Freedom of Information Act Reaches Whistleblower Documents

Since its inception, the IRS’s process for paying whistleblower claimants has been widely criticized. Setting aside these criticisms, there have been a number of developments that would-be informants have to consider before submitting IRS Whistleblower claims. The recent Montgomery v. Internal Revenue Service, No. 17-918 (JEB) (Dist. D.C. 2018) adds another factor to consider.

Facts & Procedural History

The facts and procedural history of the case are as follows: The taxpayer entered into a number of partnership arrangements that produced significant tax losses. The IRS caught wind of the arrangements and determined that the arrangements were shams. The taxpayer and the IRS eventually entered into an agreement to resolve all claims related to the partnerships. The taxpayer then submitted Freedom of Information Act (“FOIA”) requests to obtain documents that would disclose the identity of any whistleblower who originally reported the partnership arrangements to the IRS.

The IRS’s Whistleblower Program

The IRS’s Whistleblower Program is the most recent version of its informants rewarwd program. The program is authorized in our tax laws and was substantially overhauled in 2006. If you are into history, you can read our prior article on the IRS’s new Whistleblower program here.

The FOIA, Generally

The FOIA is intended to provide concerned citizens with a means to access government records. There are a number of limitations that can allow the government to withhold documents. When it comes to the IRS, this usually involves the law enforcement and deliberative process exceptions. The IRS is quick to cite these rules, and does so liberally and often illegally, in responding to FOIA requests.

Can a FOIA Request Reach Whistleblower Documents?

With this background, the question in Montgomery is whether taxpayers can use a FOIA request to obtain documents that disclose the identity of the whistleblower.

If you have read this blog before, you may recall that the courts have made it clear that the whistleblower’s identity is not always protected in ligigation. We predicted that this would have a chilling effect on the number of whistleblower claims submitted to the IRS. The Montgomery case makes it even less likely that would-be claimaints will submit claims to the IRS if their identity could be disclosed by a FOIA request.

In Montgomery, the IRS argued that disclosure was precluded by the settlement agreement it entered into with the taxpayer, due to collateral estoppel, and due to res judicata. The court addressed each in turn, holding that none of the defenses enabled the IRS to refuse to produce the information. This means that FOIA reuqests may very well reach whistleblower documents that disclose the claimaint’s identity.

The Work Around

There is some chance that Congress may fix these disclosure issues. In the meantime, one work around might be to have the claimant’s attorney submit the claims to the IRS. The claimant’s attorney client privieldge may protect the claimant’s identity.