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Bradley Birkenfeld: The IRS Whistleblower Reward Program & $104 Million

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Bradley Birkenfeld: The IRS Whistleblower Reward Program & $104 MillionThe IRS whistleblower reward program is intended to reward people for coming forward when they see wrongdoing.  Some whistleblowers have made millions through this program, including Bradley Birkenfeld, who the IRS paid $104 million to in whistleblower compensation.

Bradley Birkenfeld

Bradley Birkenfeld is a former UBS banker.  While still working at UBS, Birkenfeld began providing the US information about how the bank helped its clients evade taxes.

Swiss banks had for decades abetted clients in evading taxes.  In part because of the information Birkenfeld provided, the US began going after these banks and US taxpayers who used offshore accounts to hide assets and evade taxes.

In 2009, UBS agreed to pay $780 million and disclose the names of thousands of US taxpayers who were clients.  Rather than risk criminal prosecution, thousands of taxpayers have come clean and paid billions of dollars in tax, interest, and penalties.  To this day I still pick up new clients from time to time that want help getting up to date with their taxes and filings in order to avoid the risk of criminal prosecution.

Bradley Birkenfeld was convicted in 2008.  However, don’t feel too bad for him.  In 2012, while still serving time, he was paid $104 million by the IRS, believed to be the biggest ever IRS whistleblower reward to an individual.

Birkenfeld’s information has resulted in the US collecting billions of dollars in taxes, interest, and penalties, but not all of it is eligible for a whistleblower reward.  Bradley Birkenfeld is now rich but the US stands to gain much more.

Once it was announced Bradley Birkenfeld was due to receive $104 million, many other whistleblowers have come forward, no doubt also hoping for a large cash windfall from the IRS whistleblower reward program.

So what is the IRS whistleblower reward program and what do you have to do to receive checks from the IRS rather than write them?

The IRS Whistleblower Reward Program

The IRS whistleblower reward program is intended to incentivize company insiders and other knowledgeable parties to stick their necks out and come forward when they see something wrong.

Although there are several different IRS whistleblower reward programs, the most advantageous program for whistleblowers requires that the taxes, interest and penalties in question exceed $2 million.

Under this program, whistleblowers can receive between 15% and 30% of any taxes, penalties, or interest the IRS receives as a result of the information provided by the individual.  There is generally no dollar cap on rewards.

Under other less advantageous IRS whistleblower reward programs, the rewards may be discretionary and the payout percentages lower.

IRS Form 211 is used to submit a whistleblower claim and apply for an award.

When a whistleblower steps forward, the IRS generally does all it lawfully can to help that person remain anonymous.  The informant is obviously free to waive that right to privacy and anonymity if he or she chooses to do so.  It’s my understanding that Bradley Birkenfeld waived this right, which is why details of his reward are known.

Required Information

The IRS doesn’t want whistleblowers who simply suspect wrongdoing or have a grudge against someone.  The IRS will only act if there is credible, concrete information (such as what Bradley Birkenfeld had), not unsupported theories or educated guesses.

They’ll likely be interested in knowing how much money is at stake, how the knowledgeable party acquired the information, and they may request supporting documentation as proof.

If you want to receive a reward, the IRS expects you to have specific and reliable information that leads to the collection of taxes, interest, and penalties from taxpayers who are not complying with the law.

You may not get paid if the accused taxpayer doesn’t end up owing anything, the taxpayer is unable to pay, or someone else supplied the same information before you did.

Downsides to the IRS Whistleblower Reward Program

There are a number of downsides to the IRS whistleblower reward program.  Here are a few of them:

  • Some whistleblowers face serious repercussions from their employer or others.
  • It can be difficult to determine or define the proceeds collected as a result of a whistleblower.
  • If you also participated in the tax offense, you could also face criminal prosecution.
  • Not everyone that tries to be a whistleblower will receive an award and very few people who receive awards will receive tens or hundreds of millions of dollars.  During fiscal year 2012, the IRS paid out $125 million in whistleblower rewards to nearly 130 recipients.  Of this amount, $104 million went to one person, Bradley Birkenfeld.
  • Whistleblower rewards are generally taxable.  I’m sure the federal government loves the fact that it receives a good chunk of the reward back in the form of taxes.

Lengthy Process

If you do decide to come forward, don’t expect a check anytime soon.  It can take years for the IRS to investigate claims, review the case, and deal with any appeals.  Just look at Bradley Birkenfeld–he had to wait several years to receive his money.

In my experience, the IRS is not the most efficient or helpful organization around.  I recently sent in a letter on behalf of a client to request an abatement of penalties due to an IRS error.  It took the IRS about 8 months to process the letter and abate the penalties.  Every time I would call to get an update, I would be told “I see the letter on file but it hasn’t been processed yet.”

Final Thoughts

There can be significant legal and tax complexities associated with being an IRS whistleblower.  It is generally adviseable for a potential whistleblower to seek representation by an attorney who specializes in this area of the law.  Doing so will likely boost your odds of success significantly.

Additional Information

For additional information about the IRS whistleblower reward program or being a whistleblower in general, check out the below books:

Other Money Making Ideas

Most of us won’t make millions through the IRS whistleblower reward program; however, there are plenty of other ways to make money.  Here are a few articles that share more ways to make money:

What are your thoughts about the IRS whistleblower reward program?  Is it fair that Bradley Birkenfeld was paid $104 million?  Leave a comment below!

Image: Yastremska/Bigstock

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