Giant Step for the IRS Whistleblower Program

In Whistleblower One 10683-13W, et al. v. Commissioner, 145 T.C. No. 8 (2015), the Tax Court ordered the IRS to respond to whistleblowers' discovery requests despite the IRS’ claim that the requests went beyond the Whistleblower Office's case file. In the appeal process, the IRS has been reluctant to provide whistleblowers with information to challenge the IRS award determination.  Simply put, the IRS rationale is that if the Whistleblower Office file (i.e. the administrative record) did not support an award, then there should be no award.  This awkward and narrow approach was shot down by the Court allowing the whistleblower access to information regarding the IRS examination….information that would not normally be included in the whistleblower office file.

 U.S. Tax Court

U.S. Tax Court

Prior to this opinion, the IRS’ position was that the standard of review by the Tax Court is limited to an “abuse of discretion” standard and not a “de novo review” standard.  Essentially, if the whistleblower office is ignorant of facts supporting a higher award, or any award, due to missing information in the administrative file then it could not have abused its discretion.  The IRS believed neither the court, nor the whistleblower, could seek information beyond the whistleblower office file.

However, the Tax Could stated in this opinion, "Even were we to agree with respondent as to the scope of review, he cannot unilaterally decide what constitutes an administrative record." In this matter, the Court went on and stated that it believes "(1) the information already exists, (2) is in the IRS' hands, and (3) should be included in an administrative record compiled for purposes of making a determination of petitioners' claim."

In the past, the Tax Court got around making such a ruling by reviewing the information sought (in camera review) by the whistleblower and producing those documents to the whistleblower.  This opinion by the Court can be cited in the future by whistleblowers seeking enforcement of their discovery requests.  However, more importantly, it should change the attitude of the IRS that has resulted in a negative view of the Whistleblower program, as well as wasted resources of the Court, the IRS and the whistleblower in the appeal of these matters. 

Perhaps more important than the opinion itself as to the whistleblowers access to discovery in the appeal process, was the dicta of the Court as stated on Page 5 of the opinion, “We agree with petitioners that their entitlement to an award turns on two issues: first, whether there was a collection of proceeds, and, second, whether that collection was attributable in some way to the information that petitioners provided.”

The IRS, despite the statute (I.R.C. § 7623) and the intent of Congress, has taken the position that the whistleblower must “substantially contribute” to the IRS determination.  Perhaps this resolution of this issue will be the next giant step in making the IRS Whistleblower program successful.