Whistleblowers and Qui Tam for Tax

Abstract

This Article examines the underexplored IRS whistleblower program, which Congress revamped in December 2006 by, among other things, significantly expanding the size of rewards paid to informants. Increased monetary incentives for exposing tax cheats align private citizens on the side of tax collection rather than tax avoidance, and add risk of detection and prosecution to the compliance calculus. This Article recommends that Congress broaden the whistleblower program still further to allow private citizens to bring qui tam lawsuits against tax cheats. Other federal and state whistleblower statutes, including the widely praised False Claims Act (FCA), already provide for qui tam actions against persons submitting false claims to the government. This Article proposes using the FCA as a model for the tax whistleblower statute, and extending qui tam to tax.

The experience of the FCA indicates that private enforcement of public law can be an effective monitoring and prosecutorial mechanism in areas of law where government officials - due to asymmetric information, active concealment by regulated parties, and weak enforcement - are unable or unwilling to enforce the law or prosecute offenders effectively. Current tax regulation suffers from all three symptoms, and could benefit from private enforcement efforts. Extending qui tam to tax would add additional risk to tax cheating. Moreover, the qui tam approach provides an efficient form of regulation by shifting the cost of compliance to those persons with the lower cost of monitoring; i.e., employee insiders, in-house lawyers, and outside counsel.

Keywords: Taxation, Tax Policy, Tax Practice, Legal Ethics, Administrative Law