Whistleblower Developments from the Bipartisan Budget Act of 2018 by Cory Stigile
The Bipartisan Budget Act of 2018 (“BBA”) President Trump signed into law on February 9, 2018 contains two provisions that clarify and expand whistleblower rights for certain taxpayers.
First, Congress broadened the definition of “collected proceeds” for tax whistleblowers under IRC Section 7623(b) to include criminal fines and civil forfeitures. This definition is relevant for determining both the amount of any award, as well eligibility for the enhanced reward program for collections in excess of $2,000,000. The IRS has recently argued that IRS whistleblowers’ awards were limited to proceeds collected by the IRS under the Internal Revenue Code, such as tax, interest, and specified penalties, as opposed to miscellaneous criminal finds or civil forfeitures. Specifically, the IRS argued that FBAR payments must be excluded in determining whether the $2,000,000 threshold whistleblower amount in dispute has been satisfied. Under the BBA, for information provided by whistleblowers on or after February 9, 2018, “collected proceeds” is amended to explicitly include proceeds arising from laws for which IRS is authorized to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting requirements.
Second, IRC Section 62(a)(21) was amended to clarify that taxpayers are entitled to an above-the-line deduction for attorney fees and court costs paid by or for a taxpayer in connection with a broader variety of whistleblower claims for actions brought in taxable years beginning after December 31, 2017. IRC Section 62(a)(21) still permits deductions in connection with awards under IRC Section 7623(b), but deductions are now also permitted for awards under 1) section 21F of the Securities Exchange Act of 1934; 2) state false claims that meet the requirements described in section 1909(b) of the Social Security Act; or 3) section 23 of the Commodity Exchange Act. Thus, taxpayers who receive such awards have additional certainty that they will not incur additional tax on proceeds that they ultimately need to pay to attorneys. Still, as before, deductions for fees and costs may not exceed the award amount includible in the taxpayer’s gross income for the taxable year.