IRS Tax Whistleblower Articles

Whistleblower Counsel Praise Tax Court for Keeping Claim Open

By Amy S. Elliott
Tax Analysts, Tax Notes Today
November 24, 2014

PDF Version

The Tax Court on November 20 denied the IRS's motion to dismiss a whistleblower's case for lack of jurisdiction, holding in Lippolis v. Commissioner, 143 T.C. No. 20 (2014) , that just because the IRS collected only $844,746, the $2 million threshold in section 7623(b)(5)(B) is not jurisdictional.

"The Tax Court is reminding the IRS that [the court] is the one who decides whether or not it has jurisdiction to review IRS determinations, and its jurisdiction to hear whistleblower cases is not dependent on the IRS position," said Scott A. Knott of the Ferraro Law Firm.

The IRS has until January 21, 2015, to file a motion for leave to amend its answer to affirmatively plead -- bearing the burden of proof -- that the amount in dispute doesn't meet the $2 million requirement for a larger percentage of the recovered amount. The IRS takes the position that the amount in dispute is the amount it actually collected in tax from the target (an individual taxpayer and his estate) as a result of an audit performed in response to the whistleblower's claim.

The whistleblower takes the position that the amount in dispute could be one of the following: the amount the IRS could have collected in tax based on the information provided, the amount initially raised by the IRS in the examination before any settlement with the taxpayer, or the tax that was ultimately assessed. According to the whistleblower, if the amount in dispute is simply the amount collected, Congress could have said so in the statute.

Although the whistleblower was awarded 15 percent of the amount the IRS collected from the The Tax Court on November 20 denied the IRS's motion to dismiss a whistleblower's case for lack of jurisdiction, holding in Lippolis v. Commissioner, 143 T.C. No. 20 (2014), that just because the IRS collected only $844,746, the $2 million threshold in section 7623(b)(5)(B) is not jurisdictional. target, which is the most allowed under section 7623(a), he takes the position that he was eligible for an award under section 7623(b) -- between 15 and 30 percent -- because the amount in dispute exceeded $2 million. The whistleblower also says he has reason to believe that the IRS did in fact collect more than $2 million.

In August, Treasury issued final section 7623 regulations (T.D. 9687 ) that define "amount in dispute" as "the greater of the maximum total of tax, penalties, interest, additions to tax, and additional amounts that resulted from the action(s) with which the IRS proceeded based on the information provided, or the maximum total of such amounts that were stated in formal positions taken by the IRS in the action(s)." However, that guidance was first effective for events after those in Lippolis.

Judge John O. Colvin wrote that the court "need not decide what constitutes the 'amount in dispute' at this time." He added that while "it would be unduly burdensome" to require the whistleblower to provide sufficient information proving the amount in dispute, "the Commissioner generally should have easy access to all of the records or documents."

Knott said the question of what the amount in dispute is in a particular whistleblower case "is a question of fact that is typically only determinable based on information that is in the hands of the commissioner, and the court properly has jurisdiction to decide that factual question."

Knott added that he has "pretty low expectations of how much information the IRS will be sharing with whistleblowers to explain their section 7623(a) award determinations, even though they are expressly authorized to release such information during a judicial or administrative proceeding pursuant to section 6103(i)(4). Therefore, in most cases if our client receives a denial letter or an award under section 7623(a), I think we'll be right back where we started, which is having to sue the IRS to properly challenge it."

Thomas C. Pliske of the Tax Whistleblower Law Firm LLC, who represented the whistleblower, told Tax Analysts that the case "is only one of what is likely a long series of cases that will be decided by the Tax Court to deal with some of the many issues that IRS whistleblowers are facing" given that the IRS interprets the whistleblower statute narrowly. "It will take a number of court decisions to interpret the law as it was intended," he said.