P-H was arrested for participating in a conspiracy to launder money. To minimize his punishment, P-H informed Government agents, including Internal Revenue Service (IRS) agents, that a foreign business (the Targeted Business) assisted U.S. taxpayers in evading Federal income tax. P-H told the Government agents that the Targeted Business had no presence in the United States and instructed its personnel to stay out of the United States. Although he did not have documentation sufficient to inculpate the Targeted Business, P-H was aware of an individual who did.
Because the individual (X) was outside the United States, P-H and P-W designed a plan to induce him to come to the United States. In executing the plan, P-W met with X and persuaded him to enter the United States. Upon entering the United States, X was arrested. While in custody, X agreed to assist the United States in its pursuit of the Targeted Business. After his release, X tried to back out of his agreement. But after meeting with P-H, X agreed to follow through on his commitment. In part because of X's assistance, the Targeted Business was indicted, pleaded guilty, and paid the United States approximately $74 million.
Ps filed separate Forms 211, Application for Award for Original Information, with the IRS Whistleblower Office, seeking awards under I.R.C. sec. 7623(b). The forms were filed after the Targeted Business pleaded guilty and paid the United States $74 million.
Upon receipt, the IRS sent Ps' Forms 211 to its Ogden, Utah, Service Center, where a classifier noted that the forms were filed after the United States collected proceeds from the Targeted Business. On that basis, the Whistleblower Office rejected Ps' award applications and sent Ps separate award determination letters stating that no proceeds had been collected using the information Ps submitted.
The IRS asserts that the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. A, sec. 406(b), 120 Stat. at 2959 (TRHCA sec. 406(b)), provides the Whistleblower Office with exclusive discretion to either investigate the taxpayer or refer the information provided by the whistleblower to an IRS operating division. The IRS further asserts that under TRHCA sec. 406(b) a whistleblower is ineligible for an I.R.C. sec. 7623(b) award if he/she provides the information to an operating division of the IRS before submitting the information, via a Form 211, to the Whistleblower Office.
Held: TRHCA sec. 406(b) does not endow the Whistleblower Office with exclusive authority to investigate the individual or entity that is the subject of an application for an award. The fact that Ps supplied their information to other Federal agencies, including an IRS operating division, before submitting the information to the Whistleblower Office on Form 211 does not, as a matter of law, render Ps ineligible for an award under I.R.C. sec. 7623(b).Perhaps most interesting for many readers of this blog is that the underlying criminal prosecution and guilty plea appears to involve Wegelin Bank, the Swiss Bank that met its demise for its U.S. tax cheat enabler activities. (See links to Federal Tax Crimes Blogs at end of this blog entry.) Opinions in Whistleblower cases often are written to avoid disclosing who the whistleblower is and hence some of the facts are cryptically stated. Here are some snippets:
[A] a foreign business (the Targeted Business) assisted U.S. taxpayers in evading Federal income tax.
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[T]he Targeted Business was organized like a general partnership, with no liability protection for its owners. Petitioner husband believed that were the United States to bring criminal charges against the Targeted Business, its partners would settle in order to avoid the loss of business to the Targeted Business, as well as to avoid personal liability."
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The Targeted Business was indicted, with a subsequent superseding indictment, for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret accounts, and the income generated therefrom, from the IRS. The Targeted Business pleaded guilty, as petitioner husband predicted. As part of its guilty plea, the Targeted Business paid the United States approximately $74 million."Tax Notes Today has an article Andrew Velarde and William R. Davis, $1.2 Billion Secret Account Whistleblowers are Award Eligible, 2015 TNT 106-3 (6/3/15), no link available. In the article, the following is stated:
Although the decision does not explicitly name Wegelin & Co., referring only to the indictment and guilty plea of the "Targeted Business," the facts outlined in the opinion match those of the Swiss bank, which previously pleaded guilty to conspiracy to evade taxes. According to a Justice Department release * * * Wegelin hid more than $1.2 billion in secret accounts and paid the U.S. $74 million, facts that the opinion also cites.The Justice Department release on Wegelin is here. In part here pertinent, it says: "Together with the April 2012 forfeiture of more than $16.2 million from WEGELIN’s U.S. correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million."
After posting this article, a reader gave me also this link: Leigh Baldwin, Former Wegelin Banker Held By FBI Admitted to Aiding Tax Evasion (BloombergBusiness 3/6/11), here. The facts parallel those in the case.
Finally, I am sure that there are other whistleblowers with respect to foreign banks, particularly Swiss banks. Should be some significant awards over the next few years. And, of course, Bradley Birkenfeld got to the big one. See Birkenfeld Gets $104 Million Whistleblower Award (Federal Tax Crimes Blog 9/11/12), here. For all Federal Tax Crimes Blog posts on Birkenfeld, see here.
For key posts on Wegelin, see
- Wegelin Indicted in SDNY with Money Laundering Forfeiture (Federal Tax Crimes Blog 2/2/12), here.
- Wegelin U.S. Bank Assets Forfeited (Federal Tax Crimes Blog 4/25/12), here.
- Wegelin & Co. Pleads Guity to Conspiracy (Federal Tax Crimes Blog 1/3/13), here.
- Wegelin Sentenced (Federal Tax Crimes Blog 3/5/13), here.
Addendum 6/6/15 7:36 am:
This article has some sleuthing as to the whistleblower and an additional lawyer. Richard Rubin, U.S. Tax Informant Dodged Prison, Now Seeks $22 Million Reward (Bloomberg Politics 6/5/15), here.
The court’s opinion doesn’t identify the business or the informant, but the $74 million penalty and other details cited in the case match the allegations in the U.S. case against Wegelin & Co. Wegelin, formerly Switzerland’s oldest bank, pleaded guilty in 2013 to helping Americans hide $1.2 billion in assets from the IRS.
Details about the informant who is seeking the reward correspond with those in a separate case involving Stefan Seuss, a German living in Florida who was indicted in 2009 in Philadelphia after agreeing to help an undercover agent hide profits from a pirated-CD business. He pleaded guilty in 2010, and his indictment says he was “associated” with Wegelin.
The details about the unidentified informant in the tax case mirror those found in Seuss’s case. The informant seeking the reward was from Florida and was indicted in 2009 as part of a conspiracy to launder funds from the sale of pirated CDs. The informant pleaded guilty in 2010 and agreed to cooperate with the U.S. government.
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The informant’s tax lawyer, Dean Zerbe, wouldn’t say whether Seuss is his client. He said that one of the other lawyers in the tax case is Robert Amsel. Amsel, who was Seuss’s criminal lawyer, didn’t respond to e-mail and phone messages seeking comment.
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Seuss was arrested in October 2009 in a sting operation by the FBI and IRS, and the timing and nature of those charges match those of the informant in the tax case.
Seuss and Thomas R. Meyer, a Nebraska financial adviser, were charged with conspiracy to launder about $500,000, a crime for which they could have been sentenced to up to 20 years in prison. The two men had agreed to set up an offshore company and foreign bank account for an undercover agent posing as a businessman involved in software and compact disc piracy, according to an indictment filed in federal court in Philadelphia in 2009.
Both men pleaded guilty. Meyer was sentenced to serve four months. Seuss was sentenced to the time he’d already served of less than two months in jail, according to court and Bureau of Prisons records.
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The Philadelphia case is U.S. v. Seuss, 09-cr-0083, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The tax court case is Whistleblower 21276-13W v. Commissioner of Internal Revenue, U.S. Tax Court (Washington). The Wegelin prosecution is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).