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Tax Court Has Jurisdiction to Review Whistleblower Awards.
(Parker Tax Publishing July 3, 2014)

The Tax Court has jurisdiction to review the IRS's whistleblower claim award determinations where the whistleblower provided information both before and after the enactment of the Tax Relief and Health Care Act of 2006. Whistleblower 11332-13W v. Comm'r, 142 T.C. No. 21 (6/4/14).

An unnamed taxpayer (Whistleblower W) reported a tax fraud scheme, involving W's employer and related entities, to the government. W provided the government with information regarding the tax fraud scheme from June 2006 through the fall of 2009. W's information formed the basis of the government's action against the target taxpayers. W filed a Form 211, Application for Award for Original Information, in 2008 and submitted to the IRS documentary evidence related to W's involvement in the government's investigation. W resubmitted Form 211 in 2011 seeking an award under Code Sec. 7623(b). Shortly thereafter, the government settled with one of the target taxpayers and recovered more than $30 million dollars in taxes, penalties and interest. The IRS granted W a discretionary award determination under Code Sec. 7623(a) and denied W's request for an award under Code Sec. 7623(b).

In cases where expenses are not otherwise provided for by law, the IRS is authorized under Code Sec. 7623(a) to pay such sums as it deems necessary for: (1) detecting underpayments of tax, or (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same. Because the discretionary whistleblower awards were seen as arbitrary and inconsistent and because of a lack of standardized procedures and limited managerial oversight with respect to those awards, Congress enacted the Tax Relief and Health Care Act of 2006 (TRHCA). The TRHCA enacted Code Sec. 7623(b) which requires the IRS to pay nondiscretionary whistleblower awards under certain circumstances and to provide the Tax Court with jurisdiction to review such award determinations. The effective date of Code Sec. 7623(b) is December 20, 2006. Under Code Sec. 7623(b), a whistleblower is entitled to a minimum nondiscretionary award of 15 percent of the collected proceeds if the IRS proceeds with administrative or judicial action using information provided in a whistleblower claim. Any amount payable under this rule is paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected must be available for such payments.

W filed a petition seeking a review of the IRS's award determination. The IRS filed a motion to dismiss for lack of jurisdiction, arguing that the Tax Court lacked jurisdiction to review the IRS's award determination because the IRS proceeded against the target taxpayers using information W provided before the effective date of Code Sec. 7623(b). W opposed the IRS's motion on the grounds that W provided information to the government both before and after the effective date of Code Sec. 7623(b).

The Tax Court held that it has jurisdiction to review the IRS's whistleblower claim award determinations where W alleged that information was provided to the IRS before and after the effective date of Code Sec. 7623(b). The Tax Court further held that W satisfied its pleading burden by alleging facts that the IRS proceeded with an action against the target taxpayers using information brought to the IRS's attention by W both before and after the effective date of Code Sec. 7623(b).

For a discussion of the rules relating to whistleblower awards, see Parker Tax ¶262,300. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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