IRS Gives Narrow Interpretation of IRS Whistleblower Law By Tod Aronovitz | 12/20/13 | 0 Comment

Rejection letters to tax whistleblowers are not all that uncommon. Whistleblowers who receive one have only 30 days, from the day the letter was mailed, to appeal to Tax Court.  Although the temptation to go directly to court is great, it is best to a little legwork first.  Also, because it can be a time-consuming effort, it may be in one’s best interest of the IRS whistleblower to consult with legal counsel to discuss the reasons for going to court, whether it makes sense, what relief is being sought, and finally, whether the Tax Court can grant it.

As previously reported on our ARONOVITZ LAW blog on February 15, the IRS offers rewards to whistleblowers of up to 15 to 30 percent of the amount recovered when the tax dispute involves $2 million or more in payments. According to our blog posted May 2, to qualify for whistleblower awards, the information provided must allow the IRS to collect taxes, interest or penalties from the alleged non-compliant taxpayer, and must be presented in a clear, concise format on the appropriate forms.

However, because whistleblowers in the program are often unsure about what their next step should be once they get a rejection letter, they can start with the IRS—their assigned case manager at the whistleblower office. While the manager won’t disclose the reason for the rejection letter, the whistleblower can petition the Tax Court and seek the award evaluation material through formal discovery. In the future, this recovery may become easier through an administrative process instead of the formal court route.

Keep in mind, if you get a rejection letter from the IRS, there are usually three reasons why as outlined below.

#1: Poor presentation: Materials collected are not clearly put together or information is missing.

#2: Issue Not of Interest – Not Worked: The IRS has limited resources and will focus on larger cases such as offshore banking rather than cases about neighbors who own something they can’t afford, for instance.

#3: Issue of Interest to IRS – Worked but No Recovery: This reason will take some investigation to find out whether the IRS:

  • Investigated the whistleblower’s issues regarding the taxpayer (whistleblower can get a sense with public records) but no adjustment was made. The Tax Court does not have the authority under the whistleblower statute to make a re-determination of the findings.
  • Took action against the taxpayer but collected other proceeds against the taxpayer; took action on the issue raised but are not giving the whistleblower credit; took other action on the taxpayer; or took action on a related party.
  • If any of those reasons are suspected, think hard about protecting your rights before filing with the Tax Court.

The IRS Chief Counsel has put forward proposed regulations that give an extremely narrow reading of the IRS whistleblower law; thus, barring many whistleblowers from awards or full awards in some cases. This is commonly due to one of the following reasons:

1. Collected Proceeds—IRS strictly interprets ‘proceeds’ to mean only for tax.

2. Proceeds Based On—IRS says they already had the information whistleblower provided.

3. Related Action—IRS takes action only on the related action not on issue brought to light.

4. Related Party—The whistleblower reveals information about an individual but the IRS only takes action on parties who helped that individual, not the individual himself.

These steps are labor-intensive and a little overwhelming.  Legal counsel, such as ARONOVITZ LAW can help whistleblowers confidentially determine if they have a suitable case, and then, prepare materials in a suitable format and approach the government agency about conducting a substantive evaluation of the matter.

ARONOVITZ LAW: Miami Whistleblower / Qui Tam Law Firm

The Miami Qui Tam law firm of ARONOVITZ LAW routinely works with Miami whistleblowers to document Medicare fraud and other forms of fraud against the government. Contact Miami Whistleblower / Qui Tam lawyer Tod Aronovitz to discuss a case.