August 7, 2018

Whistleblower Using Public Information Cannot Remain Anonymous

Houston Tax Attorney Blog

Houston Tax Attorney

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We have previously written about the court’s position that serial whistleblowers, those who submit more than one whistleblower claim with the IRS, cannot remain anonymous when litigating the right to their whistleblower claims.  In Whistleblower 7208-17 v. Commissioner, T.C. Memo. 2018-118, the court confirms that this extends to those who use public information to submit a single whistleblower claim.

Facts & Procedural History

The whistleblower worked on Wall Street and then as a day trader.  He developed a valuable trading strategy that seems to have been the focus of his work.

At some point he came across a potential investment.  He put down a deposit on the investment, but later withdrew the deposit as he believed the investment was fraudulent.  The IRS questioned him about the promoter.  The IRS eventually pursued criminal charges against the promoter.  After this, the whistleblower formally submitted his claim to the IRS for the information he submitted to the IRS seven years earlier.

The IRS rejected the whistleblower’s claim and litigation ensued.

Prior Disclosures of Whistleblower Status

While cited as part of its holding (as explained below) but no doubt a strong factor that influenced the decision, the court spent a considerable amount of text describing how the whistleblower in this case had already disclosed his whistleblower status to several individuals in his industry.  It appears that he did this as he struggled with the ups and downs in his career and employment and investments.  Apparently the disclosure was intended to prevent those who he interacted with from firing or taking other action if the whistleblower claim came to light.  This is a strong indication that there would be little–if no–harm if the whistleblower’s status was disclosed.

Whistleblowers Remaining Anonymous

The court focused on its prior Whistleblower 14377-16W v. Commissioner, 148 T.C. 25 case, which denied the whistleblower’s request to remain annonymous:

The Court found that the whistleblower had not established a sufficient fact-specific basis for proceeding anonymously. The whistleblower’s discovery of the information leading to the whistleblower claims derived from public information. The whistleblower did not have an employment or fiduciary relationship to any of the noncompliant taxpayers. The whistleblower did not identify any current or prospective clients. The whistleblower did not identify any noncompliant taxpayer who would have the power to, and might be expected to, retaliate against the whistleblower. The whistleblower mentioned no specific risk but relied on generalized claims to support an alleged risk of being blacklisted. The Court acknowledged that despite the whistleblower’s weak fact-specific basis for anonymity it might have otherwise been inclined “to weigh the people’s interest in knowing who is using the courts as so weak as to give petitioner the benefit of the doubt”. However, the whistleblower was a serial whistleblower filer, and the Court ultimately held that the public’s interest in knowing who was using the Court to bring serial whistleblower claims prevailed.

Based on this prior case, the whistleblower in the current case argued that he was not a serial whistleblower claimant:

Petitioner seeks to distinguish Whistleblower 14377-16W from his case by arguing that he is not a serial whistleblower filer. However, like the whistleblower in that case, petitioner’s whistleblower claims are based on publicly obtained information—information he obtained while being sought out as a potential investor by the targets and on public information about the criminal proceeding against an individual associated with one or more of the targets. Petitioner’s whistleblower claims are not based on information he obtained as an employee or in a fiduciary capacity. The public has an interest in knowing who is using public information in litigating a case before the Court, especially in a case like this where petitioner’s weak fact-specific basis for anonymity does not outweigh the presumption of open proceedings.

This makes it clear that the focus is not on the serial nature of the whistleblower’s claims.  Rather, the focus is on how the whistleblower came across the tax information.  Based on this case, the U.S. Tax Court will only allow whistleblowers who obtain their tax information as an employee or as a fiduciary to remain anonymous when challenging their whistleblower awards.

Those who intend to litigate the denial of their whistleblower claims should factor this into their decision as to whether to litigate the claims.

 

 

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