Individual Takes Issue With Aspect of Proposed Regs on Payment of Whistleblower Rewards

The proposed rule change is conspicuously vague and ambiguous with respect to, whether or not awards to IRS whistleblowers will be based on the criminal penalties and forfeitures collected by the IRS as a result of the information provided by whistleblowers.

Background:

Currently, just under half the IRS whistleblower claims that have been submitted to the IRS Whistleblower Office (pursuant to the Tax Relief and Health Care Act 2006), are either awaiting allocation to, or being investigated by the Criminal Investigation Division of the IRS.

Commentary:

The IRS's internal IRM incorrectly and unlawfully maintains that criminal penalties and forfeitures are not part of 'collected proceeds'. This position is clearly both contrary to what Congress intended and also the actual meaning of the legislation.

The wording of the legislation states that whistleblowers "shall" receive 15-30 percent of the "collected proceeds," including penalties, interest, additions to tax and additional amounts. In particular:-

Sec. 301.7623-1. Rewards and awards for information relating to violations of internal revenue laws, reads in part;

"or shall determine an award under section 7623(b) from collected proceeds.

(2) Proceeds of amounts collected and collected proceeds. For purposes of section 7623 and this section, both proceeds of amounts collected and collected proceeds include: tax, penalties, interest, additions to tax, and additional amounts collected by reason of the information provided;"

Should the IRS decide, for what ever reasons, to only pursue a criminal investigation and action against a miscreant non-taxpayer based on the information provided by the whistleblower; based on the IRS's current unlawful interpretation the whistleblower will be denied any award of the "collected proceeds" i.e. criminal penalties and forfeitures.

Should the IRS's inaccurate and unlawful interpretation continue, the result will be, (1) Continued loss of credibility of the IRS Whistleblower program, and (2) the unnecessary expenditure of public money by the IRS defending a considerable amount of litigation in Federal Tax Court which ultimately the IRS will lose.