Page 2 - An Overview of the IRS’s Whistleblower Program

interest, and penalties (excluding criminal involved in the tax noncompliance, and or has already taken. Furthermore, it often
fines) recovered by the IRS as a result of whether the whistleblower directly or indi- takes years before a whistleblower is issued
the information received, or up to 10% rectly profited from the underpayment of an award, and if the IRS is unable to col-
where the informant provided “less sub- tax or tax noncompliance. lect from the offending taxpayer, the
stantial contribution” [IRC section The starting point for the Whistleblow- whistleblower will not receive any award,
7623(b)(1)-(2)]. Amounts collected subject er Office’s award analysis will be the statu- regardless whether the information pro-
to the whistleblower reward include crim- tory minimum of 15% of collected pro- vided directly resulted in a civil examina-
inal restitution for tax ordered by the court. ceeds. Then, the Whistleblower Office may tion or criminal indictment. The IRS
No award will be given, however, to a increase the award percentage to 22% or Whistleblower Office has also been criti-
whistleblower whose information leads to 30% based on its analysis of the presence cized for asserting hypertechnical argu-
a denial of a refund claim. and significance of positive factors. Next, ments in order to deny awards to whistle-
The new award incentives under IRC the Whistleblower Office may decrease that blowers who may have put themselves at
section 7623(b) are available only in cases enhanced award percentage based on its personal risk for the public good.
where the tax liability, penalties, and inter- analysis of the presence and significance More communication and interaction
est uncovered as a result of the informant’s of negative factors. Using this approach, with whistleblowers and their representa-
tip exceed $2 million and where the tar- the Whistleblower Office will determine tives would be a very important improve-
get taxpayer has annual gross income awards of 15%, 18%, 22%, 26%, or 30% ment for the IRS Whistleblower Office.
exceeding $200,000 for any taxable year of collected proceeds. This analysis cannot In the author’s opinion, the IRS should
subject to the whistleblower claim [IRC be reduced to a single mathematical equa- welcome the help of whistleblowers; it
section 7623(b)(5)]. If either of these mon- tion, as factors are not exclusive and not should make use of whistleblowers’ exper-
etary thresholds is not met, the informant weighed; the absence of negative factors tise and their intimate knowledge of the
is limited to the 15% discretionary award does not necessarily mean that the award facts at issue, and—in limited circum-
available under IRC section 7623(a). The percentage will be larger than 15%. stances—even allow whistleblowers to
amount and payment of discretionary assist the IRS in their investigations. q
awards under section 7623(a) for infor- Payment of Whistleblower Awards
mation received prior to August 12, The payment of whistleblower awards
2014, will be paid under the rules provided will not be made until all taxes, penalties, Juliet L. Fink, JD, is an attorney at Koste-
in Chapter 25 of the Internal Revenue interest, additions to tax, as well as addi- lanetz & Fink, LLP, New York, N.Y. Her
Manual. tional amounts that are ultimately deter- practice focuses on federal and state crim-
Treasury Regulations section 301.7623- mined to be owed to the IRS, have been inal and civil tax matters.
4, which contains the rules for determin- collected. This often takes several years.
ing the amount and payment of awards, The Whistleblower Office confirms that
applies to claims for awards under IRC whistleblower awards issued less than three
section 7623(b) that are open as of August years after submission of information are
12, 2014, as well as information submit- extremely rare. Currently, the IRS Whistle-
ted after that date. Treasury Regulations blower Office is testing a proposal to eval-
section 301.7623-4(b) provides positive uate the benefits and costs of providing
and negative factors to be considered annual status information on open whistle-
when determining where in the award blower claims. Under the pilot proposal,
range a whistleblower award should fall. beginning in March 2015, the Whistle-
Positive factors include whether the blower Office will send letters to a random
whistleblower provided prompt notifica- sample of whistleblowers who have claims
tion of the noncompliance; whether the that have been open for at least three years,
whistleblower identified an issue or trans- informing them that the IRS still has their
action of a type not previously known to claim under consideration.
the IRS; whether the whistleblower pro-
vided the information in clear and orga- Outstanding Issues
nized manner, such that it saved the IRS Despite recent amendments and
work and resources; whether the infor- improvements to the IRS’s whistleblower
mation provided identified assets of the program, many issues still plague the
taxpayer that could be used to pay liabil- Whistleblower’s Office. Whistleblowers
ities; and whether the information pro- often submit extensive documentation to
vided identified taxpayer behavior that the the IRS Whistleblower Office, but subse-
IRS was unlikely to identify. Negative quently live in an information vacuum for
factors include whether the whistleblow- years: Following a submission, the IRS will
er delayed providing information to the not provide whistleblowers with any infor-
IRS, whether the whistleblower was mation regarding actions it is considering

MAY 2015 / THE CPA JOURNAL 41