Joseph Insinga’s case has been watched closely from the time the petition was filed to see if the Tax Court would assert jurisdiction over a case where the IRS had not issued a formal determination but had allowed the claim to linger, causing a de facto denial of Mr. Insinga’s claim.  This proposed an interesting jurisdictional question that captured the attention of tax attorneys, whistleblowers, and the public.  As previously discussed on this blog, The Ferraro Law Firm filed an amicus curiae brief highlighting the fact that the IRS’s refusal to issue a whistleblower award determination, despite having allegedly collected proceeds within the meaning of section 7623(b), is tantamount to a negative award determination, or a de facto denial. 

However, on April 15, 2013, the IRS issued a letter formally denying Mr. Insinga’s claims for all but one taxpayer.  By issuing a formal denial letter, the Tax Court has jurisdiction under section 7623(b)(4) and leaves unresolved whether the Administrative Procedures Act or other non-tax-code procedural provisions might require the IRS to take affirmative action in whistleblower cases.  In a March 13th order, the Tax Court noted that the D.C. Circuit has held the Administrative Procedures Act and the All Writs Act to apply to all congressionally established courts and, under Telecommunications Research and Action Center v. FCC, that the Administrative Procedures Act and the All Writs Act confers jurisdiction over claims of unreasonable agency delay to a court that a statute confers exclusive jurisdiction to review a final agency order. 

The real precedent Insinga was going to set was that if you found out the taxpayer had been paid on an issue you submitted, you could then sue the IRS claiming that they had made a de facto determination not to pay you.  Now it is just a fight over whether the whistleblower provided information used by the IRS to collect tax.  As Greg said, the IRS probably denied the award because it saw the writing on the wall and did not want to set unfavorable precedent.  However, getting rid of the de facto determination issue in Insinga just leaves the question to perhaps be resolved by a court at a later date.  Scott elaborated on this point, saying that he was not 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.

We believe that this issue will be litigated eventually.  However, the next whistleblower in a situation similar to Mr. Insinga’s may have a difficult time because it is unclear whether his showing that the taxpayer paid tax will be enough to initiate an award challenge.  Instead, there may need to be evidence to suggest that the IRS intends not to pay the tax whistleblower.  In the Insinga case, there was both the belief of payment of tax by the taxpayer and the suggestion that the IRS had already decided they were not going to pay and just had not issued the formal denial.  It seems the IRS has learned from this experience and is less inclined to discuss the likelihood of an award during an investigation or the status of particular award determinations.

Lynam Knott