling 1-800-590-4116. Our law firm offers a free, confidential initial legal consultation with a lawyer for whistleblowers.