The IRS has released new regulations which include guidelines for its whistleblower award program.
Under the final regulations, the IRS is expanding the definition of “collected proceeds” to include not only how much revenue the IRS collects from the whistleblower tip, but also the impact of other tax attributes such as net operating losses, potentially bringing the whistleblower far larger awards. 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 on which the Treasury proceeded, based on the information provided to the IRS by the whistleblower.
Section 7623 provides for the payment of awards from collected proceeds, but it does not specifically address the treatment of claims that involve tax attributes that do not result in collected proceeds for many years, if ever. Originally, the proposed regulations provided a computational rule that reflects a discussion contained in the preamble to the 2012 regulations, in which the Treasury and the IRS noted that tax attributes such as NOLs do not represent amounts credited to the taxpayer’s account that are directly available to satisfy current or future tax liabilities or that can be refunded. Instead, tax attributes such as NOLs are component elements of a taxpayer’s liability.
Under the proposed regulations, any tax attributes that have been used at the time of the final determination of tax could affect the award amount. The proposed regulations reflected the Treasury and the IRS’s attempt to make an award determination and pay any resulting award as soon as possible after proceeds are collected. The proposed regulations also reflected the Treasury and the IRS’s determination that tracking tax attributes into the future after payment of an award would impose significant costs and a heavy administrative burden. Thus, the proposed rule attempted to balance the whistleblower’s interest in receiving a timely award determination and payout with the government’s interest in maintaining an administrable program. Some suggest that the IRS should attempt to calculate and apply a present value to determine an award amount for any unused tax attributes. Other commenters recommended that, in the final regulations, the IRS should agree to track tax attributes for a specific period of time, for example, 10 years.