Awards for Information Relating To Detecting Underpayments of Tax or Violations of the Internal Revenue Laws, 74798-74814 [2012-30512]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 77, Number 243 (Tuesday, December 18, 2012)]
[Proposed Rules]
[Pages 74798-74814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30512]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-141066-09]
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: Notice of proposed rulemaking.

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SUMMARY: These regulations provide comprehensive guidance for the award 
program authorized under Internal Revenue Code (Code) section 7623, as 
amended. 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. This document also provides notice of 
a request for a public hearing on the proposed regulations.

DATES: Electronic or written comments and requests for a public hearing 
must be received by February 19, 2013.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-141066-09), Room 5203, 
Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
141066-09), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically, via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-141066-09).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, 
Meghan M. Howard, at (202) 622-7950; concerning submissions of comments 
and requests for a public hearing, Oluwafunmilavaio Taylor, at (202) 
622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Section 406 of the Tax Relief and Health Care Act of 2006, Public 
Law 109-432 (120 Stat. 2922), enacted on December 20, 2006, amended 
section 7623 of the Code on the payment of awards to certain persons 
who provide information to the Internal Revenue Service relating to the 
detection of underpayments of tax and violations of the internal 
revenue laws. 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 individuals 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 individual. 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, analyzes information received under section 7623, as 
amended, and either investigates the information itself or assigns the 
investigation to the appropriate IRS office.
    In Notice 2008-4, 2008-1 CB 253 (January 14, 2008) (see Sec.  
601.601(d)(2)(ii)(b) of this chapter), the IRS provided guidance on 
filing claims for award under section 7623, as amended. In the notice, 
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 section 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, the Treasury Department (Treasury) and the IRS

[[Page 74799]]

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. Under these regulations, whistleblowers and legal 
representatives who receive return information are subject to the civil 
and criminal penalty provisions of sections 7431, 7213, and 7213A for 
the unauthorized inspection or disclosure of return information. The 
Treasury and the IRS finalized the proposed regulations on March 15, 
2011 (TD 9516).
    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, as amended. The IRS also redelegated the authority to approve 
awards to the Director of the Whistleblower Office. 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 proposed 
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 (REG-131151-10) 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. The Treasury and the IRS 
finalized the proposed regulations on February 22, 2012 (TD 9580).

Explanation of Provisions

    The purpose of these regulations is to provide comprehensive 
guidance for the award program authorized under section 7623, as 
amended. Accordingly, these regulations provide guidance on issues 
relating to the award program 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. These proposed regulations also provide definitions 
of key terms under section 7623 and provide 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.
    These proposed rules apply generally to claims for award under both 
section 7623(a) and section 7623(b), unless otherwise stated. 
Nonetheless, while the Whistleblower Office will, for example, conduct 
whistleblower administrative proceedings pursuant to the proposed rules 
of Sec.  301.7623-3 for claims for award under both section 7623(a) and 
section 7623(b), the process applicable to claims under section 7623(a) 
differs from that applicable to claims under section 7623(b). The 
differences reflect the clear distinction the statute draws between 
awards under section 7623(a) and section 7623(b) and will avoid placing 
a heavy administrative burden on the IRS.

Submitting Information and Filing Claims for Award

    Section 301.7623-1 of these proposed rules provides guidance on 
submitting information to the IRS and filing claims for award with the 
Whistleblower Office. These rules are intended to clarify the process 
individuals should follow to be eligible to receive awards under 
section 7623. The proposed rules, in large part, track the rules that 
Treasury and the IRS have previously provided, as set forth in the 
existing regulations, Notice 2008-4, and the IRM. This includes, for 
example, the general information that individuals should submit to 
claim awards and the descriptions of the type of specific and credible 
information regarding taxpayers that should be submitted. Most notably, 
an individual submitting a claim should identify a person and describe 
and document the facts supporting the claimant's belief that the person 
owes taxes or violated the tax laws. The proposed rules clarify that 
the IRS will consider an individual who identifies a pass-through 
entity as having identified the taxpayers with direct or indirect 
interests in the entity. Furthermore, the proposed rules provide that 
if an individual identifies a member of a firm who promoted another 
identified person's participation in an identified transaction, then 
the IRS will consider the individual as having identified both the firm 
and all the other members of the firm. These clarifying provisions 
complement the proposed rules' definition of the term related action.
    The proposed rules also include eligibility requirements for filing 
claims for award and a list of ineligible claimants. The list of 
ineligible claimants restates the list published in Notice 2008-4 in 
its entirety. For example, the proposed rules provide that individuals 
who are or were required by Federal law or regulation to disclose 
information are not eligible to file claims for award based on the 
information.
    To enable the IRS to administer the award program, these proposed 
regulations require individuals to file formal claims for award. The 
proposed rules provide a process for perfecting incomplete claims for 
award and permit claimants to perfect and resubmit deficient claims 
after they are rejected by the Whistleblower Office. Finally, the IRS 
is considering issues relating to the electronic filing of claims for 
award, which may be addressed in other published guidance.
    The proposed rules also reaffirm the practice of Treasury and the 
IRS to safeguard the identity of individuals who submit information 
under section 7623 and these proposed regulations whenever possible. 
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 an informant may be 
determined to be in the best interests of the Government. For example, 
an informant's identity will have to be revealed when a claimant is 
needed as a witness in a case in litigation. The IRS will, however, 
make every effort to notify an informant before disclosing the 
informant's identity.
    Comments are specifically requested on:

[[Page 74800]]

    (1) The list of ineligible claimants provided in paragraph (b)(2) 
of Sec.  301.7623-1 of these proposed regulations and whether other 
identifiable groups of individuals should be treated as ineligible to 
file claims for award.
    (2) Whether electronic claim filing would be appropriate and 
beneficial to claimants, and, if so, what features should be included 
in an electronic claim filing system.

Definitions of Key Terms

    Section 301.7623-2 of these proposed regulations defines several 
key terms for purposes of determining awards under section 7623 and the 
proposed regulations. Two other key terms, planned and initiated and 
final determination of tax, are described and defined, respectively, in 
Sec.  301.7623-4 of these proposed regulations. The definitions are 
intended to facilitate the IRS's administration of the award program in 
a manner that is consistent with the statutory language. As described 
below, 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, TD 9580, and the IRM, while 
other definitions are new.
    Generally, section 7623(b) provides that if the Secretary proceeds 
with an administrative or judicial action (including any related 
actions) based on the information provided by the individual, then the 
individual will receive an award from the collected proceeds resulting 
from the actions. The definition of the term proceeds based on 
contained in these proposed regulations reflects the ways in which 
information provided to the IRS may ultimately result in an award under 
that standard. Further, the definition reflects the requirement, under 
Section 406 of the 2006 Act, that the IRS must analyze and investigate 
information received under section 7623(b) by providing that the IRS 
cannot, for purposes of paying an award under section 7623, proceed 
based on information without taking some action beyond simply analyzing 
or investigating the information. The definition provides that the IRS 
proceeds based on the information provided only when the IRS initiates 
a new action that it would not have initiated, expands the scope of an 
ongoing action that it would not have expanded, or continues to pursue 
an ongoing action that it would not have continued but for the 
information provided.
    The definition of the term related action contained in these 
proposed regulations clarifies 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). To enable 
the IRS to administer the award program and to strike an appropriate 
balance between the individual's substantial contribution and the IRS's 
independent administration of the tax laws, this clear link requires: 
(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). Consistent with 
the statutory language, 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 direct 
relationship test of the definition's first prong amounts to 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. For example, under the 
proposed rules, if the information provided identifies a party to a 
transaction and the facts relevant to the transaction, then an action 
against an unidentified individual or firm that promoted the identified 
person's participation in the transaction may be a related action. An 
action against another client of the unidentified promoter, however, is 
not a related action, regardless of whether the other client engaged in 
a substantially similar transaction or whether the information provided 
could be said to have initiated events that led to all the actions. 
Similarly, if the information provided identifies a party to a 
particular transaction and the facts relevant to the transaction, then 
an action against a second, unidentified party to the same transaction 
may be a related action. An action against another unidentified person 
that promoted only the second, unidentified party's participation in 
the transaction, however, is not a related action.
    The definition of collected proceeds contained in these proposed 
regulations builds on the definition contained in the final regulations 
published on February 22, 2012 (TD 9580). The definition restates 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.
    Based on the IRS's experience in administering the award program 
since the issuance of the final regulations and on stakeholder input on 
those regulations, the proposed regulations' definition of collected 
proceeds also addresses refund netting and the treatment of tax 
attributes generally, which include net operating losses (NOLs). The 
proposed regulations provide that if any portion of a claim for refund 
that is substantively unrelated to the information provided is (1) 
allowed and (2) 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. As to 
the treatment of tax attributes such as NOLs, the proposed regulations 
provide a computational rule that reflects the discussion contained in 
the preamble to T.D. 9580. 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.
    To enable the IRS to administer the award program, the proposed 
regulations' computational rule provides that, after there has been a 
final determination of tax, the IRS will 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). For example: a taxpayer reports an NOL of $10 million for 2009 
and a whistleblower's information results in a reduction of the NOL to 
$5 million. If the NOL is unused as of the date the IRS computes the 
amount of collected proceeds, then there are no collected proceeds. If, 
however, the 2009 NOL was partially carried back to 2008, initially 
generating a $3 million refund, and the whistleblower's information 
reduced the carryback amount, resulting in a $1.5 million reduction in 
the refund for

[[Page 74801]]

2008, then the amount of the erroneous refund recovered and collected 
would be collected proceeds. The proposed regulations' definition of 
collected proceeds, therefore, does not refer explicitly to NOLs, tax 
credits, or any other tax attributes that may factor into the 
computation of a taxpayer's liability. Furthermore, the proposed 
regulations' computational rule does not attempt to assign a present 
value to these attributes, given that whether, when, or to what extent 
they may affect a taxpayer's liability or the amount of collected 
proceeds cannot be determined in advance of their actual use. Nor does 
the computational rule require the IRS to continue tracking these 
taxpayers, who may not be under examination, and attributes into future 
years, given the significant costs and heavy administrative burden that 
would be required.
    Consistent with provisions in the IRM, these proposed regulations 
provide that amounts recovered under the provisions of non-Title 26 
laws do not constitute collected proceeds, because the plain language 
of section 7623 authorizes awards for detecting ``underpayments of 
tax'' and violations of the internal revenue laws. The internal revenue 
laws are contained in Title 26, Internal Revenue Code and guidance 
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. For example, the IRS may 
collect penalties for failure to file Form 90-22.1, ``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.
    These proposed regulations also provide that criminal fines that 
must be deposited into the Victims of Crime Fund do not constitute 
collected proceeds. Under the Victims of Crimes Act of 1984, criminal 
fines that are imposed on a defendant by a district court are deposited 
into the Victims of Crime Fund. See 42 U.S.C. Sec.  10601(b)(1). 
Criminal fines imposed for Title 26 offenses are not exempt from this 
requirement. The fines imposed in criminal tax cases that are deposited 
into the Victims of Crime Fund are not available to the Secretary to 
pay awards under section 7623. These exclusions were previously 
explained in the preamble to TD 9580 and are further clarified in the 
text of these proposed regulations. Restitution ordered by a court to 
the IRS, however, is collected by the IRS as a tax and, therefore, is 
encompassed in the definition of collected proceeds.
    Finally, these proposed regulations provide a rule for determining 
collected proceeds in cases in which the IRS does not collect the full 
amount of the assessed liabilities. Pursuant to this rule, collected 
proceeds, for purposes of paying an award under section 7623, are 
determined on a pro rata basis based on the ratio that adjustments 
attributable to the information provided bear against the total 
adjustments.
    Section 301.7623-2 of these proposed regulations also defines the 
terms action, administrative action, judicial action, amount in 
dispute, and gross income.
    Comments are specifically requested on:
    (1) Each of the key terms defined in this section.
    (2) Whether and how the IRS could determine any amount of collected 
proceeds that arise as a result of a taxpayer's use of tax attributes 
such as NOLs after the final determination of tax and the computation 
of collected proceeds, as provided in the proposed regulations.

Whistleblower Administrative Proceedings

    Section 301.7623-3 of these proposed regulations describes the 
administrative proceedings applicable to claims for award under both 
section 7623(a) and section 7623(b). For purposes of applying these 
procedures, the IRS may rely on the claimant'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).
Administrative Proceedings for Awards Paid Under Section 7623(a)
    In cases under section 7623(a), these proposed regulations provide 
that the Whistleblower Office will send a preliminary award 
recommendation letter to the claimant. Sending this letter marks the 
beginning of the whistleblower administrative proceeding. The claimant 
will then have 30 days within which to provide comments to the 
Whistleblower Office. This approach is intended to provide claimants 
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.
Administrative Proceedings for Awards Paid Under Section 7623(b)
    In cases in which the Whistleblower Office will determine an award 
under section 7623(b), the whistleblower administrative proceeding more 
closely resembles the whistleblower award determination administrative 
proceeding contained in the IRM, which only applies to awards 
determined under section 7623(b). In an effort to both streamline the 
process and provide information to whistleblowers as early as allowable 
under section 6103, however, the proposed regulations move the 
beginning of the proceeding forward. Under the proposed regulations, 
the whistleblower administrative proceeding begins when the 
Whistleblower Office sends out the preliminary award recommendation 
letter. Accordingly, whistleblowers may receive opportunities to 
participate in the award determination process at the administrative 
level even before there is a final determination of tax in the 
underlying taxpayer action. These opportunities will be provided in 
connection with all awards paid under section 7623(b), and they are in 
addition to opportunities a whistleblower may be afforded to assist the 
IRS in connection with the underlying taxpayer action, for example 
pursuant to Sec. Sec.  301.6103(n)-2 and 301.7623-1(d) of the proposed 
regulations.
    The Treasury and the IRS emphasize, however, that the proposed 
regulations do not and cannot move forward a whistleblower's 
opportunity to appeal an award determination to Tax Court. Under the 
proposed regulations, the Whistleblower Office will issue an appealable 
determination or make payment, if a whistleblower has waived the 
determination, as soon as possible after there has been a final 
determination of tax (that is, the statutory period for the taxpayer to 
claim a refund has expired or the underlying taxpayer action is 
otherwise final).

[[Page 74802]]

    The whistleblower administrative proceeding generally consists of 
four steps: (i) A preliminary award recommendation; (ii) a detailed 
award report; (iii) an opportunity to review documents supporting the 
preliminary award recommendation; and (iv) an award determination. 
Under the proposed regulations, the first three steps may occur before 
the final determination of tax in the underlying taxpayer matter. Given 
that the amount of collected proceeds is not finally determined until 
after the final determination of tax, however, the preliminary award 
recommendation and the detailed award report, as well as the documents 
made available for inspection, will reflect a tentative or preliminary 
computation of the amount of collected proceeds.
    The whistleblower administrative proceeding is intended to foster a 
transparent administrative process, to ensure that claimants have a 
meaningful opportunity to participate in the determination process at 
the administrative level, to enable the Whistleblower Office to make 
award determinations based on complete information, and to ensure a 
fully-documented record on appeal to the Tax Court. The proposed 
regulations permit claimants to participate in the whistleblower 
administrative proceeding through a structured process involving 
correspondence and other communications with the Whistleblower Office. 
Claimants are afforded opportunities to review the Whistleblower 
Office's preliminary award recommendation, to provide additional 
information regarding their claims that is relevant to an award 
determination, and to submit comments challenging all aspects of the 
preliminary findings at the administrative level. The Treasury and the 
IRS recognize that, in some cases, claimants may be able to provide 
information during the whistleblower administrative proceeding that 
could be critical to the award determination but that is not already 
contained in the administrative claim file. For example, a claimant may 
be able to demonstrate that a determination is based on a 
misapplication of the lower award percentages of section 7623(b)(2) by 
providing information that demonstrates that the claimant was the 
original source of public source information.
    The Treasury and the IRS recognize that, while detailed 
administrative claim files assist the Whistleblower Office in making 
fair and accurate award determinations, steps should be taken to 
prevent potential redisclosure or misuse of the taxpayer's confidential 
return information contained in those files. Section 6103(h)(4) and 
Sec.  301.6103(h)(4)-1 of the proposed regulations authorize the 
disclosures made by the Whistleblower Office in the course of the 
whistleblower administrative proceeding, but they provide neither 
redisclosure prohibitions nor penalties. Accordingly, the proposed 
regulations require claimants 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 claimant 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 claimant 
from seeking Tax Court review. Moreover, a claimant's execution of a 
confidentiality agreement would not preclude the claimant from 
providing to Congress certain information about the preliminary award 
recommendation, but it would preclude the claimant from providing to 
Congress information disclosed to the claimant after the execution of 
the agreement and during the whistleblower administrative proceeding. 
Section 6103(f), however, provides a general framework for Congress to 
access taxpayer return information, and this general framework may also 
be used in connection with whistleblower award claims.
    The proposed regulations provide that the Whistleblower Office, in 
determining the award percentage, may treat a claimant's violation of 
the terms of the confidentiality agreement as a negative factor and, 
thus, as a basis for reducing the amount of an award. Further, while 
the proposed regulations provide claimants 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 provide rules intended to safeguard the disclosure 
of information to a claimant (for example, supervised document review 
and no photocopying of documents).
Administrative Proceedings for Denials of Awards Under Section 7623(b)
    Finally, the proposed regulations provide that in cases in which 
the Whistleblower Office will reject a claim under section 7623(b), 
pursuant to Sec.  301.7623-1(b) or (c), or will deny a claim under 
section 7623(b), either because the IRS did not proceed with an action 
based on the information provided or because the IRS did not collect 
proceeds, the Whistleblower Office will send a preliminary denial 
letter to the claimant. Sending this letter marks the beginning of the 
whistleblower administrative proceeding. This notice will be provided 
as promptly as possible under the particular circumstances of a given 
case. The claimant will then have 30 days within which to provide 
comments to the Whistleblower Office. Again, this approach is intended 
to foster a transparent and accurate review process. Given the large 
administrative burden involved, however, the proposed regulations do 
not provide preliminary notice and comment procedures applicable to 
denials of claims for award under section 7623(a).
    Comments are specifically requested on:
    (1) Whether claimants should be afforded additional opportunities 
to participate in whistleblower administrative proceedings, and if so, 
what additional opportunities would be beneficial to the Whistleblower 
Office and to claimants and why.
    (2) Whether additional safeguards should be adopted to further 
protect taxpayer return information disclosed in the course of 
whistleblower administrative proceedings and, if so, what safeguards 
would be effective and appropriate.
    (3) Whether starting a whistleblower administrative proceeding 
before a final determination of tax in the underlying taxpayer action 
provides a meaningful benefit for whistleblowers.

Determining the Amount of Awards and Paying Awards

    Section 301.7623-4 of these proposed regulations provides the 
framework and criteria that the Whistleblower Office will use in 
exercising the discretion granted under section 7623 to make awards. 
The proposed regulations are consistent with, and build on, the award 
determination provisions provided in the IRM. The rules of this section 
are proposed to apply to claims for awards under both section 7623(a) 
and section 7623(b).
    Generally, the proposed regulations adopt 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. 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. In general, the

[[Page 74803]]

Whistleblower Office will determine awards at the uppermost end of the 
applicable percentage range, for example, 30 percent of collected 
proceeds under section 7623(b)(1), only in extraordinary cases. The 
fixed percentage approach 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 
claimants.
    Under these proposed regulations, the Whistleblower Office 
generally will assign the fixed percentages to claims for award by 
evaluating the substantial contribution of the claimant to the 
underlying action(s) based on the Whistleblower Office's review of the 
entire administrative claim file and the application of the positive 
factors and negative factors, listed in Sec.  301.7623-4(b), to the 
facts. After the application of the positive and negative factors has 
been completed, the Whistleblower Office will review the planning and 
initiating factors, if applicable. The purpose of this criteria-based 
approach is to also promote consistency in the award determination 
process. In addition, this approach is intended to provide transparency 
in the process, and the publication of the criteria should provide 
helpful guidance to claimants when submitting their claims and in 
understanding the basis for award determinations. For claims involving 
multiple actions (regardless of the number of taxpayers involved), the 
proposed regulations enable the Whistleblower Office to determine and 
apply separate award percentages on an action-by-action basis in 
appropriate cases. The Treasury and the IRS recognize that a multiple-
action determination may result in a lengthier award process, but it 
may be necessary in some cases.
    Section 7623(b)(3) provides for an appropriate reduction of awards 
to claimants who planned and initiated the actions that led to the 
underpayment of tax or actions described in section 7623(a)(2) (the 
underlying acts). Section 7623(b)(3), unlike section 7623(b)(1) and 
section 7623(b)(2), provides no direction to the Whistleblower Office 
on what to consider in exercising this grant of discretion. 
Accordingly, the proposed regulations provide slightly more flexibility 
to determine the amount of an appropriate reduction under this section 
than they provide under the respective frameworks for determining 
awards for substantial and less substantial contributions.
    Under the proposed regulations, the Whistleblower Office will make 
a threshold determination of whether a claimant planned and initiated 
the underlying acts, but this determination will not result in an 
automatic or fixed reduction of the award percentage or award amount. A 
claimant will only satisfy the threshold determination if the claimant 
(i) designed, structured, drafted, arranged, formed the plan leading 
to, or otherwise planned an underlying act, (ii) took steps to start, 
introduce, originate, set into motion, promote or otherwise initiated 
an underlying act, and (iii) knew or had reason to know that there were 
tax implications to planning and initiating the underlying act.
    If the Whistleblower Office determines that a claimant meets the 
threshold for planning and initiating, the Whistleblower Office will 
then categorize and evaluate the extent of the claimant'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. The proposed regulations' use of the categories 
primary, significant, and moderate, 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.
    The proposed regulations do not adopt a ``principal architect'' 
approach to the application of section 7623(b)(3), based in part on the 
plain language of the statutory provision, which does not require a 
single planner. More than one individual may plan and initiate the 
actions that lead to a tax underpayment or violation. The Treasury and 
the IRS recognize the value that all whistleblowers may provide, and 
the proposed 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.
    The proposed regulations provide 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 allow the Whistleblower Office to determine multiple 
awards, limited in aggregate amount to the maximum amount that could 
have been awarded to a single claimant, rather than restricting the 
determination to a single award payable to the first individual that 
files a claim for award or payable on some other basis.
    The proposed regulations also provide rules for determining whether 
affiliated claimants are eligible for awards and, if so, for 
determining the amount of the awards. The rule covering eligible 
affiliated claimants is intended to apply when the Whistleblower Office 
determines that an eligible individual is attempting to avoid a reduced 
award, for example, based on the application of the rules of section 
7623(b)(3) or the application of negative factors, by having another 
individual to whom those rules would otherwise not apply submit the 
claim on behalf of the eligible individual. This rule allows the 
Whistleblower Office to put the actual claimant in the shoes of the 
purported claimant for purposes of determining the amount of the award.
    Comments are specifically requested on:
    (1) The efficacy of the fixed percentage approach provided under 
these proposed regulations.
    (2) Whether there are additional positive factors, negative 
factors, or planning and initiating factors that would be useful for 
the Whistleblower Office to consider in determining the amount of 
awards under these regulations.
    (3) The threshold determination of whether a whistleblower planned 
and initiated an underlying act.
    (4) Whether the IRS should determine and pay multiple awards in 
cases in which two or more independent claims relate to the same 
collected proceeds, as provided under the proposed regulations, or 
whether only the first individual to provide information or submit a 
claim relating to particular collected proceeds should receive an 
award.
    (5) The application of the eligible affiliated claimant rule.

Information Disclosures in Whistleblower Administrative Proceedings

    Section 6103(h)(4) authorizes the disclosure of returns and return 
information in administrative or judicial proceedings pertaining to tax 
administration in certain circumstances. This rule provides the 
authority to disclose return information for purposes of a 
whistleblower administrative proceeding under section 7623. Section 
301.6103(h)(4)-1 of these proposed regulations specifically authorizes 
the Director, officers, and employees of the Whistleblower Office to 
disclose return information to the extent necessary to

[[Page 74804]]

conduct whistleblower administrative proceedings. To minimize the 
potentially adverse consequences of the disclosure, and possible 
redisclosure, of return information, these proposed regulations provide 
that the Whistleblower Office will use confidentiality agreements in 
section 7623(b) whistleblower award determination administrative 
proceedings, as well as other safeguards, to minimize possible 
redisclosures of return information while still providing meaningful 
opportunities for claimants to participate in whistleblower 
administrative proceedings.
    Comments are specifically requested on whether the proposed 
regulations strike an appropriate balance between minimizing possible 
redisclosures of confidential return information and providing 
meaningful opportunities for claimants to participate in the 
administrative processing of their claims.

Proposed Effective Dates

    When finalized, Sec. Sec.  301.7623-1, 301.7623-2, 301.7623-3, and 
301.6103(h)(4)-1 are proposed to apply to information submitted on or 
after the date these 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 is 
proposed to apply to information submitted on or after that date, and 
to claims for award under section 7623(b) that are open as of that 
date. Section 301.7623-4 is not proposed to apply to claims for award 
under section 7623(a) that are open as of that date. This exception is 
intended to allow the IRS to continue to apply consistent rules to open 
claims for award under the discretionary award program of section 
7623(a).
    Comments are specifically requested on whether the proposed 
effective dates are appropriate.

Special Analyses

    It has been determined that these proposed rules are 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, and, because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, these regulations have been submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small businesses.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic or written comments (a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. The Treasury and the IRS request comments on all aspects of the 
proposed regulations. All comments that are submitted by the public 
will be available for public inspection and copying at 
www.regulations.gov or upon request. A public hearing may be scheduled 
if requested in writing by a person who timely submits written 
comments. If a public hearing is scheduled, notice of the date, time, 
and place of the hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Meghan M. Howard and 
Robert T. Wearing 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.

Proposed Amendment to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

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

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

    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 an individual (or the individual'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 individual;
    (2) By providing the individual with an award report package;
    (3) By conducting a meeting with the individual 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 individual.
    (c) Effective/applicability date. Section 301.6103(h)(4)-1 will be 
effective on the date of publication of the Treasury decision adopting 
these rules as final regulations in the Federal Register. When 
finalized, this section is proposed to apply with respect to 
whistleblower administrative proceedings beginning on or after the date 
of publication of the Treasury Decision adopting these rules as final 
regulations in the Federal Register.
    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 IRS's 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 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

[[Page 74805]]

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 claimants. The Whistleblower Office will reject any 
claim for award filed by an ineligible claimant and will provide 
written notice of the rejection to the claimant. The following 
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 a Federal, State, or 
local Government, or who is acting within the scope of those official 
duties as an employee of a Federal, State, or local 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 was furnished the information 
while acting in an official capacity as a member of a Federal or State 
body or commission having access to materials such as Federal returns, 
copies, or abstracts; or
    (v) An individual who obtained or had access to the information 
based on a contract with the Federal government.
    (3) Ineligible affiliated claimants. If the Whistleblower Office 
determines that an affiliated claimant, as defined in Sec.  301.7623-
2(f), filed a claim for award based on information obtained from an 
ineligible individual for the purpose of avoiding the rejection of the 
claim that would result if the claim was filed by the ineligible 
individual, then the Whistleblower Office may treat the claim as if it 
had been filed by the ineligible individual. See Sec.  301.7623-4(c)(4) 
for rules regarding eligible affiliated claimants.
    (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, an individual must submit to 
the IRS specific and credible information that the individual believes 
will lead to collected proceeds from persons whom the individual 
believes have failed to comply with the internal revenue laws. In 
general, an individual'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 individual'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 individual but are not in the 
individual's control, then the individual should describe the documents 
or supporting evidence and identify their location to the best of the 
individual's ability. If all available information known to the 
individual is not provided to the IRS by the individual, then the 
individual 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, an individual 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 claimant's name;
    (iii) The claimant's address and telephone number;
    (iv) The date of birth of the claimant;
    (v) The taxpayer identification number of the claimant; and
    (vi) An explanation of how the information on which the claim is 
based came to the attention and into the possession of the claimant, 
including, as available, the date(s) on which the claimant acquired the 
information and a complete description of the claimant's present or 
former relationship (if any) to the 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 
individual (joint claims) must be signed by each individual claimant 
under penalty of perjury.
    (4) Perfecting claim for award. If an individual 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, in its sole discretion, reject the claim or notify the individual 
of the deficiencies and provide the individual an opportunity to 
perfect the claim for award. If an individual 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 written notice of the rejection to the claimant. If the 
Whistleblower Office rejects a claim for the reasons described in this 
paragraph, then the claimant 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 an individual claimant or the individual claimant'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 claimant and the Federal government, nor 
does a claimant or the claimant's legal

[[Page 74806]]

representative act in any way on behalf of the Federal government.
    (e) Identification 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.
    (f) Effective/applicability date. When finalized, Sec.  301.7623-1 
is proposed to apply to information submitted on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register and to claims for award under 
sections 7623(a) and 7623(b) that are open as of the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register.
    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 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 Internal 
Revenue (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.
    (2) Example. The provisions of paragraph (b)(1) of this section may 
be illustrated by the following example:

    Example.  Information provided to the IRS by an individual, 
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 does not include consideration of the amount of the 
foreign tax credit relating to the taxpayer's foreign sales in 
Country A but, based on the information provided, the IRS expands 
the examination to include the foreign tax credit issue. 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 is an administrative action with which 
the IRS proceeds based on the information provided by the 
individual. If the examination of the taxpayer included the foreign 
tax credit issue before the individual provided the information, 
then no portion of the IRS's examination of the taxpayer is an 
administrative action with which the IRS proceeds based on the 
information provided, unless the IRS would not have continued to 
pursue the examination but for the information provided.

    (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 
is 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 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. For purposes of this paragraph, an unidentified person is 
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).
    (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 an individual, 
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 individual. 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 IDRs and summonses, additional facts that 
are unrelated to the activities described in the information 
provided by the individual. 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 of the 
taxpayer in Year 2 relating to the activities described and 
documented in the information provided (with respect to Year 1) is a 
related action because it satisfies the conditions of paragraph 
(c)(1)(i) of this section. 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 
related actions (nor are they administrative actions based on the 
information provided).
    Example 2.  Information provided to the IRS by an individual, 
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, 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 individual alleges resulted in tax 
underpayments. The IRS proceeds with an examination of Taxpayer 1 
based on the information provided by the individual. Using only 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

[[Page 74807]]

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)(ii) 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 3.  Same facts as Example 2. Using only the information 
provided, 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)(ii) 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 4. Same facts as Example 2. An accountant (CPA 3) is a 
member of CPA 1's firm. Using only the information provided, 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 5.  Information provided to the IRS by an individual, 
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 individual 
alleges that Taxpayer 1 owed additional taxes. The IRS proceeds with 
an examination of Taxpayer 1 based on the information provided by 
the individual. 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)(ii) 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 an individual, 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 individual, 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 individual. 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) Criminal fines. Criminal fines deposited into the Victims of 
Crime Fund are not collected proceeds and cannot be used for payment of 
awards.
    (4) Computation of collected proceeds--(i) In general. The 
Whistleblower Office will monitor each case for collection of proceeds. 
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) 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 individual'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 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 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).

[[Page 74808]]

    (ii) Example. The provisions of paragraph (e)(2)(i) of this section 
may be illustrated by the following example:

    Example.  Information provided to the IRS by an individual, 
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 individual; 
makes adjustments to items of income and expense and allows certain 
credits; and, ultimately, determines a deficiency against the 
taxpayer of $2,100,000 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, in part, 
resulting in a deficiency of $1,500,000. The IRS also computes, 
however, that the total of tax, penalties, interest, additions to 
tax, and additional amounts that could have resulted from the 
action, if the court had sustained the IRS's position, in full, 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.

    (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) Affiliated claimant. For purposes of Sec. Sec.  301.7623-1 
through 301.7623-4, the term affiliated claimant means an individual 
that files a claim for award on behalf of another individual. See Sec.  
301.7623-1(b)(3) for rules regarding ineligible affiliated claimants 
and Sec.  301.7623-4(c)(4) for rules regarding eligible affiliated 
claimants.
    (g) Effective/applicability date. When finalized, Sec.  301.7623-2 
is proposed to apply to information submitted on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register and to claims for award under 
sections 7623(a) and 7623(b) that are open as of the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register.
    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 awards to individuals 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 applying the rules of this section, the Internal Revenue 
Service (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 claimant 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 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. 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 claimant believes that the Whistleblower 
Office erred in evaluating the information provided, the claimant has 
30 days from the date the Whistleblower Office sends the preliminary 
award recommendation to submit comments to the Whistleblower Office. 
The Whistleblower Office will review all comments submitted timely by 
the claimant (or the claimant'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 claimant in a decision 
letter.
    (3) Denials. If the Whistleblower Office rejects a claim for award 
under section 7623(a), pursuant to Sec.  301.7623-1(b) or (c), or if 
the IRS either did not proceed with an action, 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 claimant of the denial of any award.
    (c) Awards under section 7623(b)--(1) Preliminary award 
recommendation. 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.
    (2) Contents of preliminary award recommendation. The Whistleblower 
Office will communicate the preliminary award recommendation under 
section 7623(b) to the individual by sending:
    (i) A preliminary award recommendation letter that describes the 
individual'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. 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 individual that the IRS cannot determine or pay any 
award until there

[[Page 74809]]

is a final determination of tax, as defined in Sec.  301.7623-4(d)(2).
    (3) Opportunity to respond to preliminary award recommendation. The 
individual will have 30 days (this period may be extended at the sole 
discretion of the Whistleblower Office) from the date of the 
preliminary award recommendation letter to respond to the preliminary 
award recommendation in one of the following ways:
    (i) If the individual takes no action, then the Whistleblower 
Office will make a final award determination, pursuant to paragraph 
(c)(6) of this section;
    (ii) If the individual 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 individual signs, dates, and returns the 
confidentiality agreement, then the Whistleblower Office will provide 
the individual with an opportunity to review documents supporting the 
report, and a detailed award report pursuant to paragraphs (c)(3) and 
(4) of this section, and any comments submitted by the individual will 
be added to the administrative claim file; or
    (iv) If the individual 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 
individual 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 individual:
    (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 individual 
(and the individual'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. 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 
individual 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).
    (ii) Opportunity to respond to detailed report. The individual will 
have 30 days (this period may be extended at the sole discretion of the 
Whistleblower Office) from the date of the detailed report to respond 
in one of the following ways:
    (A) If the individual takes no action, then the Whistleblower 
Office will make an award determination, pursuant to paragraph (c)(6) 
of this section;
    (B) If the individual 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 individual 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 individual 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.
    (5) Opportunity to review documents supporting award report 
recommendations. Appointments for the individual (and the individual'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 pertinent information from the administrative claim file. 
The Whistleblower Office will supervise the individual's review of the 
documents and the individual will not be permitted to make copies of 
the documents. The individual 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 individual'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 individual in a 
determination letter, stating the amount of the award. If, however, the 
individual has executed an award consent form agreeing to the amount of 
the award and waiving the individual'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 individual a 
determination letter and will make payment of the award as promptly as 
circumstances permit.
    (7) Denials. If the Whistleblower Office rejects a claim for award 
under section 7623(b), pursuant to Sec.  301.7623-1(b) or (c), or if, 
with respect to a claim for award under section 7623(b), the IRS either 
did not proceed with an action, 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 
claimant 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 claimant believes that the 
Whistleblower Office erred in evaluating the information provided, the 
claimant has 30 days from the date the Whistleblower Office sends the 
preliminary denial letter to submit comments to the Whistleblower 
Office. The Whistleblower Office will review all comments submitted 
timely by the claimant and, following that review, the Whistleblower 
Office will either provide written notice to the claimant of the denial 
of any award or apply the rules

[[Page 74810]]

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 not protected by one or more common law or statutory 
privileges that is relevant to the award determination.
    (2) Administrative claim file. The administrative claim file will 
include the following materials relating to the action(s) with respect 
to which the IRS proceeded based on the information provided by the 
individual, as applicable, and to which the determination relates:
    (i) The Form 211 filed by the individual and all information 
provided by the individual (whether provided with the individual's 
original submission or through a subsequent contact with the IRS).
    (ii) Copies of all debriefing notes and recorded interviews held 
with the individual (and the individual's 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 individual'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 
individual, and the individual's legal representative (if any), and an 
explanation of the cooperation provided by the individual (or the 
individual's legal representative, if any) under the contract.
    (v) Any information that reflects actions by the individual 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 individual.
    (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 individual (and the individual'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. When finalized, Sec.  301.7623-3 
is proposed to apply to information submitted on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register and to claims for award under 
sections 7623(a) and 7623(b) that are open as of the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register.
    Par. 5. Section 301.7623-4 is added to read as follows:


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 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 individual acted promptly to inform the IRS or the taxpayer 
of the tax noncompliance.
    (ii) The information provided identified an issue 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 individual (or the individual's legal representative, if 
any) provided exceptional cooperation and assistance during the 
pendency of the action(s), for example by providing a useful technical 
or legal analysis of the taxpayer's records in response to a request 
from the Whistleblower Office, the IRS, or the IRS Office of Chief 
Counsel.
    (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 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 individual 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 individual contributed to the underpayment of tax or tax 
noncompliance identified.
    (iii) The individual directly or indirectly profited from the 
underpayment of tax or tax noncompliance identified.
    (iv) The individual (or the individual'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 individual (or the individual's legal representative, if 
any) violated instructions provided by the IRS, particularly if the 
violation caused the IRS to expend additional resources.

[[Page 74811]]

    (vi) The individual (or the individual's legal representative, if 
any) violated the terms of the confidentiality agreement described in 
Sec.  301.7623-3(b)(2).
    (vii) The individual (or the individual'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 individual 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 an individual, such individual 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 individual's substantial 
contribution to the action(s). See paragraph (c)(5) of this section for 
rules regarding multiple claimants.
    (ii) Computational framework. Starting the analysis at the 
statutory minimum of 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 individual 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 individual 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 negative factors may offset 
the presence and significance of positive factors and, while the 
presence and significance of negative factors alone cannot result in an 
award percentage of less than 15 percent, the absence of negative 
factors does not mean that an award percentage will be greater than 15 
percent.
    (iii) Example. The operation of the provisions of paragraph 
(c)(1)(ii) of this section may be illustrated by the following example. 
The example is intended to illustrate the operation of the 
computational framework. It is not intended to provide a standard 
against which the substantial contribution of an individual submitting 
a claim for award may be compared. 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)(1) and paragraph (c)(1)(ii) 
of this section will depend on the specific facts of each case.

    Example. Individual 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. Individual A's information consisted of 
numerous non-privileged documents relevant to Corporation's 
eligibility for the credit. Individual A's 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, Individual 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 
Individual 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 
Individual 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 Individual A. Corporation agreed to the 
ensuing assessments of tax and interest and paid the liabilities in 
full. In this case, Individual A provided specific and credible 
information that formed the basis for action by the IRS. Individual 
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 Individual 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 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 public source information including a 
judicial or administrative hearing; a government report, hearing, 
audit, or investigation; or the news media, then the Whistleblower 
Office may 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. The 
appropriate amount of any award under this paragraph depends on the 
significance of the individual's information and the role of the 
individual (and the individual's legal representative, if any) in 
contributing to the action(s). If the individual is the original source 
of the public source information, 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 whether any of the 
information provided by the individual contained public source 
information and, if it did, whether the action described in paragraph 
(c)(1) of this section was based principally on the public source 
information. The Whistleblower Office will make this determination 
based on the extent to which the public source information described a 
tax violation or facts and circumstances from which a tax violation 
reasonably may be inferred. If the Whistleblower Office determines that 
the action was based principally on public source 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 individual merits an increased 
award percentage of 4 percent, 7 percent, or 10 percent. The 
Whistleblower Office will then determine whether the individual merits 
a decreased award percentage of zero, 1 percent, 4 percent, or 7 
percent using the factors listed in paragraph (b)(2). The Whistleblower 
Office may increase the award percentage based on the presence and 
significance of positive factors and may decrease 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

[[Page 74812]]

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 negative factors may offset 
the presence and significance of positive factors or result in a zero 
award, but the absence of negative factors does not mean that an award 
percentage will be greater than 1 percent.
    (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. It is not intended to provide a standard 
against which the substantial contribution of an individual submitting 
a claim for award may be compared. 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. Individual 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. Individual 
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 
controlled by Taxpayer B. In this case, Individual 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 Individual A, section 7623(b)(2) and 
paragraph (c)(2) of this section applies to the determination of 
Individual 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, Individual 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 an 
individual 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 
individual is convicted of criminal conduct arising from his or her 
role in planning and initiating the underlying acts.
    (ii) Threshold determination. An individual planned and initiated 
the underlying acts if the individual:
    (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 there were tax implications to 
planning and initiating the underlying act. The individual need not 
have been the sole person involved in planning and initiating the 
underlying acts. An individual 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. 
If the Whistleblower Office determines that an individual has satisfied 
this initial threshold of planning and initiating, the Whistleblower 
Office will then reduce the award amount based on the extent of the 
individual'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 
individual is determined to have planned and initiated the underlying 
acts, then the Whistleblower Office will reduce the award based on the 
extent of the individual'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 individual'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 individual 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 individual's role as a planner and initiator as 
primary, significant, or moderate.
    (iv) Factors demonstrating the extent of an individual's planning 
and initiating. The application of the following non-exclusive factors 
may support a determination of the extent of an individual's planning 
and initiating of the underlying acts:
    (A) The individual's role as a planner and initiator. Was the 
individual the sole decision-maker or one of several contributing 
planners and initiators?
    (B) The nature of the individual's planning and initiating 
activities. Was the individual involved in legitimate tax planning 
activities? Did the individual take steps to hide the actions at the 
planning stage? Did the individual commit any identifiable misconduct 
(legal, ethical, etc.)?
    (C) The extent to which the individual knew or should have known 
that tax noncompliance could result from the course of conduct.
    (D) The extent to which the individual acted in furtherance of the 
noncompliance, including, for example, efforts to conceal or disguise 
the transaction.
    (E) The individual'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. They are not intended to 
provide standards against which the planning and initiating of an 
individual submitting a claim for award may be compared. 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. Individual A is employed in the finance department of 
a corporation (Corporation 1) and is responsible for performing 
research and drafting activities for, and at the direction of, 
Supervisor B.

[[Page 74813]]

Individual A performed research on financial products for Supervisor 
B that Supervisor B used in advising Corporation 1 on a financial 
strategy. After Corporation 1 executed the strategy, Individual 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 Individual A's information, 
determined deficiencies in tax and penalties, and ultimately 
assessed and collected the tax and penalties as determined. 
Individual A did nothing to design or set into motion Corporation 
1's activities. Individual A did not know or have reason to know 
that there were tax implications to the research activities. 
Accordingly, as a threshold matter, Individual 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.
    Example 2. Individual C is employed in the HR department of a 
corporation (Corporation 2). Corporation 2 tasked Individual C with 
hiring a large number of temporary employees to meet Corporation 2's 
seasonal business demands. Individual C organized, scheduled, and 
conducted job fairs and job interviews to hire the seasonal 
employees. Individual C was not responsible for, had no knowledge 
of, and played no part in, classifying the seasonal employees for 
Federal income tax purposes. Individual C later discovered, however, 
that Corporation 2 classified the seasonal employees as independent 
contractors. After discovering the misclassification, Individual 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 
Individual C's information, determined deficiencies in tax and 
penalties, and ultimately assessed and collected the tax and 
penalties as determined. 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 Individual C did not satisfy the requirements of the 
threshold determination of a planner and initiator. Individual C did 
not know and had no reason to know that her actions had tax 
implications or that Corporation 2 would misclassify the employees 
as independent contractors.
    Example 3. Individual 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, Individual D and others 
at Corporation 3, in good faith but incorrectly, planned tax-
advantaged transactions. Individual D and others at Corporation 3 
prepared documents needed to execute the transactions. After 
Corporation 3 executed the transactions, Individual 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 Individual D's information, 
determined deficiencies in tax and penalties, and ultimately 
assessed and collected the tax and penalties as determined. 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 Individual D satisfies the 
requirements of the threshold determination of a planner and 
initiator. Individual D planned the transactions, prepared the 
necessary documents, and knew the tax implications of the 
transactions. Individual D was not the sole planner and initiator of 
Corporation 3's transactions. Individual 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, 
Individual D was a moderate-level planner and initiator. 
Accordingly, the Whistleblower Office will exercise its discretion 
to reduce Individual D's award by 0 to 33 percent.
    Example 4. Same facts as Example 3, except that Individual D 
independently planned a high-risk tax avoidance transaction and 
prepared draft documents to execute the transaction. Individual D 
presented the transaction, along with the draft documents, to 
Corporation 3's Chief Financial Officer. Without the further 
involvement of Individual 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, Individual 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 Individual D's information, 
determined deficiencies in tax and penalties, and ultimately 
assessed and collected the tax and penalties as determined. 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 Individual D satisfies the 
requirements of the threshold determination of a planner and 
initiator. Individual D planned the transaction, prepared the 
necessary documents, and knew the tax implications of the 
transaction. Working independently, Individual 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. Individual D, however, did not approve the execution 
of the transaction by Corporation 3 and, therefore, was not a 
decision-maker. On the basis of those facts, Individual D was a 
significant-level planner and initiator. Accordingly, the 
Whistleblower Office will exercise its discretion to reduce 
Individual D's award by 34 to 66 percent.
    Example 5. Individual E is a financial planner. Individual E 
designed a financial product that the IRS identified as an abusive 
tax avoidance transaction. Individual 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, Individual 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 Individual E's information, determined 
deficiencies in tax and penalties, and ultimately assessed and 
collected the tax and penalties as determined. Individual E was not 
criminally prosecuted. 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 
Individual E satisfies the requirements of the threshold 
determination of a planner and initiator. Individual E designed the 
financial product, marketed and facilitated its use by taxpayers, 
and knew the tax implications of the transaction. Individual 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. Individual E knew 
that the planning and initiating of the taxpayers' participation in 
the transaction was likely to result in tax noncompliance. On the 
basis of those facts, Individual E was a primary-level planner and 
initiator. Accordingly, the Whistleblower Office will exercise its 
discretion to reduce Individual E's award by 67 to 100 percent.

    (4) Eligible affiliated claimants--(i) In general. If the 
Whistleblower Office determines that an affiliated claimant, as defined 
in Sec.  301.7623-2(f), filed a claim for award based on information 
obtained from an otherwise eligible individual for the purpose of 
avoiding any reduction in the amount of any award that could result if 
the claim was filed by the otherwise eligible individual, then the 
Whistleblower Office may, for purposes of determining the amount of an 
award, treat the claim as if it had been filed by the otherwise 
eligible individual. Any award to the affiliated claimant that filed 
the claim for award will be paid pursuant to paragraph (d)(1) of this 
section. See Sec.  301.7623-1(b)(3) for rules regarding ineligible 
affiliated claimants.

    (ii) Example. Individual A is employed as a supervisor in the 
finance department of Corporation. Individual A planned and initiated 
the actions that led to an underpayment of tax by Corporation, within 
the meaning of section 7623(b)(3) and paragraph (c)(3) of this section. 
To avoid the application of section 7623(b)(3) and paragraph (c)(3) of 
this section, Individual A provided non-privileged information to 
Individual B that described and documented specific facts relating to 
Corporation's tax underpayment. Individual B did not plan and initiate

[[Page 74814]]

the actions that led to an underpayment of tax by Corporation. 
Individual B submitted to the IRS the information received from 
Individual A, alleging that Corporation owed additional taxes and 
filing a claim for award under section 7623. The IRS proceeded with an 
examination of Corporation based on the information provided by 
Individual B, determined a deficiency against Corporation and, 
ultimately, collected proceeds from Corporation. For purposes of 
determining the amount of any award payable to Individual B, as the 
individual that filed the claim for award, the Whistleblower Office may 
treat the claim as if it had been filed by Individual A.

    (5) Multiple claimants. If two or more independent claims relate to 
the same collected proceeds, then the Whistleblower Office may evaluate 
the contribution of each individual to the action(s) that resulted in 
collected proceeds. The Whistleblower Office will determine whether the 
information submitted by each individual would have been obtained by 
the IRS as a result of the information previously submitted by any 
other individual. If the Whistleblower Office determines that multiple 
individuals submitted information that would not have been obtained 
based on a prior submission, then the Whistleblower Office will 
determine the amount of each individual's award based on the extent to 
which each individual 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 individual(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 
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 individual has executed an award consent 
form agreeing to the amount of the award and waiving the individual's 
right to appeal the determination.
    (2) Final determination of tax. 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.
    (3) Joint Claimants. If multiple individuals jointly submit a claim 
for award, the IRS will pay any award in equal shares to the joint 
claimants unless the joint claimants specify a different allocation in 
a written agreement, signed by all the joint claimants and notarized, 
and submitted with the claim for award. The aggregate award payment in 
cases involving joint claimants 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 Claimant. If a claimant dies before or during the 
whistleblower administrative proceeding, the Whistleblower Office will 
substitute an executor, administrator, or other legal representative on 
behalf of the deceased claimant for purposes of conducting the 
whistleblower administrative proceeding.
    (5) Tax treatment of award. All awards are subject to current 
Federal tax reporting and withholding requirements.
    (e) Effective/applicability date. When finalized, Sec.  301.7623-4 
is proposed to apply to information submitted on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register and to claims for award under 
section 7623(b) that are open as of the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-30512 Filed 12-14-12; 4:15 pm]
BILLING CODE 4830-01-P