I.R.S. Whistleblower Awards Expanded by U.S Tax Court
The statute governing whistleblower claims, I.R.C. § 7623, grants awards to private citizens who provide information to the IRS that leads to the collection of at least $2 million in taxes, penalties, interest, and “additional amounts.” The whistleblower can get an award of “at least 15 percent but not more than 30 percent of the collected proceeds.”
This week, the United States Tax Court issued an opinion that expands the definition of “collected proceeds” for purposes of an IRS whistleblower claim. The IRS has generally taken the position that so-called “tax restitution,” or repayment of back taxes and interest, qualified as “collected proceeds,” but any criminal or civil fines or forfeitures did not. For instance, the IRS’s Internal Revenue Manual explains that criminal fines cannot be used for a whistleblower award, because the entirety of the fine must be deposited into the Victims of Crime trust fund. Likewise, a civil forfeiture must be placed in its entirety into a Treasury Department trust fund.