IRS clarifies whistleblower awards
The IRS has issued program manager technical advice (PMTA) explaining that Code Sec. 7623 cannot form the basis for awards related to information provided by whistleblowers that only concerns violations of non-tax law provisions. If, on the other hand, the IRS receives information pertaining to a violation of non-tax law, but which leads to a recovery under Title 26 (the Tax Code), then the IRS may pay an award under Code Sec. 7623.
Code Sec. 7623 authorizes the IRS to pay awards to individual informers (called "whistleblowers") who bring information to the agency's attention that leads to the detection of (1) tax underpayments or (2) violations of the internal revenue laws. Code Sec. 7623 does not define "violations of the internal revenue laws," but the IRS noted that the use of the term throughout the Code, in court opinions, and in other relevant sources indicates that "internal revenue laws" refers to tax laws under Title 26 or its predecessors. Therefore, the IRS may pay awards under Code Sec. 7623, based on a whistleblower's information, only if it recovers amounts related to violations of tax laws. Awards are paid from the proceeds of any amounts (other than interest) collected by reason of the information provided.
The PMTA answers whether Code Sec. 7623 allows for payment of awards for information related to violations of non-Tax Code laws, for example fraud or money laundering or other violations of Titles 18 and 31. The PMTA also answers whether, if the statute does authorize the IRS to pay awards based on either Title 18 or Title 31 violations, amounts collected as a result of such violations would constitute "additional amounts" for purposes of computing collected proceeds under the statute.
The IRS determined that amounts recovered for violations of non-tax laws may not be considered for purposes of computing an award under section 7623. However, information that pertains to non-Tax Code violations-such as those relating to Titles 18 or 31 violations-but which leads to recovered amounts for a violation of tax law may provide the basis of an award under section 7623. In such circumstances, the IRS may pay an award so long as, based on the information provided, the IRS recovers proceeds directly associated with a violation of tax laws.
If, on the other hand, the IRS receives information pertaining to a tax law violation that leads not to a recovery under the Tax Code, but to a recovery for violations of Titles 18 or 31, then the IRS may not pay an award under section 7623.
If you or your clients would like more information relating to whistleblower rewards under the Tax Code, please contact our offices.