Tax Whistleblower Laws and Programs (Portfolio 632)

Tax Management Portfolio, Tax Whistleblower Laws and Programs, No. 632, provides a comprehensive examination of the laws and regulations that govern the IRS whistleblower program, and the practice that has developed under the program.

Description

Tax Management Portfolio, Tax Whistleblower Laws and Programs, No. 632, provides a comprehensive examination of the laws and regulations that govern the IRS whistleblower program, and the practice that has developed under the program.

The Portfolio reviews both the original IRS whistleblower program and the significant changes to the program after the enactment of the Tax Relief and Health Care Act of 2006. Topics covered include:

 • Who can be a whistleblower.

 • How to file a whistleblower claim.

 • How to protect a whistleblower's identity.

 • The IRS's interpretation of important statutory terms.

 • The IRS's basis for determining the amount of a whistleblower's award, and awards to date.

The Portfolio also explains the procedures for appealing an IRS whistleblower determination and challenging the IRS in Tax Court. Discovery in Tax Court, as well as court cases that have impacted the IRS whistleblower program, are addressed as well.

This Portfolio may be cited as Kelton, Zoglin, Hasegawa, Arens, and Stabile, 632 T.M., Tax Whistleblower Laws and Programs.

Authors

Erika A. Kelton

Erika A. Kelton, J.D., University of California Berkeley School of Law; partner at Phillips & Cohen LLP, where she represents U.S. and international clients in claims filed with the whistleblower programs of the Internal Revenue Service, the Securities and Exchange Commission and the Commodities Future Trading Commission, in addition to whistleblower cases involving false claims against the U.S. government.

Larry P. Zoglin

Larry Zoglin, J.D., New York University School of Law; Of Counsel at Phillips & Cohen LLP, where he represents whistleblowers with claims filed with the IRS and SEC, as well as qui tam cases against healthcare providers, defense contractors and other government contractors.

Andrea B. Hasegawa

Andrea Hasegawa is a litigator experienced in cases involving federal and state false claims acts, federal and state antitrust laws, First Amendment issues and other complex litigation.

Edward H. Arens

Edward H. Arens, J.D., University of California Hastings College of the Law; an associate at Phillips & Cohen LLP, where he represents whistleblowers in cases dealing with the IRS and other government agencies.

Emily A. Stabile

Emily Stabile, J.D., University of California Berkeley School of Law; associate at Phillips & Cohen LLP, where she represents whistleblowers in a variety of cases.

Table of Contents

 I. Introduction 
  A. Overview of Statutory Scheme: §7623(a) and §7623(b)  
  B. History of the Tax Whistleblower Award Program  
  1. Early Legislation Through the 1996 Amendments
  2. Until 2006, the IRS Retained Full Discretion Over Whistleblower Rewards
  II. Section 7623(a) Awards: The Discretionary Awards Program 
  A. Statutory Requirements  
  B. Regulatory and Policy Provisions Applying to §7623(a) Awards  
  1. Section 7623(a) Award Determination
  a. Section 7623(a) Award Claims Filed Prior to December 20, 2006
  b. Section 7623(a) Award Claims Filed on or After December 20, 2006 and Prior to July 1, 2010
  c. Section 7623(a) Award Claims Filed on or After July 1, 2010
  2. Section 7623(a) Award Procedure
  C. Enforcement Cases Under the Discretionary Awards Program: Very Limited Access to Judicial Review   
  1. Only in the Rare Cases Where Whistleblowers Secured Express Promises from the IRS to Pay Specific Rewards Did Courts Allow Them to Sue to Enforce Those Contracts
  2. Whistleblowers Who Did Not Have Express Reward Agreements with the IRS Were Unsuccessful in Obtaining Rewards
  a. Courts Ruled that They Did Not Have Jurisdiction Over Claims to Enforce §7623 Because that Statute Is Not Money-Mandating
  b. Courts Ruled that Plaintiffs Cannot Show Implied-in-Fact Contracts Unless They Negotiate for and Obtain Promises for Specific Rewards
  c. Courts Declined to Review IRS Decisions for Abuse of Discretion
  d. Plaintiffs Could Not Recover for Their Assistance Under a Quantum Meruit Theory
  III. Section 7623(b) Awards: The Mandatory Awards Program Collapse Next Level
  A. Legislative History of §7623(b): The Tax Relief and Health Care Act of 2006  
  1. Criticism of the Pre-2006 Approach
  2. Passage of the Tax Relief and Health Care Act of 2006: Significant Reform of the Whistleblower Program
  B. Important Statutory Provisions of §7623(b) and Related Regulations   
  1. Who Can Be a Whistleblower
  2. “Amount in Dispute”
  3. “Collected Proceeds”
  a. The Treatment of Non-Title 26 Proceeds
  b. Refund Netting
  c. The Treatment of Tax Attributes
  d. The Treatment of Overpayment Credit Balances
  e. The Treatment of Amounts Collected Based on Amended Returns
  4. Proceeding with an Action “Based On” Whistleblower Information: The “Substantial Contribution” Rule
  5. Award Computation
  a. Award for Substantial Contribution
  (1) Positive Factors
  (2) Negative Factors
  (3) Computational Framework for the Award Determination
  (4) Examples in the Regulations
  b. Award for “Less Substantial Contribution”: Publicly Disclosed Allegations
  c. Reduction in Award or Denial of Award When Whistleblower Planned or Initiated the Action
  6. “Related Action”
  7. Administrative Process for Whistleblower Proceedings
  C. Enforcement Cases Under §7623(b): Exercising the Right to Judicial Review of IRS Award Determinations  
  1. What Constitutes a Determination for Purposes of Judicial Review
  2. Evolving Standard of Review
  3. Scope of the Tax Court's Review
  4. Judicial Review of the IRS's Determination of the “Amount in Dispute”
  IV. Filing a Claim for an Award
  A. How to File a Claim  
  B. Power of Attorney  
  C. Protecting the Confidentiality of the Whistleblower's Identity  
  V. Management of IRS Whistleblower Program
  A. Program Evaluations  
  B. General Frustration Over Lack of Collaboration With Whistleblowers  
  C. Adoption and Subsequent Relaxation of the ‘One-Bite Rule’ Regarding Whistleblowers Who are Employees  
  VI. Data on Tax Whistleblower Submissions and Awards
  A. Number of Submissions and Awards  
  B. Timing of Awards  
  VII. Appealing an IRS Determination to Tax Court 
  Introductory Material  
  A. Procedure Governing Appeal of an IRS Determination  
  1. Thirty-Day Filing Period
  2. The Filing Period When There Are Multiple Determinations in a Single Case
  3. Required Contents of a Petition to Appeal a Determination
  B. Motions to Seal and Proceed Anonymously  
  C. Discovery in Tax Court  
  VIII. Beyond the IRS: New York State's Tax Whistleblower Program  
  Working Papers
  Table of Worksheets  
  Worksheet 1 Petition for Whistleblower Action Under §7623(b)(4)  
  Worksheet 2 Petitioner's Motion to Seal Identity, Case, and Accompanying Documents  
  Worksheet 3 Petitioner's Motion to Proceed Anonymously

Working Papers

Table of Worksheets  
  Worksheet 1 Petition for Whistleblower Action Under §7623(b)(4)  
  Worksheet 2 Petitioner's Motion to Seal Identity, Case, and Accompanying Documents  
  Worksheet 3 Petitioner's Motion to Proceed Anonymously