Houston Tax Attorney Blog
Houston Tax Attorney
In Whistleblower 11099-13W v. Commissioner, 147 T.C. 3, the court indicated that it may rule on the issue of whether (1) a whistleblower claim can include tax collected in years after the years of the whistleblower claim and (2) the claim can include tax collected due to changes initiated by the taxpayer as a result of the whistleblower audit. This could result in whistleblowers being able to recover substantially larger awards from the IRS.
Facts & Procedural History
The facts and procedural history of the case are as follows:
- The petitioner was employed for an entity that traded commodities.
- The petitioner filed a whistleblower claim asserting that the trading activities made it possible for an affiliated entity to use the inventory rules to permanently defer paying taxes.
- The IRS audited the affiliated entity to determine whether it was in compliance with the inventory rules.
- The IRS did not provide the petitioner with information to determine whether additional tax was collected from the affiliated entity related to the information he provided about the inventory rules.
- The petitioner then asked the court to order the IRS to produce documents that would allow him to determine the correctness of the IRS’s position, which the court did and the IRS followed in part.
- The dispute that was the subject of the most recent court option was the IRS’s argument that the IDRs and responses did not deal with the petitioner’s inventory issue.
The IRS whistleblower program pays monetary awards to individuals who provide information to the IRS about third parties who are underpaying their tax. The awards are 15 percent to 30 percent of the collected proceeds resulting from the information.
The Parties Arguments
In the case, the IRS argued that it did not use petitioner’s information to make any adjustments to the affiliated entity’s tax returns. Accordingly, the IRS’s position was that it did not have to provide the information that was requested.
The petitioner argued that the information not only lead to the IRS collecting additional tax in the years at issue, but also that it caused the affiliated entity to stop using the inventory rules as it had been and this increased the tax the IRS collected in subsequent years.
Years & Changes Subject to Whistleblower Claims
It is generally thought that whistleblower claims only cover the years for which information is provided and that the IRS audits. It is also thought that the claim is limited to adjustments the IRS makes, not increases in tax due to voluntary changes that the taxpayer makes as a result of the whistleblower’s claim and related IRS audit.
The court noted that this may be the correct interpretation. It did not rule on the issue, however. The issue was not currently before the court. The court suggested that the IRS should move for summary judgment on this basis, which would allow the court to address the issue.
If the IRS moves for summary judgment and the court happens to conclude that whistleblowers can recover for tax collected in later years that is related to the information he provided or that taxpayer initiated changes that result increased tax qualify, it would present an opportunity for existing whistleblower claimants to collect significantly more than they would otherwise and it would provide an even greater incentive for whistleblowers to come forward and make other claims.