IRS Tax Whistleblower Articles

Birkenfeld Award Enhances Credibility of IRS Whistleblower Program, Official Says

By Michael Bologna

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ORLANDO, Fla.—The $104 million award granted to Bradley Birkenfeld for insider information about Swiss bank UBS's illegal offshore banking scheme has boosted the credibility of the whistleblower program and stimulated a culture shift within the agency, Stephen Whitlock, director of the Internal Revenue Service Whistleblower Office, said Jan. 25.

Whitlock said there was a strong degree of cynicism in the taxpayer community and some skepticism within IRS when the whistleblower program was established in 2006. But Whitlock said the scope of the UBS case demonstrated the program's ability to tackle a major tax avoidance problem.

The scale of the award granted to Birkenfeld—the largest to date—demonstrated the program's willingness to support and reward whistleblowers with credible information about tax fraud.“In terms of support for the program at the top levels, all I can say is: $104 [million],’’ Whitlock said during a panel discussion at the 2013 midyear meeting of the American Bar Association Section of Taxation. “Nobody said ‘we can't pay that,' ’’ Whitlock said. “The statute called for the payment. The  analysis called for the payment. We nodded and made the payment. I think that says we're doing what  we're supposed to be doing with this program.”

Skepticism Since 1980s

Whitlock said the Department of Justice encountered the same type of cynicism and skepticism when its whistleblower activities under the False Claims Act commenced in the early 1980s. A shift emerged as DOJ demonstrated the program could effectively pursue instances of fraud and protect whistleblowers assisting the government.

“Now it is a major antifraud tool for the Justice Department, as people have brought good information and made a difference,” Whitlock said. “We expect to see the same evolution in the IRS and we are seeing it. We have a lot of top-level support.”

Birkenfeld offered information to IRS that led to UBS paying a fine of $780 million (176 DTR G-4, 9/12/12). The effort also led to more than 35,000 taxpayers voluntarily repatriating their illegal offshore accounts, allowing IRS to collect more than $5 billion in back taxes, fines, and penalties.

Birkenfeld's award, announced in September 2012, was calculated based on the $780 million paid by UBS. Under IRS's definition of “proceeds” for the program, $400 million was eligible for an IRS award, and Birkenfeld was granted 26 percent of the amount collected.

Award Helps Validate Program

Speaking during the same panel discussion, Gregory Lynam, a partner with the Ferraro Law Firm, said the IRS whistleblower program received a terrific dose of credibility following the Birkenfeld announcement.

“We have always said the whistleblower program would work when the IRS collects taxes and pays awards,” said Lynam, who represents whistleblowers working with IRS. “So having collected $400 million in tax revenues and paying Mr. Birkenfeld over $100 million definitely shows the whistleblower program is working.”

Lynam also pointed to a $38 million award paid to one of his clients, who provided information to IRS about a tax avoidance scheme operated by one of the largest corporations in the country. The award was revealed by the Ferraro law firm just weeks after the Birkenfeld award was announced (209 DTR G-3, 10/30/12).

Lynam noted that the names of the whistleblower and the corporation were not revealed, and the target corporation was not aware a whistleblower participated in the IRS investigation. He said the award demonstrates that insiders with useful information can trust the evolving whistleblower process.

“Our client wanted us to make it public because he felt it was important for everyone—including people in the tax community—to know you can submit information to the IRS, and the IRS will keep the information confidential,” Lynam said. “They will keep your identity confidential and they will keep the taxpayer's identity confidential.”

Tips for Attorneys

Whitlock offered a few tips to attorneys representing whistleblowers.

Whitlock said whistleblowers need to provide the full scope information about the tax issued to IRS. Withholding information, or parceling out the information over time, he said, undermines the investigation and interferes with the IRS-whistleblower relationship.

Whitlock also stressed that whistleblowers should not attempt to contact the IRS audit team working on the case.

“Generally, give us what you've got up front. If it is a large volume of documents, index it,” Whitlock said. “And counsel your clients to not contact the audit team directly. That's an area where no good can result. We need to control that communication so we don't taint the audit team. And we need to control that communication so we know what contributions have been made and the whistleblower can get credit for it.”