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.

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.

DATES:

Effective Date: These final regulations are effective on March 15, 2011.

Applicability Date: For dates of applicability, see § 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 § 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 § 301.6103(n)-2(d)(3) of the proposed regulations be revised to eliminate the inspection requirement. The commentator asserted that, by contrast, § 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, § 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

Adoption of 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 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). * * *

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

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