By Dean Zerbe, Advisor to NWC and Attorney at Zerbe, Fingeret, Frank & Jadav.
Tax Court in a recent decision – “Whistleblower 10949-13W v. Commissioner of Internal Revenue” – TC Memo 2014-106 (June 4, 2014) made an important ruling favorable to tax whistleblowers (disclosure: I am counsel for the whistleblower on this case and also benefitted mightily from the work of my colleague Felipe Bohnet-Gomez). Key is that the Tax Court rejected the IRS argument which at its core is that a whistleblower can’t get an award if the IRS was already aware of the tax issues of the taxpayer. The Tax Court made clear that if the IRS uses information (information that is material and not just confirming details) provided by the whistleblower in proceeding against a taxpayer (even where the IRS is already aware of the tax issues of the taxpayer) then the whistleblower is entitled to judicial review of an award (ie the whistleblower is potentially eligible for an award under the IRS whistleblower program – Section 7623(b) of the tax code). The critical statement from the Tax Court is:
“If the whistleblower’s alleged facts are proved at trial, they would establish that respondent proceeded against the targets using information the whistleblower provided after December 20, 2006. If these facts are established, the whistleblower is entitled to judicial review of respondent’s award determination.” – p. 14.
As the Tax Counsel responsible for drafting the IRS whistleblower law on the Senate Finance Committee – the Tax Court has certainly arrived at the correct answer. The Congress wanted to encourage whistleblowers to come forward to expose tax fraud and assist the IRS – this includes encouraging whistleblowers to come forward with information even about a taxpayer matter of which the IRS is already aware. Even in cases where the IRS is already aware of the taxpayer matter, the whistleblower can often provide additional details, information and documentation that will strengthen and in some cases expand the case against the taxpayer, or as important — make the job of the IRS significantly easier.
The facts in the case are worth noting – the whistleblower has already received a whistleblower award under the old law (for information provided prior to the new law being enacted). While the whistleblower provided a thimble of information under the old law, the whistleblower provided a bucket of additional information under the new law. The question then – should the whistleblower be entitled to that additional information provided under the new law. (Answer – potentially yes depending on the facts as discussed above). The Tax Court’s opinion is good news for all tax whistleblowers – eliminating a major reason the IRS has been giving to say “no” to an award for a whistleblower.