$104 Million Awarded to UBS Whistleblower

by Akerman LLP
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[authors: Sherwin P. Simmons, II, Jonathan E. GopmanBarbara E. Ruiz-Gonzalez, and Leanne Reagan]

On September 11, 2012, the National Whistleblowers Center announced that UBS whistleblower, Bradley Birkenfeld, was awarded $104 Million by the Internal Revenue Service (‘IRS”) as payment for insider information he provided the U.S. government with respect to the bank’s offshore banking scheme.

The award is believed to be the largest reward ever given to an individual whistleblower by the United States, and is the first major award issued under the IRS tax whistleblower program.

Birkenfeld’s disclosures about illegal offshore accounts directly led to UBS paying a fine of $780 Million, more than 35,000 taxpayers participating in amnesty programs to voluntarily repatriate their illegal offshore accounts, and the collection of more than $5 Billion in back taxes, fines, and penalties overall.

As a result of Birkenfeld’s disclosures, the Swiss government changed its tax treaty with the United States, resulting in the bank turning over the names of more than 4,900 U.S. taxpayers who held offshore accounts.

Birkenfeld’s award was based on the $780 Million paid directly by UBS to the IRS. Of this amount, $400 Million was eligible for the IRS award, thereby giving Birkenfeld 26% of the amount recouped, and putting the award at the high end of IRS’ range of payment from 15% to 30%.

Birkenfeld’s award is bittersweet.  He is the only UBS banker to be prosecuted in the case. In 2008, Birkenfeld pleaded guilty to a single count of conspiracy to defraud the United States and was sentenced to forty (40) months in prison in 2009. Birkenfeld was released from prison six (6) weeks ago.

The amount of the award is intended to deter banks from enabling U.S. taxpayers who do not intend to comply with U.S. income tax laws, to show future whistleblowers that the program works, and to incentivize other bankers around the world to provide similar information to the U.S. government.

Sen. Charles Grassley (R-Iowa), who championed the 2006 IRS whistleblower law and fought for whistleblower recognition over the years, said the award signals the IRS’ acknowledgment that it cannot fight tax fraud alone - it needs whistleblowers. “The potential for this program is tremendous,” he said, “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.”

The IRS has various amnesty options in place to allow U.S. taxpayers to become compliant under U.S. income tax laws. Some of the more recent options are the 2012 Offshore Voluntary Disclosure Program ("OVDP") and a new streamlined filing compliance procedure for non-resident U.S. taxpayers.

On January 9, 2012, the IRS reopened the OVDP. See our Practice Update. The OVDP allows non-compliant taxpayers to voluntarily come into compliance by providing them with an opportunity to file unfiled U.S. federal income tax returns, information returns or Form TD F 90-22.1, Reports of Foreign Bank and Financial Accounts (FBARs) for the previous 8 tax years.  The OVDP provides the non-compliant taxpayer with an opportunity to reduce penalties associated with the non-filings.

On August 31, 2012, the IRS released instructions for their new streamlined filing compliance procedure for non-resident U.S. taxpayers. This procedure was originally announced on June 26, 2012, and is effective as of September 1, 2012. See our Practice Update.

The streamlined procedure was designed to help U.S. taxpayers living abroad that have failed to timely file U.S. federal income tax returns, information returns or Form TD F 90-22.1, Reports of Foreign Bank and Financial Accounts (FBARs), but have recently become aware of their filing obligations. These new procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax, information returns or FBARs.

The advantages and disadvantages of the various IRS amnesty options and how they apply to each U.S. citizen and resident should be carefully analyzed based upon each person's facts and circumstances. Akerman's International Taxation Practice has a continued history of dealing with the amnesty programs.  If you or anyone you know has an undisclosed foreign asset or you are concerned about the recent IRS offshore scrutiny, we strongly suggest you acquire immediate assistance.
 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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