IRS Tax Whistleblower Articles

IRS Whistleblower Claims Quadruple on Informants

by Ryan J. Donmoyer

PDF Version

Oct. 1 (Bloomberg) -- The number of Americans turning in neighbors, clients and employers to the Internal Revenue Service to collect a reward quadrupled last year to 476, with more than one-tenth of the cases alleging tax cheating in excess of $100 million, the agency said.

Whistleblowers last year provided the identities of 1,246 taxpayers accused of owing at least $2 million each, the IRS said. Congress changed the IRS whistleblower program in 2006 to make it easier for informants to be rewarded with up to 30 percent of any taxes collected as a result of their information.

Many informants “claimed to have inside knowledge of the reported transactions, often with extensive documentation to support their claims,” the agency said in a report to Congress. The IRS said it was too early to know how much will be collected because the allegations “reflect only the whistleblowers’ estimate of the potential recovery.”

The number of informants in the fiscal year that ended yesterday was up from 116 for the previous fiscal year. That suggests Americans are just starting to respond to the 2006 whistleblower incentives, said Iowa Senator Charles Grassley, a Republican who sought the changes as chairman of the Senate Finance Committee that year.

‘Good to See’

“It’s good to see so many whistleblower submissions coming into the IRS,” Grassley said in a statement today. “The tax code improvements are still new, and I hope more whistleblowers will come forward as word gets out.”

Grassley also encouraged the IRS to “work faster to process the whistleblower submissions, try not to accumulate a backlog and stop as many big-dollar fraud operations as possible.”

The IRS generally pays rewards of up to 15 percent for claims involving less than $2 million in unpaid taxes and as much as 30 percent for higher amounts. No rewards have been paid under the new program, the agency said.

Informants also have helped the IRS pursue high-profile tax-evasion cases involving Americans who hid assets at Zurich- based UBS AG, Switzerland’s largest bank, and in Liechtenstein’s LGT Group, a bank owned by Liechtenstein’s ruling family.

One informant has been sentenced to prison. UBS banker Bradley Birkenfeld was sentenced to serve three years and four months for helping billionaire Igor Olenicoff cheat on his taxes. Olenicoff was sentenced to two years of probation and paid $52 million in back taxes, penalties and interest.

Leniency for Cooperation

While Birkenfeld sought leniency for his cooperation with the U.S. government, prosecutors sought prison time because he didn’t reveal his own role in the scheme when he approached the government about UBS’s practices.

“When he came in to the United States government, he came in to be a whistleblower. He wanted to earn money by disclosing the wrongdoing of others. He refused to disclose his own wrongdoing,” Justice Department attorney Kevin Downing said at Birkenfeld’s Aug. 21 sentencing hearing in Fort Lauderdale, Florida. “There is a major problem for us in investigating a case and trying to use Mr. Birkenfeld as a witness.”

Downing also said that, without Birkenfeld’s cooperation, prosecutors never would have discovered “this massive tax fraud scheme.”

The informant in the LGT case, former bank employee Heinrich Kieber, lives under a new name in a witness protection program, Senator Carl Levin, a Michigan Democrat, said last year. He is seeking an IRS award, according to his attorney, Jack Blum.

The IRS established a whistleblower office in February 2007 to process claims. The 2006 law has spurred a legal industry built around submitting claims.

After the law was enacted, the Miami-based Ferraro Law Firm, which specialized in personal-injury cases involving cancers related to asbestos, opened a Washington office that recruits and represents clients making such claims. The firm has said it made several claims alleging more than $1 billion in unpaid taxes.