The decision of the Tax Court in Whistleblower 14106-10W v. Commissioner should encourage tax whistleblowers that their identity will be protected if they choose to avail themselves of their judicial appeal rights under section 7623(b)(4). The Tax Court issued its rules governing whistleblower actions on October 3, 2008. In response to the previously proposed rules for these cases, The Ferraro Law Firm submitted comments to the Court regarding the importance of protecting an informant’s identity by allowing anonymous filings and filings under seal. The Tax Court acknowledged in those concerns in its explanation to Rule 340, and this case is the first test of those rules.
The decision of the Tax Court in this landmark case obviously shows that the Court carefully considered the balance between a whistleblower’s need for protection of his identity with the public’s right of access to court records. We are happy the court concluded the identity of the whistleblower should not be disclosed. However, whistleblowers may feel that those award determination appeal rights have been gutted by the Court’s further holding that an affidavit by the IRS which states “we didn’t use your information” is enough to satisfy the Court on a motion for summary judgment that the whistleblower is not eligible for an award.
Because section 6103 generally prohibits the IRS from disclosing information about a taxpayer to a whistleblower, including any information about what the IRS has done with a whistleblower’s information, most whistleblowers who are not insiders of the taxpayer will have no evidence of what the IRS did with their information, if anything. Non-insider whistleblowers were therefore relying on their judicial appeal rights to act as a check and balance to be able to verify that they were properly awarded under section 7623(b), because section 6103(h)(4) would permit that taxpayer confidential information to come to light in a judicial proceeding. The holding of the Tax Court in this case may dash a non-insider whistleblower’s hopes of finding out what really happened with their information because the Court didn’t let the whistleblower issue discovery to find that out. Insiders, on the other hand, will have plenty of evidence to get past a motion for summary judgment on this issue so they are not affected by this part of the Court’s decision.
The whistleblower in this instance may have lost the case, but he won an important victory for all tax whistleblowers. It was a victory for other whistleblowers because (i) the Tax Court recognized the importance of protecting the identities of whistleblowers by creating a standard which will protect their anonymity, and (ii) the Tax Court followed their holding in Cooper v. Commissioner that a “no award” letter issued by the IRS is a determination under section 7623(b) that the Court has the jurisdiction to review, which should finally put that issue to rest.
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