I'm Darrin Mish. For 32 years I've practiced federal tax litigation — routine audits, Tax Court cases, and everything in between. If you're facing an IRS issue, here's what you need to know first.
Bradley C. Birkenfeld, the infamous ex-UBS banker who blew the whistle on his former employer’s practice of helping wealthy Americans evade taxes by hiding taxable assets in Swiss bank accounts, has been awarded the highest ever whistleblower reward of $104 million. The IRS has concluded that evidence given by Birkenfeld was directly responsible for the collection of billions of dollars in lost taxes from tax dodgers with accounts in UBS bank of Switzerland.
Birkenfeld himself has been spending the last two and a half years behind bars for his role in helping a wealthy California developer hide his assets in UBS bank accounts. But the information Birkenfeld handed over the IRS allowed the agency to charge UBS of abetting American taxpayers in tax evasion resulting in the bank paying a fine of $780 million in 2009. In addition, the incident spooked about 14,000 other American taxpayers with hidden taxable income in offshore accounts into declaring their assets and paying up their taxes in the IRS Voluntary Disclosure Program that same year. The amnesty program allows taxpayers to pay up the taxes they owe plus fines and interests in exchange for a waiver of criminal prosecution. More than $5 billion in taxes was collected.
Besides having to pay the fine, UBS bank also had to hand over banking details of about 4,500 of its American clients suspected to have dodged taxes. This led to furious opposition from some politicians in Switzerland who were appalled at the violation of Swiss banking secrecy laws. But the disclosure of the banking details was ultimately approved by the Swiss parliament.
The award paid to Birkenfeld signifies a watershed development for the IRS whistleblower program that has been taking a lot of flak in recent times. The whistleblower program promises a reward of up to 30% of the taxes collected for information leading up to the recoupment of taxes. But the program has been the subject of long-drawn bureaucracy and institutional delays that has drawn lots of criticisms. Although thousands of reports have been made under the whistleblower program, only a handful of whistleblowers have received any reward for their efforts.
Thus the whistleblower program was revamped in 2006, and now offers higher rewards and more incentives for people to report tax dodgers, in an effort to help recover more of the estimated $100 billion a year in underpaid taxes.
Birkenfeld studied banking in Switzerland before working for UBS bank, spending 5 years helping the bank recruit American clients. He claimed that he learned that the advice given by the bank was illegal in 2005 and had reported it to the UBS compliance office to no avail. That was when he decided to become an informer and reported the bank’s activities to the IRS.
Check out more Tax News stories by clicking that link.