Appeal Expected in IRS Whistleblower Award Rejection

The lawyer for Joseph Insinga says a decision will be made this weekend whether to proceed with the request for a whistleblower award that was rejected by the Internal Revenue Service, or to file a new claim. Either way, an appeal of the IRS rejection is certain.

The IRS sent Insinga, a former Rabobank executive, a letter denying his claims for a whistleblower award for information he provided that allowed the IRS to recover what he says is a substantial amount of money in unpaid taxes from taxpayers that used tax shelters the IRS disallowed, requiring them to pay the taxes plus interest and penalties. Rabobank acted as a facilitator for these tax shelters.

“The information you provided did not result in the collection of any proceeds from any of the taxpayers covered in this letter. Therefore, you are not eligible for an award with respect to those taxpayers,” the IRS said in the letter dated April 15. The agency did say it is still reviewing one of Insinga’s whislleblower award claims.

Andrew Carr, the attorney representing Insinga, told Risk & Compliance Journal on Friday a decision will be made this weekend whether “to dismiss the present case and refile or try to rehabilitate the existing case with supplemental pleadings.”

The IRS decision was not surprising, Carr said, adding he expected the agency to file something at the 11th hour just before a scheduled hearing to “avoid an unfavorable precedent which would have further delayed any decision on the merits.”

Whichever course of action is decided upon, Carr said Insinga will appeal the IRS rejection of his awards claim, which originally was filed in May 2007.

“His claims are meritorious and we will pursue them,” Carr said.

An IRS spokeswoman said the agency is barred by federal law from discussing a particular or specific taxpayer’s tax matter or their taxes.

Attorney Scott Knott of the Ferraro Law Firm in Florida, who handles whistleblower issues, said he if he were representing Insinga he would ask the IRS to provide documents to show whether the agency used any of the information supplied by Insinga in its cases against the taxpayers.

Proposed changes to the IRS whistleblower rules would make it harder for people like Insinga who provide information to get awards, Knott said, and the amended rules would only consider an award payment to someone whose information was the sole basis for the IRS being able to collect taxes from the offending entity.

“We think the IRS is taking a very narrow view of what that means,” Knott said. “We think the statute says if they use your information and that information makes a substantial contribution, then they have to pay you, assuming they collect the tax.”

Knott said he wasn’t surprised by the rejection, since the IRS was facing a potential adverse decision in court that “would open up every whistleblower with a case to sue them” and have the Tax Court hear the case. “That would be bad for the IRS from an administrative perspective,” Knott said.

Insinga filed a lawsuit against the IRS last year, alleging the agency was taking too long to decide whether he was entitled to an award, making the case a closely watched one by people who track whistleblower issues. The IRS has been criticized for not responding in a timely manner to such award requests, and the General Accountability Office, in a 2011 report, cited slow resolution of award requests as an area in which the agency could improve.