Firm Seeks Microcaptive, Whistleblower Guidance

July 22, 2020

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2020-47)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Re: Recommendations for 2020-2021 Priority Guidance Plan Pursuant to Notice 2020-47

Dear Ladies and Gentlemen:

Pursuant to the Request for Comments contained in Notice 2020-47 (the “Notice”), Zerbe, Miller, Fingeret, Frank, & Jadav, L.L.P respectfully submits the following recommendations for items to include in the 2018-2019 Priority Guidance Plan (the “Plan”). ZMFF&J is a national law firm specializing in tax. ZMFF&J provides legal services on a variety of complex tax topics. In the course of working with clients and their accountants, ZMFF&J has observed several areas of tax law and administration that currently burden businesses or can benefit from clear guidance. We believe that solutions to these issues exist that will alleviate taxpayer burden and will streamline tax administration. Below, we have included several of these recommendations. We look forward to working with the IRS, Office of Chief Counsel, and Office of Tax Policy on these and other matters. We stand ready to discuss the below described matters as they are essential to the small businesses we serve.

I. Captive Insurance

In recent years the IRS has raised concerns related to captive insurance programs making the section 831(b) election. These concerns have resulted in hundreds of examinations, appeals and now Tax Court cases. Yet there remains virtually no IRS guidance on what is permissible coverage, whether risk pools continue to be permitted under existing safe harbors, what is required as premiums are set, as well as many other important issues in the area. This has resulted in significant confusion regarding Sec. 831(b) micro captives on the part of both taxpayers and examiners. Additional guidance in the above areas is needed to clarify how an entity can comply.

II. Whistleblower Collected Proceeds

In 2018, the Congress amended the IRS tax whistleblower law, creating 26 U.S.C. 7623(c) which provided for a definition of “proceeds.” The Sec. 7623(c) definition of “proceeds” expanded on the previously includable “penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws” to also allow for “any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate, including – (A) criminal fines and civil forfeitures, and (B) violations of reporting requirements.” The Treasury Regulations do not reflect Section 7623(c) and need to be updated.

III. Partial Award Payments for Whistleblowers

In 2006, the practice of the IRS was to make a partial payment to a whistleblower when sufficient proceeds had been collected to make a payment of at least $50,000. The IRS has unilaterally discontinued the practice of making partial payments, with the IRM at 25.2.2.6.1(3) stating that a partial payment will be made when it “is in the IRS's best interest.”

In practice, this means that whistleblowers can wait months if not years waiting for a payment to be received given the long delay for full collection or for different statutes of limitation to run. This unnecessary long delay in an award payment causes economic and emotional harm to whistleblowers who may have lost employment thanks to coming forward to the IRS. Further, the ending of partial payments goes directly against the Congressional policy goal of encouraging award payments to tax whistleblowers. For these reasons, the current policy, which is in practice a bar to partial payments, should be revisited with clear guidance. We recommend that a partial payment should be made to a whistleblower, no more than once a year, when the award amount is over $100,000. Such a policy would provide basic fairness to the whistleblower, and support the program, without overly burdening the IRS.

Conclusion

Thank you for the opportunity to comment on items to include in the Plan. We welcome the chance to meet to discuss the above comments in greater detail or to answer any questions that you may have.

Respectfully submitted,

Dean A. Zerbe
Partner
Zerbe, Miller, Fingeret, Frank, & Jadav, L.L.P.
Houston, TX