Do you know someone is defrauding the US Government by filing a false federal tax return? For example suppose you know about a group of perpetrators who are using identity theft to file hundreds of false tax returns and illegally collecting Millions of dollars of bogus refunds. Are you unconvinced or cynical that this could be happening? The fact is that Identity theft has grown so lucrative that John Mica, (R Florida) says “Drug dealers are turning to IRS identity theft because it’s less risky and more lucrative”. Perhaps you might discover other tax crimes being committed by neighbors or co-workers hiding assets and taxable income offshore, or better yet not reporting income at all by simply not filing tax returns. Do you become a whistleblower against these folks? But not so fast your wife says. She asks you to consider the safety and the protection of your family against retaliation before moving ahead with a Whistleblower claim? Good question right? So if you are you interested in finding out more about Whistleblowing, IRS style stay tuned to TaxView with Chris Moss CPA to get all the answers on IRS Whistleblowing, whether it is safe to participate for you and your family, and finally, at the end of the day does Whistleblowing really pay.
Just so you know the Government has had a Whistleblower law on the books for over 100 years. The Secretary of the Treasury as early as 1867 was authorized to pay anyone for information leading to conviction of persons guilty of tax fraud. But it was not until 2006, through an enhanced Whistleblower program created in Section 7623 by the Health Care Act of 2006, that the US Tax Court was given jurisdiction to hear disputes between the Whistleblower and the IRS. Furthermore, it was not until about 2012 that taxpayer Whistleblowers started fighting back in US Tax Court to litigate adverse determinations of their awards. Fast-forward to 2015 and a review IRS Manual Part 25 Special Topics Chapter 2 Whistleblower Awards shows us a massive amount of very good and informative information on the Whistleblower program but no information on currently pending US Tax Court cases. But what about confidentiality and protection of your family?
Section 126.96.36.199 "Confidentiality of the Whistleblower"indeed claims that the Government will protect the identity of the Whistleblower as a “confidential informant” to the “fullest extent permitted by law”. But the Treasury Department in its own 2013 report to Congress has doubts that there is sufficient protection. Specifically Treasury reports “…Unlike other laws that encourage Whistleblowers to report information to the Government, section 7623 does not prohibit retaliation against the IRS Whistleblower…” Furthermore, if you decide to become a Whistleblower and you are an essential witness in a judicial proceeding it may not be possible to pursue the investigation or examination without revealing your identity.
Does the Whistleblower have any recourse if their claim is unreasonably rejected? If the Government will not move forward and pay you unless your reveal your identity, you can always petition the US Tax Court for a “Protective Order” to seal the record or in the alternative proceed anonymously while you dispute the Government’s position. In Whistleblower 14106 vs IRS, US Tax Court (2011), the Court sided with the Government on the dismissal of the claim, but Judge Thornton said that “Petitioner’s request to seal the record or proceed anonymously presents novel issues of balancing the public’s interest in open court proceedings against Petitioner’s privacy interests as a confidential informant. The Court noted that Section 7623 does not expressly address privacy interests of tax whistleblowers. But the US Tax Court has observed in US Tax Court 130 T.C. 586 that in appropriate cases the Court “might” permit a petitioner to proceed anonymously and might seal the record as well. The Court in Whistleblower 14106 did in fact under Section 7461(b)(1) and Rule 103(a) grant the Petitioner the right to proceed anonymously as a Whistleblower but denied the Petitioner the right to seal the record in order to preserve the case for the public’s ability to follow the proceeding, including I might add, my ability to insert the facts of the case into this article. Judge Thornton then ordered the parties to redact from the record all names and any identifying formation regarding the Petitioner. Taxpayer wins on anonymously proceeding and IRS Wins on dismissal.
Now that we know you can proceed anonymously if the IRS does not pay you, we now ask what it takes to win as a Whistleblower in US Tax Court. In other words at the end of the day if the IRS denies you compensation, what are your odds of getting paid by appealing to US Tax Court?
First some statistics: According to the Tax Executives Institute in 2012 there were 8,634 Whistleblower cases filed, 128 awards granted totaling over $125M leading to taxes collected of over $592M---a 21% return for the lucky whistleblowers whose claims were accepted by the Government on the funds they all brought in to the US Treasury. But there were also 8,506 Whistleblower cases in 2012 which are either still pending, or were dismissed. At the same time, there has been a materially significant increase of US Tax Court Whistleblower cases that are being litigated. So let’s take a look at what is going on in US Tax Court on some of these pending cases.
In Kenneth William Kasper v IRS US Tax Court (2011), the IRS denied Kasper’s Whistleblower claim determining that the information Kasper provided did not meet the criteria for an award. Kasper appealed to US Tax Court in Kasper vs IRS US Tax Court (2011). The IRS moved for motion to dismiss for lack of jurisdiction claiming that Kasper did not appeal within the 30 day statute. Judge Haines sides with Pro Se Whistleblower Kasper holding that the 30-day period of Section 7623(b)(4) begins on the date of mailing or personal delivery of the adverse determination sent to his last known address. The IRS could not prove that such a mailing had been delivered so IRS loses, Kasper wins round one. The case is now hopefully proceeding to trial to eventually be decided on its merits.
So what does all this say about your chances of winning a Whistleblower award? While there has been a large group of recent Whistleblower cases winning preliminary jurisdictional issues, including the right of Whistleblowers to remain anonymous, it remains to be seen whether or not these same Whistleblowers will eventually win in US Tax Court on the merits of their claims. Stay tuned to TaxView in 2016 with Chris Moss CPA when we will revisit the Whistleblower claims that are winding their way through US Tax Court to ultimately answer whether or not it pays to be an IRS Whistleblower. See you all next time on TaxView.
Chris Moss CPA