Tax Whistleblower Blog

Certainly a title like this could be the subject of criticism and skepticism.  However, think about it.  The IRS has help….lots of it. 
 
The financial environment is constantly changing and is currently moving towards honesty and transparency.  Public corporations governed by the SEC are subject to new reporting requirements pursuant to Sarbanes-Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted 2002-07-30), enacted on July 30, 2002 in response to a number of major corporate and accounting scandals.
 
In response to the changing environment, in June, 2006, the Financial Accounting Standards Board (FASB)  issued Interpretation 48 of Financial Accounting Standard 109. This interpretation, known as “FIN 48″, is intended to eliminate inconsistency in accounting for uncertain tax positions in financial statements certified in accordance with Generally Accepted Accounting Principles (GAAP). FIN 48 mandates new rules for recognition, de-recognition, measurement, and disclosure of all tax positions.  Therefore, FIN 48 documents are created as part of a certified examination by the taxpayer’s accountants/auditors and could act as a road map for the IRS as to uncertain tax positions that are included in the certified audit as part of quarterly (10-Qs) and annual (10-Ks) statements filed with the SEC.
 
The IRS, in its examination, could summons the FIN 48 documents to closely examine all “uncertain” tax positions of a taxpayer.  What could be easier?  However, on May 10, 2007, Deborah M. Nolan, Commissioner, Large and Mid-Size Business Division, IRS, issued an internal memorandum concluding that the IRS would not pursue these documents.  The IRS “has determined that documents produced by a taxpayer and/or its auditors to substantiate the taxpayer’s uncertain tax positions in compliance with FIN 48 are included within the Service’s interpretation of Tax Accrual Workpapers and are therefore subject to the applicable policy of restraint.”
 
Therefore, although within easy reach, the IRS has decided to voluntarily refrain from pursuing these (FIN 48) workpapers at this time. 
 
Now, taking it a step further, Congress enacted the new Tax Whistleblower Program in December of 2006.  The program appears to be highly successful by rewarding individuals providing information to the IRS allowing the IRS to focus on large underpayments of tax by taxpayers.  However, despite its apparent success, the IRS is not promoting the Tax Whistleblower Program.  Perhaps to prevent resistance to the Program, the government is allowing to program to promote itself by the success of the Tax Whistleblower.  
 
Despite the high road being taken by the IRS, in the end, will we see the two programs come together?  That is, will the accountants/auditors be the tax whistleblowers of tomorrow by voluntarily providing the FIN 48 information/workpapers to the IRS in exchange for a large reward?  Only time will tell.