A Strategy of Tattletales at the I.R.S. No one likes a tattletale. But tax whistle-blowers sure are getting compensated for the animosity they evoke. Bradley Birkenfeld, a former UBS banker, was awarded $104 million for bringing information to the Internal Revenue Service about tax evasion strategies at the Swiss bank. The New York attorney general's investigation into private equity management fee conversions appears to have originated from a whistle-blower claim. Dean Zerbe, a former legislative aide on tax issues, now works at the National Whistleblowers Center, which has claims outstanding on $25 billion of tax underpayments. Are whistle-blowers the new I.R.S. business model? Enforcement of tax laws requires finding a fair and effective way to overcome the information asymmetry between taxpayers and the I.R.S. The government starts off at a disadvantage. While the I.R.S. has broad powers to demand information from taxpayers, it doesn't always know what to look for. Furthermore, because of privacy laws, private individuals, academics, reporters and public interest organizations cannot effectively serve as watchdogs. Relying on whistle-blowers is one approach. The ramped-up I.R.S. program is still new. Building on the success of the False Claims Act at rooting out fraudulent Medicare billing practices and similar scams, Congress in 2006 increased the awards to whistle-blowers. They can now receive up to 30 percent of the taxes collected. Private enforcement of federal tax law could be extended even further. Under current law, whistle-blowers bring documents to the I.R.S., which then decides if it wants to proceed. Law professor Dennis Ventry has proposed allowing qui tam actions, where private individuals could bring lawsuits to collect taxes on behalf of the government even in cases where the I.R.S. declines to move forward. "Qui tam" is short for "qui tam pro domino rege quam pro se ipse in hac parte sequitur," or "he who sues in this matter for the king as well as for himself." Private lawsuits are an important part of the enforcement landscape in securities law, health care and federal contracting. Why not tax? "If sunlight is the best antiseptic," writes Mr. Ventry, "the looming possibility of qui tam actions could alter risk assessments of reporting positions by taxpayers and their advisers and thereby improve tax compliance." In my view, whistle-blowers or qui tam actions will remain a small part of the overall tax enforcement strategy. Relying on whistle-blowers means providing bounties to insiders willing to turn against their clients or employers. The strategy relies on bad blood - a crumbling business partnership, office politics, a divorce or some other source of conflict - to bring information to the government's attention. In many cases, the I.R.S. will have to team up with someone with unclean hands or a hidden agenda. Moreover, whistle-blowers will target black-and-white cases of tax fraud, while many aggressive tax planning techniques reside in the gray. Meanwhile, changes in corporate governance and accounting have ushered in a quiet revolution in corporate tax compliance. It's hardly the stuff of headlines, but the changes have proven effective in changing the mind-set of corporate executives. Back in the 1990s, many large corporations used illegal tax shelters. These transactions have largely disappeared, thanks to changes in financial reporting. The Sarbanes Oxley legislation requires external auditors to assess the quality of a company's internal controls, including tax compliance. Schedule M-3 requires better reconciliation between book income and tax income. The Financial Accounting Standards Board has revised FIN 48, which forces a more accurate reserve for tax benefits the company thinks may not materialize. And new Schedule UTP requires companies to describe these uncertain tax positions, providing a road map of the soft spots in a tax return. By involving more parties in tax planning and compliance, and disclosing more information to the I.R.S., tax fraud has become more difficult, risky and costly. "The days of hiding the ball are gone," says law professor Bret Wells, "and the best tax practice will be for the taxpayer to expect that all information about a tax position that is taken on a tax return will be available for inspection and reviewed by the I.R.S." Aggressive tax planning still exists, but rarely is it the sort of blatant tax evasion that relies on secrecy. The transparency approach works because it allows the I.R.S. to align its interest with shareholders, who also like transparency and accurate financial statements. Of course, these changes to tax reporting don't apply to individuals, partnerships and small businesses - a significant source of tax evasion. In these areas, whistle-blowers will play a bigger role. For further reading on tax whistle-blowers, see Dennis J. Ventry Jr., "Whistleblowers and Qui Tam for Tax," 61 Tax Lawyer 357 (2007). For further reading on schedule UTP, see Bret Wells, "New Schedule UTP: Uncertain Tax Positions in the Age of Transparency," 63 Baylor Law Review 392 (2011).