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Whistleblower Office Intentionally Deceived Whistleblower and Didn't Follow Regs

(Parker Tax Publishing August 2021)

In reviewing a whistleblower's claim that was rejected by the IRS Whistleblower Office (WBO), the Tax Court found that the WBO intentionally did not follow regulations that would have allowed the whistleblower to perfect his claim after it was initially rejected. The Tax Court thus concluded that the WBO's determination constituted an abuse of discretion and refused to uphold it on review. Rogers v. Comm'r, 157 T.C. No. 3 (8/2/21).


Bobby Lee Rogers submitted nine claims (collectively, the claim) for a whistleblower award under Code Sec. 7623 to the IRS Whistleblower Office (WBO). The claim asserted that certain individuals had conspired to commit "grand theft through conversion" of the assets of Rogers' mother. After reviewing Rogers' claim, a classifier from an IRS operating division recommended that the claim be rejected because it failed to meet threshold criteria set out in the regulations under Code Sec. 7623. The Award Recommendation Memorandum (the ARM) from a WBO technician contained a notation recommending that the WBO "reject" Rogers' claim and explained that the claim had been recommended for rejection by classification. The WBO then issued Rogers a letter purporting to reject the claim on an alternative ground, stating: "The claim has been rejected because the IRS decided not to pursue the information you provided."

Rogers timely appealed to the Tax Court under Code Sec. 7623(b)(4). Code Sec. 7623(b) provides that the Tax Court may review whistleblower award determinations when certain monetary thresholds established in Code Sec. 7623(b)(5)(A) (relating to claims against individuals) and Code Sec. 7623(b)(5)(B) (relating to all claims) are satisfied. The record in the case did not establish whether the action at issue satisfied these thresholds.

The IRS maintained that the WBO intentionally selected the "decided not to pursue" formulation (rather than relying on regulatory criteria invoked by the IRS classifier and WBO technician) because the WBO wanted to avoid suggesting that Rogers could perfect his claim by submitting additional information. When a claim is rejected (and not denied), Reg. Sec. 301.7623-1(c)(4) states that a whistleblower may perfect and resubmit his claim if the rejection is premised on a lack of adequate explanation or documentation. That option is foreclosed when a claim is denied.

After Rogers' petition for review, the IRS filed an answer that did not address the monetary thresholds under Code Sec. 7623(b)(5). The IRS subsequently filed a motion for summary judgment, arguing that the WBO's determination should be classified as a rejection and did not represent an abuse of discretion.

Consistent with its holding in Lippolis v. Comm'r, 143 T.C. 393 (2014), which considered Code Sec. 7623(b)(5)(B), the Tax Court held that the monetary threshold set out in Code Sec. 7623(b)(5)(A) is not a jurisdictional requirement, but rather creates an affirmative defense that must be pleaded in the answer and proved by the IRS. The court found that, because the IRS did not plead in its answer that the action at issue failed to satisfy the monetary thresholds under Code Sec. 7623(b)(5), that provision does not preclude the Tax Court from considering the case on the merits. The Tax Court noted that, when the WBO determines that a whistleblower is not entitled to an award, the regulations provide for two potential courses of action: (1) the WBO may reject the whistleblower's claim, or (2) it may deny the claim. Failure to follow one of the paths set out in the regulations, the court said, is an abuse of discretion.

The court stated that the WBO is not "free to take away with double speak rights that the regulations plainly provide." Under the regulations, the court continued, Rogers was entitled to perfect his claim if it was rejected because it was speculative, was not specific or credible, or failed to provide other information required by the regulations. The court said it could not countenance intentional obfuscation on the part of the WBO. And neither the WBO letter alone nor the letter coupled with the administrative record provided a coherent account of the WBO's determination that is consistent with the regulations. Thus, the Tax Court thus concluded that the WBO's determination constituted an abuse of discretion and the court refused to uphold it on review.

For a discussion of appealing a whistleblower determination, see Parker Tax ¶262,340.

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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