THE BLOG
05/21/2013 10:16 am ET Updated Jul 21, 2013

The Real IRS Opprobrium

Revelations that the IRS targeted "conservative" non-profit applicants last year among a post-Citizens United, pre-election rush are undoubtedly disturbing. But people should not lose sight of the more troublesome issue, which is that the IRS as an institution is misdirecting resources at smaller fish rather than pursuing meaningful tax fraud.

Republicans are seizing on recent revelations in an attempt to tar the Obama administration for Nixonian-like political tactics, and Congress should investigate the matter thoroughly. At the end of the day though, the IRS is not a partisan institution; it is a political one. As much as conservatives hope to find high-level administration fingerprints on communications with the IRS, it is quite possible that the entire scandal was a result of low-level field officer indiscretions.

There is no doubt that opponents of the Obama administration will keep the focus on Benghazi and the Justice Department's Orwellian subpoena binge. Critics of the IRS, on the other hand, should spotlight the agencies' problems that are more institutional in nature. Specifically, the IRS should be far more focused on auditing corporate tax evaders and their facilitators, particularly major law-firms, rather than targeting individuals and mom-and-pop shops.

This is not to say that the IRS should be completely deterred from focusing on non-profits in light of last week's revelations either. In fact, non-profits are used in many cases to facilitate tax fraud. But the IRS should be less concerned with pestering small non-profits and individuals and instead direct resources towards more significant enterprises.

Nowhere is the IRS's failure in this sense more apparent than when looking at evidence from the whistleblower program. Congress mandated creation of the whistleblower office in 2006. Tax fraud costs the U.S. Treasury hundreds of billions of dollars annually -- by conservative estimates. In other words, there is enough tax fraud that, through effective enforcement, the IRS could meaningfully reduce, if not eliminate, our annual budget deficit.

Despite this, and despite thousands of whistleblowers tips to the IRS (some of which I am personally aware of), the IRS has only paid one sizeable whistleblower award under the program to date -- $100 million to Bradley Birkenfeld for exposing UBS's offshore tax shelter practices, which eventually led to over $2 billion in IRS recoveries. One major award should be an outrage to taxpayers, as there are literally billions dollars that the IRS could be collecting. That is what Congress should investigate. And indeed, one senator has attempted to do.

Republicans and Democrats in Congress should take the lead from their colleague, Republican Senator Charles Grassley, who has relentlessly criticized the IRS's slow progress in processing whistleblower claims and for what appears to be at times a general hostility to whistleblowers. Many of these claims represent meaningful amounts of money that could go into the government's coffers. The fact that the IRS has time to hassle anyone about anything other than real tax fraud is the true scandal afoot.

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