September 12, 2012

The IRS Whistleblower Office Gets Serious With Record Setting Award

By Gordon Schnell

In a shot heard round the whistleblower world, the IRS has paid $104 million to former UBS banker Bradley Birkenfeld for blowing the whistle on the Swiss banking giant’s scheme to help thousand of Americans cheat the IRS through secreting their assets in offshore accounts.  This is the scandal that led to the bank’s payment of a $780 million fine and to the voluntary disclosure by more than 30,000 taxpayers of their offshore activity.  It is also what landed Mr. Birkenfeld in jail for his participation in the dirty deed.  He was released only last month for good behavior.  And Oh, what a welcome home present he has received — the largest individual whistleblower award on record.

Beyond the eye-popping amount, what is particularly notable about the award is that there was any award at all given the conviction and jail time served by Mr. Birkenfeld.  While the IRS whistleblower provisions statutorily mandate a minimum 15 percent cut to the whistleblower of any government recovery, like most whistleblower incentive schemes, there is no mandatory payment for whistleblowers who participate in the fraud.  Otherwise, it might encourage fraudulent activity for the sole purpose of facilitating a subsequent whistleblower award.  The Birkenfeld award is one of those rare occurrences where a whistleblower jailed for his fraudulent activity was also rewarded for coming forward. 

But what makes this award even more astounding, is that it is coming out of an agency that has historically shown little interest in whistleblowers and largely ignored Congress’ call for active whistleblower enforcement.  The IRS has been commonly known as the agency where whistleblower claims come to die.  Of the thousands of claims that whistleblowers have filed with the agency over the past several years, there have been only a handful of very modest awards.  Given the close to $400 billion in tax fraud the IRS acknowledges it faces every year, the agency’s enforcement report card has been worse than wretched.  This has led Congress, with Washington’s strongest whistleblower champion Senator Chuck Grassley (R-Iowa) leading the charge, to insist that the IRS change its tune. 

In response to this pressure, the IRS issued over the summer a widely released memo proclaiming it was turning over a new leaf in its work with whistleblowers and openly recognizing the important role whistleblowers play in agency enforcement.  It was a first for the IRS for sure.  But the question remained whether the agency was serious in getting its act together, or merely paying lip service to the army of critics who have questioned the agency’s enforcement lapses.  See The IRS Whistleblower Office — A New Beginning Or Just a Lot of Lip Service Well, with this first real whistleblower award, unprecedented in its size and circumstance, it would appear that the agency is finally getting the message and genuinely welcoming whistleblowers into the enforcement fold.

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