CCH Standard Federal Tax Reports – Taxes on Parade

IRS Highlights Large Awards To Whistleblowers In New Report To Congress; Concerns Remain (February 21, 2013)
By George L. Yaksick, Jr., CCH News Staff

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FY 2012 Report to Congress on Use of Section 7623, February 11, 2013
In its just-released Report to Congress, the IRS Whistleblower Office highlighted that it paid out multimillion-dollar awards to several high-profile whistleblowers in fiscal year (FY) 2012. The IRS also reported that it collected approximately $592 million in FY 2012 compared to $48 million in FY 2011 from whistleblower actions.

CCH Take Away. “This report reveals that over the last five years the IRS has collected nearly $1.5 billion as a result of the IRS Whistleblower Program, and even after paying out just under $200 million in awards, it is still one of the most cost effective enforcement tools the IRS has,” Scott Knott, partner, The Ferraro Law Firm, Miami, told CCH. “Based on the claims that we have filed over the last five years, we expect that these collections are just the tip of the iceberg,” Knott said.

Comment. “The IRS has made some progress in processing and tracking claims, but whistleblowers are still left in the dark for years,” Sen. Charles Grassley, R-Iowa, who drafted the 2006 reforms to the whistleblower statute, said in a statement. Grassley expressed concern over what he characterized as a “levelling off” of whistleblower cases in recent years. “I am concerned that the delay in awards and the way the IRS treats whistleblowers might be contributing to the leveling off of whistleblower cases. The IRS has made some progress in processing and tracking claims, but whistleblowers are still left in the dark for years.”

Background

Congress overhauled the whistleblower rules in the Tax Relief and Health Care Act of 2006 (2006 Tax Relief Act). In addition to establishing the Whistleblower Office, the 2006 Tax Relief Act also reformed the program. If taxes and other amounts in dispute exceed $2 million, and other criteria are satisfied, the IRS under Code Sec. 7623(b) pays 15 percent to 30 percent of the amount collected to the whistleblower. If the case deals with an individual, his or her annual gross income must be more than $200,000. If a whistleblower submission does not meet the criteria for Code Sec. 7623(b), the IRS may consider it under pre-2006 Tax Relief Act discretionary authority. This discretionary authority is contained in Code Sec. 7623(a).

Awards Paid

The IRS reported that in FY 2012 the total amount of awards paid exceeded $125 million. In comparison, the IRS paid $8 million in awards in FY 2011 and $18 million in awards in FY 2010. All awards paid in FY 2010 were paid under Code Sec. 7623(a). FY 2011 and FY 2012 include a limited number of awards paid under Code Sec. 7623(b), the IRS explained, but the agency did not specify the number of each.

Comment. Among the awards paid in FY 2012 was one to a former employee of a foreign bank. That individual received $104 million, the largest award made to date through the whistleblower program.

Amounts Collected

The IRS reported that amounts collected from whistleblower actions increased in FY 2012 compared to FY 2011. In FY 2012, amounts collected totaled $592.4 million. Amounts collected in FY 2011 totaled $48 million; amounts collected in FY 2010 totaled $464.6 million.

Reference: TRC IRS: 60,060.05 .

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