Judge James S. (“Big Jim”) Halpern is on a discovery tear, with a full-dress TC (Whistleblower 11099-13W, 147 T. C. 3, filed 7/28/16) and three (count ‘em, three) designated hitters concerning the discovery disputes Whistleblower 11099-13W (hereinafter “Whiskey13”) has stirred up.
And Judge Big Jim gives Whiskey13 the whole enchilada: IRS must hand over IDRs (Information Document Requests), address and phone number of ex-IRS employee and when and how IRS found it out, and allow eleven (count ‘em, eleven) depositions of ex-IRS staffers, with teleconferencing by IRS Chief Counsel attorney.
You “win your case at discovery” CLE providers and addicts can go to the Tax Court website for today’s designated hitters.
I’m more interested in where Judge Big Jim isn’t going. And that’s in the full-dress T.C.
Whiskey13 blew the doors on a LIFO inventory shuffle whereby target (small T, not the circle-and-dot retailer) deferred tax. IRS examined and picked up some money, whereupon target, feeling the heat, dropped the dodge and paid a lot more tax going forward.
Whiskey13 claims IRS got the big money later because Whiskey13 showed them where to look. But do Section 7623(b)(1), and Reg. Section 301.7623-2(b) stretch that far?
“To petitioner, it does not matter that respondent did not act to shut down the [scam] on the basis of his information. To petitioner, it is a sufficient justification for an award that the investigation respondent undertook on the basis of his information put target on notice that the [scam] was under scrutiny by the IRS. That, he believes, caused target (1) to abandon elements of the [scam], which almost immediately resulted in its paying more tax and (2) eventually, to abandon LIFO, which resulted in billions of dollars in increased tax collections. Moreover, petitioner believes that respondent derived leads from the investigation that he undertook on the basis of petitioner’s information and that those leads led to respondent’s making adjustments for years 1 and 2 to target’s reported income that are attributable to his information.” 147 T. C. 3, at pp. 12-13.
IRS counters with Example (2) in Reg. Section 301.7623-2(b)(1), where, once tipped off by Whistleblower, IRS gets additional info from IDRs and summonses that Whistleblower didn’t furnish to begin with, and therefore Whistleblower gets nothing.
“In part, the example concludes that the portions of the IRS’ investigation relating to the additional facts obtained through the issuance of IDRs and summonses are not actions with which the IRS proceeds on the basis of information provided by the whistleblower because the information provided did not substantially contribute to the IRS’ administrative action based on the information provided by the whistleblower. Sec. 301.7623-2(b), Example (2), Proced. & Admin. Regs.” 147 T. C. 3, at pp. 14-15.
I said it a long time ago in my blogpost “Qui Tam?” 9/12/12.
“Now the problem is obvious: it needs the whistleblower to connect the dots. Some dots may be public, some private, some hidden, some in plain sight. But in the immortal words of the late great Bill Klem, ‘Some is balls and some is strikes, but they ain’t nuthin’ till I calls ‘em.’ Somebody has to call ‘em, or at least put it all together, so the party charged with ‘callin’ ‘em’ can in fact call ‘em.
“Does no one remember Edgar Allen Poe’s classic short story ‘The Purloined Letter’? The essential document was in plain sight all along, but disguised. It took an expert’s eye to find it, and an expert’s hand to recover it for the true owner.” Qui Tam?, 9/12/12.
If the Whistleblowers don’t show IRS where to look, how will IRS ever know where to look? And without looking, what will IRS collect?
But Judge Big Jim has had enough for one day.
“We need not at this point in the case address the merits of respondent’s lack of-authority argument, which respondent has not fully developed. Petitioner’s case, grounded on the legal theory that the IRS collected proceeds from target on the basis of petitioner’s information about the [scam], is well pleaded. It is not obviously contradicted by section 7623(b)(1). The validity of section 301.7623-1, Proced. & Admin. Regs., has not been tested, nor does respondent argue that it applies. The proper interpretation of section 7623(b)(1) is something that the Court may decide in due course during these proceedings upon argument or briefing by the parties. If respondent is interested in a pretrial ruling from the Court on matters of law, then his proper course of action under our Rules would be to file a motion for summary judgment under Rule 121.” 147 T. C. 3, at p. 15.
And he’s had enough of IRS’ stonewalling.
“Respondent’s principal objection to the motion is, as we have discussed, relevance. He also objects to producing four of the requested IDRs on the ground that petitioner cannot move to compel discovery for documents that he has not sought through discovery. Petitioner, by his… letter made known his request for those four IDRs, and we see no benefit to making petitioner ask again for something respondent has made clear he will not produce except upon order of the Court. With respect to the 17 IDRs petitioner did not identify in that letter, we likewise see no benefit in making petitioner take any further steps to make his request for those IDRs clear to respondent.” 147 T. C. 3, at p. 17.
But it’s all subject to a Section 6103 confidentiality order.
A Taishoff “good job” to Henry S. Lovejoy, Esq., and the team from Kostelanetz Fink.