Kasper (2011), 137 TC No. 4
The Tax Court has again concluded that a letter from IRS's Whistleblower Office rejecting a whistleblower claim was a “determination” under Code Sec. 7623(b)(4), that gave the Tax Court jurisdiction to review the matter, because it was a final administrative decision.
Background. IRS has a whistleblower award program under which it pays awards—or, for amounts paid under Code Sec. 7623(a), rewards—to informers (known as “whistleblowers”) for information about tax law violations. Code Sec. 7623(b) requires IRS to pay awards to individual informants if certain criteria are met. IRS's Whistleblower Office determines whether to grant, reduce, or deny an informant's claim for a whistleblower award for providing information about tax law violations, and then notifies the claimant of the determination. Whistleblowers have the right to challenge IRS's award determination administratively.
An individual can appeal the amount of, or the denial of, an award determined by IRS under its whistleblower award program. Specifically, any determination of a whistleblower award under Code Sec. 7623(b)(1) (a 15%-30% award) or Code Sec. 7623(b)(2) (an up-to-10% award), or the reduction or denial of the award under Code Sec. 7623(b)(3), can be appealed to the Tax Court. Code Sec. 7623(b)(4) provides that the appeal must be made within 30 days of the determination.
Observation: Generally, a taxpayer can't go to Tax Court without first getting a notice of deficiency (90-day letter) from IRS. Code Sec. 7623(b)(4) provides an exception to this general rule.
In Cooper (2010), 135 TC 70, the Tax Court concluded that a letter that IRS sent denying a taxpayer's two claims for a whistleblower award under Code Sec. 7623(b) was a “determination” that could be appealed to the Tax Court, rejecting IRS's arguments that it wasn't labeled as such and that the Whistleblower Office didn't undertake any administrative or judicial action or “determination” to make an award.
Facts. On Jan. 29, 2009, Kenneth Kasper filed with a claim for a whistleblower award under Code Sec. 7623(b)(4) with IRS, implicating a public corporation and its CEO. IRS split Kasper's whistleblower claim into two claims: one for the corporation and another for its CEO. On June 19, 2009, IRS purportedly issued a letter for each claim, denying both on the basis that Kasper didn't meet the appropriate criteria for an award under Code Sec. 7623(b).
On May 3, 2010, Kasper contacted IRS about the status of his whistleblower claim. His letter referenced only the claim implicating the CEO. IRS responded on May 24, 2010 by sending him a copy of the denial letter pertaining to the CEO claim.
On June 14, 2010, Kasper filed a petition with the Tax Court seeking review of IRS's denial of the whistleblower claim as to the CEO. IRS filed a motion to dismiss this case for lack of jurisdiction on two grounds: (1) that no determination under Code Sec. 7623(b) was made; and (2) if the Court finds that a determination was made, that Kasper failed to petition the Tax Court within 30 days as required by Code Sec. 7623(b)(4).
Kasper argued that he didn't receive a determination under Code Sec. 7623(b)(4) with respect to the corporate claim. Further, he argued that he didn't receive a determination with respect to the claim implicating the CEO until May 24, 2010. Because he filed his petition on June 14, 2010, he argued that he had met Code Sec. 7623(b)(4)’s 30-day requirement, giving the Tax Court jurisdiction as to the claim implicating the CEO.
Court's conclusion. The Tax Court, relying on Cooper, concluded that each Whistleblower Office letter that denies a whistleblower claim is a determination under Code Sec. 7623(b)(4). The Court held that Kasper filed his petition with the Tax Court within the 30-day period, and it denied IRS's motion to dismiss for lack of jurisdiction.
Further, the Tax Court found that the 30-day period of Code Sec. 7623(b)(4), within which a whistleblower must file a petition in response to a Whistleblower Office determination, begins on the date of mailing of the determination by the Whistleblower Office. IRS had to prove by direct evidence the date and fact of mailing of the determination to the whistleblower.
References: For IRS's payment for information on tax violations, see FTC 2d/FIN ¶T-1030 et seq.; United States Tax Reporter ¶76,234 et seq.; TaxDesk ¶821,500 et seq.