IRS Awards Whistleblowers Record Amount in 2012

2012 was a good year to be a tax whistleblower. The US Internal Revenue Service awarded a record $125,355,799.00 to whistleblowers in fiscal year (FY) 2012, according to the IRS’s annual report to Congress on its whistleblower program. It is by far the largest sum to be paid out by the whistleblower program in the past five years. The IRS itself collected over $590 million in back-taxes during the course of the 2012 fiscal year.

The largest payment  ($104 million) was awarded to Bradley Birkenfeld, a UBS banker who helped affluent Americans dodge taxes, but later blew the whistle on his clientsUBS paid $780 million to halt any possible prosecutions in 2009, and divulged the names of major American clients involved in tax irregularities. 

Critics question whether a convicted criminal such as Birkenfeld, (who spent two years in prison in connection with the tax evasion) should be so richly rewarded. Was his choice an honest reaction to discovering irregularities in UBS’s policies, or a method for a clever fraudster to profit? Is the huge financial award tantamount to thanking Birkenfeld for breaking the law?  Supporters say that to begrudge a high-profile whistleblower his reward would raise doubts about the IRS’s commitment to whistleblowers, and honoring the letter and spirit of the law.

The UBS scandal that involved Birkenfeld took place in 2009. His payment, whether deserved or not, came three years later. The average wait for a reward is difficult to determine due to method the IRS uses to keep these statistics.  It is noteworthy that the IRS informs would-be whistleblowers the process could take “five to seven years and longer” if protracted appeals are taken into account.

Despite its shortcomings, the IRS program managed to collect $1,467,259,959 in FY2008-2012. The whistleblowers received $180,332,920, a figure that might be high enough to interest others.