This week a former banker received the largest amount ever paid by the Internal Revenue Service as a part of its whistleblower program, a sum totaling $104 million.
Bradley Birkenfeld was identified as being responsible for providing information to the IRS related to tax evasion by a large number of individuals who live outside of the United States. The information provided by Birkenfeld related specifically to tax evasion though UBSAG, a Switzerland-based bank.
Attorneys for Birkenfeld, Stephen M. Kohn and Dean A. Zerbe, made the announcement of the payout this week.
“The IRS today sent 104 million messages to whistleblowers around the world — that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” said Kohn and Zerbe in a joint statement. “The IRS also sent 104 million messages to banks around the world — stop enabling tax cheats or you will get caught.”
Birkenfeld previously served a prison term of more than two years on a charge of conspiracy to commit fraud, which was related to the incidents about which the information Birkenfeld provided to the IRS ultimately led to his payout.
The information provided by Birkenfeld to the IRS has resulted in fines against UBSAG of $780 million and resulted in UBSAG being required to provided the names of thousands of individuals who are believed to be guilty of tax evasion.
Although the IRS does not normally provide information about the money it pays as a part of its whistleblower program or the recipients, Birkenfeld chose to allow the information to be made public.
“The IRS believes that the whistleblower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law,” noted Michele Eldridge, a spokesperson for the IRS who released the statement via e-mail.
Birkenfeld’s case has certainly served to bring attention to the IRS’ whistleblower program, given the size of the payout he received, as well as the fact that he received both a prison sentence and a payout for cooperating with law enforcement and the IRS.
An overview of the payout was released by the IRS, noting that “While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBSAG, with collateral impact on other enforcement activities and a continuing impact on future compliance by UBSAG.”
“The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth,” Birkenfeld’s attorneys noted.
Although Birkenfeld’s cooperating ultimately resulted in his financial reward, federal law enforcement agents noted that Birkenfeld did not share details about his involvement related to tax charges against other clients of UBSAG, which in the end results in his imprisonment.
In the past decade, Congress has taken measures to improve the IRS’ whistleblower program in order to incent people like Birkenfeld to come forward. An update to the program in 2006 was aimed specifically had those who commit tax evasion who have very high incomes. Someone who provides information related to those who owe $2 million or more in unpaid tax liability are guaranteed a payout.
Even with the improved measures, some members of Congress have noted that it can still be difficult to get a whistleblower reward from the IRS.
“The potential for this program is tremendous, and it’s up to the IRS to continue paying rewards and demonstrating to whistleblowers that the process will work and that they will be heard and protected,” noted Senator Chuck Grassley, a Republican from Iowa. Grassley was responsible for helping to put the existing whistleblower laws into place.
“An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid, as a result of the whistleblower information.”
- IRS Issues Prison Sentences for Tax Evasion (taxlawhome.com)
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.