Offshore tax abuses and tax evasion have kept the IRS quite busy of late. The fast-approaching September 23 deadline for its “voluntary disclosure program,” and its agreement with UBS that will allow it to identify thousands of American taxpayers with offshore accounts, have added momentum to its efforts to combat offshore tax abuses by high net worth taxpayers.

Now, the IRS is creating a new group to “focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment.” It will
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Offshore tax abuses have been an IRS priority for some time, but the impending September 23, 2009 deadline for the IRS “Voluntary Disclosure” program–combined with the recent announcement that UBS has agreed with the IRS to release 4,450 names of U.S. account holders–has created a flurry of activity for the IRS.

Anxious taxpayers with exposure cannot be sure that their names are not on the list being produced. Last week, the IRS added a 52nd “FAQ” about the Voluntary Disclosure Program to explain its application to UBS account holders:

Q52. Are UBS account holders eligible to make a voluntary disclosure under the IRS’s offshore Voluntary Disclosure Practice (VDP) announced on March 23, 2009, and set to expire September 23, 2009?

As part of the agreement with Switzerland and UBS announced by the IRS and the Department of Justice on August 19, 2009, UBS will be sending notices to account holders indicating that their information may be provided to the IRS under the agreement. If a UBS account holder gets this notification from UBS before September 23rd, this notification will not by itself disqualify the account holder from making a voluntary disclosure under the offshore VDP by the September 23rd deadline. Although many of these notices will not be sent by UBS to account holders until after September 23rd, the September 23rd offshore VDP deadline applies to all UBS account holders even if they have not received a notice by that date.(See https://www.irs.gov/newsroom/article/0,,id=210027,00.html).

The IRS Whistleblower Program adds another element of suspense for non-compliant taxpayers. How many of these taxpayers may learn that the IRS Whistleblower Program has already identified them to the IRS?

And if not yet identified, how many taxpayers who will decline the benefits of voluntary disclosure by September 23 will be revealed to the IRS later through the very effective IRS Whistleblower Program?
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How to pay for health care in the United States, as costs inexorably grow?

The IRS Whistleblower Program may help by narrowing the “tax gap”–the difference between taxes owed and taxes paid each year. Treasury’s latest estimate is that $345 billion owed remains uncollected from those who engage in tax fraud, tax evasion, and other tax noncompliance. (“Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance”).

Senate Finance Committee Chair Max Baucus, D-Mont., raised this tax gap with the next IRS Chief Counsel, William J. Wilkins, on July 14: “We’re right now trying to figure how to pay for healthcare reform,” Baucus told Wilkins. “And it’s ironic that coincidentally, the amount we are trying to raise is that amount.”

The new IRS Whistleblower Program should dramatically improve the IRS’s efforts to close that tax gap. In December 2006, Congress authorized rewards of 15-30% paid to IRS whistleblowers who provide information that assists the IRS in collecting amounts owed to the IRS.

For the first time, IRS whistleblowers have an enforceable “right” to receive a reward. Early indications from the clients who have contacted us are that many substantial claims are being presented, including claims of over $1 billion owed to the IRS. (To see how the IRS Whistleblower Program works, see excerpts of this interview with IRS Whistleblower Office Director Steve Whitlock.)

Even the SEC is examining the success to date of the IRS program, in determining how the SEC might encourage and reward whistleblowers who come forward to reveal the next Madoff or Stanford.

Whistleblowers with solid information will help close the tax gap, and avoid imposing new taxes on the rest of the law-abiding Americans who pay their taxes.
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