Whistleblower Awards  Tax Attributable to the Whistleblower  Award Percent  Award Computation  Award Process with Whistleblower 1

Tax Attributable to the Whistleblower  Tax attributable to the Whistleblower’s information is determined after the assessment and collection of the tax  Tax attributable to the Whistleblower is determined by the Whistleblower Office  Tax attributable to the Whistleblower is determined based on a review of the Form 211, the audit results and input from the examiner 2

Tax Attributable to the Whistleblower Types of Documentation Considered  Form 211 and other information from the Whistleblower  Form 11369 – Confidential Evaluation Report on Claim for Award  Audit Report  Audit Work Papers  Tax Return 3

Tax Attributable to the Whistleblower Information Needed to Determine the Tax  Was the Form 211 issue(s) audited & adjusted?  Did the WB’s information contribute to the adjustment(s)?  Were any related issues audited & adjusted?  Were other years affected?  Were other taxpayer returns affected? 4

Tax Attributable to the Whistleblower Information Needed to Determine the Tax  Was income adjusted?  Was a deduction adjusted?  Was income tax adjusted?  Was a credit adjusted?  Was any other type of tax adjusted?  Were there any “automatic” adjustments? 5

Tax Attributable to the Whistleblower What is the total amount of the adjustments? What is the amount of the adjustments attributable to the Whistleblower?  Look at the audit report (RAR) Tax Computation Report (Form 4549) Schedule of Adjustments Tax Computation Schedules Explanations of Adjustments 6

Tax Attributable to the Whistleblower What is the tax on the adjustments attributable to the Whistleblower?  Consider the facts in the case How many adjustments are there? How complex is the tax computation? Other  What are the options to compute the tax on the adjustments attributable to the Whistleblower? 7

Tax Attributable to the Whistleblower Options to Compute the Tax  The assessed amount  Apply the marginal tax rate (i.e. 35%)  Pro-rate the increase to tax among the adjustments attributable to the Whistleblower and the other adjustments  Do a complete re-calculation of the tax with only the Whistleblower adjustments  Other 8

Tax Attributable to the Whistleblower Example 1 WB alleges adjustment in year 1 Adjustment to WB issue in year 1 No other adjustments Example 2 WB alleges adjustment in year 1 Adjustment to WB issue in year 1 & 2 No other adjustments 9

Tax Attributable to the Whistleblower Example 3 WB alleges adjustment in year 1 Adjustment to WB issue in year 2 & 3 No other adjustments Example 4 WB alleges adjustment in year 1 Adjustment to WB issue in year 3 No other adjustments NOL in year 3 was carried back to year 1 10

Tax Attributable to the Whistleblower Example 5 WB alleges an improper deduction Adjustment to WB issue. No other adjustments. Taxpayer is a partnership Example 6 WB alleges an improper deduction Adjustment to WB issue. “Automatic adjustment” to increase §199 deduction No other adjustments 11

Tax Attributable to the Whistleblower Example 7 WB alleges deduction of a capital asset Adjustment to capitalize the cost of the asset. Adjustment to allow depreciation on the cost No other adjustments

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Tax Attributable to the Whistleblower Example 8 WB alleges unreported income & an improper deduction Adjustment to increase income No adjustment to the alleged improper deduction 6 other adjustments – not related to the Whistleblower 13

Tax Attributable to the Whistleblower Example 9 WB alleges unreported income from foreign subsidiary Adjustment to increase income from subsidiary Adjustment increases foreign source income Adjustment causes a decrease to FTC from subsidiary Adjustment causes increase in foreign tax credit limitation and foreign tax credit Adjustment causes an increase to the §199 deduction, a decrease to the NOL carried back to a prior year and a decrease to FTC carried back to a prior year There are 20 other adjustments that are unrelated to the WB’s information. Some of these adjustments also affect the IRC 199 deduction, the foreign tax credit and the NOL and FTC carry backs. 14

Tax Attributable to the Whistleblower

Some Comments and Thoughts

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The Award Percent  §7623(b)(1) – award will be at least 15% but no more than 30%  Percent is based on the extent that the WB substantially contributed  §7623(b)(2) – award is limited to 10% if WB’s info is based on public information  §7623(b)(3) – award percent may be reduced if the WB planned or initiated the tax noncompliance 16

The Award Percent  No regulations with respect to §7623(b)  IRM 25.2.2.9.2 provides guidance on the determination of the award percent

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The Award Percent To determine the award percent  Did the WB’s information identify and/or assist with examination and determination of an adjustment that results in the collection of tax?  If so, how substantial was the WB’s contribution to the collection of the tax?

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The Award Percent To determine the award percent  Review the information provided by the Whistleblower  Review the Form 11369 Award Evaluation form prepared by the examiner  Review the audit work papers

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The Award Percent Award Percent per IRM 25.2.2.9.2(5) will be 15%, 18%, 22%, 26% or 30%  Starting point is 15%  Next, increase percent to 22% or 30% based on positive factors  Then decrease percent to 26%, 18% or 15% based on negative factors.  Can not reduce award below 15% unless §7623(b)(2) or (b)(3) applies 20

The Award Percent Positive Factors       

Prompt reporting Issue IRS was unaware of or hard to find Quality of submission Exception cooperation or assistance Useful factual, technical or legal analysis Identification of assets Other 21

The Award Percent Negative Factors      

Delay in reporting the tax non-compliance Participation in the tax non-compliance WB profited from the tax non-compliance WB puts the tax case at risk WB impedes the examination WB actions put the IRS enforcement efforts at risk 22

The Award Percent To Determine the Award Percent  Start with 15%  Determine if there are positive factors that warrant a larger percent. If so, increase percent to 22% or 30%  Determine if there are negative factors that warrant a reduction to the award percent. If so, decrease percent to 15%, 18% or 26% 23

The Award Percent

Some Comments and Thoughts

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Computing the Award Collected Tax Attributable to the WB times Award Percent equals Award Amount 25

The Award Process After the tax is assessed and paid, the refund SOL has expired and the award amount is determined, the Whistleblower will be notified of the recommended award amount and his options

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The Award Process Step 1 – Summary Award Letter  Summary Award Cover Letter  Summary Award Report  Response to Summary Award Report Form Options – Agree, provide comments, receive additional information, don’t respond  Confidentiality Agreement 27

The Award Process Step 2 – Preliminary Award Letter  Preliminary Award Cover Letter  Preliminary Award Report  Response to Summary Award Report Form Options – agree, provide comments, review award documentation, don’t respond Note: Confidentiality agreement must be signed to receive the preliminary award letter 28

The Award Process Step 3 – Final Award Determination  Final Award Determination Letter Includes award amount and information on the right to contest the award determination in Tax Court  Final Award Report  Response to Summary Award Report Form Options – agree, don’t respond 29

The Award Process

Some Comments and Thoughts

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