Tax Court Denies Serial Whistleblower's Request for Anonymity

(Parker Tax Publishing July 2017)

The Tax Court denied a motion for anonymity filed by a whistleblower who had filed several claims for whistleblower awards under Code Sec. 7623 based solely on publicly available information. The whistleblower failed to make a sufficient, fact specific case for anonymity, and his interest in protecting his identity was outweighed by the public's interest in identifying serial claimants of whistleblower awards filing petitions in the Tax Court. Whistleblower 14377-16W v. Comm'r, 148 T.C. No. 25 (2017).

A retired CPA who was a self-described analyst of financial institutions learned of a corporate taxpayer's alleged tax abuse from publicly available sources such as Securities and Exchange Commission (SEC) filings. The whistleblower, who had filed for a whistleblower award, claimed that the corporate taxpayer had understated its income by numerous improper actions, including allegedly failing to report millions of dollars in income received from the sale of gift cards. According to the whistleblower, the corporate taxpayer evaded paying nearly $100 million in taxes.

The IRS denied the whistleblower an award and he appealed the decision in the Tax Court under Code Sec. 7623(b). Concurrently with his petition, he filed a motion with the Tax Court to proceed anonymously. The whistleblower requested anonymity because he said he legitimately feared that if his identity as a tax whistleblower was disclosed, he would be blacklisted from his profession and he and his family would suffer severe financial harm. He claimed that his primary occupation was assisting his spouse in managing a registered investment advisory business, and said that disclosure of his identity would negatively impact his relationship with his spouse and impair his ability to assist with the business and earn income. Disclosure could, he said, alienate business partners who might have relationships with the taxpayers he identified. He also feared retribution from political figures close to those taxpayers.

The Tax Court noted that it was aware of 10 other cases before it in which the whistleblower was appealing the IRS's determination to deny him a whistleblower award. None of the cases, according to the Tax Court, appeared to have resulted from the whistleblower's employment by, or close relationship to, the target taxpayer. Rather, all appeared to have originated from the whistleblower's examination of SEC filings and other publicly available materials.

The IRS argued that the whistleblower had failed to set forth a sufficient, fact specific basis for protecting his confidentiality that would override the public's interest in having access to the record in this case. The whistleblower had no need for anonymity, the IRS reasoned, because he obtained the information in his whistleblower claims from publicly available sources and not from confidential, or insider, sources. The IRS also asserted that the public had an interest in understanding the circumstances surrounding whistleblower filings, including the frequency of filings by a single person based not on insider information but on publicly available information. This type of information was valuable in order to understand how individuals were using the court system, the IRS argued.

The Tax Court denied the whistleblower's motion for anonymity because the whistleblower failed to present a sufficient, fact-specific showing of potential harm that outweighed counterbalancing societal interests in knowing the whistleblower's identity. The Tax Court found only five prior decisions in which it addressed a whistleblower's motion to proceed anonymously. In three of those cases, the whistleblowers made plausible claims that they would be physically threatened as a result of their actions. In the fourth, an employee relationship gave the whistleblower access to internal deliberations and communications regarding the underpayment of tax, and the revelation of such facts would likely severely damage the whistleblower's professional standing in the community in which he customarily earned his living and would jeopardize his employment. In the fifth case, the whistleblower was at risk of losing employment-related benefits, such as retirement benefits.

Unlike those cases, the Tax Court found that the whistleblower in this case did not identity a taxpayer who, upon learning his identity, would have the power to, and might be expected to, act against him. The Tax Court acknowledged the general policy in favor of confidential informants and noted that the whistleblower might suffer some embarrassment or annoyance from the denial of his anonymity request. However, his stated fears of marital discord, alienation of unnamed business partners, and retribution from unnamed political figures were speculative, in the court's view. The Tax Court therefore concluded that the whistleblower had not provided a sufficient fact-specific justification.

The Tax Court also noted that this whistleblower was unusual because he had so far brought 11 whistleblower cases in the Tax Court. His supporting documents identified 21 claims against some 40 named and unnamed taxpayers. He also admitted that he had before the IRS 51 claims supplemental to claims in cases already before the Tax Court. According to the Tax Court, each of those as yet unresolved claims could be the source of another adverse determination and a resulting Tax Court petition. The fact that the whistleblower was using publicly available documents to identify the supposed tax abuses meant that the number of cases he could bring was limited only by his own industriousness. In the Tax Court's view, the lack of an employment or other close relationship to the taxpayers identified by the whistleblower suggested that he had no familiarity with a taxpayer's basis for taking what the whistleblower considered an abusive position. For these reasons, the Tax Court reasoned that serial claimants could disproportionately burden the Tax Court with only superficially meritorious petitions.

Noting that a cottage industry of serial whistleblowers had sprung up, the Tax Court said that identifying serial filers by name would enable the public to judge the impact of the serial filer phenomenon by making it possible to know whether the whistleblower appealing an adverse IRS determination had appealed other adverse whistleblower determinations. Moreover, the Tax Court noted that anonymous whistleblower cases require special handling, including sealing the record, suspending use of electronic filing and service, assigning the case to a judge earlier than normal and, in some cases, closing trials to the public.

For a discussion of the confidentiality of whistleblower identities, see Parker Tax ¶262,325.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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