IRS Losing The Battle Against Tax Sheltering, Says Informant

by Leroy Baker, Tax-News.com, New York

23 July 2004

An informant for the Internal Revenue Service has warned lawmakers that the agency is ill-equipped to win the battle against the increasingly sophisticated use of tax shelters.

"From my vantage point, the IRS simply does not understand how the tax shelters work, or how the transactions and structures fit together," the Senate Finance Committee was told by the anonymous witness, who works for a Wall Street bank.

The problem is being compounded by the IRS’s lack of trusted informants and confidential witnesses, the banker known as ‘Mr ABC’ testified.

The informant went on to give as an example a situation in which the IRS failed to act on his disclosure in 1999 that Enron was engaged in illegitimate tax activities in a bid to artificially drive up the company’s earnings.

The witness stated that in all, he had made disclosures to the IRS on three types of tax shelters and other schemes involving around $10 billion in taxable income. He expressed dismay that the IRS had seen fit not to offer any type of reward for such substantial revelations of illegal tax dealings.

Wednesday's committee hearing aimed to find solutions to America’s estimated $311 billion tax gap. Its chairman, Charles Grassley, noted that the informant’s experiences strengthened the argument for his ‘whistleblower’ legislation, passed by the Senate in May.

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