The first tax whistleblower award payments under the enhanced provisions of section 7623(b) are imminent, likely within the next couple months or sooner. It’s been a long time coming, but some whistleblowers are finally going to be awarded for turning in large scale tax cheats. However, the award determination process is complicated [see IRM 25.2.2.8 (06-18-2010) (PDF)] and offers a whistleblower what may be their last chance to get a fair deal from the IRS.
Once the IRS has collected money from the tax cheater and the determination of tax for a specific period becomes final, the Whistleblower Office will prepare and send a preliminary award recommendation package to the whistleblower. This preliminary recommendation package will include: (a) a notice of opportunity to comment letter; (b) a proposed summary award report; (c) an award consent form; and (d) a confidentiality agreement.
A whistleblower who receives a preliminary award determination package may be wondering: now what do I do?
Once a whistleblower has received their preliminary recommendation package, they must act quickly to ensure that their rights are fully protected. Whistleblowers are given 30 days after receiving the preliminary recommendation package to do one of the following: 1) consent to the proposed award recommendation, 2) make comments on the proposed award recommendation, or 3) request an additional administrative review opportunity by signing, dating, and returning the confidentiality agreement. In almost all cases you would want to pick option three. If the whistleblower requests an additional administrative review of their award determination and returns the confidentiality agreement within 30 days, the Director will provide the whistleblower with a preliminary report package. This package contains the Whistleblower Office’s report that states the amount of the recommended award and an explanation of the recommended award. The report should include the recommended amount of the proceeds to be attributed to the whistleblower’s information, the specific award percentage recommended, the recommended award amount, and a summary of the factors considered in making the specific award percentage recommendation.
Upon receipt of the preliminary report package, the whistleblower will again have 30 days to respond to the preliminary report package by either: 1) submitting written comments on the award report, or 2) scheduling an appointment to review the IRS’s “Claim File” which contains documents supporting the recommendation. The supporting documents must be reviewed at the IRS Whistleblower Office in Washington, D.C. and the whistleblower will not be permitted to make copies of these documents. In almost all cases, we believe a whistleblower should choose option two and request a review of the underlying documents that were used as the basis of their award determination. Why? For starters, reviewing key documents from the “Administrative File” that the IRS keeps on each taxpayer is the only way you can determine if the IRS auditor’s adjustments line up with the amounts the Whistleblower Office is saying the IRS collected. An Administrative File can be massive, often containing thousands of documents, discovery requests and responses, auditor worksheets, revenue agent’s reports, etc. Unfortunately, the IRS’s Claim File may not contain all the relevant documents from the Administrative File, and if you don’t know what is supposed to be there you won’t know what’s missing. Secondly, you may not know what some of these often cryptic documents mean to your whistleblower case. After this review a whistleblower has just 30 days to comment on any discrepancies they have found.
The IRS Whistleblower Office Director makes a final award determination based on a review of the Claim File and any comments submitted by the whistleblower. The Director will share the recommendation with the Whistleblower Executive Board for concurrence. Upon concurrence, the Director’s determination will be communicated to the whistleblower in a determination letter, stating the amount of the award and summarizing the basis for the determination. If a tax whistleblower is still not satisfied with their proposed award determination after their administrative review, only 30 days are given to file a Tax Court Petition for redetermination.
It is obvious from these procedures that a whistleblower must act very quickly at each step to ensure that their rights and interests are protected. Because of the short time granted at each step for reviewing and appealing the proposed award, a whistleblower (or their representative) will need to be prepared to argue why they deserve a higher award percentage or why the award was calculated by the IRS using the wrong base amount. Additionally, the whistleblower may not be adequately able to represent their rights if they are unfamiliar with an IRS Administrative File. The whistleblower’s limited access to the Administrative File coupled with their inability to make copies of any documents in the files could put whistleblowers unfamiliar with the documents in the Administrative File at a distinct disadvantage. However, it is a careful review of the IRS’s audit documents that will likely be the key to being able to ensure that a whistleblower is receiving the maximum reward. Therefore, we believe it is in the best interest of the whistleblower to ensure that someone familiar with the awards process and Administrative Files is representing their interests.
Contributed to by Erica Brady
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