Powerful New IRS Whistleblower Program
On December 20, 2006, the President signed the Tax Relief and Health Care Act of 2006 (“the Act’).
Section 406 of the Act dramatically strengthens the IRS’s whistleblower program, by increasing available rewards and creating a reliable enforcement mechanism for whistleblowers to collect them.
Under existing rules, the maximum award generally available to whistleblowers has been 15% of funds recovered by the IRS (including taxes and penalties).
Section 406 establishes a floor of 15% and increases the cap to 30%, 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, while whistleblowers were unable to enforce their claims to awards under the old program (unless they had a contract with the IRS), the new legislation provides that payments to qualified whistleblowers are mandatory, and it permits whistleblowers to appeal IRS award determinations to the Tax Court. If they are successful, whistleblowers will be permitted 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.
The statute also places a 10% cap on awards to whistleblowers in certain cases 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.
The statute provides for the creation of a Whistleblower Office within 12 months to handle incoming whistleblower claims, and it requires the Secretary to report annually to Congress on the results. The law applies to information provided on or after the date of the Act’s enactment.