The Tax Relief and Health Care Act of 2006 makes a number of changes related to the IRS informants reward program. This program has long been ridiculed for being ineffective and poorly administered. Even the U.S. Treasury Inspector General for Tax Administration has said so.
The question is whether the sweeping changes will have any impact on the program. Given that the IRS has often viewed the program as a competitor to its own ability to select tax returns for audit and a challenge to its abilities, we have low expectations. Changes or no changes, the same agency is administering the program.
The Informants Reward Program
The IRS had been operating the “informants reward program” under the general authority provided by Section 7623. Congress has now added four new subsections to Section 7623. These new provisions create a “whistleblowers” program. So the program has a new name.
There are a whole host of new rules for this program. The “whistleblowers” program entitles informants to 15% to 30% of the tax proceeds that are collected as a result of the informant’s efforts if the efforts “substantially contributed” to the tax collection and up to 10% if the informant’s efforts were “of less substantial contribution.”
U.S. Tax Court Review & Limitations
The new provisions also specify that informants have the right to petition the U.S. Tax Court within thirty days of receiving an IRS determination with regard to their award and that the tax court shall have jurisdiction to hear such claims. This is a much-needed change as informants under the current program often had no remedy whatsoever if the IRS refused or even ignored their claims.
The new provisions then go on to specify that the “whistleblowers” program does not apply to individual taxpayers whose gross income for the applicable year is less than $200,000 and if the taxes in disputed are under $2,000,000. This may serve to limit the usefulness of the program for many potential claimants.
Considerations for the New Program
The new provisions also instruct the IRS to create a “whistleblower office” and related guidance within twelve months. There are still a lot of unanswered questions about this program.
The new provisions regarding the “whistleblower office” within the IRS represent a positive step towards improving the informants reward program. However, there are still concerns regarding the effectiveness of the program, particularly in regard to the previous issues with slow award issuance. It is unclear whether this new legislation addresses this issue directly.
Additionally, there are concerns regarding the applicability of the old “informants reward program” in cases where the new “whistleblowers” program is not applicable. For instance, the old program does not apply in cases where the taxpayer had gross income of a mere $199,999 or the tax liability is a mere $1,999,999. This means that the IRS will no longer be making awards for these “small” taxpayer and tax liabilities, which seems counterintuitive as there are many more “small” taxpayers and tax liabilities. It would be more beneficial to encourage informants to provide information for these cases as well, as it would increase the tax revenues collected by the Treasury.
While the new provisions are a step in the right direction, there are still questions and concerns regarding the effectiveness and applicability of the informants reward program that need to be addressed.