The Tax Court’s opinion in Whistleblower 21276-13W v. Commissioner, 147 T.C. No. 4 (2016), was a clear and decisive win for whistleblowers.  The IRS has long been improperly trying to limit what should be included in “collected proceeds” and today’s opinion restores Congress’s intention that all proceeds that are collected be included in the amount on which the whistleblower’s award is computed.  By specifically including criminal fines and forfeitures in the collected proceeds amount, this court decision means that a whistleblowers’ award will reflect the full amount that the government collected based on their information.  In this opinion, the Tax Court examined the definition of “collected proceeds” as used in section 7623(b)(1).  The court found that the language of that

Section 7623(b)(1) is straightforward and written in expansive terms, namely, where, using information provided by the whistleblower, the Secretary proceeds with an administrative or judicial action regarding underpayments of tax or any action regarding the violation or, or conniving to violate, the internal revenue laws, the whistleblower is entitled to an award based on a percentage of the collected proceeds resulting from the Secretary’s action (as well as any related actions) or from any settlement in response to such action.

The court refused to follow Respondent’s request to narrow the definition of collected proceeds.  The court stated:

We are leery of arbitrarily limiting the meaning of an expansive and general term such as “collected proceeds”. In drafting section 7623(b)(1), Congress could have provided that the whistleblower’s award is to based on taxes and other amounts assessed and collected by the IRS under title 26. But it did not.

The court explained that this case is not in conflict with Whistleblower 22716-13W v. Commissioner, which had ruled that FBAR penalties were not to be included in the $2 million threshold amount used to determine if section 7623(b) applied.  The court here stated that:

In reaching our holding today, we determined that the wording in the threshold requirement of section 7623(b)(5)(B) … is different from that of section 7623(b)(1), which provides for an award of a percentage of the collected proceeds …

The Tax Court held that the phrase “collected proceeds” is sweeping in scope and is not limited to amounts assessed and collected under Title 26 of the United States Code.  The Tax Court goes on to hold that criminal fines under Title 18 as well as civil forfeitures under Title 31 are both collected proceeds under section 7623(b)(1).

Lynam Knott