IRS Tax Whistleblower Articles
Federal Tax Weekly, No. 24, June 12, 2008
Tax Court Proposes New Rules For Electronic Service, Whistleblower Claims
The U.S. Tax Court recently proposed amendments to its Rules of Practice and Procedure to encompass electronic service of filings. The proposed amendments also clarify how tax whistleblowers can report their claim to the IRS for judicial review of their reward.
CCH Take Away:
Scott Knott and Gregory Lynam, partners with The Ferraro Law Firm, Washington, D.C., told CCH that while the plaintiffs' bar welcomes the proposed rules, there are some unanswered questions. "We believe the scope of the relevant information goes beyond administrative filings to everything that is relevant to the tax paid and what information was used by the IRS to determine that tax," Knott explained. Lynam noted that the Tax Court intends to treat whistleblower claims as it does many other proceedings and will not limit its review to the administrative record.
The Tax Court has proposed expanding service of filings to include electronic means. However, written consent must be obtained from the person served, which could be provided by electronic means. Litigants would be able to use the Tax Court's electronic transmission services for service.
In some courts, an attorney's registration as a user of the court's electronic case filing system constitutes consent to accept service electronically.
Transmission by electronic means, the proposed rules note, would be complete when the sender performs the last act to transmit a document electronically (that is, when the sender hits the "send" button on his or her email program). However, transmission would not be deemed complete if the email bounces back to the sender.
A document has been received by the party on which it is served as long as the party has the ability to retrieve it, the proposed rules note. A party cannot defeat service by choosing not to access email.
Individuals who report violations of federal tax laws to the IRS may be entitled to a reward. Under the Tax Relief and Health Care Act of 2006 (TRHCA), if the IRS proceeds with any administrative or judicial action based on a whistleblower's tip, the informant shall receive a reward based on the amount recovered in some cases.
To be eligible for an award under the TRHCA, the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed in the aggregate $2 million and, if the allegedly noncompliant person is an individual, the individual's gross income must exceed $200,000 for any tax year at issue in a claim. Rewards in these cases are between 15 and 30 percent of the amount recovered.
If the whistleblower planned and initiated the actions that led to the underpayment of tax, or to the violation of federal tax laws, the IRS may reduce the award. If the whistleblower is convicted of criminal conduct arising from his or her role in planning and initiating the action, no reward will be paid.
TRHCA whistleblowers may appeal to the Tax Court if they are displeased with the size of their award. An appeal must be filed within 30 days. The Tax Court may assign review of a whistleblower award to a special trial judge.
Congress also authorized a reduced award amount of up to 10 percent in cases based principally on disclosure of specific allegations resulting from, among other things, government investigations and news media reports. Additionally, the IRS also may pay a reward, in its discretion, if the $2 million/$200,000 thresholds are not met. These awards are capped at 15 percent up to $10 million. Whistleblowers cannot appeal these rewards to the Tax Court.
The proposed amendments would add a new title to the Tax Court's rules: Title XXXIII (Whistleblower Award Actions). The proposed title addresses commencement of a whistleblower award action, request for place of trial and the IRS's answer to the plaintiff's complaint.
Paul Scott of Paul D. Scott, P.C., San Francisco, California, expressed concern about the absence of any special provisions in the proposed rules addressing the confidentiality of whistleblowers. "Confidentiality is an integral part of preserving their anonymity," Scott told CCH.
By George L. Yaksick, Jr., CCH News Staff