Collected Proceeds Debate Continues in Regards to Title 26 in IRS Whistleblower Cases and Congress

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Photo of a Federal Court House and Post Office, representing Bipartisan Budget Act and to exemplify the debate in collected proceeds

The Debate in Collected Proceeds Still Continues

The Justice Department has appealed a decision by the U.S. Tax Court last year to provide an IRS whistleblower reward based upon a criminal fine and civil forfeitures. The Government’s appeal to the D.C. Circuit attempts to reverse a favorable decision for whistleblowers on the definition of collected proceeds used in the terms of the IRS whistleblower program.

The case involves the proceeds of a $74M settlement where portions were allocated to a tax resolution, a criminal fine, a civil forfeiture of fees received for its services, and the relinquishment of claims to money previously forfeited. IRS rewards are required to be paid on collected proceeds. The IRS took the position in Tax Court that only fines received pursuant to Title 26 are collected proceeds according to the law. The Tax Court sided with the whistleblowers, refusing to limit the scope of the term collected proceeds.

It appears based on the Government’s appeal that the United States will continue to oppose a broad interpretation of the term.  According to the United States, money recovered from a civil forfeiture or criminal fine are not eligible to be counted as collected proceeds and thus the tax whistleblower is not entitled to a portion of that money.

The appeal might largely be irrelevant in the future.  Senator Grassley’s amendment to the Senate’s tax legislation to define the term collected proceeds in the IRS Whistleblower program was adopted and is currently part of the legislation under consideration. If the bill is adopted without changes by the Senate and the provision survives reconciliation, it would define collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting requirements.

The Senate is expected to vote on the tax bill today with Senator Grassley’s amendment.  It would then face reconciliation with the terms of the tax bill passed by the U.S. House of Representatives.