William M. Scott, T. C. Memo. 2026-104, filed 10/1/26, claims a Section 7623(b) blow award because he tipped off IRS that a private prison company’s tax-exempt bonds were bogus. IRS checked out the bonds, concluded they weren’t properly tax-exempt, and settled.
Company paid nothing but called in the bonds and issued replacements that were taxable. IRS agreed not to look for back taxes for the eleven (count ’em, eleven) years the dubious bonds had paid out. The Ogden Sunseteers bounced William’s claim, saying the collected nothing. William says IRS will collect a bundle going forward, wants discovery, and claims Ogden’s bounce constitutes a new issue shifting BoP.
Nope, says Judge Benjamin A. (“Trey”) Guider, III, only much more elegantly.
The “new” explanation only fleshes out the expressed rationale. The bondholders got the tax break; the Target was the prison company, which got none. Collecting from the Bondholders going forward would require monitoring a large, shifting population for many years, some of whom might be tax-exempt or have offsets like NOLs themselves, obviously infeasible.
Shands and Lissack say merely pointing out a Target isn’t enough, even if IRS collects. Blower must home in on the specific grounds whereunder IRS collects. And Targets who straighten up and fly right before IRS takes enforcement action don’t entitle blowers to an award.
Going against the Bondholders isn’t a “related action” within the meaning of Reg. Section 301.7623-2(c)(1)(ii) and (iii); “Even assuming an IRS Operating Division were to investigate and discover the identity of the Bondholders and determine the taxes they have paid or will pay, the identities of the Bondholders would not be found without the Operating Division’s having to independently obtain additional information beyond that provided by petitioner.” T. C. Memo. 2026-104, at p. 16. Taishoff says that assumes the deal between IRS and Bondholders exonerating previous years doesn’t include the Bondholders as third-party beneficiaries to that extent.
Mr. Scott wants to see the trust indenture for the new bonds because IRS mentioned it. Not enough, says Judge Try Guider. The Administrative Record need include only what IRS relied upon, not something mentioned for its mere existence and no more.
No payout for Mr. Scott as the company slipped its surly bonds.
