Does The IRS Really Support the Tax Whistleblower Program?

The answer to this question is….not a clear yes or clear no.  Like all of us, the IRS must follow the law.  Whether it supports, or not supports, the tax whistleblower program, the IRS can only do what Congress has authorized it to do.  In the end, its actions speak louder than words and give us a clue as to whether or not it supports the program.

The Whistleblower Program was amended and changed in 2006 with the enacted by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, sec. 406, 120 Stat. at 2958. The Whistleblower statute (IRC § 7623) contains no more than 640 words and is subject to interpretation.  Whistleblowers tend to interpret this statute broadly while the IRS interprets it narrowly.  IRS justification might be that it interprets the statute very narrowly in fear that it might pay an award for which it does not have authority to do so.

As an example, the whistleblower statute, IRC § 7623(b)(1) states that the IRS shall pay an

“award of at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.”

 The IRS, despite telling Congress and the American public that it supports the whistleblower program, obtained legal advice from the Office of Chief Counsel (IRS legal counsel), which advised it that “collected proceeds” did not include criminal penalties or civil forfeitures for which the IRS might be responsible for determining and collecting.  This often occurred with cases involving taxpayers’ with offshore bank accounts (FBAR penalties) and other criminal tax matters.

In 2010 the Internal Revenue Manual was amended and in 2014, Treasury Regulations were issued that made clear that the IRS did not consider criminal penalties under Title 18 (Crimes and Criminal Procedure) or Title 31 (Money and Finance) collected proceeds and therefore, it would not pay an award on “collected proceeds” from penalties collected under laws other than the Internal Revenue Code. 

In the recently decided case of Whistleblower 21276-13W, Petitioner v. Commissioner, 147 TC No. 4 (August 3, 2016), the United States Tax Court had no trouble in deciding that a whistleblower was entitled to an award based upon a criminal penalty and civil forfeiture that might be imposed outside the Internal Revenue Code (i.e. Title 26).  The court determined that Congress did not intend to limit a whistleblower award should the IRS pursue an action, even if it amounted to a penalty which was not ultimately paid to the IRS.


Again, the actions of the IRS will dictate whether it supports the Tax Whistleblower Program.  The IRS now has court authority (i.e. precedent) to support paying individuals that provide information to the IRS with respect to money laundering crimes, offshore bank accounts, etc.  Will the IRS appeal the recent court’s decision?  If the IRS intends to appeal the decision, it must file a Notice of Appeal within 90 days after the decision is entered. 

Actions speak louder than words.  Therefore, if the IRS does appeal the Court’s decision, Congress and the American public will be told loud and clear that the IRS does not support the Tax Whistleblower program.  As a result, whistleblowers will be alerted as to whether their pending claims will be treated fairly or whether the IRS intends to continue to minimize a whistleblower’s reward.

Disclosures of Return Information in the IRS Whistleblower Program

On February 2, 2010, Deborah A. Butler, Associate Chief Counsel, provided legal advice in PMTA 2011-31, advising the employees of the IRS Whistleblower Office that they are authorized to disclose [taxpayer] return information in making tax reward payment determinations pursuant to Section 7623 or providing status updates to IRS whistleblowers regarding pending, unprocessed, or dismissed claims under Section 7623.

 However, the office stressed, the specific taxpayer return information that may be disclosed to an IRS whistleblower in a particular instance will depend on the facts and circumstances of the matter.  In the legal opinion, Ms. Butler stated,

"Neither section 7623 nor any other Code section specifically authorizes the disclosure of taxpayer return information in the course of the whistleblower award review and determination process.  Nonetheless…Congress presumably did not intend to create an irreconcilable conflict between the IRS Whistleblower Office’s non-disclosure obligations and its obligation to convey appealable determinations to whistleblowers."

The legal opinion from the IRS Office of Chief Counsel concluded that IRC § 6103(h)(4), which authorizes disclosures of such information in judicial and administrative proceedings, authorizes the IRS Whistleblower Office disclosures, as the whistleblower award review and determination process would be considered an administrative proceeding.

PMTA 2011-31 was dated Feb. 1, 2010.

Despite the above legal opinion from the Office of Chief Counsel, we note that in the nearly two years that has passed since the advice was given; the IRS Whistleblower Office is reluctant to provide status updates as to the open whistleblower cases.  It is important that the whistleblower engage a knowledgeable and experienced tax whistleblower attorney to assist them.