10370 Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[TD 9580] 

RIN 1545–BJ89 

Rewards and Awards for Information 

Relating to Violations of Internal 

Revenue Laws 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations relating to the payment of 

rewards under section 7623(a) of the 

Internal Revenue Code for detecting 

underpayments or violations of the 

internal revenue laws and 

whistleblower awards under section 

7623(b). The guidance is necessary to 

clarify the definition of proceeds of 

amounts collected and collected 

proceeds under section 7623. This 

regulation provides needed guidance to 

the general public as well as officers and 

employees of the IRS who review claims 

under section 7623. 

DATES: Effective Date: This final 

regulation is effective on February 22, 

2012. 

Applicability Date: For dates of 

applicability, see § 301.7623–1(g). 

FOR FURTHER INFORMATION CONTACT: 

Kirsten N. Witter, at (202) 927–0900 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 7623(a) provides the Secretary 

with the authority to pay such sums as 

he deems necessary from proceeds of 

amounts collected based on information 

provided to the Secretary when the 

information relates to the detection of 

underpayments of tax or the detection 

and bringing to trial and punishment 

persons guilty of violating the internal 

revenue laws or conniving at the same. 

Section 7623(b) provides the Secretary 

with the authority to pay awards to 

individuals if the Secretary proceeds 

with an administrative or judicial action 

described in section 7623(a) that results 

in collected proceeds based on 

information provided by the 

individuals. Section 301.7623–1(a) of 

the regulations on Procedure and 

Administration currently provides that 

proceeds of amounts (other than 

interest) collected by reason of the 

information provided include both 

amounts collected because of the 

information provided and amounts 

collected prior to receipt of the 

information if the information leads to 

the denial of a claim for refund that 

otherwise would have been paid. 63 FR 

44777. 

Section 301.7623–1(a) was 

promulgated prior to amendments of 

section 7623 as part of the Tax Relief 

and Health Care Act of 2006, division A, 

section 406, Public Law 109–432, 120 

Stat. 2958. The amendments designated 

existing section 7623 as section 7623(a). 

Before the 2006 amendments, section 

7623 provided that rewards shall be 

paid ‘‘from the proceeds of amounts 

(other than interest) collected by reason 

of the information provided * * *.’’ 

The 2006 Act struck the ‘‘other than 

interest’’ language. The Act also added 

section 7623(b), which provides that in 

certain cases individuals shall receive 

an award of at least 15% but not more 

than 30% of the collected proceeds 

resulting from the action with which the 

Secretary proceeded based on 

information brought to the attention of 

the Secretary by the individual. The Act 

also created the IRS Whistleblower 

Office, which is responsible for 

administering a whistleblower program 

within the IRS. 

On January 18, 2011, a notice of 

proposed rulemaking (REG–131151–10) 

was published in the Federal Register 

(76 FR 2852) clarifying the definitions of 

proceeds of amounts collected and 

collected proceeds for purposes of 

section 7623, and providing that the 

provisions of Treas. Reg. § 301.7623– 

1(a) concerning refund prevention 

claims are applicable to claims under 

section 7623(a) and (b). The proposed 

regulations further provide that the 

reduction of an overpayment credit 

balance is also considered proceeds of 

amounts collected and collected 

proceeds under section 7623. 

Seventeen written comments 

responding to the notice of proposed 

rulemaking were received. A public 

hearing was held on May 11, 2011. After 

consideration of the comments and 

hearing testimony, the regulation is 

adopted as proposed. 

Other issues concerning the 

whistleblower statute, including 

terminology, additional definitions, and 

implementation of the statute, all of 

which were beyond the scope of these 

regulations, have been deferred and will 

be considered and addressed, if 

appropriate, in future guidance. 

Summary of Comments 

Several commenters recommended 

removal of ‘‘overpayment’’ as a modifier 

of credit balance. The commenters 

suggested that the term only applied to 

individual taxpayers, and would 

discourage claimants from coming 

forward with information about 

corporate taxpayers. Further, the 

commenters stated that ‘‘overpayment’’ 

unnecessarily limits the definition of 

collected proceeds as credit balances 

may arise in circumstances other than 

an overpayment. 

The use of the term ‘‘overpayment 

credit balance’’ was intended to include 

amounts that have been credited to a 

taxpayer’s account and that would have 

been refunded to the taxpayer under 

section 6402 but for the information 

provided by the whistleblower. These 

amounts represent monies credited to 

the taxpayer’s account that are available 

to pay any tax liability or certain other 

liabilities, or to be refunded to the 

taxpayer. Overpayment credit balances 

are distinguishable from other types of 

balances shown on a taxpayer’s account, 

such as a cash deposit under section 

6603. Both individual and corporate 

taxpayers may have overpayment credit 

balances. Accordingly, the final 

regulations retain the term 

‘‘overpayment credit balance’’ as 

consistent with the payment and refund 

provisions of the Code. 

A number of commenters 

recommended that the definition of 

collected proceeds specifically include 

net operating losses (NOLs). In contrast 

to overpayment credit balances, NOLs 

and similar tax attributes do not 

represent amounts credited to the 

taxpayer’s account that are directly 

available to satisfy current or future tax 

liabilities or that can be refunded. 

Rather, tax attributes such as NOLs are 

component elements of a taxpayer’s tax 

liability. If an NOL claimed by a 

taxpayer is disallowed as a result of 

information provided by a 

whistleblower, the IRS will factor that 

disallowance into the computation of 

the taxpayer’s liability, which may, in 

turn, result in collected proceeds. For 

example: A taxpayer reports an NOL of 

$10 million for 2009 and a 

whistleblower’s information results in a 

reduction of the NOL to $5 million. If 

the NOL is unused as of the date the IRS 

computes the amount of collected 

proceeds, there are no collected 

proceeds. If, however, the 2009 NOL 

was partially carried back to 2008, 

initially generating a $3 million refund, 

and the whistleblower’s information 

reduced the carryback amount, resulting 

in a $1.5 million reduction in the refund 

for 2008, then the amount of the 

erroneous refund recovered and 

collected would be collected proceeds. 

The final regulation’s definition of 

collected proceeds, therefore, does not 

refer explicitly to NOLs, tax credits, or 

any other tax attributes that may factor 


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Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Rules and Regulations 10371 

into the computation of a particular 

taxpayer’s liability. 

Several commenters suggested that 

collected proceeds should include 

criminal fines. Under the Victims of 

Crimes Act of 1984, criminal fines that 

are imposed on a defendant by a district 

court are deposited into the Crime 

Victims Fund (CVF). 42 U.S.C. 

10601(b)(1). Criminal fines imposed for 

Title 26 offenses are not exempt from 

this requirement. The fines imposed in 

criminal tax cases that are deposited 

into the CVF are not available to the 

Secretary to pay awards under section 

7623. As criminal fines deposited in the 

CVF are not available to pay awards, the 

final regulations do not include criminal 

fines in the definition of collected 

proceeds. However, restitution ordered 

by a court to the IRS is collected as a 

tax by the IRS and, therefore, is 

encompassed in the definition of 

collected proceeds. 

Several commenters suggested that 

whistleblowers should be rewarded for 

the prevention of future tax avoidance 

based on the whistleblower’s 

information. Whether the IRS has the 

authority to make such an award under 

section 7623 and, if so, how the amount 

of the award would be determined and 

paid, is beyond the scope of this 

regulation. The final regulations do not 

address awards relating to the 

prevention of future tax avoidance. 

Special Analysis 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866, as 

supplemented by Executive Order 

13563. 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, these 

regulations have been submitted to the 

Chief Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small businesses. 

Drafting Information 

The principal author of this regulation 

is Kirsten N. Witter, Office of the 

Associate Chief Counsel (General Legal 

Services). 

List of Subjects in 26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and recordkeeping 

requirements. 

Amendments to the Regulations 

Accordingly, 26 CFR part 301 is 

amended as follows: 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Paragraph 1. The authority citation 

for part 301 is amended by adding an 

entry in numerical order to read as 

follows: 

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

Section 301.7623–1 also issued under 26 

U.S.C. 7623. * * * 

■ Par. 2. Section 301.7623–1 is 

amended by revising the section 

heading, and paragraphs (a) and (g) to 

read as follows: 

§ 301.7623–1 Rewards and awards for 

information relating to violations of internal 

revenue laws. 

(a) In general—(1) Rewards and 

awards. When information that has been 

provided to the Internal Revenue 

Service results in the detection of 

underpayments of tax or the detection 

and bringing to trial and punishment 

persons guilty of violating the internal 

revenue laws or conniving at the same, 

the IRS may approve a reward under 

section 7623(a) in a suitable amount 

from the proceeds of amounts collected 

in cases when rewards are not otherwise 

provided by law, or shall determine an 

award under section 7623(b) from 

collected proceeds. 

(2) Proceeds of amounts collected and 

collected proceeds. For purposes of 

section 7623 and this section, both 

proceeds of amounts collected and 

collected proceeds include: Tax, 

penalties, interest, additions to tax, and 

additional amounts collected by reason 

of the information provided; amounts 

collected prior to receipt of the 

information if the information provided 

results in the denial of a claim for 

refund that otherwise would have been 

paid; and a reduction of an overpayment 

credit balance used to satisfy a tax 

liability incurred because of the 

information provided. 

* * * * * 

(g) Effective/applicability date. 

Paragraph (a) is effective on February 

22, 2012. This section is applicable with 

respect to rewards paid after January 29, 

1997, except the rules of paragraph (a) 

of this section apply with respect to 

rewards and awards paid after February 

22, 2012. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: February 14, 2012. 

Emily S. McMahon, 

(Acting) Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2012–3989 Filed 2–21–12; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2012–0081] 

Drawbridge Operation Regulation; 

Sacramento River, Sacramento, CA 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of temporary deviation 

from regulations. 

SUMMARY: The Commander, Eleventh 

Coast Guard District, has issued a 

temporary deviation from the regulation 

governing the operation of the Tower 

Drawbridge across the Sacramento 

River, mile 59.0, at Sacramento, CA. The 

deviation is necessary to allow the 

bridge owner to conduct maintenance of 

the bridge. This deviation allows the 

bridge to remain in the closed-tonavigation position during the 

maintenance period. 

DATES: This deviation is effective from 

7 a.m. on March 5, 2012 through 7 p.m. 

on March 16, 2012. 

ADDRESSES: Documents mentioned in 

this preamble as being available in the 

docket are part of docket USCG–2012– 

0081 and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2012–0081 in the ‘‘Keyword’’ 

box and then clicking ‘‘Search’’. They 

are also available for inspection or 

copying at the Docket Management 

Facility (M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue SE., Washington, DC 20590, 

between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call or 

email David H. Sulouff, Chief, Bridge 

Section, Eleventh Coast Guard District; 

telephone 510–437–3516, email 

David.H.Sulouff@uscg.mil. If you have 

questions on viewing the docket, call 

Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 


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