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In Whistleblower Cases Before Tax Court, IRS Must Show It Didn't Proceed with Action

10 / 18 / 2017

The Tax Court has now ruled that the IRS is not entitled to summary judgment, as a matter of law, simply because it can state that (1) it did not initiate an administrative or judicial action using the whistleblower's information; and (2) it did not collect proceeds resulting from any such action.  In the case, Whistleblower 14376-16W, the IRS is claiming that the primary taxpayer and two related taxpayers requested to participate in and were accepted into the IRS Voluntary Disclosure Program (VDP).  

The whistleblower argues that there are genuine issues of material fact regarding whether, on the basis of petitioner's whistleblower award claim, the IRS took administrative action, including by revealing the existence of the whistleblower to the taxpayer and by leveraging the person's whistleblower status, so as to bring the taxpayers into compliance.  The whistleblower also claims that the IRS abused its discretion in allowing these taxpayers to enter into the VDP after the whistleblower had submitted the whistleblower claim.

Since the IRS is claiming that they took action based solely on the taxpayer's voluntary disclosure, it doesn't matter to the IRS that they admit to using the whistleblower's information to create IDRs and to validate taxpayer's responses to the IDR.  Unlike in Awad v. IRS, T.C. Memo 2017-108, the whistleblower was able to show how in this case the court was "unable to conclude" as the IRS wished.  Therefore, the court rejected the IRS's effort for summary judgment.