Friday, October 12, 2012

Tax Cheats May Claim IRS Whistleblower Rewards?

Recently, former UBS banker Bradley Birkenfeld was awarded $104 million for being a UBS informant. The IRS award is the biggest and only sizable award in the much discussed program. It’s making many whistleblowers more alert and more claims are on the way.
However, Birkenfeld was not free of all wrongdoing. In fact, although his lawyers were none too happy about it, after Mr. Birkenfeld came forward with all his data about UBS’s account dealing, he went to jail. In 2008, he was charged with withholding information about his tax help to a wealthy California developer. He pleaded guilty to one count of conspiracy and served part of a 40-month sentence. He was recently released to a halfway house.
In 2009, UBS paid $780 million to resolve a pending criminal case and agreed to turn over information on U.S. account holders. Birkenfeld then filed a whistleblower claim. See our posting Bradley Birkenfeld awarded $104 million (13% ) as UBS tax case whistleblower.
But how much should his own complicity matter? The tax code allows the Whistleblower Office to reduce awards when it determines that the individual “planned and initiated the actions that lead to the underpayment of tax.” See Section 7623(b)(3). In fact, the IRS is required to deny awards when the individual has been convicted for that role.
 “Planning and Initiating” suggests a key role. While Birkenfeld may have had a key role in some efforts to help American clients hide money from the IRS, it’s clear he was merely a cog in a very large machine. It seems likely that issues such as the extent to which the whistleblower personally benefited from the tax avoidance will be important.
In addition, there are analogs in the Federal False Claims Act, another federal whistleblower statute that dates all the way back to the Civil War. Under that statute, it is generally only the primary wrongdoer or ringleader that faces reward limitation. It is too soon to tell just how this issue will play out.
For the U.S. tax system, there could probably not be a stronger signal than Birkenfeld’s $104 million reward to show that the IRS Whistleblower Office means business.

If you have you have UNREPORTED FOREIGN BANK INCOME, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).




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