Offshore Tax Violations: Sen. Grassley Calls For Accounting of Use of UBS Information Provided by Tax Whistleblower

Offshore tax evasion is a great priority for the IRS, and thus also the IRS Whistleblower Program.

Today, the leading advocate for robust whistleblower laws has called for the Treasury Department and the IRS to account for their use of information provided by the “UBS whistleblower,” Bradley Birkenfeld.

Sen. Chuck Grassley issued a press release today summarizing his letter to Treasury Secretary Tim Geithner and IRS Commissioner Douglas Shulman. Grassley commented on Swiss legislators’ move today to “unravel a U.S.-Swiss treaty that would allow for the disclosure of more client information to allow U.S. officials to review cases for potential enforcement of U.S. tax laws.”

“The action by Swiss legislators today to try to unravel an international treaty emphasizes the need for U.S. authorities to exhaust the information they have on U.S. taxpayers who use offshore accounts to evade taxes,” Grassley said. “Honest taxpayers deserve to know what’s happened with what could be very valuable leads, and if it’s nothing, they deserve to know why. It’s a matter of tax fairness and law enforcement. And the IRS shouldn’t wait for international agreements to fall into place when tax evaders can be identified through other appropriate tools.”

Grassley did not advocate for the UBS whistleblower’s release from federal prison, however, but focused on the government’s use of the information he provided. (See prior discussions of the UBS whistleblower’s case here).

Grassley, more than anyone, is responsible for passage of the December 2006 legislation that created the first meaningful IRS Whistleblower Program. The promising new IRS Whistleblower Program was inspired by the great successes of the nation’s primary whistleblower statute for exposing fraud, the False Claims Act.

Sen. Grassley’s announcement and letter today are reprinted below:

U.S. Sen. Grassley: Seeks accounting of treasury, IRS’ use of whistleblower information on potential tax evasion 6/8/2010

For Immediate Release

Tuesday, June 8, 2010

WASHINGTON — Senator Chuck Grassley today asked the Treasury secretary and IRS commissioner for an accounting of what U.S. government officials have done with information provided more than three years ago by a whistleblower regarding tax evasion. The U.S. Department of Justice acknowledged that former UBS employee Bradley Charles Birkenfeld’s information was pivotal in exposing a multi-billion dollar international tax evasion scandal involving a private Swiss bank, yet it may be that the IRS is doing very little with the information yielded from this effort.

Grassley said the information provided by Birkenfeld includes the names of UBS AG employees and their e-mail addresses and cell phone numbers, which could be used to identify their clients in the United States. Swiss legislators today took a step to unravel a U.S.-Swiss treaty that would allow for the disclosure of more client information to allow U.S. officials to review cases for potential enforcement of U.S. tax laws.

“The action by Swiss legislators today to try to unravel an international treaty emphasizes the need for U.S. authorities to exhaust the information they have on U.S. taxpayers who use offshore accounts to evade taxes,” Grassley said. “Honest taxpayers deserve to know what’s happened with what could be very valuable leads, and if it’s nothing, they deserve to know why. It’s a matter of tax fairness and law enforcement. And the IRS shouldn’t wait for international agreements to fall into place when tax evaders can be identified through other appropriate tools.”

In December 2006, as chairman of the Senate Finance Committee, Grassley won enactment of his proposal to make the IRS whistleblower program more effective than before in cracking down on tax cheats and collecting taxes owed to the Treasury. Improvements included offering more generous financial incentives to whistleblowers. Since then, he has monitored implementation of the improvements and urged expedient, effective handling of whistleblower information.

Grassley was the lead Senate author of the 1986 whistleblower amendments strengthening the federal False Claims Act, which have become one of the nation’s strongest tools to identity and prevent fraud against the Treasury. To date, those provisions have helped to recover $22 billion for the federal Treasury that otherwise would have been lost to fraud. The False Claims Act does not cover tax fraud; hence the need for an effective IRS whistleblower office. Additionally, Grassley succeeded in getting enacted a federal incentive for states to adopt whistleblower provisions as part of state laws on false claims as part of the Deficit Reduction Act of 2005.

The text of today’s letter follows here.

June 8, 2010

The Honorable Timothy F. Geithner

Secretary of the Treasury

Department of the Treasury

1500 Pennsylvania Avenue

Washington, DC 20220

The Honorable Douglas L. Shulman

Commissioner

Internal Revenue Service

1111 Constitution Avenue NW

Washington, DC 20224

Dear Secretary Geithner and Commissioner Shulman:

I am writing to express my concern about continued tax evasion by taxpayers using secret Swiss bank accounts, particularly accounts at UBS AG. Swiss lawmakers voted today to block the treaty the United States hammered out with Switzerland last year. While I understand that today’s vote in the lower chamber of the Swiss Parliament is not the final word, I am worried that the Internal Revenue Service (“IRS”) is doing next to nothing to identify tax evasion by U.S. taxpayers utilizing these accounts while waiting for ratification of the treaty.

It has been over three years since Mr. Bradley Charles Birkenfeld approached the Department of Justice, IRS and the Securities and Exchange Commission about potential tax evasion facilitated by UBS AG on behalf of U.S. clients. The attached letter from Mr. Birkenfeld’s attorneys outlines a number of steps that the IRS could have taken with the information he provided in March 2007. It seems this information would allow the IRS to trace individuals in the U.S. that had UBS bank accounts. In addition, this letter also provides information about UBS USA, a wholly-owned subsidiary of UBS AG, and its involvement in UBS AG activities here in the U.S.

Using this information to identify U.S. clients would appear to be more productive than simply pursuing agreements and treaties with the Swiss, especially since those avenues seem limited to specific individuals. It does not appear that you would need a treaty, or other agreement with the Swiss government, to pursue the records of UBS USA.

As a result, I would like a detailed listing of all steps IRS has taken with the information that Mr. Birkenfeld provided. Please note that I am not asking for information about any individual taxpayer so I do not expect section 6103 to preclude you from responding to my request. I would also like to know what IRS is doing to ensure that, if and when it receives a complete list of UBS AG account holders, the IRS will not be precluded by the statute of limitations from auditing those individuals.

Today’s vote in Switzerland only underscores the need for the IRS to encourage whistleblowers to come forward. Mr. Birkenfeld blew the whistle on just one bank. What is the IRS doing to encourage more whistleblowers to come forward about offshore bank accounts?

I appreciate your prompt attention to this matter and ask for a written response by June 18, 2010. Please contact me or my staff at (202) 224-4515 with any questions.

Sincerely,

Chuck Grassley

Ranking Member

Enclosure