Proposed Regs Expand Definition Of Proceeds Collected Under IRS Whistleblower Rules

January 20, 2011 - By George L. Yaksick, Jr., CCH Newsletter, Federal Tax Weekly

The IRS has issued proposed regs to update and expand the definitions of proceeds collected from a tip or other information provided to the IRS. The regs apply to both the traditional rewards program and to the enhanced whistleblower program established in 2006.

CCH Take Away

“The proposed regulations…expand the universe of collected proceeds from last June’s IRM update,” Gregory Lynam, tax partner, The Ferraro Law Firm, Washington, D.C., told CCH. “The proposed regulations are, however, quite vague. They do not provide any examples and may or may not cover any number of scenarios involving credit carrybacks or carryforwards, and other taxpayer-favorable adjustments,” Lynam observed.

Rewards and Awards

Under Code Sec. 7623(a), the traditional rewards program applies for information provided before December 20, 2006. Under this program, the IRS has the discretion to pay a reward of up to 15 percent of the “amounts collected” (not including interest) from an underpayment of tax or from a criminal violation of the tax laws.

Congress enhanced the reward program in the Tax Relief and Health Care Act of 2006 and established an IRS Whistleblower Office to handle award claims from informants. Under Code Sec. 7623(b), the whistleblower program applies to awards made for information provided on or after December 20, 2006. The IRS has less discretion whether to make an award under the whistleblower program. Informants “shall” receive 15-30 percent of the “collected proceeds,” including penalties, interest, additions to tax and additional amounts. The amount of the award depends on the extent to which an information substantially contributed to an IRS administrative or judicial collection to collect tax.

Proceeds

Under the regs, both “amounts collected” and “collected proceeds” include:

  • Tax, penalties, interest, additions to tax, and additional amounts collected because of the information provided;
  • Amounts collected prior to receiving the information if the information results in the IRS denying a refund claim that would otherwise have been paid; and
  • A reduction of an overpayment credit balance to satisfy a tax liability incurred because of the information provided.
Lynam Knott