Millard reportedly went missing in 1990, when he and his family left Saipan. The local government, who claims he still owes millions in taxes, has been trying to track him down ever since. In the meantime, his outstanding tax bill has climbed past $100 million.
The arrogance of such behavior aside, Millard’s case is fascinating because he was able to stay hidden from the authorities for so long. One would assume that, at some point, someone would spot him and turn him in. After all, he was hardly hiding very effectively; authorities tracked him down to a large mansion, not exactly the best hideout.
Millard’s case reflects two key issues that governments face when collecting tax revenues. First, it can sometimes be hard to prove a violation and track down the tax cheat. Second, and this is the larger issue in the Millard case, complicated offshore structuring and strategic use of loopholes can make assets difficult to find.
Michael Kim, one of the lawyers working on that aspect of the case said, “This is one of the most sophisticated and complicated cases of offshore asset structuring that we have ever seen. He’s had more than 20 years to move money all over the world.”
In such difficult cases, governments need all the help they can get. A crucial resource in these investigations are insiders, especially accountants and auditors at major corporations, who report violations to the government. In order to encourage these whistleblowers to come forward, Congress passed a law in 2006 that rewards them with up to 30 percent of the money collected in a successful enforcement action by the IRS.
This reward can be quite the motivation. Consider that if someone had informed on Millard under the program, he or she might eventually receive $30 million, while at the same time saving taxpayers $70 million.
The Government Accountability Office, or the GAO, Congress’ watchdog and research agency, recently evaluated the program. Five years after the program’s passage it is struggling, according to the GAO’s report.
The scope of the problem is daunting. A number of loopholes have allowed corporate tax cheats to draw out the process for years. In fact, according to the report, two-thirds of the claims submitted in 2007 and 2008 are still in process.
Well-intentioned privacy regulations also stand in the way of the program’s success.
For instance, the GAO found that the IRS fails in many cases to effectively communicate with whistleblowers. In keeping with its strict interpretation of privacy protections, the IRS will not inform whistleblowers on the progress of their claim, for fear of violating the law by releasing information about the violator’s taxes.
The only thing the agency will do, according to the GAO, is confirm that the claim is either open or closed.
If the IRS finally rejects a whistleblower’s claim, no reasons are given, again, for fear of violating regulations governing the release of confidential tax information. After all, if the IRS were to tell the whistleblower that the tip turned out to be inaccurate, that would be disclosing that the IRS conducted an audit.
Even when the IRS does take a case and succeeds in bringing a large tax cheat to justice with the help of a whistleblower reward, the agency does not publicly comment on the reward, again for fear of revealing confidential information.
This information blackout discourages potential whistleblowers from reporting what they know. After all, without a credible example of success and a high probability of a reward, a potential whistleblower is unlikely to risk their career in order to expose the truth.
Yet, it is hard to blame the IRS. They are playing it safe and following the rules, and I would suggest that legislators look at the issue. A balance has to be established between protecting the privacy of alleged tax violators and giving whistleblowers the communication and reassurance they need to come forward.
Perhaps the biggest challenge facing the program is the agency’s limited resources. Implementing some of the reforms suggested by the GAO may not be possible at this time.
Limited resources at the IRS have long been a problem, but with the current cuts being considered, conditions have gone from bad to worse. Earlier this month, the Senate Appropriations Committee voted in favor of a four percent cut to the IRS’ budget. The House Appropriations Committee voted to cut even more.
I would argue that these cuts are ill-advised, not simply because the program is valuable, but because successful prosecution of claims against tax cheats will create revenue, helping to solve our debt problem by closing the over $350 billion gap between what the government is owed and what it collects each year.
The benefits of this program clearly far outweigh the costs, and it is both the taxpayer and the government’s interest to give the IRS the resources it needs.
Even if budget cuts are enacted, there are steps the IRS can take to improve the program. Senator Chuck Grassley (R-IA), the architect of the whistleblower program, recently argued that the IRS is neglecting a crucial tool that can help it to take on more cases without spending more money.
According to the senator: “A key provision of the whistleblower law, and a big part of the success of the False Claims Act provisions that I co-wrote, is to allow the government to leverage the whistleblower’s resources. It’s worrisome that the IRS hasn’t taken advantage of this provision even once. The tax cheats shouldn’t be the only ones who can take advantage of outside legal talent.”
In other words, the IRS can employ private attorneys, who represent whistleblowers, to do research and develop claims for the IRS. This could lighten the load on the agency, help it process more claims and ultimately, catch more tax cheats and collect additional revenue for the treasury.
That’s why, when the government of the U.S. Commonwealth of the Northern Mariana Islands decided to investigate William Millard’s disappearance in hopes of forcing him to pay his outstanding taxes, they hired a private law firm. That firm’s investigation led to a breakthrough that uncovered Millard.
The IRS would do well to remember that it has allies in its battle against tax cheats, both in the form of whistleblowers and their attorneys.