The Tainted Whistleblower Dilemma
Georgia Tech - College of Management
University of Dayton
July 24, 2012
As business and tax transactions become increasingly more sophisticated and global, federal agencies with limited resources struggle to police these transactions. Whistleblowers, with inside information of wrongdoing and a complex transaction, can provide a critical resource in the investigation of sophisticated transactions. The federal government’s need for whistleblowers to assist in the prosecution of white-collar crimes is greater now than it has ever been. This is certainly true for the Internal Revenue Service (“Service”). Without the intimate details of business transactions and other critical documentation that an employee whistleblower can provide, the Service would likely never uncover many tax shelters or frauds. While an employee whistleblower’s information can be invaluable, the Service’s use of a whistleblower’s information is not always simple.
This paper analyzes the Service’s utilization of employee whistleblowers in its claim investigation and looks to other federal whistleblower programs for possible lessons to apply to the Service’s program. Part One of this article examines the IRS Whistleblower Program’s administration and how the Program accepts whistleblowers’ information. This Part will critically analyze the Service’s prior overly conservative position permitting one-time only contact with employee whistleblowers to obtain information and its more recent guidance authorizing the possibility of subsequent employee whistleblower contact on a case-by-case basis. Part Two analyzes the potential risks of involving the whistleblower in an investigation, and specifically addresses the possibility of deputizing a whistleblower. Part Three explores the success of another federal whistleblower program under the False Claims Act that takes a more proactive approach to leveraging knowledge from whistleblowers and also examines whistleblower utilization under the Dodd-Frank Act and its Securities Whistleblower Incentives and Protection Program. In Part Four, this article discusses the consequences of the Service’s policy for whistleblowers. Finally, in Part Five, the article suggests policy alternatives that could allow the Service to better utilize employee whistleblowers using fewer agency resources and without running afoul of Fourth Amendment limitations.
Keywords: tax, taxation, Whistleblower Program, IRS, whistleblowing, whistleblower, Fourth Amendment, Dodd-Frank Act, False Claims Actworking papers series
Date posted: July 25, 2012 ; Last revised: September 13, 2012
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