The Profitable Prospects of Snitching for the IRS

Discussion in 'Wall St. News' started by dealmaker, Apr 27, 2019.

  1. dealmaker

    dealmaker

    The Profitable Prospects of Snitching for the IRS
    Ratting out tax cheats can bring in big awards, though you have to be patient (and may need to wear a wire)


    PHOTO: MATT CHASE
    By Laura Saunders
    April 26, 2019 5:30 a.m. ET

    These are boom times for snitches who turn in tax cheats to Uncle Sam.

    The Internal Revenue Service awarded more than $312 million to tipsters last year, according to a little-noticed report released in February. This total far outstrips the previous record of $125 million awarded in 2012. The 2018 rewards, paid in the fiscal year ended Sept. 30, were for additional collected revenue of $1.4 billion, compared with $191 million in fiscal 2017.

    And the agency has already paid $115 million to whistleblowers for 2019, according to lawyers Dean Zerbe, Jeffrey Neiman and Gregory Lynam. They expect more to come.

    Some recent payouts have been huge.

    Last year, one tipster was awarded about $100 million, nearly one-third of the total, for turning in a multinational corporation. The person, a client of Mr. Zerbe, wishes to remain anonymous—as nearly all whistleblowers do.

    To date, the largest known IRS whistleblower award of $104 million went to Bradley Birkenfeld, a former private banker for UBS AG who did go public. His 2012 payment was for turning in the Swiss banking giant, which admitted it encouraged U.S. taxpayers to hide assets abroad.

    The surge of recent awards shows that a key expansion of the IRS’s whistleblower program is finally taking hold. The change was enacted by Congress in 2006 and pays up to 30% of the revenue collected to tipsters in large cases, those involving more than $2 million of tax. For smaller cases, the payout has typically been a much smaller percentage.

    Snitches Get Riches
    An expanded whistleblower program has brought in more than $1 billion to the IRS and paid a record amount to tipsters.
    Note: Awards in some years were lowered based on a measure reducing government expenditures, known as sequestration; the 2018 reduction was 6.6%. Federal fiscal years end Sept. 30 of the calendar year.

    Source: Internal Revenue Service

    “The large-awards whistleblower program is now hitting on all cylinders,” says Mr. Zerbe, a former aide to Sen. Charles Grassley (R., Iowa), who sponsored the change.

    Despite the surge in awards, people who dream of being rewarded for turning in a neighbor with a new Mercedes but no job should consider the many hurdles they face.

    For starters, the IRS rejects about three-quarters of whistleblower claims right away. Of the rest, about one in seven gets paid, says Mr. Lynam. The IRS had 29,000 whistleblower claims open in 2018, but many of them are likely to be rejected.


    Last year, the IRS says it paid out 186 small-program awards totaling about $12 million. The explosive growth stems from awards in large cases, which rose to 31 last year from 19 in 2015 and totaled $300 million.

    This surge is in part due to a favorable 2018 clarification of the law that raised payments in offshore-cheating cases. The IRS then paid out awards that had been in limbo.


    Nearly all successful whistleblowers seeking large awards, and many seeking smaller ones, use specialized tax attorneys to prepare their submissions. Their fee is typically 25% to 40% of an award. The attorneys say the package for the IRS needs to include items such as account statements, internal memorandums, emails and perhaps even voice recordings.

    Yes, voice recordings. One whistleblower had to wear a wire to get incriminating information—twice, because the device malfunctioned once. She and another person collected an award of nearly $18 million for submitting evidence that led a Swiss bank to plead guilty to encouraging U.S. tax evasion and pay $74 million.

    “The key to getting an award is to give the IRS the case on a silver platter,” says Mr. Neiman.

    IRS whistleblowers don’t have to be above reproach. The law doesn’t prohibit those convicted of wrongdoing from receiving awards unless they were architects of the cheating. Mr. Birkenfeld, for example, was convicted of conspiring to help a billionaire hide money in UBS accounts and served nearly 30 months in prison. He still got an award because he helped the Treasury recover billions of dollars.

    Award seekers with accepted cases must be patient. Getting an award often takes at least seven years, according to the 2018 report, and a payout in five years is considered “fast.”

    Whistleblowers can receive large awards for reporting corporate cheating, fraudulent gift-and-estate transfers, or cheating by high-net worth individuals. But a big growth area involves reporting offshore cheating, such as by a foreign bank that has assured U.S. officials it has turned over information on all American clients when it hasn’t.

    In such cases, says Mr. Neiman, a bank employee or other person can turn in the bank or the customers, collect an IRS whistleblower award, and still remain anonymous. IRS interest in these tipsters, especially from Asia, is on the rise even as its other offshore-enforcement programs have waned.

    Whistleblowers who do get awards also owe tax, except for overseas tipsters from some countries. The tax is assessed on awards minus the attorney’s fee, at ordinary income rates—and it is usually withheld.

    SHARE YOUR THOUGHTS
    People disagree on whether the IRS should pay rewards to people who turn in tax cheats. Some say it reeks of bounty hunting, while others think it’s a terrific way to promote tax compliance. What do you think? Join the Conversation below.

    Write to Laura Saunders at laura.saunders@wsj.com
     
  2. From what I hear, don’t even bother with smaller cases. They don’t want those cases and are very reluctant to pay out even if they do end up collecting. So stop thinking about turning in your neighbor and only think about going this route if you know all the details of some huge institutional tax evasion scam.
     
    dealmaker likes this.
  3. Trader Curt

    Trader Curt

    Not all money is good money
     
  4. All money is good money to the government buddy.... Taxation is involuntary....
     
  5. Trader Curt

    Trader Curt

    It's called exploitation