And Tax Court Can’t Review Why IRS Didn’t Get

Is Section 7623(b) a toothless lion? Unless, of course, you’re a Swiss moneylaunderer and tax evasion facilitator, doing time for your peccadilloes.

Maybe. See Raymond Cohen, 139 T. C. 12, filed 10/9/12, Judge Kroupa laying down the law. And see my blogposts, “Qui Tam?”, 9/12/12, “Whistleblowers, Beware!”, 9/7/11, and “The Whistleblower Blows It”, 6/20/11.

Briefly, a whistleblower gets paid if, and only if, IRS gets paid based on info provided by whistleblower and not publicly available.

If IRS doesn’t get paid for any reason, including but without in any way limiting the generality of the foregoing (as the high-priced lawyers say), IRS doing nothing for any reason or for no reason, whistleblower doesn’t get paid.

IRS can refuse to proceed arbitrarily, capriciously or stupidly, and Tax Court has nothing to say. Tax Court has no jurisdiction to review IRS’ determination to proceed or not to proceed.

Ray blew the whistle on a bunch of uncashed dividend checks his wife found when she was administering a decedent’s estate, claiming they were unreported income. IRS’ Ogden whistleblowing crew looked at it and said “we didn’t get any money, so you’re out”. Ray asked for a reconsideration, and Ogden said “no, but this time we say no because you used publicly available information (like a class-action lawsuit and the State’s unclaimed property website).”

The arguments: “This case presents an issue of first impression in this Court. We are asked to decide whether any relief is available under section 7623(b) when a taxpayer alleges that the Commissioner denied a claim without initiating an administrative or judicial action or collecting proceeds. Petitioner contends that respondent abused his discretion by not acting on his information. Petitioner argues respondent must explain the reason he denied the claim and reopen the claim. Respondent contends we can provide relief under section 7623(b) only after the Commissioner initiates an administrative or judicial action and collects proceeds.” 139 T. C. 12, at p. 5.

Ray argues IRS will bounce his claim, take his info, grab the money and pay him nothing. That’s not fair. Maybe not, says Judge Kroupa, but: “This Court, however, is not a court of equity and section 7623 does not provide for equitable relief. See Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Stovall v. Commissioner, 101 T.C. 140, 149-150 (1993). Section 7623(b) does not provide any relief before whistleblower information leads to an administrative or judicial action and the collection of proceeds.” 139 T. C. 12, at p. 9.

Of course, there is the usual “so sad, too bad” finale: “We can appreciate petitioner’s frustration that information that he believes is actionable was not pursued. Congress, however, has charged the Commissioner with resolving these claims and has not provided any remedies until after an administrative or judicial action and the collection of proceeds.” 139 T. C. 12, at p. 9.

Want to close the tax gap, Congress, without increasing IRS’ budget? How about a more user-friendly whistleblower statute?