Update on IRS's whistleblower program.

This issue contains an article by Paul D. Scott on the IRS's whistleblower program. After the article was completed, Congress passed the Tax Relief and Health Care Act of 2006, which directly affects the IRS's program. The Tax Executive asked Mr. Scott to prepare a summary of the legislation, which follows:

Section 406 of the Tax Relief and Health Care Act of 2006 substantially strengthens the IRS's whistleblower program, by increasing available rewards and creating a reliable enforcement mechanism for whistleblowers to collect them. Under prior rules, the maximum award generally available to whistleblowers was 15 percent of the funds recovered by the IRS (including penalties, taxes and interest). The new provision turns that 15-percent ceiling into the floor, and increases the cap to 30 percent in those cases where the IRS pursues an administrative or judicial action against a taxpayer based on information brought to its attention by the whistleblower. Moreover, although whistleblowers were unable under prior law to enforce their claims to awards (unless they had a contract with the IRS), the new legislation provides that payments to qualified whistleblowers are mandatory, and also permits whistleblowers to appeal IRS award determinations to the Tax Court. Finally, whistleblowers will be able to take an above-the-line deduction for attorney's fees and costs paid by them to recover their award.

The new program is limited to claims against taxpayers whose gross annual income exceeds $200,000 and whose potential indebtedness for taxes, penalties, and interest is greater than $2 million. In addition, the statute places a 10-percent cap on awards where there have been prior public disclosures of their allegations. Rewards can also be reduced if whistleblowers planned and initiated the actions that led to the underpayments of tax.

Finally, the new law provides for the creation of a Whistleblower Office within 12 months, and requires the Secretary of the Treasury to report annually to Congress on the results.

Paul D. Scott's email address is [e-mail].