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Tax Court's Jurisdiction Over Whistleblower Appeals Survives Whistleblower's Death

(Parker Tax Publishing November 2021)

In a case of first impression, the Tax Court held that its jurisdiction over a whistleblower's petition filed under Code Sec. 7623(b)(4) for review of an adverse decision by the IRS Whistleblower Office is not extinguished by the death of the whistleblower. The court found that under federal common law, rights of action under federal statutes survive a plaintiff's death if the statute is remedial rather than penal, and the court determined that Code Sec. 7623(b) has a remedial purpose. Insinga v. Comm'r, 157 T.C. No. 8 (2021).

Joseph Insinga filed a petition under Code Sec. 7626(b)(4) in the Tax Court for review of an adverse determination of the IRS Whistleblower Office (WBO) regarding his claims for an award. Insinga died in March of 2021 while the Tax Court case was still pending. Insinga's estate filed a motion for substitution asserting that as Insinga's successor, the estate should be substituted for Insinga so that the estate could proceed in his place. The IRS did not oppose the motion.

The Tax Court noted that the issue of whether an appeal of a whistleblower's award determination to the Tax Court under Code Sec. 7623(b)(4) survives the death of the whistleblower was a question of first impression. While Tax Court Rule 63(a) allows the Tax Court to substitute a taxpayer's estate as the petitioner if a taxpayer dies while a Tax Court petition is pending, the court first had to determine whether it continues to have jurisdiction over a whistleblower's appeal after the whistleblower who filed it has died.

When a federal statute does not specifically address survival rights, federal common law provides the general rule that rights of action under federal statutes survive a plaintiff's death if the statute is remedial, not penal. Courts apply a three-factor test to ascertain whether a statute is remedial or penal, examining (1) whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public; (2) whether recovery under the statute runs to the harmed individual or to the public; and (3) whether the recovery authorized by the statute is wholly proportional to the harm suffered. In Figueroa v. Sec'y of Health & Human Servs., 715 F.3d 1314 (Fed. Cir. 2013), the Federal Circuit held that, in the absence of a statutory provision to the contrary, common law supplies a presumption in favor of the survival of a remedial right of action arising under a federal statute.

The Tax Court found that, in determining the purpose of Code Sec. 7623(b), opinions addressing the treatment of claims arising under the False Claims Act (FCA), 31 U.S.C. Secs 3729-3733, are illuminating because such qui tam actions involve the roughly analogous circumstance of a "relator" who (like a whistleblower) brings information regarding illegal activity to the attention of the government and, upon successful prosecution of the claim, shares in the recovery. In U.S. v. NEC Corp., 11 F.3d 136 (11th Cir. 1993), the Eleventh Circuit held that a claim under the FCA was remedial and therefore survived the decedent-plaintiff's death. The Eleventh Circuit found that (1) the purpose of a qui tam remedy under the FCA is to redress individual wrongs of the relator, who may suffer substantial harm by bringing the action; (2) qui tam provisions are primarily intended to remedy the harm suffered by the individual relator rather than the public at large; and (3) the relator's recovery depends on, and is proportional to, the extent to which the person substantially contributed to the prosecution of the action.

Applying the three-factor test, the Tax Court concluded that the purpose of Code Sec. 7623(b) is remedial rather than punitive. First, the court found that like the purpose of the FCA's qui tam remedy, the purpose of the award provisions of Code Sec. 7623(b) is to redress individual wrongs of the whistleblower in bringing his or her claim (such as employer retaliation or professional ostracism) by compensating him or her for the harm incurred by doing so. Second, the court found that Code Sec. 7623(b) is intended to provide a remedy to the whistleblower for bringing his or her claim by providing mandatory compensation for claims where the collected proceeds meet certain statutory thresholds. Third, the court found that the recovery due to the whistleblower under Code Sec. 7623(b)(1), which "shall depend upon the extent to which the individual substantially contributed to such action," shows that the whistleblower's recovery is proportional to the harm he or she incurs in bringing his claim. Consequently, the Tax Court held that Code Sec. 7623(b) has a remedial purpose, and therefore a whistleblower's Tax Court petition survives his or her death.

For a discussion of appealing a whistleblower determination, see Parker Tax ¶262,340.

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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