[Federal Register Volume 73, Number 58 (Tuesday, March 25, 2008)]
[Rules and Regulations]
[Pages 15668-15671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6067]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9389]
RIN 1545-BG74


Disclosure of Return Information in Connection with Written 
Contracts Among the IRS, Whistleblowers, and Legal Representatives of 
Whistleblowers

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
disclosure of return information, pursuant to section 6103(n) of the 
Internal Revenue Code (Code), by an officer or employee of the Treasury 
Department, to a whistleblower and, if applicable, the legal 
representative of the whistleblower, to the extent necessary in 
connection with a written contract among the IRS, the whistleblower 
and, if applicable, the legal representative of the whistleblower, for 
services relating to the detection of violations of the internal 
revenue laws or related statutes. The temporary regulations will affect 
officers and employees of the Treasury Department who disclose return 
information to whistleblowers, or their legal representatives, in 
connection with written contracts among the IRS, whistleblowers and, if 
applicable, their legal representatives, for services relating to the 
detection of violations of the internal revenue laws or related 
statutes. The temporary regulations will also affect any whistleblower, 
or legal representative of a whistleblower, who receives return 
information in connection with a written contract among the IRS, the 
whistleblower and, if applicable, the legal representative of the 
whistleblower, for services relating to the detection of violations of 
the internal revenue laws or related statutes. The text of the 
temporary regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These temporary regulations are effective on 
March 25, 2008.
    Applicability Date: For dates of applicability, see Sec.  
301.6103(n)-2T(f).

FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202-622-7950 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under section 6103(n) 
relating to the disclosure of return information in connection with 
written contracts among the IRS, whistleblowers and, if applicable, 
their legal representatives.
    The Tax Relief and Health Care Act of 2006, Public Law 109-432 (120 
Stat. 2958), (the Act) was enacted on December 20, 2006. Section 406 of 
the Act amends section 7623, concerning the payment of awards to 
whistleblowers, and establishes a Whistleblower Office within the IRS 
that has responsibility for the administration of a whistleblower 
program. The Whistleblower Office, in connection with administering a 
whistleblower program, will analyze information provided by a

[[Page 15669]]

whistleblower, and either investigate the matter itself or assign it to 
the appropriate IRS office for investigation. In analyzing information 
provided by a whistleblower, or investigating a matter, the 
Whistleblower Office may determine that it requires the assistance of 
the whistleblower, or the legal representative of the whistleblower. 
The legislative history of section 406 of the Act states that ``[t]o 
the extent the disclosure of returns or return information is required 
[for the whistleblower or his or her legal representative] to render 
such assistance, the disclosure must be pursuant to an IRS tax 
administration contract.'' Joint Committee on Taxation, Technical 
Explanation of H.R. 6408, The ``Tax Relief and Health Care Act of 
2006,'' as Introduced in the House on December 7, 2006, at 89 (JCX-50-
06), December 7, 2006. The legislative history further states that 
``[i]t is expected that such disclosures will be infrequent and will be 
made only when the assigned task cannot be properly or timely completed 
without the return information to be disclosed.'' Id.
    Under section 6103(a), returns and return information are 
confidential unless the Internal Revenue Code (Code) authorizes 
disclosure. Section 6103(n) is the authority by which returns and 
return information may be disclosed pursuant to a tax administration 
contract. Section 6103(n) authorizes, pursuant to regulations 
prescribed by the Secretary, returns and return information to be 
disclosed to any person, including any person described in section 
7513(a), for purposes of tax administration, to the extent necessary in 
connection with: (1) The processing, storage, transmission, and 
reproduction of returns and return information; (2) the programming, 
maintenance, repair, testing, and procurement of equipment; and (3) the 
providing of other services. These temporary regulations describe the 
circumstances, pursuant to section 6103(n), under which officers and 
employees of the Treasury Department may disclose return information to 
whistleblowers and, if applicable, their legal representatives, in 
connection with written contracts for services relating to the 
detection of violations of the internal revenue laws or related 
statutes.

Explanation of Provisions

General Rule

    The temporary regulations, at Sec.  301.6103(n)-2T(a)(1), provide 
that an officer or employee of the Treasury Department may, pursuant to 
sections 6103(n) and 7623, disclose return information to a 
whistleblower and, if applicable, the legal representative of the 
whistleblower, to the extent necessary in connection with a written 
contract among the IRS, the whistleblower and, if applicable, the legal 
representative of the whistleblower, for services relating to the 
detection of violations of the internal revenue laws or related 
statutes. If a whistleblower has retained the services of a legal 
representative, then, in addition to the whistleblower, the 
whistleblower's legal representative must be a party to the written 
contract with the IRS. These temporary regulations do not provide for 
the disclosure of returns to whistleblowers or their legal 
representatives.
    The temporary regulations, at Sec.  301.6103(n)-2T(a)(2), provide 
that the Commissioner has the discretion to determine whether to enter 
into a written contract with the whistleblower and, if applicable, the 
legal representative of the whistleblower, for services as described in 
Sec.  301.6103(n)-2T(a)(1). The IRS expects to enter into these 
contracts only infrequently, and any contract that is entered into, and 
any disclosures made pursuant to this type of contract, will be 
carefully tailored to the specific facts of the case.

Limitations

    The temporary regulations, at Sec.  301.6103(n)-2T(b)(1), set forth 
the condition that the disclosure of return information in connection 
with a written contract for services described in Sec.  301.6103(n)-
2T(a)(1) may be made only to the extent the IRS deems it necessary in 
connection with the reasonable or proper performance of the contract. 
In this regard, disclosures should relate to relevant taxable years and 
types of tax. The temporary regulations, at Sec.  301.6103-2T(b)(2), 
set forth the additional condition that if the IRS determines that the 
services of a whistleblower and, if applicable, the legal 
representative of the whistleblower as described in Sec.  301.6103(n)-
2T(a)(1) can be performed reasonably or properly by disclosure of only 
parts or portions of return information, then only the parts or 
portions of the return information are to be disclosed.
    The temporary regulations, at Sec.  301.6103(n)-2T(b)(3), provide 
that, upon written request by a whistleblower, or a legal 
representative of a whistleblower, with whom the IRS has entered into a 
written contract for services as described in Sec.  301.6103(n)-
2T(a)(1), the Director of the Whistleblower Office, or designee of the 
Director, may inform the whistleblower and, if applicable, the legal 
representative of the whistleblower, of the status of the 
whistleblower's claim for award under section 7623, including whether 
the claim is being evaluated for potential investigative action, or is 
pending due to an ongoing examination, appeal, collection action, or 
litigation. This information may be disclosed only if the Commissioner 
determines that the disclosure would not seriously impair Federal tax 
administration.
    The temporary regulations, at Sec.  301.6103(n)-2T(b)(4), impose 
the condition that return information disclosed to a whistleblower and, 
if applicable, a legal representative of a whistleblower, may not be 
disclosed or otherwise used by the whistleblower or a legal 
representative of a whistleblower, except as expressly authorized by 
the IRS.

Penalties

    The temporary regulations, at Sec.  301.6103(n)-2T(c), set forth 
the civil and criminal penalties to which whistleblowers and their 
legal representatives are subject for unauthorized inspection or 
disclosure of return information by operation of sections 7431(a)(2), 
7213(a)(1), and 7213A(a)(1)(B).

Safeguards

    The temporary regulations, at Sec.  301.6103(n)-2T(d)(1), provide 
that whistleblowers and their legal representatives who receive return 
information under these regulations must comply with all applicable 
conditions and requirements as the IRS may prescribe from time to time 
(prescribed requirements) for the purposes of protecting the 
confidentiality of the return information and preventing unauthorized 
disclosures and inspections of the return information (for example, 
requirements pertaining to computer security, physical security of 
return information, methods of destruction of return information).
    The temporary regulations, at Sec.  301.6103(n)-2T(d)(2), provide 
that any written contract for services as described in Sec.  
301.6103(n)-2T(a)(1) must provide that any whistleblower and, if 
applicable, the legal representative of a whistleblower, who has access 
to return information under these regulations shall comply with the 
prescribed requirements.
    The temporary regulations, at Sec.  301.6103(n)-2T(d)(3), impose 
the requirement that whistleblowers, and their legal representatives 
who receive return information under these regulations, must agree in 
writing, before any disclosure of return information is made, to permit 
an

[[Page 15670]]

inspection of their premises by the IRS relative to the maintenance of 
the return information disclosed to them under these regulations and, 
upon completion of services as described in the written contract with 
the IRS, to dispose of all return information by returning the return 
information, including any and all copies or notes made, to the IRS, or 
to the extent that it cannot be returned, by destroying the information 
in a manner consistent with security guidelines and other safeguards 
for protecting return information in guidance published by the IRS.
    The temporary regulations, at Sec.  301.6103(n)-2T(d)(4), provide 
that if the IRS determines that any whistleblower, or the legal 
representative of a whistleblower, who has access to return information 
under these regulations, has failed to, or does not, satisfy the 
prescribed requirements, the IRS, using the procedures described in the 
regulations under section 6103(p)(7), may take any action it deems 
necessary to ensure that the prescribed requirements are or will be 
satisfied.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed rulemaking published in the Proposed Rules 
section in this issue of the Federal Register. Pursuant to section 
7805(f) of the Code, these regulations have been submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Drafting Information

    The principal author of these regulations is Helene R. Newsome, 
Office of the Associate Chief Counsel (Procedure & Administration).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 301.6103(n)-2T also issued under 26 U.S.C. 6103(n); * * 
*


0
Par. 2. Section 301.6103(n)-2T is added to read as follows:


Sec.  301.6103(n)-2T  Disclosure of return information in connection 
with written contracts among the IRS, whistleblowers, and legal 
representatives of whistleblowers (temporary).

    (a) General rule. (1) Pursuant to the provisions of sections 
6103(n) and 7623 of the Internal Revenue Code and subject to the 
conditions of this section, an officer or employee of the Treasury 
Department is authorized to disclose return information (as defined in 
section 6103(b)(2)) to a whistleblower and, if applicable, the legal 
representative of the whistleblower, to the extent necessary in 
connection with a written contract among the Internal Revenue Service 
(IRS), the whistleblower and, if applicable, the legal representative 
of the whistleblower, for services relating to the detection of 
violations of the internal revenue laws or related statutes.
    (2) The Commissioner shall have the discretion to determine whether 
to enter into a written contract pursuant to section 7623 with the 
whistleblower and, if applicable, the legal representative of the 
whistleblower for services described in paragraph (a)(1) of this 
section.
    (b) Limitations. (1) Disclosure of return information in connection 
with a written contract for services described in paragraph (a)(1) of 
this section shall be made only to the extent the IRS deems it 
necessary in connection with the reasonable or proper performance of 
the contract. Disclosures may include, but are not limited to, 
disclosures to accomplish properly any purpose or activity of the 
nature described in section 6103(k)(6) and the regulations thereunder.
    (2) If the IRS determines that the services of a whistleblower and, 
if applicable, the legal representative of the whistleblower, as 
described in paragraph (a)(1) of this section can be performed 
reasonably or properly by disclosure of only parts or portions of 
return information, then only the parts or portions of the return 
information shall be disclosed.
    (3) Upon written request by a whistleblower, or a legal 
representative of a whistleblower, with whom the IRS has entered into a 
written contract for services as described in paragraph (a)(1) of this 
section, the Director of the Whistleblower Office, or designee of the 
Director, may inform the whistleblower and, if applicable, the legal 
representative of the whistleblower, of the status of the 
whistleblower's claim for award under section 7623, including whether 
the claim is being evaluated for potential investigative action, or is 
pending due to an ongoing examination, appeal, collection action, or 
litigation. The information may be disclosed only if the Commissioner 
determines that the disclosure would not seriously impair Federal tax 
administration.
    (4) Return information disclosed to a whistleblower and, if 
applicable, a legal representative of a whistleblower, under this 
section, shall not be disclosed or otherwise used by the whistleblower 
or a legal representative of a whistleblower, except as expressly 
authorized in writing by the Director of the Whistleblower Office.
    (c) Penalties. Any whistleblower, or legal representative of a 
whistleblower, who receives return information under this section, is 
subject to the civil and criminal penalty provisions of sections 7431, 
7213, and 7213A for the unauthorized inspection or disclosure of the 
return information.
    (d) Safeguards. (1) Any whistleblower, or the legal representative 
of a whistleblower, who receives return information under this section, 
shall comply with all applicable conditions and requirements as the IRS 
may prescribe from time to time (prescribed requirements) for the 
purposes of protecting the confidentiality of the return information 
and preventing any disclosure or inspection of the return information 
in a manner not authorized by this section.
    (2) Any written contract for services as described in paragraph 
(a)(1) of this section shall provide that any whistleblower and, if 
applicable, the legal representative of a whistleblower, who has access 
to return information under this section, shall comply with the 
prescribed requirements.
    (3) Any whistleblower, or the legal representative of a 
whistleblower, who may receive return information under this section, 
shall agree in writing, before any disclosure of return information is 
made, to permit an inspection of his or her premises by the IRS 
relative to the maintenance of the return information disclosed under 
these regulations and, upon completion of services as described in the 
written contract with the IRS, to dispose of all return information by 
returning the return information, including any and

[[Page 15671]]

all copies or notes made, to the IRS, or to the extent that it cannot 
be returned, by destroying the information in a manner consistent with 
security guidelines and other safeguards for protecting return 
information in guidance published by the IRS.
    (4) If the IRS determines that any whistleblower, or the legal 
representative of a whistleblower, who has access to return information 
under this section, has failed to, or does not, satisfy the prescribed 
requirements, the IRS, using the procedures described in the 
regulations under section 6103(p)(7), may take any action it deems 
necessary to ensure that the prescribed requirements are or will be 
satisfied, including--
    (i) Suspension of further disclosures of return information by the 
IRS to the whistleblower and, if applicable, the legal representative 
of the whistleblower, until the IRS determines that the conditions and 
requirements have been or will be satisfied; and
    (ii) Suspension or termination of any duty or obligation arising 
under a contract with the IRS.
    (e) Definitions. For purposes of this section--
    (1) The term Treasury Department includes the IRS and the Office of 
the Chief Counsel for the IRS.
    (2) The term whistleblower means an individual who provides 
information to the IRS regarding violations of the tax laws or related 
statutes and submits a claim for an award under section 7623 with 
respect to the information.
    (3) The term legal representative means any individual who is a 
member in good standing in the bar of the highest court of any state, 
possession, territory, commonwealth, or the District of Columbia, and 
who has a written power of attorney executed by the whistleblower.
    (f) Effective/applicability date. This section is applicable on 
March 25, 2008.
    (g) Expiration date. This section will expire on March 24, 2011.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: March 12, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E8-6067 Filed 3-24-08; 8:45 am]
BILLING CODE 4830-01-P