RR Phantom
Location : Wasted Space
Job/hobbies : Cayman Islands Actuary
 |  Subject: The US taxman and tax evaders alike are averse to paying up  Sun Feb 09, 2014 11:58 pm | |
| Renzo Gadola, a Swiss banker, and his client, an American physician, agreed to meet in the restaurant in the lobby of the Mandarin Oriental hotel in Miami. They talked amiably about tennis, a sport each enjoyed, until the conversation took a serious turn.
The physician repeated a request he had made for more than a year: to close two Swiss accounts, ones that he had inherited, containing about $US1 million. Once again, he said, Gadola, head of RG Investment Partners, advised him to keep the accounts secret, even though US authorities were cracking down on undeclared foreign bank accounts like his. The physician, who was granted anonymity to describe his interactions with the banker, was prepared for this response.
He was actually working with law enforcement. He wanted to come clean about the tax-evading accounts, and was frustrated with his Swiss bankers' obstruction. So he had alerted a federal prosecutor that Gadola would be travelling to the US to meet clients, and agreed to secretly videotape their meeting in Miami. He spent weeks with law enforcement officials, preparing. On November 6, 2010, the day of the meeting with Gadola, he placed a leather-bound notebook outfitted with recording equipment on the table between them.
Early the next morning, undercover agents from the Internal Revenue Service arrested Gadola when he answered his hotel room door. Gadola co-operated with the government, turning over the identities of US clients and providing information about UBS, where he was once a financial adviser, and other Swiss banks that helped Americans evade taxes, court documents show.
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The physician ultimately closed his Swiss accounts, paying the taxes and penalties owed. He also filed a whistleblower claim with the IRS.
A 2006 law permits whistleblowers to file claims and share 15 to 30 per cent of the back taxes and penalties recovered by the government in tax investigations. The law states that rewards will be paid if the IRS collects money ''resulting from the information provided'' by a claimant. The law was passed to encourage tips to recover some of the estimated $US450 billion in taxes that the IRS says are evaded in any year.
Gadola's information apparently reaped quite a haul. The prosecutor overseeing the case spoke at Gadola's sentencing hearing on November 18, 2011, and told the judge that the case spurred US account holders to enter a voluntary tax amnesty program initiated that year. That program has generated more than $US1 billion, according to the IRS. (Gadola pleaded guilty to conspiring to defraud the US government of taxes and was given a modest sentence of five years' probation and a $US100 penalty.)
The physician, meanwhile, is in limbo. It has been more than three years since his whistleblower claim was filed. But like many others who have hoped to be paid under the IRS' program, the physician who helped bring in Gadola has received nothing.
''It's been very stressful; I've been so far out of my comfort zone on this,'' the whistleblower said. He said that when he had tried to close his accounts, one banker warned of possible retaliation by powerful people in Switzerland if he declared his holdings to US tax officials. ''I was scared but I wanted to do the right thing. I had enough of a taste of being trapped in the Swiss banking system that I wanted to expose them any way I could.''
Interviews with lawyers representing a half-dozen recent claimants show how hard it can be for individuals to wrangle a reward from the agency. By the end of fiscal 2012, the most recent figures available, only five rewards had been made under the law, the IRS says. This, lawyers say, has the perverse effect of undercutting the law's intent.
''This program is supposed to be a big, fat carrot offered to people with lots of information that they want to share with the government,'' said Robert Katzberg, a white-collar criminal defence partner at Kaplan & Katzberg and the lawyer for the client who brought in Gadola. ''But all they're doing is discouraging people from coming forward by giving whistleblowers no information and actively seeking to limit judicial and legislative oversight of what they're doing.''
The IRS has long paid rewards to informants providing tips on potential tax fraud. But many of these were small-potatoes cases involving individuals. To attract greater participation and bigger cases, Congress included a new whistleblower provision in the Tax Relief and Health Care Act of 2006. It set the bar high. The amount of taxes in dispute involving corporations must exceed $US2 million; among individuals, cases had to involve taxpayers whose gross income exceeded $US200,000 for at least one tax year in question.
The IRS has not reported how much money has been recovered under the new law, or how much has been awarded to whistleblowers. It has reported that the first reward under the new law was paid in 2011. In a recent speech, the director of the whistleblower office said it paid about $US50 million in rewards in 2013.
Tips, meanwhile, have poured in. As of 2012, 1967 submissions had been made under the new law. These cases are complex, of course, and can take many years to develop. And the whistleblower office had a staff of only 36 at the end of 2012.
Nonetheless, Republican Iowa Senator Charles Grassley, who wrote the legislation establishing the whistleblower office, said he was disappointed with its results. In a September letter to John Koskinen, the newly appointed IRS commissioner, he said a lack of enthusiasm for the program at the IRS was especially mystifying, given that revenue from tax-enforcement actions had fallen 13 per cent since 2010. Being more welcoming to whistleblowers could help the IRS reverse this trend, he argued.
''I have come to the conclusion that they don't want to co-operate with whistleblowers,'' Grassley said, ''because it shows they don't know how to do their job and they're embarrassed.''
Koskinen has said he is still learning about the whistleblower program and is aware of the criticisms. Unlike some former high-level IRS officials who have expressed antipathy towards the program, he says he is a fan. ''It's important for the system that taxpayers feel when they're writing their cheques that everybody is paying their fair share,'' he said.
For some whistleblowers, like Joseph Insinga, Koskinen's supportive words may be too late. A former managing director at Rabobank, a Dutch institution, Insinga filed a whistleblower claim in 2007, contending that the bank helped high-growth corporations and two European banks evade more than $US1 billion in taxes. (Rabobank has not been charged with any wrongdoing.)
The IRS did not get around to rejecting Insinga's claim until April 2013, a year after Andrew Carr jnr, his lawyer in Memphis, Tennessee, filed a suit demanding a determination. The agency said it had not used Insinga's help to generate back taxes and penalties for most of the instances Insinga claimed in his whistleblower filing. The IRS said it was still analysing information he provided on one company.
In the meantime, Insinga, 63, says that being a known whistleblower has made it impossible to find a job. He has sued the IRS, asking for documents that he says will prove that his help led to the recoveries.
''Under the law they have to pay 15 per cent at a minimum, but they just don't want to pay it,'' Insinga said of the IRS. ''They don't want to admit that these tax schemes existed for years under their noses and they were unable to do anything about it until I provided them with the smoking gun.''
A little over a year ago, whistleblowers were encouraged by the disclosure that the IRS had paid an enormous sum - $US104 million - to Bradley Birkenfeld, a former UBS banker who provided Swiss banking secrets to US authorities. As a result of Birkenfeld's information, UBS paid $US780 million to the US Treasury and handed over account information relating to 4500 US clients. This was a big victory for the government and the whistleblower program, but it also proved a tad awkward. Birkenfeld received his money only after serving 2½ years in prison for helping a client evade US income taxes.
If paying such a huge sum to a man with a criminal record contributed to the IRS' seeming resistance to paying other whistleblowers, the agency is not saying. William Wilkins, IRS chief counsel, declined to be interviewed for this article. But Donald Korb, a former chief counsel at the IRS, made his objections to the program known in a 2010 interview in Tax Notes, a scholarly chronicle of all things tax. ''The new whistleblower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system,'' he said. ''It is unseemly … to encourage people to turn in their neighbours and employers to the IRS, as contemplated by this program. The IRS didn't ask for these rules; they were forced on it by Congress.''
Read more: http://www.smh.com.au/business/the-us-taxman-and-tax-evaders-alike-are-averse-to-paying-up-20140209-329ql.html#ixzz2stNGlhmR
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