IRS, tobacco tax-tracking law spark whistleblower bill

L-R: Sen. Michael F.Q. San Nicolas and Sen. Joe S. San Agustin, Chairman of the Committee on Taxation, at the Guam Congress Building's Public Hearing Room on Wednesday, July 25, 2018. San Nicolas is shown addressing a public hearing on his Bill No. 286-34 (COR), which would reward whistleblowers for helping bring tax evaders to justice. (Photo by Kent Pueblo, PNC News.)

“…that whistleblowers not only be part of the adjudication process, but also share in the recovery of the monies that were lost to the people of Guam.”

Guam – On Wednesday, the Legislature’s Committee on Taxation met on a bill by Sen. Michael San Nicolas that would reward whistleblowers who report tax cheats. The legislation is inspired by the IRS as well as Guam’s Tobacco Tax Stamp Act.

Bill No. 286-32 (COR), San Nicolas’s whistleblower protection bill, borrows a page from the Internal Revenue Code, by aiming to reward those who blow their whistles on tax evaders.

The preamble to the local legislation states, in part:

I Liheslaturan Guahan finds that under the authority granted by Paragraph 7623(b) of the Internal Revenue Code, the Internal Revenue Service operates a Whistleblower program, where whistleblowers are awarded up to thirty percent (30%) of amounts collected by the Internal Revenue Service from underpaying taxpayers.                                    

This program is aimed at improving enforcement by incentivizing individuals to report tax violations which result in underpayments to the United States Treasury. —Bill No. 286-34 (COR)

And, according to San Nicolas’s bill, the federal program is no exercise in futility.

Internal Revenue Service Whistleblower Program

Last 3 Fiscal Years

Avg. Tax Recovery: $393,405,116

Avg. Annual Awards: $72,386,258

Awards/Collection Ratio: 18.4%

$5.43 collected for every $1.00 awarded

The local legislation points out that whistleblower earnings averaged more than $72 million dollars on nearly $400 million in recovered tax payments per year over the last three fiscal years in the U.S., making for an awards-to-collection ratio of over 18%. That translates to collections of nearly five and a half dollars for every dollar awarded to a whistleblower. San Nicolas hopes to make the program applicable on Guam, where all federal tax revenues are invested right back into local government programs within the territory.

“What we’re hoping is that with the passage of Bill 286, we can open the door further for this type of outcome, where false claims filed against the government [by] other individuals or companies that are under-reporting their taxes, they can be brought forward by whistleblowers,” San Nicolas said at the public hearing.

“So we need to  step up and acknowledge that these things are happening, and, in return, [that these whistleblowers] not only be part of the adjudication process, but also share in the recovery of the monies that were lost to the people of Guam.”

In a political environment where whistleblowers like former Calvo Tenorio advisor Troy Torres have risen to prominence, where the the Dept. of Revenue and Taxation has fallen alarmingly behind with collections, and where Calvo family-owned tobacco-seller Mid-Pacific Distributors’ $14.7 million dollar tax lien recently came to light, whistleblower incentives may seem increasingly attractive to a government starved for cash.

The Government of Guam is reportedly facing a $145 million revenue shortfall due to the Trump Tax Cuts, so the Calvo Tenorio Administration keeps pushing for new taxes. But a majority of senators have just rolled back a sales tax hike by overriding Gov. Calvo’s veto, thereby telling him, “no more new taxes for health, education, and general fund needs until you force Rev & Tax to collect what’s owed.”

On Wednesday, San Nicolas reiterated to Tax Committee Chairman Joe San Agustin and those gathered for the hearing that his whistleblower bill is part of a progression of legislation designed to help collectors enforce the tax code.

It started with Bill No. 77-34 (COR), which lapsed into the local codex as Public Law 34-55 last October. Called the Tobacco Tax Stamp Act, it was written in support of the Healthy Futures Fund, benefitting Guam Memorial Hospital, the Dept. of Public Health and Social Services, and the medical patients that are the beneficiaries of these institutions.

“The tobacco tax stamps that we passed earlier, where we created a mechanism by which the public would be able to—through an observational basis—expose whether or not there’s an under-collection of taxes,” San Nicolas said, “just the introduction of that bill—it hasn’t even been implemented yet—but just the introduction of that bill [saw] an increase in tobacco [tax] collection of about $6 million [within] this current fiscal year. And the recent revelation of an additional $14 million in [overdue] tobacco taxes alone over the last three years…is currently catching a lot of media attention with respect to that liability.”

According to that legislation, Guam had been one of only four American states and territories that had not authorized the use of tobacco stamps. That is until the bill lapsed into law without Gov. Calvo’s signature. Perhaps because it was a commonsense enough mechanism to net potentially lost but badly needed revenue, no matter what the governor’s family ties to a major cigarette seller.

Both the whistleblower bill and Tobacco Tax Stamp Act share between 15 and 30 percent of collections with those who report underpayments that turn into successful collections.

San Nicolas told the committee his whistleblower bill is a merger of his Bills 205 and 220.