Tax Court Sheds Light on Whistleblower’s Denied Award

What can whistleblowers do when the IRS Whistleblower Office denies them an award for helping the government to recover money from a suspected tax cheat?

They can do what Albert G. Hill, III, did — challenge the denial in tax court.

But such challenges are difficult without access to information that the IRS used to deny the award in its often-opaque decision process. In Mr. Hill’s case, the IRS took a common — yet extreme — position on taxpayer confidentiality, refusing to allow Mr. Hill to review documents from the administrative file of the taxpayer he had targeted.

This week the U.S. Tax Court ordered the IRS to hand over the documents under strict conditions — and, in doing so, provided a sensible model for how such appeals should be handled.

The decision was a win for both whistleblowers and taxpayers. In essence, the tax court recognized that the lifeblood of any whistleblower programs is information. Without an opportunity to review the facts on which an IRS decision was made, valid awards might be denied with impunity.

The court didn’t ignore taxpayer confidentiality, however. Judge Peter J. Panuthos allowed redaction of certain facts and listed common-sense conditions for Mr. Hill and his lawyers to follow, requiring them to keep the information confidential and return it to the IRS at the end of the case.

This balanced approach can be used in other appeals of award denials. Indeed, if the IRS were to supply taxpayer documents under these conditions during the earlier award determination process, whistleblowers would understand the agency’s denials better — and would be less likely to appeal to the tax court in the first place.

Tagged: Enforcement Bodies, Fraud Types, Internal Revenue Service (IRS), Tax Fraud