Tax Court Decision: Congress Needs to Act to Ensure No Holiday for Big Time Tax Cheats

Closeup of gavel in court room

Washington, D.C. March 15, 2016. The Tax Court in Whistleblower 22716-13W v. CIR(146 TC 6) decided March 14, 2016 held that the term “additional amounts” as used in 7623(b)(5)(B) does not include FBAR civil penalties. FBAR civil penalties are a penalty commonly imposed by the IRS on individuals with illegal offshore accounts.

The National Whistleblower Center (NWC) filed an Amicus Curiae brief in this matter in July 2015, arguing that FBAR should be considered “collected proceeds” for purposes of a whistleblower award. In its ruling the Tax Court pointed to the fact that Congress “could have . . . but did not” use the term “collected proceeds” when drafting the $2,000,000 monetary threshold needed to qualify for a nondiscretionary award. The Court held that Congress “explicitly and unambiguously provided that a whistleblower is eligible for a nondiscretionary award only ‘if the tax, penalties, additions to tax, and additional amounts in dispute’ exceed $2,000,000.”

Stephen M. Kohn, NWC Executive Director and co-author of the Amicus brief, released the following statement in response to the Tax Court’s ruling:

“The Tax Court’s opinion unfortunately will have a chilling impact on whistleblowers coming forward – especially whistleblowers blowing the whistle on illegal offshore accounts held by millionaires and billionaires. Individuals need to have confidence that when they come forward that they will be awarded if the whistleblower’s information is used by the government and results in collected proceeds.

“The good news though is that the Court found that the policy arguments put forward by the National Whistleblower Center in its amicus brief to be well-grounded and reasoned – and the Tax Court stated that Congress could fix the problem. Congress needs to accept the Tax Court’s invitation and immediately clarify the statute that whistleblowers who blow the whistle on offshore tax cheats and other big time tax criminals are entitled to an award.”

Dean Zerbe, NWC Senior Policy Analyst and co-author of the Amicus brief stated:

“While the Tax Court’s decision wasn’t a cause for whistleblowers to pop champagne, it is important to note that the Court was ruling on a narrow question and addressing a distinct set of facts. On the positive side, the Tax Court opinion included language that suggests openness to a broader interpretation of what is “collected proceeds” under Section 7623(b)(1). However, Congress should make it clear to the tax cheats that they shouldn’t be letting the caviar get warm as they celebrate this decision – by immediately clarifying that whistleblowers will be entitled to an award when they provide information about tax crooks even in those cases where the information results solely in penalties for FBAR or criminal violations.

“It is important for tax whistleblowers to keep in mind the big picture — while yesterday’s decision was unfortunate, in general the Tax Court has been excellent at protecting the rights of whistleblowers. I am very pleased that two cases that whistleblowers won in Tax Court (Whistleblower 21276-13W v. CIR as well as Whistleblower 10949-13W v. CIR) – both of which received favorable Tax Court opinions (144 TC 15 – 2015 and TC Memo 2014-94 – 2014) were recently settled by the IRS resulting in approximately $10 million dollars in award payments to the whistleblowers. I was lead counsel for both cases and was very pleased to partner with Steve Kohn on one of the cases in achieving this successful result. These were the first two cases in Tax Court that resulted in awards being paid to tax whistleblowers.”

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