Weâ€™ve told our clients for years that the IRS will stop at nothing to collect every last dime that it is owed by taxpayers. This month, we were reminded again of this reality. Paying a tax evader over $100 million dollars to blow the whistle on fellow conspirators may seem over the topâ€”but thatâ€™s exactly what the IRS just did. The New York Times reports:
Sometimes, crime does pay.
Bradley C. Birkenfeld, a former banker at UBS, recently served two and a half years in prison for conspiring with a wealthy California developer to evade United States income taxes.
But Mr. Birkenfeld, 47, has a lot to show for his time and effort: The Internal Revenue Service acknowledged on Tuesday that information he had provided was so helpful that he would receive a $104 million whistle-blower award for revealing the secrets of the Swiss banking system.
By divulging the schemes that UBS used to encourage American citizens to dodge their taxes, Mr. Birkenfeld led to an investigation that has greatly diminished Switzerlandâ€™s status as a secret haven for American tax cheats and allowed the Treasury to recover billions in unpaid taxes.
In addition to paying $780 million in 2009 to avoid criminal prosecution, the bank turned over account information regarding more than 4,500 American clients.
The disclosure of Swiss banking information â€” which caused a fierce political debate in Switzerland before winning approval from the countryâ€™s Parliament â€” set off such a panic among wealthy Americans that more than 14,000 of them joined a tax amnesty program. I.R.S. officials say the amnesty program has helped recover more than $5 billion in unpaid taxes.
Mr. Birkenfeldâ€™s award, the largest ever paid by the I.R.S., is also a milestone for the agencyâ€™s whistle-blower program, which offers informants rewards of up to 30 percent of any fines and unpaid taxes recouped by the government.
The program was revamped in 2006, offering higher rewards and more incentives for citizens to report tax dodges, in an effort to help recover more of the estimated $100 billion a year in underpaid taxes. But the program has been dogged by bureaucratic delays and institutional resistance within the I.R.S., causing some members of Congress to complain that it was being undermined.
Though Mr. Birkenfeldâ€™s $104 million award is far less than the billions he sought, its sheer size â€” more than $4,600 for every hour he spent in prison â€” could spur a surge in new whistle-blower complaints.
â€œThe I.R.S. sent 104 million messages to whistle-blowers around the world â€” that there is now a safe and secure way to report tax fraud,â€ said his lawyers, Dean A. Zerbe and Stephen M. Kohn, in a written statement.
So there you have it â€“ in addition to conducting their own extensive investigations, the IRS is willing to fork over huge sums of cash for whistle-blowers. Now obviously, you shouldnâ€™t be breaking the law. But these whistle-blowers can report taxpayers and business owners for innocent mistakes, as well. The bottom line is that the IRS will do whatever it takes to collect as much money as it possibly can. And once the agency comes after you, it doesnâ€™t stop. If youâ€™re currently in the midst of an IRS dispute or are concerned about running afoul of the agency in the future, please get in touch with us today!