In two recent cases, whistleblowers have had success before the Tax Court. In one case, Tax Court granted motions to compel production of documents filed by three whistleblowers—individuals who informed the government about a tax evasion scheme-whose reward claims the IRS had denied. In another case, the Tax Court found that the whistleblower statute does not require that a whistleblower first bring his or her information to the IRS Whistleblower Office to be eligible for an award.

Awards

Code Sec. 7623 provides for awards to individuals who provide information to the government about third parties who are underpaying their taxes. The IRS recently issued two publications describing the claims process for whistleblowers: Publication 5232 (8-2015), The Whistleblower Claim Process, and Publication 5232-A (8-2015), What Happens to a Whistleblower Claim for Award?

Documents

In, Whistleblower One 10683-13W, 145 TC No. 8, three whistleblowers provided information to the IRS about a tax evasion scheme. After the IRS denied them whistleblower rewards, they moved to compel production of documents relating to the case.

The whistleblowers filed a motion seeking information as to who within the IRS reviewed the information whistleblowers provided, information about the IRS investigation, and information related to the amount of proceeds collected as a result of the whistleblowers' disclosures. The IRS initially refused the production requests on the basis that the information sought was not within the "administrative record" and, therefore, was beyond the scope of discovery.

The Tax Court found that the IRS's argument that the court’s scope of review should be limited to the "administrative record" and that the information sought is outside that record was not a sufficient basis to deny the whistleblowers’ production requests. The Tax Court found that the question of whether the IRS had collected any proceeds as a result of the whistleblowers' information constituted one of the very basic factual inquiries required by Code Sec. 7623(b). Therefore any evidence that the IRS had collected proceeds based on the whistleblower's information should have been part of the record, and its absence simply implied that the record was incomplete.

The Tax Court believed that the information requested existed and was in the IRS's possession. Because it was also relevant to the whistleblowers' claim, the Tax Court granted the motions to compel.

Gatekeeper

In Whistleblower 21277-13W, 144 TC No. 15, a taxpayer agreed to cooperate with the IRS, U.S. Department of Justice (DOJ), FBI, and other agencies by providing them with information about others engaged in the criminal enterprise. Ultimately, the IRS recovered more than $74 million.

The taxpayer sought a whistleblower award, the IRS determined, among other things, that the taxpayer did not go through the agency's Whistleblower Office, which it characterized as the "gatekeeper" for whistleblower claims.

The court disagreed with the IRS's "gatekeeper" interpretation of whistleblower statute. The Whistleblower Office, the court found, is charged with being the central office for investigating the legitimacy of a whistleblower's award claim, not necessarily the underlying tax issue. Nothing prevents the Whistleblower Office from pursuing the whistleblower's information even after another IRS office receives it, the court found.

If you have any questions about tax whistleblower claims, please contact our office.

 

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Content provided by CCH. If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.