IRS Tax Whistleblower Articles

Tax Court Orders Discovery Beyond Whistleblower Office File

by Nathan J. Richman
Tax Notes Today

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The Tax Court on September 16 granted discovery requested by three whistleblowers over IRS objections that the information requested is not in the Whistleblower Office's case file.

In Whistleblower One 10683-13W v. Commissioner, 145 T.C. No. 8 (2015) , the Tax Court ordered the IRS to respond to whistleblowers' discovery requests despite the government's claim that the requests went beyond the Whistleblower Office's case file. The government claimed the case file was the extent of the administrative record. The requests included who at the IRS reviewed the information the whistleblowers submitted, how the IRS investigated their submissions, and information concerning a published legal memorandum.

The opinion states, "Even were we to agree with respondent as to the scope of review, he cannot unilaterally decide what constitutes an administrative record." The court added that it believes "(1) the information already exists, (2) is in the IRS' hands, and (3) should be included in an administrative record compiled for purposes of making a determination of petitioners' claim."

Dean Zerbe of Zerbe, Fingeret, Frank & Jadav PC welcomed the decision as a significant victory for whistleblowers with regard to discovery and the administrative record. "The IRS has been making eye-blinking arguments that whistleblowers in Tax Court can only rely on the IRS administrative record -- even though the IRS controls the administrative record and the IRS administrative record often contains plenty of nothing," he said, adding that the access to reasonable discovery should give whistleblowers confidence of a fair hearing in the Tax Court.

"This has been a problem for years," Erica L. Brady of the Ferraro Law Firm said. She welcomed the division opinion on the long-standing issue, emphasizing the importance of the ability of whistleblowers to now cite the decision as precedent. "Every time the Tax Court has looked at the sufficiency of the administrative file, the Tax Court has found the file to be incomplete," she said.

Brady said that the IRS's first discovery response in a whistleblower case is typically the Whistleblower Office's case file, "which is functionally what you gave them." The IRS has been trying to dictate the scope of discovery for years, she said, adding, "as this precedent is implemented, whistleblowers should be able to reach a resolution with the IRS now that the facts of the audit can be determined through discovery."

The court's statement about the necessary documents outside of what the IRS claimed was the administrative record illustrates the problem whistleblowers have faced with discovery, Brady said.

In ordering the discovery requested by the whistleblowers, the court added a protective order at the end of the opinion.

Zerbe said that it is just as important that the decision also strongly protects taxpayer information provided to the whistleblowers' counsel.

Brady said that the protective order "shows that the court is still cognizant of balancing taxpayer rights to anonymity while ensuring that whistleblowers are able to get a fair determination on the facts."