The IRS Whistleblower Program

What is the IRS Whistleblower Program?

The Internal Revenue Service’s Whistleblower Office oversees the IRS’s Whistleblower Program. It is responsible for processing thousands of tax whistleblower claims every year.   The IRS Whistleblower Program is designed to offer financial incentives and rewards to individuals—“whistleblowers”—who help the government collect taxes by providing information that assists in detecting violations of the internal revenue laws.  The IRS Whistleblower Program provides a reward to qualifying whistleblowers of between 15 to 30% of the amount recovered as a result of the whistleblower’s report.  This past year, the Whistleblower Office made awards to whistleblowers totaling more than $120,000,000.

Notable Whistleblower Awards

The IRS has paid billions of dollars in whistleblower claims.  The following are among the more notable whistleblower awards under the program:

• $104 million award to Bradley Birkenfeld for blowing the whistle on UBS and Swiss Banking secrecy practices designed to assist US taxpayers in evading US taxation.
• A $38 million whistleblower award for exposing a corporate tax avoidance scheme.

The IRS Whistleblower Program

Federal law provides that an IRS whistleblower is entitled to an award of 15 to 30% of the amount recovered based on the whistleblower’s information if certain criteria are met.

The IRS Whistleblower statute, 26 U.S.C. § 7623(a), has been on the federal books since circa 1867.[1]  It has long allowed the Secretary of the Treasury to pay amounts deemed necessary “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.”  Between 1867 and 1996, the law did not change much.  In fact, the only substantive change during that period was the addition of a clause allowing payments to be made “for detecting underpayments of tax” as an additional basis for a whistleblower award and making the payments from proceeds collected rather than appropriated funds.

Notably, the False Claims Act does not permit qui tam actions for alleged tax violations under the Internal Revenue Code, leaving IRS whistleblower claims under § 7623 as the primary vehicle for tax-related claims on behalf of the government.  Under the FCA, private parties are generally able to file actions on behalf of the government against those suspected of defrauding the government. While the FCA has been a powerful tool in combating fraud on the government, the FCA contains a jurisdictional “Tax Bar,”[2] which provides that the FCA does not extend to “claims, records, or statements made under the Internal Revenue Code of 1986.” In the seminal “Tax Bar” case, the Second Circuit in United States ex. rel Lissack v. Sakura Global Capital Markets, Inc.[3] set forth a two-part test that bars an FCA claim if (1) the “falsity of the claim . . . depends entirely upon establishing a violation of the Tax Code,” and (2) “the IRS has authority to recover” the amount sought in the FCA action.  Thus, a whistleblower with claims that others have defrauded the government through unpaid taxes should bring such claims under the IRS’s Whistleblower Program.

In 2006, Congress enacted legislation that strengthened the IRS’s Whistleblower Program and incentives.[4]  The Tax Relief and Health Care Act of 2006 provided key changes, including the addition of section 7623(b),[5] which provided that whistleblower awards would no longer be discretionary.  That is, under the 2006 law, the payment of awards to qualified whistleblowers is mandatory, whereas it was discretionary under the previous program.  The amendments also provided for whistleblower appeal rights and created an IRS Whistleblower Office.[6]

The Bipartisan Budget Act of 2018 defined proceeds as penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, as well as any proceeds arising from laws for which the IRS is authorized to administer, enforce, or investigate. This includes criminal fines, civil forfeitures, and violations of reporting requirements.

These awards included amounts paid for tax collected, as well as non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements.

Potential Whistleblowers

Individuals who suspect fraud may qualify to make an IRS whistleblower claim.  Common badges of fraud include:

• Understatement of income (e.g., omissions of specific items or entire sources of income, failure to report substantial amounts of income received)
• Fictitious or improper deductions (e.g., overstatement of deductions, personal items deducted as business expenses)
• Accounting irregularities (e.g., two sets of books, false entries on documents)
• Obstructive actions of the taxpayer (e.g., false statements, destruction of records, transfer of assets, failure to cooperate with the examiner, concealment of assets)
• A consistent pattern over several years of underreporting taxable income
• Implausible or inconsistent explanations of behavior
• Engaging in illegal activities (e.g., drug dealing), or attempting to conceal illegal activities
• Inadequate records
• Dealing in cash and
• Failure to file returns.

Other potential badges of fraud that may indicate circumstances giving rise to a whistleblower case include:

• Concealing bank accounts, brokerage accounts, and other property.
• Inadequately explaining dealings in large sums of currency, or the unexplained expenditure of currency.
• Claiming fictitious or substantially overstated deductions.
• Multiple sets of books or no records.
• False entries, or alterations made on the books and records; back-dated or post-dated documents; false invoices, false applications, false statements, or other false documents or applications.
• Failure to follow the advice of accountant, attorney or return preparer.
• Backdated applications and related documents.
• Asset ownership placed in other names.
• Transactions surrounded by secrecy.
• False entries in books of transferor or transferee.
• Use of secret bank accounts for income.
• Deposits into bank accounts under nominee names.
• Conduct of business transactions in false names.

Whistleblower Targets

Taxpayers and businesses who believe that a whistleblower may have turned them in to the IRS may have certain rights and defenses available.  Targets may contact one of Freeman Law’s experienced tax defense attorneys at (214) 984-3000 or online.  Victims of false or retributive whistleblower claims may have recourse and defenses.

Whistleblower Awards

To be eligible to receive an award under the IRS’s Whistleblower Program, a whistleblower must provide specific and credible information that the whistleblower believes will lead the IRS to collect proceeds from one or more persons that the whistleblower believes have failed to comply with the internal revenue laws.  These IRS’s stringent requirements in this respect underscore that a tax attorney is often necessary in order to ensure that the whistleblower submission satisfies the IRS’s criteria and standards—and actually leads to IRS action.

In general, a whistleblower’s submission should identify the person(s) believed to have failed to comply with the internal revenue laws and should provide substantive information, including all available documentation, that supports the whistleblower’s allegations.  The IRS maintains that submissions that provide speculative information or that do not provide specific and credible information regarding tax underpayments or violations of internal revenue laws do not provide a basis for an award.

Generally, in order to qualify for a guaranteed award, the information provided by a whistleblower must meet the following criteria:

• Submission of a Form 211 “Application for Award for Original Information,” signed and submitted under penalties of perjury;
• Related to an action in which the proceeds in dispute exceed $2,000,000 (including interest and penalties); and
• Related to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.
• substantially contribute to a decision to take administrative or judicial action that results in the collection of tax, penalties, interest, additions to tax and additional amounts.

A whistleblower who satisfies these criteria will be entitled to an award of at least 15% of the proceeds from the collection of tax, penalties, interest, additions to tax and additional amounts.  That is, if the information provided by the whistleblower meets these criteria, the and the IRS “proceeds with any administrative or judicial action . . . based on information brought to the Secretary’s attention by [the whistleblower], such individual shall . . . receive as an award at least 15% but not more than 30% of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action.”

However, if a submission does not meet the criteria for IRC section 7623(b) consideration, the IRS will consider it for the discretionary program under IRC section 7623(a) of the Code.

Even people of have participated in the tax fraud at issue may be eligible to receive an award for reporting the fraud as a whistleblower, as long as they did not plan or initiate the fraud.

The Bipartisan Budget Act of 2018 defined proceeds as penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, as well as any proceeds arising from laws for which the IRS is authorized to administer, enforce, or investigate. This includes criminal fines, civil forfeitures, and violations of reporting requirements.

These awards included amounts paid for tax collected, as well as non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements

Appealing Denials

Whistleblowers may appeal the Whistleblower Office’s award determinations under IRC § 7623(b) to the United States Tax Court (Tax Court).  By statute, any whistleblower award determination under section 7623(b) may, within 30 days of the determination, “be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).” I.R.C. Sec. 7623(b)(4).

The following is a compilation of Tax Court decisions with respect to whistleblower claims:

1. Whistleblower 769-16W v. Comm’r (April 11, 2019)
2. Whistleblower 15488-17W v. Commissioner (T.C. Memo. 2019-23).
3. Smith v. Commissioner, Docket No. 25605-15W (June 7, 2017)
4. Lippolis v. Commissioner (Lippolis 2), Docket no. 18172-12W (June 7, 2017).
5. Whistleblower 4496-15W v. Commissioner, Docket No. 4496-15W (May 25, 2017).
6. Whistleblower 16158-14W v. Commissioner of Internal Revenue, 148 T.C. No. 12
7. Whistleblower 12568-16W v. Comm’r, 148 T.C. No.7 (March 22, 2017).
8. Whistleblower 6121-16W v. Comm’r, Docket 6121-16W (March 22, 2017).
9. Whistleblower 21276-13W v. Comm’r (December 20, 2016).
10. Insigna v. Comm’r, Docket no. 9011-13W (January 27, 2017).
11. Whistleblower 26876-15W v Comm’r, 147 T.C.No 12 (November 9, 2016).
12. Whistleblower 21276-13W v. Comm’r, (August 3, 2016).
13. Whistleblower 11099-13W v. Comm’r, (Docket 11099-13W) (July 28, 2016).
14. Insigna v. Comm’r, (Docket No.9011-13W) (July 27, 2016).
15. Whistleblower 22716-13W v. Comm’r, (Whistleblower 22716-13W 2) (March 14, 2016).
16. Kasper v. Commissioner (Kasper 2) (October 8, 2015).
17. Whistleblower One 10683-13w, Whistleblower Two 10683-13w, and Whistleblower Three 10683-13w v. Commissioner (September 16, 2015)
18. Whistleblower 21276-13w, and Whistleblower 21277-13w v. Commissioner (June 2, 2015)
19. Lippolis v Commissioner. T.C. Memo No. 20 (November 20, 2014)
20. Ringo v. Commissioner, 143 T.C. No. 15 (October 6, 2014)
21. Comparini v. Commissioner, 143 T.C. No. 14 (October 2, 2014)
22. Whistleblower 22231-12W v Commissioner, T.C. Memo. 2014-157 (August 4, 2014)
23. Whistleblower 11332-13W v. Commissioner, 142 T.C. No. 21 (June 4, 2014) (Whistleblower 11332-13W 2)
24. Whistleblower 10949-13W v. Commissioner, T.C. Memo. 2014-106 (June 4, 2014) (Whistleblower 10949-13W 2)
25. Whistleblower 11332-13W v. Commissioner; T.C. Memo. 2014-92 (May 20, 2014) (Whistleblower 11332-13W 1)
26. Whistleblower 13412-12W v. Commissioner; T.C. Memo. 2014-93 (May 20, 2014)
27. Whistleblower 10949-13W v. Commissioner; T.C. Memo. 2014-94 (May 20, 2014) (Whistleblower 10949-13W 1) 
28. Anonymous 1 and Anonymous 2 v. Commissioner; Docket No. 12472-11W (May 10, 2013)
29. Cohen v. Commissioner. 139 T.C. No 12 (October 9, 2012)
30. Whistleblower 14106-10W v. Commissioner, 137 T.C. No. 15 (December 8, 2011)
31. Friedland v. Commissioner, T.C. Memo. 2011-217 (September 7, 2011)
32. Kasper v. Commissioner, 137 T.C. No. 4 (July 12, 2011)
33. Cooper v. Commissioner, 136 T.C. 30 (June 21, 2011) 
34. Friedland v. Commissioner, T.C. Memo. 2011-90 (April 25, 2011)
35. Cooper v. Commissioner, 135 T.C. No. 4 (July 8, 2010)
36. Dacosta v. United States, No. 07-807T (Court of Federal Claims, Jul. 11, 2008)
37. Wolf v. Commissioner, T. C. Memo 2007-133 (May 30, 2007)

Ineligible Claimants

The following individuals are not eligible to file a whistleblower claim for award or to receive a whistleblower award:

• an employee of the Department of Treasury or who was an employee of the Department of Treasury when the individual obtained the information on which the claim is based;
• An individual who obtained the information through the individual’s official duties as an employee of the Federal Government, or who is acting within the scope of those official duties as an employee of the Federal Government;
• An individual who is or was required by Federal law or regulation to disclose the information or who is or was precluded by Federal law or regulation from disclosing the information;
• An individual who obtained or had access to the information based on a contract with the Federal Government; or
• An individual who filed a claim for award based on information obtained from an ineligible whistleblower for the purpose of avoiding the rejection of the claim that would have resulted if the claim was filed by the ineligible whistleblower.

Confidentiality

The IRS Whistleblower Office will protect a whistleblower’s identity to the fullest extent under the law.  In 2019, Congress enacted the Taxpayer First Act.  The Taxpayer First Act provides whistleblowers with significant additional protection against retaliation.

Treas. Reg. §301.7623-1(e) provides that “[n]o unauthorized person will be advised of the identity of an informant.”  The informant privilege allows the Government to withhold the identity of a person that provides information about violations of law to those charged with enforcing the law. The informant privilege is held by the Government, not the informant, and is not an absolute privilege.

Under the informant’s privilege, the IRS uses its best efforts to protect the identity of whistleblowers. In some circumstances, however, the IRS may need to reveal a whistleblower’s identity.  For example, it may do so when it is determined that it is in the best interests of the Government to use a whistleblower as a witness in a judicial proceeding.  In those circumstances, IRS policies require that it make every effort to notify the whistleblower before revealing the whistleblower’s identity.

Under section 6103(a), returns and return information are confidential, unless an exception applies.[7] Section 6103(h)(4) authorizes the disclosure of returns and return information in administrative or judicial proceedings pertaining to tax administration in certain circumstances. A whistleblower administrative proceeding under section 7623 is an administrative proceeding under section 6103(h)(4).

How to Submit an IRS Whistleblower Claim

1. Whistleblowers must use IRS Form 211, Application for Award for Original Information, and ensure that it contains the following:
   • A description of the alleged tax noncompliance, including a written narrative explaining the issue(s).
   • Information to support the narrative, such as the location of assets and copies of books and records, ledger sheets, receipts, bank records, contracts and emails.
   • A description of documents or supporting evidence not in the whistleblower’s possession or control, and their location.
   • An explanation of how and when the whistleblower became aware of the information that forms the basis of the claim.
   • A complete description of the whistleblower’s present or former relationship (if any) to the subject of the claim (for example, family member, acquaintance, client, employee, accountant, lawyer, bookkeeper, customer).

2. The whistleblower’s original signature must be set forth on the declaration under penalty of perjury (a representative cannot sign Form 211 for the whistleblower) and the date of signature.
3. Whistleblowers must mail (the IRS will not accept faxed or electronic claims) Form 211 to:

Internal Revenue Service

Initial Claims Evaluation Team

1973 N. Rulon White Blvd. M/S 4110

Ogden, UT 84404

In addition, the whistleblower must meet other requirements in order to qualify for a whistleblower award.  Potential whistleblowers should consult with a tax attorney regarding the preparation of a whistleblower submission and qualification for a whistleblower award.

What Makes an Effective Whistleblower Claim Submission?

The vast majority of whistleblower claims are not acted on.  That is, the IRS does not take action with respect to most whistleblower claims.  A knowledgeable tax lawyer can help prepare a whistleblower claim that will lead to IRS action and a potential whistleblower award.  A tax lawyer can help increase the chances that the IRS will act on the award.

A good whistleblower claim submission should provide actionable fact information.  That information should be consistent with the law, and should provide a paper trail and documentation where possible.  The whistleblower claim should be clear, and easily understood.  It should be consistent.  Whistleblowers should provide witnesses and contact information, as well as other sources of evidence.  Any particular whistleblower claim will depend upon the nature of the particular claim and the circumstances.  A qualified tax attorney can help ensure that a submission will meet the required criteria.

The IRS Whistleblower Process

The following flow chart provides a basic description and potential timeline for an IRS whistleblower submission.

History and Reports from the IRS Whistleblower Office

The following reports from the IRS Whistleblower Office are available:

• Whistleblower Office FY2019 Annual Report
• Whistleblower Office FY2018 Annual Report
• Whistleblower Office FY2017 Annual Report
• Whistleblower Office FY2016 Annual Report
• Whistleblower Office FY2015 Annual Report
• Whistleblower Office FY2014 Annual Report
• Whistleblower Office FY2013 Annual Report
• Whistleblower Office FY2012 Annual Report
• Whistleblower Office FY2011 Annual Report
• Whistleblower Office FY2010 Annual Report
• Whistleblower Office FY2009 Annual Report
• Whistleblower Office FY2008 Annual Report
• Whistleblower Office First Report to Congress

The Law

Section 7623 provides as follows:

(a) In general The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for—

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same, in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.

(b) Awards to whistleblowers

(1) In general If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention by an individual, such individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more than 30 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action (determined without regard to whether such proceeds are available to the Secretary). The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action.

(2) Award in case of less substantial contribution

(A) In general

In the event the action described in paragraph (1) is one which the Whistleblower Office determines to be based principally on disclosures of specific allegations (other than information provided by the individual described in paragraph (1)) resulting from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation, or from the news media, the Whistleblower Office may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action (determined without regard to whether such proceeds are available to the Secretary), taking into account the significance of the individual’s information and the role of such individual and any legal representative of such individual in contributing to such action.

(B) Nonapplication of paragraph where individual is original source of information

Subparagraph (A) shall not apply if the information resulting in the initiation of the action described in paragraph (1) was originally provided by the individual described in paragraph (1).

(3) Reduction in or denial of award If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award.

(4) Appeal of award determination  Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).

(5) Application of this subsection This subsection shall apply with respect to any action—

(A) against any taxpayer, but in the case of any individual, only if such individual’s gross income exceeds $200,000 for any taxable year subject to such action, and

(B) if the proceeds in dispute exceed $2,000,000.

(6) Additional rules

(A) No contract necessary

No contract with the Internal Revenue Service is necessary for any individual to receive an award under this subsection.

(B) Representation

Any individual described in paragraph (1) or (2) may be represented by counsel.

(C) Submission of information

No award may be made under this subsection based on information submitted to the Secretary unless such information is submitted under penalty of perjury.

(c) Proceeds For purposes of this section, the term “proceeds” includes—

(1) penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and

(2) any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate, including—

(A) criminal fines and civil forfeitures, and

(B) violations of reporting requirements.

(d) Civil action to protect against retaliation cases

(1) Anti-retaliation whistleblower protection for employees No employer, or any officer, employee, contractor, subcontractor, or agent of such employer, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee’s duties) in reprisal for any lawful act done by the employee—

(A)  to provide information, cause information to be provided, or otherwise assist in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information or assistance is provided to the Internal Revenue Service, the Secretary of the Treasury, the Treasury Inspector Generalfor Tax Administration, the Comptroller General of the United States, the Department of Justice, the United States Congress, a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discover, or terminate misconduct, or

(B) to testify, participate in, or otherwise assist in any administrative or judicial action taken by the Internal Revenue Service relating to an alleged underpayment of tax or any violation of the internal revenue laws or any provision of Federal law relating to tax fraud.

(2) Enforcement action

(A) In general A person who alleges discharge or other reprisal by any person in violation of paragraph (1) may seek relief under paragraph (3) by—

(i)  filing a complaint with the Secretary of Labor, or

(ii)  if the Secretary of Labor has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy.

(B) Procedure

(i) In general

An action under subparagraph (A)(i) shall be governed under the rules and procedures set forth in section 42121(b) of title 49, United States Code.

(ii) Exception

Notification made under section 42121(b)(1) of title 49, United States Code, shall be made to the person named in the complaint and to the employer.

(iii) Burdens of proof An action brought under subparagraph (A)(ii) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49, United States Code, except that in applying such section—

• • • • “behavior described in paragraph (1)” shall be substituted for “behavior described in paragraphs (1) through (4) of subsection (a)” each place it appears in paragraph (2)(B) thereof, and
      • “a violation of paragraph (1)” shall be substituted for “a violation of subsection (a)” each place it appears.

(iv) Statute of limitations

A complaint under subparagraph (A)(i) shall be filed not later than 180 days after the date on which the violation occurs.

(v)Jury trial

A party to an action brought under subparagraph (A)(ii) shall be entitled to trial by jury.

(3) Remedies

(A) In general

An employee prevailing in any action under paragraph (2)(A) shall be entitled to all relief necessary to make the employee whole.

(B) Compensatory damages Relief for any action under subparagraph (A) shall include—

(i) reinstatement with the same seniority status that the employee would have had, but for the reprisal,

(ii) the sum of 200 percent of the amount of back pay and 100 percent of all lost benefits, with interest, and

(iii) compensation for any special damages sustained as a result of the reprisal, including litigation costs, expert witness fees, and reasonable attorney fees.

(4) Rights retained by employee

Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement.

(5) Nonenforceability of certain provisions waiving rights and remedies or requiring arbitration of disputes

(A) Waiver of rights and remedies

The rights and remedies provided for in this subsection may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.

(B) Predispute arbitration agreements

No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this subsection.

(Aug. 16, 1954, ch. 736, 68A Stat. 904; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 104–168, title XII, § 1209(a), July 30, 1996, 110 Stat. 1473; Pub. L. 109–432, div. A, title IV, § 406(a)(1), Dec. 20, 2006, 120 Stat. 2958; Pub. L. 115–123, div. D, title II, § 41108(a)–(c), Feb. 9, 2018, 132 Stat. 158; Pub. L. 116–25, title I, § 1405(b), July 1, 2019, 133 Stat. 998.)

https://freemanlaw.com/wp-content/uploads/2020/03/Whistleblower.pdf

[1] 14 Stat. 145 (1866). The original enacted statute read as follows:

And where not otherwise provided for, such share as the Secretary of the Treasury shall, by general regulations, provide, not exceeding one moiety nor more than five thousand dollars in any one case, shall be to the use of the person, to be ascertained by the court which shall have imposed or decreed any such fine, penalty, or forfeiture, who shall first inform of the cause, matter, or thing whereby such fine, penalty, or forfeiture shall have been incurred; and when any sum is paid without suit, or before judgment, in lieu of fine, penalty, or forfeiture, and a share of the same is claimed by any person as informer, the Secretary of the Treasury, under general regulations to be by him prescribed, shall determine whether any claimant is entitled to such share as above limited, and to whom the same shall be paid, and shall make payment accordingly.

[2] 31 U.S.C. § 3729(d) (2012).

[3] 377 F.3d 145 (2d Cir. 2004).

[4] Section 406 of the Tax Relief and Health Care Act of 2006 (the 2006 Act), Public Law 109-432 ( 120 Stat. 2922 ), enacted on December 20, 2006, amended section 7623 of the Code regarding the payment of awards to certain persons who provide information to the IRS relating to the detection of underpayments of tax or the detection and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.

[5] Section 7623(b) was created by section 406 of the Tax Relief and Health Care Act of 2006 (the Act) (PL 109-432). Generally, section 7623(b) provides that qualifying whistleblowers will receive an award of at least 15 percent, but not more than 30 percent, of the collected proceeds resulting from the action with which the Secretary proceeded based on the information provided to the IRS by the whistleblower.  The statute also established a mandatory whistleblower award program that included a new Whistleblower Office. The Whistleblower Office operates at the direction of the Commissioner of Internal Revenue.

[6] Prior to the 2006 amendments to section 7623, awards to whistleblowers were discretionary, and the amount was determined based on IRS policy.  The policy provided a framework for assessing the contribution of the information to the collection of proceeds from a taxpayer, and allowed for awards of 1%, 10% or 15% of proceeds, generally not to exceed $10 million.

The pre-amendment program differed from the current scheme in a number of respects, including:

• The pre-amendment program was discretionary, and was governed by policies that defined award percentages and set a cap.
• The maximum award percentage was 15% of collected taxes and penalties,
• Maximum award was limited to $10 million
• Awards were generally not paid when the disclosures were based on public information, or when the informant participated in the tax non-compliance
• The whistleblower was not required to be an individual.
• There was no requirement that the informant sign a Form 211

The Internal Revenue Manual (IRM) provided several grounds for rejecting a claim for award, including participation in the evasion scheme that was the subject of the report provided by the whistleblower.

[7] IRC § 6103 provides the IRS with authority to disclose taxpayer information to whistleblowers in certain, limited instances