Frantz v. Comm’r, T.C. Memo. 2020-64 | May 19, 2020 | Urda, J. | Dkt. No. 15440-18W
Short Summary: Petitioner sought review of the IRS Whistleblower Office’s decision to deny a whistleblower award for an alleged understatement by a chapter 7 bankruptcy trustee of the bankruptcy estate’s tax liability. The Tax Court granted summary judgment against the Petitioner.
Key Issue: Whether the IRS Whistleblower Office’s determinations to reject and deny Petitioners respective whistleblower claims was an “abuse of discretion?”
- The Whistleblower Office’s determinations were not an abuse of discretion. It performed its evaluative function, and its conclusions did not appear to lack a sound basis in fact or law.
- While Petitioner argues that the Whistleblower Office abused its discretion by failing to launch a thorough investigation into the claims, the Tax Court has no authority to review the IRS’s decision not to act on the allegations—that decision is reserved to the discretion of the IRS.
Key Points of Law:
- The Tax Court reviews the WBO’s determinations regarding a whistleblower award for abuse of discretion.
- Abuse of discretion exists when the IRS’s determination is arbitrary, capricious, or without sound basis in fact or law.
- Section 7623(b) provides the circumstances in which the IRS is required to give an award to a whistleblower. Before an award can be paid, section 7623(b)(1) requires that the IRS first proceed with an “administrative or judicial action” and collect proceeds from the target taxpayer.
- Section 7623(b)(4) grants the Tax Court jurisdiction to review any determination regarding such an award, including rejections and denials.
- A whistleblower claim may be “rejected” or “denied.” The WBO may reject a claim outright in its initial evaluation if it determines that the claim on its face does not meet the applicable criteria. A denial of a claim occurs when the WBO does not reject the claim at the outset as a threshold matter, but nonetheless determines not to grant an award.
Insight: The Frantz case illustrates the need for a whistleblower to prepare a thorough whistleblower claim that provides the IRS with specific, credible information and documentation and otherwise satisfies the criteria to trigger a whistleblower award. The case further demonstrates the deference that is accorded to the IRS under the abuse-of-discretion standard of review.
For more resources on whistleblower laws, see:
Whistleblowers should strongly consider engaging experienced tax counsel to assist with the whistleblower process and to navigate the procedural and substantive pitfalls. Freeman Law’s tax attorneys are available to assist with defending and submitting IRS whistleblower claims. Call today at (214) 984-3000 or contact us online for a consultation.