New U.S. IRS whistleblower rules may limit some rewards: lawyers

WASHINGTON Mon Dec 17, 2012 5:43pm EST

WASHINGTON (Reuters) - The U.S. Internal Revenue Service has proposed new rules for corporate tax whistleblowers that tax lawyers said may narrow whistleblowers' ability to collect cash awards for information about possible misconduct.

If the tipster's information overlaps with an audit the IRS is already conducting, an award might be denied, lawyers said, adding that this was not previously clear.

The public has until February 19 to comment on the proposed rules, which the tax agency released late on Friday.

"It could narrow the scope of what is award-eligible," said Scott Knott, a lawyer at The Ferraro Law Firm.

The IRS whistleblower program gathers information from people who want to alert the agency to possible wrongdoing.

Last year, the program collected only $48 million in tax revenue, down from $464 million in fiscal 2010. New whistleblower cases were down as well.

Republican Senator Charles Grassley of Iowa - co-author of 2006 legislation that overhauled the program - has criticized the IRS this year, saying it has driven away whistleblowers.

The IRS pays whistleblowers only for information that the agency could not have found on its own. Most big corporations are audited by IRS every year.

Whistleblowers cannot collect an IRS reward until the agency collects taxes based on the tipster's information. A whistleblower can get up to 30 percent of the total taxes collected.

(Editing by Kevin Drawbaugh and Matthew Lewis)