A whistleblower found out that his award is limited to what the IRS decides to collect, even if the whistleblower believes the agency should have assessed substantially more tax in the case of Apruzzese v. Commissioner, TC Memo 2019-141.[1]

The plaintiff and his co-claimant had submitted a Form 211, Application for Award for Original Information, to the IRS Whistleblower Office (WO).  The plaintiff and the co-claimant had been involved in litigation against an estate and claimed the estate had omitted substantial assets from its Form 706 filed with the IRS, understating its estate tax by several million dollars.[2]

At this point the IRS took the following actions:

The target’s estate tax return was already under examination when petitioner submitted his information to the WO. Before receiving petitioner’s information, E&G Attorney Bryan Babcock was preparing to issue the target a “No Change” letter. However, upon reviewing petitioner’s information, Mr. Babcock changed course and pursued information pertaining to the lawsuit referenced in petitioner’s Form 211. Subsequently, Mr. Babcock’s discovery that the target had used “tax affecting” business valuations prompted him to select four of the decedent’s gift tax returns for examination.

At the conclusion of the expanded examination, the IRS and the target agreed to adjustments to the estate tax return and gift tax returns. The IRS assessed tax and interest of $424,019, which the target promptly paid. Mr. Babcock submitted Form 11369, Confidential Evaluation Report on Claim for Award, to the WO. Therein Mr. Babcock stated that petitioner had “substantially contributed to the examination of the estate tax return.”[3]

As $424,019, while not a small number, is far less than “several million dollars” of missing estate tax, the whistleblower aware computed by the IRS was substantially less than what the whistleblower expected, being awarded $43,424.[4]  In fact, the plaintiff called the IRS assessment “woefully inadequate” given the information they had provided.[5]

As the opinion explained:

The final decision in this case does not reference section 7623(b) but rather section 7623(a), which provides for discretionary awards. However, the final decision states that the WO considered petitioner’s information and “made a final decision” to give petitioner an award of $43,424. Inherent in that decision is respondent’s determination that petitioner is not entitled to a mandatory section 7623(b) award exceeding $43,424.[6]

The taxpayer did not dispute the computation of the award based on the amount the IRS had collected.  Rather, the taxpayer went to Tax Court to attempt to force the IRS to reverse its decision to collect the amount it and the estate had agreed to settle the case, and to force the IRS to re-examine the estate.[7]

The Tax Court notes that the state under which the plaintiff is being awarded an award has the following conditions prior to receiving an award:

Under this statutory scheme a whistleblower cannot qualify for a nondiscretionary award unless two conditions are met. First, the Secretary must “proceed[] with an[] administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention” by the whistleblower. Sec. 7623(b)(1). Second, the Secretary must derive proceeds from this action. Id.; see Cohen v. Commissioner, 139 T.C. 299, 303 (2012) (“We can provide relief under section 7623(b) only after the Commissioner has initiated an administrative or judicial action and collected proceeds.”), aff’d, 550 F. App’x 10 (D.C. Cir. 2014); Cooper v. Commissioner (Cooper II), 136 T.C. 597, 600 (2011) (“[A] whistleblower award is dependent upon both the initiation of an administrative or judicial action and collection of tax proceeds.”)[8]

Unfortunately for the plaintiff, the law does not allow the Tax Court to provide the relief sought:

While we have jurisdiction to review the Commissioner’s award determination, we do not have authority to “review the Commissioner’s determinations of the alleged tax liability to which the claim pertains.” Cohen v. Commissioner, 139 T.C. at 302. Nor do we have authority “to direct the Secretary to proceed with an administrative or judicial action.” Cooper II, 136 T.C. at 600.[9]

The opinion refers to the Tax Court’s prior decision in Cooper v. Commissioner (Cooper II) noted earlier.  The Court described that situation which it found to control the decision in this case:

In Cooper II, 136 T.C. at 598, an attorney-whistleblower alleged that certain taxpayers had failed to pay millions of dollars in estate and generation-skipping transfer tax. The whistlebower provided the IRS with information pertaining to the estate. Id. The WO forwarded the information to the appropriate IRS office, which decided not to pursue administrative or judicial action against the taxpayer. Id. at 599. Because there was no administrative or judicial action that led to the collection of proceeds, the WO determined that the whistleblower was not entitled to an award. Id. Like petitioner in this case, the Cooper II whistleblower appealed the WO’s determination and asked this Court to direct the Commissioner “to undertake a complete re-evaluation of the facts in this matter, begin an investigation, open a case file, and take whatever other steps are necessary to detect an underpayment of tax.” See id. at 600. Granting the IRS’ motion for summary judgment, the Court in Cooper II explained: “Our jurisdiction under section 7623(b) does not contemplate that we redetermine the tax liability of the taxpayer. * * * [A]lthough Congress authorized the Court to review the Secretary’s award determination, Congress did not authorize the Court to direct the Secretary to proceed with an administrative or judicial action.” Id[10]

[1] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019

[2] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 1

[3] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 3

[4] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 4

[5] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 11

[6] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 7

[7] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, pp. 4-5

[8] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 9

[9] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, p. 9

[10] Apruzzese v. Commissioner, TC Memo 2019-141, October 21, 2019, https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=12087, retrieved October 21, 2019, pp. 11-12