The Recently Updated IRS Informants Reward Statute
The Tax Relief and Health Care Act of 2006 that was passed by Congress in December 2006 is a vast improvement to the old Whistleblower Statute. The old law allowed the IRS a great deal of discretion in deciding if a Whistleblower would receive compensation, as well as in determining the amount of the reward. The old statute also limited rewards to 15% of the total monies collected by the IRS. But generally, the IRS compensated Whistleblowers at amounts far below that threshold. The old statute also did not give Whistleblowers any recourse if they thought they were wrongly denied a reward, or unfairly compensated.
The new IRS Whistleblower Reform Law, part of the Tax Relief and Health Care Act of 2006, provides for larger rewards for Whistleblowers, and takes away much of the discretion the IRS once had in determining reward amount. The new law also allows a Whistleblower to appeal to the US Tax Court if the IRS wrongfully denies or reduces a reward. The new law applies to any action where the additional tax, penalties and interest exceeds $2 million. If the taxpayer is an individual, then the taxpayer’s income must exceed $200,000 to be covered by the new IRS Whistleblower Reform Law. The new law takes away most of the uncertainty that previously existed when Whistleblower claims were filed. The statute specifies that a Whistleblower who provides information that results in the recovery of monies receive compensation between 15% and 30% of the total recovered.
But the IRS does still have some ability to reduce awards. For this reason, it is recommended that anyone with information regarding tax fraud that meets IRS Whistleblower Reform Law specifications consult with a qualified attorney prior to taking their allegations to the IRS. An attorney with knowledge about the workings of the IRS and the intricacies of The Tax Relief and Health Care Act of 2006 can facilitate both the reporting of the tax fraud allegation and the rewards claims process. If the IRS denies a Whistleblowerâ€™s claim for compensation or does not grant an award in an amount commiserate to a Whistleblowerâ€™s contribution to a tax fraud case, then an attorney would also be able to represent the individual in an appeal before the US Tax Court.
The IRS Whistleblower Reform Statute
The text of the IRS Whistleblower Reform Statute is as follows:
Â§ 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.
(C) Submission of information.–No award may be made under this subsection based on information submitted to the Secretary unless such information is submitted under penalty of perjury.