02/10/2014 11:35 am ET | Updated Apr 12, 2014

The IRS's Obstruction of Equality

We all hate taxes, and despite what anyone says, paying them is utterly painful. However, taxes -- the better of life's two inevitabilities (death being the other) -- is something for which we all must account. Yet, if you read yesterday's New York Times article about the status of the IRS whistle blower program, you probably come away with a very odd (to put it mildly) impression of the IRS. For an institution whose primary mandate is collecting taxes and which has been tarred by scandal alleging political targeting, the hostility to its own whistle blower program is more than disturbing - it actually comes across as masochistic.

For those who aren't aware or have an aversion to whistle blowers -- also "fondly" known as, snitches, rats and tattle tales -- the IRS has a program that will pay an award (15 - 30 percent of collections) to those who give specific information that leads to a recovery for the U.S. Treasury. Gretchen Morgenson of the Times adeptly identified several areas of perplexing conduct by the agency after whistle blowers helped collect millions of dollars. But the most perverse thing she raised is the fact that the IRS may arbitrarily attempt to deny awards to whistle blowers if the taxpayer targeted doesn't dispute their liability.

For those quick to criticize the program because it encourages people to "rat" on their neighbor, it is worth remembering that the program is aimed at catching major tax cheats where the recovery exceeds $2 million dollars. And that's a good thing because as a seasoned whistle blower I don't have any interest in telling on my neighbor for writing off his car lease or not reporting some extra cash made from hard labor. Instead, the program is designed to attract information on large-scale cheats, including corporations who leave the masses to pick up the tab for our federal deficit.

However, some of the program's incentives are perverse and contradictory. For example, the IRS will reduce an award if the taxpayer has some sort of deduction to offset the liabilities that they evaded. Moreover, the IRS can arbitrarily categorize penalties as criminal and therefore deny informants a recovery even knowing the bar for criminal fines is theoretically a lot higher. This sends the wrong message to "high-end" tax cheats and an even worse message to would-be whistle blowers.

What would happen if the Justice Department sent a similar message to whistle blowers if the False Claims Act were implemented similarly? Government contractors could not only defraud the military out of money but provide inferior and dangerous equipment to our troops without recourse. Pharmaceutical companies would be subjected to less scrutiny and therefore patients could suffer harm with little oversight. The public-private partnership of whistleblowing has recovered billions and possibly been a deterrent for far more fraud and waste. For example, Dr. John Buse was brave enough to trigger a case against Glaxo SmithKline that not only turned into a $3 billion dollar penalty but saved lives too.

That's not to say all DOJ attorneys embrace the program, either. Certain jurisdictions like the U.S. Attorney's office in Boston take their oath seriously while there are others that have a paltry record in comparison. However, institutionally, the DOJ has done a fantastic job and it has paid real dividends.

The IRS, however, has been a different story, as I can attest to from personal experience. One experience, in particular, boggled my mind. I brought to the IRS's attention a general and intentional deficiency regarding tax reporting by many in a specific industry. I chose an approach akin to the Tom Cruise character's delivery of mail fraud in the blockbuster, "The Firm." Despite being armed with a plethora of first-hand intelligence about what I believe to be their nefarious neglect -- an indisputable technical infraction -- the IRS notified me that they will not be taking my case. Yet, there is still nothing to indicate that the conduct I identified is permissible. When I asked for a copy of our taped meeting they refused to provide me with my own words, citing privacy of the taxpayer. But I was the taxpayer.

What is also perplexing and disturbing about Ms. Morgenson's report is that most members of Congress - and the administration for that matter - are somewhat silent on this institutional embarrassment. The one exception, of course, is Iowa Republican, Senator Charles Grassley, who has been relentless in his defense of whistle blowers and who has consistently slammed the IRS for not taking them seriously. However, his Republicans colleagues who have griped relentlessly about the IRS's corruption in targeting conservative non-profits, have been hypocritically silent when it comes to these examples of uneven application of the law. Similarly, Democrats, who talk so zealously about income disparity and fairness are disturbingly silent about protecting whistleblowers who reveal big business or special interest tax frauds.

The new IRS commissioner, John Koskinen told Gretchen Morgenson, "It's important for the system that taxpayers feel when they're writing their checks that everybody is paying their fair share." By all accounts, Mr. Koskinen has inherited an institution plagued that needs much attention in many respects. It is a Herculean effort to try to fix a century old culture overnight. But starting with the most basic, fair and straight-forward program would be a good start. In fact, the whistle blower program might be the only way to actually level the playing field.