IRS Tax Fraud Program Reveals $65B in Under-Reported Income in 2008

WASHINGTON, Oct. 7, 2009 -- A government watchdog today said the Internal Revenue Service's program to prevent tax fraud led to $65 billion in under-reported income in 2008, but the program is still marred by deficiencies.

Since the new IRS tax whistleblower law was passed in 2006, the IRS has seen "significant growth in claims," Treasury Inspector General for Tax Administration J. Russell George noted in a report dated Aug. 20 but only released today. "However, without effective control over and timely processing of these claims, the success of the IRS whistleblower program could be diminished."

Some of the program's deficiencies, the watchdog said, include "inadequate procedures" for administering whistleblower claims, lengthy processing periods for claims, and failure to keep employees from suffering retaliation after filing claims.

Despite the deficiencies, the program has helped the IRS receive nearly 2,000 whistleblower claims alleging tax violations of more than $2 million per claim.

"Clearly the new law is working far beyond anyone's imagination in providing the IRS information about potential tax fraud," Dean Zerbe, Special Counsel for the National Whistleblowers Center, said in a statement.

"The question now is whether the IRS is going to take advantage of the new law, work with whistleblowers, and bring in these revenues," he said.

Zerbe noted that the government has not yet paid any whistleblowers for their work.

"The fact remains that billions of dollars have been brought forward by whistleblowers but not a dime of reward has been paid out and not a single cooperative contract has been entered into with a whistleblower," he said. "This has to change."