IRS Informant Reward Program
In the former Soviet Union, people had to be very careful about discussing
their business and personal affairs because almost everyone was a spy for
the secret police agency known as the KGB. It appears that the Internal
Revenue Service has studied the "Soviet Model" and has set up a new division
known as The Informant Reward Program.
When Congress passed the Tax and Healthcare Act on October 6, 2006, it
radically changed IRC § 7623 that authorizes the IRS to contract with
private individuals to act as part-time IRS Agents who will investigate
business entities and individuals involved in civil and criminal tax
violations. This new program will become the "Central Intelligence Agency"
for processing and managing all information received from informants
nationwide. It will also establish revenue production goals, communication
procedures, data bases, and operating guidelines for handling the new
informants that will be contracting with the IRS. This new office will be
located in Fresno, California, and it will be similar to the Special
Situation Room used by the FBI for monitoring federal crimes in the U.S.
Many people who have personal knowledge of federal tax violations will
suddenly want to give up their day jobs and become subcontractors for the
Internal Revenue Service. Unfortunately, most of these people will be
disgruntled corporate employees, former business partners, ex-spouses and
professionals who have inside information including, but not limited to,
lawyers, accountants, bankers, and stockbrokers. This new program is
guaranteed to not only enrich the IRS coffers (its primary purpose) but it
will also enrich the bottom line for the new breed of IRS Informant.
Commissions for IRS Informants
Rewarding snitches that inform on taxpayers has been around since 1939, but
the early Code only authorized IRS to pay rewards to informants for
criminal tax violations. The statute was changed in 1996 to authorize
payment of rewards relating to civil tax violations. In 1997, IRS
raised the reward ceiling from $100,000. to 2 million. In 2004, the IRS
raised the reward ceiling to 10 million. The 2006 Act changed Code § 7623 by
allowing the reward payments to be based on a percentage of the amount of
tax, interest, and penalties actually collected. The new percentage range is
15% to 30% and the actual percentage for each reward depends upon the amount
of credible information provided by the informant.
Example: Let's say a high-level accounting employee works for a large
corporation that decides to engage in a scheme that will allow it to avoid
paying $100 million in federal income tax. Should this employee decide to
become an IRS informant, the amount of the tax liability could easily double
to $200 million due to interest and penalties. If this employee receives
only the minimum reward of 15%, he will be entitled to a check in the amount
of $30 million. Similar numbers will surely appear on future IRS Recruiting
Posters at a web site near you.
IRS Agents vs. IRS Paid Informants
When an IRS Agent is auditing a taxpayer and fraud is discovered, he must
immediately withdraw from the case and turn the case over to the Criminal
Investigation Division (CID). A few days later, two Special Agents from CID
will notify the taxpayer that he is the target of criminal investigation and
they will read him his Fifth Amendment Rights. From this point forward, the
taxpayer does not have to answer any questions and his individual records
are protected from further scrutiny.
But what happens when the informant has established a relationship with his
IRS Handlers, and he continues to work at his place of employment where he
will be able to monitor the actions of the taxpayer, copy records, remove
and return records, make voice and video recordings and initiate probes for
further information? Remember, an informant working on commission is going
to be aggressive in collecting the evidence his IRS Handlers need for a
especially so when the informant's paycheck will be
in the millions.
Informants have always been a good source of information for IRS
investigations, but once the snitches become aware of the "new and improved"
Informant Reward Program that allows them to collect up to 30% of the
tax, penalties and interest collected by the government there will be a
flood of new applicants knocking at the IRS door. The risk/reward ratio will
be too great for most people who have inside information and this is the
reason why IRS has dedicated an entire service center to handle the
Informant Reward Program.
Under the old program, there was no central office to manage informant data
and there were few regulations on how informants were hired or paid. Many
informants provided information that led to successful investigations but
they never got paid. Under the new program, the informant's right to a
paycheck has been dramatically improved and for the first time in IRS
history, the informant will have the right to demand judicial review of the
amount recovered by IRS and the method that was used by IRS Managers to
determine the amount of his reward.
It appears IRS has created a monster that will recruit many part-time paid
informants and we will see the erosion of our rights against unreasonable
search and seizure and self-incrimination under the Fourth and Fifth
Amendments to the U.S. Constitution. Early this year, the Director of the
Fresno Center reported that he has already received boxes and boxes of
records from individuals who have applied for rewards under the new program.
The huge economic incentives offered by the IRS to recruit informants will
surely result in a backlog of litigation: There will be problems associated
with the Fourth and Fifth Amendment violations previously discussed, and
there will be problems associated with the criminals that will be hired and
paid as IRS Informants. All you have to do is look at the number of DEA and
FBI paid informants who have robbed, framed, and murdered their competitors
and enemies while working for the government. A more subtle example is as
follows: Let's say there are two criminals that owe IRS a lot of tax on
their unreported income and one of the criminals decides to become an IRS
Informant; moreover, the informant agrees to testify against his partner in
exchange for immunity from prosecution. In this situation, one criminal goes
to the federal penitentiary for 10 years and the other criminal is on his yacht
enjoying his $10 million reward courtesy of the IRS. Who says crime doesn't