In response to the sentencing of Bradley Birkenfeld, Qui tam Attorney Brian F. LaBovick, Esq. stateted the following:

"This is a major issue within the Qui Tam paradigm. I recognize that Mr. Birkenfeld was likely a bad actor and that the government had a good reason to hold him accountable for his part in the fraud. But in the context of how terrible whistleblowers are treated post service of process; this is another good reason why people "in the know" may fail to come forward to report fraud. Without bad actors looking for a "pay day" literally billions of dollars will be lost to the intricate fraudulent schemes created in the wake of big government contracts with dishonest vendors and service suppliers.

I am deeply troubled by this prosecution. Had this occurred in a criminal context, the results would have been different. Seldomly are we able to combat and bring down  organized crime rings without the help of the criminals who are given an immunity deal from the government."

The case, U.S. v. Birkenfeld, 08-cr-60099, U.S. District Court, Southern District of Florida, occured in Fort Lauderdale, Florida. Sadly enough, the support from U.S. Senator Carl Levin of Michigan, representatives of the Securities and Exchange Commission and IRS, did not help to give Mr. Birkenfeld leniency in his sentencing. One can only hope, that this will not deter other whistleblowers from coming forward and working with the government to report fraud against the government. 

Click on the following to learn more on the UBS Tax Fraud sentencing of Whistleblower Birkenfield or the DOJ's release on the former UBS Banker being sentenced to prison.

According to Stephen Kohn, President of the National Whistleblower Center, "If the Supreme Court were to find against the whistleblowers in this case, it will open a loophole by which fraudulent companies will launder their dirty contracts through subcontractors, thereby defeating the presentment requirement."

The Whistleblower Protection Blog and TAF generously provided the briefs filed by the Petitioner's, Respondents, Senator Grassley and Tax Payers Against Fraud.

Click here to see the release issued by the Whistleblower Law Center.

IRS informants should also read  IRS Notice 2008-04 and Form 201, since it gives guidance on filing  claims under Internal Revenue Code section 7623 as amended by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432 (120 Stat. 2958) (the Act) enacted on December 20, 2006.

In a recent WSJ article, Tipster Rewards Require Patience by Tom Herman, there was recently a  claim filed by a Florida based law firm that alleges a large international company underpaid its U.S. taxes by more than $2 billion, including penalties and interest. This case could make history if turns out to be true.

It is nice to see that qui tam laws can help the government capture money from fraudsters and pay what is owed to the government. Whistleblowers do not be afraid to speak up, if you have proof of a company not paying corporate taxes, you could be rewarded for your information, if the information can help the IRS build a case against a tax fraudster. 

As a quick history: the IRS has had a whistleblower program in place for many years.  It is a relatively unknown, unused, and unloved program.  It gave huge discretion of the IRS on who qualified as a relator and how much, if anything, a relator would be paid for their information.  In 1998 at the height of IRS abuse allegation, the Senate started examining the program.  Senator Harry Reid then named the unknown program "Rewards for Rats". 

Isn't it interesting how time and a revised frame can color the lens of what is happening.  In 1998 the frame was overly aggressive IRS.  People believed the IRS auditor and investigators were unjustifiably harassing the poor citizen/public for minor tax inconsistencies.  This led to some internal reforms at the IRS for better public relations. 

However, time changes the lens.  By 2005 people realized major corporations were creating illegal schemes to avoid paying taxes.  New efforts were placed into reviving the unknown whistleblower program  for the IRS.  The effort was led by the well-loved patron saint of whistleblowers and strong anti-fraud Republican Senator Charles (Chuck) Grassley.  Senator Grassley felt that a whistleblower was a patriot infused with the courage to risk losing their jobs by "exposing fraud, waste and abuse in an effort to protect not only the health and safety of the American people but the federal treasury and the taxpayer dollars." (Senator Grassley's floor statement at National Whistleblower Week 2007).  Now that is a far cry from Senator Reid's "Rate" analogy.

With words like that, who could resist passing a new program (created in 2006) to encourage the patriotic act of blowing the whistle on tax cheats?  Well, they didn't want to prosecute just your basic low value tax cheat.  The IRS wants to go after high value tax cheats.  Therefore, they put some parameters on the new program that would keep low value claims at a minimum.  The threshold is that the tax fraud must add up to more then $2,000,000.00 and the net earnings of the tax cheat must be in excess of $200,000 in the year the fraud occurred.  This threshold will hopefully keep nutty neighbors from reporting other nutty neighbors just to be vindictive of some dog droppings on the one neighbor's lawn.

As it turns out, the IRS is already prosecuting these claims.  The program rolled out and the regs were supposed to be done by the end of August, which didn't happen.  Mr. Whitlock assured the TAF conference attendees that he and his team were working on them.  However, until that time, he and three other national processors are reviewing the claims and dolling out the work to IRS field agents.  In fact, they have already paid some pretty big claims out to relators in the past year.

After his seminar speech I found myself with a new respect for the IRS and their agents.  I found that if the agency is as sincere and bright as Mr. Whitlock, that this program is going to work well. 

Actually trusting the IRS.  Now that is Stranger than Fiction.

Brian

IRS Whistleblower Provision 26 U.S.C. § 7623.

(a) In general.--The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for--

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same,


in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.


(b) Awards to whistleblowers.--

(1) In general.--If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by an individual, such individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action. The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action.

To file a claim under the law, use IRS Form 211, available on the IRS Web site at www.irs.gov. "Provide as much information as you can about the alleged tax noncompliance," the IRS's Mr. Whitlock says.

ClickHere to read more of the Wallstreet Journal Article on the new IRS Whistleblower Law.

The Smart Money article highlighted the fact that if your employer, co-worker, landlord, neighbor or father-in-law is raking in fistfuls of cash and bypassing Uncle Sam, you can anonymously report the abuse to the IRS and snag a windfall from their dishonesty. As long as the total amount of tax fraud comes out to at least $2 million (including penalties, interest, and whatever else the government ultimately collects based on your report), you can get a 15% to 30% cut.

Click Here to read more on the Smart Money magazine article covering the IRS and tax cheaters.

U.S. District Judge Paul Friedman stated he could not make Anderson repay the federal government $100 million to $175 million because the Justice Department's binding plea agreement with Anderson listed the wrong statute.

Channing Phillips, a spokesman for the U.S. attorney's office, said the government would bring civil charges against Anderson.  "The IRS still has ample civil remedies available to recoup the money which are, in some respects, more efficient and quicker," Phillips said. "

Click here to read more about this subject on WahingtonPost.com

Well, if you also hate tax dodgers, then your life is about to get more rewarding.

President Bush is about to authorize a new Internal Revenue Service rule directing the service to pay greater rewards to informants who report tax cheats on large amounts of taxes due. The new reward can rise to 30% of whatever the government collects. The idea is to provide some significant incentives for people to tattletale on people or businesses who cheat the government out of money. The IRS hopes to reduce what they call the tax gap. The Tax Gap is the gap between what the IRS should actually collect and what people actually send in. That Gap is almost $300 BILLION dollars.

The new law really applies to information, which involves businesses, which are not paying their taxes. It can apply to individuals, but only if the person’s annual gross income is above $200,000.00. The information must lead to a minimum of $2,000,000.00 in tax collection including any penalties and interest. The new law sets the reward floor at 15% and the ceiling at 30% of all the collected taxes, including penalties and interest.

So why don’t people take more advantage of this law? Well that is because, even with the changes and new IRS attitude toward Whistleblowers, the truth is that the government will do everything it can to avoid paying the whistleblower. The government attorneys will say that the whistleblower provided no useful information or worse, that the information was public knowledge. If they can prove the information was public before the whistleblower turned it over to the government they can cut the whistleblower out of any recovery.

Regardless, if you hate that son of a gun down the street who is driving a Bentley on tax dollars, which should be a part of the public kitty, then call your friendly local Qui Tam attorney and start a whistleblower claim against the jerk. You may be able to pick up that Bentley on the cheap real soon.

Best Regards,

Brian F. LaBovick, Esq.

Sec. 406. Whistleblower reforms. Present law authorizes the IRS to pay such sums as deemed necessary for: (1) detecting underpayments of tax; and (2) detecting and bringing to trial and punishing persons guilty of violating the internal revenue laws or conniving at the same. Amounts are paid based on a percentage of the tax, fines, and penalties (but not interest) actually collected based on the information provided. The provision reforms the reward program for individuals who provide information regarding violations of the tax laws to the Secretary that involve an individual whose gross income exceeds $200,000 for any taxable year subject to such action and that involves tax, penalties, and interest of over $2 million. Generally, the provision establishes a reward floor of 15% and a cap of 30% of the collected proceeds (including penalties, interest, additions to tax and additional amounts) if the IRS moves forward with an administrative or judicial action based on information brought to the IRS's attention by an individual. Under certain specified circumstances, the provision permits awards of lesser amounts. The provision allows an above-the-line deduction for attorneys' fees and costs paid by, or on behalf of, the individual in connection with any award or providing information regarding violations of the tax laws. The provision allows the whistleblower to appeal the award determination with the Tax Court. The provision also creates a Whistleblower Office within the IRS to administer the reward program. The provision requires a yearly study and report by the Secretary of the Treasury. The provision is effective for information provided on or after the date of enactment. The provision is estimated to raise $32 million over five years and $182 million over ten years.