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IRS Pays UBS Whistleblower USD104m

by Leroy Baker,, New York

14 September 2012

The Internal Revenue Service (IRS) has paid a whistleblower award of USD104m to former banker Bradley Birkenfeld, for his contribution in providing insider information on UBS’s offshore banking accounts for a number of its United States clients.

According to the IRS, Birkenfeld “provided information on taxpayer behaviour that the IRS had been unable to detect, provided exceptional cooperation, (and) identified connections between parties to transactions, and the information led to substantial changes in UBS business practices and commitment to future compliance”.

“The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth,” it added in its Summary Award Report. “While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS.”

Birkenfeld's information directly resulted in a USD780m fine being paid to the US by UBS bank; over 35,000 taxpayers voluntarily repatriating their illegal offshore accounts; and the collection of over USD5bn in back taxes, fines and penalties. His disclosures also indirectly led to revised tax treaty negotiations between the US and Swiss governments, and to UBS subsequently releasing the names of over 4,900 US taxpayers with offshore accounts, who are currently being investigated.

Charles Grassley (R – Iowa), Ranking Member of the Senate Committee on the Judiciary, who helped write the stronger whistleblower legislation enacted in 2006, has, since then, pressed the Treasury Secretary and the IRS Commissioner for its effective implementation during Senate hearings and through a series of oversight letters.

He commented that the UBS case “provides evidence about how the whistleblower programme can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistleblower. By paying an award as the law allows, the IRS encourages courageous actions by others against such big-dollar tax cheating.”

“The potential for this programme is tremendous,” he continued, “and it’s up to the IRS to continue paying rewards and demonstrating to whistleblowers that the process will work and that they will be heard and protected. An award of USD104m is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information.”

TAGS: compliance | tax | tax compliance | law | banking | Internal Revenue Service (IRS) | offshore | legislation | offshore banking | Switzerland | United States | penalties | individual income tax

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