I 

109TH CONGRESS 

1ST SESSION H. R. 1985

To amend the Internal Revenue Code of 1986 to exclude from gross income 

amounts received as damages and attorneys fees and costs under Federal 

whistleblower protection laws and to allow income averaging for amounts 

received as lost income. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2005

Mr. GERLACH (for himself, Mr. HOLDEN, and Ms. GRANGER) introduced the 

following bill; which was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to exclude 

from gross income amounts received as damages and 

attorneys fees and costs under Federal whistleblower protection laws and to allow income averaging for amounts 

received as lost income.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Federal Whistleblower 

5 Protection Tax Act of 2005’’. 
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1 SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN 

2 AMOUNTS RECEIVED ON ACCOUNT OF FED3 ERAL WHISTLEBLOWER PROTECTION LAWS. 

4 (a) IN GENERAL.—Subsection (a) of section 104 of 

5 the Internal Revenue Code of 1986 (relating to compensa6 tion for injuries or sickness) is amended by striking ‘‘and’’ 

7 at the end of paragraph (4), by striking the period at the 

8 end of paragraph (5) and inserting ‘‘; and’’, and by insert9 ing after paragraph (5) the following new paragraph: 

10 ‘‘(6) in the case of a claim under any provision 

11 of Federal law (popularly known as whistleblower 

12 protection provisions) prohibiting the discharge of an 

13 employee, the discrimination against an employee, or 

14 any other form of retaliation or reprisal against an 

15 employee for asserting rights or taking other actions 

16 permitted under Federal law—

17 ‘‘(A) the amount of any damages (other 

18 than punitive damages and other than damages 

19 on account of lost income), and 

20 ‘‘(B) the amount awarded for attorneys 

21 fees and costs in pursuing such claim to the ex22 tent the taxpayer elects not to claim any deduc23 tion for such fees and costs.’’. 

24 (b) AVERAGING OF LOST INCOME.—

25 (1) IN GENERAL.—Part I of subchapter Q of 

26 chapter 1 of such Code (relating to income aver-
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1 aging) is amended by adding at the end the fol2 lowing new section: 

3 ‘‘SEC. 1302. AVERAGING OF WHISTLEBLOWER LOST IN4 COME. 

5 ‘‘(a) IN GENERAL.—In the case of an individual who 

6 receives a whistleblower award during any taxable year, 

7 the tax imposed by section 1 for such taxable year shall 

8 be equal to the sum of—

9 ‘‘(1) a tax computed under such section on tax10 able income reduced by elected whistleblower lost in11 come, plus 

12 ‘‘(2) the increase in tax imposed by section 1 

13 which would result if taxable income for each of the 

14 taxable years to which such income is attributable 

15 were increased by the amount of such income attrib16 utable to such year. 

17 Any adjustment under this section for any taxable year 

18 shall be taken into account in applying this section for 

19 any subsequent taxable year. 

20 ‘‘(b) DEFINITIONS.—For purposes of this section—

21 ‘‘(1) WHISTLEBLOWER AWARD.—The term 

22 ‘whistleblower award’ means any amount which is 

23 excluded from gross income under paragraph (6) of 

24 section 104(a). 
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1 ‘‘(2) ELECTED WHISTLEBLOWER LOST IN2 COME.—The term ‘elected whistleblower lost income’ 

3 means income—

4 ‘‘(A) which would be excluded from gross 

5 income under such paragraph if such paragraph 

6 were applied without regard to ‘other than dam7 ages on account of lost income’, and 

8 ‘‘(B) which is specified in the election 

9 under subsection (a). 

10 If the election under subsection (a) applies to less 

11 than all such income, such election shall be treated 

12 as applying to a ratable portion of each year’s in13 come for purposes of subsection (a)(2). 

14 ‘‘(c) REGULATIONS.—The regulations under section 

15 1301(c) shall apply for purposes of this section.’’. 

16 (2) CONFORMING AMENDMENT.—Subsection (c) 

17 of section 55 (defining regular tax) is amended by 

18 redesignating paragraph (3) as paragraph (4) and 

19 by inserting after paragraph (2) the following new 

20 paragraph: 

21 ‘‘(3) COORDINATION WITH INCOME AVERAGING

22 FOR WHISTLEBLOWER LOST INCOME.—Solely for 

23 purposes of this section, section 1302 (relating to 

24 averaging of whistleblower lost income) shall not 

25 apply in computing the regular tax liability.’’. 
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1 (3) CLERICAL AMENDMENT.—The table of sec2 tions for such part I is amended by adding at the 

3 end the following new item:

‘‘Sec. 1302. Averaging of whistleblower lost income.’’.

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall take effect as if included in the amend6 ments made by section 1605 of the Small Business Job 

7 Protection Act of 1996. 

8 (d) WAIVER OF STATUTE OF LIMITATIONS.—If re9 fund or credit of any overpayment of tax resulting from 

10 the amendment made by subsection (a) or (b) is prevented 

11 at any time before the close of the 1-year period beginning 

12 on the date of the enactment of this Act by the operation 

13 of any law or rule of law (including res judicata), refund 

14 or credit of such overpayment (to the extent attributable 

15 to such amendment) may, nevertheless, be made or al16 lowed if claim therefor is filed before the close of such 

17 1-year period.

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