IRS Whistleblower Office Issue Memo on Information Disclosure Contracts

Healthcare

The IRS Whistleblower Office and Director, Lee D. Martin, issued guidance with respect to Internal Revenue Code (“IRC”) §6103(n) in the form of a memorandum which outlines the authority by which returns and return information may be shared pursuant to a tax administration contract (the “Memo”).

Whistleblower Program

Significant changes in the IRS Whistleblower Program were brought about by The Tax Relief and Health Care Act of 2006 (“Act”). The purpose of the Act was to encourage those with knowledge of tax noncompliance activity to report findings to the IRS. Thousands of whistleblowers have reported billions of dollars in suspected tax noncompliance since the IRS Whistleblower Program was revised and expanded by Congress. The IRS Whistleblower Program has become an invaluable tool in the IRS compliance efforts.

The IRS Whistleblower Program has continuously worked to maximize the information and knowledge to be learned from whistleblowers with respect to taxpayer noncompliance. In order to improve the exchange of information with whistleblowers which would be helpful to the investigation, Senators Grassley and Wyden introduced the IRS Whistleblower Improvements Act of 2017. Under this Whistleblower Improvements Act of 2017, a whistleblower has the opportunity to explain and clarify documents or information submitted with a Form 211, Application for Original Information, during a briefing interview. The purpose of the briefing interview is to help the IRS identify others who may have had a role in the alleged noncompliance.

The Memo and IRC §6103

As outlined in the Memo, the IRS, in an effort to improve the Whistleblower Program, “reviewed operating procedures with respect to our communications with whistleblowers”. The IRS acknowledges in the Memo that there may be times when continuously communicating and interacting with whistleblowers will help to resolve issues more efficiently and correctly.

Under IRC §6103(a), returns and return information shall be confidential, except as authorized by the IRC. IRC §6103(n) gives the IRS the authority by which returns and return information may be shared pursuant to a tax administration contract with the whistleblower or their representative. The purposes of entering into the contract with a whistleblower or their representative must be for services for tax administration purposes; not to solely share return information with the whistleblower.

Following the IRS debriefing with the whistleblower, the exam team will make a recommendation if they believe an IRC §6103(n) contract is appropriate and beneficial to the case. The Business Operating Division will make a final determination as to whether the IRS should enter into an IRC §6103(n) contract with the whistleblower or their representative, and the whistleblower will confirm that they want to enter into the contract.

There are limitations associated with sharing information pursuant to IRC §6103(n) contracts. Under an IRC §6103(n) contract, the IRS is only allowed to share information the IRS deems necessary in order to properly perform the contract and the IRS is not allowed to share all information with the whistleblower. In addition, the whistleblower will not use or disclose any return information without the express written authorization of the IRS. Any unauthorized inspection or disclosure of return information by the whistleblower can cause the whistleblower to be subject to civil and criminal penalties. The whistleblower and their representative who receive return information pursuant to an IRC §6103(n) contract must comply with all applicable conditions and requirements that the IRS prescribes in order to protect the confidentiality of the return information.

The Memo outlines 12 principles and steps that should be followed when considering entering into an IRC §6103(n) contract with a whistleblower.

Conclusion

The Whistleblower Office continues to work to improve the communication between the IRS and whistleblowers. The IRS feels the use of more 6103(n) contracts will be welcomed by whistleblowers and help improve the communication between whistleblowers and the IRS. Additional guidance can be found in IRS Treasury Regulation §301.6103(n)-2.

A copy of the Memo can be accessed here.

Author: John Smith, Jr. | [email protected]

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