What would it take for you to turn in your clients? Would 30% of the take do it? What if it meant jail time?

These are all things that Bradley Birkenfeld must have considered before approaching the IRS two years ago to turn in tax cheats at UBS. And he did it anyway.

Now, Birkenfeld isn’t quite so thrilled with the consequences. Over the weekend, he filed a motion to push back his prison start date (currently January 8) and reduce his sentence (currently 40 months in prison and a $30,000 fine).

Brace yourself: I think he might get something here. The government had initially recommended a lighter sentence based on the amount of cooperation that Birkenfeld offered in the government’s investigation. Birkenfeld further indicated that he would continue to cooperate with the government if they give him a little bit more time outside of prison. I’m not sure how much information he still has to disclose but, depending, that could be appealing to the feds.

But that’s probably where any sympathy from the feds ends. When Birkenfeld initially approached the IRS with information about the activities at UBS, he said he could not disclose the identities of his own clients without violating Swiss law. The feds claim that they later learned the identities of some of those clients without him and that Birkenfeld merely assisted them after the fact. Birkenfeld says that he disclosed some names, including that of his biggest client, Igor Olenicoff, before being charged.

The timing here matters. Under the whistleblower program, a tax whistleblower can receive of between 15% and 30% of the amount the IRS collects as a result of their information if the information provided is substantial. The IRS collected $780 million in penalty from UBS and $53 million from Olenicoff. If Birkenfeld is able to collect a percentage of any of that, it might make his sentence a little more palatable – something I’m sure that he considered before cooperating.

But the government sees it differently. They claim that Birkenfeld did not initially name names – and have gone so far to say that if he had, they would have recommended no jail time at all. They also point to Birkenfeld’s own bad acts: he was reportedly assisting Olenicoff as late as May 2008.

Birkenfeld pleaded guilty to tax conspiracy a month later. He was arrested at the airport on the way to his high school reunion. (Imagine that awkward conversation: So, where’s Bradley, guys?)

Whistleblower groups are urging the government to tread lightly. They claim that meting out harsh sentences for those who cooperate with investigations might lead to fewer folks willing to help out. The opposition claims that you can’t reward bad behavior because it might encourage others to do the wrong thing initially and then hold out hope that it will all be worth it later.

What do you think? Should whistleblowers do time – or should they be exempt? And should whistleblowers with so-called “dirty hands” be allowed to collect money for turning in tax evaders?

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. He was arrested while on his way into the U.S. to continue his meetings with the U.S. Senate and the SEC (meetings that were following up on the investigations that Birkenfeld had started the prior year). The Senate and SEC were getting far ahead with of Kevin Downing (the DoJ prosecutor) and DoJ with their investigations because they were working with Birkenfeld. In contrast, Downing and the DoJ were hostile toward Birkenfeld before they even knew his name or the bank he was going to report on. Kevin Downing actually pressured Birkenfeld’s lawyer at the time (since fired) to only mention a high school reunion in open court and to not mention anything about him being the government’s star witness (for the SEC, IRS, Senate and DoJ).
    The recorded testimony before the U.S. Senate proves beyond any doubt that he provided the information to the government BEFORE the Government ever charged Olenicoff.
    As long as the information provided was “significant” and not previously known by the government (yes and yes in this case) he collects the reward as long as he did not “plan and initiate” the activity that he reported on. The Deferred Prosecution Agreement between UBS and the U.S. establishes that this illegal UBS activity started at least as far back as 2000…the year before Birkenfeld even started working for the bank. So he could possibly have planned and initiated it. Pay the man.

  2. There are laws to be abided by and criminals to be punished. I’m not so sure that out right exemptions should be given to whistle blowers for the whole of each case.
    Given this guy’s involvement in tax evasion, he still needs to pay up for his misdeed. However, he could negotiate out of that for the millions that he would receive. Given that he was not involved, give him the millions and the exemption and don’t let the door hit him on the way out. Even the scum of society deserve a wage for their efforts.
    My $0.02

  3. My heart bleeds for the bastard!!
    Two years ago he did approach the UBS and started singing like a canary!! Or was it squealing like a young pig??
    There was a good reason for him to do this in the hope of getting a bit of leniency from the IRS. He was caught “in flagrante” by the IRS in the course of their investigation of the Olenicoff off shore accounts!!
    Now he not only complains about his sentence, whyich is MUCH TOO SHORT, but has the gall to capitalise on this!! If he gets anything at all from the IRS as a bounty, this must be shared out amongst the damaged and offended clients that he had abused over the years!!

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