As IRS Commissioner Steps Down Today, How the Next IRS Commissioner Can Immediately Help Address the “Fiscal Cliff” by Expanding the IRS Whistleblower Program

Today marks the end of IRS Commissioner Doug Shulman’s tenure, just as President Obama and Congressional leaders shift to addressing the looming “fiscal cliff.” Rather than disrupt the process of narrowing the deficit, Shulman’s departure could actually assist it–in an important way that does not depend on raising tax rates.

The timing is perfect for a new IRS leader to back fully a bipartisan effort long advocated by Republican Sen. Chuck Grassley (R-Iowa) to tackle the “tax gap”–the more than $300 billion owed but not paid by tax cheats each year. Grassley seeks to expand the IRS Whistleblower Program to fulfill the promise of changes to the tax whistleblower law that Grassley sponsored almost six years ago.

Grassley should enlist as a ready ally President Obama, whose Justice Department is about to announce a record year of fraud recoveries in False Claims Act cases brought by whistleblowers. Grassley also has been the driving force behind that highly successful law since at least 1986.

Although the IRS has assembled highly skilled professionals to staff its Whistleblower Office led by Director Steve Whitlock, Grassley’s efforts have been stymied by bureaucratic resistance among others in the IRS. Those naysayers create endless obstacles to attracting whistleblowers–even though the Treasury Inspector General has determined that whistleblower information is essentially twice as effective as other sources for uncovering tax violations.

The Justice Department has learned over the past quarter century that working closely with “insider” whistleblowers and their counsel is the key to unravelling significant fraud schemes. In contrast, too many in the IRS refuse to learn from the DOJ’s experience and to heed Congress’ directive to expand the use of whistleblowers. For example, after convincing Grassley’s staff in 2006 that they could and would work closely with whistleblowers, the IRS Chief Counsel’s Office over almost six years has refused to approve even a single agreement with a whistleblower to allow that cooperation.

Grassley points to how a single whistleblower was motivated by the IRS Whistleblower law to lift the veil of secrecy on how Swiss banks have facilitated tax evasion by U.S. tax cheats. The IRS has already begun to recover billions in unpaid taxes because of the UBS whistleblower Bradley Birkenfeld. Attracting whistleblowers not only will lead to greater and greater recoveries to help close the “tax gap,” but also can have a deterrent effect on future tax cheating.

Fortunately, this coming Monday, November 12, Acting Commissioner Steve Miller takes the helm. Starting last year when he was Deputy Commissioner, Mr. Miller reached out to whistleblower advocates to meet and discuss our suggestions for improving the IRS Whistleblower Program. In our summer meeting in the Commissioner’s conference room, I found him sincere in his desire to make the Whistleblower Program work more effectively. He may be the best person to lead the IRS as Commissioner going forward.

Actions and results will be the ultimate test. Mr. Miller has his work cut out in overcoming the resistance of those who believe they–rather than Sen. Grassley and Congress–should make the laws governing the whistleblower program.