How does the IRS Tax Whistleblower Office compute the tax reward/award on Tax Whistleblower Cases?

 The IRS Tax Whistleblower Office is at the beginning stage of paying tax rewards/awards on these tax whistleblower cases.  It is clear the tax whistleblower program is a process that is developing and being tweaked over time.  IRS Whistleblower Office Director Stephen A. Whitlock and his staff are busy anticipating and resolving issues and problems as they develop.

In June 2010, the IRS published IRM 25.2.2 which provided certain factors that will be considered in determining a tax reward/award.  In fact, it is advisable that every tax whistleblower consult with an experienced and knowledgeable tax whistleblower attorney/lawyer in order to submit the 211 Claim (i.e. Tax Whistleblower Claim) in a manner to maximize the tax award/reward. 

In addition, the 211 claim package should be prepared and submitted so as to minimize the examination time and thereby minimize the time period in which to pay the reward/award.

As of this time, only several tax rewards/awards have been paid under the new IRS Tax Whistleblower Program pursuant to IRC 7623(b).

At this time, this is how the awards are determined by the IRS Tax Whistleblower Office:

  1. The IRS has established 5 tax reward brackets (15%, 18%, 22%, 26% and 30%) that will be applied to the amount of tax collected.
  2. In determining a reward, the IRS will begin at the 15% reward bracket.
  3. The IRS will then evaluate the positive factors and to the extent the tax whistleblower has met a number of these positive factors, the reward will be increased from 15% to 22%, and if the tax whistleblower has met significant number of the positive factors (i.e. perhaps assisted or showed their willingness to assist in the determination of tax (tax examination/tax crime prosecution) in an extraordinary manner such as testifying in court, wearing a wire, etc.), the tax reward bracket will be increased from 22% to 30% of the amount of tax collected.
  4. After considering the positive factors, the IRS will examine the negative factors as set out in IRM 25.2.2.  To the extent there are negative factors, the above reward determination will be reduced.  In the case of 30% tax reward as determined in 3, above, it will be reduced to 26%.  To the extent there are significant negative factors, the tax reward will be reduced to 18% from 26%, as established in the previous sentence, or if the starting point is 22% as stated in 3 above, it will be reduced to 18%, but no lower than 15% under any circumstances.

Note 1:  The positive and negative factors are not exclusive and are not weighted. In the particular circumstances of a case, one factor may out-weigh several others and result in a unique or exceptional award determination. Negative factors can offset positive factors, but cannot result in an award that is less than the statutory minimum (15%)

Note 2: A tax reward/award that is simply from third party sources or for which the tax whistleblower initiated and planned the transaction that led to the underpayment of tax, then pursuant to 7623(b), the reward cannot exceed 15%.

Note 3:  Under certain situations the IRS Tax Whistleblower Office will consider splitting a tax reward bracket in an effort to achieve the “right” answer.

The above analysis is the current procedure as to how a tax reward/award is to be computed and paid.  This procedure will likely to be adjusted over time by both the U.S. Tax Court and the IRS Tax Whistleblower Office.

To the extent that there are any questions please call the Tax Whistleblower Law Firm at 1-877-404-1040 or email our firm to learn how the IRS Whistleblower Office is likely to determine a tax reward/award, or as to any other questions regarding the IRS Tax Whistleblower Program.