Exclusion from gross income for certain amounts received on account of Federal whistleblower protection laws

(a)

In general

Subsection (a) of section 104 of the Internal Revenue Code of 1986 (relating to compensation for injuries or sickness) is amended by striking and at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting ; and, and by inserting after paragraph (5) the following new paragraph:

(6)in the case of a claim under any provision of Federal law (popularly known as whistleblower protection provisions) prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted under Federal law— (A)the amount of any damages (other than punitive damages and other than damages on account of lost income), and (B)the amount awarded for attorneys fees and costs in pursuing such claim to the extent the taxpayer elects not to claim any deduction for such fees and costs.

(b)

Averaging of lost income

(1)

In general

Part I of subchapter Q of chapter 1 of such Code (relating to income averaging) is amended by adding at the end the following new section:

1302.

Averaging of whistleblower lost income

(a)

In general

In the case of an individual who receives a whistleblower award during any taxable year, the tax imposed by section 1 for such taxable year shall be equal to the sum of— (1)a tax computed under such section on taxable income reduced by elected whistleblower lost income, plus (2)the increase in tax imposed by section 1 which would result if taxable income for each of the taxable years to which such income is attributable were increased by the amount of such income attributable to such year.

Any adjustment under this section for any taxable year shall be taken into account in applying this section for any subsequent taxable year.

(b)

Definitions

For purposes of this section— (1)

Whistleblower award

The term whistleblower award means any amount which is excluded from gross income under paragraph (6) of section 104(a). (2)

Elected whistleblower lost income

The term elected whistleblower lost income means income— (A)which would be excluded from gross income under such paragraph if such paragraph were applied without regard to other than damages on account of lost income, and (B)which is specified in the election under subsection (a).

If the election under subsection (a) applies to less than all such income, such election shall be treated as applying to a ratable portion of each year’s income for purposes of subsection (a)(2).

(c)

Regulations

The regulations under section 1301(c) shall apply for purposes of this section.

(2)

Conforming amendment

Subsection (c) of section 55 (defining regular tax) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:

(3)

Coordination with income averaging for whistleblower lost income

Solely for purposes of this section, section 1302 (relating to averaging of whistleblower lost income) shall not apply in computing the regular tax liability.

(3)

Clerical amendment

The table of sections for such part I is amended by adding at the end the following new item:

Sec. 1302. Averaging of whistleblower lost income

(c)

Effective date

The amendments made by this section shall take effect as if included in the amendments made by section 1605 of the Small Business Job Protection Act of 1996. (d)

Waiver of statute of limitations

If refund or credit of any overpayment of tax resulting from the amendment made by subsection (a) or (b) is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act by the operation of any law or rule of law (including res judicata), refund or credit of such overpayment (to the extent attributable to such amendment) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period.