The IRS Whistleblower Office (WO) properly rejected a whistleblower’s award claim. The record showed that the IRS did not take any action that resulted in the collection of proceeds using the whistleblower’s information. Therefore, after a full court review, the Tax Court determined that the individual’s information would not have changed the IRS’s actions in the target’s bankruptcy case. Accordingly, denying his award claim was not an abuse of discretion.
Scope of Review
The court determined that the scope of its review was limited to the administrative record. Code Sec. 7623 does not provide a scope of review. Accordingly, the court looked at possible implied scope of review standards in Code Secs. 6015 and 6330. However, unlike innocent spouses or taxpayers appealing Collection Due Process determinations, a whistleblower is not the taxpayer. A whistleblower isn’t seeking relief from his own liabilities or those of his spouse. Instead, he is requesting an award from the government. Therefore, the scope of review was limited to the administrative record, which could be supplemented if one of the record rule exceptions applied.
Standard of Review
The court also determined that the proper standard of review was abuse-of-discretion. In whistleblower cases, the court only has jurisdiction to review the IRS’s determination to grant or deny an award. The target’s tax liability is never at issue. The court cannot redetermine the target’s tax liability nor direct the IRS to proceed with an administrative or judicial action. In addition, the Administrative Procedures Act’s default standard of review is abuse-of-discretion. Therefore, the whistleblower award determinations are properly reviewed for abuse of discretion.
Award Claim Properly Rejected
The Whistleblower Office (WBO) must clearly set forth the grounds on which it based its determination. But, the WBO’s letter denying the whistleblower’s claim did not contain any reasoning specific to his case. It only recited boilerplate and then stated a conclusion. However, the administrative record showed that his claim was denied because his tip was about unpaid wages. Accordingly, it was not a tax issue but a Labor Department issue. Since this rationale was neither arbitrary nor capricious, it was not an abuse of discretion.
In addition, the whistleblowers Form 3949-A and the IRS’s bankruptcy file for the target were relevant factors that the WBO failed to consider. The whistleblower argued that his information caused the IRS to file a protective claim in the target’s bankruptcy, which led to a $37 million settlement. However, the IRS is routinely notified of bankruptcy filings, even when it is not a creditor. In addition, the IRS routinely files claims and amended claims for tax liabilities owed by debtors. Often, these proofs of claim include unassessed FICA, FUTA and excise taxes. Thus, none of the information provided by the whistleblower changed the IRS’s actions in the target’s bankruptcy case. Moreover, the IRS could not have asserted a claim for employment taxes on unpaid wages because unpaid wages are not taxed.
K.W. Kasper, 150 TC —, No. 2, Dec. 61,103