One interesting question that doesn’t get answered by that highly-credentialed jurist, Judge Albert G. (“Big Al”) Lauber is whether an FBAR penalty is part of the base for a Section 7623 whistleblower award.

The conundrum arises in Whistleblower 22231-12W, 2014 T. C. Memo. 157, filed 8/4/14.

Ol’ 22231 claims s/he blew the whistle on Taxpayer 1, who was consorting with the Swiss to disappear the boodle. The Federales nailed Taxpayer 1, but there’s a dispute whether Ol’ 22231 was in on the tackle.

Would it paralyze you with shock to learn that, after Ol’ 22231 had petitioned, IRS claimed no jurisdiction, and moreover, IRS hadn’t used Ol’ 22231’s info in the slightest little bit?

Judge Lauber: “During July or August 2013 the Office received information from the IRS Criminal Investigation Division and the IRS Large Business and International Division that the Government had not used petitioner’s information as a basis for taking action against Taxpayer 1. The Office thereafter issued to petitioner… a letter that both parties agree constitutes a ‘determination’ that petitioner’s Taxpayer 1 claim has been denied. Petitioner filed a petition from that determination, and the matter is currently pending before the Court. See Whistleblower 22716-13W v. Commissioner, dkt. No. 22716-13W.”2014 T. C. Memo. 157, at p. 7.

Flashback: After an earlier exchange of e-mails between Ol’ 22231’s attorney and a Whistleblower office analyst (the “Whistling Analyst”), Ol’ 2231’s attorney was told that IRS got a pittance by way of income tax from Taxpayer 1, but a multi-million dollar FBAR nonfiling award.

Of course, the Whistling Analyst says IRS takes the position that FBAR penalties aren’t collected proceeds per Section 7623, so it’s irrelevant whether Ol’  22231 tipped off Treasury so they could make the big score. Ol’ 22231 wouldn’t get more than a penny anyway, even if they used his info, which they still hadn’t decided.

An Associate Chief Counsel at IRS’ General Legal Services wrote a memo setting forth “… the legal foundation for the Office’s position that FBAR payments, because they are made pursuant to title 31 rather than title 26 of the U.S. Code, are not ‘collected proceeds’ within the meaning of section 7623(b)(1).” 2014 T. C. Memo. 157, at pp. 5-6. Nice, huh?

So even though the Whistling Analyst kept telling Ol’ 22231’s attorney that IRS decided nothing, Ol’ 22231 and counsel decided they’d had enough and petitioned.

Judge Big Al, relied on “…the … testimony from Stephen Whitlock, Director of the Office. He testified about the Office’s procedures for processing claims generally and about its handling of the particular claim at issue here. We found his testimony instructive and credible in all respects.” 2014 T. C. Memo. 157, at p. 2.

Quite a story, getting the Chief Whistler on the stand. Poor ol’ Joe Insinga couldn’t even get the Whistleblower Program Operations Manager, Retiring Bob Gardner, to say “hello” to him. See my blogpost “A Voyage of Discovery”, 3/30/13.

But now the Chief Whistler is IRS’ witness.

So Ol’ 22231 petitioned again at a time when his counsel and IRS later stipulated that a determination had been made.

But petition no. 2 fails, because deciding whether FBAR penalties apply would be merely advisory, as Ol’ 22231 gets nothing because IRS claims they never used his info anyway, whether or not FBAR penalties are includable in whistleblower recoveries.

I’ll spare you the quote from Little Dorrit, although I’ll wager ten new pence that Charlie Dickens is laughing heartily, wherever he is.

Oh, and see my earlier blogpost, “Mighty Tough Language”, 8/4/14.