T.D. 9516

The IRS has issued final regs describing the procedures where the agency may disclose return information to whistleblowers. The final regs generally track temporary and proposed regs issued in 2008.

CCH Take Away. “As a technical matter, the regulation had to be finalized now because the temporary regulation authorizing disclosure contracts with whistleblowers expires on March 24, 2011,” Scott Knott, The Ferraro Law Firm, Miami, told CCH. “However, as a practical matter, the IRS is not entering into these contracts because of either extreme caution bordering on neglect, a failure of internal communication, or both. In some instances, whistleblowers are very experienced, knowledgeable, and high ranking tax professionals who had an insider’s view of the issue they presented to the IRS,” Knott explained. “As of today not a single section 6103(n) contract has been entered into with a whistleblower,” he added.

Background

Congress overhauled the whistleblower rules in the Tax Relief and Health Care Act of 2006 (2006 Tax Relief Act). In addition to establishing a Whistleblower Office within the IRS, the 2006 Tax Relief Act also reformed the reward program. If taxes and other amounts in dispute exceed $2 million, and other criteria are met, the IRS pays 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000.
Cases may not meet the dollar thresholds of $2 million in dispute or may not involve individual taxpayers with gross income of more than $200,000. In these cases, the reward framework is different.

Comment. Since passage of the 2006 Tax Act, the IRS has issued several guidance items, including proposed regs expanding the definition of proceeds collected under the whistleblower rules and guidelines about the investigation and processing of whistleblower claims on its web site.

In 2008, the IRS issued temporary and proposed regs describing when the IRS may disclose return information to whistleblowers. The temporary and proposed regs were issued under Code Sec. 6103(n), which allows the IRS to disclose return information if made under a tax administration contract when the agency reasonably believes that it needs the assistance of the whistleblower to analyze the return information.

Final Regs

A commentator on the proposed regs recommended the removal of any requirement that a written contract be in place for a whistleblower to be provided with basic status information about the whistleblower’s claim for award. The IRS declined to make this change.

Return information is confidential under Code Sec. 6103(a) and may only be disclosed if authorized by a specific provision. Code Sec. 6103(n) provides authority for the IRS to make status information disclosures to a whistleblower. Disclosures under Code Sec. 6103(n) require a written tax administration contract, the IRS explained.

The same commentator recommended elimination of the proposed inspection requirement. Again, the IRS declined to make this change. The inspection requirement, the agency explained, is consistent with traditional safeguards and would be retained in the final regs.

Comment. “Failure to enter into a single section 6103(n) agreement with a whistleblower is preventing the IRS from getting the benefit of two way communications with knowledgeable insiders that Congress had hoped for to prevent tax avoidance,” Knott cautioned.

References: FED ¶49,013;

TRC IRS: 9,252.05

By George L. Yaksick, Jr., CCH News Staff

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