12:29 PM EDT on Tuesday, September 21, 2004

By PAMELA YIP / The Dallas Morning News

If you have knowledge of high-end income tax fraud, Congress is trying to make it worth your while to come forward and spill the beans.

Sen. Charles Grassley, R- Iowa, chairman of the powerful Senate Finance Committee, has proposed legislation that would create a whistle-blower office at the Internal Revenue Service that would handle reports of tax fraud by wealthy taxpayers and corporations.

"This is a provision that is meant to make sure that honest taxpayers are rewarded, because they're not rewarded when dishonest taxpayers don't pay the money that they owe," Mr. Grassley said.

"Increasingly, those who don't pay are financial giants – big corporations and wealthy individuals – that have the wherewithal to construct elaborate schemes to evade payment. They stay many steps ahead of the IRS."

Uncollected tax is estimated at more than $310 billion, and growing, he said.

High threshold

Under the provision, which is attached to the International Tax Bill, the whistle-blower's office would go after individuals with a gross income of more than $200,000 and whose disputed tax – including penalties and interest – exceeds $20,000.

There's a reason Mr. Grassley proposed high thresholds: The government doesn't want you ratting on your neighbor on a tax bill consisting of chump change.

The legislation is before a House-Senate conference committee.

Under the Grassley provision, informants who blow the whistle on tax evasion stand to win 15 percent to 30 percent of the recovered taxes and penalties if they contribute substantially to the case.

Those who make less substantial contributions can win up to 10 percent of recovered money.

Program in place

The IRS already has an informant program, which rewards informants as much as 15 percent of the recovered money, up to $2 million.

But critics said the program isn't working because the government is so tight when it comes to passing out the money.

"They are so parsimonious," said Bill Roberts, a Dallas tax lawyer. "There are situations where it might be worthwhile, but as a general rule, most tax practitioners just don't think it's worthwhile pursuing and don't advise their clients to pursue it."

IRS officials declined to comment on Mr. Grassley's proposal, saying the agency doesn't comment on pending legislation.

Supporters of Mr. Grassley's provision said it would give those with expert knowledge of tax schemes more incentive to step forward.

"Many, many of these tax frauds and tax shelters are extremely complex, and that's why the IRS needs these insiders and the experience of insiders," said Erika Kelton, a partner at the Washington law firm of Phillips & Cohen, which specializes in representing whistle-blowers.

While he thinks Mr. Grassley has done a good job in holding government tax collectors accountable for their performance, Mr. Roberts opposes the senator's proposal.

"There are already too many people trying to use the IRS to get even, to use it as a sword," he said. "The IRS is best used to collect revenue, not to even scores between private citizens."

E-mail pyip@dallasnews.com