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FINDINGS AND RECOMMENDATIONS supervision. The Law Department should confine its contract to tax collection activities [3608.07]. “Best Practice” — Utilize a “Tax Clearance” System to Encourage Payment of Outstanding Tax Liabilities To encourage delinquent taxpayers to pay their outstanding city tax and other liabilities, Washington DC requires businesses seeking a permit or license to obtain a “Clean Hands” certification, which provides that an applicant for a license or permit cannot owe more than $100 (in taxes or other liabilities) to the District government. The applicant, through the agency responsible for issuing the permit or license, submits a “Clean Hands” certification to Washington DC’s Office of Tax and Revenue (OTR). OTR then researches each application through its computer system for any accounts receivable owed in aggregate of $100 or more. If OTR finds outstanding receivables, it notifies the agency from which the applicant is seeking a license or permit and that agency in turn denies the request. Likewise, the Commonwealth of Pennsylvania has recently begun a similar “tax clearance” initiative, which reportedly has resulted in increased revenues via the collection of delinquent taxes. Findings Philadelphia does not have an identical type “Tax Clearance” System, but it does require anyone requesting building permits to submit the name and City license number of the prime contractor chosen to perform the work. The City’s Department of Licenses and Inspections (L&I), the agency responsible for granting permits to do the project, performs searches to determine if the contractor scheduled to do the project has a Business Privilege License. If no license is found, L&I will not grant the contractor permission to commence the project. However, the process could be enhanced and made more effective if the search extended to identifying a contractor’s current tax status. Currently, if a contractor owes a significant amount of taxes to the City, he or she may still be allowed to proceed. Furthermore, L&I’s process fails to encompass subcontractors on the project. These individuals or companies may be unlicensed and owe the City taxes too. In addition, the City’s DOR electronically generates daily exception runs of vendors doing business with Philadelphia government that either have no Business Privilege License or have tax and other outstanding liabilities due. This enforcement method has increased 10
FINDINGS AND RECOMMENDATIONS compliance and business tax collection. The City’s Law Department is also expanding an existing program that threatens to revoke existing Business Privilege Licenses for non-payment of City taxes. Recommendations The City should consider expanding its “Tax Clearance” System beyond just contractors performing code specific projects for the public or vendors doing business with the City of Philadelphia government. The DOR should meet with L&I and to the extent possible, coordinate a process that extends the search for business licenses to project subcontractors. The DOR should also coordinate procedures that will include searching for any open tax liabilities due the City, as well as broadening the system to include all businesses and/or individuals seeking any type of license or permit from the City [3608.08]. “Best Practice” — Use a Fraud Hotline / Whistleblower Program Programs that provide a hotline or other mechanism, which the public can use to report individuals or businesses that have failed to file tax returns, or have intentionally submitted inaccurate or incomplete information are used by several government agencies. The IRS has had a whistleblower program for years and offers cash rewards (up to 30 percent of the additional tax, penalty and other amounts it collects) to those who provide specific and useful information on tax cheats. Of the tax agencies we contacted, most had fraud hotlines, but only Los Angeles offered a cash reward. Other agencies appear to offer whistleblowers the satisfaction of helping to fight against tax evaders to ensure that all businesses and individuals pay their fair and appropriate share. Findings Philadelphia’s DOR has had no tax fraud hotline or whistleblower programs. However, in December 2008, the Revenue Commissioner announced that his department was exploring the effectiveness of offering rewards to individuals who submit tips to a tax fraud hotline to be established some time in fiscal year 2010. We believe a tax fraud hotline is another tool for identifying tax evaders. In our opinion, a hotline can increase the incentive for taxpayers to self-report, especially when detection appears likely. Moreover, we also believe that publicizing the hotline increases 11
Page 1 and 2: DEPARTMENT OF REVENUE TAX DISCOVERY
Page 3 and 4: Tax Discovery Executive Summary Why
Page 5 and 6: INTRODUCTION Background In recent y
Page 7 and 8: FINDINGS AND RECOMMENDATIONS REVENU
Page 9 and 10: FINDINGS AND RECOMMENDATIONS accord
Page 11 and 12: FINDINGS AND RECOMMENDATIONS Recomm
Page 13: FINDINGS AND RECOMMENDATIONS In res
Page 17 and 18: FINDINGS AND RECOMMENDATIONS Findin
Page 19 and 20: FINDINGS AND RECOMMENDATIONS Recomm
Page 21 and 22: FINDINGS AND RECOMMENDATIONS third
Page 23 and 24: FINDINGS AND RECOMMENDATIONS and th
Page 25 and 26: Appendix I: Objective, Scope, and M
Page 27 and 28: Appendix III: Summary of Best Pract
Page 29 and 30: Appendix IV: Study on the Undergrou
Page 35 and 36: RESPONSE TO AUDITOR’S REPORT 31

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