Charles Grassley, the seven-term Iowa Senator and long-time whistleblower advocate, has introduced two amendments to the Senate’s “Tax Cuts and Jobs Bill” that would assist whistleblowers. One would prevent the double-taxation of certain whistleblower awards, while another would permit whistleblowers who report criminal tax frauds to collect awards from criminal fines imposed on the offending party.
The first amendment, titled “To unify the tax treatment of whistleblower awards,” addresses a quirk in existing law that requires certain whistleblowers to pay taxes on the gross amount of a whistleblower reward, rather than the amount netted after subtracting the whistleblower’s attorney’s contingent fee. Under current law, both False Claims Act and IRS whistleblowers pay taxes only on this net recovery. In contrast, whistleblowers who obtain an award from the SEC or the CFTC under Dodd-Frank pay taxes on the gross award. Senator Grassley’s amendment would bring tax treatment under the two Dodd-Frank programs in line with the others.
Grassley’s second amendment, titled “To improve the IRS Whistleblower Program,” would permit IRS whistleblowers to share in criminal recoveries against tax-evading defendants. Currently, Internal Revenue Code section 7623 entitles whistleblowers to a portion of the “collected proceeds” resulting from a successful action against a tax-evader. The term “proceeds” is defined by neither statute nor regulation, but both the IRS and the Department of Justice have taken the position that the term does not include criminal fines. Grassley’s amendment would define “proceeds” to expressly include both criminal fines and civil forfeitures.
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