The IRS has released on its website the “Fiscal Year 2010 Report to the Congress on the Use of Section 7623,” which details the progress of the IRS Whistleblower Office over the Fiscal 2010 year (thru September 30, 2010). The first and most important thing we noticed was that there was a huge jump in the “Amounts Collected” as a result of information from whistleblowers from FY 2009 to FY 2010 (See Table 2). The amount that the IRS collected due to this program doubled to nearly half a billion dollars per year in FY 2010. In addition, at 7,577 whistleblower submissions made to the IRS in FY 2010, they are receiving more tips than ever before.
The number of large case 7623(b) submissions has remained fairly stable according to Table 1, however, the number of Taxpayers involved greatly increased in 2010 (TP/Submission ratio: 2008 – 3.6, 2009 – 4.6, 2010 – 12.6.) Overall though most of the submissions the IRS is getting are small cases under section 7623(a). The IRS said “85 percent of submissions do not appear to meet the income amount or the amount in dispute thresholds but will be considered for awards under section 7623(a) if the IRS acts on them and collects proceeds.” See part IV.B.2
A reader of the FY 2010 Report cannot use the ratio of Awards Paid to Amounts Collected to determine average award percentage paid to whistleblowers because of timing of collection and payment for two reasons: (1) the delay in award payments as a result of the 2009 policy change/decision to only make award determinations after the section 6511 period of limitations on refunds has expired; and (2) the time it takes each case to go through the award procedures. Of the 97 awards paid: 9 related to collections of $2 million or more, and 17 were partial payments totaling $13 million. No payments were made in FY 2010 under 7623(b). The IRS said that they “expect” the first payments under section 7623(b) to be paid in 2Q 2011, but it was already public knowledge that a section 7623(b) award was paid to an accountant at the end of 2Q 2011.
The IRS also said they expect to finalize the Proposed Treasury Regulations defining collected proceeds and issue proposed regulations updating section 7623 regulations to reflect 2006 Amendments in 2011. But we believe that the bigger problem that needs to be addressed is that the IRM needs to reflect the recent guidance in e.g. PTMA 2010-62, etc., as well as the finalized Regulations, but we’ll write more about that another time.
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