Is the IRS using the Administrative Appeal effectively?

Summary of the Administrative Appeal Process:

The IRS whistleblower award program (both under I.R.C. § 7623(a) and I.R.C. § 7623(b)) allows the whistleblower to request a detailed report for awards under both the “a” and “b” award programs.  Once the whistleblower obtains a detailed report, the whistleblower, upon execution of a confidentiality agreement, may review the administrative file (usually under the direct supervision of the whistleblower analyst in Washington D.C.).  This final review is what is termed an Administrative Appeal of the award determination.  The key here is that the IRS needs to first determine an award and issue a preliminary award recommendation/determination letter.

The rationale is that when an award is determined, the Whistleblower Office, if the whistleblower chooses to review the administrative file, will make its findings and make the administrative file available to the whistleblower to review, to determine if there are additional amounts that should have been awarded.  On a side note, rarely does a whistleblower choose to administratively appeal the award because it would delay the already long process of receiving an award (as of 2018 the average wait time was 9.32 years).  The administrative appeal is essentially ineffective because the administrative appeal does not apply to rejections or denials, which is where the administrative appeal would be most helpful and more likely utilized saving the IRS valuable resources from unnecessary litigation.  In addition, unlike just about every program the IRS administers, the administrative appeal is through an independent office within the IRS (i.e. the Appeals Office) in which issues are given a fresh look.  The administrative appeal within the Whistleblower Office is simply with the same individuals that made the determination in the first place.

Expansion into award denials and rejections

However, the IRS does not allow the administrative appeal process when the IRS rejects a claim for an award.  Treas. Reg. § 301.7623-3(b)(7) states that a rejection is a determination that relates solely to the whistleblower, and the information on the face of the claim that pertains to the whistleblower.  This means that the IRS is choosing not to pursue a whistleblower’s claim based on the information provided by the whistleblower.  Treas. Reg. § 301.7623-3(b)(7) goes on further to state that Treas. Reg. § 301.7623-3(c)(1) through (6) does not apply to rejections.  Again, IRS has eliminated the administrative appeals process for rejections of whistleblower claims under the premise that no one can make the IRS conduct an examination.

Similarly, Treas. Reg. § 301.7623-3(b)(8) defines a denial as a determination that relates to or implicates taxpayer information.  Likewise, Treas. Reg. § 301.7623-3(b)(8) provides that the IRS will not apply the administrative appeal provisions to denials.

The IRS’ policy of only offering a review of the administrative file to awards and not rejections and/or denials is peculiar.  The only other way a whistleblower can efficiently determine what the IRS did or didn’t do with the claim is to obtain a copy of the administrative file.  Since this efficient process is not available to the Whistleblower, the whistleblower’s only remaining option is to file suit in the United States Tax Court and engage in the discovery process in an effort to view the same administrative file that was not available in the administrative appeal.  Therefore, instead of efficiently disposing rejected or denied claims by allowing administrative appeals, the IRS is wasting its resources, as well as the U.S. Tax Court, by forcing Whistleblowers to utilize judicial resources just to review the IRS determination as set out in the administrative file.

Often, when a whistleblower has his case rejected or denied, the whistleblower is just seeking some clarity as to why the IRS rejected or denied their claim.  This clarity can often be obtained by reviewing the administrative file, but the IRS’ policy and practice requires that the whistleblower obtain a copy of the administrative file only through discovery, after filing suit in the United States Tax Court. For a government agency that is under constant scrutiny and claiming that it lacks adequate funding from Congress to do its job, it is peculiar that the IRS would waste additional resources (IRS’ resources, the United States Tax Court’s resources, and the whistleblower’s resources) just to prevent the whistleblower from finding out basic information as to why the IRS rejected or denied the claim.

Practice Note:

If you have a rejected or denied whistleblower claim, pay attention to the filing deadline for a petition in U.S. Tax Court, because if you miss the deadline, there is no recourse in the United States Tax Court to challenge the rejection or denial.   Contact a qualified legal professional, or the attorneys at the Tax Whistleblower Law Firm to discuss your case and to ensure that you do not miss your filing deadline.

Author, SHINE LIN strives to present a balanced yet focused claim which allows the IRS to concentrate on the key facts, legal issues, law and legal analysis so that the IRS may successfully pursue the alleged wrongdoers.