[Federal Register Volume 76, Number 50 (Tuesday, March 15, 2011)]
[Rules and Regulations]
[Pages 13880-13882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6111]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9516]
RIN 1545-BG73


Disclosure of Return Information in Connection With Written 
Contracts Among the IRS, Whistleblowers, and Legal Representatives of 
Whistleblowers

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
disclosure of return information by an officer or employee of the 
Treasury Department, to a whistleblower and, if applicable, the legal 
representative of the whistleblower, to the extent necessary in 
connection with a written contract among the IRS, the whistleblower 
and, if applicable, the legal representative of the whistleblower, for 
services relating to the detection of violations of the internal 
revenue laws or related statutes. The final regulations will affect 
officers and employees of the Treasury Department who disclose return 
information to whistleblowers or their legal representatives in 
connection with written contracts among the IRS, whistleblowers and, if 
applicable, their legal representatives, for services relating to the 
detection of violations of the internal revenue laws or related 
statutes. The final regulations will also affect any whistleblower or 
legal representative of a whistleblower who receives return information 
in connection with a written contract among the IRS, the whistleblower 
and, if applicable, the legal representative of the whistleblower, for 
services relating to the detection of violations of the internal 
revenue laws or related statutes.

[[Page 13881]]


DATES: Effective Date: These final regulations are effective on March 
15, 2011.
    Applicability Date: For dates of applicability, see Sec.  
301.6103(n)-2(f).

FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202-622-7950 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations implementing amendments to 
the Procedure and Administration Regulations (26 CFR part 301) under 
section 6103(n) relating to the disclosure of return information in 
connection with written contracts among the IRS, whistleblowers and, if 
applicable, their legal representatives.
    The Tax Relief and Health Care Act of 2006, Public Law 109-432 (120 
Stat. 2958), (the Act) was enacted on December 20, 2006. Section 406 of 
the Act amends section 7623, concerning the payment of awards to 
whistleblowers, and establishes a Whistleblower Office within the IRS 
that has responsibility for the administration of a whistleblower 
program. In connection with analyzing information provided by a 
whistleblower, or investigating a matter, the IRS may determine that it 
requires the assistance of the whistleblower, or the legal 
representative of the whistleblower. The Joint Committee on Taxation 
(the JCT) has noted that ``[t]o the extent the disclosure of returns or 
return information is required [for the whistleblower or his or her 
legal representative] to render such assistance, the disclosure must be 
pursuant to an IRS tax administration contract.'' Joint Committee on 
Taxation, Technical Explanation of H.R. 6408, The ``Tax Relief and 
Health Care Act of 2006,'' as Introduced in the House on December 7, 
2006, at 89 (JCX-50-06), December 7, 2006. The JCT has further noted 
that ``[i]t is expected that such disclosures will be infrequent and 
will be made only when the assigned task cannot be properly or timely 
completed without the return information to be disclosed.'' Id.
    Under section 6103(a), returns and return information are 
confidential unless the Internal Revenue Code authorizes disclosure. 
Section 6103(n) is the authority by which returns and return 
information may be disclosed pursuant to a tax administration contract. 
Section 6103(n) authorizes, pursuant to regulations prescribed by the 
Secretary, returns and return information to be disclosed to any 
person, for purposes of tax administration, to the extent necessary in 
connection with: (1) The processing, storage, transmission, and 
reproduction of returns and return information; (2) the programming, 
maintenance, repair, testing, and procurement of equipment; and (3) the 
providing of other services.
    On March 25, 2008, temporary regulations (TD 9389) under section 
6103(n) were published in the Federal Register (73 FR 15668) describing 
the circumstances under which officers and employees of the Treasury 
Department may disclose return information to whistleblowers and, if 
applicable, their legal representatives, in connection with written 
contracts for services relating to the detection of violations of the 
internal revenue laws or related statutes. A notice of proposed 
rulemaking (REG-114942-07) cross-referencing the temporary regulations 
was published in the Federal Register for the same day (73 FR 15687).
    One written comment responding to the notice of proposed rulemaking 
was received. No public hearing was requested or held. After 
consideration of the comment, the regulations are adopted as proposed 
with only minor technical changes made.
    The limitations applicable to section 6103(n) contracts as outlined 
in these regulations are not a limitation on the use of return 
information that may be disclosed to a whistleblower or the legal 
representative of a whistleblower during an award determination 
administrative proceeding and in an award determination appeal to the 
U.S. Tax Court.

Summary of Comment

    The commentator recommended that Sec.  301.6103(n)-2(b)(3) of the 
proposed regulations be revised to eliminate any requirement that a 
written contract be in place for a whistleblower to be provided with 
basic status information about the whistleblower's claim for award 
under section 7623. The commentator drew a comparison with 
whistleblower claims under the False Claims Act and argued that the 
standard for the IRS to share status information with a whistleblower 
should not be the same as that required to share information from the 
actual returns of taxpayers. Unlike other statutory schemes, however, 
information regarding the status of a whistleblower's claim with the 
IRS is ``return information'' as defined in section 6103(b)(2). Like 
returns (defined in section 6103(b)(1)), return information is 
confidential under section 6103(a) and may only be disclosed if 
authorized by a specific provision of the Code. In order to disclose 
status information to a whistleblower, an exception to section 6103 
must be applicable. Section 6103(n) provides authority for the IRS to 
make status information disclosures to a whistleblower. Because 
disclosures pursuant to section 6103(n) require a written tax 
administration contract, the final regulations do not adopt the 
commentator's recommendation.
    The commentator also recommended that Sec.  301.6103(n)-2(d)(3) of 
the proposed regulations be revised to eliminate the inspection 
requirement. The commentator asserted that, by contrast, Sec.  
301.6103(n)-1, ``Disclosure of returns and return information in 
connection with written contracts or agreements for the acquisition of 
property or services for tax administration purposes,'' does not 
include such a requirement and argued that the requirement is 
unnecessary in that the regulations already provide for severe 
sanctions for any failure to comply with the terms of written contracts 
for services. In fact, Sec.  301.6103(n)-1(e)(1) does indeed contain an 
inspection requirement. The final regulations retain the inspection 
requirement as consistent with the longstanding safeguard procedures 
that incorporate inspection as an integral part of the contracting 
process under section 6103(n).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, the proposed 
regulations preceding these regulations were submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Drafting Information

    The principal author of these regulations is Helene R. Newsome, 
Office of the Associate Chief Counsel (Procedure & Administration).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

[[Page 13882]]

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
entries in numerical order to read as follows:

    Authority:  26 U.S.C. 7805 * * *

    Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(n). * * *
    Section 301.6103(n)-2 also issued under 26 U.S.C. 6103(q). * * *


0
Par. 2. Section 301.6103(n)-2 is added to read as follows:


Sec.  301.6103(n)-2  Disclosure of return information in connection 
with written contracts among the IRS, whistleblowers, and legal 
representatives of whistleblowers.

    (a) General rule. (1) Pursuant to the provisions of sections 
6103(n) and 7623 of the Internal Revenue Code and subject to the 
conditions of this section, an officer or employee of the Treasury 
Department is authorized to disclose return information (as defined in 
section 6103(b)(2)) to a whistleblower and, if applicable, the legal 
representative of the whistleblower, to the extent necessary in 
connection with a written contract among the Internal Revenue Service 
(IRS), the whistleblower and, if applicable, the legal representative 
of the whistleblower, for services relating to the detection of 
violations of the internal revenue laws or related statutes.
    (2) The IRS shall have the discretion to determine whether to enter 
into a written contract pursuant to section 7623 with the whistleblower 
and, if applicable, the legal representative of the whistleblower, for 
services described in paragraph (a)(1) of this section.
    (b) Limitations. (1) Disclosure of return information in connection 
with a written contract for services described in paragraph (a)(1) of 
this section shall be made only to the extent the IRS deems it 
necessary in connection with the reasonable or proper performance of 
the contract. Disclosures may include, but are not limited to, 
disclosures to accomplish properly any purpose or activity of the 
nature described in section 6103(k)(6) and the regulations thereunder.
    (2) If the IRS determines that the services of a whistleblower and, 
if applicable, the legal representative of the whistleblower, as 
described in paragraph (a)(1) of this section, can be performed 
reasonably or properly by disclosure of only parts or portions of 
return information, then only the parts or portions of the return 
information shall be disclosed.
    (3) Upon written request by a whistleblower, or a legal 
representative of a whistleblower, with whom the IRS has entered into a 
written contract for services as described in paragraph (a)(1) of this 
section, the Director of the Whistleblower Office, or designee of the 
Director, may inform the whistleblower and, if applicable, the legal 
representative of the whistleblower, of the status of the 
whistleblower's claim for award under section 7623, including whether 
the claim is being evaluated for potential investigative action, or is 
pending due to an ongoing examination, appeal, collection action, or 
litigation. The information may be disclosed only if the IRS determines 
that the disclosure would not seriously impair Federal tax 
administration.
    (4) Return information disclosed to a whistleblower and, if 
applicable, a legal representative of a whistleblower, under this 
section, shall not be further disclosed or otherwise used by the 
whistleblower or a legal representative of a whistleblower, except as 
expressly authorized in writing by the IRS.
    (c) Penalties. Any whistleblower, or legal representative of a 
whistleblower, who receives return information under this section, is 
subject to the civil and criminal penalty provisions of sections 7431, 
7213, and 7213A for the unauthorized inspection or disclosure of the 
return information.
    (d) Safeguards. (1) Any whistleblower, or the legal representative 
of a whistleblower, who receives return information under this section, 
shall comply with all applicable conditions and requirements as the IRS 
may prescribe from time to time for the purposes of protecting the 
confidentiality of the return information and preventing any disclosure 
or inspection of the return information in a manner not authorized by 
this section (prescribed requirements).
    (2) Any written contract for services as described in paragraph 
(a)(1) of this section shall provide that any whistleblower and, if 
applicable, the legal representative of a whistleblower, who has access 
to return information under this section, shall comply with the 
prescribed requirements.
    (3) Any whistleblower, or the legal representative of a 
whistleblower, who may receive return information under this section, 
shall agree in writing, before any disclosure of return information is 
made, to permit an inspection of the whistleblower's or the legal 
representative's premises by the IRS relative to the maintenance of the 
return information disclosed under these regulations and, upon 
completion of services as described in the written contract with the 
IRS, to dispose of all return information by returning the return 
information, including any and all copies or notes made, to the IRS, or 
to the extent that it cannot be returned, by destroying the information 
in a manner consistent with prescribed requirements.
    (4) If the IRS determines that any whistleblower, or the legal 
representative of a whistleblower, who has access to return information 
under this section, has failed to, or does not, satisfy the prescribed 
requirements, the IRS, using the procedures described in the 
regulations under section 6103(p)(7), may take any action it deems 
necessary to ensure that the prescribed requirements are or will be 
satisfied, including--
    (i) Suspension of further disclosures of return information by the 
IRS to the whistleblower and, if applicable, the legal representative 
of the whistleblower, until the IRS determines that the conditions and 
requirements have been or will be satisfied; and
    (ii) Suspension or termination of any duty or obligation arising 
under the contract with the IRS.
    (e) Definitions. For purposes of this section--
    (1) The term Treasury Department includes the IRS and the Office of 
the Chief Counsel for the IRS.
    (2) The term whistleblower means an individual who provides 
information to the IRS regarding violations of the tax laws or related 
statutes and submits a claim for an award under section 7623 with 
respect to the information.
    (3) The term legal representative means any individual who is a 
member in good standing in the bar of the highest court of any state, 
possession, territory, commonwealth, or the District of Columbia, and 
who has a written power of attorney executed by the whistleblower.
    (f) Effective/applicability date. This section is applicable on 
March 15, 2011.


Sec.  301.6103(n)-2T  [Removed]

0
Par. 3. Section 301.6103(n)-2T is removed.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: March 9, 2011.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-6111 Filed 3-14-11; 8:45 am]
BILLING CODE 4830-01-P