The IRS has the ability to provide an award to a whistleblower who brings to their attention information regarding violations of our tax laws.

1. S
The IRS
Whistleblower
Program
Kevan P. McLaughlin, Esq., LL.M

2. Background
• 1867 – An Act to Amend Existing Laws
Relating to Internal Revenue and for
other Purposes, ch. 169, § 7, 14 Stat.
471, 473 (1867)
• 1996 – Taxpayer Bill of Rights 2, Pub.
L. No. 104-168, 110 Stat. 1452 (1996)

3. Tax Relief and Healthcare Act
of 2006
• Discretionary Awards – IRC § 7623(a)
• Mandatory Awards – IRC § 7623(b)

4. Mandatory Awards
If the Secretary proceeds with any administrative or judicial
action … based on information brought to the Secretary’s
attention by an individual, such individual shall, … receive as
an award at least 15 percent but not more than 30 percent of
the collected proceeds (including
penalties, interest, additions to tax, and additional amounts)
resulting from the action (including any related actions) or
from any settlement in response to such action. The
determination of the amount of such award by the
Whistleblower Office shall depend upon the extent to which
the individual substantially contributed to such action.
IRC § 7623(b)(1)

5. Limitations
IRC § 7623(b) applies to any action:
(A) against any taxpayer, but in the case of any
individual, only if such individual’s gross
income exceeds $200,000 for any taxable year
subject to such action, and
(B) if the tax, penalties, interest, additions to tax,
and additional amounts in dispute exceed
$2,000,000.

6. Key Provisions
• “Administrative” or “Judicial Action”
• “Proceeds Based On”
• “Related Action”
• “Collected Proceeds”
• “Amount in Dispute” and “Gross Income”

7. Filing a Claim
• Notice 2008-4
• Form 211
• Proposed Treas. Reg. § 301.7623-
1(c)

8. IRS Whistleblower Office
• Formation
• Staffing
• Responsibilities

9. Award Computation
• IRC § 7623(a) vs. IRC § 7623(b)
• IRC § 7623(b)(1)
• 15%, 18%, 22%, 26% or 30% based on Positive and Negative
Factors
• IRC § 7623(b)(2)
• 1% to 4%, 7%, or 10% based on Positive and Negative Factors
• IRC § 7623(b)(3)
• Significant Planners; Moderate Planners; Minimal Planners

10. Positive Factors
• Prompt action by the whistleblower
• The information identifies an issue of a type previously unknown to the Government
• Thoroughly present the details of the noncompliance in a clear and organized
manner
• Exceptional cooperation and assistance during
• Identifying assets of the taxpayers that could be used to pay the taxpayer’s liability
• Identifying connections between transactions, or parties to transactions, which
enabled the IRS to understand tax implications that might not otherwise have been
revealed.
• Impact of the report on the behavior of the taxpayer.

11. Negative Factors
• Delayed reporting
• The whistleblower’s role in the underpayment of tax
reported
• Putting the tax case at risk.
• Violation of specific instructions regarding permissible
and impermissible activities.

12. Administrative Proceedings
Any determination regarding an award under
paragraph (1), (2), or (3) may, within 30 days
of such determination, be appealed to the
Tax Court (and the Tax Court shall have
jurisdiction with respect to such matter).
IRC § 7623(b)(4)

13. Recent Cases
• Cooper v. Commissioner, 135
T.C. 4 (2010)
• Friedlandv. Commissioner,
T.C. Memo. 2011-90
• Cooper v. Commissioner, 136
T.C. 30 (2011)
• Kasper v. Commissioner, 137
T.C. 37 (2011)
• Friedlandv. Commissioner,
T.C. Memo. 2011-217
• Whistleblower 14106-10W v.
Commissioner, 137 T.C. 15
(2011)
• Cohen v. Commissioner, 139
T.C. 12 (2012)
• Insignav. Commissioner,
Docket 4609-12W

14. Cooper v. Commissioner
(Cooper I)
• Facts
• Challenge – Lack of Jurisdiction
• Issue (case of first impression) – what is a
“determination” for purposes of IRC §
7623(b)(4)?
• “we find that our jurisdiction is not limited to
the amount of an award determination but
includes any determination to deny an award.”

15. Friedlandv. Commissioner
(Friedland I)
• Facts
• Challenge – Lack of Jurisdiction
• Issues:
• Is a letter a “determination” under IRC § 7623(b)(4)?
• “Any determination regarding an award from the
Whistleblower Office may be appealed to the Tax Court.”
• “We held that the letter constituted a determination because it
was a final administrative decision regarding the taxpayer’s
whistleblower claims.”
• If so, is petition timely?

16. Cooper v. Commissioner
(Cooper II)
• Facts
• Challenge – Summary Judgment
• Issue – what is the Tax Court’s role if it has jurisdiction?
• “Thus, a whistleblower award is dependent upon both the initiation of
an administrative or judicial action and collection of tax proceeds.”
• “In a whistleblower action, however, we have jurisdiction only with
respect to the Commissioner’s award determination … Our
jurisdiction under section 7623(b) does not contemplate that we
redetermine the tax liability of the taxpayer.”
• “If the Secretary does not proceed, there can be no whistleblower
award.”

17. Kasper v. Commissioner
• Facts
• Challenge – Lack of Jurisdiction
• Issues
• What is a “determination” under IRC § 7623(b)(4)?
• A final administrative decision
• Was the petition timely?
• “the 30-day period of section 7623(b)(4) within which a whistleblower
must file a petition in response to a Whistleblower Office
determination begins on the date of mailing or personal delivery of
the determination to the whistleblower at his last known address.”
• “the Commissioner must prove by direct evidence the date and fact
of mailing or personal delivery of the notice to the whistleblower.”

18. Friedlandv. Commissioner
(Friedland II)
• Facts
• Challenge – Lack of Jurisdiction
• Issues
• Was petition timely?
• “Where a taxpayer receives actual notice without
prejudicial delay and with sufficient time to file a
petition, the Court has found that the notice is
effective.”
• If timely, does claim meet monetary thresholds?

19. Whistleblower 14106-10W v.
Commissioner
• Facts
• Challenge – Motion for Summary Judgment
• Issues
• Ability to proceed anonymously
• “In deciding whether petitioner should be allowed to proceed
anonymously, we take into account not only petitioners’ legitimate
privacy interests as a confidential informant, but also the nature and
severity of the specific harm asserted to arise from disclosing
petitioner’s identity, and we balance that potential harm against the
relevant social interests.”

20. Cohen v. Commissioner
• Facts
• Challenge – Failure to State a Claim
• Issue – What is the Tax Court’s role?
• “Section 7623(b) does not provide any relief before
whistleblower information leads to an administrative or
judicial action and the collection of proceeds…. In
toto, section 7623(b)(4) authorizes our review of any
award determination. Petitioner seeks relief that is
unavailable because respondent never instituted an
action or collected any proceeds.”

21. Steps to an Award
1. File whistleblower claim
2. Whistleblower Office review
3. Operating Division Subject Matter Expert Review
4. Operating division classification and examination
5. Appeals and collections
6. Right to refund
7. Whistleblower Office final review
8. Award payment

22. Report on Use of Section 7623
Fiscal Year 2012 Report to the Congress on the Use of Section 7623

23. Report on Use of Section 7623
Fiscal Year 2012 Report to the Congress on the Use of Section 7623