While the Internal Revenue Service's reward program for turning in tax cheats does a good job bringing in money, it's still in need of some revamping, a ccording to a report from the Treasury Inspector General for Tax Administration.
The report said that the IRS needs to do a better job of managing the Informants' Claims for Reward Program efficiently and fairly. The IRS has agreed with the recommendations and already begun making changes -- including a move to consolidate the program in Ogden, Utah, that should be completed this summer. The agency is also creating a nationwide database of informant claims.
The reward has brought in more than $340 million over the past five years, with typical tipsters being ex-boyfriends and girlfriends, ex-spouses, and ex-business associates. However, officials at the IRS said that more than 90 percent of the tips provide little usable information -- informants with access to financial records are usually the most reliable.
The program's average reward payment has been on the rise in recent years, according to the TIGTA report, though the report also noted that informants wait an average of more than seven years to be paid. For the 2005 fiscal year, 169 rewards, totaling $7.6 million, were distributed to informants. Over the past six years, the average reward has been nearly $24,000, and the agency sets a cap on maximum payouts at $10 million.One of the Treasury report's specific criticisms was that analysts couldn't figure out the formula used by the IRS in determining reward amounts for about a third of the paid-claim cases studied. The IRS said that it uses a variety of factors in setting reward amounts, including how important the information provided is and how much it collects in taxes, fines and penalties -- but not interest. The report also said that the agency needs to treat informants better.
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