U.S. sees tips rise on tax cheats

WASHINGTON (Reuters) - The number of whistleblowers reporting big-money tax cheats has accelerated dramatically in recent years, according to government data released on Thursday.

A December 2006 law boosted rewards for those giving key information on cases involving evasion of $2 million and more, and made such rewards mandatory.

The U.S. Internal Revenue Service’s whistleblower office, created under the law, received data on potential tax evasion by 1,246 wealthy Americans and businesses in fiscal 2008 -- an average about 100 per month.

In prior years, the agency received roughly 10 to 20 tips per month, an agency official said.

Of 994 claims in 2008 that included specific amounts of tax evasion, 228 alleged underpayment of $10 million or more, while 64 alleged underpayment of $100 million or more.

“To me this says the law is working in bringing in major claims with significant dollar amounts,” said Dean Zerbe, who counsels whistleblowers and was formerly tax counsel for Senator Charles Grassley, a Republican Senator who sponsored of the law.

Previously, the IRS set reward amounts ranging from 1 percent to 15 percent of money recovered. Under the new law, the IRS will pay at least 15 percent but no more than 30 pct.

However, the government is yet to pay a whistleblower under the new law.

The IRS report said many of the cases involve extensive documentation, and it is too early to tell the veracity of the claims.

Zerbe criticized the time lag and warned the number of whistleblowers could decline.

“The real concern is that there has not been a single award... the wind is beginning to come out of the sails of this program,” he said.

The law is broadly supported, but critics say some informants have not been treated well.

Bradley Birkenfeld, a former UBS AG banker who provided the U.S. government with key details to win a $780 million settlement against UBS AG, has been sentenced to three years and four months in prison despite his cooperation and government pleas for a reduced sentence.

Birkenfeld, represented by Zerbe, said he once smuggled diamonds for a UBS client into the United States in a toothpaste tube.

Reporting by Kim Dixon; Editing by Tim Dobbyn