[Federal Register Volume 79, Number 155 (Tuesday, August 12, 2014)]
[Rules and Regulations]
[Pages 47246-47275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18858]



[[Page 47245]]

Vol. 79

Tuesday,

No. 155

August 12, 2014

Part IV





Internal Revenue Service





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26 CFR Part 301





Awards for Information Relating to Detecting Underpayments of Tax or 
Violations of the Internal Revenue Laws; Final Rule

  Federal Register / Vol. 79 , No. 155 / Tuesday, August 12, 2014 / 
Rules and Regulations  

[[Page 47246]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9687]
RIN 1545-BL08


Awards for Information Relating to Detecting Underpayments of Tax 
or Violations of the Internal Revenue Laws

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: These regulations provide comprehensive guidance for the award 
program authorized under Internal Revenue Code (Code) section 7623. The 
regulations provide guidance on submitting information regarding 
underpayments of tax or violations of the internal revenue laws and 
filing claims for award, as well as on the administrative proceedings 
applicable to claims for award under section 7623. The regulations also 
provide guidance on the determination and payment of awards, and 
provide definitions of key terms used in section 7623. Finally, the 
regulations confirm that the Director, officers, and employees of the 
Whistleblower Office are authorized to disclose return information to 
the extent necessary to conduct whistleblower administrative 
proceedings. The regulations provide needed guidance to the general 
public as well as officers and employees of the IRS who review claims 
under section 7623.

DATES: Effective Date: These regulations are effective on August 12, 
2014.
    Applicability Date: Sections 301.7623-1, 301.7623-2, 301.7623-3, 
and 301.6103(h)(4)-1 apply to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014. Section 301.7623-4 applies to 
information submitted on or after August 12, 2014, and to claims for 
award under section 7623(b) that are open as of August 12, 2014.

FOR FURTHER INFORMATION CONTACT: Melissa A. Jarboe at (202) 317-5437 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 406 of the Tax Relief and Health Care Act of 2006 (the 2006 
Act), Public Law 109-432 (120 Stat. 2922), enacted on December 20, 
2006, amended section 7623 of the Code regarding the payment of awards 
to certain persons who provide information to the IRS relating to the 
detection of underpayments of tax or the detection and bringing to 
trial and punishment persons guilty of violating the internal revenue 
laws or conniving at the same. In this preamble, the Treasury 
Department (Treasury) and the IRS use the phrase ``underpayments of tax 
and violations of the internal revenue laws'' as a shorthand reference 
for the range of civil and criminal matters to which information and, 
in turn, awards may relate under the statute. Section 406 redesignated 
the existing statutory authority to pay awards at the discretion of the 
Secretary of the Treasury as section 7623(a), and it added a new 
provision regarding awards to certain individuals as section 7623(b). 
Generally, section 7623(b) provides that qualifying whistleblowers will 
receive an award of at least 15 percent, but not more than 30 percent, 
of the collected proceeds resulting from the action with which the 
Secretary proceeded based on the information provided to the IRS by the 
whistleblower. In off-Code provisions, section 406 also addressed 
several award program administrative issues and established a 
Whistleblower Office within the IRS, which operates at the direction of 
the Commissioner, to analyze information received under section 7623, 
assign the investigation to the appropriate IRS office, and determine 
the amount of the award under section 7623(b).
    In Notice 2008-4, 2008-1 CB 253 (January 14, 2008) (see Sec.  
601.601(d)(2)(ii)(b)), Treasury and the IRS provided guidance on filing 
claims for award under section 7623. In the notice, Treasury and the 
IRS recognized that the award program authorized by section 7623(a) had 
been previously implemented through regulations appearing at Sec.  
301.7623-1 of the Procedure and Administration Regulations. The 
Internal Revenue Manual (IRM) provided additional guidance to IRS 
officers and employees on the award program authorized by section 
7623(a). The notice provided that the IRS would generally continue to 
follow Sec.  301.7623-1 and the IRM provisions for claims for award 
within the scope of section 7623(a), subject to certain exceptions 
listed in the notice. The notice also provided, however, that the 
regulations would not apply to the new award program authorized under 
section 7623(b). Instead, the notice provided interim guidance 
applicable to claims for award submitted under section 7623(b).
    On March 25, 2008, Treasury and the IRS published Temp. Treas. Reg. 
Sec.  301.6103(n)-2T, and corresponding proposed regulations, 
describing the circumstances and process in and by which officers and 
employees of the Treasury may disclose return information to 
whistleblowers (and their legal representatives, if any) in connection 
with written contracts for services relating to the detection of 
violations of the internal revenue laws or related statutes. 
Whistleblowers and legal representatives that receive return 
information pursuant to these regulations are subject to the civil and 
criminal penalty provisions of sections 7431, 7213, and 7213A for the 
unauthorized inspection or disclosure of return information. Treasury 
and the IRS finalized the proposed regulations on March 15, 2011 (the 
2011 regulations).
    In December 2008, the IRS revised IRM Part 25.2.2, updating 
policies and procedures concerning the handling of information, 
processing of claims for awards, and payment of awards under section 
7623. The IRS also redelegated the authority to approve section 7623(a) 
awards to the Director of the Whistleblower Office, thereby promoting 
consistency across the full range of award decisions. Delegation Order 
25-07 (Rev.1) (2008). In July 2010, the IRS further revised IRM Part 
25.2.2 to provide detailed instructions to IRS officials and employees 
on the computation and payment of awards under section 7623 and to 
describe the administrative procedures applicable to claims for award 
under section 7623(b). The revised IRM introduced many guidance 
elements that are developed in these regulations, including definitions 
of key terms, the whistleblower administrative proceedings, the fixed 
percentage award framework and criteria for making award 
determinations, and rules on handling multiple and joint claimants.
    On January 18, 2011, Treasury and the IRS published proposed 
regulations (76 FR 2852) clarifying the definitions of the terms 
proceeds of amounts collected and collected proceeds for purposes of 
section 7623 and providing that the provisions of existing Sec.  
301.7623-1(a), concerning refund prevention claims, apply to claims 
under both section 7623(a) and section 7623(b). The proposed 
regulations further provided that the reduction of an overpayment 
credit balance constitutes proceeds of amounts collected and collected 
proceeds for purposes of section 7623. Treasury and the IRS finalized 
the proposed regulations on February 22, 2012 (the 2012 regulations).
    On December 28, 2012, Treasury and the IRS published proposed 
regulations

[[Page 47247]]

in the Federal Register (77 FR 74798) providing comprehensive guidance 
with respect to section 7623 (the proposed regulations). The proposed 
regulations provided guidance on issues relating to the award program 
under section 7623 from the filing of a claim to the payment of an 
award, focusing on three major elements of the program: (i) The 
submission of information and filing of claims for award; (ii) the 
whistleblower administrative proceedings applicable to claims for award 
under section 7623; and (iii) the computational determination and 
payment of awards. The proposed regulations also provided definitions 
of key terms under section 7623 and confirmed that the Director, 
officers, and employees of the Whistleblower Office are authorized to 
disclose return information to the extent necessary to conduct 
whistleblower administrative proceedings. Treasury and the IRS received 
859 comments in response to the proposed regulations. Commenters 
requested a public hearing, which was held on April 10, 2013. At the 
hearing, Treasury and the IRS received testimony from eight commenters. 
After consideration of the comments and hearing testimony, Treasury and 
the IRS made some modifications to the proposed regulations, which are 
discussed in detail later in this preamble. This Treasury decision 
adopts the proposed regulations, as modified. These final regulations 
provide comprehensive guidance for the award program authorized under 
section 7623.

Summary of Comments and Explanation of Revisions

    Over 70 percent of the 859 written comments received were identical 
form letters. These one-page letters expressed support for the comments 
of Senator Charles Grassley, which were set out in a January 28, 2013, 
letter from Senator Grassley to Acting Treasury Secretary Neal Wolin, 
Acting IRS Commissioner Steven Miller, and Assistant Secretary (Tax 
Policy) Mark J. Mazur. Two other comments incorporated Senator 
Grassley's January 28, 2013, letter in its entirety, and several 
comments offered general support for Senator Grassley's views on the 
IRS Whistleblower Program. In addition to the comments referencing 
Senator Grassley's letter or views on the Whistleblower Program, 
Treasury and the IRS received several substantive comments containing 
specific recommendations for the final regulations. Treasury and the 
IRS also received over 30 nearly identical comments expressing concern 
that the proposed regulations restricted the scope of the Whistleblower 
Program and awards, prohibited whistleblowers from collecting awards on 
technical grounds, limited the size of whistleblower awards, and failed 
to require the IRS to act on whistleblower claims. The issues raised in 
these comments are addressed in greater detail in the discussion that 
follows.
    Treasury and the IRS also received over a hundred comments that 
referred generally to a need to protect and support whistleblowers and 
the IRS's Whistleblower Program. These comments offered no further 
substantive discussion or specific recommendations with respect to the 
regulations. Treasury and the IRS, however, considered the general 
message behind these comments in considering whether changes should be 
made to the proposed regulations. A few of the comments received 
suggested that the Chief Counsel, himself, should not be involved in 
the process of finalizing the regulations due to his professional 
experience prior to becoming Chief Counsel. After considering these 
comments, Treasury and the IRS found that the concerns expressed in the 
comments were unfounded. Accordingly, the Chief Counsel did not recuse 
himself from the process. Finally, Treasury and the IRS received a few 
comments that were completely unrelated to the proposed regulations and 
the IRS Whistleblower Program. These unrelated comments were outside 
the scope of the regulations and therefore are not discussed further in 
this preamble or these final regulations.

Information Disclosures in Whistleblower Administrative Proceedings--
Sec.  301.6103(h)(4)-1

    Under section 6103(a), returns and return information are 
confidential, unless an exception applies. Section 6103(h)(4) 
authorizes the disclosure of returns and return information in 
administrative or judicial proceedings pertaining to tax administration 
in certain circumstances. A whistleblower administrative proceeding 
under section 7623 is an administrative proceeding under section 
6103(h)(4). Section 301.6103(h)(4)-1 of the proposed regulations 
specifically confirmed the authority of the Director, officers, and 
employees of the Whistleblower Office to disclose return information to 
the extent necessary to conduct whistleblower administrative 
proceedings. To minimize the potentially adverse consequences of the 
disclosure, and possible redisclosure, of return information, the 
proposed regulation provided that the Whistleblower Office will use 
confidentiality agreements in section 7623(b) whistleblower award 
determination administrative proceedings, as well as other safeguards, 
while still providing meaningful opportunities for whistleblowers to 
participate in whistleblower administrative proceedings.
    In general, the comments received viewed these provisions 
favorably. One commenter recommended that section 6103 and Sec.  
301.6103 be amended to permit greater communication between the IRS and 
whistleblowers. Treasury and the IRS lack the authority to amend 
section 6103. Accordingly, the final regulations do not adopt this 
comment. Instead, in the proposed regulations, Treasury and the IRS 
took steps to expand the opportunities for communication between the 
IRS and whistleblowers within the confines of the IRS's existing 
authority under section 6103. For example, Treasury and the IRS 
provided for whistleblower administrative proceedings, in part, to 
increase the IRS's ability to communicate with whistleblowers. Some 
comments suggested that whistleblower administrative proceedings should 
begin earlier, and these comments are more fully addressed in the 
discussion of Sec.  301.7623-3. Treasury and the IRS determined that 
the proposed regulations struck an appropriate balance among minimizing 
possible redisclosures of confidential return information, providing 
meaningful opportunities for claimants to participate in the 
administrative process, and placing an undue burden on the 
Whistleblower Office. After consideration of the comments, the proposed 
regulation under section 6103 is adopted without substantive change.

Submitting Information and Filing Claims for Award--Sec.  301.7623-1

    This final regulation provides guidance on submitting information 
to the IRS and filing claims for award with the Whistleblower Office. 
The regulation is intended to clarify the process whistleblowers should 
follow to be eligible to receive awards under section 7623. The final 
regulation, in large part, tracks the rules that Treasury and the IRS 
have previously provided, as set forth in the 2012 regulations, the 
proposed regulations, Notice 2008-4, and the IRM. The comments received 
and any changes to proposed Sec.  301.7623-1 are discussed in the 
sections that follow.

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Terminology for Individuals Who Submit Information and Claim an Award

    Under section 7623(a), the Secretary possesses the discretionary 
authority to pay awards for information necessary to detect 
underpayments of tax or violations of the tax laws. Section 7623(b) 
further requires the payment of awards to individuals in certain 
circumstances. The proposed regulations used both the term 
``individual'' and the term ``claimant'' in various respects. 
Generally, the terminology in the proposed regulations was designed to 
mimic the statute's use of the term ``individual(s).'' One commenter 
suggested that the final regulations should use the term ``claimant'' 
throughout and eliminate all references to the term ``individual.'' The 
final regulations recognize, however, that not all individuals who 
submit information to the IRS regarding tax non-compliance become award 
claimants. To achieve consistency with Treas. Reg. Sec.  301.6103(n)-2 
and reduce any confusion caused by the use of several terms, Treasury 
and the IRS changed almost all of the references to ``individual'' or 
``claimant'' to ``whistleblower'' in the final regulations. In some 
instances, however, the final regulations still use the term 
``individual'' to mimic the statute. These changes are not intended to 
be substantive in nature.

List of Ineligible Whistleblowers

    Section 7623 does not specifically exclude any whistleblower from 
filing a claim for award, although awards under section 7623(b) are 
limited to individuals. Moreover, section 7623(b)(3) requires the 
Whistleblower Office to deny an award to a whistleblower convicted of a 
crime arising from the whistleblower's role in planning and initiating 
the actions that led to the underpayment of tax or violations of the 
internal revenue laws. The regulations in effect under section 7623 at 
the time of the 2006 amendments to the statute, however, restricted the 
eligibility of Federal employees to file claims for award. The 2006 
amendments to section 7623 did not address, and thus did not seek to 
change, the rule of Federal employee ineligibility. In the proposed 
regulations, the IRS identified as ineligible certain categories of 
individuals that would have access to return information of third 
parties by virtue of their relationship with the Federal Government. 
These categories were identified in Notice 2008-4, and their exclusion 
was based upon the understanding that such individuals have a pre-
existing legal or ethical obligation to disclose any violations of the 
internal revenue laws. For example, section 7214 of the Code requires 
``[a]ny officer or employee of the United States acting in connection 
with any revenue law of the United States . . . who, having knowledge 
or information of the violation of any revenue law by any person, or of 
fraud committed by any person against the United States under any 
revenue law . . . to report, in writing, such knowledge or information 
to the Secretary.''
    Treasury and the IRS received two comments suggesting that the list 
of ineligible or excluded claimants included in the proposed 
regulations was overbroad, and one comment recommending that the 
proposed regulations should be finalized without change. One commenter 
suggested that, with respect to State and local government employees, 
only those that have access to Federal tax return records related to 
State and local taxpayers should be ineligible. The other commenter 
suggested that the only whistleblowers excluded from receiving awards 
under the statute are those convicted of a crime for planning and 
initiating, and thus the IRS should not identify any ineligible 
whistleblowers. This commenter also expressed concern that the 
exclusion of individuals required to disclose (or to not disclose) 
information under Federal law was too vague and would discourage 
whistleblowers from submitting information. Finally, the commenter that 
suggested the proposed regulations should be adopted without change 
noted that individuals should not be eligible to receive awards after 
obtaining information in the course of their employment as a Federal 
employee.
    The final regulations address the concerns raised by commenters 
that the categories of ineligible claimants in the proposed regulations 
were too broad. Treasury and the IRS agree with the commenters that the 
categories of ineligible whistleblowers should be narrowly defined. 
Accordingly, in finalizing the regulations, Treasury and the IRS 
removed State and local government employees and members of a Federal 
or State body or commission from the categories of ineligible 
whistleblowers. Treasury and the IRS determined that the final 
regulations should continue to reflect the longstanding statutory, 
regulatory, and contractual requirements that Federal employees and 
contractors have a duty to disclose information and are prohibited from 
seeking an award for the performance of such duty. Similarly, under the 
final regulations, an individual otherwise required to disclose 
information or precluded from disclosing information by Federal law or 
regulation is not eligible to claim an award for providing such 
information. This reflects Treasury and the IRS's determination that 
section 7623 does not incentivize conduct that is either already 
mandated by, or contrary to, Federal law.

Submission of Information

    Any individual may submit information to the IRS regarding 
suspected underpayments of tax or violations of the internal revenue 
laws. The proposed regulations provided that the information submitted 
must be specific and credible if the individual intends to submit a 
claim for award based on the information submitted. In this regard, the 
proposed regulations provided that a whistleblower submitting a claim 
should identify a person and describe and document the facts supporting 
the whistleblower's belief that the person owes taxes or violated the 
tax laws.
    One commenter suggested that the proposed regulations improperly 
required whistleblowers to identify a specific taxpayer in the 
submission of information. The proposed regulations did not, however, 
require that a whistleblower's information identify a taxpayer by name. 
The IRS and the Whistleblower Office must be able to identify a 
taxpayer in order to proceed with an action and, ultimately, to 
determine an award. The more identifying information that a 
whistleblower includes in the submission, the more likely it is that 
the submission will be considered to identify a taxpayer. Treasury and 
the IRS determined that the concerns raised in the comment are 
adequately addressed by the language in the proposed regulations. 
Accordingly, these regulations retain the rule from the proposed 
regulations.

Penalty of Perjury Requirement

    To form the basis for an award under section 7623(b), section 
7623(b)(6)(C) requires that information be submitted under penalty of 
perjury. The proposed regulations required any claim for award to be 
accompanied by an original signed declaration under penalty of perjury 
that the application is true, correct, and complete to the best of the 
applicant's knowledge. One commenter suggested that the final 
regulations should expressly address how the penalty of perjury 
declaration applies to information submitted by a whistleblower 
subsequent to the initial

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claim for award. In general, the IRS requires a penalty of perjury 
declaration only as part of the initial claim for award. In most cases, 
the IRS does not require that a whistleblower reaffirm the original 
penalty of perjury declaration and, instead, the IRS deems the original 
declaration to cover any subsequent information submitted by the 
whistleblower. This is reflected in the Instructions to the Form 211, 
``Application for Award for Original Information,'' which provide that 
supplemental submissions of information need not be submitted as a 
claim for award with the corresponding penalty of perjury declaration. 
In some cases, however, the IRS may ask a whistleblower to reaffirm the 
penalty of perjury declaration with respect to a subsequent information 
submission. In those cases, the whistleblower will be given an 
opportunity to--and must--reaffirm the penalty of perjury declaration 
for the information to be considered submitted under penalty of 
perjury. Treasury and the IRS anticipate that these cases will be rare, 
and additional information submitted after a claim for award may be 
addressed by the IRS on a case-by-case basis. Accordingly, these 
regulations retain the rule from the proposed regulations.

Request for Assistance

    The 2006 Act provided that the IRS may ask for assistance from 
whistleblowers. As noted, in the 2011 regulations, Treasury and the IRS 
provided final rules under section 6103(n) describing the circumstances 
and process in and by which officers and employees of the Treasury may 
disclose return information to whistleblowers (and their legal 
representatives, if any) in connection with written contracts for 
services and assistance. The proposed regulations clarified that the 
Whistleblower Office, the IRS, or the IRS Office of Chief Counsel may 
request assistance from a whistleblower or the whistleblower's 
representative. The proposed regulations provided that such assistance 
shall be at the direction or control of the Whistleblower Office, the 
IRS, or the IRS Office of Chief Counsel. The proposed regulations also 
referred to Treas. Reg. Sec.  301.6103(n)-2 for rules regarding written 
contracts between the IRS and whistleblowers or their representatives.
    Several commenters suggested that the regulations should do more to 
improve and expand communications between the IRS and whistleblowers. 
Many commenters specifically addressed the IRS's use of section 6103(n) 
contracts. Commenters often expressed concern that the IRS does not 
effectively utilize section 6103(n) contracts and suggested that the 
IRS should make better use of its section 6103(n) contract authority to 
facilitate increased communication with, and participation by, 
whistleblowers. One commenter suggested that the regulations should 
clarify when the IRS will use its contract authority and establish 
protocols for its use. This commenter also suggested that the 
regulations could do more to clarify when and what type of information 
can be shared with the whistleblower so that he or she may assist the 
IRS. Another commenter suggested that the regulations should require 
the Whistleblower Office and the IRS Office of Chief Counsel to request 
assistance by conducting a debriefing of the whistleblower in all 
cases.
    As noted, returns and return information are confidential pursuant 
to section 6103, unless an exception applies. In a 2012 memorandum to 
the IRS Operating Divisions, the IRS stressed the use of methods of 
communicating with whistleblowers within the framework of section 6103. 
IRS Whistleblower Program Memorandum (Deputy Commissioner for Services 
and Enforcement Steven T. Miller, June 20, 2012) (the 2012 memo). The 
2012 memo recognized the value of whistleblower debriefings and stated 
the expectation that debriefings will be the rule, not the exception. 
The IRS routinely debriefs whistleblowers to clarify and develop the 
information provided. Although not discussed in the 2012 memo, the IRS 
has also relied, and will continue to rely, on section 6103(k)(6) to 
disclose information to whistleblowers when the disclosure is necessary 
to obtain information from the whistleblower. These investigatory 
disclosures are a routine element of the IRS's enforcement activities. 
The 2012 memo also noted that section 6103(n) contracts may be used 
when disclosure of taxpayer information is necessary to obtain a 
whistleblower's expertise into complex technical or factual issues. 
Although the IRS's need for this level of expertise into complex issues 
arises less commonly than the need for section 6103(k)(6) investigative 
disclosures, the IRS Operating Divisions will use this tool as needed. 
Specific issues regarding the use of section 6103(n) contracts by the 
IRS and whistleblowers are beyond the scope of these regulations. These 
regulations do not specifically address section 6103(n) contracts 
because they are already provided for in regulations under section 
6103, as appropriately reflected by the cross reference contained in 
the proposed regulations and these regulations. Nevertheless, 
debriefings, section 6103(k)(6) disclosures, and section 6103(n) 
contracts are not the only methods by which the IRS communicates with 
whistleblowers. Later in the life cycle of the underlying tax matter, 
the IRS Office of Chief Counsel may, under section 6103(h)(4), seek 
assistance from a whistleblower in litigating a case. For example, the 
IRS Office of Chief Counsel has relied on, and will continue to rely 
on, whistleblowers as potential witnesses in Tax Court cases, but only 
as needed and only following appropriate consideration of whistleblower 
confidentiality concerns, as discussed later in this preamble. Finally, 
as discussed both earlier and later in this preamble, these regulations 
provide whistleblower administrative proceedings that will, in many 
cases, enable two-way communications with whistleblowers before the IRS 
makes the award determination.

Confidentiality of Whistleblowers

    Section 7623 does not provide any protections regarding the 
identification of whistleblowers. Treasury and the IRS, however, are 
very sensitive to the legitimate concerns whistleblowers have with 
protecting their identities. In the Administration's Fiscal Year 2014 
and 2015 Revenue Proposals, Treasury recommended amending section 7623 
to explicitly protect whistleblowers from retaliatory actions, 
consistent with the protections currently available to whistleblowers 
under the False Claims Act. Moreover, existing Treas. Reg. Sec.  
301.7623-1(e) provides that ``[n]o unauthorized person will be advised 
of the identity of an informant.'' The proposed regulations reaffirmed 
the commitment of Treasury and the IRS to safeguard the identity of 
whistleblowers who submit information under section 7623. Under the 
proposed rules, the IRS reaffirmed that it will use its best efforts 
to: (i) Prevent the disclosure of a whistleblower's identity; and (ii) 
notify a whistleblower prior to any disclosure. One commenter suggested 
that the final regulations should go further and require notification 
to a whistleblower prior to any disclosure. Another commenter suggested 
that whistleblowers should be allowed to opt out of the informant 
privilege. This commenter suggested that allowing the whistleblower to 
opt out of the informant's privilege would decrease the amount of time 
for an administrative action because it would allow the IRS to use and 
rely upon documents provided by the whistleblower, rather than

[[Page 47250]]

seeking to independently gather the documents.
    The informant privilege allows the Government to withhold the 
identity of a person that provides information about violations of law 
to those charged with enforcing the law. The informant privilege is 
held by the Government, not the informant, and is not an absolute 
privilege. There may be instances when, after careful deliberation and 
high-level IRS approval, the disclosure of the identity of a 
whistleblower may be determined to be in the best interests of the 
Government. Nonetheless, in such cases, the IRS first carefully 
considers and weighs the potential risks to the whistleblower and the 
Government's need for the disclosure, and looks for alternative 
solutions.
    The final regulations reflect the determination of Treasury and the 
IRS that preventing the disclosure of whistleblower information is of 
critical importance not only to whistleblowers, but also to the IRS's 
whistleblower program. The IRS has implemented a multi-level review 
process to ensure that the identities of whistleblowers are disclosed 
only after careful consideration. The IRS will continue to use its best 
efforts to prevent disclosures and to provide notification prior to any 
disclosure. The IRS recognizes, however, that despite its best efforts, 
it may not always be possible to provide such notification.
    In some instances, whistleblowers have consented to the disclosure 
of their identities in the hope that the IRS will proceed with a tax 
case more quickly. Even when a whistleblower consents to disclosure, 
however, disclosing the whistleblower's identity may not be in the 
Government's best interest. Moreover, a whistleblower cannot 
unilaterally opt out of the informant privilege because the privilege 
is held by the Government. Finally, it is the longstanding practice of 
the IRS to justify tax adjustments through information obtained 
independently of the whistleblower. This enables the IRS to better 
defend tax adjustments in court and supports the IRS's sound 
administration of the tax case. As such, the IRS will act on specific 
and credible information regarding tax compliance issues when that 
information can be corroborated, as part of a balanced tax enforcement 
program, and will not forgo this process at the whistleblower's request 
to expedite a potential award. Accordingly, these regulations retain 
the rule from the proposed regulations.

Electronic Claim Filing

    Section 7623 do not require the submission of information or claims 
for an award to be in a particular format. To claim an award for 
information provided to the IRS, the proposed regulations provided that 
a whistleblower must file a formal claim for award by completing and 
sending Form 211, ``Application for Award for Original Information,'' 
to the Internal Revenue Service, Whistleblower Office, at the address 
provided on the form, or by complying with other claim filing 
procedures as may be prescribed by the IRS in other published guidance. 
Currently, a whistleblower cannot file a Form 211 electronically. The 
proposed regulations solicited comments on whether electronic claim 
filing would be appropriate and beneficial to whistleblowers, and if 
so, what features should be included in an electronic claim filing 
system.
    Treasury and the IRS received several comments suggesting that such 
procedures would be beneficial, but some commenters expressed concern 
with how an electronic claim filing system would be implemented. Based 
upon the varied comments received, Treasury and the IRS have decided 
not to include specific guidance on electronic claim filing in the 
final regulations. The final regulations adopt the proposed rule and 
require whistleblowers to file a formal claim for award by completing 
and sending a Form 211 to the IRS. The language in the final 
regulations does, however, allow for the IRS to specify an alternative 
submission method pursuant to additional guidance. If Treasury and the 
IRS implement electronic claim filing, the comments received on the 
proposed regulations regarding implementation will be considered and 
addressed in future guidance.

Definitions of Key Terms--Sec.  301.7623-2

    These final regulations define several key terms for purposes of 
determining awards under section 7623 and the corresponding 
regulations. These terms include: action, administrative action, 
judicial action, proceeds based on, related action, collected proceeds, 
amount in dispute, and gross income. Two other key terms, planned and 
initiated and final determination of tax, are described and defined in 
Sec.  301.7623-4 of these regulations. The definitions are intended to 
facilitate the IRS's administration of the whistleblower award program 
in a manner that is consistent with the statutory language. As 
described later in this preamble, several of the definitions, including 
the definition of the terms proceeds based on, related action, and 
collected proceeds, build on definitions contained in Notice 2008-4, 
the 2012 regulations, and the IRM. The comments received and any 
changes to the definitions of these terms are addressed in the sections 
that follow.

Administrative Action

    The application of section 7623(b) hinges on whether the IRS 
proceeds with an action, and more specifically, an administrative or 
judicial action, against a taxpayer. Section 7623 does not, however, 
define the terms action, judicial action, or administrative action. The 
proposed regulations defined an administrative action as all, or a 
portion of, an IRS civil or criminal proceeding against a person that 
may result in collected proceeds. Examples of an administrative action 
include an examination, a collection proceeding, a status determination 
proceeding, or a criminal investigation. And, as noted, under the 
proposed regulations, an administrative action can be a discrete 
portion of an IRS civil proceeding. For example, the examination of a 
single issue, within a multi-issue examination, can constitute an 
administrative action. In such a case, determinations such as whether 
the IRS proceeded with the action based on the whistleblower's 
information or the extent of the whistleblower's substantial 
contribution to the action will be made by reference to just the 
discrete and relevant portion of the examination to which the 
information provided relates.
    One commenter suggested that an administrative action should begin 
with the filing of a claim for an award. Although the commenter made 
this suggestion in the context of the definition of ``administrative 
action,'' Treasury and the IRS believe that it relates to the 
whistleblower award administrative proceedings discussed later in this 
preamble. Some commenters suggested that the definition of the term 
``administrative action'' should be broader. More specifically, one 
commenter suggested that the list of examples should include making an 
assessment and another commenter suggested that the term 
``administrative action'' should encompass all actions taken by the IRS 
to initiate taxpayer compliance by any means. Finally, commenters 
expressed concern that a whistleblower would not be entitled to an 
award when the whistleblower's information related to an issue that was 
already being examined, but resulted in the IRS making a greater 
assessment than the IRS would have made without the whistleblower's 
information. Commenters raised a similar concern in discussing the 
proposed regulations' definition of the term proceeds based

[[Page 47251]]

on. This concern is addressed in that section of this preamble.
    Off-code provisions of the 2006 Act explicitly provide that the IRS 
will analyze information received under section 7623 and investigate 
the matter. Given that this requirement must be satisfied by the IRS 
with respect to all information provided, it follows that the 
techniques and tools used by the IRS to do the analysis and 
investigation of the whistleblower's claim cannot in and of themselves 
provide a basis--they cannot be the administrative action--that 
supports an award determination. Nonetheless, if a whistleblower's 
information contributes to the IRS's use of these techniques and tools, 
for example, the issuance of a summons or Information Document Request, 
and these intermediate steps result in an administrative action, as 
defined in the regulations, then the IRS will determine whether it 
proceeded with that resulting administrative action based on the 
information, as described further in the discussion of the definition 
of proceeds based on. Similarly, an assessment is a bookkeeping entry 
employed by the IRS to reflect a determination that results from an 
administrative action within the meaning of section 7623. Because an 
assessment merely reflects the determination that results from an 
administrative action, it is not appropriate to include the making of 
an assessment in the definition of the term administrative action. 
Essentially, the definition of administrative action is broadly 
analogous to the definition of judicial action, as each term focuses on 
a case against a taxpayer that may result in collected proceeds, rather 
than on any particular tools or techniques used to conduct the case. 
After considering the comments on the definition of administrative 
action, the definition in the proposed regulations is adopted without 
change. Treasury and the IRS did, however, address some of the concerns 
raised by the comments on this definition through changes to the 
definition of proceeds based on, as described in the discussion that 
follows.

Proceeds Based On

    Section 7623(b) provides that if the Secretary proceeds with an 
administrative or judicial action based on the information provided by 
a whistleblower, then the whistleblower will receive an award from the 
collected proceeds resulting from the action (including any related 
actions). Under the proposed regulations the IRS proceeds based on 
information provided by an individual only when the IRS: (i) Initiates 
a new action; (ii) expands the scope of an ongoing action; or (iii) 
continues to pursue an ongoing action, that the IRS would not have 
initiated, expanded the scope of, or continued to pursue, respectively, 
but for the information provided by the individual. The IRS does not 
proceed based on when the IRS merely analyzes the information provided 
by the individual and investigates the matter.
    Commenters to the proposed regulations generally expressed concern 
that the regulatory language narrowed the scope of the statute by 
limiting the instances in which the Whistleblower Office will determine 
that the IRS proceeded based on a whistleblower's information. Some 
commenters disagreed with the use of the words ``only'' and ``but for'' 
in the proposed regulations' definition and suggested removing this 
language. One commenter recommended removing the last sentence in the 
proposed regulations' definition--``The IRS does not proceed based on 
when the IRS merely analyzes the information provided by the individual 
and investigates the matter.'' Some commenters suggested that the IRS 
should be considered to proceed based on information anytime that the 
IRS ``uses'' the information, or more specifically, anytime the 
information is transmitted by the Whistleblower Office to an IRS field 
office for further investigation. Some commenters suggested that the 
definition needed to specifically include instances when a 
whistleblower's information materially or substantially assists in or 
significantly contributes to the IRS's detection and recovery of tax. 
As noted in the discussion of the definition of administrative action, 
some commenters expressed concern that a whistleblower would not be 
entitled to an award when the whistleblower's information related to an 
issue that was already being examined or was included in a general 
audit plan, but resulted in the IRS making a greater assessment than 
the IRS would have made without the whistleblower's information. 
Similarly, some commenters expressed concern that under the proposed 
regulations' definition, the IRS could use a whistleblower's 
information but assert that it would have acted without the information 
and therefore determine that the IRS did not proceed based on the 
information.
    As noted, the off-Code provisions of the 2006 Act require the IRS 
to analyze the information provided by the whistleblower (in the Form 
211 and otherwise, such as through debriefs) and investigate the 
matter. As a result, it follows that for the IRS to proceed based on 
the information provided, the IRS must do more than this analysis or 
investigation. Therefore, Treasury and the IRS retained this 
explanatory language in the final regulations. Treasury and the IRS 
recognize, however, that, by listing exclusive actions taken by the 
IRS, the proposed regulations created the appearance that individuals 
who provide information that is not only used by the IRS, but is in 
fact critical to sustaining tax adjustments, might not receive awards. 
Accordingly, these final regulations adopt a general standard for when 
the IRS proceeds based on information provided--when the information 
substantially contributes to the action--and the list of exclusive 
actions are cited as examples of when the information provided may 
substantially contribute to an action. In addition, the final 
regulations remove the word ``only'' from the definition. Accordingly, 
under the final regulations, the Whistleblower Office must determine 
when the information provided substantially contributed to the 
underlying action, and this determination will depend on the facts and 
circumstances of each individual case. Nevertheless, the final 
regulations provide additional examples to clarify the operation of the 
rule. These examples illustrate that the whistleblower's information 
substantially contributes to the underlying action if it leads to an 
examination, an expansion of an issue already being examined, an 
expansion of the examination to another year, or an additional 
adjustment. The examples also illustrate that the whistleblower's 
information does not substantially contribute to the underlying action 
if that information merely supports information obtained independently 
by the IRS.

Related Action

    Under section 7623(b), when the IRS proceeds with an action based 
on a whistleblower's information, the whistleblower receives an award 
from the collected proceeds resulting from the action (including any 
related actions). Under the proposed regulations the term related 
action was limited to: (i) A second or subsequent action against the 
person(s) identified in the information provided and subject to the 
original action if, in the second or subsequent action, the IRS 
proceeds based on the specific facts described and documented in the 
information provided; and (ii) an action against a person other than 
the person(s) identified in the information provided and subject to the 
original action if: (A) The other, unidentified person is directly 
related to the person identified

[[Page 47252]]

in the information provided; (B) the facts relating to the underpayment 
of tax or violations of the internal revenue laws by the other person 
are substantially the same as the facts described and documented in the 
information provided (with respect to the person(s) subject to the 
original action); and (C) the IRS proceeds with the action against the 
other person based on the specific facts described and documented in 
the information provided. Under the proposed regulations an 
unidentified person was directly related to the person identified in 
the information provided if the IRS can identify the unidentified 
person using only the information provided (without first having to use 
the information provided to identify any other person or having to 
independently obtain additional information).
    The definition of the term related action contained in the proposed 
regulations defined which actions may be included for purposes of 
computing collected proceeds by requiring a clear link between the 
original action and the other, related action(s). This clear link 
required: (i) A direct relationship between the person identified in 
the information provided and subject to the original action and the 
person(s) subject to the other action(s); and (ii) a substantial 
similarity between the specific facts contained in the information 
provided and the relevant facts of the other action(s).
    In general, comments received on the definition of related action 
in the proposed regulations, including the form letters, suggested that 
the definition was too restrictive. The commenters suggested that 
instead of requiring a direct relationship, the IRS should conduct a 
proximate cause analysis, under which related actions are those actions 
with which the IRS proceeds in a natural and continuous sequence from 
the actions first taken in response to a whistleblower's information. 
One commenter suggested that a direct relationship or one-step rule is 
inconsistent with the ordinary meaning given to the term ``related.'' 
Another commenter suggested that a related action should be any issue 
that is related to the whistleblower's submission with respect to the 
tax year, the taxpayer, or the tax issue. This commenter expressed 
concern that the definition of related action would exclude subsequent 
years of the same taxpayer for which the same issue exists, unless the 
information provided contained specific facts and documentation from 
those subsequent years. Two other commenters suggested that the 
language at Prop. Reg. Sec.  301.7623-2(c)(i) describes an original 
action rather than a related action. These commenters suggested that 
when the IRS initiates a second or subsequent action against a person 
identified in the information provided by the whistleblower based on 
the specific facts described and documented in the information 
provided, then the IRS has proceeded based on the information and there 
is therefore no need to look to the definition of related action to 
determine the whistleblower's eligibility for an award.
    After considering the comments, Treasury and the IRS determined 
that the concern that whistleblowers would not be given full credit for 
the information provided was partially addressed through the changes 
made to the definition of the term proceeds based on in the final 
regulations and described earlier in this preamble. Moreover, the 
broadened language of the definition of the term proceeds based on in 
the final regulations encompassed and made redundant the language in 
Prop. Reg. Sec.  301.7623-2(c)(i) that focused on actions involving 
subsequent tax years and, thus, it was removed from the final 
regulations. The corresponding example illustrating the application of 
the rules to actions involving subsequent tax years moved with the rule 
to the definition of proceeds based on. Finally, Treasury and the IRS 
made several non-substantive revisions to the language of the 
definition of related action.
    The final regulations retain the proposed regulations' requirement 
of a clear link between the original action and any other, related 
action(s), which requires: (i) A substantial similarity between the 
specific facts contained in the information provided and the relevant 
facts of the other action(s); and (ii) a relationship between the 
person identified in the information provided and subject to the 
original action and the person(s) subject to the other action(s). This 
conjunctive test excludes from the definition of related action actions 
that are merely factually similar to the original action, for example, 
actions against unidentified taxpayers that merely engaged in 
substantially similar transactions to the transaction identified in the 
information provided. The relationship test in the second prong thus 
retains a one-step rule: The taxpayer subject to the related action can 
be no more than one step removed--in terms of identification by the 
IRS--from a taxpayer identified in the information provided. In 
addition, the final regulations at Sec.  301.7623-1(c)(1) provide that 
certain information submissions relating to pass-through entities and 
firms will be considered to have identified certain persons who were 
not explicitly identified in the information provided.
    Despite commenters' requests that the definition should be even 
broader and more subjective, Treasury and the IRS determined that the 
clear link approach is a reasonable interpretation and application of 
the language contained in section 7623. Treasury and the IRS determined 
that the final regulations' definition of the term related action finds 
a reasonable middle ground between overly narrow and overly broad 
interpretations. For example, the term could be given a narrow 
application, encompassing only actions that follow from the action with 
which the IRS proceeded based on the information and actually produce 
collected proceeds. Given that many administrative and judicial actions 
produce no collected proceeds, this interpretation would give effect to 
the statutory language in such cases by ensuring that whistleblowers 
would receive awards when any related actions produce collected 
proceeds. Treasury and the IRS have concluded that such a definition 
would be too narrow because, under this interpretation, a related 
action (such as a collection action) would be required in almost every 
case. At the other end of the spectrum, the term related action could 
be broadly interpreted to include every similar fact pattern entered 
into by any taxpayer at any time. Such an interpretation is overly 
broad and would be impossible for the IRS to administer because it 
would require the IRS to keep whistleblower claims open and search for 
similar fact patterns in perpetuity.
    Instead, these final regulations adopt a definition that finds a 
reasonable middle ground. The definition encompasses a finite group of 
actions that, while likely unknown to the whistleblower, are 
objectively connected to the information provided. Treasury and the IRS 
adopt the one-step approach of the proposed regulations because, by 
setting a clear standard for the Whistleblower Office to apply, the 
one-step approach is administrable. Tort law concepts, on the other 
hand, are rarely applied to tax, and the appropriate application of 
such concepts is unclear. Finally, based on the IRS's experience 
administering whistleblower claims, Treasury and the IRS believe that, 
in most cases, the results of a proximate cause analysis and a one-step 
approach are likely to be the same. Ultimately, Treasury and the IRS 
determined that the definition in the final regulations provides an 
administrable, objective test that strikes an appropriate balance 
between the

[[Page 47253]]

IRS's and the whistleblower's substantial contributions.

Collected Proceeds

    Section 7623(a) provides the Secretary with the authority to pay 
such sums as he deems necessary from proceeds of amounts collected 
based on information provided to the Secretary when the information 
relates to the detection of underpayments of tax or the detection and 
bringing to trial and punishment persons guilty of violating the 
internal revenue laws or conniving at the same. Section 7623(b) 
requires the Secretary to pay awards to whistleblowers if the Secretary 
proceeds with an administrative or judicial action that results in 
collected proceeds based on information provided by the whistleblower. 
The definition of collected proceeds contained in the proposed 
regulations built on the definition contained in the 2012 regulations. 
The definition in the proposed regulations restated the rule from those 
final regulations that collected proceeds include: Tax, penalties, 
interest, additions to tax, and additional amounts collected because of 
the information provided; amounts collected prior to receipt of the 
information provided if the information results in the denial of a 
claim for refund that otherwise would have been paid; and a reduction 
of an overpayment credit balance used to satisfy a tax liability 
incurred because of the information provided. The definition also 
addressed refund netting, criminal fines that must be deposited into 
the Victims of Crime Fund, and a computational rule for determining 
collected proceeds. Finally, consistent with provisions in the IRM, the 
proposed regulations provided that amounts recovered under the 
provisions of non-Title 26 laws do not constitute collected proceeds, 
because the language of section 7623 authorizes awards for detecting 
underpayments of tax and violations of the internal revenue laws. 
Several commenters addressed various aspects of the definition of 
collected proceeds contained in the proposed regulations. The substance 
of these comments and the determinations of Treasury and the IRS are 
set out in detail in the preamble discussion that follows.

Timing Issues and Treatment of Tax Attributes Including Net Operating 
Losses (NOLs)

    Section 7623 provides for the payment of awards from collected 
proceeds, but it does not specifically address the treatment of claims 
that involve tax attributes that do not result in collected proceeds 
for many years, if ever. The proposed regulations provided a 
computational rule that reflects the discussion contained in the 
preamble to the 2012 regulations. There, Treasury and the IRS noted 
that tax attributes such as NOLs do not represent amounts credited to 
the taxpayer's account that are directly available to satisfy current 
or future tax liabilities or that can be refunded. Rather, tax 
attributes such as NOLs are component elements of a taxpayer's 
liability. The disallowance of an NOL claimed by a taxpayer may affect 
the taxpayer's liability and, in the context of a whistleblower claim, 
may result in collected proceeds or it may be carried forward 20 years 
and expire, thus never resulting in collected proceeds. To enable the 
IRS to administer the Whistleblower Program, the proposed regulations' 
computational rule provided that, after there has been a final 
determination of tax, the IRS would compute the amount of collected 
proceeds taking into account all information known with respect to the 
taxpayer's account (including all tax attributes such as NOLs). Under 
the proposed regulations, any tax attributes that have been used at the 
time of the final determination of tax may affect the award amount. The 
proposed regulations reflected Treasury and the IRS's attempt to make 
an award determination and pay any resulting award as soon as possible 
after proceeds are collected. The proposed regulations also reflected 
Treasury and the IRS's determination that tracking tax attributes into 
the future after payment of an award would impose significant costs and 
a heavy administrative burden. Thus, the proposed rule attempted to 
balance the whistleblower's interest in receiving a timely award 
determination and payout with the Government's interest in maintaining 
an administrable program.
    Several commenters suggested that the proposed regulations did not 
strike the appropriate balance and recommended that tax attributes, 
specifically NOLs, should be included in the definition of collected 
proceeds. The commenters generally expressed concern that under the 
proposed regulations, a whistleblower might not receive credit for 
proceeds collected after the final determination of tax, as a result of 
tax attributes being carried forward to reduce a later liability. Some 
commenters suggested that the IRS should attempt to calculate and apply 
a present value to determine an award amount for any unused tax 
attributes. Other commenters recommended that, in the final 
regulations, the IRS should agree to track tax attributes for a 
specific period of time, for example, ten years. One commenter 
suggested that after the period of time that the IRS had agreed to 
track, the whistleblower and the IRS could enter into a settlement 
agreement wherein the whistleblower could agree to the amounts computed 
as of that date and waive any rights to a future appeal. Finally, one 
commenter recommended that the IRS should allow whistleblowers to 
submit a new claim for award when the whistleblower was aware of 
subsequently collected proceeds.
    In light of the comments received, Treasury and the IRS have 
reconsidered the approach in the proposed regulations. These final 
regulations provide that the Whistleblower Office will monitor the 
relevant taxpayer account or accounts until the IRS receives collected 
proceeds as a result of a reduction in the tax attribute, or the 
taxpayer's ability to apply the tax attribute expires unused. For 
example, if a NOL is reduced as a result of actions taken based on 
whistleblower information, the Whistleblower Office will periodically 
review the taxpayer account to determine whether future year tax 
payments are made that would not have been made if the NOL had not been 
reduced. Under the approach in the final regulations, awards will be 
paid on any such post-determination collected proceeds. If the NOL 
carry-forward period expires before the reduced NOL results in a tax 
payment, no award will be payable.
    The decision to monitor future year activities for impact on the 
amount of collected proceeds will apply to all claims, not just claims 
involving NOLs. As a result, in some cases, the Whistleblower Office 
may defer action on an award claim. For example, whistleblower 
information may result in IRS action to disallow a taxpayer's treatment 
of the purchase of an asset as an expense in Year 1, because the asset 
should be capitalized and depreciated in accordance with the applicable 
depreciation schedule. As a result, taxable income in Year 1 is 
increased by the purchase price of the asset, less allowable Year 1 
depreciation. Taxable income in future years would be reduced by the 
allowable depreciation for each year, until the asset is fully 
depreciated (or sold or otherwise disposed of). When this occurs, the 
Whistleblower Office will monitor the taxpayer's account to determine 
whether future year offsetting reductions in liability related to the 
Year 1 tax liability occur, and will reduce the amount of collected 
proceeds accordingly.

[[Page 47254]]

    The adoption of a monitoring approach in the final regulations, 
however, is only intended to explicitly enable the IRS to make an 
additional award payment when a tax attribute produces collected 
proceeds after an award has been determined, as described in the 
preceding paragraphs. It is not intended to, and does not in any way, 
limit the Whistleblower Office's discretion to aggregate or 
disaggregate claims, nor does it provide a basis for, or enable the IRS 
to make, mandatory, partial, or ongoing award determinations and 
payments every time the IRS collects some amount of proceeds. In other 
words, monitoring does not alter the general rule that no award will be 
paid until there has been a final determination of tax, as defined in 
the final regulations.

Amounts Collected Under Title 26

    Section 7623 of Title 26 provides for awards for information 
leading to detection of underpayments of tax or violations of the 
internal revenue laws. The proposed regulations provided that amounts 
recovered under the provisions of non-Title 26 laws do not constitute 
collected proceeds for award purposes. The majority of comments, 
including the form letters, suggested that such amounts, specifically 
amounts collected under Title 18 and Title 31, should be included in 
collected proceeds. Many of the comments suggested that not including 
amounts collected under Title 18 and Title 31 eliminates a 
whistleblower's incentive to provide information on violations under 
those titles and could reduce the number of whistleblowers willing to 
provide such information to the IRS. The comments generally suggested 
that collected proceeds should include any amounts that are collected 
by the IRS. A few comments also suggested that the statutory language 
``collected proceeds (including penalties, interest, additions to tax, 
and additional amounts)'' means that Congress intended for collected 
proceeds to be a broad and inclusive concept consisting of any amounts 
collected by the IRS and any amounts to be collected by the IRS in the 
future. Similarly, one commenter suggested that the use of the word 
``any'' throughout the statute was another reason that the statute and 
Congress' intent with respect to the statute should be interpreted 
broadly.&
    Like section 7623, the internal revenue laws are contained in Title 
26 and implementing guidance is issued under that title. Although the 
IRS may collect penalties for violations of Title 31, Money and 
Finance, and seize property under Title 18, Crimes and Criminal 
Procedure, those penalties and seizures do not relate to 
``underpayments of tax,'' may be imposed independently of whether a tax 
underpayment occurs, and are not related to violations of the internal 
revenue laws under Title 26. Moreover, administrative actions under 
Title 26 and Title 31 entail separate administrative proceedings, and 
administrative distinctions persist even when the actions proceed at 
the same time. In some cases, the IRS may collect penalties for failure 
to file Form 114, ``Report of Foreign Bank and Financial Accounts'' 
(FBAR), which is an information reporting requirement under Title 31 
the violation of which does not necessarily result in an underpayment 
of tax. As a result, FBAR penalties do not constitute collected 
proceeds. Moreover, sections 5323(a) and 9703(a) of Title 31 provide 
independent authority, separate and apart from section 7623, for the 
payment of rewards for information relating to certain violations of 
Title 31 or Title 18. Finally, the terms ``additions to tax'' and 
``additional amounts'' have long been used to encompass the penalties 
under Subchapter A of Chapter 68 of Subtitle F of the Code and they are 
routinely used in forms issued by the IRS pursuant to Title 26 to refer 
to those penalties. They do not provide any support for treating non-
Title 26 amounts as collected proceeds. The comments received did not 
change the view of Treasury and the IRS that section 7623 only 
authorizes awards for amounts collected under the internal revenue 
laws, which are contained in Title 26, the Internal Revenue Code. 
Treasury and the IRS recognize the commenters' concern that the statute 
may reduce the incentive to provide information to the IRS regarding 
non-Title 26 violations. The language of the statute does not, however, 
support a broader, more-inclusive definition of collected proceeds. 
Treasury and the IRS instead emphasize that when the IRS collects 
amounts based on information related to non-Title 26 violations and 
also collects related proceeds under Title 26, the Title 26 collected 
proceeds may form the basis for an award under section 7623. Moreover, 
depending on the facts and circumstances, the non-Title 26 proceeds may 
form the basis for an award under a whistleblower award program other 
than the one authorized by section 7623.

Amounts Deposited in the Victims of Crime Fund

    Under the Victims of Crimes Act of 1984, criminal fines that are 
imposed on a defendant by a district court shall be deposited into the 
Victims of Crime Fund. See 42 U.S.C. 10601(b)(1). Although the Victims 
of Crime Act does except certain specified amounts that are payable to 
other sources pursuant to other statutory mandates, amounts payable 
under section 7623 are not included in the exceptions. The proposed 
regulations provided that criminal fines that must be deposited into 
the Victims of Crime Fund do not constitute collected proceeds. One 
commenter suggested that such criminal fines are collected proceeds and 
that the award amount should be paid before the rest of the proceeds 
are transferred to the Victims of Crime Fund. As noted above, the 
Victims of Crime Act of 1984 mandates that the entire amount of fines 
imposed in criminal tax cases be deposited into the Victims of Crime 
Fund, meaning that the IRS lacks the authority to deposit only a 
portion of the fines into the Victims of Crime Fund, and these funds 
cannot be available to the Secretary to pay awards under section 7623. 
As a result, these regulations retain the rule from the proposed 
regulations, reflecting the determination that amounts deposited in the 
Victims of Crime Fund do not constitute collected proceeds. Criminal 
restitution, however, may be collected by the IRS as a tax under 
section 6201(a)(4)(A), and in such instances, the amounts collected as 
restitution are included in the definition of collected proceeds.

Amended Returns

    The proposed regulations did not address whether amounts collected 
based on a taxpayer's future compliance were included in collected 
proceeds. Commenters requested clarification on whether a whistleblower 
could receive an award based on amounts collected due to amended 
returns. Some commenters suggested that the definitions of 
administrative action or proceeds based on should be interpreted as 
providing for an award in cases when a taxpayer files an amended return 
in response to a whistleblower's information. Similarly, these 
commenters suggested that the final regulations should encourage and 
reward whistleblowers who report internally and cause taxpayers to 
self-report to the IRS.
    In the proposed regulations, Treasury and the IRS intended to 
include certain amounts collected based on amended returns as collected 
proceeds. The final regulations are modified to explicitly provide for 
this outcome. Section 7623(b) requires that the IRS proceed with an 
administrative or judicial action

[[Page 47255]]

based on the information provided. Once the IRS proceeds with an 
action, however, the amounts collected based on amended returns may 
constitute collected proceeds. Specifically, if a whistleblower files a 
claim, the IRS begins an administrative or judicial action, and the 
taxpayer subsequently files an amended return, any proceeds collected 
based on that amended return, and related to the information provided, 
will constitute collected proceeds under the final regulations' general 
definition of the term collected proceeds. But if the IRS does not 
proceed with an action, for example if a taxpayer files amended 
returns, preemptively self-assessing and paying the liability before 
the IRS initiates any action, then, consistent with the plain language 
of the statute, there can be no collected proceeds.
    While Treasury and the IRS certainly encourage internal reporting 
and preemptive action to correct incorrect returns, the plain language 
of the statute does not provide for a determination of awards in such 
cases. Moreover, it would be nearly impossible for the Service to 
connect amended returns to internally-reported whistleblower claims. 
Ultimately, if the amounts paid based on amended returns can be linked 
to any action with which the IRS proceeded based on the whistleblower's 
information, then the amounts will be included as collected proceeds. 
In such instances, the proceeds can be attributed to IRS action, as 
required by section 7623, and the proceeds collected may be determined 
by reference to the difference between the original amount reported as 
tax and the amount of tax assessed and collected based on the amended 
return. Treasury and the IRS believe that the changes to the final 
regulations reflect the statutory requirement that awards stem from IRS 
action and provide an administrable rule without discouraging 
whistleblowers from engaging in internal reporting and taxpayers to 
self-police.
    The final regulations do not incorporate the comments suggesting 
that the IRS should also look to future years in which a taxpayer is 
compliant and determine collected proceeds in those years based on 
previous noncompliance. Unlike cases in which the taxpayer has already 
filed an original return, in these cases, the IRS would have no way to 
determine with any reasonable certainty what the taxpayer's reporting 
position would have been if not for the underlying action and whether 
the taxpayer's compliance was a direct result of the underlying action. 
Similarly, the IRS has no way of knowing whether a whistleblower's 
internal reporting of an issue caused a taxpayer to self-report and pay 
taxes.

Amount in Dispute

    Section 7623(b)(5) provides that subsection (b) applies only when 
the tax, penalties, interest, additions to tax, and additional amounts 
in dispute in an action against a taxpayer exceed $2,000,000 (and in 
the case of an individual taxpayer, when the individual's gross income 
exceeds $200,000 for any taxable year subject to the action). The 
proposed regulations defined amount in dispute as the maximum total of 
tax, penalties, interest, additions to tax, and additional amounts that 
could have resulted from the action(s) with which the IRS proceeded 
based on the information provided, if the formal positions taken by the 
IRS had been sustained. The proposed regulations further provided that 
the IRS would compute the amount in dispute, for purposes of award 
determinations, after the final determination of tax. Finally, the 
proposed regulations provided that, for purposes of conducting 
whistleblower administrative proceedings, the IRS may rely on the 
whistleblower's description of the amount owed by the taxpayer(s) or 
other information. These rules were intended to ensure that 
administrative proceedings would be conducted for every claim that 
could arguably satisfy the requirements of section 7623(b)(5), even 
before the IRS knows whether the claim actually does.
    Treasury and the IRS did not receive any comments recommending 
changes to the definition of amount in dispute. Nevertheless, Treasury 
and the IRS recognize the need to clarify an aspect of the definition 
that was not clear and that, without the clarification, could have led 
to unintended results. Specifically, the final regulations delete the 
reference to ``could have resulted'' so as not to suggest that a 
hypothetical computation is required. The final regulations further 
clarify that the amount in dispute is the greatest of the amounts 
actually determined and amounts stated in the formal positions actually 
taken by the IRS. Treasury and the IRS also added additional examples 
to further clarify the application of the rule adopted in the final 
regulations.
    The definition will apply, regardless of whether an award is paid 
pursuant to section 7623(a) or section 7623(b), including for purposes 
of Tax Court review. For purposes of applying the administrative 
proceedings provided for under the final regulations, however, the 
Whistleblower Office may rely on the whistleblower's description of the 
amount owed if that amount is higher than the maximum total amount 
asserted by the IRS in its formal position in an administrative or 
judicial action.

Affiliated Claimants

    Under section 7623(b)(6)(C), no award may be made under section 
7623(b) based on information submitted to the Secretary unless such 
information is submitted under penalty of perjury. In Notice 2008-4 and 
the proposed regulations, Treasury and the IRS provided that this 
requirement precludes the filing of a claim for award by a person 
serving as a representative of, or in any way on behalf of, another 
individual as part of implementing the statutory requirement that a 
claim for award be filed under penalties of perjury. Nonetheless, the 
proposed regulations provided a definition of affiliated whistleblowers 
and related rules for addressing eligible and ineligible affiliated 
whistleblower cases. Treasury and the IRS have reconsidered the need 
for the affiliated whistleblower rules in light of the statutory 
penalty of perjury requirement. Indeed, given that the final 
regulations retain the rule prohibiting a whistleblower from submitting 
a claim on behalf of another, the definition for affiliated individuals 
and the cross reference to the rule for ineligible affiliated 
individuals at Sec.  301.7623-1(b)(3) were removed from the final 
regulations. The rule for eligible affiliated whistleblowers at Sec.  
301.7623-4(c)(4) of the proposed regulations was also removed. The 
final regulations retain the rule, however, stating that the 
Whistleblower Office will reject claims filed by ineligible affiliated 
whistleblowers, to discourage and prevent whistleblowers from claiming 
an award in their own names based on information obtained from 
ineligible whistleblowers. In the final regulations, the rule is 
relocated and added to the list of ineligible whistleblowers.

Whistleblower Administrative Proceedings--Sec.  301.7623-3

    Section 7623 does not require that the IRS conduct a particular 
administrative process prior to making an award determination, 
rejection, or denial. Treasury and the IRS, however, have determined 
that such processes will help ensure that whistleblowers have a 
meaningful opportunity to participate in the determination process, 
enable the Whistleblower Office to make award determinations based on 
complete information, and ensure a fully-documented record on appeal to 
the Tax Court. This regulation describes the administrative proceedings 
applicable

[[Page 47256]]

to claims for award under both section 7623(a) and section 7623(b).
    For purposes of applying the whistleblower administrative 
proceedings, the final regulations provide that the Whistleblower 
Office may rely on the whistleblower's description of the amount owed 
or on other information. This rule is intended to ensure that the IRS 
can provide whistleblowers the benefits of proceedings applicable to 
section 7623(b) claims even before having made a final determination of 
tax.
    For awards under section 7623(a), the proposed regulations provided 
that the Whistleblower Office will send a preliminary award 
recommendation letter to the whistleblower. Sending this letter marks 
the beginning of the whistleblower administrative proceeding. The 
whistleblower will then have 30 days within which to provide comments 
to the Whistleblower Office. This approach is intended to provide 
whistleblowers under section 7623(a) with an opportunity to participate 
in the award process, both to add transparency to the proceeding and to 
assist the Whistleblower Office in considering all potentially relevant 
information in paying awards under section 7623(a), even though those 
awards are not subject to Tax Court review. The proposed regulations 
did not, however, provide preliminary notice and comment procedures for 
rejections or denials of claims for award that are treated, for 
administrative purposes, as claims made under section 7623(a), given 
the large administrative burden associated with such procedures.
    In cases in which the Whistleblower Office determines and pays an 
award under section 7623(b), the proposed regulations provided that a 
whistleblower administrative proceeding also begins when the 
Whistleblower Office sends out the preliminary award recommendation 
letter. After this letter is sent to the whistleblower, the 
whistleblower (and the whistleblower's representative, if any) may 
participate in the administrative proceeding under section 7623(b), 
which will ultimately culminate in an award determination letter issued 
by the Whistleblower Office. Finally, the proposed regulations provided 
that prior to denying or rejecting a claim under section 7623(b), the 
Whistleblower Office will send a preliminary denial letter to the 
whistleblower, beginning the administrative proceeding and after which 
the whistleblower has 30 days to provide comments to the Whistleblower 
Office. Again, this approach is intended to foster a transparent and 
accurate review process.
    The final regulations in large part adopt the proposed regulations. 
The comments received and any changes to the proposed rules for Sec.  
301.7623-3 are discussed in the sections that follow.

Beginning of Whistleblower Administrative Proceedings

    Under the proposed regulations, in cases in which the Whistleblower 
Office recommends payment of an award under section 7623(a) or 
determines and pays an award under section 7623(b), the Whistleblower 
Office will first send a preliminary award recommendation letter to the 
whistleblower. In these cases, the whistleblower administrative 
proceeding begins when this letter is sent. In cases in which the 
Whistleblower Office rejects or denies a claim for award under section 
7623(b), the Whistleblower Office will first send a preliminary denial 
letter to the whistleblower. In these cases, the whistleblower 
administrative proceeding begins when this letter is sent. In cases in 
which the Whistleblower Office rejects or denies a claim for award 
under section 7623(a), there will not be a separate administrative 
proceeding. (For further information, see Rejections and Denials, later 
in this preamble.) The final regulations largely adopt the proposed 
regulations. The comments received and the changes made are discussed 
in further detail in this section.
    Several commenters suggested that whistleblower administrative 
proceedings should begin earlier. The commenters offered different 
suggestions for how this could be accomplished, including beginning 
whistleblower administrative proceedings at the time that a claim is 
submitted on the Form 211 or when the Form 11369, ``Confidential 
Evaluation Report on Claim for Award,'' is transmitted to the 
Whistleblower Office by the Operating Division. One commenter suggested 
that the regulations should require the Whistleblower Office to notify 
the whistleblower and begin the administrative proceeding within 90 
days of a taxpayer agreeing to pay any taxes, penalties, interest or 
additional amounts, and requesting that the whistleblower provide any 
information relevant to an award determination within 30 days. This 
commenter suggested that the IRS should then send another notification 
to the whistleblower within 90 days after the IRS had collected 
proceeds.
    The proposed regulations provided for whistleblower administrative 
proceedings in an effort to respond to whistleblowers' concerns 
regarding the IRS's ability to communicate with whistleblowers. After 
considering the comments received, Treasury and the IRS determined that 
beginning the administrative proceeding before the preliminary award 
determination letter would not meaningfully increase a whistleblower's 
ability to participate in and provide comments relating to the award 
determination. As discussed earlier in this preamble, the IRS will use 
several tools, including debriefings, section 6103(n) contracts, and 
section 6103(k)(6) disclosures to communicate with whistleblowers 
following the submission of a claim. The whistleblower award 
administrative proceedings discussed in this section of the preamble 
are intended to facilitate communication with whistleblowers before the 
IRS makes the award determination.

Deadlines for IRS Whistleblower Office Action

    The proposed regulations provided no mandatory deadlines for 
Whistleblower Office action. The proposed regulations instead provided 
for payment of an award, when appropriate, as promptly as circumstances 
permit. Recognizing that the timely and comprehensive evaluation of 
information provided by whistleblowers is essential to the success of 
the program, the IRS has articulated goals for Whistleblower Office 
action in other internal guidance. IRS Whistleblower Program Memorandum 
(Deputy Commissioner for Services and Enforcement Steven T. Miller, 
June 20, 2012). This memorandum established goals for action on 
whistleblower submissions, and demonstrates the IRS's commitment to 
timely and comprehensive evaluation of whistleblower information. The 
memorandum also recognizes the need for flexibility and recognizes that 
there are times when the established goals will not be met. This does 
not detract from the emphasis placed on timely action, but instead 
flows from a recognition of the unique nature of these claims and a 
desire to ensure that when the Whistleblower Office takes action, it 
has available all relevant and necessary information relating to an 
action.
    The form comment letters suggested that the regulations should 
adopt and expand on the guidelines set out in the June 20, 2012, IRS 
Whistleblower Program Memorandum. Several commenters suggested that the 
final regulations should incorporate mandatory deadlines for action by 
the Whistleblower Office. Two commenters generally suggested that the 
regulations

[[Page 47257]]

should require that preliminary award determination letters be sent by 
a specified time after proceeds are collected, for example, between 90 
and 180 days after the IRS has collected proceeds. One commenter 
suggested that the regulations should require the Whistleblower Office 
to notify the whistleblower and begin the administrative proceeding 
within 90 days of a taxpayer agreeing to pay any taxes, penalties, 
interest or additional amounts, and requesting that the whistleblower 
provide any information relevant to an award determination within 30 
days. This commenter suggested that the IRS should then send another 
notification to the whistleblower 90 days after the IRS had collected 
proceeds. This commenter suggested that these measures should be 
implemented to ensure that preliminary award determination letters are 
issued prior to a final determination of tax.
    As noted, the June 20, 2012, IRS Whistleblower Program Memorandum 
identified timelines and policy goals for Whistleblower Office action. 
Treasury and the IRS have determined not to adopt these program goals 
as regulatory requirements to retain flexibility to make changes to 
accommodate future developments. The Whistleblower Office, however, 
remains committed to taking timely action on whistleblower submissions 
from the date a claim is first submitted through the date on which an 
award is determined or the claim is denied.

Deadlines for Whistleblower Action or Response

    The proposed rules at Sec.  301.7623-3 contained several deadlines 
for whistleblower action. These deadlines are designed to ensure that 
the administrative proceedings are conducted in a timely fashion. In 
cases in which the Whistleblower Office recommends payment of an award 
under section 7623(a), a whistleblower has 30 days to submit comments 
on the Whistleblower Office's preliminary award determination. In cases 
in which the Whistleblower Office denies an award under section 
7623(b), a whistleblower has 30 days to submit comments on the 
Whistleblower Office's preliminary denial letter. Finally, in cases in 
which the Whistleblower Office determines an award under section 
7623(b), the whistleblower has 30 days to respond to the preliminary 
award recommendation letter; when applicable, the whistleblower has 30 
days to respond after receiving a detailed report from the 
Whistleblower Office; and when applicable, the whistleblower has 30 
days to submit comments after receiving an opportunity to review the 
documents supporting the award report recommendations. Under the 
proposed regulations, the time periods for responding in cases in which 
the Whistleblower Office determines an award under section 7623(b) may 
be extended at the sole discretion of the Whistleblower Office.
    Several commenters generally suggested that all of the time periods 
for whistleblowers to respond or submit comments should be more 
flexible. One commenter requested that different, longer time periods 
be applied to whistleblowers located outside of the United States. 
Another commenter suggested that ``good cause'' should be added as a 
reason why a whistleblower may take longer than 30 days to respond or 
submit comments to the Whistleblower Office. Finally, one commenter 
requested clarification on when the 30-day period to respond to the 
detailed report would begin.
    After considering the comments, Treasury and the IRS adopt the 
proposed regulations without substantive change. The deadlines for 
whistleblower action in the final regulations are intended to allow 
whistleblower administrative proceedings to proceed in a timely and 
efficient manner. Further, the Whistleblower Office has the discretion 
to extend the time periods and has routinely done so at the request of 
whistleblowers or their representatives. In response to the comments, 
however, Treasury and the IRS included language in the final 
regulations intended to clarify that the periods begin when the 
Whistleblower Office sends the notices.

Award Consent Forms

    A number of comments were received that expressed frustration with 
the amount of time that it takes from when a whistleblower submits a 
claim for award to when the Whistleblower Office pays the award. The 
factors that contribute to this length of time are largely outside of 
the control of whistleblowers and the Whistleblower Office. The 
proposed regulations, however, provided for award consent forms, which 
allow the Whistleblower Office to make an award determination and pay 
an award, without providing an award determination letter and waiting 
for the whistleblower's time to appeal such determination to expire. 
The purpose of the award consent form is to expedite the administrative 
process for cases in which the whistleblower agrees with the 
Whistleblower Office's preliminary award recommendation. A 
whistleblower may submit an award consent form to the Whistleblower 
Office at any time during the whistleblower administrative proceeding.
    One commenter suggested that the award consent form is unfair 
because it forces the whistleblower to waive any appeal rights before 
receiving an award. Under the proposed rules, a whistleblower can 
receive an award regardless of whether an award consent form is 
submitted. For example, if a whistleblower declines to execute the 
award consent form, then after the whistleblower has finished 
participating in the whistleblower administrative proceeding and after 
a final determination of tax, as defined in Sec.  301.7623-4(d)(2), the 
Whistleblower Office will provide the whistleblower with a 
determination letter, stating the amount of any award. In such cases, 
the award would be payable after all appeals of the Whistleblower 
Office's determination were final. Executing the award consent and 
waiving the appeal rights serves to decrease the time between the 
determination and payment of the award. Because the execution of an 
award consent form is at the option of the whistleblower, these 
regulations retain the proposed regulations' rules regarding the use of 
award consent forms. Under the final regulations, whistleblowers may 
choose to execute an award consent form at any time during the 
whistleblower's participation in the administrative proceeding for 
award under section 7623(b). If the whistleblower signs, dates, and 
returns the award consent form, the Whistleblower Office will pay the 
award to the whistleblower as promptly as circumstances permit after 
there has been a final determination of tax. Thus, while there is 
absolutely no requirement that a whistleblower execute the award 
consent, doing so provides whistleblowers a way to get the benefit of 
finality and, assuming there are no other open issues, a faster award 
payment.

Confidentiality Agreements

    Treasury and the IRS recognize that, while detailed administrative 
claim files assist the Whistleblower Office in making fair and accurate 
award determinations, safeguards aimed at preventing the potential 
redisclosure or misuse of the taxpayer's confidential return 
information contained in those files remain critical. Section 
6103(h)(4) and Sec.  301.6103(h)(4)-1 of the proposed regulations 
confirmed the authority to disclose return information in the course of 
a whistleblower administrative proceeding, but neither provides 
redisclosure prohibitions or

[[Page 47258]]

penalties. In the Administration's Fiscal Year 2014 and 2015 Revenue 
Proposals, Treasury recommended amending section 6103 to provide that 
the section 6103(p) safeguarding requirements apply to whistleblowers 
and their legal representatives who receive tax return information in 
whistleblower administrative proceedings. Despite the lack of statutory 
redisclosure prohibitions and penalties, Treasury and the IRS, in the 
proposed regulations, sought to balance whistleblowers' desire for 
increased communication with protections and safeguards for taxpayers' 
confidential information. Accordingly, the proposed regulations 
required whistleblowers to execute confidentiality agreements before 
they may receive a detailed description of the factors that contributed 
to the preliminary award recommendation or view documents that support 
the recommendation. A whistleblower is not required to execute a 
confidentiality agreement before appealing an award determination to 
the Tax Court, and executing an agreement does not prevent a 
whistleblower from seeking Tax Court review.
    One commenter recommended that every whistleblower should be 
required to enter into a confidentiality agreement with the 
Whistleblower Office at the time that they submit a claim. This 
commenter suggested that such agreements would allow the Whistleblower 
Office to share information with the whistleblower earlier in the 
process, prior to any whistleblower administrative proceeding. Another 
commenter also suggested that confidentiality agreements should be 
mandatory in every case to allow for the disclosure of information to 
whistleblowers and to provide protection to taxpayers with respect to 
disclosed information.
    Although Treasury and the IRS support the use of confidentiality 
agreements as a mechanism for protecting confidential taxpayer return 
information disclosed during the course of an administrative 
proceeding, the agreements do not in themselves authorize the IRS or 
the Whistleblower Office to disclose such information. In addition, 
Treasury and the IRS have determined that disclosures are not necessary 
in every case. Accordingly, the final regulations do not mandate the 
use of confidentiality agreements in every case. Instead, the final 
regulations adopt the rule in the proposed regulations permitting 
whistleblowers to choose to enter into confidentiality agreements with 
the Whistleblower Office during whistleblower administrative 
proceedings for awards under section 7623(b). When the whistleblower 
signs, dates, and returns the confidentiality agreement, the 
Whistleblower Office will provide the whistleblower with a detailed 
award report and an opportunity to review documents supporting the 
report.

Opportunity To Review Documents Supporting Award Report Recommendations

    Under the proposed regulations, if a whistleblower signs, dates, 
and returns the confidentiality agreement accompanying the preliminary 
award determination, then after reviewing the Whistleblower Office's 
detailed report, the whistleblower can request an appointment to review 
the documents supporting the detailed report. During this appointment, 
the Whistleblower Office will provide for viewing the pertinent 
information from the administrative claim file. The Whistleblower 
Office will supervise the whistleblower's review of the documents and 
the whistleblower will not be permitted to make copies of the 
documents. Thus, while the proposed regulations provide whistleblowers 
with an opportunity to view information in the administrative claim 
file that is not protected from disclosure by one or more common law or 
statutory privileges, the proposed regulations provided rules intended 
to safeguard the disclosure of information to a whistleblower.
    One commenter suggested that the whistleblower should be able to 
review all non-privileged information in the administrative claim file, 
whether or not it is deemed pertinent. Treasury and the IRS have 
determined that the rules applicable to the document review--including 
on site review and no copying--adequately protect taxpayer information 
from redisclosure. Accordingly, in response to this comment, the final 
regulations remove the term ``pertinent.''

Administrative Record

    Under the proposed regulations, the administrative record comprises 
all information contained in the administrative claim file that is not 
protected by one or more statutory privileges that is relevant to the 
award determination. One commenter suggested that the IRS Whistleblower 
Office should be required to provide a privilege log to detail any 
items that are excluded from the administrative record. After 
considering the comment, Treasury and the IRS have determined that 
creating a privilege log in every administrative proceeding involving 
privileged documents that are withheld by the Whistleblower Office 
would offer minimal benefits and pose an unjustifiable administrative 
burden. As a result, no changes were made to the proposed regulations.

Rejection and Denial Letters

    The proposed regulations provided for rejection and denial letters 
in cases under section 7623(a) and 7623(b). In practice, a rejection is 
a determination that relates solely to the whistleblower and the 
information on the face of his or her claim that pertains to the 
whistleblower, while a denial often relates to or implicates taxpayer 
information (for example, because the IRS did not proceed based on the 
information provided or did not collect any proceeds). Pursuant to 
proposed Sec.  301.7623-3(b)(3), for rejections or denials under 
section 7623(a), the Whistleblower Office will provide written notice 
to claimants of the rejection or denial of award claims without an 
administrative proceeding. One commenter expressed concern with the 
amount of information contained in rejection and denial letters. In 
these cases, because there is no whistleblower administrative 
proceeding, section 6103 (which provides that all tax return 
information is confidential, unless an exception applies) operates to 
limit the amount of taxpayer information that the Whistleblower Office 
can provide. Treasury and the IRS considered whether to make denials of 
claims under section 7623(a) subject to an administrative proceeding 
similar to the denial of claims under section 7623(b). However, given 
the nature of claims under section 7623(a) and the large number of such 
claims, Treasury and the IRS determined that the administrative burden 
of providing an administrative proceeding would significantly outweigh 
the small amount of additional information that would be provided in 
the denial letters. We note, however, that the same section 6103 
concerns are not present with rejection letters. Accordingly, in the 
case of a rejection under section 7623(a) or (b), the written notice is 
not subject to the same limitations under section 6103 and will explain 
the basis for the rejection. Although no substantive changes were made, 
to improve clarity, the final regulations separate the rules for 
rejections under section 7623(b) and denials under section 7623(b) into 
separate provisions and describe when a claim is rejected or denied.

Subsequent Determinations

    One commenter suggested that the definition of collected proceeds 
should take into account circumstances in

[[Page 47259]]

which a whistleblower submits a claim for an ongoing issue and an 
administrative action is taken for some, but not all years (apparently 
because the statute of limitations has expired). If the taxpayer 
becomes compliant in future years, the commenter suggested that the 
whistleblower's award should be determined based on collected proceeds 
for future years determined as the difference between what is reported 
and paid, and what would have been reported and paid, if not for the 
whistleblower's information and the IRS' administrative action. The 
commenter suggested limiting the future years to the number of years 
for which the IRS allowed the statute of limitations to expire with 
respect to the whistleblower claim. No changes were made to the 
proposed regulations because the commenter's concern--that the IRS will 
not be diligent in preserving the statute of limitations--is 
ameliorated by the fact that the IRS suffers a greater harm than the 
whistleblower if the IRS permits the statute of limitations to expire 
and, therefore, the IRS is motivated to preserve the statute of 
limitations.
    Another commenter suggested that the final regulations should 
include procedures for reopening a claim that was initially denied if 
the information is later used by the IRS, for example, by a different 
Operating Division. The proposed regulations did not provide specific 
procedures for addressing the use of a whistleblower's information 
following a denial. However, nothing in the proposed regulations 
precluded future IRS action based on a whistleblower's information or 
the determination of an award in such instances. For example, the 
proposed regulations did not preclude the Whistleblower Office from 
making a second or subsequent determination when the IRS proceeds based 
on the information after having already made a determination. This 
situation, however, is distinguishable from timing cases, discussed 
earlier in this preamble, in connection with the definition of 
collected proceeds, in which the IRS recomputes and pays an award based 
upon information not known with respect to the taxpayer's account as of 
the date of the final determination of tax. These cases would include, 
for example, those in which whistleblower information results in the 
elimination of an NOL but does not result in collected proceeds until 
after the final determination. In such cases, there are no new 
circumstances, only additional collected proceeds. A second or 
subsequent determination, however, is appropriate when there are new 
circumstances that result in collected proceeds. Although this result 
was not precluded under the proposed regulations, Treasury and the IRS 
added language to the definition of final determination of tax at Sec.  
301.7623-4(d)(2) of the final regulations to explicitly clarify this 
point. Because the final regulations allow for subsequent 
determinations when proceeds are collected after an initial 
determination, and any such subsequent determination will be subject to 
all the rules and procedures applicable to an initial determination, no 
additional procedures are needed in these final regulations.

Determining the Amount of Awards and Paying Awards--Sec.  301.7623-4

    This regulation provides the framework and criteria that the 
Whistleblower Office will use in exercising the discretion granted 
under section 7623 to make awards. Under the regulation, based on the 
Whistleblower Office's review of the entire administrative claim file, 
the Whistleblower Office will assign a fixed percentage to claims for 
award by evaluating the substantial contribution of the whistleblower 
to the underlying action(s). The rules of this section apply to claims 
for awards under both section 7623(a) and section 7623(b). The comments 
received and any changes to proposed Sec.  301.7623-4 are discussed in 
the sections that follow.

Fixed Percentage Computational Framework

    Under section 7623(b), whistleblowers may receive as an award at 
least 15 percent but not more than 30 percent of the collected proceeds 
resulting from an action (including any related actions), assuming that 
there is no reduction in award pursuant to section 7623(b)(2) or (3). 
The proposed regulations adopted a fixed percentage approach pursuant 
to which the Whistleblower Office will assign claims for award to one 
of a number of fixed percentages within the applicable award percentage 
range. Under the proposed regulations, to compute an award, the 
Whistleblower Office will look to the administrative claim file to 
determine whether there are any positive factors present that would 
merit an increased award of 22 or 30 percent. The Whistleblower Office 
will then determine whether there are negative factors present that 
would merit a decreased award of 15, 18, 22, or 26 percent.
    One commenter disagreed with the use of fixed percentages, 
suggesting that instead the Whistleblower Office should have the 
discretion and flexibility to consider the full range of award 
percentages in reaching an award determination. A number of the 
comments received, including the form comment letters, suggested that 
starting the award computation framework at 15 percent sends the wrong 
message to whistleblowers and would discourage whistleblowers by 
limiting the size of whistleblower awards. One commenter suggested that 
starting at 15 percent was unnecessarily biased toward the lower end of 
the statutorily mandated range of 15 to 30 percent. This commenter 
suggested that this approach would invite litigation and would limit 
the upward effect of positive factors. Instead, this commenter 
recommended that the Whistleblower Office should begin its analysis at 
22.5 percent. Another commenter suggested that starting at the bottom 
prevents the Whistleblower Office from punishing whistleblowers that 
have only negative factors and also suggested that the Whistleblower 
Office should begin its analysis at 22.5 percent. One commenter 
suggested that the regulations should also require payment of a minimum 
15-percent award both when a taxpayer self-reports a tax liability 
after a whistleblower submits information to the IRS and when a 
whistleblower provides information and the IRS subsequently proceeds 
with an administrative action without using the whistleblower's 
information. Finally, several commenters requested that the final 
regulations provide additional information on when a 30-percent award 
would be appropriate under the statute. These commenters suggested that 
the regulations should provide an example of a case in which the 
Whistleblower Office would determine a 30-percent award. To that end, 
one commenter suggested that a maximum 30-percent award should be paid 
when a whistleblower submits information that leads to the collection 
of additional amounts in an otherwise nearly completed audit, provides 
specific information that forms the basis for an assessment of tax, 
provides nearly all of the information and documentation needed by the 
IRS to conduct an audit, provides assistance or is willing to provide 
assistance during the administrative action, testifies or is willing to 
testify in a court proceeding, or wears a wire or is willing to wear a 
wire to assist in an investigation. Finally one commenter expressed 
concern with the language in the preamble to the proposed regulations 
that provided that the Whistleblower Office would

[[Page 47260]]

determine a 30-percent award only in extraordinary cases.
    Treasury and the IRS continue to believe that the fixed percentage 
approach provides a structure that will promote consistency in the 
award determination process by enabling the Whistleblower Office to 
determine awards across the breadth of the applicable percentage range 
based on meaningful distinctions among cases. The fixed percentage 
approach also avoids having to draw fine distinctions that might seem 
unfair and arbitrary, given the differences among claims for award with 
respect to both the facts and law of the underlying actions and the 
nature and extent of the substantial contribution of the 
whistleblowers. Accordingly, the final regulations retain the fixed 
percentage approach.
    Further, Treasury and the IRS determined that starting the award 
determination at 15 percent merely reflects the fact that the claim has 
met the threshold requirements for an award under section 7623(b). All 
awards under section 7623(b)(1) are paid to whistleblowers that made a 
substantial contribution to the underlying action(s). Congress, through 
the plain language of the statute, provided that a 15-percent award is 
appropriate for a whistleblower that makes a substantial contribution 
to the underlying action(s). Although commenters are correct that this 
approach may lead to the same result for both whistleblowers with no 
positive factors and whistleblowers with all negative factors, Treasury 
and the IRS do not believe that whistleblowers who merely submit a 
claim that reflects none of the positive factors and offer nothing 
beyond the bare minimum to support an award should be entitled to an 
award above the statutory minimum. A 15-percent award is a significant 
financial incentive to whistleblowers and starting the award 
proceedings at 15 percent, with the opportunity for a larger potential 
award increase, provides the whistleblower with a greater incentive to 
provide better information and assistance to the IRS than starting at 
22.5 percent. Because the presence of positive factors is largely 
within the whistleblower's control, Treasury and the IRS have adopted 
an approach that incentivizes whistleblowers to provide high quality 
submissions that reflect positive factors.
    Moreover, the approach taken in the final regulations--starting at 
15 percent and applying positive and negative factors, based on the 
extent of the whistleblower's substantial contribution--is consistent 
with the approach taken by other government agencies in the regulations 
and practices that govern the administration of their whistleblower 
award programs, including the Department of Justice (in making 
recommendations in False Claims Act cases), the Securities and Exchange 
Commission, and Commodity Futures Trading Commission (in applying 
Federal whistleblower statutes). As it has done since the 2006 
amendments to the statute, the Whistleblower Office will increase the 
award percentage, based on the presence of positive factors. The final 
regulations provide several positive factors designed to allow for 
increased awards across a broad range of claims, as merited.
    Moreover, the concern expressed by some commenters that the IRS 
will pay minimum awards in most cases is not supported by the evidence. 
To date, using this computational approach the IRS has paid awards 
totaling approximately $175 million on collected proceeds totaling 
approximately $700 million, reflecting an award average of 
approximately 25 percent--nearer the top than the bottom of the 
statutory range. After considering the concerns raised by these 
comments, the final regulations retain the fixed percentage approach 
adopted in the proposed regulations. Finally, in response to the 
comments received on 30-percent awards, Treasury and the IRS revised 
the example, extending it to illustrate the full award percentage 
range.

Factors Used To Determine Award Percentage

    Pursuant to section 7623(b), the Whistleblower Office's 
determination of an award amount depends on the extent to which the 
claimant's information substantially contributed to the underlying 
action(s). Under the proposed regulations, the Whistleblower Office 
reviews the administrative claim file and applies the positive factors 
and negative factors, listed in Sec.  301.7623-4(b), to the facts to 
determine the fixed percentage applicable to a claim for award.
    Some commenters offered suggestions for additional positive 
factors. These suggestions included: (i) The whistleblower provides 
information on multiple unrelated taxpayers; (ii) the whistleblower 
identifies the target taxpayer; (iii) the whistleblower provides 
information that leads to a related party; (iv) the IRS would not have 
discovered a violation ``but for'' the whistleblower's information; and 
(v) there is a close nexus between related actions. Some of these 
suggested factors are already threshold elements required to merit any 
award. For example, identifying the target taxpayer is required to make 
a claim. Others restate the circumstances for which the proposed 
regulations already compensated whistleblowers. For example, if a 
whistleblower provides information on multiple unrelated taxpayers or 
uncovering a close nexus between related actions, and the IRS proceeds 
based on the information and collects proceeds, then the 
whistleblower's contribution to each action will be evaluated and 
accounted for in determining the award. Further, the final regulations, 
like the proposed regulations, provide that the positive factors and 
negative factors are non-exclusive. Accordingly, the final regulations 
do not incorporate any of these suggested factors. The Whistleblower 
Office may recognize and apply additional factors in a particular case 
that are appropriate in light of the particular facts.
    One commenter suggested that the positive factor at Sec.  301.7623-
4(b)(1)(ii), regarding information that identifies an issue of a type 
previously unknown to the IRS, should apply when the information 
provided identifies facts of a type previously unknown to the IRS, 
rather than an issue of a type previously unknown to the IRS. In 
response, the final regulations expand the factor to include a 
transaction previously unknown to the IRS.
    Several commenters suggested that the positive factor at Sec.  
301.7623-4(b)(1)(v) should look only to the whistleblower's willingness 
to provide assistance, rather than to assistance offered in response to 
a request from the IRS. These comments expressed concern that 
whistleblowers have not been given opportunities to provide assistance 
and, therefore, suggested deleting the language ``in response to a 
request from the Whistleblower Office, the IRS or the IRS Office of 
Chief Counsel.'' Treasury and the IRS agree that it is the 
whistleblower's act of providing exceptional cooperation and assistance 
that should be treated as a positive factor, regardless of whether that 
cooperation and assistance was in response to a request. As a result, 
the final regulations delete this language. One commenter suggested 
that the regulations should provide more information on what would be 
meaningful whistleblower participation. Treasury and the IRS believe 
that the positive factors in the final regulations should remain 
broadly defined providing the Whistleblower Office with the necessary 
discretion to increase a whistleblower's award percentage in 
appropriate cases. Exceptional assistance depends on the facts and

[[Page 47261]]

circumstances and could evolve in response to specific whistleblower 
claims. Accordingly, no changes are made in the final regulations in 
response to this comment. Nevertheless, the IRS will continue to 
provide further explanations to staff, as appropriate and needed.
    One commenter suggested an additional negative factor--when it is 
more likely than not that the IRS would have discovered the information 
on its own. One commenter suggested that the IRS should consider 
mitigating factors when the whistleblower delayed informing the IRS 
after learning the relevant facts, particularly if the delay adversely 
affected the IRS's ability to pursue an action or issue. Treasury and 
the IRS have decided not to incorporate any new negative or mitigating 
factors into the final regulations, which would serve only to make it 
harder for whistleblowers to recover. The Whistleblower Office will 
consider all of the relevant facts and circumstances when looking to 
apply the positive and negative factors identified in the regulations.
    One commenter suggested that the negative factor when the 
whistleblower contributed to the underpayment of tax or tax 
noncompliance identified is already addressed by the planned and 
initiated test. The inclusion of this factor signifies that not all 
situations when a whistleblower contributes to the actions that led to 
the underpayment will constitute planning and initiating under the 
statute and regulations--as discussed later in this preamble, the 
threshold for planned and initiated is higher than being a mere 
contributor. In cases when a whistleblower does not plan and initiate 
within the meaning of the statute and regulations, but nonetheless 
contributes to the action(s) that led to tax noncompliance, the 
Whistleblower Office will not apply the threshold planner and initiator 
test, but in such a case, it may still be appropriate to decrease the 
award amount because the whistleblower's actions diminish the extent of 
the whistleblower's substantial contribution to the action. Thus, the 
Whistleblower Office will instead consider the whistleblower's 
contribution to the tax noncompliance as a factor that may justify a 
decrease within the 15-to-30 percent award percentage range. For 
example, this factor may apply if a whistleblower engaged in planning 
or initiating activities, but not both, that diminished the 
whistleblower's substantial contribution to the action with which the 
IRS proceeded. This factor will not, however, be applied to reduce an 
award in cases in which the Whistleblower Office determines that the 
threshold for planned and initiated has been met. If the threshold for 
planned and initiated is met, the planned and initiated framework will 
be applied, and the final regulations have been clarified accordingly.

Award for Less Substantial Contribution

    Section 7623(b)(2) provides for a reduced award when the 
Whistleblower Office determines that the action was based primarily on 
disclosures of specific allegations resulting from a judicial or 
administrative hearing, a governmental report, hearing, audit, or 
investigation, or the news media, unless the whistleblower was the 
original source of the information. Under the proposed regulations, if 
the Whistleblower Office determined that an action was based 
principally on disclosures of specific allegations resulting from 
public source information then the Whistleblower Office will determine 
an award of no more than 10 percent of the collected proceeds resulting 
from the action, unless the whistleblower was the original source of 
the information. The proposed regulations provided that the 
Whistleblower Office would make the determination based on the extent 
to which the public source information described a tax violation or 
facts and circumstances from which a tax violation could be reasonably 
inferred. Under the proposed regulations, public source information 
included a judicial or administrative hearing, a government report, 
hearing, audit, or investigation, or the news media.
    Treasury and the IRS received two comments on this proposed rule. 
One commenter suggested that public source information should be 
limited to the types of information specified in the statute. This 
commenter disagreed with the proposed regulations' use of the word 
``including'' and expressed concern that this language would allow the 
Whistleblower Office to expand on the statutory list of public sources. 
This commenter also suggested that the regulations should exclude 
public source information that is only available by request. Another 
commenter disagreed with the application of the original source test in 
the proposed regulations. This commenter suggested that rather than 
looking to whether the whistleblower was the original source of the 
public source information, the regulations should instead look to 
whether the IRS takes action based on the information provided, and if 
so, should treat the whistleblower as the original source of the 
information. Both commenters expressed concern that the proposed 
regulations did not accurately apply the specific allegation 
requirement from the statute, and one of the two commenters further 
suggested that the regulations should employ an ordinary, lay person 
standard if a ``reasonable inference'' test is retained as a substitute 
to the ``specific allegation'' requirement in the statute.
    In response to the first commenter's concerns, the final 
regulations remove the term ``public source information'' and the 
``including'' language and instead rely solely on the list of statutory 
sources. In determining that the final regulations should rely solely 
on the statutory list, Treasury and the IRS also decline to place 
additional limitations on the statutory language, for example, 
excluding information available only upon request. The final 
regulations also clarify the application of the original source test 
and the specific allegation requirement by more clearly tracking the 
language of the statute. The final regulations clarify that the 
reasonable inference test does not replace the specific allegation 
requirement, but instead provides guidance on how the Whistleblower 
Office will apply the statute's specific allegation requirement. 
Changes were also made to the example to illustrate the operation of 
the reasonable inference test.

Reduction in Award and Denial of Award

    Under the proposed regulations, the Whistleblower Office will make 
a threshold determination of whether a whistleblower planned and 
initiated the underlying acts, and, if this threshold is met, then the 
Whistleblower Office will categorize and evaluate the extent of the 
whistleblower's planning and initiating of the underlying acts, based 
on the application of factors listed in Sec.  301.7623-4(c)(3)(iv) to 
the facts contained in the administrative claim file, to determine the 
amount of the appropriate reduction, if any.
    Commenters on this issue generally expressed concern that the 
threshold determination for planned and initiated is too broad and 
could discourage potential whistleblowers from coming forward. These 
commenters suggested that the regulations should adopt the ``principal 
architect'' approach used in evaluating claims under the False Claims 
Act. Two of the commenters expressed concern that the standard at Sec.  
301.7623-4(c)(3)(ii)(C), which asked whether the whistleblower knew or 
had reason to know that there were tax implications to planning and 
initiating the underlying act, was too broad. One of these commenters 
suggested that

[[Page 47262]]

instead, the standard should be whether the whistleblower knew or had 
reason to know that tax noncompliance could result from the planning 
and initiating of the underlying act. Similarly, one commenter 
suggested that the standard should be whether the individual knew or 
had reason to know that there were ``unlawful'' or ``improper'' tax 
implications. Some commenters suggested that the language at Sec.  
301.7623-4(c)(3)(ii)(C) should specifically exclude a whistleblower who 
performed any of the underlying activities at the direction of a senior 
employee or manager. One commenter suggested that including the word 
``drafted'' in the definition of ``planned'' created the possibility 
that an employee drafting a document at the direction of superiors 
could fall within the definition. This commenter also suggested that 
including the term ``promoted'' in the definition of ``initiated'' 
could include someone involved well after the scheme was actually 
initiated. One commenter suggested that the primary, significant, or 
moderate categories are not supported by the statute, and risk being 
implemented in a way that a whistleblower can be something other than a 
principal architect. Finally, two commenters offered suggestions for 
the examples in the proposed regulations. The comments on the examples 
focused on the application of the planned and initiated standard rather 
than on the application of the computational framework. One comment 
specifically suggested that the examples should provide guidance about 
what it means to plan and initiate, rather than guidance on the 
application of the computational framework.
    The final regulations do not adopt a ``principal architect'' 
approach to the application of section 7623(b)(3), based in part on the 
statutory language, which does not require a single planner and 
initiator but instead provides for the possibility of multiple planners 
and initiators. More than one individual may plan and initiate the 
actions that lead to a tax underpayment or violation, whether as co-
planners or as planners of independent actions that each led to the 
underpayment or violation. However, the terms ``plan'' and ``initiate'' 
suggest some voluntary action on the part of the individual. Thus, 
where an individual is acting under the direction and control of a 
supervisor, he or she should not be considered as planning or 
initiating. For example, the planned and initiated standard is not 
intended to apply to a junior associate acting under the direction of a 
partner. Nonetheless, the application of these rules is dependent on 
the relevant facts and circumstances of each case and, at some point, 
an associate or other employee becomes experienced enough to act 
sufficiently on his or her own to be considered a planner and 
initiator. The final regulations modify the examples to clarify the 
treatment of junior employees.
    In addition, in response to the commenters' concern that the 
standard at Sec.  301.7623-4(c)(3)(ii)(C) was too broad, the final 
regulations change ``knew or had reason to know there were tax 
implications'' to ``knew or had reason to know that a tax underpayment 
or a violation of the internal revenue laws could result, '' consistent 
with the full range of tax matters--from underpayments of tax to 
violations of the internal revenue laws--described in section 7623(a).
    As the commenters noted, section 7623(b)(3) does not provide 
categories for planned and initiated. It does, however, provide that 
after a determination is made that an individual planned and initiated, 
``the Whistleblower Office may appropriately reduce such award.'' The 
final regulations retain the primary, significant, or moderate 
categories to ensure that any appropriate reduction is made through the 
application of an established framework. The regulations' use of these 
categories, like the use of the fixed percentage and criteria approach 
for determining awards in substantial contribution and less substantial 
contribution cases, is intended to promote consistency, fairness, and 
transparency in an award determination process that is inherently 
subjective. As with the positive and negative factors, the IRS will 
continue to provide explanations to staff and examples, as appropriate 
and needed. Treasury and the IRS recognize the value that all 
whistleblowers, including those who participate in the actions that led 
to the underpayment, may provide, and the final regulations balance the 
goal of incentivizing whistleblowers with the plain language of the 
statute by providing for a sliding scale of reductions to an award for 
planning and initiating.

Eligible Affiliated Whistleblowers

    As discussed earlier in this preamble, Treasury and the IRS decided 
not to incorporate the proposed rule for eligible affiliated 
whistleblowers at Sec.  301.7623-4(c)(4) in the final regulations 
because it is inconsistent with the rule that prohibits a whistleblower 
from submitting a claim on behalf of another individual.

Multiple Whistleblowers

    Section 7623 does not address whether multiple whistleblowers may 
receive an award from the same collected proceeds. The proposed 
regulations provided rules for determining awards when two or more 
independent claims, based on different information, relate to the same 
collected proceeds. In these situations, the proposed regulations 
allowed the Whistleblower Office to determine multiple awards, limited 
in aggregate amount to the maximum amount that could have been awarded 
to a single whistleblower, rather than restricting the determination to 
a single award payable to the first whistleblower that files a claim 
for award or payable on some other basis.
    Treasury and the IRS received two comments on this issue. One 
commenter suggested that multiple whistleblowers should not have to 
share an award. The other commenter suggested that the first 
whistleblower should receive full credit for their information and that 
later whistleblowers should only receive an award for information that 
was not provided by the first whistleblower. After consideration of the 
comments, Treasury and the IRS determined to leave open the possibility 
of award payments for multiple whistleblowers. This determination was 
based in part on the recognition that the tax administration process is 
a long and multi-faceted one that may extend over the course of many 
years and may involve multiple substantial contributions from different 
sources. Given the unique nature of the tax administration process, 
Treasury and the IRS determined that it would not be fair or 
appropriate to determine an award only for the substantial contribution 
of whistleblowers who submit their information first-in-time. 
Accordingly, the proposed regulations are adopted without change.

Payment of Awards

    Section 7623 provides for payment of an award to the individual 
that submits information and makes a claim for award. Under the 
proposed regulation, the IRS will pay any award under section 7623 to a 
whistleblower as promptly as circumstances permit after there has been 
a final determination of tax with respect to the action(s) and after 
the Whistleblower Office has determined the award and all appeals of 
the determination are final or the whistleblower has executed an award 
consent form.
    Treasury and the IRS received two comments on this proposed rule. 
One

[[Page 47263]]

commenter suggested that the final regulations should provide 
procedures for payment of an award to attorney trust accounts. Another 
commenter suggested that whistleblowers should be allowed to assign or 
sell their claim for award. The issues raised in these comments are 
beyond the scope of the current regulations and, accordingly, the 
regulations have been finalized as proposed.

Final Determination of Tax

    Under the proposed regulations, the Whistleblower Office can only 
pay an award determined pursuant to section 7623 after there is a final 
determination of tax. A final determination of tax may be made after 
the proceeds resulting from the action(s) subject to the award 
determination have been collected and either the statutory period for 
filing a claim for refund has expired or the taxpayer(s) subject to the 
action(s) and the IRS have agreed with finality to the tax or other 
liabilities for the period(s) at issue and the taxpayer(s) has waived 
the right to file a claim for refund.
    Comments on this provision generally suggested that the IRS should 
make a final determination of tax as early as possible. The commenters 
suggested that the Whistleblower Office should make multiple partial 
payments on an award by making a final determination of tax with 
respect to each tax year for each taxpayer. One commenter suggested 
that the regulations should require mandatory partial payments of tax 
whenever a final determination is possible. One commenter suggested 
that it would be inappropriate to aggregate action(s) for purposes of 
making a final determination of tax because this could delay awards. 
Other commenters suggested that awards should be paid prior to a final 
determination of tax. One commenter suggested that the definition of 
final determination of tax should be triggered by each of the following 
events: The collection of proceeds by the IRS, the posting of a bond by 
a whistleblower, a determination by the Secretary that payment is in 
the best interests of the government, and the entering into of a 
closing agreement between the IRS and a partnership. Moreover, this 
commenter suggested that a taxpayer's right to file a refund suit 
should not be relevant to the definition, as taxpayers only file refund 
suits in a small percentage of cases.
    Treasury and the IRS understand the commenters' view that 
whistleblowers should receive awards as quickly as possible. Under the 
statute, however, an award cannot be made until there are collected 
proceeds, and the IRS has not collected proceeds with finality until 
the taxpayer no longer has a right to seek a refund of the amounts that 
constitute collected proceeds. The general rule set out in the proposed 
regulations and adopted in these final regulations provides that a 
final determination can be made when the proceeds resulting from the 
action(s) subject to the award determination have been collected and 
either the statutory period for filing a claim for refund has expired 
or the taxpayer(s) subject to the action(s) and the IRS have agreed 
with finality to the tax or other liabilities for the period(s) at 
issue and the taxpayer(s) have waived the right to file a claim for 
refund. This general rule already includes the commenter's suggestion 
that, in many cases, a final determination may occur when the IRS and 
the taxpayer enter into a closing agreement and the taxpayer makes full 
payment of the liability. As a result, the regulations were not revised 
in light of this comment. Recognizing that some claims result in more 
than one action, the definition provides the Whistleblower Office with 
the discretion to aggregate or disaggregate actions arising out of a 
single claim, meaning that the Whistleblower Office can, in appropriate 
cases, make more than one final determination with respect to a single 
claim for an award. For example, the Whistleblower Office generally 
will aggregate two actions, for award determination purposes, when the 
outcome of one will have an effect on the amount of collected proceeds 
that will result from the other. As discussed earlier in this preamble, 
the final regulations include new language that explicitly allows for 
subsequent determinations when the IRS proceeds based on the 
information provided after having already paid, rejected, or denied an 
award. This rule is illustrated through the addition of a new example.
    As noted, Treasury and the IRS declined, however, to provide for 
mandatory, partial or ongoing payments of awards in the final 
regulations, based on the determination that issuing multiple 
appealable final determinations as a rule would impose an unreasonable 
burden on the IRS and the Whistleblower Office. Accordingly, the final 
regulations' explicit statement that a final determination of tax does 
not preclude a subsequent final determination of tax is not intended 
to, and does not in any way, limit the discretion of the Whistleblower 
Office to aggregate or disaggregate actions for purposes of determining 
awards. The Whistleblower Office will continue to consider numerous 
factors relating to efficient tax administration in exercising this 
discretion, including the factors that it has previously identified in 
instructions to staff, instructions which are available via the IRS's 
Web site and that will be incorporated into the IRM when it is next 
updated.

Deceased Whistleblowers

    Existing Treas. Reg. Sec.  301.7623-1(b)(3) allows an executor, 
administrator, or other legal representative to file a claim for award 
for a deceased whistleblower, if evidence is provided to show that the 
representative has legal authority to act on behalf of the deceased. 
The proposed regulations provided that when a whistleblower dies before 
or during a whistleblower administrative proceeding, the Whistleblower 
Office will substitute an executor, administrator, or other legal 
representative on behalf of the deceased whistleblower for purposes of 
conducting the whistleblower administrative proceeding. No comments 
were received on this provision. Because the proposed regulations' use 
of the word ``will'' could be read to suggest that the regulations 
require substitution, Treasury and the IRS changed this word to ``may'' 
in the final regulations. Consistent with the regulations in effect 
under section 7623 at the time of the 2006 amendments to the statute, 
the Whistleblower Office will substitute such parties for a deceased 
whistleblower only when a party can make a proper showing that he or 
she is legally authorized to act for the deceased. The Whistleblower 
Office has no obligation to locate or determine a substitute for a 
deceased whistleblower. Accordingly, the final regulations provide that 
when a whistleblower dies before or during a whistleblower 
administrative proceeding, the Whistleblower Office may substitute an 
executor, administrator, or other legal representative on behalf of the 
deceased whistleblower for purposes of conducting the whistleblower 
administrative proceeding.

Tax Treatment of Awards

    Under the proposed regulations, all awards are subject to current 
Federal tax reporting and withholding requirements. No comments were 
received on this provision. Treasury and the IRS, however, added 
language to the final regulations to clarify that whistleblower awards 
are includible in gross income.

Effective/Applicability Dates

    Sections 301.7623-1, 301.7623-2, 301.7623-3, and 301.6103(h)(4)-1 
were

[[Page 47264]]

proposed to apply to information submitted on or after the date the 
rules are adopted as final regulations in the Federal Register, and to 
claims for award under sections 7623(a) and 7623(b) that are open as of 
that date. Likewise, Sec.  301.7623-4 was proposed to apply to 
information submitted on or after the date the rules are adopted as 
final regulations, and to claims for award under section 7623(b) that 
are open as of that date. Section 301.7623-4 was not proposed to apply 
to claims for award under section 7623(a) that are open as of that 
date.
    Treasury and the IRS received two comments on the proposed 
effective dates. One commenter suggested that the proposed rules at 
Sec.  301.7623-2 affect substantive rights of whistleblowers and should 
only be applicable to claims filed after the adoption of the final 
regulations. The other commenter similarly suggested that the 
regulations should be prospective and apply only to submissions made 
after the regulations have been finalized.
    The final regulations do not negatively affect substantive rights 
of whistleblowers because the proposed and final regulations largely 
incorporate existing practices adhered to by the Whistleblower Office, 
and changes from existing practices are designed to be favorable to 
whistleblowers. For example, the regulations provide for whistleblower 
administrative proceedings, but as discussed earlier in this preamble, 
these proceedings are intended to benefit whistleblowers, providing 
them with additional due process and opportunities to participate in a 
whistleblower award determination. Finally, applying two sets of rules 
to whistleblower proceedings will be difficult for the Whistleblower 
Office to administer. The effective dates for the regulations will 
allow the Whistleblower Office to administer the Whistleblower Program 
in an efficient manner. Accordingly, after considering the comments, 
Treasury and the IRS adopt the proposed regulations without changes.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It has also been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations. It is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that these regulations will primarily affect individuals who 
file whistleblower claims under section 7623. Accordingly, a regulatory 
flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. Pursuant to section 7805(f) of the Code, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business, and no 
comments were received.

Drafting Information

    The principal author of these regulations is Melissa A. Jarboe of 
the Office of the Associate Chief Counsel (Procedure and 
Administration).

List of Subjects in 26 CFR part 301

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

Adoption of Amendment to the Regulations

    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 removing 
the entry for Sec.  301.7623-1 and adding entries in numerical order 
for Sec. Sec.  301.6103(h)(4)-1 and 301.7623-1 through 301.7623-4 to 
read as follows:

    Authority:  26 U.S.C. 7805.
* * * * *
    Section 301.6103(h)(4)-1 also issued under 26 U.S.C. 6103(h)(4) 
and 26 U.S.C. 6103(q).
* * * * *
    Sections 301.7623-1 through 301.7623-4 also issued under 26 
U.S.C. 7623.
* * * * *

0
Par. 2. Section 301.6103(h)(4)-1 is added to read as follows:


Sec.  301.6103(h)(4)-1  Disclosure of returns and return information in 
whistleblower administrative proceedings.

    (a) In general. A whistleblower administrative proceeding (as 
described in Sec.  301.7623-3) is an administrative proceeding 
pertaining to tax administration within the meaning of section 
6103(h)(4).
    (b) Disclosures in whistleblower administrative proceedings. 
Pursuant to section 6103(h)(4) and paragraph (a) of this section, the 
Director, officers, and employees of the Whistleblower Office may 
disclose returns and return information (as defined by section 6103(b)) 
to a whistleblower (or the whistleblower's legal representative, if 
any) to the extent necessary to conduct a whistleblower administrative 
proceeding (as described in Sec.  301.7623-3), including but not 
limited to--
    (1) By communicating a preliminary award recommendation or 
preliminary denial letter to the whistleblower;
    (2) By providing the whistleblower with an award report package;
    (3) By conducting a meeting with the whistleblower to review 
documents supporting the preliminary award recommendation; and
    (4) By sending an award decision letter, award determination 
letter, or award denial letter to the whistleblower.
    (c) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

0
Par. 3. Section 301.7623-1 is revised to read as follows:


Sec.  301.7623-1  General rules, submitting information on 
underpayments of tax or violations of the internal revenue laws, and 
filing claims for award.

    (a) In general. In cases in which awards are not otherwise provided 
for by law, the Whistleblower Office may pay an award under section 
7623(a), in a suitable amount, for information necessary for detecting 
underpayments of tax or detecting and bringing to trial and punishment 
persons guilty of violating the internal revenue laws or conniving at 
the same. In cases that satisfy the requirements of section 7623(b)(5) 
and (b)(6) and in which the Internal Revenue Service (IRS) proceeds 
with an administrative or judicial action based on information provided 
by an individual, the Whistleblower Office must determine and pay an 
award under section 7623(b)(1), (2), or (3). The awards provided for by 
section 7623 and this paragraph must be paid from collected proceeds, 
as defined in Sec.  301.7623-2(d).
    (b) Eligibility to file claim for award. (1) In general. Any 
individual, other than an individual described in paragraph (b)(2) of 
this section, is eligible to file a claim for award and to receive an 
award under section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4.
    (2) Ineligible whistleblowers. The Whistleblower Office will reject 
any claim for award filed by an ineligible whistleblower and will 
provide written notice of the rejection to the whistleblower. The 
following

[[Page 47265]]

individuals are not eligible to file a claim for award or receive an 
award under section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4--
    (i) An individual who is an employee of the Department of Treasury 
or was an employee of the Department of Treasury when the individual 
obtained the information on which the claim is based;
    (ii) An individual who obtained the information through the 
individual's official duties as an employee of the Federal Government, 
or who is acting within the scope of those official duties as an 
employee of the Federal Government;
    (iii) An individual who is or was required by Federal law or 
regulation to disclose the information or who is or was precluded by 
Federal law or regulation from disclosing the information;
    (iv) An individual who obtained or had access to the information 
based on a contract with the Federal Government; or
    (v) An individual who filed a claim for award based on information 
obtained from an ineligible whistleblower for the purpose of avoiding 
the rejection of the claim that would have resulted if the claim was 
filed by the ineligible whistleblower.
    (c) Submission of information and claims for award. (1) Submitting 
information. To be eligible to receive an award under section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, a whistleblower must submit 
to the IRS specific and credible information that the whistleblower 
believes will lead to collected proceeds from one or more persons whom 
the whistleblower believes have failed to comply with the internal 
revenue laws. In general, a whistleblower's submission should identify 
the person(s) believed to have failed to comply with the internal 
revenue laws and should provide substantive information, including all 
available documentation, that supports the whistleblower's allegations. 
Information that identifies a pass-through entity will be considered to 
also identify all persons with a direct or indirect interest in the 
entity. Information that identifies a member of a firm who promoted 
another identified person's participation in a transaction described 
and documented in the information provided will be considered to also 
identify the firm and all other members of the firm. Submissions that 
provide speculative information or that do not provide specific and 
credible information regarding tax underpayments or violations of 
internal revenue laws do not provide a basis for an award. If documents 
or supporting evidence are known to the whistleblower but are not in 
the whistleblower's control, then the whistleblower should describe the 
documents or supporting evidence and identify their location to the 
best of the whistleblower's ability. If all available information known 
to the whistleblower is not provided to the IRS by the whistleblower, 
then the whistleblower bears the risk that this information might not 
be considered by the Whistleblower Office for purposes of an award.
    (2) Filing claim for award. To claim an award under section 7623 
and Sec. Sec.  301.7623-1 through 301.7623-4 for information provided 
to the IRS, a whistleblower must file a formal claim for award by 
completing and sending Form 211, ``Application for Award for Original 
Information,'' to the Internal Revenue Service, Whistleblower Office, 
at the address provided on the form, or by complying with other claim 
filing procedures as may be prescribed by the IRS in other published 
guidance. The Form 211 should be completed in its entirety and should 
include the following information--
    (i) The date of the claim;
    (ii) The whistleblower's name;
    (iii) The whistleblower's address and telephone number;
    (iv) The whistleblower's date of birth;
    (v) The whistleblower's taxpayer identification number; and
    (vi) An explanation of how the information on which the claim is 
based came to the attention and into the possession of the 
whistleblower, including, as available, the date(s) on which the 
whistleblower acquired the information and a complete description of 
the whistleblower's present or former relationship (if any) to 
person(s) identified on the Form 211.
    (3) Under penalty of perjury. No award may be made under section 
7623(b) unless the information on which the award is based is submitted 
to the IRS under penalty of perjury. All claims for award under section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4 must be accompanied 
by an original signed declaration under penalty of perjury, as follows: 
``I declare under penalty of perjury that I have examined this 
application, my accompanying statement, and supporting documentation 
and aver that such application is true, correct, and complete, to the 
best of my knowledge.'' This requirement precludes the filing of a 
claim for award by a person serving as a representative of, or in any 
way on behalf of, another individual. Claims filed by more than one 
whistleblower (joint claims) must be signed by each individual 
whistleblower under penalty of perjury.
    (4) Perfecting claim for award. If a whistleblower files a claim 
for award that does not include information described under paragraph 
(c)(2) of this section, does not contain specific and credible 
information as described in paragraph (c)(1) of this section, or is 
based on information that was not submitted under penalty of perjury as 
required by paragraph (c)(3) of this section, the Whistleblower Office 
may reject the claim or notify the whistleblower of the deficiencies 
and provide the whistleblower an opportunity to perfect the claim for 
award. If a whistleblower does not perfect the claim for award within 
the time period specified by the Whistleblower Office, then the 
Whistleblower Office may reject the claim. If the Whistleblower Office 
rejects a claim, then the Whistleblower Office will provide notice of 
the rejection to the whistleblower pursuant to the rules of Sec.  
301.7623-3(b)(3) or (c)(7). If the Whistleblower Office rejects a claim 
for the reasons described in this paragraph, then the whistleblower may 
perfect and resubmit the claim.
    (d) Request for assistance. (1) In general. The Whistleblower 
Office, the IRS, or IRS Office of Chief Counsel may request the 
assistance of a whistleblower or the whistleblower's legal 
representative. Any assistance shall be at the direction and control of 
the Whistleblower Office, the IRS, or the IRS Office of Chief Counsel 
assigned to the matter. See Sec.  301.6103(n)-2 for rules regarding 
written contracts among the IRS, whistleblowers, and legal 
representatives of whistleblowers.
    (2) No agency relationship. Submitting information, filing a claim 
for award, or responding to a request for assistance does not create an 
agency relationship between a whistleblower and the Federal Government, 
nor does a whistleblower or the whistleblower's legal representative 
act in any way on behalf of the Federal Government.
    (e) Confidentiality of whistleblowers. Under the informant's 
privilege, the IRS will use its best efforts to protect the identity of 
whistleblowers. In some circumstances, the IRS may need to reveal a 
whistleblower's identity, for example, when it is determined that it is 
in the best interests of the Government to use a whistleblower as a 
witness in a judicial proceeding. In those circumstances, the IRS will 
make every effort to notify the whistleblower before revealing the 
whistleblower's identity.

[[Page 47266]]

    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

0
Par. 4. Section 301.7623-2 is added to read as follows:


Sec.  301.7623-2  Definitions.

    (a) Action. (1) In general. For purposes of section 7623(b) and 
Sec. Sec.  301.7623-1 through 301.7623-4, the term action means an 
administrative or judicial action.
    (2) Administrative action. For purposes of section 7623(b) and 
Sec. Sec.  301.7623-1 through 301.7623-4, the term administrative 
action means all or a portion of an Internal Revenue Service (IRS) 
civil or criminal proceeding against any person that may result in 
collected proceeds, as defined in paragraph (d) of this section, 
including, for example, an examination, a collection proceeding, a 
status determination proceeding, or a criminal investigation.
    (3) Judicial action. For purposes of section 7623(b) and Sec. Sec.  
301.7623-1 through 301.7623-4, the term judicial action means all or a 
portion of a proceeding against any person in any court that may result 
in collected proceeds, as defined in paragraph (d) of this section.
    (b) Proceeds based on. (1) In general. For purposes of section 
7623(b) and Sec. Sec.  301.7623-1 through 301.7623-4, the IRS proceeds 
based on information provided by a whistleblower when the information 
provided substantially contributes to an action against a person 
identified by the whistleblower. For example, the IRS proceeds based on 
the information provided when the IRS initiates a new action, expands 
the scope of an ongoing action, or continues to pursue an ongoing 
action, that the IRS would not have initiated, expanded the scope of, 
or continued to pursue, but for the information provided. The IRS does 
not proceed based on information when the IRS analyzes the information 
provided or investigates a matter raised by the information provided.
    (2) Examples. The provisions of paragraph (b)(1) of this section 
may be illustrated by the following examples:

    Example 1. Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a taxpayer, 
describes and documents specific facts relating to the taxpayer's 
foreign sales in Country A, and, based on those facts, alleges that 
the taxpayer was not entitled to a foreign tax credit relating to 
its foreign sales in Country A. The IRS receives the information 
after having already initiated an examination of the taxpayer. The 
IRS's audit plan includes foreign tax credit issues but focuses on 
taxpayer's foreign sales in Country B and does not specifically 
address the taxpayer's foreign sales in Country A. Based on the 
information provided, the IRS expands the examination of the foreign 
tax credit issue to include consideration of the amount of foreign 
tax credit relating to the taxpayer's foreign sales in Country A. 
For purposes of section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4, the portion of the IRS's examination of the taxpayer 
relating to the foreign tax credit issue with respect to Country A 
is an administrative action with which the IRS proceeds based on the 
information provided by the whistleblower because the information 
provided substantially contributed to the action by causing the 
expansion of the IRS's examination.
    Example 2. Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a taxpayer, 
describes and documents specific facts relating to the taxpayer's 
activities, and, based on those facts, alleges that the taxpayer 
owed additional taxes in Year 1. The IRS proceeds with an 
examination of the taxpayer for Year 1 based on the information 
provided by the whistleblower. The IRS discovers that the taxpayer 
engaged in the same activities in Year 2 and expands the examination 
to Year 2. In the course of the examination, the IRS obtains, 
through the issuance of Information Document Requests (IDRs) and 
summonses, additional facts that are unrelated to the activities 
described in the information provided by the whistleblower. Based on 
these additional facts, the IRS expands the scope of the examination 
of the taxpayer for both Year 1 and Year 2. For purposes of section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the portion of 
the IRS's examination relating to the activities described and 
documented in the information provided is an administrative action 
with which the IRS proceeds based on information provided by the 
whistleblower because the information provided substantially 
contributed to the action by causing the expansion of the IRS's 
examination of Year 1 and Year 2. The portions of the IRS's 
examination of the taxpayer in both Year 1 and Year 2 relating to 
the additional facts obtained through the issuance of IDRs and 
summonses are not actions with which the IRS proceeds based on the 
information provided by the whistleblower because the information 
provided did not substantially contribute to the action.
    Example 3. Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a taxpayer, 
describes and documents specific facts relating to the taxpayer's 
activities, and, based on those facts, alleges that the taxpayer 
owed additional taxes in Year 1. The IRS receives the information 
after having already initiated an examination of the taxpayer for 
Year 1. During the examination, the information is provided to the 
Exam team and the Exam team uses the information provided to confirm 
the correctness of adjustments made based on other information. 
Although the whistleblower's information confirms the correctness of 
the IRS's adjustments, the IRS does not rely on the whistleblower's 
information when it makes the adjustments, nor does the information 
cause the IRS to expand the scope of its examination. The 
whistleblower's information merely supports information 
independently obtained by the IRS. For purposes of section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, the IRS's examination is 
not an administrative action with which the IRS proceeds based on 
information provided by the whistleblower because the information 
provided did not substantially contribute to the action.
    Example 4. Same facts as Example 3. During the examination, 
however, the Exam team identifies inconsistencies between the 
information provided by the whistleblower and other information 
already in the Exam team's possession. The Exam team uses the 
information provided by the whistleblower to make additional 
adjustments that it would not have made based solely on the other 
information. For purposes of section 7623 and Sec. Sec.  301.7623-1 
through 301.7623-4, the portion of the IRS's examination relating to 
the additional adjustments is an administrative action with which 
the IRS proceeds based on information provided by the whistleblower 
because the information provided substantially contributed to the 
action.

    (c) Related action. (1) In general. For purposes of section 7623(b) 
and Sec. Sec.  301.7623-1 through 301.7623-4, the term related action 
means an action against a person other than the person(s) identified in 
the information provided and subject to the original action(s), when--
    (i) The facts relating to the underpayment of tax or violations of 
the internal revenue laws by the other person are substantially the 
same as the facts described and documented in the information provided 
(with respect to the person(s) subject to the original action);
    (ii) The IRS proceeds with the action against the other person 
based on the specific facts described and documented in the information 
provided; and
    (iii) The other, unidentified person is related to the person 
identified in the information provided. For purposes of this paragraph, 
an unidentified person is related to the person identified in the 
information provided if the IRS can identify the unidentified person 
using the information provided (without first having to use the 
information provided to identify any other person or having to 
independently obtain additional information).
    (2) Examples. The provisions of paragraph (c)(1) of this section 
may be illustrated by the following examples:

    Example 1. Information provided to the IRS by a whistleblower, 
under section 7623

[[Page 47267]]

and Sec.  301.7623-1, identifies a taxpayer (Taxpayer 1), describes 
and documents specific facts relating to Taxpayer 1's activities, 
and, based on those facts, alleges tax underpayments by Taxpayer 1. 
The information provided also identifies an accountant (CPA 1) and 
describes and documents specific facts relating to CPA 1's 
contribution to the activities of Taxpayer 1 that the whistleblower 
alleges resulted in tax underpayments. The IRS proceeds with an 
examination of Taxpayer 1 based on the information provided by the 
whistleblower. Using the information provided, the IRS obtains CPA 
1's client list and identifies two taxpayer/clients of CPA 1 
(Taxpayer 2 and Taxpayer 3) that appear to have engaged in 
activities similar to Taxpayer 1. The IRS proceeds with an 
examination of Taxpayer 2 and finds that Taxpayer 2 engaged in the 
same activities as those described in the information provided with 
respect to Taxpayer 1. The IRS proceeds with an examination of 
Taxpayer 3 and finds that Taxpayer 3 engaged in different activities 
from those described in the information provided with respect to 
Taxpayer 1. For purposes of section 7623 and Sec. Sec.  301.7623-1 
through 301.7623-4, the examination of Taxpayer 2 is a related 
action because it satisfies the conditions of paragraph (c)(1) of 
this section. The examination of Taxpayer 3 is not a related action 
because the relevant facts are not substantially the same as the 
facts relevant to the examination of Taxpayer 1.
    Example 2.  Same facts as Example 1. Using the information 
provided by the whistleblower, the IRS identifies a co-promoter of 
CPA 1 (CPA 2) that appears to have engaged in activities similar to 
CPA 1. CPA 2 is not a member of CPA 1's firm. The IRS subsequently 
obtains the client list of CPA 2 and identifies a taxpayer/client of 
CPA 2 (Taxpayer 4) that appears to have engaged in activities 
similar to Taxpayer 1. The IRS proceeds with an examination of 
Taxpayer 4 and finds that Taxpayer 4 engaged in the same activities 
as those described in the information provided with respect to 
Taxpayer 1, and that CPA 2 contributed to the activities in the same 
way as described in the information provided with respect to CPA 1. 
The IRS proceeds with an examination of CPA 2's liability for 
promoter penalties under section 6700 in connection with the 
activities described in the information provided with respect to 
Taxpayer 1 and CPA 1. For purposes of section 7623 and Sec. Sec.  
301.7623-1 through 301.7623-4, the examination of CPA 2 is a related 
action because it satisfies the conditions of paragraph (c)(1) of 
this section. The examination of Taxpayer 4 is not a related action 
because Taxpayer 4 was not related to a person identified in the 
information provided. CPA 2 was not identified in the information 
provided and the IRS first had to identify CPA 2 before identifying 
Taxpayer 4 and proceeding with the examination of Taxpayer 4.
    Example 3.  Same facts as Example 1. An accountant (CPA 3) is a 
member of CPA 1's firm. Using the information provided by the 
whistleblower, the IRS obtains the client list of CPA 3 and 
identifies a taxpayer/client of CPA 3 (Taxpayer 5) that appears to 
have engaged in activities similar to Taxpayer 1. The IRS proceeds 
with an examination of Taxpayer 5 and finds that Taxpayer 5 engaged 
in the same activities as those described in the information 
provided with respect to Taxpayer 1, and that CPA 3 contributed to 
the activities in the same way as described in the information 
provided with respect to CPA 1. For purposes of section 7623 and 
Sec. Sec.  301.7623-1 through 301.7623-4, the examination of 
Taxpayer 5 is a related action because Taxpayer 5 is related to CPA 
3, a person considered to be identified in the information provided 
under Sec.  301.7623-1(c)(1), and the facts relating to Taxpayer 5 
are substantially the same as the facts described and documented in 
the information provided. An IRS examination of CPA 3's liability 
for promoter penalties under section 6700, based on the facts 
described and documented in the information provided with respect to 
Taxpayer 1 and CPA 1, is an administrative action based on the 
information provided.
    Example 4.  Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a taxpayer 
(Taxpayer 1), describes and documents specific facts relating to 
Taxpayer 1's activities, and, in particular, Taxpayer 1's 
participation in a transaction. Based on those facts, the 
whistleblower alleges that Taxpayer 1 owed additional taxes. The IRS 
proceeds with an examination of Taxpayer 1 based on the information 
provided by the whistleblower. The IRS identifies the other parties 
to the transaction described in the information provided (Taxpayer 2 
and Taxpayer 3). The IRS proceeds with examinations of Taxpayer 2 
and Taxpayer 3 relating to their participation in the transaction 
described in the information provided. For purposes of section 7623 
and Sec. Sec.  301.7623-1 through 301.7623-4, the IRS's examinations 
of Taxpayer 2 and Taxpayer 3 relating to the activities described 
and documented in the information provided are related actions 
because they satisfy the conditions of paragraph (c)(1) of this 
section.

    (d) Collected proceeds. (1) In general. For purposes of section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the terms proceeds 
of amounts collected and collected proceeds (collectively, collected 
proceeds) include: Tax, penalties, interest, additions to tax, and 
additional amounts collected because of the information provided; 
amounts collected prior to receipt of the information if the 
information provided results in the denial of a claim for refund that 
otherwise would have been paid; and a reduction of an overpayment 
credit balance used to satisfy a tax liability incurred because of the 
information provided. Collected proceeds are limited to amounts 
collected under the provisions of title 26, United States Code.
    (2) Refund netting. (i) In general. If any portion of a claim for 
refund that is substantively unrelated to the information provided is--
    (A) Allowed, and
    (B) Used to satisfy a tax liability attributable to the information 
provided instead of refunded to the taxpayer, then the allowed but non-
refunded amount constitutes collected proceeds.
    (ii) Example. The provisions of paragraph (d)(2)(i) of this section 
may be illustrated by the following example:

    Example. Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a corporate 
taxpayer (Corporation), describes and documents specific facts 
relating to Corporation's activities, and, based on those facts, 
alleges that Corporation owed additional taxes. Based on the 
information provided by the whistleblower, the IRS proceeds with an 
examination of Corporation and determines adjustments that would 
result in an unpaid tax liability of $500,000. During the 
examination, Corporation informally claims a refund of $400,000 
based on adjustments to items of income and expense that are wholly 
unrelated to the information provided by the whistleblower. The IRS 
agrees to the unrelated adjustments. The IRS nets the adjustments 
and determines a tax deficiency of $100,000. Thereafter, Corporation 
makes full payment of the $100,000 deficiency. For purposes of 
section 7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the 
collected proceeds include the $400,000 informally claimed as a 
refund and netted against the adjustments attributable to the 
information provided, as well as the $100,000 paid by Corporation.

    (3) Amended returns. Amounts collected based on amended returns 
constitute collected proceeds if--
    (i) The IRS proceeds based on the information provided;
    (ii) As a result, the person subject to the action(s) with which 
the IRS proceeds files amended returns; and
    (iii) The amounts collected based on the amended returns relate to 
the activities or facts described in the information provided.
    (4) Criminal fines. Criminal fines deposited into the Victims of 
Crime Fund are not collected proceeds and cannot be used for payment of 
awards.
    (5) Computation of collected proceeds. (i) In general. Pursuant to 
Sec.  301.7623-4(d)(1), the IRS cannot make an award payment until 
there has been a final determination of tax. For purposes of 
determining the amount of an award under section 7623 and Sec. Sec.  
301.7623-1 through 301.7623-4, after there has been a final 
determination of tax as defined in Sec.  301.7623-4(d)(2), the IRS will 
compute the amount of collected proceeds based on all information known 
with respect to the taxpayer's account, including with respect to all 
tax attributes, as of the date the computation is made.
    (ii) Post-determination proceeds. If, based on all information 
known with respect to the taxpayer's account as of

[[Page 47268]]

the date of the computation described in paragraph (d)(5)(i) of this 
section, there is a possibility that the IRS may collect additional 
proceeds, then the Whistleblower Office will continue to monitor the 
case. If the Whistleblower Office identifies additional collected 
proceeds, then the IRS will compute and pay accordingly.
    (iii) Partial collection. If the IRS does not collect the full 
amount of taxes, penalties, interest, additions to tax, and additional 
amounts assessed against the taxpayer, then any amounts that the IRS 
does collect will constitute collected proceeds in the same proportion 
that the adjustments attributable to the information provided bear to 
the total adjustments.
    (e) Amount in dispute and gross income. (1) In general. Section 
7623(b) applies with respect to any action against any taxpayer in 
which the tax, penalties, interest, additions to tax, and additional 
amounts in dispute exceed $2,000,000 but, if the taxpayer is an 
individual, then only if the taxpayer's gross income exceeds $200,000 
in at least one taxable year subject to the action.
    (2) Amount in dispute. (i) In general. For purposes of section 
7623(b)(5) and Sec. Sec.  301.7623-1 through 301.7623-4, the term 
amount in dispute means the greater of the maximum total of tax, 
penalties, interest, additions to tax, and additional amounts that 
resulted from the action(s) with which the IRS proceeded based on the 
information provided, or the maximum total of such amounts that were 
stated in formal positions taken by the IRS in the action(s). The IRS 
will compute the amount in dispute, for purposes of award 
determinations described in Sec.  301.7623-3(c)(6), when there has been 
a final determination of tax as defined in Sec.  301.7623-4(d)(2).
    (ii) Examples. The provisions of paragraph (e)(2)(i) of this 
section may be illustrated by the following examples:

    Example 1.  Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a corporate 
taxpayer, describes and documents specific facts relating to the 
taxpayer's activities, and, based on those facts, alleges that the 
taxpayer owed additional taxes. The IRS proceeds with an examination 
of the taxpayer based on the information provided by the 
whistleblower; makes adjustments to items of income and expense and 
allows certain credits; and, ultimately, determines a deficiency 
against the taxpayer of $1,900,000 and issues the taxpayer a 
statutory notice of deficiency. The taxpayer petitions the notice to 
the United States Tax Court. The Tax Court sustains the IRS's 
position resulting in a deficiency of $1,900,000. Following the 
final determination of tax, the IRS computes that the total of tax, 
penalties, interest, additions to tax, and additional amounts that 
resulted from the action was $2,500,000. For purposes of section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4, the amount in 
dispute is $2,500,000.
    Example 2.  Same facts as Example 1, except the IRS determines a 
deficiency of $1,500,000; the Tax Court sustains the deficiency of 
$1,500,000; and, following the final determination of tax, the IRS 
computes that the total of tax, penalties, interest, additions to 
tax, and additional amounts that resulted from the action was 
$1,750,000. For purposes of section 7623 and Sec. Sec.  301.7623-1 
through 301.7623-4, the amount in dispute is $1,750,000.
    Example 3.  Same facts as Example 1, except the IRS determines a 
deficiency of $2,100,000; the Tax Court redetermines a deficiency of 
$1,500,000; and, following the final determination of tax, the IRS 
computes that the total of tax, penalties, interest, additions to 
tax, and additional amounts that resulted from the action was 
$1,750,000. For purposes of section 7623 and Sec. Sec.  301.7623-1 
through 301.7623-4, the amount in dispute is $2,100,000.

    (3) Gross income. For purposes of section 7623(b)(5) and Sec. Sec.  
301.7623-1 through 301.7623-4, the term gross income has the same 
meaning as provided under section 61(a). The IRS will compute the 
individual taxpayer's gross income, for purposes of award 
determinations described in Sec.  301.7623-3(c)(6), when there has been 
a final determination of tax as defined in Sec.  301.7623-4(d)(2).
    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

0
Par. 5. Section 301.7623-3 is added to read as follows:


Sec.  301.7623-3  Whistleblower administrative proceedings and appeals 
of award determinations.

    (a) In general. The Whistleblower Office will pay awards under 
section 7623(a) and determine and pay awards under section 7623(b) in 
whistleblower administrative proceedings pursuant to the rules of this 
section. The whistleblower administrative proceedings described in this 
section are administrative proceedings pertaining to tax administration 
for purposes of section 6103(h)(4). See Sec.  301.6103(h)(4)-1 for 
additional rules regarding disclosures of return information in 
whistleblower administrative proceedings. The Whistleblower Office may 
determine awards for claims involving multiple actions in a single 
whistleblower administrative proceeding. For purposes of the 
whistleblower administrative proceedings for rejections and denials, 
described in paragraphs (b)(3), (c)(7), and (c)(8) of this section, the 
Internal Revenue Service (IRS) may rely on the whistleblower's 
description of the amount owed by the taxpayer(s). The IRS may, 
however, rely on other information as necessary (for example, when the 
alleged amount in dispute is below the $2 million threshold of section 
7623(b)(5)(B), but the actual amount in dispute is above the 
threshold).
    (b) Awards under section 7623(a). (1) Preliminary award 
recommendation. In cases in which the Whistleblower Office recommends 
payment of an award under section 7623(a), the Whistleblower Office 
will communicate a preliminary award recommendation under section 
7623(a) and Sec. Sec.  301.7623-1 through 301.7623-4 to the 
whistleblower by sending a preliminary award recommendation letter that 
states the Whistleblower Office's preliminary computation of the amount 
of collected proceeds, recommended award percentage, recommended award 
amount (even in cases when the application of Sec.  301.7623-4 results 
in a reduction of the recommended award amount to zero), and a list of 
the factors that contributed to the recommended award percentage. The 
whistleblower administrative proceeding described in paragraphs (b)(1) 
and (2) of this section begins on the date the Whistleblower Office 
sends the preliminary award recommendation letter. If the whistleblower 
believes that the Whistleblower Office erred in evaluating the 
information provided, the whistleblower has 30 days from the date the 
Whistleblower Office sends the preliminary award recommendation to 
submit comments to the Whistleblower Office (this period may be 
extended at the sole discretion of the Whistleblower Office). The 
Whistleblower Office will review all comments submitted timely by the 
whistleblower (or the whistleblower's legal representative, if any) and 
pay an award, pursuant to paragraph (b)(2) of this section.
    (2) Decision letter. At the conclusion of the process described in 
paragraph (b)(1) of this section, and when there is a final 
determination of tax, as defined in Sec.  301.7623-4(d)(2), the 
Whistleblower Office will pay an award under section 7623(a) and 
Sec. Sec.  301.7623-1 through 301.7623-4. The Whistleblower Office will 
communicate the amount of the award to the whistleblower in a decision 
letter.
    (3) Rejections and denials. If the Whistleblower Office rejects a 
claim for award under section 7623(a), pursuant

[[Page 47269]]

to Sec.  301.7623-1(b) or (c), or if the IRS either did not proceed 
based on information provided by the whistleblower, as defined in Sec.  
301.7623-2(b), or did not collect proceeds, as defined in Sec.  
301.7623-2(d), then the Whistleblower Office will not apply the rules 
of paragraphs (b)(1) or (2) of this section. The Whistleblower Office 
will provide written notice to the whistleblower of the rejection or 
denial of any award and, in the case of a rejection, the written notice 
will state the basis for the rejection.
    (c) Awards under section 7623(b). (1) Preliminary award 
recommendation. For claims under section 7623(b) other than those 
described in paragraphs (c)(7) and (c)(8) of this section (rejections 
and denials), the Whistleblower Office will prepare a preliminary award 
recommendation based on the Whistleblower Office's review of the 
administrative claim file and the application of the rules of section 
7623 and Sec. Sec.  301.7623-1 through 301.7623-4 to the facts of the 
case. See paragraph (e)(2) of this section for a description of the 
administrative claim file. The whistleblower administrative proceeding 
described in paragraphs (c)(1) through (6) of this section begins on 
the date the Whistleblower Office sends the preliminary award 
recommendation letter. The preliminary award recommendation is not a 
determination letter within the meaning of paragraph (c)(6) of this 
section and cannot be appealed to Tax Court under section 7623(b)(4) 
and paragraph (d) of this section. The preliminary award recommendation 
will notify the whistleblower that the IRS cannot determine or pay any 
award until there is a final determination of tax, as defined in Sec.  
301.7623-4(d)(2).
    (2) Contents of preliminary award recommendation. The Whistleblower 
Office will communicate the preliminary award recommendation under 
section 7623(b) to the whistleblower by sending--
    (i) A preliminary award recommendation letter that describes the 
whistleblower's options for responding to the preliminary award 
recommendation;
    (ii) A summary report that states a preliminary computation of the 
amount of collected proceeds, the recommended award percentage, the 
recommended award amount (even in cases when the application of section 
7623(b)(2) or section 7623(b)(3) results in a reduction of the 
recommended award amount to zero), and a list of the factors that 
contributed to the recommended award percentage;
    (iii) An award consent form; and
    (iv) A confidentiality agreement.
    (3) Opportunity to respond to preliminary award recommendation. The 
whistleblower will have 30 days (this period may be extended at the 
sole discretion of the Whistleblower Office) from the date the 
Whistleblower Office sends the preliminary award recommendation letter 
to respond to the preliminary award recommendation in one of the 
following ways--
    (i) If the whistleblower takes no action, then the Whistleblower 
Office will make an award determination, pursuant to paragraph (c)(6) 
of this section;
    (ii) If the whistleblower signs, dates, and returns the award 
consent form agreeing to the preliminary award recommendation and 
waiving any and all administrative and judicial appeal rights, then the 
Whistleblower Office will make an award determination, pursuant to 
paragraph (c)(6) of this section;
    (iii) If the whistleblower signs, dates, and returns the 
confidentiality agreement, then the Whistleblower Office will provide 
the whistleblower with a detailed award report, and an opportunity to 
review documents supporting the report pursuant to paragraphs (c)(4) 
and (5) of this section, and any comments submitted by the 
whistleblower will be added to the administrative claim file; or
    (iv) If the whistleblower submits comments on the preliminary award 
recommendation to the Whistleblower Office, but does not sign, date, 
and return the confidentiality agreement, then the comments will be 
added to the administrative claim file and reviewed by the 
Whistleblower Office in making an award determination, pursuant to 
paragraph (c)(6) of this section.
    (4) Detailed report. (i) Contents of detailed report. If the 
whistleblower signs, dates, and returns the confidentiality agreement 
accompanying the preliminary award recommendation under section 
7623(b), pursuant to paragraph (c)(3) of this section, then the 
Whistleblower Office will send the whistleblower--
    (A) A detailed report that states a preliminary computation of the 
amount of collected proceeds, the recommended award percentage, and the 
recommended award amount, and provides a full explanation of the 
factors that contributed to the recommended award percentage;
    (B) Instructions for scheduling an appointment for the 
whistleblower (and the whistleblower's legal representative, if any) to 
review information in the administrative claim file that is not 
protected by one or more common law or statutory privileges; and
    (C) An award consent form.
    (ii) Opportunity to respond to detailed report. The whistleblower 
will have 30 days (this period may be extended at the sole discretion 
of the Whistleblower Office) from the date the Whistleblower Office 
sends the detailed report to respond in one of the following ways--
    (A) If the whistleblower takes no action, then the Whistleblower 
Office will make an award determination, pursuant to paragraph (c)(6) 
of this section;
    (B) If the whistleblower requests an appointment to review 
information from the administrative claim file that is not protected 
from disclosure by one or more common law or statutory privileges, then 
a meeting will be arranged pursuant to paragraph (c)(5) of this 
section;
    (C) If the whistleblower does not request an appointment but does 
submit comments on the detailed report to the Whistleblower Office, 
then the comments will be added to the administrative claim file and 
reviewed by the Whistleblower Office in making an award determination 
pursuant to paragraph (c)(6) of this section; or
    (D) If the whistleblower signs, dates, and returns the award 
consent form agreeing to the preliminary award recommendation and 
waiving any and all administrative and judicial appeal rights, then the 
Whistleblower Office will make an award determination, pursuant to 
paragraph (c)(6) of this section.
    (iii) Additional rules. The detailed report is not a determination 
letter within the meaning of paragraph (c)(6) of this section and 
cannot be appealed to Tax Court under section 7623(b)(4) and paragraph 
(d) of this section. The detailed report will notify the whistleblower 
that the IRS cannot determine or pay any award until there is a final 
determination of tax, as defined in Sec.  301.7623-4(d)(2).
    (5) Opportunity to review documents supporting award report 
recommendations. Appointments for the whistleblower (and the 
whistleblower's legal representative, if any) to review information 
from the administrative claim file that is not protected from 
disclosure by one or more common law or statutory privileges will be 
held at the Whistleblower Office in Washington, DC, unless the 
Whistleblower Office, in its sole discretion, decides to hold the 
meeting at another location. At the appointment, the Whistleblower 
Office will provide for viewing the information from the administrative 
claim file. The

[[Page 47270]]

Whistleblower Office will supervise the whistleblower's review of the 
information and the whistleblower will not be permitted to make copies 
of any documents or other information. The whistleblower will have 30 
days (this period may be extended at the sole discretion of the 
Whistleblower Office) from the date of the appointment to submit 
comments on the detailed report and the documents reviewed at the 
appointment to the Whistleblower Office. All comments will be added to 
the administrative claim file and reviewed by the Whistleblower Office 
in making an award determination, pursuant to paragraph (c)(6) of this 
section.
    (6) Determination letter. After the whistleblower's participation 
in the whistleblower administrative proceeding, pursuant to paragraph 
(c) of this section, has concluded, and there is a final determination 
of tax, as defined in Sec.  301.7623-4(d)(2), a Whistleblower Office 
official will determine the amount of the award under section 
7623(b)(1), (2), or (3), and Sec. Sec.  301.7623-1 through 301.7623-4, 
based on the official's review of the administrative claim file. The 
Whistleblower Office will communicate the award to the whistleblower in 
a determination letter, stating the amount of the award. If, however, 
the whistleblower has executed an award consent form agreeing to the 
amount of the award and waiving the whistleblower's right to appeal the 
award determination, pursuant to section 7623(b)(4) and paragraph (d) 
of this section, then the Whistleblower Office will not send the 
whistleblower a determination letter and will make payment of the award 
as promptly as circumstances permit.
    (7) Rejections. A rejection is a determination that relates solely 
to the whistleblower and the information on the face of the claim that 
pertains to the whistleblower. If the Whistleblower Office rejects a 
claim for award under section 7623(b), pursuant to Sec.  301.7623-1(b) 
or (c), then the Whistleblower Office will not apply the rules of 
paragraphs (c)(1) through (6) of this section. The Whistleblower Office 
will send to the whistleblower a preliminary rejection letter that 
states the basis for the rejection of the claim. The whistleblower 
administrative proceeding described in this paragraph begins on the 
date the Whistleblower Office sends the preliminary rejection letter. 
If the whistleblower believes that the Whistleblower Office erred in 
evaluating the information provided, the whistleblower has 30 days from 
the date the Whistleblower Office sends the preliminary rejection 
letter to submit comments to the Whistleblower Office (this period may 
be extended at the sole discretion of the Whistleblower Office). The 
Whistleblower Office will review all comments submitted timely by the 
whistleblower (or the whistleblower's legal representative, if any) 
and, following that review, the Whistleblower Office will either 
provide written notice to the whistleblower of the rejection of the 
claim, including the basis for the rejection, or apply the rules of 
paragraphs (c)(1) through (c)(6) of this section.
    (8) Denials. A denial is a determination that relates to or 
implicates taxpayer information. If, with respect to a claim for award 
under section 7623(b), the IRS either did not proceed based on the 
information provided by the whistleblower, as defined in Sec.  
301.7623-2(b), or did not collect proceeds, as defined in Sec.  
301.7623-2(d), then the Whistleblower Office will not apply the rules 
of paragraphs (c)(1) through (6) of this section. The Whistleblower 
Office will send to the whistleblower a preliminary denial letter that 
states the basis for the denial of the claim. The whistleblower 
administrative proceeding described in this paragraph begins on the 
date the Whistleblower Office sends the preliminary denial letter. If 
the whistleblower believes that the Whistleblower Office erred in 
evaluating the information provided, the whistleblower has 30 days from 
the date the Whistleblower Office sends the preliminary denial letter 
to submit comments to the Whistleblower Office (this period may be 
extended at the sole discretion of the Whistleblower Office). The 
Whistleblower Office will review all comments submitted timely by the 
whistleblower (or the whistleblower's legal representative, if any) 
and, following that review, the Whistleblower Office will either 
provide written notice to the whistleblower of the denial of any award, 
including the basis for the denial, or apply the rules of paragraphs 
(c)(1) through (c)(6) of this section.
    (d) Appeal of award determination. Any determination regarding an 
award under section 7623(b)(1), (2), or (3) may, within 30 days of such 
determination, be appealed to the Tax Court.
    (e) Administrative record. (1) In general. The administrative 
record comprises all information contained in the administrative claim 
file that is relevant to the award determination and not protected by 
one or more common law or statutory privileges.
    (2) Administrative claim file. The administrative claim file will 
include the following materials relating to the action(s) to which the 
determination relates--
    (i) The Form 211, ``Application for Award for Original 
Information,'' filed by the whistleblower and all information provided 
by the whistleblower (whether provided with the whistleblower's 
original submission or through a subsequent contact with the IRS).
    (ii) Copies of all debriefing notes and recorded interviews held 
with the whistleblower (and the whistleblower's legal representative, 
if any).
    (iii) Form(s) 11369, ``Confidential Evaluation Report on Claim for 
Award,'' including narratives prepared by the relevant IRS office(s), 
explaining the whistleblower's contributions to the actions and 
documenting the actions taken by the IRS in the case(s). The Form 11369 
will refer to and incorporate additional documents relating to the 
issues raised by the claim, as appropriate, including, for example, 
relevant portions of revenue agent reports, copies of agreements 
entered into with the taxpayer(s), tax returns, and activity records.
    (iv) Copies of all contracts entered into among the IRS, the 
whistleblower, and the whistleblower's legal representative (if any), 
and an explanation of the cooperation provided by the whistleblower (or 
the whistleblower's legal representative, if any) under the contract.
    (v) Any information that reflects actions by the whistleblower that 
may have had a negative impact on the IRS's ability to examine the 
taxpayer(s).
    (vi) All correspondence and documents sent by the Whistleblower 
Office to the whistleblower.
    (vii) All notes, memoranda, and other documents made by officers 
and employees of the Whistleblower Office and considered by the 
official making the award determination.
    (viii) All correspondence and documents received by the 
Whistleblower Office from the whistleblower (and the whistleblower's 
legal representative, if any) in the course of the whistleblower 
administrative proceeding.
    (ix) All other information considered by the official making the 
award determination.
    (f) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under sections 7623(a) and 7623(b) 
that are open as of August 12, 2014.

0
Par. 6. Section 301.7623-4 is added to read as follows:

[[Page 47271]]

Sec.  301.7623-4  Amount and payment of award.

    (a) In general. The Whistleblower Office will pay all awards under 
section 7623(a) and determine and pay all awards under section 7623(b). 
For all awards under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4, the Whistleblower Office will--
    (1) Analyze the claim by applying the rules provided in paragraph 
(c) of this section to the information contained in the administrative 
claim file to determine an award percentage; and
    (2) Multiply the award percentage by the amount of collected 
proceeds. If the award determination arises out of a single 
whistleblower administrative proceeding involving multiple actions, the 
Whistleblower Office may determine separate award percentages on an 
action-by-action basis and apply the separate award percentages to the 
collected proceeds attributable to the corresponding actions. The 
Internal Revenue Service (IRS) will pay all awards in accordance with 
the rules provided in paragraph (d) of this section. All relevant 
factors will be taken into account by the Whistleblower Office in 
determining whether an award will be paid and, if so, the amount of the 
award. No person is authorized under this section to make any offer or 
promise or otherwise bind the Whistleblower Office with respect to the 
amount or payment of an award.
    (b) Factors used to determine award percentage. (1) Positive 
factors. The application of the following non-exclusive factors may 
support increasing an award percentage under paragraphs (c)(1) or (2) 
of this section--
    (i) The whistleblower acted promptly to inform the IRS or the 
taxpayer of the tax noncompliance.
    (ii) The information provided identified an issue or transaction of 
a type previously unknown to the IRS.
    (iii) The information provided identified taxpayer behavior that 
the IRS was unlikely to identify or that was particularly difficult to 
detect through the IRS's exercise of reasonable diligence.
    (iv) The information provided thoroughly presented the factual 
details of tax noncompliance in a clear and organized manner, 
particularly if the manner of the presentation saved the IRS work and 
resources.
    (v) The whistleblower (or the whistleblower's legal representative, 
if any) provided exceptional cooperation and assistance during the 
pendency of the action(s).
    (vi) The information provided identified assets of the taxpayer 
that could be used to pay liabilities, particularly if the assets were 
not otherwise known to the IRS.
    (vii) The information provided identified connections between 
transactions, or parties to transactions, that enabled the IRS to 
understand tax implications that might not otherwise have been 
understood by the IRS.
    (viii) The information provided had an impact on the behavior of 
the taxpayer, for example by causing the taxpayer to promptly correct a 
previously-reported improper position.
    (2) Negative factors. The application of the following non-
exclusive factors may support decreasing an award percentage under 
paragraphs (c)(1) or (2) of this section--
    (i) The whistleblower delayed informing the IRS after learning the 
relevant facts, particularly if the delay adversely affected the IRS's 
ability to pursue an action or issue.
    (ii) The whistleblower contributed to the underpayment of tax or 
tax noncompliance identified.
    (iii) The whistleblower directly or indirectly profited from the 
underpayment of tax or tax noncompliance identified, but did not plan 
and initiate the actions that led to the underpayment of tax or actions 
described in section 7623(a)(2) .
    (iv) The whistleblower (or the whistleblower's legal 
representative, if any) negatively affected the IRS's ability to pursue 
the action(s), for example by disclosing the existence or scope of an 
enforcement activity.
    (v) The whistleblower (or the whistleblower's legal representative, 
if any) violated instructions provided by the IRS, particularly if the 
violation caused the IRS to expend additional resources.
    (vi) The whistleblower (or the whistleblower's legal 
representative, if any) violated the terms of the confidentiality 
agreement described in Sec.  301.7623-3(c)(2)(iv).
    (vii) The whistleblower (or the whistleblower's legal 
representative, if any) violated the terms of a contract entered into 
with the IRS pursuant to Sec.  301.6103(n)-2.
    (viii) The whistleblower provided false or misleading information 
or otherwise violated the requirements of section 7623(b)(6)(C) or 
Sec.  301.7623-1(c)(3).
    (c) Amount of award percentage. (1) Award for substantial 
contribution. (i) In general. If the IRS proceeds with any 
administrative or judicial action based on information brought to the 
IRS's attention by a whistleblower, such whistleblower shall, subject 
to paragraphs (c)(2) and (3) of this section, receive as an award at 
least 15 percent but not more than 30 percent of the collected proceeds 
resulting from the action (including any related actions) or from any 
settlement in response to such action. The amount of any award under 
this paragraph depends on the extent of the whistleblower's substantial 
contribution to the action(s). See paragraph (c)(4) of this section for 
rules regarding multiple whistleblowers.
    (ii) Computational framework. Starting the analysis at 15 percent, 
the Whistleblower Office will analyze the administrative claim file 
using the factors listed in paragraph (b)(1) of this section to 
determine whether the whistleblower merits an increased award 
percentage of 22 percent or 30 percent. The Whistleblower Office may 
increase the award percentage based on the presence and significance of 
positive factors. The Whistleblower Office will then analyze the 
contents of the administrative claim file using the factors listed in 
paragraph (b)(2) of this section to determine whether the whistleblower 
merits a decreased award percentage of 15 percent, 18 percent, 22 
percent, or 26 percent. The Whistleblower Office may decrease the award 
percentage based on the presence and significance of negative factors. 
Although the factors listed in paragraphs (b)(1) and (2) of this 
section are described as positive and negative factors, the 
Whistleblower Office's analysis cannot be reduced to a mathematical 
equation. The factors are not exclusive and are not weighted and, in a 
particular case, one factor may override several others. The presence 
and significance of positive factors may offset the presence and 
significance of negative factors. But the absence of negative factors 
does not constitute a positive factor.
    (iii) Examples. The operation of the provisions of paragraph 
(c)(1)(ii) of this section may be illustrated by the following 
examples. The examples are intended to illustrate the operation of the 
computational framework. The examples provide simplified descriptions 
of the facts relating to the claims for award, the information 
provided, and the facts relating to the underlying tax cases. The 
application of section 7623(b)(1) and paragraph (c)(1)(ii) of this 
section will depend on the specific facts of each case.

    Example 1.  Facts. Whistleblower A, an employee in Corporation's 
sales department, submitted to the IRS a claim for award under 
section 7623 and information indicating that Corporation improperly 
claimed a credit in tax year 2006. Whistleblower A's information 
consisted of numerous non-privileged documents relevant to 
Corporation's eligibility for the credit. Whistleblower A's

[[Page 47272]]

original submission also included an analysis of the documents, as 
well as information about meetings in which the claim for credit was 
discussed. When interviewed by the IRS, Whistleblower A clarified 
ambiguities in the original submission, answered questions about 
Corporation's business and accounting practices, and identified 
potential sources to corroborate the information.
    Some of the documents provided by Whistleblower A were not 
included in Corporation's general record-keeping system and their 
existence may not have been easily uncovered through normal IRS 
examination procedures. Corporation initially denied the facts 
revealed in the information provided by Whistleblower A, which were 
essential to establishing the impropriety of the claim for credit. 
IRS examination of Corporation's return confirmed that the credit 
was improperly claimed by Corporation in tax year 2006, as alleged 
by Whistleblower A. Corporation agreed to the ensuing assessments of 
tax and interest and paid the liabilities in full.
    Analysis. In this case, Whistleblower A provided specific and 
credible information that formed the basis for action by the IRS. 
Whistleblower A provided information that was difficult to detect, 
provided useful assistance to the IRS, and helped the IRS sustain 
the assessment. Based on the presence and significance of these 
positive factors, viewed against all the specific facts relevant to 
Corporation's 2006 tax year, the Whistleblower Office could increase 
the award percentage to 22 percent of collected proceeds. If, 
however, Whistleblower A's claim reflected negative factors, for 
example Whistleblower A violated instructions provided by the IRS 
and the violation caused the IRS to expend additional resources, 
then the Whistleblower Office could, based on this negative factor, 
reduce the award percentage to 18 or 15 percent (but not to lower 
than 15 percent of collected proceeds).
    Example 2.  Facts. Whistleblower B, an employee of Financial 
Advisory Firm 1 (Firm 1), submitted to the IRS a claim for award 
under section 7623 and information indicating that Firm 1 helped 
clients engage in activities that were intended to, and did, result 
in substantial tax underpayments. The activities were designed to 
avoid detection by the IRS, and prior IRS audits of several clients 
of Firm 1 had failed to detect underpayments of tax. Whistleblower B 
learned of the activities after being reassigned to a new position 
with Firm 1. Whistleblower B provided the information to the IRS 
soon after he understood the scope, nature and impact of the 
activities. The information provided consisted of numerous documents 
containing client profiles and marketing strategies, as well as 
descriptions of the transactions and structures used by Firm 1 and 
its clients to obscure the clients' identities and to generate the 
substantial tax underpayments. Whistleblower B also provided an 
analysis of the documents, as well as information about meetings in 
which the transactions and structures were discussed. When 
interviewed by the IRS, Whistleblower B clarified ambiguities in the 
original submission, answered questions about Firm 1's execution of 
specific client transactions, and identified potential sources to 
corroborate the information provided. Whistleblower B also notified 
the IRS of steps taken by Firm 1 to limit the disclosure of 
information requested by the IRS, enabling the IRS to obtain full 
disclosure of the information through the targeted use of summonses.
    Analysis. Ultimately, the IRS collected tax, penalties, and 
interest from Firm 1 and multiple clients. In addition, Treasury and 
the IRS issued a notice identifying the impropriety of the 
transactions and structures employed by Firm 1 and its clients. 
Whistleblower B provided specific and credible information that 
formed the basis for action by the IRS. The information provided 
identified transactions that were difficult to detect. Whistleblower 
B acted promptly after he understood the activities at issue and he 
provided useful assistance to the IRS. Whistleblower B's assistance, 
and the information he provided, helped the IRS overcome the efforts 
made to obscure the activities and the clients' identities. And the 
information provided by Whistleblower B contributed to the decision 
to issue the notice, which may have a positive effect on client 
behavior and save IRS resources. Based on the presence and 
significance of these positive factors, the Whistleblower Office 
could increase the award percentage to 30 percent of collected 
proceeds. If Whistleblower B directly or indirectly profited from 
Firm 1's and the clients' activities resulting in the tax 
underpayments, then the Whistleblower Office could, based on this 
negative factor, reduce the award percentage to 26, 22, 18 percent 
or 15 percent (but not to lower than 15 percent of collected 
proceeds).

    (2) Award for less substantial contribution. (i) In general. If the 
Whistleblower Office determines that the action described in paragraph 
(c)(1) of this section is based principally on disclosures of specific 
allegations resulting from a judicial or administrative hearing; a 
government report, hearing, audit, or investigation; or the news media, 
then the Whistleblower Office will determine an award of no more than 
10 percent of the collected proceeds resulting from the action 
(including any related actions) or from any settlement in response to 
such action. If the whistleblower is the original source of the 
information from which the disclosures of specific allegations 
resulted, however, then the award percentage will be determined under 
paragraph (c)(1) of this section.
    (ii) Computational framework. The Whistleblower Office will analyze 
the administrative claim file to determine--
    (A) Whether the claim involves specific allegations regarding a tax 
underpayment or a violation of the internal revenue laws that 
reasonably may be inferred to have resulted from a judicial or 
administrative hearing; a government report, hearing, audit, or 
investigation; or the news media;
    (B) Whether the action described in paragraph (c)(1) of this 
section was based principally on the disclosure of the specific 
allegations; and
    (C) Whether the whistleblower was the original source of the 
information that gave rise to the specific allegations. If the 
Whistleblower Office determines that the action was based principally 
on disclosures of specific allegations, as stated in paragraph 
(c)(2)(ii)(B) of this section, and that the whistleblower was not the 
original source of the information, then, starting at 1 percent, the 
Whistleblower Office will analyze the administrative claim file using 
the factors listed in paragraph (b)(1) of this section to determine 
whether the whistleblower merits an increased award percentage of 4 
percent, 7 percent, or 10 percent. The Whistleblower Office will then 
determine whether the whistleblower merits a decreased award percentage 
of zero, 1 percent, 4 percent, or 7 percent using the factors listed in 
paragraph (b)(2) of this section. The Whistleblower Office may increase 
the award percentage based on the presence and significance of positive 
factors and may decrease (to zero) the award percentage based on the 
presence and significance of negative factors. Like the analysis 
described in paragraph (c)(1)(ii) of this section, the Whistleblower 
Office's analysis cannot be reduced to a mathematical equation. The 
factors are not exclusive and are not weighted and, in a particular 
case, one factor may override several others. The presence and 
significance of positive factors may offset the presence and 
significance of negative factors. But the absence of negative factors 
does not constitute a positive factor.
    (iii) Example. The operation of the provisions of paragraph 
(c)(2)(ii) of this section may be illustrated by the following example. 
The example is intended to illustrate the operation of the 
computational framework. The example provides a simplified description 
of the facts relating to the claim for award, the information provided, 
and the facts relating to the underlying tax case(s). The application 
of section 7623(b)(2) and paragraph (c)(2)(ii) of this section will 
depend on the specific facts of each case.

    Example.  Facts. Whistleblower A submitted to the IRS a claim 
for award under section 7623 and information indicating that 
Taxpayer B was the defendant in a criminal prosecution for 
embezzlement. Whistleblower A's information further indicated that 
evidence presented at Taxpayer B's trial revealed Taxpayer B's 
efforts to conceal the embezzled funds by depositing them in bank 
accounts of entities

[[Page 47273]]

controlled by Taxpayer B. Taxpayer B's failure to pay tax on the 
embezzled funds was not explicitly stated during the judicial 
hearing, but could be reasonably inferred from the facts and 
circumstances, including Taxpayer B's efforts to conceal the funds.
    Analysis. In this case, Whistleblower A's information is based 
principally on disclosures of specific allegations resulting from a 
judicial hearing. Absent information demonstrating that the 
investigation leading to the embezzlement charge was based on 
information provided by Whistleblower A, section 7623(b)(2) and 
paragraph (c)(2) of this section apply to the determination of 
Whistleblower A's award. In this case, there is no reason for the 
Whistleblower Office to increase the applicable award percentage 
above 1 percent, the starting point for its analysis, given the 
absence of positive factors. Accordingly, Whistleblower A may 
receive an award of 1 percent of collected proceeds.

    (3) Reduction in award and denial of award. (i) In general. If the 
Whistleblower Office determines that a claim for award is brought by a 
whistleblower who planned and initiated the actions, transaction, or 
events (underlying acts) that led to the underpayment of tax or actions 
described in section 7623(a)(2), then the Whistleblower Office may 
appropriately reduce the amount of the award percentage that would 
otherwise result under section 7623(b)(1) and paragraph (c)(1) of this 
section or section 7623(b)(2) and paragraph (c)(2) of this section, as 
applicable. The Whistleblower Office will deny an award if the 
whistleblower is convicted of criminal conduct arising from his or her 
role in planning and initiating the underlying acts.
    (ii) Threshold determination. A whistleblower planned and initiated 
the underlying acts if the whistleblower--
    (A) Designed, structured, drafted, arranged, formed the plan 
leading to, or otherwise planned, an underlying act,
    (B) Took steps to start, introduce, originate, set into motion, 
promote or otherwise initiate an underlying act, and
    (C) Knew or had reason to know that an underpayment of tax or 
actions described in section 7623(a)(2) could result from planning and 
initiating the underlying act.
    (D) The whistleblower need not have been the sole person involved 
in planning and initiating the underlying acts. A whistleblower who 
merely furnishes typing, reproducing, or other mechanical assistance in 
implementing one or more underlying acts will not be treated as 
initiating any underlying act. A whistleblower who is a junior employee 
acting at the direction, and under the control, of a senior employee 
will not be treated as initiating any underlying act.
    (E) If the Whistleblower Office determines that a whistleblower has 
satisfied this initial threshold of planning and initiating, the 
Whistleblower Office will then reduce the award amount based on the 
extent of the whistleblower's planning and initiating, pursuant to 
paragraph (c)(3)(iii) of this section.
    (iii) Computational framework. After determining the award 
percentage that would otherwise result from the application of section 
7623(b)(1) and paragraph (c)(1) of this section or section 7623(b)(2) 
and paragraph (c)(2) of this section, as applicable, the Whistleblower 
Office will analyze the administrative claim file to make the threshold 
determination described in paragraph (c)(3)(ii) of this section. If the 
whistleblower is determined to have planned and initiated the 
underlying acts, then the Whistleblower Office will reduce the award 
based on the extent of the whistleblower's planning and initiating. The 
Whistleblower Office's analysis and the amount of the appropriate 
reduction determined in a particular case cannot be reduced to a 
mathematical equation. To determine the appropriate award reduction, 
the Whistleblower Office will--
    (A) Categorize the whistleblower's role as a planner and initiator 
as primary, significant, or moderate; and
    (B) Appropriately reduce the award percentage that would otherwise 
result from the application of section 7623(b)(1) and paragraph (c)(1) 
of this section or section 7623(b)(2) and paragraph (c)(2) of this 
section, as applicable, by 67 percent to 100 percent in the case of a 
primary planner and initiator, by 34 percent to 66 percent in the case 
of a significant planner and initiator, or by 0 percent to 33 percent 
in the case of a moderate planner and initiator. If the whistleblower 
is convicted of criminal conduct arising from his or her role in 
planning and initiating the underlying acts, then the Whistleblower 
Office will deny an award without regard to whether the Whistleblower 
Office categorized the whistleblower's role as a planner and initiator 
as primary, significant, or moderate.
    (iv) Factors demonstrating the extent of a whistleblower's planning 
and initiating. The application of the following non-exclusive factors 
may support a determination of the extent of a whistleblower's planning 
and initiating of the underlying acts--
    (A) The whistleblower's role as a planner and initiator. Was the 
whistleblower the sole decision-maker or one of several contributing 
planners and initiators? To what extent was the whistleblower acting 
under the direction and control of a supervisor?
    (B) The nature of the whistleblower's planning and initiating 
activities. Was the whistleblower involved in legitimate tax planning 
activities? Did the whistleblower take steps to hide the actions at the 
planning stage? Did the whistleblower commit any identifiable 
misconduct (legal, ethical, etc.)?
    (C) The extent to which the whistleblower knew or should have known 
that tax noncompliance could result from the course of conduct.
    (D) The extent to which the whistleblower acted in furtherance of 
the noncompliance, including, for example, efforts to conceal or 
disguise the transaction.
    (E) The whistleblower's role in identifying and soliciting others 
to participate in the actions reported, whether as parties to a common 
transaction or as parties to separate transactions.
    (v) Examples. The operation of the provisions of paragraphs 
(c)(3)(ii) and (iii) of this section may be illustrated by the 
following examples. These examples are intended to illustrate the 
operation of the computational framework. The examples provide 
simplified descriptions of the facts relating to the claim for award, 
the information provided, and the facts relating to the underlying tax 
case. The application of section 7623(b)(3) and paragraph (c)(3) of 
this section will depend on the specific facts of each case.

    Example 1.  Facts. Whistleblower A is employed as a junior 
associate in a law firm and is responsible for performing research 
and drafting activities for, and under the direction and control of, 
partners of the law firm. Whistleblower A performed research on 
financial products for Partner B that Partner B used in advising a 
client (Corporation 1) on a financial strategy. After Corporation 1 
executed the strategy, Whistleblower A submitted a claim for award 
under section 7623 along with information about the strategy to the 
IRS. The IRS initiated an examination of Corporation 1 based on 
Whistleblower A's information, determined deficiencies in tax and 
penalties, and ultimately assessed and collected the tax and 
penalties as determined.
    Analysis. Whistleblower A did nothing to design or set into 
motion Corporation 1's activities. Whistleblower A did not know or 
have reason to know that an underpayment of tax or actions described 
in section 7623(a)(2) could result from the research and drafting 
activities. Accordingly, as a threshold matter, Whistleblower A was 
not a planner and initiator of Corporation 1's strategy, and the 
award that would otherwise be determined based on the application of 
section 7623(b)(1) and paragraph (c)(1) of this section is not 
subject to reduction under section 7623(b)(3) and paragraph (c)(3) 
of this section.

[[Page 47274]]

    Example 2.  Facts. Whistleblower C is employed in the human 
resources department of a corporation (Corporation 2). Corporation 2 
tasked Whistleblower C with hiring a large number of temporary 
employees to meet Corporation 2's seasonal business demands. 
Whistleblower C organized, scheduled, and conducted job fairs and 
job interviews to hire the seasonal employees. Whistleblower C was 
not responsible for, had no knowledge of, and played no part in, 
classifying the seasonal employees for Federal income tax purposes. 
Whistleblower C later discovered, however, that Corporation 2 
classified the seasonal employees as independent contractors. After 
discovering the misclassification, Whistleblower C submitted a claim 
for award under section 7623 along with non-privileged information 
describing the employee misclassification to the IRS. The IRS 
initiated an examination of Corporation 2 based on Whistleblower C's 
information, determined deficiencies in tax and penalties, and 
ultimately assessed and collected the tax and penalties as 
determined.
    Analysis. The award that would otherwise be determined based on 
the application of section 7623(b)(1) and paragraph (c)(1) of this 
section would not be subject to a reduction under section 7623(b)(3) 
and paragraph (c)(3) of this section because Whistleblower C did not 
satisfy the requirements of the threshold determination of a planner 
and initiator. Whistleblower C did not know and had no reason to 
know that her actions could result in an underpayment of tax or 
actions described in section 7623(a)(2) or that Corporation 2 would 
misclassify the employees as independent contractors.
    Example 3.  Facts. Whistleblower D is employed as a supervisor 
in the finance department of a corporation (Corporation 3) and is 
responsible for planning Corporation 3's overall financial strategy. 
Pursuant to the overall financial strategy, Whistleblower D and 
others at Corporation 3, in good faith but incorrectly, planned tax-
advantaged transactions. Whistleblower D and others at Corporation 3 
prepared documents needed to execute the transactions. After 
Corporation 3 executed the transactions, Whistleblower D reached the 
conclusion that the tax consequences claimed were incorrect and 
Whistleblower D submitted a claim for award under section 7623 along 
with non-privileged information about the transactions to the IRS. 
The IRS initiated an examination of Corporation 3 based on 
Whistleblower D's information, determined deficiencies in tax and 
penalties, and ultimately assessed and collected the tax and 
penalties as determined.
    Analysis. The award that would otherwise be determined based on 
the application of section 7623(b)(1) and paragraph (c)(1) of this 
section would be subject to an appropriate reduction under section 
7623(b)(3) and paragraph (c)(3) of this section because 
Whistleblower D satisfies the requirements of the threshold 
determination of a planner and initiator. Whistleblower D planned 
the transactions, prepared the necessary documents, and knew that an 
underpayment of tax could result from the transactions. 
Whistleblower D was not the sole planner and initiator of 
Corporation 3's transactions. Whistleblower D did nothing to conceal 
Corporation 3's activities. Corporation 3 had a good faith basis for 
claiming the disallowed tax benefits. On the basis of those facts, 
Whistleblower D was a moderate-level planner and initiator. 
Accordingly, the Whistleblower Office will exercise its discretion 
to reduce Whistleblower D's award by 0 to 33 percent.
    Example 4.  Facts. Same facts as Example 3, except that 
Whistleblower D independently planned a high-risk tax avoidance 
transaction and prepared draft documents to execute the transaction. 
Whistleblower D presented the transaction, along with the draft 
documents, to Corporation 3's Chief Financial Officer. Without the 
further involvement of Whistleblower D, Corporation 3's Chief 
Financial Officer, Chief Executive Officer, and Board of Directors 
subsequently approved the execution of the transaction. After 
Corporation 3 executed the transaction, Whistleblower D submitted a 
claim for award under section 7623 along with non-privileged 
information about the transaction to the IRS. The IRS initiated an 
examination of Corporation 3 based on Whistleblower D's information, 
determined deficiencies in tax and penalties, and ultimately 
assessed and collected the tax and penalties as determined.
    Analysis. The award that would otherwise be determined based on 
the application of section 7623(b)(1) and paragraph (c)(1) of this 
section would be subject to an appropriate reduction under section 
7623(b)(3) and paragraph (c)(3) of this section because 
Whistleblower D satisfies the requirements of the threshold 
determination of a planner and initiator. Whistleblower D planned 
the transaction, prepared the necessary documents, and knew that an 
underpayment of tax or actions described in section 7623(a)(2) could 
result from the transaction. Working independently, Whistleblower D 
designed and took steps to effectuate the transaction while knowing 
that the planning and initiating of the transaction was likely to 
result in tax noncompliance. Whistleblower D, however, did not 
approve the execution of the transaction by Corporation 3 and, 
therefore, was not a decision-maker. On the basis of these facts, 
Whistleblower D was a significant-level planner and initiator. 
Accordingly, the Whistleblower Office will exercise its discretion 
to reduce Whistleblower D's award by 34 to 66 percent.
    Example 5.  Facts. Whistleblower E is a financial planner. 
Whistleblower E designed a financial product that the IRS identified 
as an abusive tax avoidance transaction. Whistleblower E marketed 
the transaction to taxpayers, facilitated their participation in the 
transaction, and, initially, took steps to disguise the transaction. 
After several taxpayers had participated in the transaction, 
Whistleblower E submitted a claim for award under section 7623 along 
with non-privileged information to the IRS about the transaction and 
the participating taxpayers. The IRS initiated an examination of the 
identified taxpayers based on Whistleblower E's information, 
determined deficiencies in tax and penalties, and ultimately 
assessed and collected the tax and penalties as determined. 
Whistleblower E was not criminally prosecuted.
    Analysis. The award that would otherwise be determined based on 
the application of section 7623(b)(1) and paragraph (c)(1) of this 
section would be subject to an appropriate reduction under section 
7623(b)(3) and paragraph (c)(3) of this section because 
Whistleblower E satisfies the requirements of the threshold 
determination of a planner and initiator. Whistleblower E designed 
the financial product, marketed and facilitated its use by 
taxpayers, and knew that an underpayment of tax or actions described 
in section 7623(a)(2) could result from the transaction. 
Whistleblower E was the sole designer of the transaction, solicited 
clients to participate in the transaction, and facilitated and 
attempted to conceal their participation in the transaction. 
Whistleblower E knew that the planning and initiating of the 
taxpayers' participation in the transaction was likely to result in 
an underpayment of tax or actions described in section 7623(a)(2). 
On the basis of these facts, Whistleblower E was a primary-level 
planner and initiator. Accordingly, the Whistleblower Office will 
exercise its discretion to reduce Whistleblower E's award by 67 to 
100 percent.

    (4) Multiple whistleblowers. If two or more independent claims 
relate to the same collected proceeds, then the Whistleblower Office 
may evaluate the contribution of each whistleblower to the action(s) 
that resulted in collected proceeds. The Whistleblower Office will 
determine whether the information submitted by each whistleblower would 
have been obtained by the IRS as a result of the information previously 
submitted by any other whistleblower. If the Whistleblower Office 
determines that multiple whistleblowers submitted information that 
would not have been obtained based on a prior submission, then the 
Whistleblower Office will determine the amount of each whistleblower's 
award based on the extent to which each whistleblower contributed to 
the action(s). The aggregate award amount in cases involving two or 
more independent claims that relate to the same collected proceeds will 
not exceed the maximum award amount that could have resulted under 
section 7623(b)(1) or section 7623(b)(2), as applicable, subject to the 
award reduction provisions of section 7623(b)(3), if a single claim had 
been submitted.
    (d) Payment of Award. (1) In general. The IRS will pay any award 
determined under section 7623 and Sec. Sec.  301.7623-1 through 
301.7623-4 to the whistleblower(s) that filed the corresponding claim 
for award. Payment of an award will be made as promptly as the 
circumstances permit, but not until there has been a final

[[Page 47275]]

determination of tax with respect to the action(s), as defined in 
paragraph (d)(2) of this section, the Whistleblower Office has 
determined the award, and all appeals of the Whistleblower Office's 
determination are final or the whistleblower has executed an award 
consent form agreeing to the amount of the award and waiving the 
whistleblower's right to appeal the determination.
    (2) Final determination of tax. (i) In general. For purposes of 
Sec. Sec.  301.7623-1 through 301.7623-4, a final determination of tax 
means that the proceeds resulting from the action(s) subject to the 
award determination have been collected and either the statutory period 
for filing a claim for refund has expired or the taxpayer(s) subject to 
the action(s) and the IRS have agreed with finality to the tax or other 
liabilities for the period(s) at issue and the taxpayer(s) have waived 
the right to file a claim for refund. A final determination of tax does 
not preclude a subsequent final determination of tax if the IRS 
proceeds based on the information provided following the payment, 
denial, or rejection of an award.
    (ii) Example. The provisions of paragraph (d)(2)(i) of this 
section, regarding subsequent final determination of tax, may be 
illustrated by the following example:

    Example.  Information provided to the IRS by a whistleblower, 
under section 7623 and Sec.  301.7623-1, identifies a taxpayer 
(Corporation 1), describes and documents specific facts relating to 
Corporation 1's activities, and, based on those facts, alleges that 
Corporation 1 owed additional taxes in Year 1. The Whistleblower 
Office processes the incoming claim and provides the information to 
an IRS Operating Division (Operating Division 1). Operating Division 
1 reviews the claim and the allegations and ultimately decides not 
to proceed with an action against Corporation 1. Operating Division 
1 conveys its determination not to proceed with an action against 
Corporation 1 to the Whistleblower Office on a Form 11369 along with 
all of the relevant supporting documents. The Whistleblower Office 
provides written notice to the whistleblower, denying any award 
pursuant to Sec.  301.7623-3(c)(8), and the whistleblower does not 
appeal the notice to Tax Court within 30 days.
    Two months after the Whistleblower Office denies the award, the 
Whistleblower Office recognizes a potential connection between the 
information provided and a recently-initiated, ongoing, examination 
of a second taxpayer by a second IRS Operating Division (Operating 
Division 2). The Whistleblower Office provides the information to 
Operating Division 2. Operating Division 2 evaluates the information 
and proceeds with an action against Taxpayer 2 based on the 
information provided. Ultimately, Operating Division 2 assesses and 
collects taxes resulting from the action and totaling $3 million. 
Following the conclusion of the whistleblower's participation in a 
whistleblower administrative proceeding described in Sec.  301.7623-
3(c) and the expiration of the statutory period for filing a claim 
for refund by Taxpayer 2, the Whistleblower Office determines the 
amount of the award and communicates the award to the whistleblower 
in a determination letter. The whistleblower may appeal the notice 
to the Tax Court within 30 days.

    (3) Joint Whistleblowers. If multiple whistleblowers jointly submit 
a claim for award, the IRS will pay any award in equal shares to the 
joint whistleblowers unless the joint whistleblowers specify a 
different allocation in a written agreement, signed by all the joint 
whistleblowers and notarized, and submitted with the claim for award. 
The aggregate award payment in cases involving joint whistleblowers 
will be within the award percentage range of section 7623(b)(1) or 
section 7623(b)(2), as applicable, and subject to the award reduction 
provisions of section 7623(b)(3).
    (4) Deceased Whistleblower. If a whistleblower dies before or 
during the whistleblower administrative proceeding, the Whistleblower 
Office may substitute an executor, administrator, or other legal 
representative on behalf of the deceased whistleblower for purposes of 
conducting the whistleblower administrative proceeding.
    (5) Tax treatment of award. All awards are includible in gross 
income and subject to current Federal tax reporting and withholding 
requirements.
    (e) Effective/applicability date. This rule is effective on August 
12, 2014. This rule applies to information submitted on or after August 
12, 2014, and to claims for award under section 7623(b) that are open 
as of August 12, 2014.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: July 20, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-18858 Filed 8-7-14; 11:15 am]
BILLING CODE 4830-01-P