IRS Proposes New Whistleblower Reward Plan

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IRS Proposes New Whistleblower Reward Plan

The Internal Revenue Service announced today new rules that will alter the Whistleblower Rewards Program should it be taken into effect.

Senator Chuck Grassley of Iowa, the author of the 2006 law, modeled the Whistleblower Rewards Program after the successful False Claims Act. In June, Grassley expressed his concern with the limitations of the 2006 law, which this new proposal intends to correct.

According to Grassley, the agency procedures were limiting whistleblowers’ abilities from claiming rewards:

“These regulations are good news for whistleblowers. The Commissioner made the common-sense decision of ensuring that individuals who blow the whistle on improper refund claims will be rewarded, as I intended when I wrote the law. These new regulations will help the IRS target tax fraud. This is an issue of fairness for honest taxpayers. I hope these new regulations mean the IRS has turned the corner on encouraging whistleblowers and that this program will be a success. Next, the IRS needs to finalize these regulations quickly so they will apply to all the whistleblowers who filed claims after the 2006 law and have been waiting for their awards.”

The IRS described the proposal as an amendment to 26 CFR Section 301.7623-1.

“This regulation clarifies the definitions of proceeds of amounts collected and collected proceeds for purposes of section 7623 and that the provisions of Treas. Reg. Sec. 301.7623-1(a) concerning refund prevention claims are applicable to claims under section 7623(a) and (b). In clarifying the definitions of proceeds of amounts collected and collected proceeds, this regulation provides that the reduction of an overpayment credit balance is also considered proceeds of amountscollected and collected proceeds under section 7623.”

The actual language of the text is as follows:

Sec. 301.7623-1 Rewards and awards for information relating to violations of internal revenue laws.

(a) In general–(1) Rewards and awards. When information that has been provided to the Internal Revenue Service results in the detection of underpayments of tax or the detection and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same, the IRS may approve a reward under section 7623(a) in a suitable amount from the proceeds of amounts collected in cases when rewards are not otherwise provided by law, 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; amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided.

* * * * *

(g) Effective/applicability date. This section is applicable with respect to rewards paid after January 29, 1997, except the rules of paragraph (a) of this section apply with respect to rewards and awards paid after these regulations are published as final regulations in the Federal Register.

In existence for five years, the Whistleblower Reward Program has brought in an increasing amount of tips. In an annual report submitted by Congress in 2009. Whistleblowers identified 1,941 taxpayers who were each suspected of owing more than $2 million in taxes. This is a significant increase from 2008, where only 1,246 taxpayers were identified.

The IRS will be accepting written or electronic comments and requests for a public hearing until April 18, 2011.

The full text released by the IRS is located here: