WASHINGTON, DC, March 29, 2019 – Phillips & Cohen LLP has won for an IRS whistleblower client an important ruling from the US Tax Court that allows whistleblowers to challenge IRS award decisions when the whistleblower provides new information in a later supplemental form even after the original claim for a whistleblower award has been denied.
“This is a win for our client and other whistleblowers who learn after the award application has been denied that their information may have resulted in tax payments after all,” said Edward H. Arens, a partner and whistleblower attorney at Phillips & Cohen. “We are very pleased that the Tax Court agreed with our position.”
The decision hinged on whether the IRS Whistleblower Office makes a “determination regarding an award” when it refuses to consider newly available information supporting a whistleblower’s award claim.
Phillips & Cohen’s anonymous whistleblower client first filed an award application (Form 211) in 2012, which provided information about a company that the whistleblower alleged had avoided recognition of discharge-of-indebtedness income by improperly reporting on its federal income tax returns that certain of its affiliates were insolvent. This resulted in underreporting of the company’s taxable income for 2012.
In 2016, the IRS sent the whistleblower a letter denying an award, stating “the information you provided was reviewed as part of an examination, but the examination resulted in no change.” The whistleblower did not petition the Tax Court for a review of that decision within the 30-day deadline for an appeal.
The following year, the whistleblower reviewed the company’s SEC forms 10-Q and 10-K. The whistleblower found that the company had filed amended tax returns for unspecified years during the third quarter of 2016 and had made a tax payment of more than $50 million during the fourth quarter of 2016.
The company also stated in its 10-K that it remained subject to IRS examination for 2012 and subsequent years.
Because the amended tax returns and the tax payment may have been connected to the information the whistleblower provided to the IRS, the whistleblower filed a second, supplemental form 211 alleging the same information and pointing out that the IRS decision was “premature” in light of the company’s disclosures in its SEC forms.
The IRS denied the supplemental claim, summarily stating that the claim had been previously denied and attaching the original denial.
Phillips & Cohen petitioned the Tax Court for review within 30 days of receiving the second denial, arguing the second denial was a new “determination” subject to judicial review under the whistleblower statute. The IRS moved to dismiss the case, arguing the denial of the second claim was not a “determination” under the statute and that the Tax Court had no jurisdiction.
The Tax Court rejected the IRS’s argument, noting, “Our jurisdiction to review a ‘determination regarding an award’ does not depend on how the document is labeled.”
The Tax Court concluded that, “By dismissing the relevance of that new information, the [IRS Whistleblower] Office made a determination regarding his claim. He is entitled to seek judicial review of that determination.”
“Concluding that petitioner has the better side of this argument,” the Tax Court said, it denied the IRS’s motion to dismiss the case.
“Now that the court has resolved the motion to dismiss, we look forward to proceeding with our client’s case,” said Arens.
Arens is co-author of Tax Whistleblower Laws and Programs, which is part of Bloomberg BNA’s Tax Management Portfolios.
Read the Tax Court’s opinion in Whistleblower 15488-17w V. Commissioner of Internal Revenue.