Late on November 16th, the Senate Finance Committee voted to approve its iteration of the Tax Cuts and Jobs Act, passing the measure on a party-line 14-12 vote.  The full version can be found here.  Of particular interest to our readers here is one of the amendments that was added to this in committee.  Senator Grassley submitted a number of amendments to this bill including an amendment that:

modifies section 7623 to define collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting requirements.  This definition would also be used to determine eligibility for the enhanced reward program under which proceeds and additional amounts in dispute exceed $2,000,000.  Collected proceeds amounts would be determined without regard to whether such proceeds are available to the Secretary. 

This is the latest step by Senator Grassley to ensure that the IRS Whistleblower Program is administered as he intended when he initially drafted and stewarded the 2006 amendments to section 7623 through Congress.  Senator Grassley has consistently stated that this has been his understanding of the term and the intent of Congress in enacting the amendments to section 7623(b).  In fact, Senator Grassley has gone so far as to file an amicus brief in the appeal of Whistleblower 21276-13W v. Commissioner, in which he makes the case that at the time of the 2006 amendments the term collected proceeds was used broadly and the IRS had been interpreting the base on which it could pay award broadly and the amendments sought to further broaden the amounts on which an award could be paid, not restrict the payments.

The mark up made it out of committee, but there is not guarantee that the Senate will pass the bill, as written or at all.  Then it will have to go to conference due to differences with the version from the House.  So stay tuned because there is a LONG way to go before the law actually changes.  

4 Responses to Senator Grassley’s Amendment to Clarify the Definition of “Collected Proceeds” is Added to the Senate Tax Mark Up

For anybody reading the documents filed in the USCADCC regarding 276/7, it would seem the IRS is struggling to put together a concise non repetitive argument to advance their position.

So instead of fixing the other underlying structural flaws in 7623, flaws that disincent all potential WB’s, especially those with much to lose but only modest reward potential, Sen Grassley is proposing a 7623 amendment that basically confirms what has a good chance of being affirmed at the appellate level, but does not, with respect to 7623(b) submissions:
– do anything to mitigate the rampant abuse of discretion by the IRS in the pursuit of minimizing WB rewards;
– mandate the IRS fully investigate all such submissions (see more below at*);
– fix the reward at 30% with reasonable reductions for WB misconduct;
– eliminate the ability for the service to claim the 211 tip was of minimal or no help. If the WB submits a tip, they should be in for the full pound of a rest, not the current penny variety;
– eliminate the sequester reduction penalty;
– make rewards tax free;
– require all TP’s investigated under a WB tip to be banned from OVDP or any other leniency program (this was already supposed to be the case, but IRS management violated this policy in a recent case; also told the TP that a WB had turned them in, another grave violation of irs policy);
– as above, require the IRS to pursue full penalties, restitution and interest;
– *reduce the IRS’s penchant not to pursue WB submissions, further encourage the IRS to get aggressive on pursuing WB tips by requiring mandatory investigation and allowing the service to retain a portion of the recoveries to fund operational improvements;
– tie a part of management bonuses to measurable support and pursuit of WB tips;
– extend the SOL for retaliation claims of fraud-related (even suspected) to match the open SOL of the fraud statute itself (it is very difficult to crack conspiracy when knowledgeable individuals are still employed by a potential target TP – once these folks move out or retire, they are much more likely to talk. Savvy WB’s know this and need often delay submissions due to this.)

The above would do much more to encourage WB’s to come forward. The IRS’ arguments are plain stupid, that coercion via the threat of criminal liability will be enough to cause WB’s to come forward. There are many folks like me who have no direct role, and no legal liability, in the issue in which they would like to report but for the risk to themselves and their family’s well being. The IRS’ approach is wrong headed and in an effort to limit rewards they chill potential WB’s from coming forward (the new wrinkle of we would rather get our WB’s via the threat of a whip than via the promise of a carrot is telling and even more chilling.)

I realize that my long standing proposals to “reward to the max” mean bigger paydays in general, and a few eye-poppingly huge paydays as well. But what needs to be understood is that over the long run, crooks will be better chilled from their anti-social tax evading ways by the knowledge that big incentives could lead anybody to decide to blow the whistle. As this result compounds itself, there will be a virtuous cycle of deterrence, fewer cases of evasion due to having such a strong detection system (ie WB’s).

Also, I think it is well past high time for Grassley or Wyden or one of the purported WB champions to convene a hearing to call onto the carpet the executives that are stymying the IRS WB program. There are some massive cultural disconnects going on, to the point of malfeasance and malicious compliance, when between the WB and the “I love WB’s” Commissioner there are individuals that are obstructing the WB program and participation in ways both big and small. That the service rejected the USTC ruling on this issue, the USTC’s reconsidered confirmation of its position and now pursuit into the USCA circuit would seem the most egregious example but we must not forget that there are 1000 more cuts inflicted from top to bottom by overzealous, vain and myopic bureaucrats within the service. Just adding title 18 & 31 based rewards may address the most visible tip of the problem, but will do nothing to fix the much larger and more common part of the iceberg still below the surface.

Further to my list of items for improvement, there is this language that appears all too often in 7623 cases in the USTC:


“Rule 341(b) requires that a WB petition filed in this Court include, among other things, statements explaining why the WB disagrees with the IRS award determination, statements setting forth the facts in support of that position, and a prayer setting forth the relief requested. Rule 341(b)(3)-(5). The WB’s do not dispute that the IRS did not institute an administrative or judicial action as a result of the information that they provided. Indeed, the basis of their complaint as outlined in great detail in the petition is that the IRS was negligent in failing to audit the taxpayers that the WB’s identified in Form 211.

It is well settled that a WB award under section 7623(b) is dependent upon the IRS initiating an administrative or judicial action and collecting tax proceeds from the target of that action. See Cooper v. Commissioner, 136 T.C. 597, 600 (2011). The Court’s authority to review a WB award under section 7623(b) does not contemplate a redetermination of the target taxpayer’s liability or that the Court will direct the Commissioner to commence a judicial or administrative action. Id.; see Cohen v. Commissioner, 139 T.C. 299, 302 (2012), affd, 550 F. App’x 10 (D.C. Cir. 2014).

Consistent with the preceding discussion and the Court’s holding in Cohen v. Commissioner, the petition in this case fails to state a claim for which relief can be granted, as does WB’s motion for declaratory relief. Consequently, we will deny the WB’s motion for declaratory relief and grant IRS’ motion to dismiss. See Rule 123(b).

Upon due consideration and for cause, it is ORDERED that the WB’s motion for declaratory relief is denied.”

This is the reply the Court, unfortunately, has to give to WB’s whose tips are not actioned, or otherwise ignored (or possibly actioned but not attributed to the WB tip), by the IRS.

Even the court expresses sympathy with the plight of the WB, but reminds us all that unless and until Congress intervenes with legislation to either require the IRS to act on all 7623 tips, or endows the Court with the authority to order the IRS to do so, there can be no other outcome for WB’s whose tips fall in the often sterile ground of an IRS culture that claims to embrace WB’s but then discards common sense to fight them in court.

I ask again, that those who consider themselves the champions of WB’s, as well as those who claim to be the same, but who are moving much too slowly to enact structural reforms to the make the IRS’ WB program more robust and responsive, to get a move on.

And for all the other brave WB’s that went before, but were let-down by the process and the people operating the WB program with a kind of obstructive malicious compliance, it would be nice if any future reform legislation offers those so affected some kind of De Novo review opportunity.

It looks like none of the whistleblower provisions in the Senate bill are in the final bill just reported out of the COnference COmmittee. I wonder why. The parliamentarian, maybe— not revenue items?

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