IRS to Seek Protective Orders to Prevent Nonparty Taxpayer Information from Being Redisclosed.

As discussed in an earlier blog post, the Tax Court formally adopted amendments to the Tax Court Rules of Practice and Procedure on July 6, 2012.  The amendments rules include Rule 345, which provides that a whistleblower may proceed anonymously by redacting the whistleblower’s identifying information, if appropriate, and provides that the taxpayer’s identifying information be redacted.  On September 13, 2012, the IRS issued CC-2012-016 to alert its attorneys to the amendments to the Tax Court Rules and how the IRS will implement the rules.  The discussion of Rule 345 focuses largely how to prevent the whistleblower from disclosing the taxpayer’s information to third parties outside of the whistleblower’s Tax Court appeal of a whistleblower award determination.

The notice asks IRS attorneys to balance privacy concerns of taxpayers with the need for disclosure of taxpayer information to whistleblowers.  The notice points out that Rule 345 “does not require that confidential taxpayer information be sealed or otherwise protected in whistleblower cases.  Instead, the court stated it will address the need to protect nonparty taxpayer information on a case-by-case basis.”  The notice states that “section 6103(h)(4) may permit the disclosure of nonparty taxpayer information to a petitioner in a whistleblower award case during discovery, but neither a petitioner nor petitioner’s attorney are under any duty not to further disclose that information once it has been produced to them.”  When the Tax Court announced the finalization of the amendments, the court explained that section 7461(b)(1) provides ample authority for the court to protect the confidential taxpayer information on nonparty taxpayers in whistleblower award cases.  The notice instructs attorneys to be mindful of limitations on discovery in Rule 70(b)(1), which limits discovery to matters that are not privileged and relevant to the pending case.  To limit redisclosure of the taxpayer’s information that is produced in discovery or at trial the IRS may seek a protective order under Rule 103, under the appropriate circumstances.  So far there is no elaboration of when the IRS considers it appropriate to seek a protective order to prevent the redisclosure of nonparty taxpayer information.