Tax Court Rules on Jurisdiction to Hear Denial of Whistleblower Claim Under Section 7623 in William P. Cooper, III v. Comm'r, 135 T.C. No. 4, July 8, 2010
So, stay tuned to see if the IRS investigates the case further and Mr. Cooper ultimately is successful in his efforts in filing his claims.
The Petitioner-Cooper in this case, filed 2 claims for a whistleblower award with the IRS pursuant to §7623(b)(4) appealing an adverse determination by the Service. Petitioner then filed with the Tax Court to which the government responded by seeking a dismissal based on lack of jurisdiction because the Service had not issued a determination notice as required under §7623(b)(3). Petitioner claimed that a letter that the Service sent to him was a valid "notice" of denial sufficient to give the Tax Court jurisdiction. The Tax Court, per Judge Diane L. Kroupa, first addressed the jurisdictional issue and found in favor of the Petitioner, i.e., the letter of denial by the IRS constitutes a "determination" for purposes of establishing jurisdiction.
Background
Petitioner, an attorney, submitted two Forms 211, Application for Award for Original Information, to the Internal Revenue Service (IRS) in 2008 concerning alleged violations of the Internal Revenue Code. He alleged in the two claims that certain parties had failed to pay millions of dollars in estate and generation- skipping transfer tax. Petitioner alleged in one claim that a trust having over $102 million in assets was improperly omitted from the gross estate of Dorothy Dillon Eweson (Eweson), resulting in a possible $75 million underpayment in Federal estate tax. He learned of the alleged omission by representing the widow of Ms. Eweson's grandson, who is also the guardian of a purported beneficiary of the trust. He verified the information by examining the public records and the records of his client.
Petitioner alleged in the other claim that Eweson impermissibly modified two trusts as part of a scheme to avoid the generation-skipping transfer tax. The trusts at issue had a combined value of over $200 million at the time of Ms. Eweson's death in 2005. Again, Petitioner learned of the alleged violation through his representation of the widow of Ms. Eweson's grandson. Petitioner submitted additional information to support the allegation several months after filing the claim. He provided newly discovered filings from a New York Surrogate Court proceeding in which a corporate trustee challenged the trust modifications as designed primarily to evade taxation. Petitioner also provided a legal memorandum and draft legal documents from Ms. Eweson's attorneys that indicated the trusts were modified as part of a scheme to avoid the generation- skipping transfer tax.
The IRS Whistleblower Office (Whistleblower Office) notified Petitioner that it had received the whistleblower claims, would investigate and then determine whether his information could meet the requirements for payment of an award. Petitioner was not contacted again until 9 months later when he received a letter denying the claims on the ground that an award was not warranted for either claim because petitioner's information did not "result in the detection of the underpayment of taxes."
Petitioner filed two separate petitions with the Tax Court to which the Service moved to dismiss for lack of jurisdiction since no determination was issued.
The Tax Court derives its jurisdiction from statute, as authorized by Congress. Judge v. Comm’r, 88 T.C. 1175, 1180-1181 (1987); Naftel v. Comm’r, 85 T.C. 527, 529 (1985). As with courts in general, the Tax Court has long held it has jurisdiction to determine whether it can hear a particular case. Hambrick v. Comm’r, 118 T.C. 348 (2002); Pyo Jurisdiction. v. Comm’r, 83 T.C. 626, 632 (1984); Kluger v. Comm’r, 83 T.C. 309, 314 (1984).
Background of Whistleblower Award Program
The Service has long held the ability, i.e., the discretion, to pay an award to a person that aids in: (i) detecting underpayments of tax and (ii) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws. §7623(a). The discretionary whistleblower awards have been arbitrary and inconsistent, however, because of a lack of standardized procedures and limited managerial oversight. Prior to recent statutory revision, the Court observed that it took an average of 7½ years for a discretionary award to be paid and a slightly shorter period for being rejected. Claims that were rejected did not have to provide a specific reason for the denial on the rationale that such would potentially involving disclosure of confidential return information.
As part of the Tax Relief and Health Care Act of 2006, P.L. 109-432, Congress amended §7623 to require the Secretary to pay nondiscretionary whistleblower awards and granted the Tax Court jurisdiction to review such rewards. Under current law, a whistleblower can receive a minimum nondiscretionary award of 15% of the collected proceeds where the Service proceeds with administrative or judicial action using information provided in a whistleblower claim. Under §7623(b)(4), the whistleblower has 30 days from the issuance of a non- discretionary award determination to file a petition in this Court. Guidance in this area was issued by the Service in Notice 2008-4, 2008-1 C.B. 253. Whistleblowers must file Form 211 which the Whistleblower Office must acknowledge its receipt. The Whistleblower Office will send correspondence to the whistleblower once a final determination regarding the claim has been made. Final Whistleblower Office determinations regarding awards may beappealed to this Court. Id. Awards will not be paid, however, until there is a final determination of the tax liability and the amounts owed are collected. The Commissioner also issued procedural guidance on how whistleblower claims will be processed. See IRM 25.2. 2 (Dec. 30, 2008). In general, whistleblower claims will be denied where the information provided does not: (i) identify a Federal tax issue upon which the IRS will act; (ii) result in the detection of an underpayment of taxes; or (iii) result in the collection of proceeds. The whistleblower will be notified by the Whistleblower Office once an award decision has been made.
The Tax Court Addresses the Jurisdictional Issue Merits of the Service’s Denial of the Two
The IRS argued that there can be a determination for jurisdictional purposes only if the Whistleblower Office undertakes an administrative or judicial action and thereafter "determines" to make an award. Respondent incorrectly interprets §7623(b)(4). The statute expressly permits an individual to seek judicial review in this Court of the amount or denial of an award determination to the United States Tax Court *** within 30 days of such determination.". Accordingly, The Tax Court held that its jurisdiction is not limited to the amount of an award but extends to any determination to deny an award.
The Court further rejected the government’s claim that its letter(s) were not a "determination". Craig v. Comm’r, 119 T.C. 252 (2002) (form decision letter issued after an "equivalent hearing" constituted a "determination" for conferring jurisdiction under §6330(d)(1)); Lunsford v. Comm’r, 117 T.C. 159, 164 (2001) (written notice to proceed with the collection action constitutes a "determination"); Offiler v. Comm’r, 114 T.C. 492, 498 (2000) (determination notice is the jurisdictional equivalent of a deficiency notice pursuant to §6212). Finding there is no dispute that the letter put Mr. Cooper on sufficient notice to file a petition with this Court as he did so timely. Respondent's letter is therefore a determination because it constitutes a final administrative decision regarding petitioner's whistleblower claims in accordance with the established rocedures. Accordingly, we find that we have jurisdiction to review the denial of the claims.
This issue was reported by Forbes Magazine (December 14, 2009) pertaining to several large whistleblower cases in process, including UBS informant Bradley Birkenfeld in Boston. While he may be in federal prison for some time, it is reported he could leave prison with millions in reward money having filed numerous whistleblower claims against clients of UBS he knew held accounts in Switzerland and the beneficial owners had allegedly evaded billions of dollars in US taxes. Here, as perhaps a litigation tactic, heirs of the Eweson estate were turning in other heirs. It is uncertain whether Mr. Cooper filed the claims on his own behalf or on behalf of his client, an 11 year old great grandson of Dorothy Dillon Eweson. Presumably Mr. Cooper filed the claims on behalf of his client. The Forbes article reported that Mr. Cooper hopes his Tax Court actions will prompt the IRS to take a new look at the situation and generate some money for the heirs he's helping. "This was taken as a step of last resort," he says. However, experts doubt the 2006 whistleblower law created a legal right for someone to challenge an IRS decision not to pursue a Form 211 tip.
