Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.
+1 212 318 2000
Europe, Middle East, & Africa
+44 20 7330 7500
+65 6212 1000
By Robert W. Wood, Esq.
Wood LLP, San Francisco, CA
Recently, former UBS banker Bradley Birkenfeld was awarded $104 million for helping to change the landscape of offshore banking forever. 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.
Yet Birkenfeld was admittedly 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. His lawyers say he will pursue a presidential pardon.
In 2009, UBS paid $780 million to resolve a pending criminal case and agreed to turn over information on U.S. account holders. That same year, Birkenfeld filed a whistleblower claim. While $104 million is not 30% of the $5 billion Birkenfeld's lawyers claim his actions produced, it is still an astounding recovery and great sign for the IRS program.
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."1 In fact, the IRS is required to deny awards when the individual has been convicted for that role.
Insiders everywhere seem happy that Birkenfeld-despite his conviction-got a big award. Indeed, several of Birkenfeld's lawyers have acknowledged the obvious: you need someone whose hands are dirty to find dirt. Still, just how the IRS will evaluate such issues and the full ramifications of wrongdoing is unclear.
After all, "planning and initiating" suggests a key role. And 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 limitations. It is too soon to tell just how this issue will play out.
But 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.
For more information, in the Tax Management Portfolios, see Alexander and Gleicher, 623 T.M., IRS Procedures: Examination and Appeals, and in Tax Practice Series, see ¶3823, Confidentiality and Disclosure of Returns and Return Information.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).