The Internal Revenue Service (IRS) estimated the gross tax gap for the 2022 fiscal year to be an astounding $696 billion. The IRS defines the gross tax gap as the difference between tax owed and the amount paid on time. While already grave on its own, the severity is even worse in context as the 2022 tax gap is up $200 billion from the $496 billion amassed between the years 2014 and 2016.
A major driver of the rise is offshore tax evasion, one of the most difficult forms of noncompliance to detect. An IRS case study found that such evasion among top earners “went almost entirely undetected,” underscoring how limited the agency’s current enforcement tools have become.
A 2021 report by the Department of Treasury estimated that, between 2006 and 2013, $33 billion of underreported income pervaded each year’s tax gap projections when taking offshore assets into consideration. The Committee for a Responsible Federal Budget concluded the value nears $46 billion for 2019. With tax evasion only worsening, an effective solution has never been more pressing.
The Swiss Bank Program
In 2013, the Department of Justice and the IRS joined forces to create the Swiss Bank Program, launched as a direct result of the “actionable information brought to the IRS” through its Whistleblower Program. Leveraging the fear of detection triggered by the Whistleblower Program, the program provided “a path for Swiss banks to resolve potential criminal liabilities in the United States” by disclosing their illicit activities and paying the ensuing penalties.
The program yielded substantial success: 84 banks came forward and over $1.36 billion in penalties were issued. With the last resolution taking place in 2015, however, the program has since closed. While some initiatives to prosecute offshore tax evasion live on, dedicated efforts are lacking. Notably, the DOJ’s Offshore Compliance Initiative has also been placed in the archives.
The Swiss Bank Program must not only be reinstated but expanded to other parts of the world in order to tackle the reality of tax evasion’s ubiquity.
The Progressing and Regressing of the IRS Whistleblower Program
Founded in 1867, it wasn’t until 2006, though, that the IRS Whistleblower Program was put into full force. Almost immediately after its revitalization, submissions “skyrocketed,” Dennis Ventry recalls – a proliferation which has only continued.
These steady advancements, however, are accompanied by deficiencies. Debilitating the program are conspicuous delays in decisions and significant cut-backs in awards. In an article entitled “Lost Opportunities: The Underuse of Tax Whistleblowers,” authors Webber and Davis-Nozemack underscore that, as of 2015, the IRS faced a backlog of more than 22,000 cases and awarded only about 100 whistleblowers each year. The underwhelming number of awards compared to the number of reports appears to remain as, in a 2024 report, the IRS issued only 105 awards. Webber and Davis-Nozemack concluded that the IRS “does not seek all available information and assistance from whistleblowers.” The IRS even recognizes its shortcomings, addressing processing times and increasing its “focus on improving the IRS Whistleblower Program.”
Although the Whistleblower Program time and again proves crucial in exposing corruption, the IRS’ sweeping disregard for its whistleblowers could disincentive future informants from coming forward.
With the Swiss Bank Program no longer in effect, the success of the IRS Whistleblower Program garners even greater importance. The IRS program should resolve its shortcomings and use tactics similar to those of the Swiss Bank Program to target offshore tax evasion.
IRS Whistleblower Program Improvement Act
In light of the program’s defects, both Republican and Democratic Representatives and Senators came together to draft the IRS Whistleblower Program Improvement Act of 2023. The bill, guided by an appreciation of the “essential role” whistleblowers play in uprooting “tax cheating schemes,” details the major features of the program that need reform. Notably, the bill enforces the use of De Novo reviews, in which courts can take a “fresh look at the record” on appeals, prohibits reductions in awards due to budget sequestration, ensures anonymity for whistleblowers, and mandates that whistleblowers receive their award within one year of filing.
Conceived over two years ago, however, the bill remains unfulfilled. What’s more, a previous bill, the “IRS Whistleblower Improvement Act of 2021,” equally awaits action. Stalling, and even turning a blind eye to, the implementation of a solution to the inefficiencies of the Whistleblower Program and, in turn, the tax evasion crisis is wholly unjustified.
The absence of programs like the Swiss Bank Program and the mounting delays in the IRS Whistleblower Program have left authorities with few tools to uncover offshore tax evasion. Despite bipartisan bills aimed at repairing these gaps, Congress has not advanced IRS Whistleblower reforms. Advocates caution that, without meaningful action, the United
States risks forfeiting billions more each year as offshore tax evasion continues with little deterrence.