" If the Secretary proceeds with any administrative or judicial action based upon information brought to the Secretary’s attention by an individual, the individual shall 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), or from any settlement in response to such action... ."

There are interesting limitations, however, on this apparent government largess. The good news was the large increase in IRS whistleblower awards, from 15 to a possible 30% maximum. There were some compromises, however. For example, the whistleblower award is predicated upon a claim against someone whose annual income exceeds $200,000, AND when the total amount in taxes, penalties, and interest owed is more than $2,000,000. In fact, revisions to the whistleblower statute suggest there may be more limits than many whistleblowers anticipate.

Courts have recently weighed in on saying how low can attorney fees in whistle blowing go. The answer is...quiet a tweet: the First US Circuit Court of Appeals lowered an attorney's contingency-based recovery from $292,000 to $50,000. The court noted that government officials did the bulk of the work, and that the attorney was able to 'piggy back' on their efforts. Most importantly, the court reasoned the rationale of whistleblower laws was to protect and serve the interests of the public...and to a large extent, the whistle blower's interests in an award are indistinguishable.

"The whole purpose of the discretionary award to whistleblowers under this statute is to create incentives for the whistleblower to take risks that may disadvantage the whistleblower in his relationship to his employer....The amount of the fee that will be siphoned off by the lawyer significantly affects the size of that award and the power of the incentive. The court in administering this statute is obligated to ensure his excessive legal fees will not diminish the statutory incentive." Judge Dyk, U.S. v. Hawthorn, entered 10/18/2010.

The importance of any potential limitations, or even reductions in anticipated awards, is that whistleblowers, without adequately motivated legal counsel, frequently have no means to deal with the costly and career debilitating efforts to maintain a whistleblower case. Since first introduced in 1863, qui tam laws have routinely allowed up to 30% awards.

At the end of the process, however, government may always reduce a Whistleblower award the good old fashioned way: by collecting taxes on it. Happily, the IRS allows legal fees to be deducted. (Campbell  v. Commissioner of Internal Revenue, January 21, 2010).

The main reason for Senator Grassley's concerns is that the Swiss Parliament this week rejected a deal made with the U.S. last August to hand over banking information on more than 4,000 wealthy American UBS clients suspected of tax evasion. In his letter to the IRS, Senator Grassley argues that the agency should not be sitting around waiting for treaties to be ratified. The agency has the information in its hands now, and Senator Grassley is concerned that it is wasting time while the Swiss government unravels its agreements with the DOJ. (Banking secrecy has until recently been ironclad in Switzerland, so the parliament may be rattling its legislative sabers a bit in an effort to shore up the nation's reputation).

If the entire Swiss parliament does not approve the deal with DOJ by June 18th, things could get really ugly for UBS. DOJ could revive a lawsuit to turn over 52,00 names (way, way beyond the 4,450 stipulated in the original agreement). If UBS failed to turn over the 52,000 names, it could end up facing fines amounting to millions of dollars per day of refusal. Furthermore, if UBS fails to turn over any of these names, it could face indictment.

Either way, the skies look rather stormy for UBS right now. This still doesn't explain why the IRS is not taking advantage of the leads Birkenfeld provided.  Perhaps Senator Grassley's letter will be enough to get a few accountants' motors running!

This article is brought to you by the QTT, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

In the first advance payment made to an IRS whistleblower so far, a private equity firm paid $4 million to informant Eric R. Havian. Havian's attorney noted that the whistleblower needed the money to pay for living expenses because, as is the case with many other whistleblowers, he had trouble finding a job after reporting a multinational corporation that allegedly underpaid its taxes by billions of dollars. A common thread in the whistleblower experience is the high probability of being rejected by the industry in which the whistleblower used to work. Whistleblowers face a growing financial burden while they wait around, unemployed, for the IRS to pay out an award. It seems that by making advance payments available to whistleblowers, hedge funds and other investors could actually promote more whistleblowers to come forward with tips.

In what is perhaps the ultimate irony in all of this, mega-bank Credit Suisse has explored the possibility of investing in whistleblower claims. Credit Suisse has been targeted by the U.S. and other countries for allowing people to hide their assets in secret accounts with the bank. There must be a lot of potential in whistleblower reward investments if a bank is exploring the possibility of potentially betting against its own interests!

This article is brought to you by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

Investigators in Key West, Florida have found that inmates in the Monroe County jail have been running a tax refund scam since at least 2004. The inmates devised an elaborate scheme whereby they used names of fake or defunct businesses along with a cheat sheet that showed how to fill out forms line by line. The tax fraudsters convinced other unsuspecting inmates to give up their social security numbers, sometimes in exchange for honey buns, which are apparently haute cuisine in prison.

Once the inmates had all of this information, they made extensive use of family members to help with the scam on the outside. In return, the inmates filled out fake returns for family members, as well as themselves and other inmates, some of whom were charged a $500 fee.

Other documented instances of prisoner tax fraud have also surfaced.  One Florida prisoner was sentenced to an additional 33 months in jail after he prepared 64 fraudulent returns for other prisoners--as well as a handy self-help manual. In another case, this time in South Carolina, a dubious trio comprising two inmates and an inmate's mother hatched a scheme in which one inmate stole other prisoners' social security numbers and made fake W-2s, the other inmate used the W-2s to file false returns, and mom lovingly provided the checking account for deposit of the refunds.  People outside the prison systems--often family members--clearly play an important role in most of these tax fraud schemes. Perhaps this helps to explain why the inmate is locked up in the first place!

Fortunately, Congress has recognized the gravity of the problem posed by inmate tax fraud and has amended the Internal Revenue Code to help combat tax fraud by prisoners. The fraud continues, however, despite IRS attempts to block refunds from getting into prisoners' hands. Testimony before the House Ways and Means committee five years ago revealed that the IRS had managed to block $53 million in refunds to inmates, but $14 million in fraudulent refunds did manage to slip through the...bars. Given the billions of tax payer dollars that are spent to house inmates, $14 million may seem like a drop in the bucket. However, this kind of fraud is a big insult on principle alone, particularly when other inmates who are trying to turn their lives around in prison get duped into turning over their social security numbers.

This article is brought to you by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

18 U.S.C. sec. 1514A of SOX protects corporate whistleblowers by providing them with the remedy of a civil action in the event of retaliation by their employer.  Publicly traded companies, as well as their contractors, subcontractors, and agents, are prohibited from retaliating against a whistleblower who participates in an investigation or participates in an action stemming from violations of Federal law relating to fraud against shareholders.

If a whistleblower does suffer some sort of retaliation, she has two options depending on the amount of time that has elapsed. She could file a complaint with the Secretary of Labor, or, in the event that the Secretary of Labor has not issued a decision within 180 days of the filing of the complaint and the whistleblower has not done anything in bad faith to cause the delay, the whistleblower can go ahead and file a lawsuit in federal district court. As a side note, there is a special loophole created for whistleblower plaintiffs here. Normally, in order to get into federal district court the amount in controversy must be $75,000 or more. For whistleblowers alleging discrimination, this requirement is waived.

The proposed financial reform legislation, which may be headed to the Senate floor this week, could significantly expand whistleblower protections. Under both the House version of the bill as well as that proposed by Senator Chris Dodd, the SEC would be authorized to reward whistleblowers for any insider trading violations (not just those related to securities, as the law currently stands). In addition, the whistleblower's share of the SEC sanction would be increased to 30% from its current 10%. This is a significant jump, putting it in line with the maximum recoveries available to qui tam relators and IRS whistleblowers.

Blowing the whistle is by no means without risk. The whistleblower should take some comfort, however, in the fact that there are several protections available, and stronger protections likely are on the way. Recent events in the financial world, such as the Goldman Sachs short selling debacle, are sure to provide an impetus to Congress to reinforce whistleblower protections in this area.

This article was sponsored by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

There are several things to keep in mind if you're thinking about becoming an IRS whistleblower. The Qui Tam Team experts can provide advice in this area, but in the meantime, consider the following:

• Your tip cannot be speculation or unsupported hearsay;
• Don't try to get revenge on someone whom you believe has wronged you--the IRS doesn't care to get involved if you are only trying to get back at the alleged tax cheat;
• Your tip must lead to an action, such as an audit;

• There are two types of awards available to IRS whistleblowers:

1. The Big One: If the tip concerns a tax evader who owes more than $2 million in taxes, penalties, and other amounts, the whistleblower is entitled to between 15 and 30 percent of the amount recovered. If your tip concerns an individual, their annual gross income must be greater than $200,000. The whistleblower can dispute the amount of their reward in Tax Court if the whistleblower feels it's inadequate.
2. The Smaller (but still good) One: Even if your tip doesn't meet the $2 million/$200,000 thresholds, there may still be a reward for you. These awards are a maximum of 15% of the amount recovered by the IRS, up to a total of $10 million (not bad by any means!). These awards are discretionary, and the whistleblower is not allowed to dispute them in Tax Court.

Regardless of the level of tax fraud, blowing the whistle can be very lucrative, and hundreds of Americans stand to cash in. The IRS' program has been quite successful in bringing in tips, and in 2008, the number of IRS whistleblowers quadrupled. More than one-tenth of the cases alleged tax fraud of more than $100 million. Consider this number: if your tip concerned tax fraud of $100 million, you could potentially receive a $30 million reward! This is really a win-win situation for everyone involved (perhaps not so much for the tax dodger, obviously!), because the government reclaims tax dollars, alleviating the burden on taxpayers, while the whistleblower is rewarded for his or her unique inside information.

Rudolf M. Elmer was COO for the Julius Baer Swiss bank until he was fired in 2002. Like Bradley Birkenfeld, Elmer lived the high life of a banker to the elite, albeit in the warmer (but equally tax evasion-friendly) clime of the Cayman Islands. Elmer's story is also reminiscent of that of another whistleblower profiled on this blog, big tobacco burner Dr. Jeffrey Wigand. Like Wigand, Elmer was harassed by private investigators allegedly hired by his former employer.

The fact that Elmer ran Julius Baer's operations in the Caymans is especially significant. The Caymans have a zero per cent tax rate, and their tax havens are believed to hold more than $11.5 trillion. It is estimated that the U.S. loses approximately $100 billion in taxes each year to tax evasion committed in the Caymans. Another significant fact about the Caymans, sure to elicit horror/admiration, depending on whom you ask, is this: 10 per cent of the islands' 52,000 inhabitants are accountants or lawyers.

Elmer discovered the documents in 2002, shortly before he was fired (the bank claims that he was angry about being passed over for a promotion and stole the documents). The documents concern scores of companies, trusts, and individuals. Elmer began turning the documents over to authorities, and was briefly jailed in2005 by Swiss authorities who plan to charge him with violations of Swiss secrecy laws. In 2009, Elmer posted documents to the Wikileaks website, which allows users (particularly whistleblowers) to post important documents securely. Julius Baer went to court and got the site shut down, but Wikilinks appealed and got the court order overturned.

Julius Baer's suit against Wikilinks drew the I.R.S.'s attention, and the agency contacted Elmer. Elmer subsequently turned over documents to the I.R.S., the New York City DA, and the Senate subcommittee on investigations headed by Senator Carl Levin.

Elmer's interest in holding the bank accountable goes beyond anything personal. In an interview with The Guardian, he stated

People don't know how the system works. They may hear of some case, but the big picture always disappears into bank secrecy, professional secrecy with lawyers and accountants, and tax secrecy. But they need to know that this is a system which undermines our society, our democracy.

Elmer doesn't seem to be revealing Julius Baer's secrets just to get a financial reward. He is thinking about the bigger picture here, and like many whistleblowers, he's willing to give up his career and even do some jail time to stand up against a wrongdoer.

Birkenfeld was once a high-profile banker at UBS. He had an apartment in Geneva, Switzerland, and a million-dollar home in Zermatt, Switzerland at the foot of the Matterhorn. He worked with a team of bankers who marketed Swiss accounts to wealthy Americans, then figured out how to disguise ownership of the accounts through the use of off-shore shell corporations. Birkenfeld lived a life with a certain amount of intrigue--one court document stated that he smuggled diamonds in a tube of toothpaste onto a trans-Atlantic flight for a client.

According to court documents, in 2005 Birkenfeld became disturbed by an internal UBS document that misrepresented the manner in which the company was conducting its cross-border business. Birkenfeld contacted the legal compliance officer but got no response, so he resigned in late 2005.

Birkenfeld then sent a confidential letter to a UBS executive in 2006 stating that he wanted to invoke his rights under UBS's whistleblowing policy. UBS had denied Birkenfeld a bonus, and he perceived this as retaliation for his raising concerns about UBS's business practices. In 2007, Birkenfeld contacted the Securities and Exchange Commission and a Senate investigative panel, both of which began investigations.

Birkenfeld tried to negotiate immunity from prosecution in 2007, but was unsuccessful. A Justice Department filing states that he refused to discuss his participation in UBS's tax evasion schemes, denying his misconduct, and that he hoped to collect a reward. Birkenfeld was arrested in 2008, and eventually pled guilty to conspiring to defraud the U.S. government. He was sentenced to 40 months in prison and is due to start serving his sentence in January 2010. Prosecutors argued for leniency in Birkenfeld's sentencing based on the fact that he was a whistleblower, but the federal district judge ignored their requests. Birkenfeld was also hit with a $30,000 fine and three years probation.

Birkenfeld is challenging his sentence based on the fact that he helped the government uncover thousands of UBS tax cheats. He is also claiming his compensation under the IRS law, which could add up to billions, and this is where the controversy gets most heated.

Since Congress changed the IRS law regarding whistleblower rewards in 2006, the number of tips about tax evaders owing $2 million or more have jumped more than ten times. Award amounts and amounts collected under the whistleblower program have also increased significantly from pre-2006 amounts.  In order to qualify for an award, the whistleblower must meet several criteria. The information the whistleblower provides must:

• relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2,000,000;
• relate to a taxpayer, and in the case of an individual taxpayer, one whose gross income exceeds $200,000 for at least one of the tax years in question; and
• substantially contribute to a decision to take administrative or judicial action that results in the collection of tax, penalties, interest, additions to tax and additional amounts.

If a whistleblower meets these conditions, he or she will receive between 15 and 30 percent of the proceeds resulting from an administrative or judicial action or a settlement in response to an administrative or judicial action.

Thousands of tax dodgers are now seeking amnesty under an IRS program that allows them to avoid jail time as long as they pay back taxes and various penalties. Tax dodgers have hidden their money in 70 countries on every continent except Antarctica, and as of October 2009, hidden accounts ranged from $10,000 to $100 million. In August, UBS agreed in a settlement to turn over information regarding 4,450 accounts suspected of being used by American customers to hide assets. These UBS clients will pay billions in back taxes, penalties, and interest. Billions more are expected to roll in as a result of the amnesty program, and a large number of those seeking amnesty are also expected to be UBS clients.

Whether Birkenfeld is entitled to billions of dollars in reward money for helping the IRS bring in billions in unpaid taxes could turn out to be, in the words of Birkenfeld's attorney, "a gigantic fight." The Justice Department acknowledges Birkenfeld's contribution; the prosecutor who handled the UBS investigation stated, "Without Mr. Birkenfeld walking into the door of the Department of Justice in summer of 2007, I doubt this massive fraud scheme would have been discovered by the United States government." At the same time, the Justice Department contends that Birkenfeld is not a formal whistleblower because he didn't provide many details on specific UBS clients when he came forward. Birkenfeld's lawyers will argue on appeal to Attorney General Eric Holder that Birkenfeld did in fact provide information about specific clients.

Despite Birkenfeld's misconduct, his information about UBS's practices clearly helped the government recover billions of dollars in taxes and penalties that it wouldn't have received otherwise. It would set a bad example for the IRS to deny Birkenfeld his reward in this case, mainly because it could have a chilling effect on future whistleblowers who have been involved in some type of misconduct themselves, but have useful information. The federal government needs all the tax revenue it can get right now, so it seems unwise to snub potential billion-dollar whistleblowers.