Kennedy v. Comm’r, T.C. Memo. 2021-3 | January 12, 2021 | Copeland, E. | Dkt. No. 5687-17W
Short Summary: Petitioner appealed, pursuant to § 7623(b)(4), three determinations of the Whistleblower Office (WBO) of the Internal Revenue Service (IRS) that declined to make awards to him. Petitioner filed a single whistleblower claim, but the WBO split it into three distinct claims. Petitioner’s whistleblower claim alleged that three taxpayers and related subsidiaries owed $150,103,245 in unpaid excise taxes, penalties, and interest. The IRS processed the claims, and it took no action against two of the taxpayers, and no change resulted from the examination of the third taxpayer. Petitioner challenged the WBO’s determinations. The Tax Court held that the WBO did not abuse its discretion in declining any awards to Petitioner.
Key Issue: Whether the WBO abused its discretion in declining to award the Petitioner any amount under his whistleblower claims when it took no action against two taxpayers and issued no changes after the examination of the third taxpayer.
Primary Holdings:
- The WBO did not abuse its discretion in declining to award any amount to Petitioner.
Key Points of Law:
- Section 7623allows the IRS to give an award for information that the IRS uses to collect tax or bring to trial persons guilty of violating internal revenue laws. The section provides for both discretionary and mandatory awards.
- Discretionary awards are paid under section 7623(a); whether an award is paid and the amount of such an award is entirely within the WBO’s discretion. See 301.7623-1(a), Proced. & Admin. Regs. However, if the proceeds in dispute exceed $2 million; and, in the case of an individual taxpayer, gross income exceeds $200,000 for any taxable year, then an award between 15% and 30% of collected proceeds must be paid to the whistleblower. See sec. 7623(b)(1), (5).
- Additionally, for a whistleblower to be eligible to receive an award under section 7623(b), two basic requirements must be met: (1) the IRS, on the basis of information the whistleblower provided, must bring an administrative or judicial action, and (2) the IRS must collect proceeds as a result of the action. Cooper v. Commissioner, 136 T.C. 597, 600 (2011).
- Congress has authorized that whistleblowers may seek judicial review of their award determinations. 7623(b)(4). This right does not apply to all award determinations; whistleblowers may only seek judicial review of award determinations made under section 7623(b).
- The Tax Court will not review an operating division’s decision whether to audit a target taxpayer in response to a whistleblower claim.
- Further, the Tax Court does not have the authority to require an operating division to explain its decision not to audit.
Insight: The Kennedy decision demonstrates the basic process for appealing WBO decisions on whistleblower claims. Of important note, the Tax Court pointed out that it will not review specific actions of the WBO and IRS, such as a decision not to audit a targeted taxpayer. All that the Tax Court will do is review the WBO’s final determination of the award for an abuse of discretion—generally a high standard to meet as the petitioner.
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