Page 1 - Current Overview of the IRS’s Whistleblower Program

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COLUMNS I Tax Practice & Procedure

Current Overview of the IRS’s

Whistleblower Program

By Juliet L. Fink

ection 7623 of the Internal Revenue Code (IRC) allows satisfy a tax liability incurred because of the information
for the payment of financial awards to those who blow the provided.”
Swhistle on individuals or corporations that have deliberately The Treasury Department asserted in the regulations, however,
underreported or underpaid their taxes. Such awards are based on that collected proceeds were limited to amounts “collected under
the amount ultimately paid in such cases. This article explains the the provisions of Title 26, United States Code,” and thus did not
details of the whistleblower award program, including recent leg- include money collected as a result of criminal fines or forfeitures
islation and litigation that affect whistleblowers and their claims. or money collected as a result of Report of Foreign Bank and
Financial Accounts (FBAR) penalties, since such penalties are
How to Initiate a Whistleblower Claim not administered under Title 26.
Applications for whistleblower awards are made by submitting In February 2018, Congress amended IRC section 7623 to clarify
IRS Form 211, Application for Reward for Original Information, that criminal fines and forfeitures, as well as money collected under
to the IRS Whistleblower Office. the FBAR statute, constitute collected
Among other information, the proceeds for purposes of the whistle-
whistleblower must provide— blower statute. Congress did so by
n specific and credible information creating a new subsection (c) to the
regarding the taxpayer or entities that statute, which refines the term “col-
the whistleblower believes have lected proceeds” to include “(1) penal-
failed to comply with tax laws and ties, interest, additions to tax, and addi-
that will lead to the collection of tional amounts provided under the
unpaid taxes; internal revenue laws, and (2) any
n supporting documentation (e.g., proceeds arising from laws for which
books, records) to substantiate the the Internal Revenue Service is autho-
claim, or a description of such doc- rized to administer, enforce, or inves-
uments and their location if not in tigate, including (A) criminal fines
the whistleblower’s possession; and civil forfeitures, and (B) violations of reporting requirements.”
n a description of how the information forming the basis of the
claim came to the whistleblower’s attention, how it was acquired, Determining the Amount of a Whistleblower Award
and the whistleblower’s relationship to the taxpayer; and Mandatory award incentives under IRC section 7623(b) are
n the facts supporting the amount the whistleblower claims is owed. available only in cases where the tax liability, penalties, and
interest uncovered as a result of the informant’s tip exceed $2
‘Collected Proceeds’ Subject to Award million and where the target taxpayer has annual gross income
Under IRC section 7623(b), the IRS is required to award exceeding $200,000 for any taxable year subject to the whistle-
an informant at least 15% and as much as 30% of the “col- blower claim [IRC section 7623(b)(5)]. If either of these mon-
lected proceeds” or settlement from any resulting enforce- etary thresholds is not met, the informant is limited to the 15%
ment action, or up to 10% where the informant provided a discretionary award available prior to the Tax Relief and Health
“less substantial contribution” [IRC section 7623(b)(1)-(2)]. Care Act of 2006. The amount and payment of discretionary
“Collected proceeds” was defined in the 2014 Treasury awards under section 7623(a) for information received prior to
Regulations to include “tax, penalties, interest, additions to August 12, 2014, will be paid under the rules provided in Chapter
tax, and additional amounts collected because of the infor- 25 of the Internal Revenue Manual.
mation provided; amounts collected prior to receipt of the Treasury Regulations section 301.7623-4, which contains the
information if the information provided results in the denial rules for determining the amount and payment of awards, applies
of a claim for refund that otherwise would have been paid; to claims for award under section 7623(b) that are open as of
and a reduction of an overpayment credit balance used to August 12, 2014, and to information submitted after that date.

58 MARCH 2020 / THE CPA JOURNAL