This is a stunning development. I am sure there will be a lot of buzz and hype. But I do think this signals some significant movement in the Whistle Blower office.
Also, since the Swiss would say that his whistleblowing violated its law, we now know that the IRS admits having used the information in violation of other country law to collect revenue (which is what is required to grant an award). So for all who thought that our Government might not used illegally obtained information, think again. See also Payner v. United States, 447 U.S. 727 (1980), here, Government can use against a depositor information from a "flagrantly illegal search."
Ex-Banker Birkenfeld Gets $104M for UBS Case Cooperation; May Be Biggest US Whistleblower Award (ABA Law News Now 9/11/12), here.
IRS Awards $104 Million to UBS Tax Whistleblower Bradley Birkenfeld (Tax Prof Blog 9/11/12), here, with further links.
Jeremiah Coder, IRS Pays Birkenfeld $104 Million Whistleblower Award, 2012 TNT 177-1 (9/12/12). Key excerpts related to section 7623(b)(3)'s exclusion on awards to planners and initiators of the scam:
Given all of the public information available about Birkenfeld's role in helping UBS hide U.S. taxpayers evading the IRS, Lynam said that the award indicates that the IRS has taken a practical approach toward the "planning and initiating" exclusion. "If Bradley Birkenfeld is award-eligible, your average tax director will have no problem overcoming the planned-and-initiated hurdle," he said, noting that Birkenfeld was found to be a criminal participant in UBS's wrongdoing yet did not suffer a reduction in his award amount for planning and initiating the tax underpayments of the bank's clients. "The IRS needs knowledgeable insiders to come forward," he said.
Because of the unique circumstances of the Birkenfeld award, Kaplan said whistleblower representatives don't necessarily have clear direction on how the IRS might differentiate in future cases between informants who participated in a tax evasion scheme but are still entitled to an award and those who are excluded from a payout because of their role in planning or initiating the scheme. The IRS considered Birkenfeld a low-level employee of the bank, intimating that those higher up planned or initiated the scheme, Kaplan added.
"It is difficult to infer from the IRS award to Birkenfeld how the IRS is evaluating a whistleblower's role in 'planning or initiating the actions that led to the underpayment,'" Skarlatos said. The Internal Revenue Manual's list of factors that the IRS will consider in determining whether a whistleblower was a planner or initiator indicates a broad reading of the phrase "planning or initiating" to include things such as knowledge of and participation in the actions at issue, he said. "Such a broad reading is at odds with the law governing qui tam matters, which limits awards only for the principal wrongdoer or ringleader," he said. "Going forward, I think it will be important to determine whether a whistleblower came up with the tax avoidance plan or personally benefited from the taxes saved." The Birkenfeld award allows whistleblowers who were somewhat involved in a tax avoidance plan to argue for an award as long as they did not create the plan or directly benefit from the taxes saved, he said.
Zerbe said that the IRS was diligent in its internal discussions over the planning-and-initiating exclusion and got the law right in allowing an award for Birkenfeld despite his criminal conviction. "The law recognizes that the IRS needs insiders to come forward; it's not a choir practice when dealing with tax fraud," he said. As contemplated in the False Claims Act, which section 7623(b) is based on, planning and initiating refers to a "chief architect" of the scheme, he said. Kohn added that despite the confusion at the beginning of Birkenfeld's case, the IRS award confirms that "if you are a participant, you are still eligible, because the law won't work otherwise."Lee A. Sheppard, Swiss Banking Derobed: International Implications of Birkenfeld, 2012 TNT 177-2 (9/12/12). Ms. Sheppard in his usual acerbic style, discusses the reaction of the Swiss to whistleblowers of information from Swiss Banks, activity that it deems illegal (a key component of protecting its tax evasion franchise). Excerpts I found interesting are:
Failure to compensate Birkenfeld would have principally benefited Switzerland and other bank secrecy jurisdictions. Switzerland depends on criminal penalties, including jail, to dissuade bank employees from selling valuable information. But the old ways are breaking down as banks feel the pressure from the United States.
The United States may get more information about Swiss accounts from whistleblowers than it will get from Switzerland under treaty-based information requests. The possibility that insiders and informants will be well rewarded for information about secret accounts does not go down well with the Swiss.
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Switzerland has signed OECD model information sharing clauses in its treaties. It has even agreed to permit pattern-based information requests from the United States. The 2009 protocol to the U.S. treaty still has not come into force because of the opposition of Sen. Rand Paul, R-Ky.
Switzerland has not, however, responded to requests for information under the current treaty. Indeed, the U.S. Justice Department believes that business as usual included other Swiss banks picking up old UBS accounts.
Switzerland refuses to assist in prosecutions based on stolen bank data. Criminal prosecution is the principal use of treaty-based information requests. But most offshore evasion cases are civil cases, and the taxpayers' governments want to process and settle them quickly.