We have discussed previously the many positive aspects of the long-awaited IRS Whistleblower procedures published in June--and one illogical, self-defeating feature. Some in the IRS--and apparently not the IRS Whistleblower Office--thought whistleblowers should not be rewarded when they report tax violations that prevent a tax refund, or reduce a credit balance. (See, e.g., IRM 25.2.2.1(7)). The Washington Post's David Hilzenrath has reported on this anomaly.

Sen. Grassley acted swiftly to protect the IRS Whistleblower program. In a June 21, 2010 letter to Treasury Secretary Tim Geitner, Grassley forcefully urged that a more sensible rule replace this new IRM oddity:

In addition to the IRS posting the new IRM provisions without public comment, there are many substantive concerns within the IRM. For example, the new definition of"collected proceeds" is particularly troubling because it seems to limit the payment of awards to whistleblowers only in those instances where the IRS receives cash payment from a taxpayer. An IRS spokesperson, in response to an inquiry from the media, stated that the IRS is bound by the written statute. Yet, this was never raised with me or my staff. The denial of a whistleblower award where the whistleblower's information leads to the denial of a claim for refund seems to create a perverse incentive for the whistleblower to wait until the IRS has paid an improper refund. In addition, the IRM says that satisfaction of a taxpayer's liabilities by reducing a credit balance is not within the scope of collected proceeds so the whistleblower would receive no award.

The IRS position is even inconsistent with its prior rule on paying rewards.

The IRS should listen to Sen. Grassley and modify this nonsensical rule. Billions in taxpayer funds can be saved by whistleblowers who help prevent bogus refunds, or reduce a tax cheat's credit balance. Grassley has more knowledge of what makes an effective whistleblower program to protect taxpayer funds than perhaps anyone in government.

We (and our whistleblower clients) look forward to reason prevailing at the IRS, and a change in this interpretation of "collected proceeds."

The SEC recently announced its first million dollar award for a whistleblower's report of information about insider trading involving hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee.

Although $1 million may not sound like much when compared to the losses caused by the Madoffs of the world, it is a dramatic improvement over what the SEC had done before.

In following the development of the new SEC Whistleblower Program, we previously discussed the Inspector General's summary of how, over the past eleven years, the SEC had paid a total of less than $160,000 to reward whistleblowers under the "old" SEC bounty program for whistleblowers. The IG reported:

The SEC bounty program has made very few payments to whistleblowers since its inception and received a relatively small number of bounty applications. As a result, the program’s success has been minimal and its existence is practically unknown.
Since the inception of the SEC bounty program in 1989, the SEC has paid a total of $159,537 to five claimants as detailed in Table 1 below.

Source: OIG Generated

Just as another Inspector General's report in 2006 set the stage for the successful new IRS Whistleblower Program that is attracting many reports of even billions in tax liability, let's hope this Inspector General's report has motivated the SEC to make full use of the opportunity to build a meaningful whistleblower program. We are already getting calls from potential Wall Street whistleblowers wishing to take advantage of it, and it could be a rewarding process--depending on how well the SEC seizes the opportunity.

The SEC's recent announcement of the $1 million reward is reprinted below:

The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.

The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).

The SEC approved the award earlier this week pursuant to Section 21A(e) of the Securities Exchange Act of 1934, which authorized the Commission, in its discretion, to grant an award of up to 10% of the penalties paid in a case to a person who provided information leading to the imposition of those penalties, but only in insider trading cases. That provision has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.

On the same day the Commission filed the settled complaint against Pequot and Samberg in the above matter, it also issued an order instituting administrative and cease-and-desist proceedings against Zilkha in connection with the conduct described above. That matter is pending before an SEC administrative law judge.

For further information, please see Litigation Release Number 21450 (May 28, 2010) [Commission filing of settled civil injunctive action against Pequot and Samberg]; Advisers Act Release Number IA-3032 (May 27, 2010) [order instituting proceedings against Zilkha]; and Advisers Act Release Number IA-3035 (June 8, 2010) [settled proceeding barring Samberg from associating with an investment adviser and censuring Pequot].


http://www.sec.gov/litigation/litreleases/2010/lr21601.htm

As more transactions cross international borders, and more corporations and wealthy individuals use offshore tax havens and foreign low tax jurisdictions to avoid their tax obligations, the IRS is smart to focus more of its enforcement efforts in this way.

Based on our experience with tax whistleblowers, it is clear that the IRS Whistleblower Program is already seeing increasing numbers of tax whistleblower claims dealing with offshore tax abuses and other international tax issues.

The new IRS international unit will include a "transfer pricing" director, as well as a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing.

(Transfer pricing, in ordinary language, involves a multinational company's reallocating income or expenses between related entities in different countries with different tax rates to reduce taxes, by artificially increasing or decreasing the price one business entity charges another for goods, services, or intangibles. Transfer pricing cases can be good IRS Whistleblower claims.)

This action is the latest IRS step to address international tax evasion, including the investigation of the misuse of offshore accounts and foreign entities by U.S. taxpayers. Last fall, the IRS introduced a Global High Wealth Industry unit to improve monitoring of tax compliance by high income individuals, and their related enterprises.

Time will tell if the IRS succeeds in its stated goal "to create a more centralized organization dedicated to improving international tax compliance.”

The IRS announcement is reprinted below:

WASHINGTON — As part of a continuing effort to improve global tax administration efforts, Internal Revenue Service officials announced today the realignment of the Large and Mid-Size Business (LMSB) division to create a more centralized organization dedicated to improving international tax compliance.

As part of the organizational shift, the name of the IRS’s large corporate unit — LMSB — will change on Oct. 1 to the Large Business and International division (LB&I).

“Executing our international strategy is a top priority, and our work continues to intensify in this area,” said IRS Commissioner Doug Shulman. “Every day, we are moving forward in our international compliance efforts. Bringing together our top international personnel in this new group will help us advance our global tax administration efforts and ensure focus and fairness in a critical area for our nation.”

The new LB&I organization will enhance the current International program, adding about 875 employees to the existing staff of nearly 600. Most of the additional examiners, economists and technical staff are current employees who specialize on international issues within other parts of LMSB.

The realignment will strengthen international tax compliance for individuals and corporations in several ways, including:

Identifying emerging international compliance issues more quickly.
Removing geographic barriers, allowing for the dedication of IRS experts to the most pressing international issues.
Increasing international specialization among IRS staff by creating economies of scale and improving IRS international coordination.
Ensuring the right compliance resources are allocated to the right cases.
Consolidating oversight of international information reporting and implementing new programs, such as the Foreign Account Tax Compliance Act (FATCA).
Coordinating the Competent Authority more closely with field staff that originate cases, especially those dealing with transfer pricing.
Otherwise centralizing and enhancing the IRS’s focus on transfer pricing.
Heather C. Maloy will continue serving as Commissioner of LB&I. Michael Danilack, Deputy Commissioner, International, will head the realigned global unit. Paul D. DeNard will continue serving as Deputy Commissioner (Operations).

The new international unit will include a transfer pricing director, who will continue piloting the new transfer pricing practice, and a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing.

“The realigned organization will let us focus on high-risk international compliance issues and handle these cases with greater consistency and efficiency as we continue to increase our work in this area,” Shulman said.

In addition, the realigned LB&I will continue to serve the same population of taxpayers — corporations, subchapter S corporations and partnerships with assets greater than $10 million as well as certain high wealth individuals.

Today’s announcement marks the latest in a number of efforts the IRS has made to increase international tax compliance. The IRS has taken major steps to address offshore tax evasion, including the investigation of the misuse of undisclosed offshore accounts by U.S. taxpayers. Last fall, the IRS created a Global High Wealth Industry unit to better monitor tax compliance by high income individuals and their related enterprises.

LB&I is also charged with overseeing the implementation of the recently enacted Foreign Account Tax Compliance Act (FATCA). Signed into law in March, FATCA will substantially improve international information reporting, increasing international transparency and compliance.

The IRS and the Department of Treasury have also worked to revise tax treaties and tax information exchange agreements (TIEAs) to increase transparency and to make it more difficult for taxpayers to evade taxes just by crossing international borders.

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The US has concluded Tax Information Exchange Agreements (TIEA’s) with a number of Offshore jurisdictions. Although the TIEA’s fall short of comprehensive Double Tax Treaties, they allow the IRS to obtain tax information about entities and accounts in Offshore jurisdictions under certain circumstances.

In many cases, these agreements allow the jurisdiction to forego financial secrecy laws when faced with a specific information request from the IRS. In most cases, the exchange of information potentially covers civil as well as criminal investigations by the IRS.

So far the US has concluded TIEA’s with a number of jurisdictions including Gibraltar, Lichtenstein, Isle of Man, Aruba, Antigua and Barbuda, Cayman Islands, Guernsey, Jersey, Bahamas, British Virgin Islands, Monaco, Bermuda, Barbados, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica and Netherlands Antilles.

In recent years the US has tended to regard any country or jurisdiction that offers undue secrecy to investors as being equivalent to Offshore.

In terms of the “Tax Havens Abuse Act,” U.S. draft legislation has existed since 2007, which lists 34 jurisdictions as secrecy jurisdictions. Included in the list are jurisdictions not traditionally regarded as Offshore, including Switzerland and Singapore, as well as Malta, Cyprus, Luxembourg and Hong Kong.

Tax whistleblowers--including persons with knowledge of offshore tax schemes--will be increasingly important to the IRS effort to recover from those who engage in tax fraud and tax evasion. Honest citizens will appreciate whistleblowers' efforts to recover from those who refuse to pay their fair share of taxes, especially with the current U.S."tax gap" of several hundred billion dollars each year owed but not collected.

This new law creates the new SEC whistleblower program that we have followed since its gestation after the Madoff scandal broke. The SEC and the U.S. Department of Justice share jurisdiction over a growing and increasingly important area of enforcement, the Foreign Corrupt Practices Act (FCPA).

Bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute, are the targets of the FCPA. Whistleblowers whose information helps the SEC recover monetary sanctions from those corrupt entities in FCPA cases now have an enforceable right to a monetary award of 10-30%.

Based on the increasing number and size of these FCPA cases, the rewards to whistleblowers can be meaningful--as they must be to cause whistleblowers to come forward. Over the past decade, the government has pursued more and more FCPA cases, and some recover hundreds of millions of dollars.

Recall that, in late 2008, Siemens agreed to pay more than $1.6 billion to the United States and Germany, after allegedly paying "$1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas." Announcing the guilty plea and settlement, the government described "a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company."

The SEC obtained $350 million in disgorgement from that settlement, which was the largest FCPA settlement to date.

In announcing that 2008 recovery, the government explained that "there is no question that the Department has in recent years significantly increased its FCPA enforcement. From 2001 to 2004, the Department resolved or charged 17 FCPA cases. For the period of 2005 to 2008, that number is 42 resolutions, representing an increase of more than 200 percent within these four years as compared to the prior four-year period."

With money scarce both at home and abroad, it is even more urgent to recoup funds lost to fraud. The new SEC whistleblower awards and Commodity Futures Trading Commission rewards should prompt more efficient law enforcement efforts to stop this fraud, just as the False Claims Act and the new IRS Whistleblower Program have shown is possible.

This corruption harms legitimate businesses, who cannot compete when corruption prevents a level playing field. This crime also causes damage to others, as the government explained in announcing the Siemens settlement. That transcript is reprinted below, and in part states:

For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.

To illustrate the types of corruption this new whistleblower law should bring to light more often, the government's announcement of the 2008 Siemens settlement is reprinted below:

Transcript of Press Conference Announcing Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations
ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Good afternoon. With me today is Linda Thomsen, who is the Director of Enforcement for the U.S. Securities and Exchange Commission; Jeff Taylor, who is the United States Attorney for the District of Columbia; Joe Persichini. Joe is the Assistant Director in Charge of the Washington Field Office of the FBI; and Andre Martin, who is a Special Agent in Charge of the Washington Field Office for IRS Criminal Investigations.

This morning in Federal District Court here in the District of Columbia, Siemens AG, a German corporation which did businesses across the globe, and three of its subsidiaries, pled guilty to violations of the Foreign Corrupt Practices Act. This Act, commonly known as the FCPA, makes it illegal to bribe a foreign official to get business. The FCPA also requires issuers, that is companies whose stocks trade on U.S. exchanges, to have internal controls and to maintain accurate books and records. And Siemens, which had traded on the NYSE since 2001, was subject to these provisions.

Of course, one of the reasons for having such internal controls is to make sure that foreign bribery does not occur in the first place. The underlying criminal conduct in this case is set out in court documents as well as in Siemens' admissions made in court today. From the 1990s through 2007, Siemens engaged in a systematic and widespread effort to make and to hide hundreds of millions of dollars in bribe payments across the globe.

These efforts by Siemens executives included using off-the-books slush fund accounts and shell companies to facilitate bribes, making false entries on the company's books and records by, for example, falsely recording bribes as consulting fees; by accumulating profit reserves as a liability on company books, and then using these funds to facilitate bribe payments.

These efforts also included short-changing audits that might have gotten too close to so-called "business consultants," who were in fact conduits for illicit payments; using removable post-it notes so as to hide the identity of executives who had authorized illicit payoffs; and last, the time-tested method of suitcases filled with cash. More than $800 million in bribes were paid by Siemens and various of its entities over the course of 2001 to 2007.

For a time these efforts worked as the corrupt officials held up their side of the bargain, and in exchange, Siemens received billions of dollars worth of government contracts. For example, in the case of Siemens Venezuela, the prize was a $340 million contract to build two city rail systems. In the case of Siemens Bangladesh, corrupt payoffs there resulted in a $40 million mobile phone project. And in the case of Siemens Argentina, the goal was a billion dollar contract for work on Argentina's national identity card.

Today's filings make clear that for its business operations overseas, bribery was nothing less than standard operating procedure for Siemens. Under the terms of the plea agreement announced today, first, Siemens AG will plead guilty and has pled guilty to one count of failure to maintain internal controls and a one-count books and records violation. In addition, three Siemens subsidiaries, those located in Bangladesh, Venezuela and Argentina, have pled guilty to conspiring to violate provisions of the FCPA.

Second, Siemens will pay a criminal fine to the United States in the amount of $450 million. This is far and away the largest criminal fine in FCPA enforcement in U.S. history.

Third, Siemens will retain an independent monitor for a period of four years and will continue to implement enhanced controls.

These penalties are strong medicine, but they are commensurate with the conduct at issue here, which can only be described as egregious. And they are necessary to ensure that all companies, domestic and foreign, large and small, have equal access to the globalized markets. This disposition reflects both the severity of the misconduct at issue, as well as appropriate credit to Siemens for its remedial measures. While I'm paraphrasing what he said in District Court today, Judge Richard Leon referred to this disposition as fair and just for both parties involved.

And just as I have not minced words in describing the nature of the crime which occurred here, neither will I mince words in describing the extent of Siemens' cooperation. Siemens' cooperation, in a word, has been exceptional. Siemens has faced facts, accepted responsibility, retained experienced counsel to conduct thorough internal investigations, and has implemented real reforms.

There are a few other aspects of this case that I would like to comment on. First, this is a case in which we have worked from the beginning in close cooperation with German law enforcement. Indeed, this case began with the execution of searches by German authorities in November of 2006.

I want to commend in particular Hildegard Baeumer-Hoesl from the Munich Public Prosecutor's Office. That Office announced today, in fact about an hour ago, the resolution of related charges against Siemens and the imposition of a 395 million Euro fine. Combined, Siemens and its subsidiaries will pay approximately $1.6 billion in criminal penalties and civil penalties in the United States and Germany. This includes an October 2000 settlement with German authorities, as well as the DOJ, SEC and German settlements announced today.

Second, there is no question that the Department has in recent years significantly increased its FCPA enforcement. From 2001 to 2004, the Department resolved or charged 17 FCPA cases. For the period of 2005 to 2008, that number is 42 resolutions, representing an increase of more than 200 percent within these four years as compared to the prior four-year period.

But what is potentially even more significant, and as this case makes clear, is the fact that the United States is not the only player at the table. We aren't the only ones fighting global corruption. Other nations are joining us in this effort, and I'm here to tell you that's a good thing, and something that we will only see more of in the future.

Through international instruments like the OECD convention and the U.N. convention against corruption, we have seen our international partners significantly step up their anti-corruption efforts. Everything we're seeing suggests that this trend will continue. South Africa, for example, became the 37th country and the first African nation to become a party to the OECD convention in 2007. Israel followed suit in September of this year, becoming the 38th signatory.

We are now working with our foreign law enforcement colleagues in bribery investigations to a degree that we never have previously. In the past, in a case of joint jurisdiction between the United States and another country, it was typically the case that only the U.S. prosecution would succeed. That is now significantly less likely to be the case.

And there are other examples as well. In November of this year, Japanese prosecutors secured guilty pleas from a Japanese firm, Pacific Consultants International, and four of its former executives, for paying more than $800,000 in bribes to a Vietnamese government official in connection with a road construction contract.

Another example from 2006 is the Statoil case, which involved a Norwegian oil company, and bribe payments to Iranian government officials. There the Justice Department entered into a deferred prosecution agreement with the company while Norway sanctioned the company and a former executive for violating Norway's trading and influence law.

Third, this prosecution, our cooperation with foreign counterparts and the work not only of this Department, but departments like State and Treasury, are all an important part of President Bush's strategy to internationalize the fight against kleptocracy, or so-called high-level corruption. As President Bush said in announcing this strategy in August of 2006, for too long the culture of corruption has undercut development and good governance and bred criminality and mistrust around the world.

I will tell you that on days like today, given the breadth and scope of this disposition, and the fact that we have worked it from day one with our foreign counterparts, on days like today, one can see the promise of that strategy and the promise of what may be possible if we work together as a global community in fighting corruption.

For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.

Those decisions should be made on the merits. They should be made on the merits and for the benefit of all, and not for the enrichment of a corrupt few. Because when that happens, the result is not the best job for the best price, but frequently the very opposite.

The integrity of the marketplace here and abroad is crucial to our own nation's economy as well. Corporations both domestic and foreign should expect the Department and our international colleagues will continue our efforts to level the business playing field, making it free from corruption and open to all who seek to participate within it.

Finally, I would like to commend the prosecutors and agents who have worked on this case, and that includes first the prosecutors from the Fraud Section of the Criminal Division, led by its Chief, Steve Tyrell, its Deputy Chief, Mark Mendlesohn, and Trial Attorney Lori Weinstein.

Second, I would like to thank the prosecutors from the U.S. Attorney's Office for the District of Columbia, and in particular, Assistant United States Attorney John Griffith.

And third, I would like to thank the dedicated agents from the FBI in particular from the FCPA unit within the Washington Field Office, as well as agents from the IRS.

With that, let me turn it over to Linda Thomsen so that she can tell you about the SEC disposition

DIRECTOR THOMSEN: Good afternoon. I'm Linda Thomsen, the Director of the Division of Enforcement at the Securities and Exchange Commission. With me today are some extraordinarily talented and dedicated SEC enforcement staff members, and we are very pleased to join our law enforcement counterparts here to announce this $1.6 billion settlement with Siemens AG for bribing government officials around the world to obtain business.

Siemens' pattern of bribery was unprecedented in scale and geographic reach. Our collective actions say, first, the worldwide community will vigorously and tenaciously pursue those who bribe government officials for business; and, second, the consequences for this type of behavior will be severe. If a company bribes government officials anywhere on the globe, law enforcement will work around the globe to hold the company accountable.

Bringing Siemens to justice today is a testament to the close coordinated working relationship among the SEC, the United States Department of Justice, and the other United States and international law enforcement agencies, particularly the Office of the Prosecutor General in Munich, Germany.

In the SEC's action we alleged that Siemens paid a staggering $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas. The scope of the bribery scheme is astonishing, and the tone set at the top at Siemens was a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.

The SEC portion of the Siemens settlement, $350 million in disgorgement, is by far the largest settlement amount ever obtained by the SEC under the "Foreign Corrupt Practices Act." To put this in context, the largest prior SEC FCPA settlement was reached in 2007 and was for $33 million. The SEC settlement with Siemens is more than 10 times that amount.

Furthermore, the $1.6 billion total that Siemens will pay in these settlements is the largest amount that any company has ever paid to resolve corruption-related charges. And that is fitting because the alleged conduct by Siemens was egregious and brazen. It was systematic. It involved thousands of payments, and it occurred over an extensive period of time. Siemens created elaborate payment schemes to conceal these corrupt payments to foreign officials. The company's inadequate internal controls allow the conduct to flourish. The details tell a very troubling story.

Employees obtain large amounts of cash from Siemens' cash desks. Employees sometimes carried that cash in suitcases across international borders to pay bribes. Payment authorizations were recorded on post-it notes that were later removed to avoid leaving any permanent record. There were slush funds and a cadre of consultants and intermediaries to facilitate paying the bribes.

Investigating this intricate scheme and righting Siemens' wrongs has taken a remarkable and unprecedented level of coordination among many law enforcement agencies around the world.

I would like to thank everyone involved for their outstanding work, cooperation and coordination including the fraud section of the United States Department of Justice, the fraud and public corruption section of the United States Attorney's Office for the District of Columbia, the Federal Bureau of Investigation, the Internal Revenue Service, the Office of the Prosecutor General in Munich, Germany, the Financial Services Authority in the United Kingdom, and the Hong Kong Securities and Futures Commission.

This marks the first time that United States and foreign prosecutors have coordinated their law enforcement efforts as extensively as they have here today to address violations of the anti-bribery laws. I expect it will not be the last.

I also want to thank the SEC's Office of International Affairs that assisted us in reaching out to foreign jurisdictions. Finally, I want to say how very proud I am of the tenacious SEC team members who worked so hard on this matter: Cheryl Scarboro, Reid Muoio, Tracy Price, Robert Dodge, Denise Hansberry, Amanda Yingling, and Sara Ade.

And, always, those of us in the enforcement division at the SEC are extremely grateful for our Commission's support of our working and for their steadfast commitment to enforcing the "Foreign Corrupt Practices Act."

In the past three years the Commission has brought about three dozen FCPA cases. And to put that in context, in the preceding nearly three decades of the law's existence, we have brought about six dozen total cases. And all of our FCPA actions have helped to combat bribery and public corruption throughout the world.

The SEC will continue to work closely with other law enforcement authorities, foreign and domestic, to pursue wrongdoing wherever it occurs. The message stays clear. When any company circumvents the rules of fair play and honest competition by making improper payments to win business, it will face a strong and united front from law enforcement around the globe.

Thank you very much. And I think we'll now hear from the FBI.

ASSISTANT DIRECTOR PERSICHINI: Good morning. I first want to congratulate and thank the dedicated career prosecutors, agents, analysts, financial analysts, professional support and our attorneys for just tremendous, tremendous work and a very tedious investigation.

They are truly dedicated public servants and I thank them for their service. And they work every day to make this nation and this world a safer place to live. Thank you. Thank you so much.

Good afternoon. As Acting Assistant Attorney General Friedrich and SEC Director Thomsen have indicated, we are here today to disclose a massive, willful and carefully orchestrated criminal corruption scheme which was conducted by a major international corporation on a staggering scale.

Today the Siemens A.G. corporation and three of its regional companies have been charged with criminal violations of the Foreign Corrupt Practices Act, or FCPA, as we say. The provisions of the FCPA state that it's a federal crime for the United States citizens and companies traded on the United States markets to pay bribes in return for business. In addition, the FCPA contains books, records and internal control provisions for U.S. companies.

Today's filings of charges outline violations of all these provisions by members of the Siemens Corporation and three of its regional companies: Siemens Bangladesh, Siemens Argentina, and Siemens Venezuela. The illegal activities committed by Siemens Corporation and its three named companies constitute a specialized form of public corruption and the investigation of allegations of public corruption is the number one criminal priority of the FBI.

The FBI has a clear mission to defeat public corruption in all of its forms. In this case, high level public corruption occurred both domestically and internationally. The resulting repercussions of any violation of the FCPA are far reaching and tear at the very fabric of the principles of fair and honest business practices between our country and other nations.

Violations of the FCPA directly threaten the security of the United States. International corruption weakens good governance. It inhibits social and economic development, and it tears at the very fabric of the public trust in corporations, government and the ideals of fundamental fairness.

Over the past year, the Washington Field Office of the FBI has not only devoted more resources to investigate FCPA matters, but has begun the use of hands-on investigative techniques, such as joint global investigations with our foreign government and law enforcement partners with a focus on industry-specific practices, all in an effort to identify worldwide patterns of these crimes.

The FBI is taking a proactive and aggressive approach at investigating violations of FCPA. We no longer rely on companies or individuals to self report, or for whistleblowers to call a hotline. The FBI is currently joining forces with our overseas partners through our legal attaché offices worldwide in over 200 different countries in our 70 legal attaché offices.

This investigation exemplifies coordination and cooperation with our international partners. It started with the German authorities executing search warrants on the Siemens Corporation in Germany and concludes with today's charges in a global, corporate case, against Siemens.

As with any successful FCPA investigation, we continue to partner in this public corruption battle with the Securities and Exchange Commission and other federal agencies such as the Internal Revenue Service, who are each represented here today.

I would like to thank both agencies for all their support and resources they contributed to this investigation.

We would not be here today without their invaluable assistance. The FBI has zero tolerance for corporations and their officials paying bribes in foreign countries as a cost of doing business in those countries.

Let me be very clear. Those charged today showed a willful and deliberate practice in engaging in corrupt practices to obtain and maintain their business. Their actions were not an anomaly. They were standard operating procedures for corporate executives who viewed bribery as a business strategy.

The FBI is dedicated in its mission to ensure that corporate and business communities are not tarnished with the kind of violations we are presenting here today. We are committed to utilizing all necessary resources to fight these examples of global corruption.

Thank you very much, and we'll take some questions.

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yes?

QUESTION: Pat Huber from the German Press Agency. I'm curious about where the $1.6 billion comes from that you mentioned earlier. How did we arrive at that total?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: That's a combination of different fines from different places. Some of them are in this country in terms of criminal fine or SEC enforcement action; and then on the German side a settlement from October of 2007 as well as the one that's announced today. We can give you the exact breakdown afterwards, but that's what it's based on.

QUESTION: Sir, T. Miller with "The Republic" and "The Front Line." Can you tell me a little bit about why the Justice Department agreed? They actually didn't plead guilty to bribery. They pleaded guilty to other related charges. Can you tell me a little bit about why you felt it was okay to allow them to not plead guilty directly to a direct bribery charge?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right. You know, I think every case that we have to make these judgments with regard to companies, that's always a very difficult calculus, and one that we evaluate carefully and closely on a case-by-case basis. And while I'm not going to comment specifically on the inclusion or exclusion of any specific charge here, what I can tell you about is this case had two things.

One, it had a very dramatic and widespread crime on the one hand. On the other hand you also had significant remediation and cooperation by the company. And if you look through our sentencing memorandum, you're going to see in even more detail what some of those things are. I think in terms of legal hours billed by Siemens in this case it was something like 1.5 million hours. It makes a lot of happy lawyers out there. The fact of who they brought in as their monitor.

Their monitor in this case, which they proposed and which we agreed to, is a gentleman by the name of Theo Weigle. He is the former finance minister of Germany. He is an attorney who served in the German Parliament. He is well-regarded and, you know, we thought perfectly well-suited to handle a monitorship in this type of case, you know, which will last for something like four years. So the company engaged in very, very significant reforms, and they did so even prior to the disposition that was reached today. And in this case one weighed all the factors. This was the right disposition and the court agreed with our proposal.

All right.

QUESTION: Does Siemens get to complete all these projects that they obtained through bribes?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Let me put it this way. There is not, for example, a disgorgement process as part of a plea. Now, it may depend on, for example, if specific proceeds are identified or if a specific payment is located someplace, then there may be, for example, asset forfeiture measures that could be taken into account. But the disposition today resolves the criminal matter completely.

Yes?

QUESTION: How was it the company was charged as opposed to some of the former executives?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: My comment to that is that this investigation continues.

Yes?

QUESTION: I have a question for Ms. Thomsen, please?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH:

Please.

QUESTION: Sorry to switch gears, but in the Bernard Madoff case can you explain please why the SEC did not investigate sort of widespread reports for the past two years that there was no way that his firm could produce the same kind of returns that others thought they were reaping in the face of $20 billion, a large fraud?

DIRECTOR THOMSEN: Sure. First of all, I think the Commission announced on Friday that the SEC had done relatively recently both an examination and an enforcement investigation. And while I can't comment on historical matters at this point, I can say that right now we are acutely focused with our colleagues in the Southern District of New York and the FBI to figure out exactly what's going on, to pursue the case that we've got, to preserve assets to the extent we were able and to bring everyone who was responsible for the conduct at the Madoff firm. It's justice. It is a very important matter. It's a very high priority, and historically without regard to particular matters that we've done in the past, I think if you look at all we've done, we follow the evidence where it leads and we bring as many cases as we can to protect investors. And that's been our mission forever.

QUESTION: While we're on the subject, Ms. Thomsen, do you have any sort of direct response to the early criticism that the SEC was asleep at the switch or took too long to get started in this investigation? And do you have any further information about sort of the status of where this is going?

DIRECTOR THOMSEN: Sure. It is hard to directly respond given the fact that so much of what we've done historically is non-public, and needs to remain non-public until such time as someone decides otherwise. But, I think what I can say more generally is if you look at the work that the examination staff and the enforcement staff do overall and I would suggest that you look at last week alone where we started with a case against Mr. Dreier.

During the course of the week we finalized the auction rate securities matters which resulted in providing liquidity to 40 percent of the market in the auction rate market which froze last February, which includes cases for gifts against Fidelity representatives. I think there was also a case involving an unregistered foreign broker-dealer coming into this country and we ended the week with the Maidoff matter. And then actually it was the end of the week we literally filed this case, although it was finalized today.

It is that kind of activity that you see from the Enforcement Division all the time, and I think that that record should be ample evidence if somewhat direct that we are sort of vigorous in pursuing those who violate the federal securities laws.

DIERCTOR THOMSEN: Thank you. Yes?

QUESTION: If I could back to the question about why no individuals were charged.

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right.

QUESTION: You and Mr. Persichini both said that corporate executives were willfully engaged in this practice as standard operating procedure over a period of years widespread. Why does the investigation need to continue? It sounds like you had identified executives who were engaged in this patterned practice of behavior. Why were no individuals charged?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: I'll say it's not infrequent that a disposition is reached first vis-a-vis a company and then there are individual prosecutions after that. I'm not commenting on this case in specific. I'm talking about the practice generally. I wouldn't draw the conclusion that you're drawing.

QUESTION: Were there any U.S. officials or people in the United States who were involved in some of the bribe schemes?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: In terms of officials, no. If you read some of the factual statements, there may have been agents in the United States who facilitated some of these payments.

QUESTION: In terms of payments coming from U.S. bank accounts, or from Siemens entities in the United States?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: In terms of payments from Siemens, ultimately to a foreign official someplace else, by use of agents in the United States, and if you go through the statement of facts, it will spell out what some of that is on a case-by-case basis.

Yes sir?

QUESTION: I'm (inaudible) from the German Daily (inaudible) Times. I may ask you to kind of bear with my ignorance of the U.S. law. Will you give me a little bit kind of advice how you proceed regarding the prosecution against the corporate executives or individuals who were involved in this? I mean just I understand that you can't talk about the specifics of this specific case. But how would that proceed? You have now done with the company, but you can still look at persons who were, let's say, five years ago were running the show, who tolerated or even encouraged this. How would that (inaudible)?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Sure. Well, let me say this. In terms of our prosecution of corporations, that has been directed over the years by various policy memos, the last one issued by the Deputy Attorney General Mark Filip this year.

Among the things that it talks about in terms of prosecutions is the fact that where we prosecute a corporation, that is not a substitute for prosecution of individuals. I think that language is something like rarely will it be the case that even a guilty plea by a company means that we will not pursue individuals. So that's the policy statement of the Department.

And just from different corporate fraud cases that I've worked on over the years, as I said before in answer to another reporter's question, it's not unusual that the government will reach a settlement or a disposition or a plea with a company, get information, get facts, get documents, and then use that to go on from there to build a record that can be used either to decide to indict or not indict culpable executives within a company.

Does that answer your question?

QUESTION: It helps at least.

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Okay.

MODERATOR : I think we have time for about two more.

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yes, sir?

QUESTION: You mentioned there's been an uptick in the actual number of cases filed. Can you tell me why? Are corporations more corrupt, or are you paying more attention?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Yeah. On the first part, I can't comment. On the second part, I can tell you that we've put more resources into it in terms of prosecutors and agents, and you heard Joe Persichini start to talk about the agents who are dedicated within the Washington Field Office of the FBI to working FCPA cases. That's been a significant boost to us to have agents who are working with us hand-in-hand in these types of cases.

And I also think that, you know, a lot of it is due to the hard work of the line attorneys, both assistant United States attorneys in the field, but also the fraud section of the criminal division. They do a great job with the resources that they have to make these cases.

And also, you know, some of it is we're trying to encourage disclosure in individual cases; whereas in this case there was a search and then there was disclosure from there.

In many cases, it's the company walking into us and saying, you know, "We have a problem here, and we'd like to work this out." And that's what we like to see.

Ari?

QUESTION: Do FCPA cases ever or often lead to people being accused of people soliciting and accepting bribes? And if so, do you expect that to come up in this case?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Right. The significant difference is between an FCPA case versus, say, a bribery case, an ordinary bribery case here, is the official is located overseas. And you'll notice in our information, for example, we don't name who those people are. Typically, that's the type of thing that would be left to foreign law enforcement to follow up on. In this case, I will refer you to the law enforcement authorities within those countries.

Anything else?

QUESTION: One other non-related subject. Newsweek Magazine was reporting over the weekend that the NSA domestic wire-tapping program, that a former Justice Department attorney was responsible behind the leak. Can you provide us a status with that investigation, and a response to the report?

ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: I'm aware of the report. I don't have a comment on it.

Thank you very much.

END 1:40 P.M. EST

Press Release

###

08-1112

Similar to the new SEC whistleblower awards for persons who reports securities fraud, the rewards to whistleblowers will be available if the CFTC recovers monetary sanctions of more than $1 million because of the whistleblower's information.

Like SEC whistleblowers, CFTC whistleblowers will have an enforceable right to 10-30% of what the CFTC recovers in substantial cases when the whistleblower has "voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action." (Section 748 of Dodd-Frank Wall Street Reform and Consumer Protection Act, reprinted below).

Crucial to the success of these new whistleblower programs, whistleblowers will know that they will receive at least 10% of the recovery in significant cases when the whistleblower meets the law's criteria.

The history of the nation's major whistleblower statute, the False Claims Act, shows that guarantees of meaningful rewards are the critical element in causing whistleblowers to report substantial fraud. Fraud recoveries increased dramatically once Congress amended the False Claims Act in 1986 to provide meaningful whistleblower rewards of 15-25% in cases in which the government intervenes.

The new IRS Whistleblower Program is proving the same point, as quality submissions have poured in now that a right to a meaningful whistleblower award exists.

Congress has set forth general criteria for the CFTC to determine the amount of the award within the 10-30% range. Factors that the CFTC will consider include:

"(I) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;

‘‘(IV) such additional relevant factors as the Commission may establish by rule or regulation".

Corrupt practices and fraud in the securities and commodities businesses will now face increased scrutiny with these common sense and cost-effective programs to enforce the law. Whistleblowers will be encouraged to report and stop the next Madoff.

The full text of section 748 of the financial reform bill, which contains the CFTC whistleblower provisions, is reprinted below:

SEC. 748. COMMODITY WHISTLEBLOWER INCENTIVES AND PROTECTION.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by adding at the end the following:
‘‘SEC. 23. COMMODITY WHISTLEBLOWER INCENTIVES AND PROTECTION.
‘‘(a) DEFINITIONS.—In this section:
H. R. 4173—365
‘‘(1) COVERED JUDICIAL OR ADMINISTRATIVE ACTION.—The
term ‘covered judicial or administrative action’ means any
judicial or administrative action brought by the Commission
under this Act that results in monetary sanctions exceeding
$1,000,000.
‘‘(2) FUND.—The term ‘Fund’ means the Commodity
Futures Trading Commission Customer Protection Fund established
under subsection (g).
‘‘(3) MONETARY SANCTIONS.—The term ‘monetary sanctions’,
when used with respect to any judicial or administrative action
means—
‘‘(A) any monies, including penalties, disgorgement,
restitution, and interest ordered to be paid; and
‘‘(B) any monies deposited into a disgorgement fund
or other fund pursuant to section 308(b) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such
action or any settlement of such action.
‘‘(4) ORIGINAL INFORMATION.—The term ‘original information’
means information that—
‘‘(A) is derived from the independent knowledge or
analysis of a whistleblower;
‘‘(B) is not known to the Commission from any other
source, unless the whistleblower is the original source of
the information; and
‘‘(C) is not exclusively derived from an allegation made
in a judicial or administrative hearing, in a governmental
report, hearing, audit, or investigation, or from the news
media, unless the whistleblower is a source of the information.
‘‘(5) RELATED ACTION.—The term ‘related action’, when used
with respect to any judicial or administrative action brought
by the Commission under this Act, means any judicial or
administrative action brought by an entity described in subclauses
(I) through (VI) of subsection (h)(2)(C) that is based
upon the original information provided by a whistleblower
pursuant to subsection (a) that led to the successful enforcement
of the Commission action.
‘‘(6) SUCCESSFUL RESOLUTION.—The term ‘successful resolution’,
when used with respect to any judicial or administrative
action brought by the Commission under this Act, includes
any settlement of such action.
‘‘(7) WHISTLEBLOWER.—The term ‘whistleblower’ means any
individual, or 2 or more individuals acting jointly, who provides
information relating to a violation of this Act to the Commission,
in a manner established by rule or regulation by the
Commission.
‘‘(b) AWARDS.—
‘‘(1) IN GENERAL.—In any covered judicial or administrative
action, or related action, the Commission, under regulations
prescribed by the Commission and subject to subsection (c),
shall pay an award or awards to 1 or more whistleblowers
who voluntarily provided original information to the Commission
that led to the successful enforcement of the covered
judicial or administrative action, or related action, in an aggregate
amount equal to—
H. R. 4173—366
‘‘(A) not less than 10 percent, in total, of what has
been collected of the monetary sanctions imposed in the
action or related actions; and
‘‘(B) not more than 30 percent, in total, of what has
been collected of the monetary sanctions imposed in the
action or related actions.
‘‘(2) PAYMENT OF AWARDS.—Any amount paid under paragraph
(1) shall be paid from the Fund.
‘‘(c) DETERMINATION OF AMOUNT OF AWARD; DENIAL OF
AWARD.—
‘‘(1) DETERMINATION OF AMOUNT OF AWARD.—
‘‘(A) DISCRETION.—The determination of the amount
of an award made under subsection (b) shall be in the
discretion of the Commission.
‘‘(B) CRITERIA.—In determining the amount of an
award made under subsection (b), the Commission—
‘‘(i) shall take into consideration—
‘‘(I) the significance of the information provided
by the whistleblower to the success of the
covered judicial or administrative action;
‘‘(II) the degree of assistance provided by the
whistleblower and any legal representative of the
whistleblower in a covered judicial or administrative
action;
‘‘(III) the programmatic interest of the
Commission in deterring violations of the Act
(including regulations under the Act) by making
awards to whistleblowers who provide information
that leads to the successful enforcement of such
laws; and
‘‘(IV) such additional relevant factors as the
Commission may establish by rule or regulation;
and
‘‘(ii) shall not take into consideration the balance
of the Fund.
‘‘(2) DENIAL OF AWARD.—No award under subsection (b)
shall be made—
‘‘(A) to any whistleblower who is, or was at the time
the whistleblower acquired the original information submitted
to the Commission, a member, officer, or employee
of—
‘‘(i) a appropriate regulatory agency;
‘‘(ii) the Department of Justice;
‘‘(iii) a registered entity;
‘‘(iv) a registered futures association;
‘‘(v) a self-regulatory organization as defined in
section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)); or
‘‘(vi) a law enforcement organization;
‘‘(B) to any whistleblower who is convicted of a criminal
violation related to the judicial or administrative action
for which the whistleblower otherwise could receive an
award under this section;
‘‘(C) to any whistleblower who submits information
to the Commission that is based on the facts underlying
the covered action submitted previously by another whistleblower;
H. R. 4173—367
‘‘(D) to any whistleblower who fails to submit information
to the Commission in such form as the Commission
may, by rule or regulation, require.
‘‘(d) REPRESENTATION.—
‘‘(1) PERMITTED REPRESENTATION.—Any whistleblower who
makes a claim for an award under subsection (b) may be
represented by counsel.
‘‘(2) REQUIRED REPRESENTATION.—
‘‘(A) IN GENERAL.—Any whistleblower who anonymously
makes a claim for an award under subsection (b)
shall be represented by counsel if the whistleblower submits
the information upon which the claim is based.
‘‘(B) DISCLOSURE OF IDENTITY.—Prior to the payment
of an award, a whistleblower shall disclose the identity
of the whistleblower and provide such other information
as the Commission may require, directly or through counsel
for the whistleblower.
‘‘(e) NO CONTRACT NECESSARY.—No contract with the Commission
is necessary for any whistleblower to receive an award under
subsection (b), unless otherwise required by the Commission, by
rule or regulation.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Any determination made under this section,
including whether, to whom, or in what amount to make
awards, shall be in the discretion of the Commission.
‘‘(2) APPEALS.—Any determination described in paragraph
(1) may be appealed to the appropriate court of appeals of
the United States not more than 30 days after the determination
is issued by the Commission.
‘‘(3) REVIEW.—The court shall review the determination
made by the Commission in accordance with section 7064 of
title 5, United States Code.
‘‘(g) COMMODITY FUTURES TRADING COMMISSION CUSTOMER
PROTECTION FUND.—
‘‘(1) ESTABLISHMENT.—There is established in the Treasury
of the United States a revolving fund to be known as the
‘Commodity Futures Trading Commission Customer Protection
Fund’.
‘‘(2) USE OF FUND.—The Fund shall be available to the
Commission, without further appropriation or fiscal year limitation,
for—
‘‘(A) the payment of awards to whistleblowers as provided
in subsection (a); and
‘‘(B) the funding of customer education initiatives
designed to help customers protect themselves against
fraud or other violations of this Act, or the rules and
regulations thereunder.
‘‘(3) DEPOSITS AND CREDITS.—There shall be deposited into
or credited to the Fund:
‘‘(A) MONETARY SANCTIONS.—Any monetary sanctions
collected by the Commission in any covered judicial or
administrative action that is not otherwise distributed to
victims of a violation of this Act or the rules and regulations
thereunder underlying such action, unless the balance of
the Fund at the time the monetary judgment is collected
exceeds $100,000,000.
H. R. 4173—368
‘‘(B) ADDITIONAL AMOUNTS.—If the amounts deposited
into or credited to the Fund under subparagraph (A) are
not sufficient to satisfy an award made under subsection
(b), there shall be deposited into or credited to the Fund
an amount equal to the unsatisfied portion of the award
from any monetary sanction collected by the Commission
in any judicial or administrative action brought by the
Commission under this Act that is based on information
provided by a whistleblower.
‘‘(C) INVESTMENT INCOME.—All income from investments
made under paragraph (4).
‘‘(4) INVESTMENTS.—
‘‘(A) AMOUNTS IN FUND MAY BE INVESTED.—The
Commission may request the Secretary of the Treasury
to invest the portion of the Fund that is not, in the Commission’s
judgment, required to meet the current needs of
the Fund.
‘‘(B) ELIGIBLE INVESTMENTS.—Investments shall be
made by the Secretary of the Treasury in obligations of
the United States or obligations that are guaranteed as
to principal and interest by the United States, with maturities
suitable to the needs of the Fund as determined
by the Commission.
‘‘(C) INTEREST AND PROCEEDS CREDITED.—The interest
on, and the proceeds from the sale or redemption of, any
obligations held in the Fund shall be credited to, and
form a part of, the Fund.
‘‘(5) REPORTS TO CONGRESS.—Not later than October 30
of each year, the Commission shall transmit to the Committee
on Agriculture, Nutrition, and Forestry of the Senate, and
the Committee on Agriculture of the House of Representatives
a report on—
‘‘(A) the Commission’s whistleblower award program
under this section, including a description of the number
of awards granted and the types of cases in which awards
were granted during the preceding fiscal year;
‘‘(B) customer education initiatives described in paragraph
(2)(B) that were funded by the Fund during the
preceding fiscal year;
‘‘(C) the balance of the Fund at the beginning of the
preceding fiscal year;
‘‘(D) the amounts deposited into or credited to the
Fund during the preceding fiscal year;
‘‘(E) the amount of earnings on investments of amounts
in the Fund during the preceding fiscal year;
‘‘(F) the amount paid from the Fund during the preceding
fiscal year to whistleblowers pursuant to subsection
(b);
‘‘(G) the amount paid from the Fund during the preceding
fiscal year for customer education initiatives
described in paragraph (2)(B);
‘‘(H) the balance of the Fund at the end of the preceding
fiscal year; and
‘‘(I) a complete set of audited financial statements,
including a balance sheet, income statement, and cash
flow analysis.
‘‘(h) PROTECTION OF WHISTLEBLOWERS.—
H. R. 4173—369
‘‘(1) PROHIBITION AGAINST RETALIATION.—
‘‘(A) IN GENERAL.—No employer may discharge,
demote, suspend, threaten, harass, directly or indirectly,
or in any other manner discriminate against, a whistleblower
in the terms and conditions of employment because
of any lawful act done by the whistleblower—
‘‘(i) in providing information to the Commission
in accordance with subsection (b); or
‘‘(ii) in assisting in any investigation or judicial
or administrative action of the Commission based upon
or related to such information.
‘‘(B) ENFORCEMENT.—
‘‘(i) CAUSE OF ACTION.—An individual who alleges
discharge or other discrimination in violation of
subparagraph (A) may bring an action under this subsection
in the appropriate district court of the United
States for the relief provided in subparagraph (C),
unless the individual who is alleging discharge or other
discrimination in violation of subparagraph (A) is an
employee of the Federal Government, in which case
the individual shall only bring an action under section
1221 of title 5, United States Code.
‘‘(ii) SUBPOENAS.—A subpoena requiring the
attendance of a witness at a trial or hearing conducted
under this subsection may be served at any place in
the United States.
‘‘(iii) STATUTE OF LIMITATIONS.—An action under
this subsection may not be brought more than 2 years
after the date on which the violation reported in
subparagraph (A) is committed.
‘‘(C) RELIEF.—Relief for an individual prevailing in an
action brought under subparagraph (B) shall include—
‘‘(i) reinstatement with the same seniority status
that the individual would have had, but for the
discrimination;
‘‘(ii) the amount of back pay otherwise owed to
the individual, with interest; and
‘‘(iii) compensation for any special damages sustained
as a result of the discharge or discrimination,
including litigation costs, expert witness fees, and
reasonable attorney’s fees.
‘‘(2) CONFIDENTIALITY.—
‘‘(A) IN GENERAL.—Except as provided in subparagraphs
(B) and (C), the Commission, and any officer or
employee of the Commission, shall not disclose any information,
including information provided by a whistleblower
to the Commission, which could reasonably be expected
to reveal the identity of a whistleblower, except in accordance
with the provisions of section 552a of title 5, United
States Code, unless and until required to be disclosed to
a defendant or respondent in connection with a public
proceeding instituted by the Commission or any entity
described in subparagraph (C). For purposes of section
552 of title 5, United States Code, this paragraph shall
be considered a statute described in subsection (b)(3)(B)
of such section 552.
H. R. 4173—370
‘‘(B) EFFECT.—Nothing in this paragraph is intended
to limit the ability of the Attorney General to present
such evidence to a grand jury or to share such evidence
with potential witnesses or defendants in the course of
an ongoing criminal investigation.
‘‘(C) AVAILABILITY TO GOVERNMENT AGENCIES.—
‘‘(i) IN GENERAL.—Without the loss of its status
as confidential in the hands of the Commission, all
information referred to in subparagraph (A) may, in
the discretion of the Commission, when determined
by the Commission to be necessary or appropriate to
accomplish the purposes of this Act and protect customers
and in accordance with clause (ii), be made
available to—
‘‘(I) the Department of Justice;
‘‘(II) an appropriate department or agency of
the Federal Government, acting within the scope
of its jurisdiction;
‘‘(III) a registered entity, registered futures
association, or self-regulatory organization as
defined in section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a));
‘‘(IV) a State attorney general in connection
with any criminal investigation;
‘‘(V) an appropriate department or agency of
any State, acting within the scope of its jurisdiction;
and
‘‘(VI) a foreign futures authority.
‘‘(ii) MAINTENANCE OF INFORMATION.—Each of the
entities, agencies, or persons described in clause (i)
shall maintain information described in that clause
as confidential, in accordance with the requirements
in subparagraph (A).
‘‘(iii) STUDY ON IMPACT OF FOIA EXEMPTION ON
COMMODITY FUTURES TRADING COMMISSION.—
‘‘(I) STUDY.—The Inspector General of the
Commission shall conduct a study—
‘‘(aa) on whether the exemption under section
552(b)(3) of title 5, United States Code
(known as the Freedom of Information Act)
established in paragraph (2)(A) aids whistleblowers
in disclosing information to the
Commission;
‘‘(bb) on what impact the exemption has
had on the public’s ability to access information
about the Commission’s regulation of commodity
futures and option markets; and
‘‘(cc) to make any recommendations on
whether the Commission should continue to
use the exemption.
‘‘(II) REPORT.—Not later than 30 months after
the date of enactment of this clause, the Inspector
General shall—
‘‘(aa) submit a report on the findings of
the study required under this clause to the
Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on
H. R. 4173—371
Financial Services of the House of Representatives;
and
‘‘(bb) make the report available to the
public through publication of a report on the
website of the Commission.
‘‘(3) RIGHTS RETAINED.—Nothing in this section shall be
deemed to diminish the rights, privileges, or remedies of any
whistleblower under any Federal or State law, or under any
collective bargaining agreement.
‘‘(i) RULEMAKING AUTHORITY.—The Commission shall have the
authority to issue such rules and regulations as may be necessary
or appropriate to implement the provisions of this section consistent
with the purposes of this section.
‘‘(j) IMPLEMENTING RULES.—The Commission shall issue final
rules or regulations implementing the provisions of this section
not later than 270 days after the date of enactment of the Wall
Street Transparency and Accountability Act of 2010.
‘‘(k) ORIGINAL INFORMATION.—Information submitted to the
Commission by a whistleblower in accordance with rules or regulations
implementing this section shall not lose its status as original
information solely because the whistleblower submitted such
information prior to the effective date of such rules or regulations,
provided such information was submitted after the date of enactment
of the Wall Street Transparency and Accountability Act of
2010.
‘‘(l) AWARDS.—A whistleblower may receive an award pursuant
to this section regardless of whether any violation of a provision
of this Act, or a rule or regulation thereunder, underlying the
judicial or administrative action upon which the award is based
occurred prior to the date of enactment of the Wall Street Transparency
and Accountability Act of 2010.
‘‘(m) PROVISION OF FALSE INFORMATION.—A whistleblower who
knowingly and willfully makes any false, fictitious, or fraudulent
statement or representation, or who makes or uses any false writing
or document knowing the same to contain any false, fictitious,
or fraudulent statement or entry, shall not be entitled to an award
under this section and shall be subject to prosecution under section
1001 of title 18, United States Code.
‘‘(n) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING
RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.—
‘‘(1) WAIVER OF RIGHTS AND REMEDIES.—The rights and
remedies provided for in this section may not be waived by
any agreement, policy form, or condition of employment
including by a predispute arbitration agreement.
‘‘(2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute
arbitration agreement shall be valid or enforceable, if the agreement
requires arbitration of a dispute arising under this section.’’.

Today's Post article by David Hilzenrath on the IRS whistleblower procedures makes the following point, among others:

"There's apparently an institutional resistance to rewarding whistleblowers that will take some time to dissipate," said Michael A. Sullivan of the law firm Finch McCranie, who represents whistleblowers. "Counterproductive rules such as this one may be a result of that resistance," he said.

When information from whistleblowers helps the IRS recover unpaid taxes, the informants are entitled to as much as 30 percent of the proceeds. However, the new manual explains that the tipster is out of luck if, instead of yielding a payment to the IRS, the tip stops a refund or reduces a credit.

That rule, which we understood was already the view of some at the IRS, makes no sense. If two whistleblowers each can save the Treasury $100 million or $1 billion, there is no reason why one should be rewarded and the other one not rewarded, simply because one whistleblower's information thwarts an improper claim for a refund. Instead, each should be rewarded for saving taxpayer funds.

The Tax Court will likely correct this absurd result, but why not set up the procedures sensibly in the first instance?

From my dealings with the IRS Whistleblower Office representatives, they are not the source of this problem. They are sensible and capable professionals who want to see the IRS Whistleblower program work, and it should work to reduce the federal deficit by collecting from tax cheats.

Encouraging whistleblowers to come forward with meaningful information is essential to that effort. Overall, the new IRM procedures should encourage whistleblowers to submit claims, as we tell our clients who increasingly report sophisticated tax schemes that can cost taxpayers billions of dollars.

Among the real "plusses" in the new procedures is a long-needed mechanism for the IRS to share information with the whistleblower and whistleblower's attorney about the claim. IRS Whistleblower Office Director Steve Whitlock has long spoken of the need to do so, and the Whistleblower Office has delivered with these new procedures.

Other common sense improvements in this IRM revision are its approvals of using information that the whistleblower and the whistleblower's lawyer can provide in ongoing multiple interviews. This is the approach that has worked so well with qui tam whistleblower cases under the False Claims Act.

Furthermore, the criteria by which the Whistleblower Office will make awards are not spelled out, and in a thoughtful manner that shows careful consideration by the Whistleblower Office staff.

The 'institutional resistance" is already crumbling, in the face of what makes sense. Tax whistleblowers are now welcome, and will come forward in increasing numbers.

And, unless Senator Grassley someone gets rid of it first, we look forward to challenging and overturning in Tax Court the nonsensical rule criticized above.

The new provisions for IRS Whistleblower claims address many details of how tax whistleblower claims will be handled. The full provisions are reprinted below:

Part 25. Special Topics
Chapter 2. Information and Whistleblower Awards
Section 2. Whistleblower Awards

25.2.2 Whistleblower Awards
25.2.2.1 Overview: Authority and Policy
25.2.2.2 General
25.2.2.3 Submission of Information for Award under Sections 7623(a) or (b)
25.2.2.4 Initial Review of the Form 211 by the Whistleblower Office
25.2.2.5 Grounds for Not Processing Claims for Award
25.2.2.6 Processing of the Form 211 7623(a) Claim for Award
25.2.2.7 Processing of the Form 211 7623(b) Claim for Award
25.2.2.8 Whistleblower Award Administrative Proceeding
25.2.2.9 Award Computation
25.2.2.10 Appeal Rights under section 7623(b)
25.2.2.11 Confidentiality of the Whistleblower
25.2.2.12 Funding Awards
25.2.2.13 Award Payment Procedures
25.2.2.14 Annual Report to Congress
Exhibit 25.2.2-1 1891 Letter
Exhibit 25.2.2-2 Rejection Letter – 1010 Letter
Exhibit 25.2.2-3 Acknowledgement Letter – Whistleblower Office
Exhibit 25.2.2-4 Debriefing Checksheet
Exhibit 25.2.2-5 Rejection Letter from the Whistleblower Office
Exhibit 25.2.2-6 Memorandum from Steven T. Miller, February 17, 2010
Exhibit 25.2.2-7 Sample Notice of Opportunity to Comment Letter
Exhibit 25.2.2-8 Sample Summary Award Report
Exhibit 25.2.2-9 Award Recommendation-Opportunity to Comment
Exhibit 25.2.2-10 Confidentiality Agreement
Exhibit 25.2.2-11 Sample Preliminary Award Report
Exhibit 25.2.2-12 Sample Determination Letter
Exhibit 25.2.2-13 Award Calculation Computation Guidelines

On December 20, 2006, the Tax Relief and Health Care Act of 2006 was enacted. Section 406 of the Act amends section 7623 of the Internal Revenue Code concerning the payment of awards to whistleblowers. The amendment made significant changes to the whistleblower program and also required the establishment of a Whistleblower Office within the Internal Revenue Service that has responsibility for the administration of the award program.

The IRS has generally referred to persons who submit information under section 7623 as "informants" and referred to the program as the "Informant Claims Program." The IRS has also referred to such persons as "claimants" in published guidance, and the law now refers to the "Whistleblower Office" and "whistleblower program." Accordingly, the terms "claimant" and "whistleblower" will be used in this IRM except where the term "informant" appears in an office title or published document. However, no legal significance should be inferred based solely on the use of these terms in this IRM.

The application of new section 7623 (b) is limited by certain dollar thresholds. To be eligible for an award under section 7623(b), the tax, penalties, interest, additions to tax and additional amounts in dispute must exceed in the aggregate $2,000,000. If the taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year at issue.

Note:
If the thresholds in 7623(b)(5) are not met, section 7623(a) authorizes, but does not require the Service to pay for information that result in the government’s recovery of taxes, penalties, interest, additions to tax, and additional amounts. Since the amount in dispute cannot be determined until an audit or investigation is completed, processing of claims as potential 7623(b) claims must be based on the best information available to the IRS as the claim is reviewed. New information can change the evaluation of the amount in dispute and may result in a change in the claim designation from 7623(b) to 7623(a) or vice versa.

The 2006 amendments re-designated the prior section 7623 as section 7623(a), which now includes interest in the collected proceeds, added new provisions as section 7623(b), and included program administration requirements that were not incorporated into the Internal Revenue Code.

The requirement that claims be paid from collected proceeds generally means that payment will not be made until there is a final determination of tax liability (including taxes, penalties, interest, additions to tax and additional amounts) owed to the Service and such amounts have been collected by the Service. A final determination of tax does not occur until the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the Service that there has been a final determination of tax for a specific period and a waiver of the right to file a claim for refund is effective.

"Collected proceeds" are the monies the Service obtains directly from a taxpayer(s) which are based upon the information the whistleblower has provided. Award claims may not be paid under 7623(a) or (b) which are based on information which leads to the denial of a claim for refund which otherwise would have been paid. Criminal fines, which must be deposited into the Victims of Crime Fund, cannot be used for payment of whistleblower awards. Awards may not be paid on the taxpayer(s) liabilities satisfied by the reduction of a credit balance as monies are not obtained based on the information the Whistleblower provided.

The 2006 amendments require that information be submitted under penalty of perjury. A Form 211, Application for Award for Original Information, must be signed under penalty of perjury and received by the Whistleblower Office prior to proceeding with any administrative or judicial action which may form the basis of an award. In rare circumstances, the Form 211 may be received at or about the time the information was submitted and action commenced.

The decision on the payment of an award and the percentage of the award, including those under section 7623(a), is made by the Director, Whistleblower Office.

Throughout this Section, policy covering claims submitted prior to December 20, 2006, will be referred to as pre-enactment claim files.

25.2.2.2 (06-18-2010)
General
Section 7623(b) applies to new information not in the possession of the IRS on or before December 20, 2006. Supplemental or resubmitted information will not be considered for purposes of section 7623(b) unless its receipt prompts the IRS to take an administrative or judicial action that would not otherwise have been taken on the basis of the earlier-supplied information. Resubmission of information already in the possession of the Service prior to the date of enactment does not qualify under 7623(b).

Under section 7623(b)(1), awards will be paid in proportion to the value of information furnished voluntarily with respect to proceeds collected, including penalties, interest, additions to tax and additional amounts. The amount of any award will be at least 15%, but no more than 30%, of the collected proceeds in cases in which the Service determines that the information submitted by the whistleblower substantially contributed to the Service’s detection and recovery of tax. An award under this section may not be paid unless the IRS takes an administrative or judicial action based on the information provided by the individual.

Under section 7623(b) (2), if an action is based principally on specific allegations resulting from judicial or administrative hearings, government reports, hearings, audits, investigations or from the news media, an award of a lesser amount, subject to the discretion of the Whistleblower Office, may be provided; such an award, however, may not exceed 10% of the collected proceeds, including penalties, interest, additions to tax, and additional amounts resulting from the action. Section 7623(b) does not apply if the whistleblower was the original source for the information that led to the specific allegations.

Under section 7623(b) (3), if the whistleblower "planned and initiated" the actions that led to the underpayment of tax, or to the violation of the internal revenue laws, the Whistleblower Office may reduce the award. If the whistleblower is convicted of criminal conduct arising from his or her role in planning and initiating the action, the Whistleblower Office shall deny any award.

Section 7623(b) applies with respect to any action in which the amount in dispute (taxes, penalties, interest, additions to tax, and additional amounts) exceeds $2 million. If the taxpayer is an individual, the individual's gross income must exceed $200,000 for any taxable year at issue in the action. An action is based on the information provided by the whistleblower if the IRS would not have acted but for the receipt of the information from the whistleblower. Action by the IRS may include the initiation of an examination or investigation that would not otherwise have been undertaken, or the modification of a pending or planned examination or investigation as a result of information provided by the whistleblower.

All relevant factors, including the value of the information furnished in relation to the facts developed by the investigation of the violation, will be taken into account by the Director in determining whether an award will be paid, and, if so, the amount of the award.

Individuals are eligible for awards under 7623(b) based on collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.

Generally, a related action is (i) any action involving the taxpayer from the original action and that is based on, either directly or indirectly, the same information on which the original action is based, and (ii) in cases in which the information provided identifies a promoter, preparer, or other similar person and describes underpayments of tax or violations of the tax laws by one or more taxpayers that directly relate to the promoter’s activities, any action (involving any taxpayer) that is directly based on the information provided.

If a whistleblower identifies a single issue with respect to a taxpayer and the Service subsequently identifies three different issues with respect to the same taxpayer, then the collected proceeds from the action only include proceeds from the single issue identified by the whistleblower. If, however, a whistleblower identifies a single instance in which a taxpayer engaged in a particular improper activity and the Service identifies other instances in which the taxpayer engaged in the improper activity (or a substantially similar improper activity), then the collected proceeds may include proceeds from all identified instances of the improper activity.

If a whistleblower identifies specific facts relating to an issue with respect to a taxpayer as well as a specific Code section or specific legal theory associated with those facts but the Service ultimately collects proceeds based upon a different Code section or different legal theory, the whistleblower will nevertheless be entitled to an award based on the entirety of those collected proceeds.

If a whistleblower identifies a promoter and an improper activity, then the collected proceeds may include proceeds from other clients of the promoter that engaged in the improper activity (or a substantially similar improper activity). Proceeds collected from clients that engaged in different activities and proceeds collected from clients of other promoters, regardless of whether those clients engaged in the improper activity identified by the whistleblower, are not included in collected proceeds for purposes of calculating the whistleblower’s award.

The Whistleblower Office will inform the claimant in writing regarding any award decision or determination.

25.2.2.3 (06-18-2010)
Submission of Information for Award under Sections 7623(a) or (b)
Individuals submitting information under section 7623(a) or (b) must complete IRS Form 211, Application for Award for Original Information, (available on www.irs.gov/compliance/index.html) and send the completed Form 211 to:

Internal Revenue Service
Whistleblower Office SE: WO
1111 Constitution Ave., NW
Washington, D.C. 20224

Information submitted under section 7623 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 and my accompanying statement and supporting documentation and aver that such application is true, correct and complete, to the best of my knowledge.

The requirement to submit information under penalty of perjury precludes submissions by:

a person serving as a representative of the claimant, or

an entity other than a natural person.

Note:
The requirement to submit information under penalty of perjury also precludes submissions made anonymously or under an alias. Until further guidance is issued, claims for awards may not be submitted electronically or by fax.

Claims submitted by more than one whistleblower (joint claims) must be signed by each claimant and each claimant must sign the claim under penalty of perjury.

Some whistleblower submissions present legal and policy issues that can preclude the use of some or all of the information offered by the whistleblower. Whistleblowers may also mistakenly submit claims for award directly to Service field personnel, despite instructions to send all Forms 211 to the Whistleblower Office. In such cases, to protect the integrity of any taxpayer investigation or examination, Service personnel should not act on the underlying tax noncompliance issue presented by the whistleblower prior to forwarding the claim to the Whistleblower Office. Any and all information should be forwarded to the Whistleblower Office.

A whistleblower may be represented by an authorized representative during any proceeding by filing a properly executed Form 2848, Power of Attorney. Service personnel should not forward the Form 2848 to the Centralized Authorization File (CAF) if the Power of Attorney is for the whistleblower claim.

If available information is not provided by the claimant, the claimant bears the risk that such information may not be considered by the Whistleblower Office in making any award decision or determination. If documents or supporting evidence are known to the claimant but are not in his or her possession or control, the claimant should describe these documents and identify their location to the best of his or her ability.

The Form 211 must be completed in its entirety and should include the following information:

The date the claimant submits the claim;

Claimant’s name;

Name of claimant’s spouse (if applicable);

Claimant’s contact information, including address with zip code and telephone number;

Claimant’s date of birth;

Claimant’s Taxpayer Identification Number (e.g., Social Security Number or Individual Taxpayer Identification Number) and Taxpayer Identification Number of claimant’s spouse, if applicable.

Explanation of how the information that forms the basis of the claim came to the attention of the claimant, including the date(s) on which this information was acquired, and a complete description of the claimant’s present or former relationship (if any) to the person that is the subject of the claim (e.g., family member, acquaintance, client, employee, accountant, lawyer, bookkeeper, customer). If the claimant identifies multiple person(s) as the subject of a claim, describe his or her relationship to each person.

Explanation of how the information that forms the basis of the claim came to the attention of the claimant, including the date(s) on which this information was acquired, and a complete description of the claimant’s present or former relationship (if any) to the person that is the subject of the claim (e.g., family member, acquaintance, client, employee, accountant, lawyer, bookkeeper, customer). If the claimant identifies multiple person(s) as the subject of a claim, describe his or her relationship to each person.

The Form 211 and any attachments must include specific and credible information concerning the person(s) that the claimant believes will lead to the collection of unpaid taxes. To the extent known by the whistleblower, the information should include the following:

The legal name of the person(s) (e.g., individual or entity), and any related person(s), that failed to pay taxes;

The person’s aliases, if any;

The person’s address;

The person’s Taxpayer Identification Number(s);

A description of the amount(s) and tax year(s) of Federal tax claimed to be owed, and facts supporting the basis for the amount(s) claimed to be owed;

Documentation to substantiate the claim (e.g., financial data; the location of bank accounts, assets, books, and records; transaction documents or analyses relevant to the claim); and

Any and all other facts and information pertaining to the claim.

The 2006 amendments require that information be submitted under penalty of perjury. A Form 211, Application for Award for Original Information, must be signed under penalty of perjury and received by the Whistleblower Office prior to proceeding with any administrative or judicial action which may form the basis of an award. In rare circumstances, the Form 211 may be received at or about the time the information was submitted and action commenced.

25.2.2.4 (06-18-2010)
Initial Review of the Form 211 by the Whistleblower Office
Upon receipt of the Form 211, the Whistleblower Office will conduct the following review:

Is the claim complete? Does the Form 211 contain all the required information? If not, the Whistleblower Office may correspond with the whistleblower for the missing information. The correspondence will inform the whistleblower that if a reply to the request is not received within 45 days from the date of the correspondence, the Whistleblower Office will assume the whistleblower is no longer interested in an award for information.

Is the claim a potential 7623(b)? If not, the whistleblower and/or representative will be notified that the claim has been forwarded to the Informant’s Claims Unit in Ogden Compliance Center for processing. (See IRM 25.2.2.6 below.) If the claim is a potential 7623(b) the whistleblower and/or representative will be notified of the claim number and the name of the analyst in the Whistleblower Office assigned the claim file. (Exhibit 25.2.2-3) The analyst will monitor the claim file until final resolution of the tax matter and a determination on the whistleblower’s award.

25.2.2.5 (06-18-2010)
Grounds for Not Processing Claims for Award
In general, claims for awards will not be processed for the following reasons:

Claims submitted by 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.

Claims submitted by an individual who obtained the information as part of his/her official duties as an employee of any other Federal, State or local Government or who is acting within the scope of his/her duties as an employee of any Federal, State, or local Government.

Claims submitted by an individual who is required by Federal law or regulation to disclose the information or by an individual who is precluded by Federal law or regulation from making the disclosure.

Claims submitted by an individual who obtained or was furnished the information while acting in an official capacity as a member of a State body or commission having access to such materials as Federal returns, copies or abstracts.

Claims submitted by an individual who had access to taxpayer information arising out of a contract with the Federal government that forms the basis of the claim.

Claims that upon initial review have no merit or that lack sufficient specific and credible information.

Claims submitted anonymously or under an alias.

Claims filed by a person other than a natural person (such as a corporation or a partnership).

For claims filed under section 7623(b), the alleged noncompliant person is an individual whose gross income is below $200,000 for all taxable years at issue in a claim.

In general claims for awards will be denied if

The information provided did not identify a federal tax issue upon which the IRS took action.

The information did not result in the detection of underpayment of taxes.

The information did not result in the collection of proceeds.

:

If the Director of the Whistleblower Office determines that an individual has made a claim for award based on information obtained from a disqualified person, the Director may treat the claim as if it had been made by the disqualified person and may reject the claim.

25.2.2.6 (06-18-2010)
Processing of the Form 211 7623(a) Claim for Award
If it is determined that a whistleblower’s claim is below the $2 million threshold of section 7623(b), it will be forwarded by the Whistleblower Office to:

Internal Revenue Compliance Center
Informant Claims Unit (ICE)
1973 N. Rulon White Blvd.
MS 4110 – ICE
Ogden, UT 84404

Upon receipt of the information, the Informant Claims Unit will Input the claim information onto the database and notify the whistleblower and/or representative of the receipt of the information and claim number. The whistleblower will be notified (1891 Letter – Exhibit 25.2.2-1) that if an investigation is initiated, it could take several years until final resolution of all tax matters and a decision is made concerning the payment of an award.

In claims where a whistleblower submits more than one unique Form 211, each Form 211 will receive a claim number. The whistleblower will be notified of the claim number associated with each form. If multiple entities are listed on a single Form 211, each entity will receive a claim number. The whistleblower will be notified of the claim number associated with each of the listed entities.

The claim file will be forwarded to the appropriate Operating Division for classification. When claims are submitted on multiple taxpayers (whether on one Form 211 or multiple forms), all claims will be forwarded to classification at the same time. The Operating division classifier and/or subject matter expert (SME) will review the information to determine the following:

Will the information provided materially contribute to identification, development or resolution of taxpayer liability or collection?

Is the taxpayer currently under audit?

Does the whistleblower offer information that may be relevant to exam issues (past, current or prospective)?

Does the whistleblower offer information that may be relevant to collection issues (past, current or prospective)?

Whistleblowers whose claims do not meet the criteria for an award are sent a letter advising that the information furnished did not qualify for an award. (1010 Letter – Exhibit 25.2.2-2)

If the classifier determines the whistleblower’s information warrants referral for examination, the Informant Claims Unit will forward to the appropriate group or subject matter expert in accordance with the Operating Divisions’ instructions :

A copy of the Form 211, Application for Award for Original Information;

Supporting allegations;

Returns requested by the classifier; and,

An evaluation package, Form 11369, Confidential Evaluation Report on Claim for Award.

Note:
Whistleblowers’ communications are confidential. All whistleblower claims, reports and information shall be transmitted in a double sealed confidential envelope marked "To Be Opened By Addressee Only" with Document 6441 as the cover sheet. All electronic transmission must be through secure e-mail.

The AIMS ICE indicator "1" will be used to identify examination cases for which there is a whistleblower claim. For returns already established on AIMS, the Informant Claims Examiner will input the ICE indicator "1." The examination case cannot be closed on AIMS unless the ICE indicator is removed. This will be completed after the Form 11369 and case file is provided by the agent/officer and reviewed by the ICE Unit, or instructions are received from the whistleblower Office to remove the indicator.

For SB/SE cases that are selected for examination, the Informant Claims Unit will be notified to establish the AIMS control using IDAP and suspend for 2 weeks for AIMS to be established. The Tracking Code 7882 will be input on all SB/SE AIMS controls.

For LMSB cases that are selected for examination, the PSP in Ogden will establish the AIMS control and the Informant Claims Examiner will input the ICE Indicator "1."

The Informant Claims Unit will monitor AMDISA for the Exam closing every 120 days.

The law provides that awards will be paid from collected proceeds resulting from the action (including any related actions). If the initial IRS action on the whistleblower’s information is expanded to include additional taxpayers or modules, AIMs controls are required for those additional taxpayers or modules. The Informant Claims Unit should be contacted to have the "1" indicator added to any additional taxpayers or modules. Contact the Whistleblower Office for guidance. Additional taxpayers or modules may also raise the aggregate amount in dispute over $2 million requiring contact with the Whistleblower Office. If at any time during the examination, the amount in dispute (taxes, penalties, interest, additions to tax, and additional amounts) rises to $2 million or more, the Whistleblower Office must be notified immediately at WO@irs.gov or (202) 622-0351.

Some whistleblowers may offer information that the Service cannot use, such as information that may be subject to a valid claim of privilege. This information is referred to as "tainted." If potentially tainted information is identified, at any time during the review of the informant’s information, consult with the Operating Division Counsel to identify any potential legal issues in developing the issues presented by the Whistleblower. If it is determined that the information will not be used, it should immediately be returned to the Informant Claims Unit in Ogden in a double sealed envelope along with any analysis received from Counsel regarding the use of the information.

Unless the examiner/team determines that a debriefing is unlikely to result in information that would be material to the evaluation of the submission, the examiner/team will debrief the whistleblower. A debriefing may yield additional information that the whistleblower did not recognize as relevant to the taxpayer’s matters, information about the credibility of the whistleblower, information relevant to legal issues that can affect the use of documents, and leads to other sources of information. A debriefing may also clarify the whistleblower’s submission.

At the outset of any debriefing of a whistleblower, the examiner and or SME must ensure that the whistleblower understands the ground rules applicable to the meeting. A Debriefing Checksheet at Exhibit 25.2.2-4 must be completed before any discussion of the substantive issues. It should also be completed when subsequent meetings with the whistleblower are necessary to clarify the whistleblower’s submission, if there is a meaningful lapse of time between meetings or if the whistleblower’s actions indicate that the ground rules may not have been understood or may not have been followed. The whistleblower’s signature is not necessary so long as the IRS Representative signs the checklist.

Contacts with informants who are current employees, and taxpayer representatives who seek to become informants, raise additional concerns. These are addressed in detail in a memorandum from the Deputy Commissioner, Services and Enforcement (Exhibit 25.2.2-6). Under no circumstances can a taxpayer representative who seeks to become a whistleblower continue to represent the taxpayer. If there is any question regarding the applicability of the procedures described in the memorandum, the examiner and/or SME should contact the Whistleblower Office for guidance.

At the conclusion of the examination on a section 7623 (a) case, the examiner will prepare two files:

A complete case file for regular processing through the appropriate Case Processing function, and

A claim file to be sent to the Ogden ICE Unit for processing of the claim for award. This file, along with Form 11369, Confidential Evaluation Report on Claim for Reward, should be sent to the following address:

Internal Revenue Service
Whistleblower Office
c/o Campus Compliance Operations, Ogden
1973 N. Rulon White Blvd. MS/4110
Ogden, UT 84404

A COMPLETED Form 11369 is required prior to the transfer of a criminal case to civil compliance or routing to Appeals. The tax administrative file forwarded to Appeals should NOT contain any Whistleblower information.

The Form 11369 documents the whistleblower’s contribution to the identification of tax non-compliance and collection of taxes, penalties and interest. The form and attachments will assist the Director, Whistleblower Office, in making an award determination. The claim file should contain the following documentation:

Form 11369 for each taxpayer (for jointly filed returns one joint form should be completed. The Form 11369 must be approved by the manager and digital electronic signatures are acceptable.

Narratives to fully explain the contributions of the whistleblower in the case and fully document the actions taken in regard to the issues.

Form 211 filed by the whistleblower and any and all information supplied by the whistleblower either as part of the original submission or obtained during any further contacts with the whistleblower.

Copies of any debriefing notes, recorded interviews, etc. held with the whistleblower and/or their representative.

Copies of any memorandums prepared by Counsel in regards to information submitted by the informant. All tainted material should be immediately returned to the analyst or Ogden Informant Claims Unit as soon as a decision is made that the material will not be used. Do not wait until the case is resolved to send the material.

Full Revenue Agents Report/ Special Agent’s Report including explanation of all adjusted items.

Signed copy of the Agreement Form (i.e. Form 4549, 870, 870-ad or 906.)

Any opinions from Counsel/subject matter experts on issues attributable to the whistleblower information.

Copies of first four pages of each tax return and any schedules impacted by the whistleblower’s information.

Full copy of the initial examination plan and mid-cycle revisions.

Copy of activity record for examination/collection case.

Copies of any 6103 (n) contracts entered into with the whistleblower and/or explanation of extraordinary cooperation by whistleblower.

Any information that reflects any negative actions by the whistleblower taken during the examination.

Any other information that may assist the Whistleblower Office in making an award determination.

All claims that have been surveyed must have a completed Form 11369 with all required signatures and documentation supporting the survey. All surveyed claim packages must contain the following:

Narrative explaining why the case was surveyed; and

Manager’s approval;

One Form 11369, with an attachment listing each claim and narratives, will suffice for claims that have been surveyed and have multiple claim numbers for subsidiaries, related entities or employees of the primary entity.

All claims that result in a "No Change" must have a completed Form 11369 with all required signatures and documentation supporting the "No Change." All "No Change" claim packages must contain the following:

Narratives explaining the "No Change"

Manager’s approval

All of the above items will be included in a confidential envelope marked "ICE COPY" and forwarded directly to the Ogden ICE Unit prior to the closing of the case.

If the Form 11369 package is incomplete, the ICE Unit will:

Contact the Agent/Manager to obtain missing signatures via fax. If a response is not received within 5 days, the case will be returned to the originator.

The ICE Unit will return the file to the agent at their appropriate Area Office for all other missing documentation with an explanation on the transmittal regarding what is missing.

For imminent statute claims that need to be closed, the ICE Unit will contact the examiner and request the missing documentation by telephone. A fax package is acceptable in these cases.

Out-dated Form 11369 will be returned to the Agent. The Out-dated form does not provide the information needed by the Director, Whistleblower Office for an award determination.

The Whistleblower Office will receive the entire claim package from the Informant Claims Unit. The Whistleblower Office will:

Review the documentation;

Make a recommendation as to the award percentage to the Director, Whistleblower Office;

Obtain the Director’s concurrence on the award percentage;

Return the package to the ICE Unit with instructions for payment monitoring.

During the review by the Whistleblower Office, it may be necessary to contact the RA/SA/RO team to obtain additional information or to visit the team to review related files. Communication protocol developed between the Operating Divisions and the Whistleblower Office will be followed regarding how the team will be contacted.

The Whistleblower Office will return the award decision and the complete claim file to the ICE Unit to monitor for payment of the assessment(s) and to confirm collection of funds from the taxpayer. The award payment cannot be processed until the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the IRS that there has been a final determination of tax for a specific period and the right to file a refund claim has been waived.

After the taxpayer has paid the amount due and any refund statute is expired, the ICE Unit will calculate the award payment and return the complete claim file and award calculation to the Whistleblower Office. The award is calculated on tax and penalties for Forms 211 received before December 20, 2006 following the policy in effect at that time (except for refund protection claims and criminal fines). Calculations for awards received after December 20, 2006 through June 1, 2010 are computed on tax, penalties and interest following the policy in effect during that period. Award for Forms 211 for 7623(a) claims received after June 1, 2010 will be calculated based on the procedures in IRM 25.2.2.9.2 below.

The Whistleblower Office will review the package, prepare the award letter for the Director’s signature and return the letter and complete package to the ICE Unit for payment of the award. The award will be paid within 60 days of the date of the letter.

Prior to authorizing release of the award check, the ICE Unit will:

Research the whistleblower’s account to be sure the whistleblower is filing his/her returns. The previous 3 years will be checked to determine if there is a filing requirement and if the returns and taxes are satisfied.

If returns have not been filed and taxes are due, the whistleblower will be contacted to determine why he/she has not filed. An Award payment may be used to offset any unpaid balance owed by the whistleblower.

25.2.2.7 (06-18-2010)
Processing of the Form 211 7623(b) Claim for Award
If it is determined that the claim is a potential section 7623(b) claim, the Whistleblower Office analyst assigned the claim will perform the duties as shown below.

Review the submission for fraud potential and possible review by Criminal Investigation (CI). If a case is referred to CI for review, and CI decides not to pursue, the analyst will be notified.

If CI does not pursue a case, or the case is not referred to CI for review, the analyst will complete a threshold analysis to determine if the tax non-compliance will reach the dollar threshold for a 7623 (b) claim. If the threshold is not met, the claim will be forwarded to the ICE Unit for processing as a 7623(a) claim. The analyst will:

Prepare comment sheet for transfer to the ICE Unit and,

Notify the Whistleblower & POA advising that the claim is being transferred to the Informant Claims Unit for processing.

If the claim will not be processed (see IRM 25.2.2.5) the analyst will forward a rejection recommendation through the Chief, Case Development and Oversight to the Director of the Whistleblower Office for concurrence. Upon approval, the whistleblower will be notified that the information provided did not identify a federal tax issue upon which the IRS will take action. (Rejection Letter – Exhibit 25.2.2-5)

If the claim meets the 7623(b) threshold, the Operating Division’s Subject Matter Expert (OD’s SME) will be contacted and the claim file forwarded. The SME will evaluate the information to determine whether it may materially contribute to the identification, development or resolution of taxpayer liability or collection issues. The review by the SME is intended to insulate any resulting examination or investigation from improperly obtained information or other potential "taints" that could compromise the tax case. If during the SME’s review, information is identified that cannot be used in the examination or investigation, the information deemed to be tainted should be returned to the Whistleblower analyst assigned the claim along with any analysis received from Counsel regarding the use of the information. The integrity of the tax case is preserved by withholding that information from the auditor or investigator, and ensuring that the SME is not involved in the examination or investigation.

The SME may consult with Operating Division Counsel to identify any potential legal issues in developing the issues presented by the whistleblower, and may decide to obtain additional subject matter expertise for a team analysis of the matter. The initial legal advice should address possible limitations on interactions with the whistleblower and other issues including the potential application of privileges.

Unless the SME determines that a debriefing is unlikely to result in information that would be material to the evaluation of the submission, the SME will debrief the whistleblower. A debriefing may yield additional information that the whistleblower did not recognize as relevant to the taxpayer’s matters, information about the credibility of the whistleblower, information relevant to legal issues that can affect the use of documents, and leads to other sources of information. A debriefing may also clarify the whistleblower’s submission.

At the outset of any debriefing of a whistleblower, the SME must ensure that the whistleblower understands the ground rules applicable to the meeting. A Debriefing Checksheet at Exhibit IV must be completed before any discussion of the substantive issues. It should also be completed when subsequent meetings with the whistleblower are necessary to clarify the whistleblower’s submission, if there is a meaningful lapse of time between meetings or if the whistleblower’s actions indicate that the ground rules may not have been understood or may not have been followed. The whistleblower’s signature is not necessary so long as the IRS Representative signs the checklist. A summary of the information provided by the whistleblower during the debriefing must be provided to the examination team and whistleblower analyst assigned to the claim.

Contacts with informants who are current employees, and taxpayer representatives who seek to become informants, raise additional concerns. These are addressed in detail in a memorandum from the Deputy Commissioner, Services and Enforcement (Exhibit 25.2.2-6). Under no circumstances can a taxpayer representative who seeks to become a whistleblower continue to represent the taxpayer. If there is any question regarding the applicability of the procedures described in the memorandum, the SME should contact the Whistleblower Office for guidance.

The SME recommends whether to pursue the lead offered by the whistleblower.

If the lead does not appear productive, the Operating Division SME completes a Form 11369 and returns the file to the Whistleblower Office analyst assigned the case.

If the lead appears to be productive and the Operating Division Counsel has not identified potential legal limitations on the use of the information, the case is forwarded for examination, and the Whistleblower Office analyst monitors case status until the examination is resolved.

If the submission contains information that could enhance an existing collection case, the Whistleblower analyst assigned the case will contact the SME for the Operating Division’s Collections. The SME will make a recommendation on the usefulness of the information and what actions should be taken to share the information with Collections.

A COMPLETED Form 11369 is required prior to the transfer of criminal case to civil compliance or routing to Appeals. The tax administrative file forwarded to Appeals should NOT CONTAIN any whistleblower information, evaluations etc.

If the Operating Division Counsel identifies potential legal limitations on the use of the information, he/she drafts a risk analysis. The Operating Division Counsel’s risk analysis may be reviewed by Headquarters’ Chief Counsel. If Counsel advises the IRS not to use the information, the Operating Division Commissioner or delegate will decide whether and how to proceed. The Whistleblower Office analyst assigned the claim will receive a copy of the risk analysis and any advice provided by Counsel.

The law requires the Whistleblower Office to analyze 7623(b) claims, and authorizes the Whistleblower Office to request assistance from the whistleblower or their counsel. In most cases, the IRS should be able to receive information from a whistleblower, conduct a debriefing to ensure the information provided is fully understood and that the IRS has all relevant information the whistleblower can offer, and then proceed with an investigation or examination without further assistance from the whistleblower. In some cases, there may be a need to pose additional questions to the whistleblower. Such inquiries are governed by the appropriate disclosure provisions contained in I.R.C.section 6103. (See IRM 11.3) When such an inquiry is made of a whistleblower, an exception to the requirement for reporting this type of third-party contact applies. (Refer to IRM 4.11.57.6.5)

In rare circumstances, it may be required and in the best interest of the Government to have a formal agreement with the whistleblower when it is necessary to share information obtained by the IRS from the taxpayer or a third party with the whistleblower. In these situations, temporary regulations at 26 CFR 301.6103(n)-2T authorize a contract for services with the whistleblower. Such an agreement will include safeguards to protect the privacy of any taxpayer information revealed to the whistleblower. An agreement under 6103(n) must be initiated by the Executive responsible for the function seeking the contract, and approved by the Business Operating Division not lower than the Deputy Commissioner level. The 6103(n) Contracts will be tracked by the Deputy Commissioner’s Office and the Whistleblower Office will be notified of completed contracts.

If the information appears to be productive, but a decision is made to withhold documents from field examination and/or the collection function, the SME will return the documents withheld to the Whistleblower Office analyst with an explanation of the reasons for withholding the documents. If documents are withheld, no one who has reviewed the withheld documents may be involved in the field examination and/or collection function.

For returns already established on AIMS, the Whistleblower Office will request that the Informant Claims Examiner input an ICE indicator "1." This prevents anyone from closing the case. Only the Informant Claims Unit can remove the "1" indicator and will only do this after instructions from the Whistleblower Office analyst.

If the decision is made not to pursue the case, a Form 11369 is completed and the case file is routed to the Whistleblower Office analyst assigned the case. The rejection recommendation will be forwarded through the Chief, Case Development and Oversight to the Director of the Whistleblower Office for concurrence. Upon approval, the whistleblower will be notified that the information provided did not identify a federal tax issue upon which the IRS will take action. (Rejection Letter – Exhibit 25.2.2-5)

At the conclusion of the examination, the examiner will prepare two files:

A complete case file for regular processing through the appropriate Case Processing function, and

A claim file routed to the Whistleblower Office analyst assigned the case.

The claim file should contain the following documentation:

Form 11369 for each taxpayer (for jointly filed returns one joint form should be completed). The form must be approved by the manager and digital electronic signatures are acceptable.

Narratives to fully explain the contributions of the informant in the case and should fully document the actions taken in regards to the issues; i. e.: "claim surveyed" is not sufficient but rather "claim surveyed due to lack of resources/statute of limitations, below tolerance," etc.

Form 211 filed by the whistleblower(s) informant(s) and any and all information supplied by the whistleblower either with the original submission or obtained during any further contacts with the informant.

Copies of any debriefing notes, recorded interviews, etc. held with the whistleblower and/or their representative.

Copies of any analysis memorandums prepared by Counsel in regards to information submitted by the informant. All tainted material should be immediately returned to the analyst or Ogden Informant Claims Unit as soon as a decision is made that the material will not be used. Do not wait until the case is resolved to send this material.

Full Revenue Agents Report/ Special Agent’s Report including explanation of all adjusted items.

Signed copy of Agreement Form (i.e. Forms 4549, 870, 870-ad or 906.).

Any opinions from Counsel/subject matter experts on issues attributable to the informant information.

Copies of first four pages of each tax return and any schedules impacted by the whistleblower’s information.

Full copy of the initial examination plan and mid-cycle revisions.

Copy of activity record for examination/collection case.

Copies of any 6103(n) contracts entered into with the informant and/or explanation of extraordinary cooperation by informant.

Any information that reflects any negative actions by the informant taken during the examination.

Any other information that may assist the Whistleblower Office in making an award determination.

The above list should not be interpreted to be all inclusive and additional information may be sought by the Whistleblower Office depending on the facts and circumstances in order to support ant award denials or payments.

All of the above items will be included in a confidential envelope and forwarded to the Whistleblower Analyst assigned the case for review and allocation of assessments of taxes, penalties, interest and other amounts attributable to the Whistleblower. The analyst may need to contact the Operating Division or the RA/SA/RO team to obtain additional information or to review related files. Communication protocol developed between the Operating Divisions and the Whistleblower Office will be followed regarding how the team will be contacted. The ICE Indicator will not be removed until the entire claim file is reviewed and accepted by the analyst assigned the case.

The Whistleblower Analyst will monitor the case for collection of the taxes, penalties, interest and other amounts attributable to the informant’s information. The award payment cannot be completed until the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the IRS that there has been a final determination of tax for the specific period and the right to file a claim for a refund has been waived.

Awards paid under IRC 7623 must be paid from collected proceeds after there has been a final determination of tax. Upon completion of this process, the Whistleblower Analyst will contact the Operating Division’s designee and work jointly to compute the amount of the collected proceeds attributable to the informant’s information.

25.2.2.8 (06-18-2010)
Whistleblower Award Administrative Proceeding
The whistleblower award review and determination process is an administrative proceeding that begins on the date the claim for award is received by the Whistleblower Office. The purpose of preliminary recommendation package is to solicit input from the whistleblower regarding the preliminary award recommendation before a final determination is made by the Director.

After the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the IRS that there has been a final determination of tax for the specific period and the right to file a claim for a refund has been waived, the Director of the Whistleblower Office will prepare a preliminary recommendation regarding an award. Prior to communicating the preliminary recommendation to the Whistleblower, the Director will share the preliminary recommendation with the Whistleblower Executive Board for concurrence. Upon concurrence from the Board, the preliminary recommendation will be communicated to the whistleblower in a package containing the following documents:

a notice of opportunity to comment letter (Exhibit 25.2.2-7);

a proposed summary award report (see Exhibit 25.2.2-8);

an award consent form (see Exhibit 25.2.2-9); and

a confidentiality agreement (see Exhibit 25.2.2-10).

Whistleblowers are given 30 days to respond to the preliminary recommendation package in one of four ways.

If the whistleblower takes no action, then the Director will make a final award determination.

If the whistleblower signs, dates, and returns the consent form agreeing to the proposed award recommendation, then the Director will make a final award determination.

If the whistleblower submits comments on the proposed award recommendation but does not sign, date, and return the confidentiality agreement, the comments will be added to the administrative claim file and reviewed for purposes of making a final award determination.

If the whistleblower signs, dates, and returns the confidentiality agreement, then the Director will provide the whistleblower with the additional administrative review opportunity described below.

If the whistleblower signs, dates, and returns the confidentiality agreement, then the Director will provide the whistleblower with a preliminary award report package. The preliminary award report package will contain a preliminary award report that states the amount of the recommended award and provides an explanation of the recommended award. The report will include the recommended amount of proceeds to be attributed to the whistleblower information, the recommended specific award percentage, the recommended specific award amount, and a summary of the factors considered in making the specific award percentage recommendation (Exhibit 25.2.2-11). The package will also contain instructions on scheduling an appointment for the whistleblower (and the whistleblower’s representative, if there is one) to review the documents supporting the recommendation. If scheduled, this review will take place at the IRS Whistleblower Office in Washington, D.C., and whistleblowers will not be permitted to make copies of the documents.

Whistleblowers are given 30 days to respond to the preliminary award report package in one of three ways:

If the whistleblower takes no action, then the Director will make a final award determination.

If the whistleblower schedules an appointment to review the documents supporting the recommendation, then the Whistleblower Office will supervise the document review meeting and the whistleblower will be given 30 days from the date of the meeting to provide a written response to the Whistleblower Office. The written response will be reviewed by the Director for purposes of making a final award determination.

If the whistleblower does not schedule an appointment but does submit written comments on the award report, then the Whistleblower Office will add the comments to the administrative claim file and include for review by the Director for purposes of making a final award determination.

A violation of the terms of the confidentiality agreement may be considered a negative factor in determining the specific award percentage, and may result in reduction of the award percentage to the minimum required by law.

All written documents sent by the Whistleblower Office to a whistleblower in a preliminary award recommendation package and preliminary award report package, as well as all written comments received by the Whistleblower Office in response to those documents will be added to the administrative claim file.

The Director will determine the final award amount, based on a review of the administrative claim file. Prior to communicating the final award amount to the whistleblower, the Director will share the recommendation with the Whistleblower Executive Board for concurrence. Upon concurrence from the Board, the Director’s determination will be communicated to the whistleblower in a determination letter, stating the amount of the award and summarizing the basis for the determination. (Sample Determination Letter – Exhibit 25.2.2-12) The determination letter will advise the whistleblower of the right to seek review of the determination by the US Tax Court within 30 calendar days of the date of the determination. The Director will initiate payment actions when the period for seeking US Tax Court review has lapsed, when the whistleblower notifies the Director that the right to seek review has been waived, or when the US Tax Court has issued a decision and all further judicial appeals have been waived or exhausted.

The preliminary award recommendation package, preliminary award report package, and final determination letter package, as described above, will contain taxpayer return information. The Whistleblower Office is authorized to disclose this taxpayer return information, within the administrative proceeding as described above, because the administrative proceeding arises out of, or in connection with, the determination of the taxpayer’s civil or criminal liability or the collection of such civil liability. (Section 6103(h) (4) authorizes disclosures in judicial and administrative proceedings.)

25.2.2.9 (06-18-2010)
Award Computation
Effective July 1, 2008, the Director of the Whistleblower Office assumed the responsibility for all award determinations and percentages. Claims will be considered under the law and policies in place at the time the information was submitted with exceptions relating to payment of refund protection claims and criminal fines. (See 25.2.2.12 Funding Awards) Supplemental information will not be considered as a new claim unless its receipt prompts the IRS to take an administrative or judicial action that would not otherwise have been taken on the basis of the earlier-supplied information.

25.2.2.9.1 (06-18-2010)
Award Computation - Section 7623(a) Claims filed before June 1, 2006
For award claims filed prior to December 20, 2006 (Exhibit 25.2.2-13) the award will be based on the policy in effect at the time the claim was filed, with one exception relating to payment of refund protection claims and criminal fines. Notwithstanding the policy in effect under Treasury Regulation 301-7623-1, claims based on information that prevents the IRS’ payment of a refund claim are not eligible for an award under the whistleblower statute. If the whistleblower participated substantially in the actions that resulted in the underpayment of tax, the Whistleblower Office may deny an award.

For award claims filed after December 20, 2006 and before MM-DD-YYYY, if the amount in dispute is less than $2 million and if the taxpayer is an individual, the individual’s gross income must be below $200,000 for any taxable year at issue, the Service may pay awards to whistleblowers based on collected proceeds of tax, interest and penalties. The award will be calculated as follows:

For specific and responsible information that caused the investigation or, in claim files already under audit, materially assisted in the development or identification of an issue or issues and resulted in the recovery, or was a direct factor in the recovery, the award shall be 15 percent of the amounts recovered, with the total award not exceeding $10 million.

For information that caused the investigation or, in claim files already under audit, caused an investigation of an issue or issues, and was of value in the determination of tax liabilities although not specific, the award shall be 10 percent of the amount recovered, with the total award not exceeding $10 million.

For information that causes the investigation or investigation of an issue, but had no direct relationship to the determination of tax liabilities, the award shall be 1 percent of the amounts recovered, with the total award not exceeding $10 million. No award will be paid if the recovery was so small as to call for payment of less than $100.00 under the above formulas.

In a claim file when two or more whistleblowers individually provided original information leading to the recovery of additional tax, penalties, and fines from the same taxpayer, each whistleblower’s claim for award should be judged on its own merits. The individual awards should be considered in accordance with the criteria, computation formulas, and limitations stated above.

If the whistleblower participated substantially in the actions that resulted in the underpayment of tax, the Whistleblower Office may deny an award.

25.2.2.9.2 (06-18-2010)
Award Computation - Section 7623(a) claims filed on or after June 1, 2010 and Section 7623(b) claims:
For claims filed after December 20, 2006 where the amount in dispute exceeds $2 million (and in the case of an individual taxpayer, the taxpayer had gross income exceeding $200,000 for at least one taxable year in question), awards will be paid in proportion to the value of information furnished voluntarily with respect to proceeds collected, including taxes, penalties, interest, additions to tax and additional amounts. The amount of the award will be at least 15% but no more than 30% of the collected proceeds in claims filed in which the Whistleblower Office determines that the information submitted by the whistleblower substantially contributed to the IRS’ detection and recovery of taxes, penalties, interest, additions to tax, and additional amounts.

If the whistleblower planned and initiated the actions that led to the underpayment of tax or detection and bringing to trial and punishment of persons guilty of violating the internal revenue laws or conniving at the same, the Whistleblower Office may reduce the award

For claims filed on or after MM-DD-YYYY where the amount in dispute does not exceed $2 million (and in the case of an individual taxpayer, the taxpayer did not have gross income exceeding $200,000 for at least one taxable year in question), awards will be paid under the discretionary authority of Section 7623 (a), using the same criteria described below for awards under Section 7623(b). Whistleblowers will not have an opportunity to review and comment on the award recommendation as described in paragraph 25.2.2.6(l), nor will they be entitled to seek Tax Court review of the Whistleblower Office determination.

Section 7623(b) (1) Determinations: Under 7623(b)(1), an individual who provides information that leads to an administrative or judicial action resulting in the collection of taxes, penalties interest, additions to tax and additional amounts shall receive an award of at least 15% but not more than 30% of the collected proceeds resulting from such action (including any related actions), or from any settlement in response to such action, in cases in which the IRS determines that the information submitted by the whistleblower substantially contributed to the IRS’ detection and recovery of tax. The amount of any award under section 7623(b) (1) depends on the extent of the whistleblower’s substantial contribution to the action.

The starting point for the Whistleblower Office’s analysis will be the statutory minimum of 15 percent of collected proceeds. The Whistleblower Office will apply the factors noted below to the facts of a case to determine whether the case merits a larger award percentage. The factors are described as positive or negative factors, but the analysis may not be reduced to a simple mathematical equation. The factors are not exclusive and are not weighted. In the particular circumstances of a case, one factor may out-weigh several others and result in a unique or exceptional award determination. Negative factors can offset positive factors, but cannot result in an award that is less than the statutory minimum. The absence of negative factors does not mean that the award percentage will be larger than 15%. The Whistleblower Office will determine awards of 15%, 18%, 22%, 26% or 30%. The Whistleblower Office will begin its analysis at the starting point of 15%. The Whistleblower Office may increase the award percentage based on its analysis of the presence and significance of positive factors and may decrease that enhanced award percentage based on its analysis of the presence and significance of negative factors.

Section 7623(b) (2) Determinations: Section 7623(b)(2) states that awards shall not exceed 10% of collected proceeds if the Whistleblower Office determines that the action taken was based principally on disclosures of specific allegations resulting from a judicial or administrative hearing, from a governmental report, hearing, audit or investigation, or from the news media. The amount of any awards under section 7623(b) (2) (A) takes into account the significance of the whistleblower’s information and the whistleblower’s contribution to the action.

Under 7623(b) (2) (B), information is not based principally on disclosures of specific allegations if the whistleblower seeking an award originally provided the information that resulted in the disclosure of the allegations. For example, the whistleblower would be the original source if he/she was the plaintiff in a civil action in which the specific allegations were disclosed, or was the person who reported the existence of a criminal enterprise to appropriate law enforcement authorities. Before determining that 7623(b) (2) will be applied, the Whistleblower Office will afford the whistleblower an opportunity to demonstrate that he/she was the original source of the information.

In determining whether the information is based principally on specific allegations from a public source, the whistleblower office will look at the extent to which the specific allegations disclosed describe the elements of a tax violation or behavior from which a tax violation may reasonably be inferred. The threshold determination would take into account the extent to which the specific allegations disclosed and the potential tax noncompliance issues were discernable to the public from the information that appeared in the public domain as well as the connection between the information provided by the whistleblower and the information developed in the judicial or administrative hearing, governmental report, etc. Among other considerations, the Whistleblower Office will evaluate whether specific information about tax noncompliance appeared in the hearing or report, and whether specific information about financial crimes, fraud or transactions with tax compliance implications appeared in the hearing or report.

Once it has been determined that section 7623(b)(2) applies, the Whistleblower Office will determine the appropriate award, taking into account the significance of the whistleblower’s information and the role of the individual in contributing to the action. For this purpose, the Whistleblower Office will evaluate the presence and significance of the positive and negative factors as described above (with respect to section 7623(b)(1) determinations) to adjust the award from a starting point of 1% to 4%, 7%, or 10%. The Whistleblower Office could also determine an award percentage of 0, and thus that no award will be paid under section 7623(b) (2), based on the presence and significance of negative factors.

Positive Factors (applicable to section 7623(b) (1) and section 7623(b) (2) determinations):

Prompt action by the whistleblower to inform the Government or the taxpayer of the tax noncompliance may, depending on the acts, be a positive factor. For example, providing the Government with an opportunity to address the tax noncompliance early can help mitigate the impact of the noncompliance.

The whistleblower submits information that identifies an issue of a type previously unknown to the Government or a taxpayer behavior that the Government was unlikely to identify or was especially difficult to detect through the exercise of reasonable diligence.

Submissions in which the whistleblower thoroughly presents the details of the noncompliance in a clear and organized manner may, depending on the facts, be a positive factor. For example, a detailed submission may save the Service work and resources.

The whistleblower (and/or his/her representative) provided exceptional cooperation and assistance during the audit, investigation, or trial, including useful technical or legal analysis of the taxpayer’s records.

The whistleblower identified assets of the taxpayers that could be used to pay the taxpayer’s liability or assets not otherwise known to the Service.

The whistleblower identified connections between transactions, or parties to transactions, which enabled the Service to understand tax implications that might not otherwise have been revealed.

Impact of the report on the behavior of the taxpayer. For example, the whistleblower’s report may, directly or indirectly, cause the taxpayer to correct an improper position.

Negative Factors (providing an offset against positive factors) (applicable to section 7623(b) (1) and section 7623(b) (2) determinations):

The whistleblower delayed reporting after learning the relevant facts, and the delay had an adverse impact on the ability of the IRS to pursue the issues raised. Delayed reporting can allow the noncompliant activity to be repeated, increasing the magnitude of the noncompliance and, in some cases, compromising the ability of the Government to assess and collect.

The whistleblower’s role in the underpayment of tax reported, such as when a whistleblower actively and knowingly participates in carrying out the tax noncompliance. If the whistleblower directly or indirectly profits from the noncompliance, this may also be considered a negative factor.

A whistleblower puts the tax case at risk. For example, a whistleblower’s premature disclosure to the taxpayer of the existence or scope of IRS planned enforcement activity may be a negative factor if the whistleblower disclosed information regarding the IRS interest in a matter in such a way that permitted the affected taxpayer(s) to impede IRS access to relevant information and thus impeded the exam or audit.

Whistleblowers will normally be given specific instructions regarding permissible and impermissible activities; violation of these instructions may be a negative factor in determining the award percentage if it causes the Service to expend additional resources it would not otherwise have spent.

The Director will use a "fixed percentage approach" pursuant to which it will assign claims to one of a number of fixed percentages within the applicable statutory ranges.

Section 7623(b) (3) Determinations:

Under section 7623(b)(3), the Whistleblower Office may appropriately reduce an award determination made under either section 7623(b)(1) or (b)(2) if the whistleblower planned and initiated the actions that led to the tax underpayment or actions described in section 7623(b)(2). The applicable range for this category is 0-30%. The whistleblower need not have been the only person involved in planning and initiating for 7623(b) (3) to apply.

First, the Whistleblower Office will use the same framework as for the 0-10% and 15-30% ranges, whichever applies, to reach what would be the award result if the whistleblower had not triggered the application of (b)(3) by planning and initiating the actions that led to the tax underpayment.

Next, the Whistleblower Office will evaluate the whistleblower’s role in planning and initiating the actions that led to the underpayment and, based on this evaluation, categorize the whistleblower’s role as a planner and initiator as significant, moderate, or minimal. The Whistleblower Office’s evaluation will be informed by, but not restricted to, its consideration of the factors described below.

The Whistleblower Office will reduce the awards of (1) significant planners and initiators by 66% to 100%, (2) moderate planners and initiators by 33% to 66%, and (3) minimal planners and initiators by 0 to 33%. No award will be paid if the informant is convicted of criminal conduct arising from the role played in the planning and initiating of the actions that led to the underpayment of tax.

Planning and Initiating Factors (applicable to section 7623(b) (3) determinations):

Was the whistleblower the sole decision maker, one of several contributing planners and initiators, or an advisor to a decision maker?

The nature of the whistleblower’s planning and initiating activities. What did the whistleblower do – was it reasonably legitimate tax planning or objectively unreasonable, were steps taken to hide the actions at the planning stage, was there any identifiable misconduct (legal, ethical, etc.) that was either not criminally prosecuted, for whatever reason, or did not result in a criminal conviction (which results in a zero award)?

The extent to which the whistleblower knew or should have known that tax noncompliance was likely to result from the course of conduct.

The extent to which the whistleblower acted in furtherance of the noncompliance, including efforts to conceal the true nature of the transaction.

The whistleblower’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.

Submission of multiple claims regarding the same tax matter, and joint claims:

When multiple and independent claims are submitted with respect to the same proceeds, the Director may evaluate the contribution of each individual to the assessment and collection of the proceeds and may make an award to each individual commensurate with his or her contribution to the action(s) that resulted in the collection of proceeds. In such a case, the Director shall 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 Director determines that multiple individuals submitted information that would not have been obtained based on a prior submission, the Director shall determine the amount of each individual’s award based on the extent to which each individual substantially contributed to the action(s). The aggregate award payment in cases involving multiple and independent claims shall be within the range of 15% to 30% of collected proceeds, unless one of the reduction of award percentage provisions applies.

When multiple individuals jointly submit a claim, the Director shall pay an award in equal shares to the joint claimants, unless the joint claimants specify a different allocation in a written agreement, signed by all joint claimants and notarized and submitted with the claim. The aggregate award payment in cases involving joint claimants shall be within the range of 15% to 30% of collected proceeds, unless one of the reductions of award percentage provisions applies.

25.2.2.10 (06-18-2010)
Appeal Rights under section 7623(b)
Once the Whistleblower Office has made a final determination regarding a claim under 7623(b) (1), (2), or (3), the Whistleblower Office will communicate the determination, in writing via certified mail, to the claimant. Final Whistleblower Office determinations regarding awards under section 7623(b)(1),(2)and (3) may, within 30 calendar days of such determination, be appealed to the United States Tax Court, 400 Second Street, NW, and Washington DC 20217. The IRS does not have the authority to extend the period for filing an appeal. In accordance with section 7623(b) (4), decisions under section 7623(a) may not be appealed to the Tax Court.

25.2.2.11 (06-18-2010)
Confidentiality of the Whistleblower
The IRS will protect the identity of the whistleblower to the fullest extent permitted by the law.

To the extent that the IRS Whistleblower Office determines that an individual is a "whistleblower" under IRC section 7623, such individual shall be deemed to be a confidential informant whose identity shall be protected in accordance with IRC section 6103(h) (4). Any contact made between the IRS and the whistleblower will not be a third-party contact under IRC section 7602(c). (See IRM 4.11.57, Third Party Contacts)

Under some circumstances, such as when the whistleblower is an essential witness in a judicial proceeding, it may not be possible to pursue the investigation or examination without revealing the whistleblower’s identity. These circumstances are rare, and the Service will consult with the whistleblower before deciding whether to proceed in such a case.

25.2.2.12 (06-18-2010)
Funding Awards
"Collected proceeds" are the monies the IRS obtains directly from a taxpayer which are based upon the information the whistleblower has provided. Satisfaction of taxpayers’ liabilities by reducing a credit balance is not within the scope of collected proceeds.

For claims filed prior to December 20, 2006, whistleblower awards are paid out of taxes and penalties, collected by reason of the information provided.

For claims filed after December 20, 2006, awards are paid out of the proceeds collected, including penalties, interest, additions to tax and additional amounts.

7623(a) Claims: Upon receipt of the Form 11369 approved by the Director of the Whistleblower Office for 7623(a) claims reflecting the percentage for the award, the Informants’ Claims Examiner will:

Place the claim file in a suspense file.

Monitor taxpayer’s account for payment.

Once collections have been made, the ICE Unit will prepare the allowance memorandum for the approval of the Director, Whistleblower Office.

The requirement that claims be paid from collected proceeds generally means that payment will not be made until there is a final determination of tax liability (including taxes, penalties, interest, additions to tax and additional amounts) owed to the Service and such amounts have been collected by the Service. A final determination of tax does not occur until the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the IRS that there has been a final determination of tax for a specific period and a waiver of the right to file a claim for refund is effective.

7623(b) Claims: The amount of assessment of taxes, penalties, interest and other amounts attributable to the Whistleblower will be computed by the Whistleblower Analyst based on all information known with respect to the taxpayer’s account, including, for example, with respect to the use of offsets and net operating losses, as of the date the computation is made. The Whistleblower Analyst will monitor the case for collection of the proceeds. The award payment cannot be completed until the statutory period for filing a claim for refund expires or there is an agreement between the taxpayer and the IRS that there has been a final determination of tax for the specific period and the right to file a claim for a refund has been waived.

Refund Protection: Claims may not be paid under 7623 (a) or (b) which are based on information which leads to the denial of a claim for refund which otherwise would have been paid.

Criminal Fines: Criminal fines, which must be deposited into the Victims of Crime Fund, cannot be used for payment of whistleblower awards.

25.2.2.13 (06-18-2010)
Award Payment Procedures
Whistleblower awards are paid from funds available from the collection of tax assessments resulting from information provided by whistleblowers. The Office of Management and Budget (OMB) apportions the amount of whistleblower payments based on prior year actual expense. The whistleblower payments cannot legally exceed the amount apportioned by OMB. Corporate Performance Budget (CPB) requests additional apportionment where payments are expected to exceed the apportionment. To ensure compliance with Law, CPB will track and approve posting of payments to the Informant Awards account (20x5433.1).

25.2.2.13.1 (06-18-2010)
Roles and Responsibilities
The Whistleblower Office (WO) will provide the Ogden Campus Informant Claims Examination (ICE) Unit with the amount of any awards that are able to be paid immediately.

Ogden ICE Unit will obtain CPB approval of the availability of funds for each award payment prior to processing the payment.

Revenue Financial Management (RFM) will:

Produce an SF 133 based on a TIER file report for Informant Payments using CFO Vision.

Transmit copies of the SF 133 to CPB and the Ogden Campus ICE Unit.

Corporate Performance Budget/Budget Execution Office (CPB) will:

Reconcile the SF 133 with the Informant Awards tracking spreadsheet.

Submit an apportionment request (SF 132) for additional amounts to OMB when actual expected award payments are expected to exceed the available funding.

Approve and track all informant awards prior to payment.

25.2.2.13.2 (06-18-2010)
Procedures
The Ogden ICE Unit will monitor the taxpayer’s account for 7623(a) claims and confirm the collection of funds from the taxpayer. For 7623(b) claims the Whistleblower Office will monitor the taxpayer’s account for the collection of funds from the taxpayer.

The Ogden ICE Unit will email the information on the amount of awards to be paid out to the CPB mailbox with the cc to the Director of the Budget Execution Office.

Note:
This information does not require taxpayer information to be included.

CPB will enter the amount of the request on a tracking sheet that incorporates data from the SF 133 report for Informant Payments.

CPB will approve the request if funding is available.

If the available apportionment falls below an appropriate amount. CPB will contact the Whistleblower Office to ascertain the amount to request from OMB for an additional apportionment.

When the Ogden ICE Unit receives the approval email, they will send an Account Adjustment Voucher (Form 2424) and a Manual Refund Voucher (Form 3753) to the Ogden accounting unit.

The Ogden accounting unit will process the Account Adjustment Voucher (Form 2424) and the Manual Refund Voucher (Form 3753).

The Ogden IRACS team will journalize the Informant Award account (Journal 495) and the Manual Refund (Journal 515).

Accounting will maintain a separate file of all manual refunds issued as Whistleblower Awards to specifically issue Form 1099 MISC.

Form 1099 MISC will be issued to taxpayers annually (received by taxpayer January 30). Accounting will contact the ICE Unit for a list of Whistleblower Award recipients to verify proper issuance.

After processing Form 1099 MISC is complete, Accounting will forward a copy of the transmittal to the Informants Claim Unit and the SB/SE HQ Analyst.

25.2.2.14 (06-18-2010)
Annual Report to Congress
The Secretary of the Treasury must conduct a study annually and report to Congress on the use of section 7623 of the Internal Revenue code of 1986, including an analysis of the use of such section during the preceding year and the results of such use.

Exhibit 25.2.2-1
1891 Letter
Dear _________________:

We received your Form 211, Application for Award for Original Information, and have assigned the above claim number. We will evaluate the information you provided to determine if an investigation is warranted and an award is appropriate. Please retain this notice for future reference.

It is important to understand that if we initiate an investigation as a result of your information, it could take several years until final resolution of all tax matters. This is especially true if the taxpayer exercises all administrative and judicial appeal rights. Before we can pay an award, the Service must collect any additional taxes, penalties, interest or other amounts attributable to the information you provided. Collection action could also take several years.

At the conclusion of our review and/or investigation, we will be able to tell you only whether or not the information you provided met the Service’s criteria for paying an award. Federal disclosure and privacy laws prohibit the Service from informing you of specific actions we take or do not take with respect to your information. We hope you understand this restriction placed on the Internal Revenue Service, by law, and ask for your patience in this matter.

We will notify you as soon as all actions relating to your claim have been completed. If you change your address please let us know.

Thank you for your participation in the Informants’ Claims for Award Program. Sincerely,

Manager
Informants Claims Unit

Exhibit 25.2.2-2
Rejection Letter – 1010 Letter
Dear ___________:

We have considered your Informant Award Submission provided under a declaration under penalty of perjury on a Form 211, Application for Award for Original Information, in connection with Internal Revenue Code Section 7623, as amended by the Tax Relief and Health Care Act of 2006.

The information you provided did not identify a federal tax issue upon which the IRS will take action. Therefore, your claim did not result in the detection of the underpayment of taxes and as a result, an award determination cannot be made.

Although the information you submitted did not qualify for an award, thank you for your interest in the administration of the internal revenue laws.

If you have any further questions in regards to this letter, please contact: __________

Sincerely,

Manager
Informants Claims Unit

Exhibit 25.2.2-3
Acknowledgement Letter – Whistleblower Office
Name of Informant
Address

Re: (Claim Number)

Dear_____________________

We received your Form 211, Application for Award for Original Information. It has been assigned claim number.

It is important to understand if we initiate an investigation as a result of your information, it could take several years until final resolution of all tax matters.

This is especially true if the taxpayer exercises all administrative and judicial appeal rights. Before we can pay an award, the Internal Revenue Service must collect any additional taxes, penalties, interest or other amounts assessed by reason of your information. Collection action could also take several years.

Should you have any questions, Whistleblower Office analyst _______________ has been assigned to your claim and can be reached at ________________.

Sincerely,

Whistleblower Office

CC:

Exhibit 25.2.2-4
Debriefing Checksheet
Debriefing Checksheet

Whistleblower's Name:

(Name of Designated Representative)
Note:
If you do not have information about something discussed during the debriefing, do not interpret that as a request that you obtain additional information. The debriefing is to help us understand what you know.

Item Initials Date
1. PROVIDING TRUTHFUL INFORMATION: The informant was advised the importance of being truthful in the information provided to the Government, both in the application and during the interview. Deliberate false statements can affect the eligibility for an award, and the amount of any award that may be paid.
2. VOLUNTARY INFORMATION: The informant was advised that the assistance and the information provided to the Government is entirely voluntary. That he/she is not acting on behalf of the United States Government or at the direction of the United States Government with respect to the information that he/she is voluntarily providing.
3. NOT EMPLOYEE OF THE GOVERNMENT: The informant was advised that he/she is not any employee or agent of the United States Government and he/she cannot take any independent action on behalf of the United States Government. He/she may not represent himself as an employee or agent of the Internal Revenue Service or the United States Government.
4. EVALUATION OF THE INFORMATION: The informant was advised that the IRS will evaluate the information submitted, and determine whether it will use that information in an investigation or audit. That evaluation will consider the information submitted, other information available to the IRS, and the potential return from an investigation or audit compared to other matters the IRS could choose to pursue and a wide range of other legal and policy issues. The IRS does not act on every case of possible tax noncompliance.
5. POTENTIAL THAT AUDIT OR INVESTIGATION MAY TAKE YEARS TO RESOLVE: The informant was advised that if the IRS decides to use the information submitted in an audit or investigation, the matter may not be resolved quickly. It is not uncommon for an audit or investigation to continue for several years, particularly when the affected taxpayer excises appeal rights. If the matter relates to a large taxpayer, it may be incorporated into a broader audit plan that may address several tax years and multiple tax issues.
6. RECORDATION OF THE INTERVIEW: A record will be made of any interview, and of all written communications between the IRS and you or your representative. These records will be kept separate from the investigation or audit case file, to protect your identity from inappropriate disclosure. The informant was advised that he/she may be asked to consent to audio recording of any interview. He/she was advised that if an audio recording is not conducted, the IRS will rely on the interview notes as evidence of any information provided during the debriefing. (Under 6103 the notes of the interview made by Service personnel will not be available to the informant or their representative.)
7. PROTECTING THE IDENTITY OF THE INFORMANT: The informant was advised that the IRS will protect against the disclosure of his/her identity, and even the fact that a whistleblower has provided information, to the maximum extent that the law allows. His/her identity will not be disclosed by the IRS unless we deem it to be absolutely necessary, and he/she will be consulted before we do so. Despite our best efforts to protect your identity, there is no way to guarantee that your role will not become known to or suspected by the taxpayer. (The Service will notify the informant and their counsel of any public disclosures.)
8. AWARD AUTHORITY: The informant was advised that the Whistleblower Office has authority with respect to any award, payments, or other compensation. The individuals present at this interview cannot make any promises or guarantees with respect to any award for the information you providing.
9. TAXABILITY OF PAYMENTS: The informant was advised that all awards are taxable and (considered to be US sourced income) should be reported on his/her individual income tax Or in accordance with treaty regulations.
10. Contacts: the informant was advised not to make contact with any representatives of the Service in regards to this matter unless specifically directed to do so. All contacts as to the status of the submission should be addressed to the Whistleblower office and all supplemental information should be submitted to the Whistleblower office.
By my signature below, I certify that the above information was discussed on the dates indicated.
IRS Representative: Date:
Informant’s Signature: Date:
Representative signature Date:

Exhibit 25.2.2-5
Rejection Letter from the Whistleblower Office
Name of Informant
Address

Re: (Claim Number)

Dear __________________:

We have considered your Whistleblower Award Submission provided under [a declaration under penalty of perjury, [a Form 211, Application for Reward for Original Information or a Form 211 Application for Award for Original Information] dated ________, in connection with Internal Revenue Code Section 7623, as amended by the Tax Relief and Health Care Act of 2006.

The information you provided did not identify a federal tax issue upon which the IRS will take action. Therefore, your claim did not result in the detection of the underpayment of taxes and as a result, an award determination cannot be made under section 7623(b).

Although the information you submitted did not qualify for an award, thank you for your interest in the administration of the internal revenue laws.

If you have any further questions in regards to this letter please contact [insert name of Analyst] at 202-622-0351.

Sincerely,

Chief, Case Development & Oversight

cc: [Insert name of POA if applicable]
File

Exhibit 25.2.2-6
Memorandum from Steven T. Miller, February 17, 2010
MEMORANDUM FOR OPERATING DIVISION EXECUTIVES, MANAGERS, AND SUBJECT MATTER EXPERTS

From: Steven T. Miller, Deputy Commissioner for Operations Support

Subject: Informant Contacts: Current Employees and Taxpayer Representatives

This memorandum provides guidance to Operating Division Subject Matter Experts (SMEs) and other employees on the procedures applicable to the IRS’s contacts with current employee informants and taxpayer representative informants in civil tax cases. This memorandum is intended to complement Chief Counsel Notice 2010-004, Clarification of CC Notice 2008-011 – Limitations on Informant Contacts: Current Employees and Taxpayer Representatives. This memorandum encompasses, but is not limited to, the IRS’s contacts with informants who have filed claims pursuant to I.R.C. § 7623 (the Whistleblower Statute). It does not apply to criminal matters. For guidance with respect to criminal matters, refer to IRM 9.4.2, Sources of Information.

Evidentiary Issues in Informant Cases

Although the IRS is not subject to the restrictions of the formal rules of evidence in administrative matters such as audits, Operating Division SMEs must be sensitive to potential evidentiary issues that may limit the ability of the IRS to defend deficiency adjustments and assessments in any subsequent litigation. One potential evidentiary limitation involves the use of tainted information – information that cannot be used in litigation because, for example, it is a taxpayer’s privileged information that has been provided to the IRS by an informant. In some cases, contacts between the IRS and an informant may taint information received from the informant. In other cases, information received from an informant may be tainted upon receipt, regardless of the contacts made between the IRS and the informant. Any adjustments that depend on tainted information, or on any information derived from tainted information, may not be legally supportable and may have to be conceded by the IRS.

In cases involving information received from informants, the IRS must determine whether the information is subject to a privilege and, if so, whether the privilege has been waived and the extent of any unwaived privilege. In cases other than those described below, the IRS may conduct its own review of the information provided by an informant without the formal assistance of Chief Counsel. The IRS must, however, coordinate with the appropriate Operating Division Counsel upon the identification of any potential privilege issue, regardless of whether it arises in a case described below.

Informants who are Current Employees of a Taxpayer

Generally, it should be assumed that, at a minimum, a current employee informant has access to information that may be subject to a privilege that has not been affirmatively waived by the taxpayer. Accordingly, Operating Division SMEs must be particularly sensitive to the privilege issues that may be present in current employee informant cases. These cases may also raise other issues, such as Constitutional issues and confidentiality issues, which could limit the IRS’s ability to use information received from the informant in any subsequent litigation. To ensure that any adjustments dependent on information received from current employee informants cannot be successfully challenged on evidentiary grounds, the IRS must coordinate the taint review with Operating Division Counsel in current employee informant cases as described below.

To avoid potential limitations on the evidentiary use of information received from current employee informants, the IRS should act as a passive recipient of information in every case in which an informant is a current employee of a taxpayer and is providing information regarding the taxpayer/employer. This means that Operating Division SMEs must not encourage, or acquiesce in, any actions taken by the informant. Operating Division SMEs should, however, be ready and willing to accept any and all information from a current employee informant at the initial meeting between the IRS and the informant. Debriefing procedures applicable to civil cases are discussed at IRM 25.2.2.6.

On a case-by-case basis, the IRS may also initiate limited follow-up contacts, including debriefings, with a current employee informant to clarify information previously received from the informant. Operating Division Counsel should be present to provide support with respect to all follow-up contacts and debriefings.

A current employee informant may submit additional information to the IRS following the initial submission of information. Generally, the IRS may receive and use this "supplemental" information for the sole purpose of clarifying previously submitted information. Supplemental information includes information that reasonably relates to the previously submitted information, based on an analysis of all the facts and circumstances relating to the information and the IRS’s contacts with the informant, but does not include information that relates to new issues. The IRS must coordinate the analysis with Operating Division Counsel. If Counsel advises that the IRS should not use the information, based on its analysis of the legal risks, then the appropriate IRS Executive will determine whether or how to proceed.

In certain circumstances, contacts with a current employee informant, whether initiated by the IRS or the informant, that are not clearly within the situations described above, may also be considered on a case-by-case basis. These circumstances may arise, for example, when it is unclear whether a proposed contact would be an initial contact, a debriefing, or a subsequent contact, or when an informant submits additional information that relates to a new issue. Additional information that is submitted by a whistleblower, including a current employee informant, that relates to a new issue should be treated as a new claim that is subject to the procedures described in Notice 2008-4, 2008-2 I.R.B. 253. In these circumstances, the IRS must coordinate the matter with Operating Division Counsel. If Counsel advises that the IRS should not initiate a contact or use information, based on its evaluation of the legal risks, then the appropriate IRS Executive will determine whether or how to proceed.

Informants who are Current Representatives of a Taxpayer

The IRS will not accept any information from an informant regarding a taxpayer (or related taxpayers) when the informant is also that taxpayer’s representative in any administrative matter pending before the IRS, e.g., an income tax examination, or in any litigation involving issues in which the IRS has any interest (Tax Court and refund litigation, collections suits, summons enforcement actions, etc.). If a taxpayer’s representative makes a direct or indirect overture about becoming an informant, e.g., either orally or by filing a Form 3949A, Information Referral, or Form 211, Application for Reward for Original Information, there should be no further interaction with that person as the taxpayer’s representative and the representative must be informed of this outcome immediately. It will be the responsibility of the informant to attempt to explain the reason for being excluded from the matter as the taxpayer’s representative under these circumstances. In addition, Operating Division employees should have no further interaction or contact with, or receive any further information from, the current representative as an informant.

The same rules apply and the same results are reached if an individual’s status as an informant regarding a taxpayer (or related taxpayers) predates that individual’s appearance as the taxpayer’s representative in any administrative matter pending before the IRS or in litigation. Operating Division Counsel must be notified immediately of any situation involving an informant or potential informant who is, or may become, the taxpayer’s representative under the circumstances described above.

See also IRM 25.2 for more specific guidance regarding informant contacts, including informants who are current employees and taxpayer representatives. Questions related to this memorandum can be directed to Stephen A. Whitlock, Director, Whistleblower Office, at (202) 622-0351 or by e-mail at wo@irs.gov.

Attachments:

Chief Counsel Notice 2010-004, Clarification of CC Notice 2008-011 – Limitations on Informant Contacts: Current Employees and Taxpayer Representatives

Exhibit 25.2.2-7
Sample Notice of Opportunity to Comment Letter
Dear Whistleblower:

We have enclosed a summary award report that explains our proposed award recommendation in your case.

If you agree with the proposed award recommendation.
Check the appropriate box, sign and date the enclosed Opportunity to Comment form.

Return the signed form to us.

After we receive your signed consent form, the Director of the I.R.S. Whistleblower Office will make a final determination in your case.

If you do not agree with the proposed award recommendation and would like to comment without reviewing additional documents in our file:
Check the appropriate box, sign and date the Opportunity to Comment form.

Return the signed form and your comments to us within 30 days.

After we receive your signed consent form, the Director of the I.R.S. Whistleblower Office will make a final determination in your case. Any comments on the award report that we receive from you will be considered by the Director in making the final determination of your award.

If you do not agree with the proposed award recommendation and would like to review additional documents in our file before you comment:
Check the appropriate box, sign and date the Opportunity to Comment form.

Sign and date the enclosed confidentiality agreement

Return the signed form and the agreement to us within 30 days.

If you return the award report and signed confidentiality agreement to us within 30 days of the date shown above, we will provide additional information that explains the basis for the recommendation in greater detail. You will also receive an opportunity to review the written records that support the recommendation. When we send you the additional information we will include information explaining how to schedule an appointment to review the written records. The review of the records must take place at the IRS Whistleblower Office in Washington, DC and you will not be permitted to make copies of the records. You will be given opportunities to submit comments on the proposed award recommendation after you receive the additional information and after you review the written records (if you choose to do so). The Director of the IRS. Whistleblower Office will not make a final award determination in your case until at least 30 days after you have received the additional information and reviewed the written records (if you choose to do so). Any comments on the award report that we receive from you will be considered by the Director in making the final determination of your award.

All documents described above, including signed and dated consent forms, signed and dated confidentiality agreements, copies of award reports, and comments must be mailed to:

IRS Whistleblower Office, SE: WO, 1111 Constitution Avenue, NW, Washington DC 20224

If you take no action in response to this letter within 30 days, the Director will make a final determination of the award.

After the Director makes a determination, you may appeal the final determination by filing a petition with the Tax Court within 30 days of the date of the final determination. The right to seek US Tax Court review of the Director’s final determination is not affected by the choice you make regarding whether to participation in the administrative proceeding.

If you have any questions about this letter, you may write to [name] at the IRS Whistleblower Office address above, or call him/her at [phone number]. If this number is outside your local calling area, long distance charges may apply. If you write, please include your telephone number and the best time to call you if we need more information.

Sincerely,

Exhibit 25.2.2-8
Sample Summary Award Report
Whistleblower Office Claim Number(s) _________________________

Tax, penalties, interest and other amounts collected based on information provided by whistleblower ___$41,325,961.54___

Recommended award percentage __22%____

Recommended award amount __$9,091,711.54___

This award recommendation is made under 26 USC 7623(b) (1).

The information you (your client) provided resulted in the addition of an issue to a taxpayer examination that was already planned or in progress. The examination of the issue was conducted using audit techniques generally applicable to this issue, modified to address the specific circumstances described in your (your client’s) submission. Information you (your client) provided was used to refine the focus of information document requests to the taxpayer, and to test the completeness of the taxpayer’s response. The information you (your client) submitted was well organized and provided factual and legal analysis supporting the allegation of underpayment of tax. The issue in this case was of a type generally known to the Service, but the taxpayer behavior identified did not follow a pattern typically identified by the Service.

The information you (your client) provided identified connections between transactions which enabled the Service to understand tax implications that might not otherwise have been revealed. The Service was able to reach a conclusion about the probability that the taxpayer had underpaid tax with limited additional research and analysis, materially reducing the Service resources required to address the issue. The presence of these positive factors warrants an increase in the award percentage above the statutory minimum award of 15%. While the positive factors reflect material contributions to the audit, those contributions were not extraordinary. There were no material negative factors. An award of 22% of collected proceeds is warranted in this case, taking into account the extent to which you (your client) substantially contributed to actions by the IRS

Exhibit 25.2.2-9
Award Recommendation-Opportunity to Comment
Whistleblower Office Claim Number(s) _________________________

[Name and address of whistleblower]

[Name and address of representative]

After receipt of a summary of an award recommendation under 26 USC 7623 from the IRS Whistleblower Office, dated [date],
I agree with the award recommendation.

I disagree with the award recommendation. I am providing comments on the summary award report. My comments are attached.

I wish to receive a copy of the full recommendation, and may choose to review the supporting documents. I understand that I and/or my representative will be permitted to review the supporting documents at the IRS Whistleblower Office in Washington DC, and that I/we may not copy the supporting documents. I further understand that I must submit comments or indicate my intention to review the supporting documents within 30 days of my receipt of the full recommendation. I have attached the confidentiality agreement provided signed by myself and my representative.

Whistleblower signature and date

Whistleblower representative signature and date

Exhibit 25.2.2-10
Confidentiality Agreement
I, (name of whistleblower/representative), have received notice from the IRS of the award recommendation in the case initiated by my submission of a claim for award under 26 USC 7623 (state claim number). I wish to participate in the administrative proceeding leading to the determination of an award by the Director of the Whistleblower Office in this case, by reviewing additional information related to the award recommendation. I understand that information will not be disclosed to me unless the disclosure is necessary as part of the administrative proceeding, and unless I agree to maintain the confidentiality of any information on taxpayers other than myself (my client) disclosed to me. I agree that I will use any information disclosed to me (my client) by the Whistleblower Office only for the purpose of preparing comments on the recommendation to the Director, or in appealing the Director’s determination by petitioning the US Tax Court. I understand that use of any information disclosed to me (my client) for any other purpose may be considered a negative factor in determining the award payable under 26 USC 7623, and may result in a reduction of the award (but not less than the minimum award required by law). This agreement applies to any information disclosed as part of the administrative proceeding leading to the determination by the Director of the Whistleblower Office, including information contained in a Preliminary Award Report or any other information made available for my review by the IRS Whistleblower Office. Any disclosures made in connection with a request for review of the Director’s determination by the US Tax Court, including re-disclosure of information previously disclosed as part of the administrative proceeding, will be governed by the rules of the Court.

Signed and witnessed

Exhibit 25.2.2-11
Sample Preliminary Award Report
Whistleblower Office Claim Number(s) _________________________

1. The Whistleblower’s Submission

On June 1, 2008, a submission from Whistleblower A was received by the Whistleblower Office (Tab 1 - Form 211 and attachments). Whistleblower A alleged underpayment of tax by Taxpayer X in Tax Years 2004 and 2005, as a result of an improper return position with respect to a transaction substantially similar to a "swine swap." The submission included a 14 page factual and legal analysis of the transactions in question, and 100 pages of exhibits.

Initial review by the WO revealed that Taxpayer X had an open audit cycle for Tax Years 2004 and 2005, and that the audit was assigned to LMSB Natural Resources Industry Group. The submission was transferred to the LMSB-NR Subject Matter Expert, with WO research reports, on August 1, 2008 (Tab 2, WO Transmittal memorandum and attachments).

The LMSB-NR SME conducted additional research, interviewed Whistleblower A, (Tab 3, SME record of whistleblower debriefing), and determined that the information provided by Whistleblower A may materially contribute to the assessment or collection of taxes from Taxpayer X. The SME found no information that was subject to a claim of privilege, and no other reason to withhold any part of the information provided from the audit team. The submission was transferred to the audit team on November 1, 2008 (Tab 4, SME Transmittal).

2. Audit team action on information provided

The issue raised by Whistleblower A was not part of the audit plan for Taxpayer X prior to receipt of the submission (Tab 5, Form 11369 and attachments). The audit team was unaware that Taxpayer X had engaged in the alleged "swine swap" transaction reported by Whistleblower A, and the scope of the planned audit did not focus on this aspect of the taxpayer’s operations (Tab 5, Attachment 1, page1). The audit scope was expanded to include the issue and transaction, and later expanded to include Tax Year 2006.

The audit team modified an audit guide previously used for "swine swap" transactions. The modifications address characteristics of the Taxpayer X transaction that were not previously found in "swine swap" transactions, including the use of additional partnership structures and third parties whose role in the transaction obscured the nature of the transaction (Tab 5, Attachment 3 (audit guide), page 5). Information document requests were prepared to seek specific information about the alleged "swine swap" transaction, including an IDR to the third parties (Tab 5, Attachments 5, 6 and 7, Information document requests).

The taxpayer response included a legal analysis of the transaction, citing elements that distinguished it from "swine swaps," including the partnership structures and third party involvement described in the whistleblower submission (Tab 5, attachment 10, taxpayer response to IDR, pages 13 to 97, legal opinion from Big Law Firm). This legal analysis concluded that the transaction was not substantially similar to a "swine swap."

The audit team disallowed the deduction claimed by Taxpayer X with respect to the “swine swap” transaction for Tax Years 2004 and 2005, and extended the scope of the audit to include Tax Year 2006 in order to reach the "swine swap" deduction taken in that year (Tab 5, attachment 14, Revenue Agent Report, pages 3, 13, 19 and 25). The disallowance relied on a Field Counsel opinion that the transaction was substantially similar to a "swine swap," and that several elements described in the taxpayer’s legal analysis distinguishing the transaction from a "swine swap" did not actually occur (Tab 5, attachment 17, Field Counsel Opinion dated September 3, 2009). The Field Counsel opinion mirrored the analysis provided by Whistleblower A (Tab 1, attachment 3, Whistleblower A legal and factual analysis).

The audit team assessed additional tax of $20 million in Tax Year 2004, $25 million in Tax Year 2005, and $10 million in Tax Year 2006, as well as accuracy related penalties for each year, all with respect to the issue raised by Whistleblower A. There were additional adjustments with respect to other issues, some increasing and others decreasing the taxpayer’s liability. The net assessments were $110 million in Tax Year 2004, $75 million in Tax Year 2005 and $7 million in Tax Year 2006 (Tab 5, Attachment 14, Revenue Agent Report, pages 1-2).

Taxpayer X disagreed with proposed adjustments for each of the tax years, including the adjustments related to the "swine swap," and the case was submitted to Appeals. Appeals reduced the assessments related to the "swine swap" to $15 million for Tax Year 2004, $17.75 million for Tax Year 2005 and $5.25 million for Tax Year 2006. Appeals did not sustain the accuracy related penalties. Net tax assessments after Appeals actions were $80 million for Tax Year 2004, $65 million for Tax Year 2005 and $4 million for Tax Year 2006 (Tab 6, Appeals Decision Memorandum, pages 6-10 and 31-34).

On February 3, 2010, Taxpayer X accepted the proposed assessments, as adjusted to reflect the Appeals actions, executing a Form XXX including a waiver of the right to claim a refund. Taxpayer X paid $93 million in additional tax and interest for Tax Year 2004, $71 million for Tax Year 2005 and $4.5 million for Tax Year 2006 (Tab 7, Tax Transcripts).

3. Collected proceeds based on whistleblower information

Information Tax Year 2004 Tax Year 2005 Tax Year 2006
a. Total Additional Tax Assessed and paid $80,000,000.00 $65,000,000.00 $4,000,000.00
b. Assessment Related to Whistleblower Issue $15,000,000.00 $17,750,000.00 $5,250,000.00
c. a. or b., whichever is less $15,000,000.00 $17,750,000.00 $4,000,000.00
d. Total penalties assessed and paid 0 0 0
e. Penalties related to Whistleblower Issue 0 0 0
f. d. or e., whichever is less 0 0 0
g. Total Interest Assessed and Paid $13,000,000.00 $6,000,000.00 $500,000.00
h. Interest related to Whistleblower Issue (If a is greater than b, g. multiplied by the ratio of b. to a. If a is less than b, g). $2,437,500 $1,638,461.54 $500,000
i. Total proceeds related to whistleblower issue (c. plus f. plus h.) $17,437,500.00 $19,388,461.54 $4,500,000.00
j. Total proceeds, all tax years $41,325,961.54

4. Award Percentage Analysis

The information Whistleblower A provided resulted in the addition of an issue to a taxpayer examination that was already planned or in progress. The examination of the issue was conducted using audit techniques generally applicable to this issue, modified to address the specific circumstances described in the submission. Information provided was used to refine the focus of information document requests to the taxpayer, and to test the completeness of the taxpayer’s response.

The information submitted was well organized and provided factual and legal analysis supporting the allegation of underpayment of tax. The issue in this case was of a type generally known to the Service, but the taxpayer behavior identified did not follow a pattern typically identified by the Service. The information identified connections between transactions which enabled the Service to understand tax implications that might not otherwise have been revealed. The Service was able to reach a conclusion that the taxpayer had underpaid tax with limited additional legal research and analysis, materially reducing the Service resources required to address the issue.

The presence of these positive factors warrants an increase in the award percentage above the statutory minimum award of 15%. While the positive factors reflect material contributions to the audit, those contributions were not extraordinary. There were no material negative factors.

Recommended award percentage 22%

5. Recommended award

a. Total Collected Proceeds Related to Submission $41,325,961.54
b. Recommended award percentage 22% 22%
c. Recommended award (a. multiplied by b.) $9,091,711.54

Exhibit 25.2.2-12
Sample Determination Letter
Date:

Tax Court Review Deadline Date_______________________

Whistleblower Office Claim Number(s) _________________________

Dear Whistleblower:

We have determined that you are entitled to an award of XXXX. This letter is the Final Award Determination, as required by law. The enclosed final award report explains the determination and the calculation of the award.

If you want to contest this final award determination in court, you have 30 days from the date of this letter to file a petition to the US Tax Court appealing the determination. You can get a copy of the rules for filing a petition and a petition form you can use by writing to the address below.

United States Tax Court
400 Second Street, NW,
Washington, DC 20217

You can also get this information from the Tax Court’s internet site at http://www.ustaxcourt.gov.

If you decide to file an appeal, submit to the Tax Court at the above address the completed petition form, a copy of this letter and an copy all attachments to this letter. The Tax Court cannot consider your case if the appeal is filed late. The petition is considered timely filed if the postmark date falls within the prescribed 30 day period and the envelope containing the petition is properly addressed with the correct postage. The time you have to file a petition is set by law and cannot be extended or suspended. Thus, contacting the IRS for more information, or receiving other correspondence from the IRS, will not change the allowable period for filing a petition with the Tax Court.

You may represent yourself before the Tax Court, or you may be represented by anyone admitted to practice before the Tax Court.

If you decide not to file a petition with the Tax Court, please sign the enclosed waiver form and return it to us at the following address:

IRS Whistleblower Office, SE: WO,
1111 Constitution Avenue, NW,
Washington DC 20224

This will allow us to begin processing the award payment, and can help get the payment to you more quickly.

If you decide not to sign and return the waiver, and you do not file an appeal with the Tax Court within the time limit, we will begin processing the award payment 15 days after the time limit expires. If you file a petition with the Tax Court, appealing the final award determination, we cannot begin the payment process until the Tax Court makes a decision and any further judicial review has concluded or been waived.

If you have questions about this letter, you may write to [name] at the IRS Whistleblower Office address above, or call him/her at [phone number]. If this number is outside your local calling area, long distance charges may apply. If you write, please include your telephone number and the best time to call you if we need more information.

Sincerely,

Director, Whistleblower Office

Attachment: Final Award Report
Information Enclosures

Final Award Determination Report

Whistleblower Office Claim Number(s) _________________________

1. The Whistleblower’s Submission
On June 1, 2008, a submission from Whistleblower A was received by the Whistleblower Office. Whistleblower A alleged underpayment of tax by a taxpayer in Tax Years 2004 and 2005, as a result of an improper return position with respect to a transaction substantially similar to a "swine swap." The submission included a 14 page factual and legal analysis of the transactions in question, and 100 pages of exhibits.

Initial review by the WO revealed that the taxpayer had an open audit cycle for Tax Years 2004 and 2005, and that the audit was assigned to LMSB Natural Resources Industry Group. The submission was transferred to the LMSB-NR Subject Matter Expert, with WO research reports, on August 1, 2008.

The LMSB-NR SME conducted additional research, interviewed Whistleblower A, and determined that the information provided by Whistleblower A may materially contribute to the assessment or collection of taxes from the taxpayer. The SME found no information that was subject to a claim of privilege, and no other reason to withhold any part of the information provided from the audit team. The submission was transferred to the audit team on November1, 2008

2. Audit team action on information provided
The issue raised by Whistleblower A was not part of the audit plan for the taxpayer prior to receipt of the submission. The audit team was unaware that the taxpayer had engaged in the alleged "swine swap" transaction reported by Whistleblower A, and the scope of the planned audit did not focus on this aspect of the taxpayer’s operations. The audit scope was expanded to include the issue and transaction, and later expanded to include Tax Year 2006.

The audit team modified an audit guide previously used for "swine swap" transactions. The modifications address characteristics of the taxpayer’s transaction that were not previously found in "swine swap" transactions, including the use of additional partnership structures and third parties whose role in the transaction obscured the nature of the transaction. Information document requests were prepared to seek specific information about the alleged "swine swap" transaction, including an IDR to the third parties.

The audit team disallowed the deduction claimed by the taxpayer with respect to the "swine swap" transaction for Tax Years 2004 and 2005, and extended the scope of the audit to include Tax Year 2006 in order to reach the"swine swap" deduction taken in that year. The disallowance relied on a Field Counsel opinion that mirrored the analysis provided by Whistleblower A.

Final assessments related to the "swine swap" to $15 million for Tax Year 2004, $17.75 million for Tax Year 2005 and $5.25 million for Tax Year 2006. Net tax assessments reflecting additional adjustments with respect to other issues, some increasing and others decreasing the taxpayer’s liability, were $80 million for Tax Year 2004, $65 million for Tax Year 2005 and $4 million for Tax Year 2006.

On February 3, 2010, the taxpayer paid $93 million in additional tax and interest for Tax Year 2004, $$71 million for Tax Year 2005 and $4.5 million for Tax Year 2006.

3. Collected proceeds based on whistleblower information

Information Tax Year 2004 Tax Year 2005 Tax Year 2006
a. Total Additional Tax Assessed and paid $80,000,000.00 $65,000,000.00 $4,000,000.00
b. Assessment Related to Whistleblower Issue $15,000,000.00 $17,750,000.00 $5,250,000.00
c. a. or b., whichever is less $15,000,000.00 $17,750,000.00 $4,000,000.00
d. Total penalties assessed and paid 0 0 0
e. Penalties related to Whistleblower Issue 0 0 0
f. d. or e., whichever is less 0 0 0
g. Total Interest Assessed and Paid $13,000,000.00 $6,000,000.00 $500,000.00
h. Interest related to Whistleblower Issue (If a is greater than b, g. multiplied by the ratio of b. to a. If a is less than b, g). $2,437,500 $1,638,461.54 $500,000
i. Total proceeds related to whistleblower issue (c. plus f. plus h.) $17,437,500.00 $19,388,461.54 $4,500,000.00
j. Total proceeds, all tax years $41,325,961.54

4. On [date], Whistleblower A was notified of a recommended award under 26 USC 7623, and offered an opportunity to comment on the recommendation. After executing a confidentiality agreement, Whistleblower A received a copy of the award recommendation, and reviewed documents supporting the recommendation. On [date], Whistleblower A submitted comments on the following issues:

Amount of collected proceeds: Whistleblower A stated that the amount of collected proceeds was understated, because it did not include improper "swine swap" transaction activity in Tax Year 2003, because the amount assessed for Tax Years 2004, 2005 and 2006 did not reflect the full amount of the taxpayer’s understatement of liability for those years, and because no penalty amounts were included in the assessments.

Related actions: Whistleblower A stated that assessments based on participation in "mule swaps" should have been counted as proceeds based on the information provided. The "mule swap”" issue was not included in the original examination plan, and was added after the IRS received Whistleblower A’s submission.

5. Award Percentage Analysis

The information Whistleblower A provided resulted in the addition of an issue to a taxpayer examination that was already planned or in progress. The examination of the issue was conducted using audit techniques generally applicable to this issue, modified to address the specific circumstances described in the submission. Information provided was used to refine the focus of information document requests to the taxpayer, and to test the completeness of the taxpayer’s response.

The information submitted was well organized and provided factual and legal analysis supporting the allegation of underpayment of tax. The issue in this case was of a type generally known to the Service, but the taxpayer behavior identified did not follow a pattern typically identified by the Service. The information identified connections between transactions which enabled the Service to understand tax implications that might not otherwise have been revealed. The Service was able to reach a conclusion that the taxpayer had underpaid tax with limited additional legal research and analysis, materially reducing the Service resources required to address the issue.

Whistleblower A’s comments on the recommended award were considered in making the award determination:

Amount of collected proceeds: While Whistleblower A argues that the IRS could have assessed additional tax liability and penalties based on the information provided, that argument is not relevant to the award determination. Decisions by the IRS on tax years and issues to include in an examination, the amounts assessed, and the scope of collection action are tax administration matters over which the Whistleblower Office has no jurisdiction, and may not be challenged by a whistleblower. Awards are paid based on collected proceeds, not on proceeds that might have been collected if the IRS had acted differently.

Award percentage determination: An award of 22% of collected proceeds is warranted in this case, taking into account the extent to which Whistleblower A substantially contributed to actions by the IRS.

Amount of collected proceeds: While Whistleblower A argues that the IRS could have assessed additional tax liability and penalties based on the information provided, that argument is not relevant to the award determination. Decisions by the IRS on tax years and issues to include in an examination, the amounts assessed, and the scope of collection action are tax administration matters over which the Whistleblower Office has no jurisdiction, and may not be challenged by a whistleblower. Awards are paid based on collected proceeds, not on proceeds that might have been collected if the IRS had acted differently. The presence of positive factors warrants an increase in the award percentage above the statutory minimum award of 15%. While the positive factors reflect material contributions to the audit, those contributions were not extraordinary. There were no material negative factors.

6. Determination of award amount award.

a. Total Collected Proceeds Related to Submission $41,325,961.54
b. Recommended award percentage 22% 22%
c. Recommended award (a. multiplied by b.) $9,091,711.54

Final Award Determination—Waiver of Appeal

Whistleblower Office Claim Number(s) _________________________

[name and address of whistleblower]

{name and address of representative]

After receipt of an award determination under 26 USC 7623 from the Director of the IRS Whistleblower Office, dated [date], I waive my right to appeal the determination to the US Tax Court.

Whistleblower signature and date

Whistleblower representative signature and date

Exhibit 25.2.2-13
Award Calculation Computation Guidelines
For Submissions on or after August 26, 1997, calculate as follows:

FOR THEN Dollar Limitation not to exceed
Specific and responsible information which caused the investigation in recovery of taxes, penalties and fines. 10 % first $75,000
5 % next $ 25,000
1 % any additional recovery $ 100,000
Information (not specific) which caused the examination as was of value in determining tax liabilities, and for information which was a direct factor in recovery of taxes, penalties and fines (although such information did not start the investigation). 5 % first $75,000
21/2 % next $ 25,000
1/2% any additional recovery $ 100,000
Information that caused the investigation but was of no value in determining tax liability. 1 % first $75,000
1/2% any additional recovery $ 100,000

For Submission on or after August 26, 1997 but before August 13, 2004 calculate as follows:

FOR THEN Dollar Limitation not to exceed:
Specific and responsible information which caused the investigation in recovery of taxes, penalties and fines. 15% $ 2 million
Information that caused the investigation and was of value in the determination of tax liabilities although not specific. 10% $ 2 million
Information that caused the investigation but had no direct relationship to the determination of tax liabilities. 1% $ 2 million

For Submissions on or after August 13, 2004, calculate as follows:

FOR THEN Dollar Limitation not to exceed:
Specific and responsible information which caused the investigation in recovery of taxes, penalties and fines. 15% $ 10 million
Information that caused the investigation and was of value in the determination of tax liabilities although not specific. 10% $ 10 million
Information that caused the investigation but had no direct relationship to the determination of tax liabilities. 1% $ 10 million

Today, the leading advocate for robust whistleblower laws has called for the Treasury Department and the IRS to account for their use of information provided by the "UBS whistleblower," Bradley Birkenfeld.

Sen. Chuck Grassley issued a press release today summarizing his letter to Treasury Secretary Tim Geithner and IRS Commissioner Douglas Shulman. Grassley commented on Swiss legislators' move today to "unravel a U.S.-Swiss treaty that would allow for the disclosure of more client information to allow U.S. officials to review cases for potential enforcement of U.S. tax laws."

"The action by Swiss legislators today to try to unravel an international treaty emphasizes the need for U.S. authorities to exhaust the information they have on U.S. taxpayers who use offshore accounts to evade taxes,” Grassley said. “Honest taxpayers deserve to know what's happened with what could be very valuable leads, and if it's nothing, they deserve to know why. It's a matter of tax fairness and law enforcement. And the IRS shouldn't wait for international agreements to fall into place when tax evaders can be identified through other appropriate tools.”

Grassley did not advocate for the UBS whistleblower's release from federal prison, however, but focused on the government's use of the information he provided. (See prior discussions of the UBS whistleblower's case here).

Grassley, more than anyone, is responsible for passage of the December 2006 legislation that created the first meaningful IRS Whistleblower Program. The promising new IRS Whistleblower Program was inspired by the great successes of the nation's primary whistleblower statute for exposing fraud, the False Claims Act.

Sen. Grassley's announcement and letter today are reprinted below:

For Immediate Release

Tuesday, June 8, 2010

WASHINGTON -- Senator Chuck Grassley today asked the Treasury secretary and IRS commissioner for an accounting of what U.S. government officials have done with information provided more than three years ago by a whistleblower regarding tax evasion. The U.S. Department of Justice acknowledged that former UBS employee Bradley Charles Birkenfeld’s information was pivotal in exposing a multi-billion dollar international tax evasion scandal involving a private Swiss bank, yet it may be that the IRS is doing very little with the information yielded from this effort.

Grassley said the information provided by Birkenfeld includes the names of UBS AG employees and their e-mail addresses and cell phone numbers, which could be used to identify their clients in the United States. Swiss legislators today took a step to unravel a U.S.-Swiss treaty that would allow for the disclosure of more client information to allow U.S. officials to review cases for potential enforcement of U.S. tax laws.

"The action by Swiss legislators today to try to unravel an international treaty emphasizes the need for U.S. authorities to exhaust the information they have on U.S. taxpayers who use offshore accounts to evade taxes,” Grassley said. “Honest taxpayers deserve to know what's happened with what could be very valuable leads, and if it's nothing, they deserve to know why. It's a matter of tax fairness and law enforcement. And the IRS shouldn’t wait for international agreements to fall into place when tax evaders can be identified through other appropriate tools.”

In December 2006, as chairman of the Senate Finance Committee, Grassley won enactment of his proposal to make the IRS whistleblower program more effective than before in cracking down on tax cheats and collecting taxes owed to the Treasury. Improvements included offering more generous financial incentives to whistleblowers. Since then, he has monitored implementation of the improvements and urged expedient, effective handling of whistleblower information.

Grassley was the lead Senate author of the 1986 whistleblower amendments strengthening the federal False Claims Act, which have become one of the nation’s strongest tools to identity and prevent fraud against the Treasury. To date, those provisions have helped to recover $22 billion for the federal Treasury that otherwise would have been lost to fraud. The False Claims Act does not cover tax fraud; hence the need for an effective IRS whistleblower office. Additionally, Grassley succeeded in getting enacted a federal incentive for states to adopt whistleblower provisions as part of state laws on false claims as part of the Deficit Reduction Act of 2005.

The text of today’s letter follows here.

June 8, 2010

The Honorable Timothy F. Geithner

Secretary of the Treasury

Department of the Treasury

1500 Pennsylvania Avenue

Washington, DC 20220

The Honorable Douglas L. Shulman

Commissioner

Internal Revenue Service

1111 Constitution Avenue NW

Washington, DC 20224

Dear Secretary Geithner and Commissioner Shulman:

I am writing to express my concern about continued tax evasion by taxpayers using secret Swiss bank accounts, particularly accounts at UBS AG. Swiss lawmakers voted today to block the treaty the United States hammered out with Switzerland last year. While I understand that today’s vote in the lower chamber of the Swiss Parliament is not the final word, I am worried that the Internal Revenue Service (“IRS”) is doing next to nothing to identify tax evasion by U.S. taxpayers utilizing these accounts while waiting for ratification of the treaty.

It has been over three years since Mr. Bradley Charles Birkenfeld approached the Department of Justice, IRS and the Securities and Exchange Commission about potential tax evasion facilitated by UBS AG on behalf of U.S. clients. The attached letter from Mr. Birkenfeld’s attorneys outlines a number of steps that the IRS could have taken with the information he provided in March 2007. It seems this information would allow the IRS to trace individuals in the U.S. that had UBS bank accounts. In addition, this letter also provides information about UBS USA, a wholly-owned subsidiary of UBS AG, and its involvement in UBS AG activities here in the U.S.

Using this information to identify U.S. clients would appear to be more productive than simply pursuing agreements and treaties with the Swiss, especially since those avenues seem limited to specific individuals. It does not appear that you would need a treaty, or other agreement with the Swiss government, to pursue the records of UBS USA.

As a result, I would like a detailed listing of all steps IRS has taken with the information that Mr. Birkenfeld provided. Please note that I am not asking for information about any individual taxpayer so I do not expect section 6103 to preclude you from responding to my request. I would also like to know what IRS is doing to ensure that, if and when it receives a complete list of UBS AG account holders, the IRS will not be precluded by the statute of limitations from auditing those individuals.

Today’s vote in Switzerland only underscores the need for the IRS to encourage whistleblowers to come forward. Mr. Birkenfeld blew the whistle on just one bank. What is the IRS doing to encourage more whistleblowers to come forward about offshore bank accounts?

I appreciate your prompt attention to this matter and ask for a written response by June 18, 2010. Please contact me or my staff at (202) 224-4515 with any questions.

Sincerely,

Chuck Grassley

Ranking Member

Enclosure