Whistleblower FAQ: Mandatory vs. discretionary rewards

Under Internal Revenue Code (IRC) §7623, there are two different kinds of whistleblower rewards: discretionary rewards under IRC §7623(a) and mandatory rewards under IRC §7623(b). 

IRC §7623(a) is applicable and provides that a reward is “authorized,” but not required, for (1) claims submitted before December 20, 2006, or (2) claims that do not meet the IRC §7623(b) threshold. Significantly, where an IRC §7623(a) claim is made, the informant has no right to appeal in the case of an adverse determination. However, once negotiations establishing the reward amount have occurred, the whistleblower has a legitimate cause of action to enforce a contract for payment.

The Tax Relief and Health Care Act of 2006 (TRHCA)imposes a mandatory whistleblower reward under IRC §7623(b). Under IRC §7623(b), an eligible whistleblower must provide information regarding both an “amount in dispute” exceeding $2 million, and if the case involves an individual, the individual’s gross income for any year in question must exceed $200,000. 

If the IRS is able to proceed with an action and collect, based on information provided by the whistleblower, then the whistleblower is entitled to an award. The amount of the award will be “at least 15 percent but not more than 30 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action.”

Significantly, “[t]he determination of the amount of such award by the Whistleblower Office (WO) shall depend upon the extent to which the individual substantially contributed to such action.” The regulations provide a list of factors (described as “negative” and “positive”) that the WO will use to determine whether a claim gets a smaller or larger percentage.