IRS Tax Whistleblower Articles

Whistleblower Case Lost as Precedent After IRS Denies Claim, Attorneys Say

By Diane Freda

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A long-standing whistleblower claim with the Internal Revenue Service has been denied, giving the informant a clear path to appeal for payment of his underlying tax evasion allegations, but leaving the whistleblower community at large with far less certainty on where IRS stands on de facto determinations.

The IRS April 15 notified Joseph Insinga, a former Rabobank managing director, that his claims against corporations such as General Mills and Newell Rubbermaid had been rejected.

The lawsuit—arising from the lack of an IRS determination in the case, Insinga v. Commissioner, T.C., No. 4609-12W, 3/13/13—was seen as a test case that would decide if IRS could internally conclude that it would not pay an informant without making an official determination and communicating that to the whistleblower, practitioners told BNA April 22.

But now that IRS denied Insinga's claim, previous filings by Insinga claiming that he was being denied his rights under the Administrative Procedures Act are moot. The APA confers jurisdiction on the court if agency action or failure to act aggrieves someone.

“It went from being a case that was important to everyone, to being a case that is important just to him,” Gregory Lynam, partner with the Ferraro Law Firm, told BNA April 22.

No Need to Go Forward

Denying Insinga's underlying tax evasion claim will ensure that IRS does not have to go forward with the APA litigation. Tax Court Judge David Gustafson March 13 ordered that if administrative action on the case had ceased at IRS, then a reviewable determination may have effectively been made, and the court would have jurisdiction over it. He said the court would begin to dig into determining if a de facto IRS determination had been made (51 DTR K-4, 3/15/13).

“The court signaled they were willing to look at de facto denials which puts more pressure on the IRS to move, and they clearly were open to APA arguments where we said they could direct the IRS to make a decision, all of which was very good for whistleblowers,” said Dean Zerbe, an attorney with Zerbe, Fingeret, Frank & Jadav PC .

Meanwhile, Robert Gardner, program manager of the IRS Whistleblower Office, said IRS had denied the bulk of Insinga's claims because the information Insinga provided “did not result in the collection of any proceeds from any of the taxpayers covered” by the denial letter. “Therefore, you are not eligible for an award with respect to those taxpayers,” Gardner said in the letter.

However, the government said it is still investigating one of Insinga's claims against another corporation, Utrecht America Finance Company S.A.

Insinga attorney Andrew Carr, with Bateman Gibson in Memphis, told BNA April 22 that he would move to dismiss Insinga's original case, which sought relief under the APA and file a new case.

“I am as confident today as I was when I filed the first case that our claims are meritorious and that an award will ultimately be paid,” he told BNA. “The tax court has the final say, not the IRS.”

The original lawsuit invoked the APA since the Service had neither paid an award to the whistleblower nor informed him that his claim has been denied.

‘Unreasonably Delayed.'

Insinga had argued that under the act, his whistleblower award, filed in 2007, has been unreasonably delayed.

IRS said that even though no denial letter had been issued to Insinga, a determination had not been made in the case, and the statute does not require the Service to do that by any particular time.

“The real precedent Insinga was going to set was that if you found out the taxpayer had been paid on an issue you submitted, you could then sue the IRS saying they had made a de facto determination not to pay you,” Lynam said. “Now it's just a fight over whether the whistleblower provided information used by the IRS to collect tax.”