The IRS Whistleblower Office made leaps forward in fiscal year 2012.  Fiscal year 2012 marked the year that the IRS made a $104 million payment to Bradley Birkenfeld, which is believed to be the largest award paid to a single whistleblower.  This was one of three awards paid in Fiscal Year 2012 and one of five paid under the new law.  Fiscal 2012 was also the year that the IRS issued final regulations that clarified the definitions of “proceeds of amounts collected” and “collected proceeds” for purposes of section 7623.  The IRS also issued interim guidance that incorporated the Treasury Regulations and added additional provisional timing of award determinations and for award computation, established procedures for tax withholding on award payments, and revised and updated procedures for administrative proceedings.  Some of the highlights from the report are:

• The number of submissions in fiscal year 2012 (332) remained relatively stable from fiscal year 2011 (314), as did the number of taxpayers identified (2011 – 734 Taxpayers Identified, 2012 – 671 Taxpayer identified).  See the charts below.

• Three awards were paid under section 7623(b).
• The IRS issued proposed regulations and is seeking comments on the comprehensive regulations that are intended to revise the current regulations implanting section 7623 to reflect the remaining 2006 amendments to section 7623. 
• The IRS Whistleblower Office incorporated the Informant Claims Examination (“ICE”) Unit.  The ICE Unit is responsible for case management and administration of the discretionary award program under what is now section 7623(a).

Going Forward

The Fiscal Year 2012 Whistleblower Office Report indicates that the IRS whistleblower program also has significant changes planned in fiscal year 2013.  According to the annual report, the IRS Whistleblower Office appears to be moving away from sorting whistleblower cases as 7623(a) claims and 7623(b) claims, and moving towards classifying claims based on the Operating Division responsible for making the tax administration decisions with respect to the issues raised by whistleblowers.  “With LB&I and SB/SE general examination programs receiving the vast majority of whistleblower claims and each processing their inventory differently because of differences in the characteristics of the typical claims referred to those organizations, the Whistleblower Office will change its intake process in FY2013.”  The IRS will stop projecting potential results for claims when they are received, as claims will stay in the Whistleblower Office regardless of size.  Instead, assignment of claims to a Whistleblower Office analysts for monitoring and coordination will be based on factors such as the need for coordination within or among operating divisions to address multiple issues or taxpayers identified in a whistleblower submission.  It is expected that future reports will separate statistics for each Operating Division.

There appears to be some concern over the ability of the IRS to control what is released to whistleblowers in discovery and the ability to limit additional disclosures of confidential taxpayer information after the IRS has disclosed such information.  The IRS has sought protective orders from the Tax Court in some cases, but the Tax Court has not ruled in those requests.