What is Purpose of Appealing a Rejected IRS Whistleblower Tax Case?

With respect to IRS Whistleblower Cases the US Tax Court ruled in Cooper v. Commissioner, 136 T.C. 597(2011) that it had the jurisdiction to hear “rejected” IRS Whistleblower cases on appeal.  The Tax Court decided that the right to appeal was not limited only to those cases that the IRS had determined a reward percentage (i.e. 15% to 30%) , but also those cases in which the IRS determined that a whistleblower was not entitled to a reward.

The Tax Court has issued good rulings with respect to the IRS Tax Whistleblower Program, However, the tax court has also ruled it did not have the jurisdiction to order the IRS to conduct a tax examination in an IRS Whistleblower matter.  Therefore, if the IRS rejects a IRS Whistleblower case, it cannot be ordered by the U.S. Tax court to conduct the examination, nor can it determine the tax deficiency of a taxpayer that is not before it based upon the IRS Whistleblower tax information.

So what is the point of giving the tax court the jurisdiction to hear a rejected cases if it has no power? The practical answer is that the case might have been improperly rejected by the IRS in that the IRS did conduct an examination, collected tax, and simply and improperly rejected the claim for purposes of paying the tax reward.

However, the IRS has quickly formed a successful strategy of dealing with the blow dealt it in the Cooper case in dealing with the appeal of rejected IRS Whistleblower cases.  The IRS has successfully, to date, filed motions for summary judgment (i.e. a motion that the court can rule on as there are no material facts in dispute) in an effort to dispose of these cases.

Suggested Strategy of the Whistleblower in the Appeal:

A Whistleblower of a rejected Whistleblower case should have a good basis for petitioning the US Tax Court for review of its whistleblower case.  Sometimes, this might be, as stated above, because the Whistleblower believes, in good faith, that the IRS collected money due to the Whistleblower’s information.

Therefore, the IRS Tax Whistleblower should be familiar with the Tax Court Rules and

1. Timely petition the U.S. tax Court (within 30 days of the letter of determination)
2. Timely file discovery (typically should be done on the 30th day after the IRS files an Answer).
3. Timely respond to the motion for Summary Judgment, as ordered by the Court, pointing out to the Court material facts that are at issue.

To date the IRS has been successful by providing an Affidavit that

1. it took “no administrative action”, and
2. that there were no “collected proceeds” of tax penalty and interest based upon the information provided by the Whistleblower.

A good IRS Whistleblower Tax Attorney/Lawyer knows that the terms sworn to in the affidavit by IRS counsel have no defined meaning, and therefore, could be viewed as material facts in dispute.  For instance does an “administrative action” include opening a IRS Whistleblower file, making a phone call, referring the case criminally, referring the case for civil examination, holding a taint conference, or does it simply mean something else like opening and completing a tax examination or the ultimate assessment of tax.  Surely the IRS, as a governmental administrative agency, has taken an administrative action in most of these rejected IRS Whistleblower tax cases.  Again, unless the case is rejected upon submission, the IRS has reviewed the claim, opened a Whistleblower file, scanned the Claim, made phone calls, sent out emails, and at a minimum held meetings.  (All the IRS administrative actions should be confirmed in responses to the Whistleblower’s timely discovery requests).

As to the second part, in most cases, the IRS Whistleblower does not know whether or not tax, penalty and interest were collected due to information provided in the IRS Whistleblower Claim which is why the Whistleblower must engage in the discovery process.  The IRS will move for summary judgment without wanting to provide the Whistleblower copies of the taxpayer’s tax transcripts, the IRS history notes, emails, memos, etc.  However, that by itself leaves a material fact in dispute.  In addition, the IRS has issued proposed regulations and is now in the process of defining what is meant by “collected proceeds.”  It is difficult to believe that it can swear that it did not collect any tax penalty and interest when that term (i.e. collected proceeds) remains undefined.  For instance, if the IRS settles with a taxpayer and collects tax on future years but noting on the past years for which the Whistleblower provided information, should the tax collected in future years, due to the settlement, be considered collected proceeds subject to an award.  The IRS now says no.  Discovery is very important and should be part of the entire process.

At the very least, tax court discovery should inform the Whistleblower as to why his/her case was rejected by the IRS.  If the 211 Claim was improperly prepared (i.e. not clear and concise or failed to contain “specific and credible” information), then the Whistleblower should consider contacting an experienced Tax Whistleblower Attorney to assist in the resubmission of the Claim.

The Tax Whistleblower Law Firm, consisting of former IRS attorneys, has been very successful in working with the IRS and the tax whistleblower program.  The Tax Whistleblower Law Firm has submitted claims as to hundreds of taxpayers for billions of dollars and to date, has had every case accepted into the IRS Whistleblower Tax Program.  Should you have any questions or comments as to the IRS Whistleblower program please visit our Contact page, or call 1-877-404-1040.

U.S. Tax Court Gives the IRS Whistleblower Program a Boost

On December 28, 2011, the IRS Whistleblower Program received a big boost when the U.S. Tax Court proposed new Tax Court Rule 345 to protect the identity of the Tax Whistleblower.  Those seeking a tax award/reward for reporting tax fraud are assured that their identity is protected by the U.S. Tax Court in the appeal of their IRS Whistleblower claim…”if appropriate.”

The IRS policy is to protect the identity of a IRS Whistleblower that provides information as part of the IRS Whistleblower Program.  However, there does exist the unusual situation in which an IRS Whistleblower may be called to testify in a court proceeding.  However, this situation has not occurred under the new IRS Whistleblower Program since it was initiated on December 20, 2006.  In addition, it is highly unlikely that this situation will happen in the future with the proper representation.

IRS Whistleblower Attorneys/Lawyers should be tax attorneys/lawyers first and whistleblower attorneys/lawyers second.  In every IRS Whistleblower matter the tax whistleblower attorney should evaluate the claim (i.e. 211 Form), as well as the client and make a determination if the IRS whistleblower is a likely candidate for being a witness should the tax claim ultimately result in litigation by the IRS.  The attorneys at the Tax Whistleblower Law Firm use their experience, as former IRS attorneys, to assist them in making this decision.  Since the Tax Whistleblower Law Firm prepares the 211 claim package for submissions into the IRS whistleblower program in a manner similar to what they would expect the IRS to have prepared if they were in a position to litigate the case as if they were still IRS attorneys, they are also in a position to make a judgment if the client/whistleblower is a likely witness should a case end up in litigation.  No tax whistleblower claim should ever be submitted to the IRS in which the whistleblower is not advised as to the likelihood of them having to testify in the matter.

Confidentiality is what makes the IRS Whistleblower Program successful.  Congress, pursuant to I.R.C. § 7623, gave the IRS Whistleblower the right to appeal the IRS determination of award/reward to the US Tax Court.  Until recently, the tax court had not ruled as to whether the tax whistleblower could proceed anonymously in the filing of an appeal.  On December 8, 2011, in the case of in Whistleblower 14106-10 v. Commissioner, 137 T.C No. 15 (2011), the U.S. Tax Court ruled that the openness of a public record must be weighed with the protection and safety of the whistleblower in these matters.  The Tax Court has now proposed a new Rule (i.e. Tax Court Rule 345) to protect the identity of the IRS Whistleblower

Proposed Rule 345. PRIVACY PROTECTIONS FOR FILINGS IN WHISTLEBLOWER ACTONS(a) Anonymous Petitioner:  A petitioner in a whistleblower action may move the Court for permission to proceed anonymously, if appropriate. Unless otherwise permitted by the Court, a petitioner seeking to proceed anonymously pursuant to this Rule shall file with the petition a motion, with or without supporting affidavits or declarations, setting forth a sufficient, fact specific basis for anonymity. The petition and all other filings shall be temporarily sealed pending a ruling by the Court on the motion to proceed anonymously.

Through experience we have worked with IRS whistleblowers that have indicated that if their identity is not protected, they could lose their life, family, careers, employment, licenses (attorneys/CPAs), etc.  Therefore, this proposed rule by the U.S. Tax Court is an important step for the success of the program.  We strongly recommend that a whistleblower work with qualified “tax” attorneys to assist them with the IRS Tax Whistleblower Program as well as an appeal, so as to protect their identity.  There are several tax whistleblower law firms, by guaranteeing the whistleblower’s confidentiality, are willing to forfeit their fees should the law firm or the IRS intentionally or unintentionally disclose their identity.  There are even fewer law firms that are willing to handle the appeal to the U.S. Tax Court as part of the representation.

Should you have any questions to the IRS Whistleblower Program, please Contact our office.