IRS Whistleblower Program Improvement Act
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The bill would change how the Tax Court reviews IRS whistleblower award decisions, require de novo (fresh) review instead of the current deferential standard, and let whistleblowers stay anonymous in most Tax Court proceedings.
It would also require IRS reports to list top tax-avoidance schemes flagged by whistleblowers, add interest to delayed awards, and let whistleblowers deduct attorney's fees regardless of which award program paid them.
What this bill would do
What it would do
The bill would amend the Internal Revenue Code's whistleblower provisions in several ways. It would change the Tax Court's standard of review for whistleblower award determinations from abuse-of-discretion to de novo review, based on the administrative record plus any newly discovered evidence. It would let whistleblowers proceed anonymously before the Tax Court unless a societal interest in disclosure outweighs potential harm to them. It would require the IRS's annual whistleblower report to list up to 10 top tax-avoidance schemes disclosed by whistleblowers. It would require the IRS to pay interest on mandatory whistleblower awards if it fails to notify the whistleblower of a preliminary award recommendation within a set timeframe.
It would also fix a cross-reference so that whistleblowers can deduct attorney's fees from adjusted gross income regardless of whether their award came through the mandatory or discretionary award program, rather than only mandatory awards as under current law. The bill does not change the underlying eligibility criteria or payout percentages for whistleblower awards themselves.
Key provisions
- 1Would require the Tax Court to conduct de novo review of whistleblower award determinations, based on the administrative record and new evidence, instead of abuse-of-discretion review
- 2Would allow whistleblowers to proceed anonymously before the Tax Court unless disclosure's societal benefit outweighs potential harm to the whistleblower
- 3Would require the IRS whistleblower report to include a list and description of up to 10 top tax avoidance schemes disclosed by whistleblowers
- 4Would require the IRS to pay interest on mandatory whistleblower awards if it fails to timely notify the whistleblower of a preliminary award recommendation
- 5Would allow whistleblowers to deduct attorney's fees from adjusted gross income for both mandatory and discretionary award programs, correcting a cross-reference limiting the deduction to mandatory awards
Who would be affected
Individuals who report tax fraud or underpayment to the IRS under its whistleblower program, their attorneys, the IRS and Treasury Department officials who administer awards, and the U.S. Tax Court, which hears disputes over award determinations.
Why it matters
Whistleblowers would gain stronger court review of denied or reduced awards, privacy protections that could reduce fear of retaliation, and interest payments if the IRS delays notifying them of awards. They would also get a full attorney's-fee deduction regardless of award type, potentially increasing their net recovery from tips that lead to IRS enforcement actions.
What would change
Changes to existing law
Amends 26 U.S.C. § 7623(b)(4) (Sec. 2)
Changes Tax Court review of whistleblower award determinations from an appeal under abuse-of-discretion to de novo review
Amends 26 U.S.C. § 7623(b)(6) (Sec. 3)
Adds a new subparagraph letting whistleblowers proceed anonymously before the Tax Court absent an overriding societal interest in disclosure
Amends Tax Relief and Health Care Act of 2006, § 406(c) (Sec. 4)
Requires the IRS whistleblower report to include a list of up to 10 top tax avoidance schemes disclosed by whistleblowers
Amends 26 U.S.C. § 7623(b) (Sec. 5)
Adds a new paragraph requiring interest on mandatory whistleblower awards when notice of a preliminary award recommendation is delayed past a set deadline
Amends 26 U.S.C. § 62(a)(21)(A)(i) (Sec. 6)
Replaces reference to section 7623(b) with section 7623, extending the attorney's-fee deduction to discretionary as well as mandatory whistleblower awards
Agencies directed to act
Effective dates
- De novo Tax Court review standard for whistleblower award petitions
- Whistleblower anonymity provisions before the Tax Court
- Modified IRS whistleblower report requirement listing top tax avoidance schemes
- Interest on delayed whistleblower award notices
- Attorney's fee deduction correction for whistleblower awards
How implementation would work
The Tax Court would apply the new de novo review standard to pending and future whistleblower award petitions, evaluating the IRS's administrative record alongside any newly available evidence, and would decide anonymity requests case by case. The IRS would need to update its annual whistleblower report to catalog top tax-avoidance schemes and would track notice dates to determine when interest starts accruing on delayed mandatory awards, using the overpayment interest rate under section 6621(a). The interest provision phases in 180 days after enactment, with a special transition rule for awards already overdue at that point.
Legislative status & sources
Latest action
Received in the Senate and Read twice and referred to the Committee on Finance.
Official CRS summary
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This bill modifies provisions of the Internal Revenue Code relating to whistleblower awards and protections.
Specifically, the bill
- revises the standard for review of whistleblower awards in the Tax Court to require a de novo review (rather than the current abuse of discretion review) based on the administrative record established at the time of the whistleblower award determination and any new or previously unavailable evidence,
- allows whistleblowers anonymity in proceedings before the Tax Court (unless a societal interest in disclosing a whistleblower's identity outweighs potential harm to the whistleblower),
- modifies the Internal Revenue Service (IRS) whistleblower report to require inclusion of a list and description of up to 10 of the top tax avoidance schemes disclosed by whistleblowers, and
- requires payment of interest on mandatory whistleblower awards if the IRS fails to provide timely notice to a whistleblower of an award recommendation.
The bill also allows payments of the attorney fees of whistleblowers to be deducted when calculating adjusted gross income for tax purposes regardless of whether the whistleblower award was paid through the mandatory or the discretionary whistleblower award program. (Under current law, the deduction is limited to attorney fees paid in connection with mandatory awards.)
Legislative subjects
Administrative remedies; Congressional oversight; Department of the Treasury; Executive agency funding and structure; Government studies and investigations; Interest, dividends, interest rates; Internal Revenue Service (IRS); Judicial review and appeals; Legal fees and court costs; Right of privacy; Specialized courts; Tax administration and collection, taxpayers; Taxation
Committee report
H. Rept. 119-606