IRS Whistleblower Program (2014)

Agency decision

Ask Donna

What actually matters in this document.

Text

IRS Whistleblower Program

Annual Report to the Congress

Fiscal Year 2013

Publication 5241 (Rev. 4-2014) Catalog Number 68435Z Department of the Treasury Internal Revenue Service www.irs.gov

Fiscal Year 2013 Report to the Congress

on the Use of Section 7623

Table of Contents

II.

III.

IV.

VI.

Executive Summary.............................................................................................. 1

Program History.................................................................................................... 2

Prior Law and Policy .................................................................................. 2

2006 Amendments..................................................................................... 3

Program Developments........................................................................................ 3

Staffing....................................................................................................... 3

Program Guidance..................................................................................... 4

Program Operations................................................................................... 4

Outreach and Communications ................................................................. 6

Administrative Priorities and Issues...................................................................... 6

Appendices......................................................................................................... 10

Revised Section 7623 and other provisions of law ............................................. 11

Table 1: Claims Received, by Fiscal Year of Receipt. ........................................ 14

Table 2: Fiscal Year 2013 Receipts, by Operating Division................................ 15

Table 3: Fiscal Year 2013 Closures, by Fiscal Year of Receipt .......................... 16

Table 4: Current status for open 7623(b) claims................................................. 18

Table 5: Days in current status for open 7623(b) claims .................................... 20

Table 6: Awards Paid, Fiscal Years 2009 to 2013 .............................................. 21

FY 2013 Report to Congress on the Use of Section 7623

Executive Summary

The Tax Relief and Health Care Act of 2006 (the Act) enacted significant changes in the

IRS award program for whistleblowers. For information provided to the IRS after

December 19, 2006, new section 7623(b) of the Internal Revenue Code (the Code)

generally requires the IRS to pay awards if information an individual provides

substantially contributes to the collection of tax, penalties, interest, and other amounts

when the amounts in dispute are more than $2,000,000. The law set award ranges

based on percentages of the collected proceeds, and established a Whistleblower

Office within the IRS to administer those awards.

The Secretary of the Treasury must conduct an annual study and report to Congress on

the use of section 7623 and the results obtained, and include any legislative or

administrative recommendations for section 7623 and its application (section 406(c) of

the Act). This report discusses program activities for fiscal year (FY) 2013. It includes a

review of the law and regulations applicable to whistleblower awards, changes made in

program administration since the Act, a description of internal and external program

guidance, administrative priorities, and data on awards paid.

The primary purpose of the Act was to encourage people with knowledge of significant

tax noncompliance to provide that information to the IRS. The IRS continues to receive

submissions from whistleblowers, many of whom claim to have inside knowledge of the

transactions they are reporting. They often provide extensive documentation to support

their claims.

The IRS pays awards from collected proceeds which result from an audit or

investigation. Because payments are not made until the taxpayer has exhausted all

appeal rights and the statutory period for the filing of a claim for refund has expired or

been waived by the taxpayer, the IRS may not make payments for several years after

the whistleblower has filed the claim. The IRS paid the first awards under the 2006

amendments in FY 2011, and continued to do so since then; however, most of the

awards paid during FY 2013 resulted from claims filed under the prior law.

II.

Program History

Prior Law and Policy

The IRS has had the authority to pay awards to whistleblowers for many years. What is

now section 7623(a) 1 of the Code has its origins in legislation Congress enacted in

1867. The original law provided the Secretary with the authority “to pay such sums as

he deems necessary for detecting and bringing to trial and punishment persons guilty of

violating the internal revenue laws or conniving at the same.” Before 1996, the IRS

made payments from appropriated funds. In 1996, section 1209 of the Taxpayer Bill of

Rights 2 (PL 104-168) expanded the purposes for which the IRS may pay awards,

adding “detecting underpayments of tax” as a basis for making an award and changed

the source of funds from IRS operating funds to proceeds of amounts collected from the

taxpayer (other than interest). 2

Before the 2006 amendments to section 7623, awards to whistleblowers were

discretionary, and IRS policy determined the amount. 3 The policy provided a framework

for assessing the contribution of the information to the collection of proceeds from a

taxpayer, and allowed for awards of 1 percent, 10 percent, or 15 percent of proceeds.

The published policy set a cap on awards at $10,000,000, but the IRS waived this cap

from time to time under “special agreements” with a whistleblower.

The Internal Revenue Manual (IRM) provided several grounds for rejecting a claim for

award, including participation in the evasion scheme that was the subject of the report

the whistleblower provided. Other common reasons for rejecting claims included:

•

The information provided was of no value 4.

•

The IRS already had the information or the information was available in public

records.

•

No collection of taxes and penalties existed from which the IRS could pay an

award.

The 2006 amendments re-designated the prior section 7623 as section 7623(a), added new provisions

as section 7623(b), and included program administration requirements that were not incorporated into the

Internal Revenue Code. The appendix to this report reprints section 7623, as amended, as well as

additional provisions in the Act that Congress did not incorporate into the Code.

The IRS has separate authority to pay informant expenses from appropriated funds available for

confidential criminal investigation expenditures. The IRS makes those payments under authorities

delegated to Criminal Investigation and they are not within the scope of the Whistleblower Office or this

report to Congress.

Regulations implementing what is now section 7623(a) appear at Code of Federal Regulations Title 26,

section 301.7623-1. The last version of the policy issued prior to the 2006 amendments was published in

2004, as Policy Statement P-4-27. The policy was revised in FY 2010, through revisions of the Internal

Revenue Manual that were described in the FY 2010 Annual Report. The FY 2010 Annual Report can be

found at http://www.irs.gov/pub/whistleblower/annual_report_to_congress_fy_2010.pdf .

The information might be of no value because it did not provide a sufficient basis for initiating an

examination or investigation of the issue presented, or because the examination resulted in a “no change”

finding.

2006 Amendments

The Tax Relief and Health Care Act of 2006 (section 406) (PL 109-432) created section

7623(b) of the Code. This section set a new framework for the consideration of

whistleblower submissions and established the Whistleblower Office within the IRS to

administer that framework. Operating at the direction of the Commissioner of the IRS,

the Whistleblower Office coordinates with other divisions of the IRS, analyzes

information submitted, and makes award determinations. The statute provides that the

Whistleblower Office may investigate the claim itself or assign it to the appropriate IRS

office for investigation. The Whistleblower Office does not currently investigate claims

itself.

A whistleblower must meet several conditions to qualify for the section 7623(b) award

program. 5 To qualify for a whistleblower award, the information must:

•

Relate to a tax noncompliance matter in which the tax, penalties, interest,

additions to tax, and additional amounts in dispute exceed $2,000,000; and

•

Relate to a taxpayer, and for individual taxpayers only, one whose gross income

exceeds $200,000 for at least one of the tax years in question.

If the information meets the above conditions and substantially contributes to a decision

to take administrative or judicial action that results in the collection of tax, penalties,

interest, additions to tax, or additional amounts, the IRS will pay an award of at least 15

percent, but not more than 30 percent, of the collected proceeds resulting from

administrative or judicial actions (including related actions), or from any settlement in

response to an administrative or judicial action. The maximum award percentage

decreases to 10 percent for cases based principally on specific allegations disclosed in

certain public information sources (such as government audit reports). The

Whistleblower Office also can reduce the percentage if the whistleblower planned and

initiated the actions that led to the underpayment of tax. Individuals may appeal the

Whistleblower Office’s award determinations under section 7623(b) to the U.S. Tax

Court.

III.

Program Developments

Staffing

At the beginning of FY 2013, the Whistleblower Office staff of 36 included 12 senior

analysts with decades of experience in a broad array of IRS compliance programs. In

addition, the IRS Office of Chief Counsel has appointed a senior attorney to serve as

Special Counsel to the Director of the Whistleblower Office. The Special Counsel

provides legal advice to the Director and coordinates support provided by other Chief

Counsel offices. At year end, the total staff of the Whistleblower Office was 39

(reflecting a net increase of 3 senior analysts), and it was actively recruiting four

additional staff members.

If the submission does not meet the criteria for section 7623(b) consideration, the IRS may consider it

for an award under the pre-Act discretionary authority (what is now section 7623(a) of the Code).

Program Guidance

On December 18, 2012, a Notice of Proposed Rulemaking was published in the

Federal Register 6. The proposed regulations provide a comprehensive framework for

receipt of whistleblower submissions, evaluation of the contribution of whistleblower

information to IRS actions, and determination of awards under section 7623. Among

other topics, the proposed regulations provide definitions of key terms, eligibility criteria,

evaluation criteria, and payment procedures. Written public comments were submitted

through February 19, 2013, followed by a hearing on April 10, 2013. Final regulations

are expected to be published in the second quarter of FY 2014.

Program Operations

The Whistleblower Office evaluates the submissions it receives to determine whether

the information offered may materially contribute to the assessment or collection of

unpaid taxes, penalties, interest, or other amounts. If an audit or investigation is

conducted based on the information a whistleblower provides, the Whistleblower Office

will determine whether an award is payable under either 7623(a) or 7623(b) and the

amount of any award.

In FY 2011, the Whistleblower Office paid the first claims under section 7623(b). Since

then, nine claims have been paid under the revised law. Taxpayer privacy laws do not

permit the publication of data on specific claims unless there has been a waiver of

privacy rights, and allow reporting on consolidated data only when the number of claims

paid is large enough to produce a statistical report.

The number of payments made under the section 7623(b) program is not projected to

grow dramatically in FY 2014. As discussed, it typically takes five to seven years to

analyze, investigate and/or audit, and collect proceeds. At each stage in the tax

administration process, taxpayers have rights to challenge IRS findings, including

administrative and judicial appeals. The incentive for taxpayers to exercise those rights

increases as the amounts in dispute get larger, which can mean a longer timeline for

whistleblower submissions alleging larger dollar noncompliance.

Table 1 in the Appendix provides current and historical information on claims received,

including the total number of claims received for each fiscal year and the number of

those claims that are open. As a general rule, the number of claims represents the

number of taxpayers identified in submissions, so that a submission identifying 100

taxpayers is counted as 100 claims. Record keeping procedures for claims received

prior to FY 2007 varied. The pre-2007 column includes data recorded in the

Whistleblower Office tracking system, and does not capture all claims submitted during

those years. It does, however, account for all open claims for those years.

Table 2 in the Appendix provides data on all submissions and claims received in FY

2013. In previous annual reports, the IRS reported only the number of claims received

that were designated as potential 7623(b) claims—those that appeared to have the

potential to meet the $2 million amount in dispute threshold. As was explained in the

https://www.federalregister.gov/articles/2012/12/18/2012-30512/awards-for-information-relating-to

detecting-underpayments-of-tax-or-violations-of-the-internal

FY 2012 Annual Report, the designation as a “potential 7623(b) claim” is unreliable,

because it requires speculation on the results of IRS actions involving one or more

taxpayers that will often not be known for years. This report identifies the IRS operating

divisions to which the claims are assigned for review and action, which provides more

useful information on where the work is being done within the IRS. The “potential

7623(b) claim” designation was still in use during FY 2013, so that data is included in

Table 2.

Matters involving taxpayers with assets of more than $10 million are under the

jurisdiction of the Large Business and International Division, while matters involving

businesses and individuals that do not meet that threshold are typically assigned to the

Small Business/Self-Employed Division. These two operating divisions receive the vast

majority of whistleblower claims. Criminal Investigation receives referrals from the

operating divisions if developments during an examination indicate potential criminal

violations, as well as a limited number of direct referrals from the Whistleblower Office.

Table 3 in the Appendix identifies claims closed in FY 13, including the year of receipt

and the reason for closure. As with Table 1, pre-2007 receipts are consolidated.

Closure reason definitions changed in late FY 12, permitting the Whistleblower Office to

collect more detailed information on the reasons for claim denial. Arraying the data by

fiscal year of claim receipt shows that the largest number of award paid-in-full cases

was for claims received in 2009, consistent with the admonition to whistleblowers that

awards are typically not paid until five to seven years after receipt of the submission.

Claims closed in the year of receipt or the subsequent year accounted for 78% of

closures. The most common reasons for denial were unclear or non-specific

allegations, issues that were below the threshold for IRS actions, and allegations that

did not identify a tax issue.

Tables 4 and 5 provide current status information for claims that were designated as

potential 7623(b) claims. As is noted above, the designation as potential 7623(b) claims

is unreliable, as it requires speculation on actions that can take years to complete.

Future reports will focus on status of claims based on operating division assignment, but

the transition in data collection and verification necessary to make this change is still in

process.

Table 6 in the Appendix provides current and historical information on claims paid. The

number and amount of awards paid each year can vary significantly, especially when a

small number of high-dollar claims are resolved in one year. In FY 2013, the IRS paid

122 awards, totaling $55 million. As in previous years, most of the awards paid were

based on claims covered by the pre-2006 law. The IRS has paid nine awards under the

2006 amendments since 2011, but the number for each year has not been segregated

from other award payments to protect taxpayer and whistleblower privacy.

In April 2013, the Whistleblower Office issued a notice regarding the impact of the

Balanced Budget and Emergency Deficit Control Act of 1985, as amended. This law

required reductions in expenditures, also known as “sequestration,” starting

March 1, 2013. As applied to payments under section 7623, the required reductions

were 8.7 percent of the amount that would otherwise have been payable. Reductions

totaling $464,706 were applied to awards paid on or after March 1, 2013.

Outreach and Communications

The IRS has developed a communications plan to address outreach to both the public

and IRS personnel on changes in the whistleblower program. The plan includes efforts

to identify opportunities for improvement and potential barriers to change.

The Whistleblower Office maintains a page on the IRS Intranet to make information

available to IRS personnel, and provides articles for internal newsletters and speakers

for professional education events to reach employees who are most likely to deal with a

whistleblower case.

A dedicated page on the public website, www.irs.gov 7, contains information for the

public about the purpose of the Whistleblower Program, how to make a submission, and

what to expect after making a submission, as well as links to Notice 2008-4 and Form

211. The Whistleblower Office makes presentations describing program developments

and to obtain outside perspectives on the program to professional groups involved in

the representation of taxpayers and whistleblowers, including Taxpayers Against Fraud

and the American Bar Association Tax Section. The Whistleblower Office has also

been consulted by other federal agencies and the tax administration agencies of other

nations, as they evaluate options for establishing their own whistleblower award

programs.

IV.

Administrative Priorities and Issues

The Whistleblower Office continues to work with the IRS Office of Chief Counsel and

Treasury Department to develop appropriate administrative program guidance. Based

on the Whistleblower Office’s experiences in administering the whistleblower program

since its formation in 2007, the IRS has identified several areas it believes should be

addressed through administrative guidance and as well as other issues.

A. Administrative Priorities

1. Guidance

A top priority is to update formal published guidance for section 7623. As is noted in

the previous section, the IRS has proposed comprehensive regulations that will

revise the current regulations implementing section 7623 to reflect the 2006

amendments to the statute. Final regulations are expected to be published in the

second quarter of FY 2014.

B. Other Issues of Interest

A number of additional issues exist in the administration of the Whistleblower Program.

1. Rules on access to and disclosure of taxpayer information could provide

stronger protection for taxpayers. A whistleblower can appeal any

determination on an award under section 7623(b)(1), (2), or (3) of the Code to

the Tax Court (section 7623(b)(4) of the Code). A meaningful right to appeal

http://www.irs.gov/compliance/article/0,,id=180171,00.html

to Tax Court requires disclosure to the whistleblower of the basis for the award

determination, which often will include taxpayer information that is protected

from disclosure under section 6103. Consistent with section 6103(h), the IRM

and the proposed regulations provide for disclosure of taxpayer information by

the IRS to the whistleblower if the whistleblower enters into a confidentiality

agreement and agrees not to disclose the information other than as permitted

in that agreement.

The FY 2010 Annual Report noted two concerns regarding the disclosure of

taxpayer information to the whistleblower as part of an award determination.

First, current law does not provide an effective sanction if the whistleblower

discloses taxpayer information in violation of the confidentiality agreement and

section 6103(h). Second, the whistleblower may, against the wishes of the

taxpayer, disclose the identity of the taxpayer in a Tax Court or other judicial

proceeding. The taxpayer is not a party to any dispute between the IRS and a

whistleblower over eligibility for or the amount of an award under section 7623,

but in the past both pleadings and court decisions in these cases routinely

included details about the taxpayer. This second concern was addressed in a

revision to Tax Court rules, which now require that taxpayer information be

masked in documents filed with the Court. However, release of information

during discovery in Tax Court proceedings is not addressed in the new rules

and has brought a new set of concerns.

In cases brought before the Tax Court, whistleblowers who challenge IRS

decisions on their award claims continue to raise questions about the separate

decisions made regarding the taxpayer’s liability, and seek information through

pre-trial discovery on those decisions. While the Tax Court has ruled in a few

cases that its jurisdiction to consider whistleblower award claim appeals does

not include the authority to order IRS action with respect to taxpayer liability,

the scope of permitted discovery is still an open question. The ability of the

IRS to successfully resist overbroad or otherwise improper whistleblower

discovery requests related to taxpayer liability issues is unclear and an area of

concern. There appears to be no effective sanction, and no effective restraint,

when a whistleblower obtains confidential taxpayer information in discovery

and chooses to release that information to the public. 8 It is fundamentally

unfair to the taxpayer, whose issues with the IRS have been fully resolved, to

have confidential information revealed in a case where the taxpayer is not a

party and has no interest—other than in the protection of its private taxpayer

information. The President’s Budget for FY 2014 included a legislative

proposal to address this issue.

2. The law does not provide for whistleblower protection. 9 Unlike other laws

that encourage whistleblowers to report information to the government, section

7623 does not prohibit retaliation against the whistleblower. When the

This issue was included in the FY 2010 report.

whistleblower is an employee of the taxpayer, retaliation can take the form of a

job-related action. In other cases, whistleblowers may face threats of physical

harm or damage to economic interests. In such cases, whistleblowers reporting

information under section 7623 may have recourse under state law, but federal

law does not appear to provide a remedy. The President’s Budget for FY 2014

included a legislative proposal to address this issue.

The IRS has, as a matter of policy and as an application of section 6103,

committed to protect a whistleblower’s identity, and even the fact that the

agency received whistleblower information in a particular case. This

commitment is qualified; however, as the IRS tells whistleblowers it may identify

them if they are an essential witness in a judicial proceeding or if ordered to do

so by a court of competent jurisdiction. Despite the IRS’s commitment to protect

whistleblower identities, litigation has highlighted a tension between the IRS’s

commitment to whistleblowers and its obligations in civil discovery. Certain

litigants have sought information on informant involvement in tax matters even in

cases where the government did not identify the whistleblower as a potential

witness at trial. The appropriate response to such a request should be to

neither confirm nor deny informant involvement, because a truthful denial in

some cases will allow individuals to draw a conclusion in other cases. The

authority to take this approach is premised in case law, however, and an

adverse ruling on a discovery request could open the door to fishing expeditions

to identify whistleblower involvement and targeted requests to determine

whether particular individuals made whistleblower submissions.

3. There are statutory and computational limitations to determining what

constitutes “collected proceeds.” The FY 2010 Annual Report highlighted

issues related to the definition of collected proceeds. Taxpayer audits and

investigations are sometimes resolved in a manner that does not result in

collected proceeds from which an award may be paid. This can occur when the

taxpayer has a net operating loss carryback or carry forward. In addition, if a

taxpayer is prosecuted for a criminal violation of the internal revenue laws, a

sentence after conviction may include fines. Criminal fines are not available to

pay awards under section 7623 because the Victims of Crime Act (42 U.S.C.

section 10601 et seq.) requires that all criminal fines be deposited in the Victims

of Crime Fund.

The Whistleblower Office has identified another area where recoveries from

taxpayers cannot be used to pay awards under section 7623. The IRS is

responsible for administering internal revenue laws under Title 26 of the United

States Code. The IRS has also been delegated responsibility to administer

other laws, such as those related to the Bank Secrecy Act and Foreign Bank

Account Reports (FBARs). The IRS has used FBAR penalties as an important

component in its efforts to combat use of offshore bank accounts to evade U.S.

tax obligations. However, those laws appear in Title 31 of the United States

Code, which also provides for a separate award program for information that

leads to the identification of violations. The authority to pay awards under

section 7623 extends only to recoveries under title 26, and does not permit

awards to be paid based on collection of FBAR penalties.

4. The dollar amount thresholds for “gross income” and “amounts in dispute”

should be clarified. 10 Section 7623(b)(5) sets two thresholds for application of

section 7623(b), which also serve to define the jurisdiction of the U.S. Tax Court

to review whistleblower award determinations. The general rule applicable to all

claims requires that “the tax, penalties, interest, additions to tax, and additional

amounts in dispute exceed $2,000,000.” The law also provides that subsection

(b) shall apply “in the case of any individual [taxpayer], only if such individual’s

gross income exceeds $200,000 for any tax year….” Because neither term is

defined in the statute, there is uncertainty in both the administration of the

whistleblower program and in determining whether the U.S. Tax Court has

jurisdiction to consider an appeal.

The “individual’s gross income” limitation was apparently included in the law to

ensure that the focus of the award program under section 7623(b) is on

relatively high income taxpayers. In the absence of a definition, the IRS must

look to other provisions of the Internal Revenue Code to determine how to

calculate “gross income.” This may require complex calculations in cases where

allocation of partnership income or other similar issues apply. The IRS

questions whether this effort is intended or justified, given that failure to satisfy

the gross income threshold generally shifts the claim from a mandatory section

7623(b) claim to a discretionary section 7623(a) claim. To the extent that the

individual income threshold was intended to provide a limit on U.S. Tax Court

jurisdiction, the practical impact appears to be limited. Few cases involving

individual taxpayers exceeding the $2,000,000 threshold do not have at least

one taxpayer whose income exceeds $200,000 or at least one taxpayer that is

not an individual.

Similar concerns pertain to the $2,000,000 “amount in dispute” threshold.

Section 7623(b)(5)(B) requires that “the tax, penalties, interest, additions to tax,

and additional amounts in dispute” must exceed $2,000,000. The term “in

dispute” is not defined in the law, the legislative history, or elsewhere in the

Internal Revenue Code, nor does the law or legislative history indicate the point

at which the amount in dispute is determined. An allegation by a whistleblower

does not create a dispute between the IRS and a taxpayer, nor does the amount

asserted by the whistleblower to be owed by a taxpayer satisfy the statutory

threshold. The IRS requires that the dispute in question be between the IRS

and one or more taxpayers (or persons who may be required to pay penalties or

“other amounts”). In cases where action is taken on multiple taxpayers as a

result of information provided by a whistleblower, the IRS aggregates the

disputed amounts of multiple taxpayers to determine whether the $2,000,000

threshold has been exceeded.

This issue was included in the FY 2010 report.

The IRS and whistleblowers would have greater certainty about the application

of section 7623(b) if the “gross income” and “amount in dispute” thresholds were

replaced by a reference to a threshold that can be reasonably ascertained, such

as the amount of collected proceeds.

5. The Whistleblower Office has limited information about the extent of the

whistleblower’s contribution in some criminal cases. 11 In some criminal

cases, information available to the Whistleblower Office on the extent of the

whistleblower’s contribution may be limited by grand jury secrecy rules. The

Whistleblower Office is not allowed to review and consider grand jury

information protected from disclosure under the Federal Rules of Criminal

Procedure, unless an exception to the secrecy rules is granted on a

case-by-case basis. Without that information, it may not be possible for the

Whistleblower Office to independently assess the extent of the whistleblower’s

contribution when making a determination regarding an award under section

7623.

VI.

Appendices

This issue was included in the FY 2010 report.

Revised Section 7623 and other provisions of law

Revised 26 USC Section 7323

TITLE 26 - INTERNAL REVENUE CODE

Subtitle F - Procedure and Administration

CHAPTER 78 - DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

Subchapter B - General Powers and Duties

Sec. 7623. Expenses of detection of underpayments and fraud, etc.

(a) In General- The Secretary, under regulations prescribed by the Secretary, is authorized to pay such

sums as he deems necessary for

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue

laws or conniving at the same,

in cases where such expenses are not otherwise provided for by law. Any amount payable under the

preceding sentence shall be paid from the proceeds of amounts collected by reason of the information

provided, and any amount so collected shall be available for such payments.

(b) Awards to Whistleblowers

(1) IN GENERAL- If the Secretary proceeds with any administrative or judicial action described in

subsection (a) based on information brought to the Secretary's attention by an individual, such

individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more

than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and

additional amounts) resulting from the action (including any related actions) or from any

settlement in response to such action. The determination of the amount of such award by the

Whistleblower Office shall depend upon the extent to which the individual substantially

contributed to such action.

(2) AWARD IN CASE OF LESS SUBSTANTIAL CONTRIBUTION

(A) IN GENERAL- In the event the action described in paragraph (1) is one which the

Whistleblower Office determines to be based principally on disclosures of specific

allegations (other than information provided by the individual described in paragraph (1))

resulting from a judicial or administrative hearing, from a governmental report, hearing,

audit, or investigation, or from the news media, the Whistleblower Office may award such

sums as it considers appropriate, but in no case more than 10 percent of the collected

proceeds (including penalties, interest, additions to tax, and additional amounts) resulting

from the action (including any related actions) or from any settlement in response to such

action, taking into account the significance of the individual's information and the role of

such individual and any legal representative of such individual in contributing to such

action.

(B) NONAPPLICATION OF PARAGRAPH WHERE INDIVIDUAL IS ORIGINAL SOURCE

OF INFORMATION- Subparagraph (A) shall not apply if the information resulting in the

initiation of the action described in paragraph (1) was originally provided by the individual

described in paragraph (1).

(3) REDUCTION IN OR DENIAL OF AWARD- If the Whistleblower Office determines that the

claim for an award under paragraph (1) or (2) is brought by an individual who planned and

initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2),

then the Whistleblower Office may appropriately reduce such award. If such individual is

convicted of criminal conduct arising from the role described in the preceding sentence, the

Whistleblower Office shall deny any award.

(4) APPEAL OF AWARD DETERMINATION- Any determination regarding an award under

paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court

(and the Tax Court shall have jurisdiction with respect to such matter).

(5) APPLICATION OF THIS SUBSECTION- This subsection shall apply with respect to any

action-

(A) against any taxpayer, but in the case of any individual, only if such individual's gross

income exceeds $200,000 for any taxable year subject to such action, and

(B) if the tax, penalties, interest, additions to tax, and additional amounts in dispute

exceed $2,000,000.

(6) ADDITIONAL RULES

(A) NO CONTRACT NECESSARY- No contract with the Internal Revenue Service is

necessary for any individual to receive an award under this subsection.

(B) REPRESENTATION- Any individual described in paragraph (1) or (2) may be

represented by counsel.

based on information submitted to the Secretary unless such information is submitted

under penalty of perjury.’

Other provisions of Section 406 of the Tax Relief and Health Care Act

of 2006

(a)(2) ASSIGNMENT TO SPECIAL TRIAL JUDGES

(A) IN GENERAL- Section 7443A(b) (relating to proceedings which may be assigned to special

trial judges) is amended by striking `and' at the end of paragraph (5), by re-designating paragraph

(6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph:

(6) any proceeding under section 7623(b)(4), and'.

(B) CONFORMING AMENDMENT- Section 7443A(c) is amended by striking `or (5)' and inserting

`(5), or (6)'.

(3) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES- Subsection (a) of section 62

(relating to general rule defining adjusted gross income) are amended by inserting after paragraph (20)

the following new paragraph:

`(21) ATTORNEYS FEES RELATING TO AWARDS TO WHISTLEBLOWERS- Any deduction

allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the

taxpayer in connection with any award under section 7623(b) (relating to awards to

whistleblowers). The preceding sentence shall not apply to any deduction in excess of the

amount includible in the taxpayer's gross income for the taxable year on account of such award.'.

(b) Whistleblower Office

(1) IN GENERAL- Not later than the date which is 12 months after the date of the enactment of

this Act, the Secretary of the Treasury shall issue guidance for the operation of a whistleblower

program to be administered in the Internal Revenue Service by an office to be known as the

`Whistleblower Office' which-

(A) shall at all times operate at the direction of the Commissioner of Internal Revenue

and coordinate and consult with other divisions in the Internal Revenue Service as

directed by the Commissioner of Internal Revenue,

(B) shall analyze information received from any individual described in section 7623(b) of

the Internal Revenue Code of 1986 and either investigate the matter itself or assign it to

the appropriate Internal Revenue Service office, and

legal representative of such individual.

(2) REQUEST FOR ASSISTANCE- The guidance issued under paragraph (1) shall specify that

any assistance requested under paragraph (1)(C) shall be under the direction and control of the

Whistleblower Office or the office assigned to investigate the matter under paragraph (1)(A). No

individual or legal representative whose assistance is so requested may by reason of such

request represent himself or herself as an employee of the Federal Government.

Congress on the use of section 7623 of the Internal Revenue Code of 1986, including-

(1) an analysis of the use of such section during the preceding year and the results of such use,

and

(2) any legislative or administrative recommendations regarding the provisions of such section

and its application.

(d) Effective Date- The amendments made by subsection (a) shall apply to information provided on or

after the date of the enactment of this Act.

Table 1: Claims Received, by Fiscal Year of Receipt.

The table below provides information on claims recorded in the Whistleblower Office

information system, by fiscal year of receipt. There are often multiple claims associated

with a single whistleblower submission, because the submission identifies more than

one taxpayer. The table includes the number of claims received each year, and the

number of those claims that were open as of the date of the report.

In 2009, the Whistleblower Office began using a new information system, and began

applying rules to account for multiple taxpayers identified in a single whistleblower

submission. The significant increase in claims from 2008 to 2009 is attributable in part

to this change in record keeping rules. The pre-2007 column includes claims that were

recorded in the new information system—it does not include pre-2007 claims that were

closed before the Whistleblower Office began using the new information system in

2009.

Claims Received By Fiscal Year of Receipt

Total

Claims

Received

Claims

Open

Pre

2007

2008

2009 2010

2011

2012

2013

1177

1463

1923 6991 13155 8084

9239

9268 51390

799

1373

1060 2025

3095

5417 22330

6253

2308

Total

Table 2: Fiscal Year 2013 Receipts, by Operating Division

Whistleblower claims are assigned to one of the IRS operating divisions or to Criminal

Investigation, based on characteristics of the taxpayers identified by the whistleblower.

For example, taxpayers with assets of more than $10 million are generally under the

jurisdiction of the Large Business and International Division, while matters related to tax

exempt bonds are under the jurisdiction of the Tax Exempt and Government Entities

Division. A claim initially assigned to LB&I, SBSE or TEGE may be referred to Criminal

Investigation if development of the case by the civil operating division reveals a potential

criminal violation. The Whistleblower Office also makes a limited number of direct

referrals to Criminal Investigation, such as cases where the allegations relate to illegal

source income or other matters where development by a civil operating division would

be unnecessary or inappropriate. The operating division is not specified for some

claims because there may be more than one operating division with responsibility for

issues identified in the submission.

The table includes data on whistleblower submissions and claims associated with those

submissions. As a general rule, multiple claim numbers are assigned when the

submission identifies multiple taxpayers. The table also identifies the claim type.

Claims listed as 7623(b) appear to have the potential to exceed the $2 million threshold

for amount that defines 7623(b) claims in the law, with all others classified as 7623(a)

claims. As has been noted in previous reports, the Whistleblower Office has concluded

that distinguishing between potential 7623(a) claims and potential 7623(b) claims during

the initial evaluation of whistleblower submissions is misleading, and is discontinuing

the practice. The actual amount in dispute cannot be known until an examination or

investigation is completed. Classification during initial evaluation based on the potential

results is speculative at best.

Fiscal Year 2013 Receipts, by Operating Division

Claim Type

Operating

Division

LB&I

SBSE

TEGE

Not Specified

Total Submission

Total Claims

7623(a)

Submissions

Claims

Submissions

Claims

Submissions

Claims

Submissions

Claims

Submissions

Claims

175

326

3090

6919

204

322

199

241

3712

7894

7623(b)

234

209

998

285

355

1578

Grand

Total

320

384

1324

3169

7204

224

367

211

257

4067

9472

Table 3: Fiscal Year 2013 Closures, by Fiscal Year of Receipt

In the summer of fiscal year 2012, the Whistleblower Office modified its information

system to capture additional information on the reasons for closing claims. The table

below reports the closing reasons for claims closed in fiscal year 2013. For all claims

other than those listed as “award paid in full,” the claim was denied.

There are sometimes multiple reasons for closing a claim, such as limited time

remaining on the applicable statute of limitations and insufficient resources to

pursue the matter because of higher priority work in the unit to which the claim is

assigned. In those cases, one reason is noted in the automated claim record

based on the facts and circumstances presented.

When a submission identifies multiple taxpayers, different closing reasons could

be applicable to different taxpayers identified in the same submission, based on

the results of IRS actions regarding each taxpayer. There may be an award paid

with respect to one taxpayer, and a “no change” result with respect to another.

The closing reasons distinguish between examinations that find no additional

taxpayer liability, and those in which a liability was found on issues other than

those identified by the whistleblower. Awards are paid if the information provided

by the whistleblower is the basis for assessment and collection of tax. When the

information provided by the whistleblower has no relevance to the assessments,

the claim is denied and the “Examination Result on Whistleblower Issues Was

‘No Change’ ” closing reason applies.

The data in this table was collected during a period of transition from old definitions to

new ones. When the Whistleblower Office found that the “other” closing reason was

used more often than expected, it provided additional training and guidance on the

information needed to properly apply the closing reason definitions. The Whistleblower

Office will continue to examine trends in closing reasons, and may adjust definitions or

add definitions to provide a more complete picture of action taken on whistleblower

information.

Reasons for Fiscal Year 2013 Closures

Reason

Award Paid in Full in

2013

Allegations Unclear/Non

Specific

Issues Below Threshold

for IRS action

Information Already

Known

Lack of Resources/Other

Priorities

Examination Result Was

“No Change”

Examination Result on

Whistleblower Issues

Was “No Change”

No Collected Proceeds

No Tax Issue

Insufficient Time

Remaining on Statute of

Limitations

Statute of Limitations

Expired Before

Whistleblower

Information Was

Submitted

Closed - Other

Total

Pre-2007

121

227

Fiscal Year of Claim Receipt

2007 2008 2009 2010 2011

2012

2013

Total

131

759

813

1807

247

618

963

554

148

847

130

217

562

135

916

195

226

333

528

235

2194

144

613

2958

234

1082

6595

104

162

Table 4: Current status for open 7623(b) claims

The chart below provides information on the status of open claims identified as

potentially exceeding the $2,000,000 threshold for section 7623(b). These claims are

identified during initial review of submissions by the Whistleblower Office, and then

forwarded to subject matter experts (SMEs) in the IRS operating divisions. The SMEs

determine whether the whistleblower information will be provided to field offices for audit

or investigation, considering the quality of the information provided, IRS enforcement

priorities and, in some cases, legal limitations on the use of the information submitted.

Once information is provided to a field office, it may be incorporated into an on-going

audit or investigation, a new audit or investigation may be started, or it may be deferred

or declined in favor of higher priority cases or issues. Upon completion of an audit or

investigation, or after a decision by an SME or a field office not to act on the information

provided by the whistleblower, the file is returned to the Whistleblower Office. The

Whistleblower Office determines whether a whistleblower is eligible for an award and, if

so, the amount of the award.

The tables below include a category called “Whistleblower Office-Case Suspended.”

Action on claims may be suspended for several reasons. These reasons include

waiting for collection action after tax has been assessed, waiting for the taxpayer to

exhaust or waive appeal rights, and waiting for action on related cases. A related case

suspension would be appropriate when a whistleblower submission identifies multiple

taxpayers, and the IRS decides to take action on some but not others. The declined

cases would be suspended until the actions on other taxpayers are resolved. Another

reason to suspend for related cases would be that actions have been completed on

some taxpayers, but the amount in dispute is below the $2,000,000 threshold for section

7623(b). Suspending action to determine whether additional actions could push the

aggregate amount in dispute over the threshold preserves the whistleblower’s potential

Tax Court appeal right. Prior to August 8, 2012 information system changes, the

Whistleblower Office could not record the reason for suspension within the information

system in a way that would permit statistical reporting. Those system changes now

permit collection and reporting on this information going forward, but require over

20,000 record changes to update previously recorded claims with the new data fields.

The table below reflects application of the additional reasons for suspension in 32

percent of the total number of suspended claims. The Whistleblower Office is

continuing to update records on the remaining claims to reflect the reason for

suspension.

Status of Open 7623(b) Claims

(as of 3/6/14)

Current Status

Submissions

Taxpayers

Whistleblowers

Claim #s

Not specified

Taxpayer has sought review by IRS

Appeals

CI Initial Review Prior to Accepting for

Investigation

Operating Division Field Examination

195

165

257

255

730

2753

554

2532

Operating Division Subject Matter Expert

Review

Whistleblower Office - Award Evaluation

111

107

Whistleblower Office - Case Suspended

125

4804

4722

Whistleblower Office - Case Suspended:

OD Evaluating Bulk Claim Involving a

Large Number of Taxpayers

Whistleblower Office - Case Suspended:

Awaiting Collection Action

Whistleblower Office - Case Suspended:

Whistleblower Litigation Regarding

Award Determination

Whistleblower Office - Case Suspended

Payment Received, Awaiting Expiration of

Statute of Limitations on Taxpayer Claim

for Refund

Whistleblower Office - Case Suspended:

Related Claims Still in Process

Whistleblower Office - Case Suspended

for Resolution of TEFRA Key Case

Whistleblower Office - Reviewing Results

of Field Action To Determine Whether

There is Sufficient Information to Make an

Award Decision

Whistleblower Office - Initial Review

508

443

201

161

173

2134

124

1984

377

674

294

621

379

378

Total

1721

12192

1320

11531

Table 5: Days in current status for open 7623(b) claims

The table below reflects the number of days in current status from the date that the

claim cleared the previous status. For example, the time that a claim is in operating

division Field Examination is measured from the date operating division subject matter

expert review was completed. The data collection used to generate this data did not

consider the possibility that a claim may not move through the process linearly. For

example, the claim reported as “longest” in operating division subject matter expert

status was transferred for consideration of a field examination after completion of a

criminal investigation.

As previously discussed, the Whistleblower Office has significantly revised the

information system to begin collecting data that will account for circumstances such

as the return of a claim for further review. Changes were also made in the definition

of the “Whistleblower Office – Award Evaluation” status, and four new

“Whistleblower Office – Suspended” statuses were added, as described in the text

accompanying Table 4. The information system revisions to reflect these changes

require manual updates to thousands of records, and are expected to be complete in

FY 2014. Table 5 does not yet reflect these changes. After these updates are

completed, future reports will more accurately capture the current time in status.

Days in Current Status, 7623(b) Claims

(as of 3/6/14)

Current Status

Taxpayer has sought review by IRS Appeals

CI Initial Review Prior to Accepting for

Investigation

Operating Division Field Examination

Operating Division Subject Matter Expert Review

Whistleblower Office - Award Evaluation

Whistleblower Office - Case Suspended

Whistleblower Office - Case Suspended: Awaiting

Collection Action

Whistleblower Office - Case Suspended:

Whistleblower Litigation Regarding Award

Determination

Whistleblower Office - Case Suspended Payment

Received, Awaiting Expiration of Statute of

Limitations on Taxpayer Claim for Refund

Whistleblower Office - Case Suspended:

Related Claims Still in Process

Whistleblower Office - Case Suspended for

Resolution of TEFRA Key Case

Whistleblower Office - Reviewing Results of Field

Action To Determine Whether There is Sufficient

Information to Make an Award Decision

Whistleblower Office - Initial Review

Average

Days

250

Longest

Days

1422

Shortest

Days

317

190

270

385

2407

1125

236

611

159

538

163

447

243

828

380

1220

469

527

263

1553

405

Table 6: Awards Paid, Fiscal Years 2009 to 2013

The table below includes data on awards paid and collections attributable to

whistleblower information in those cases. The year in which an award is paid is

generally not the year in which the collections occurred, because the IRS must wait until

the taxpayer appeal rights have been waived or exhausted. All awards paid through FY

2010 were paid under section 7623(a), the pre-amendment law governing award claims.

FY 2011 through FY 2013 awards paid include nine awards paid under 7623(b).

In FY 2013, the total award payments were reduced by $464,706, as required by the

Balanced Budget and Emergency Deficit Control Act of 1985, as amended, for awards

paid on or after March 1, 2013. The total award amount before reductions was

$53,519,630, representing 14.6% of total amounts collected.

Amounts Collected and Awards Paid under Section 7623

FY 2009-2012

2009

2010

2011

2012

2013

Awards Paid

110

128

122

Collections

over

$2,000,000

Total Amount

of Awards

Paid

$5,851,608

$18,746,327

$8,008,430

$125,355,799

$53,054,302

Amounts

Collected

$206,032,872

$464,695,459

$48,047,500

$592,498,294

$367,042,420

2.8%

4.0%

16.7%

21.2%

14.6%

Awards paid

as a

percentage of

amounts

collected.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.