The IRS has finally released the Final Treasury Regulations that we have all been waiting for. While, there were not as many in the Final Regulations as we would have liked to have seen; the changes that were made were important ones. Some of the pros and cons of the Final Regulations are:
Change in the definition of “Proceeds based on.” The final definition is more inclusive and removes the word “only” that had been read in. The new definition provides examples of when the IRS proceeds based on, but does not limit when the IRS will have proceeded based on.
Change in the definition of “Collected Proceeds.” Now includes amounts on amended returns that are filed after the IRS proceeds with and administrative or judicial action based on a whistleblower’s information. The IRS will continue to monitor the taxpayer’s tax account for additional collected proceeds in cases where this is a possibility. This will allow for whistleblower to collect on tax assets that are reduced based on their information, but have not yet lead to additional payments at the time the WBO makes a final determination of tax. There is a downside to this change, the WBO will also monitor timing issues in future years to determine if there are offsetting reductions to collected proceeds.
There is now an administrative review process for the rejection or denial of claims for awards under section 7623(b) that are rejected or denied. Administrative Procedures for denied/rejected claims:
1. WBO sends a preliminary rejection letter that states the basis for the rejection or denial of the claim.
2. Whistleblower has 30 days from the date that the letter was sent to respond with comments.
3. WBO will review the comments and either (a) provide written notification to the whistleblower of the rejection of the claim, including the basis fro rejection; or (b) go through the administrative review process provided for in paragraph (c)(1) through (6) of Treasury Regulation section 301.7623-3.
The administrative review is of the items in the administrative claim file that are not privileged, before it was limited to the “pertinent information.”
The Final Treasury Regulations kept the fixed percentage award structure and still start the evaluation at the statutory minimum.
The Final Regulations failed to adopt the “principal architect” standard for planned and initiated. This remained section of the Final Regulations remained largely unchanged from the Proposed Regulations. However, using this test is functionally reinventing the wheel.
In the general rule for “Administrative Record,” the administrative record definition is still limited to the information that is relevant to the award determination. By limiting the administrative record to what the IRS deems to be relevant, whistleblower and their representatives will forever be fighting about what is relevant and what they are not being provided when there is concern that monies or circumstances are not being properly considered.
Collected Proceeds still does not include criminal fines or FBAR penalties.