The Tax Court dismissed a whistleblower’s complaint that challenged the IRS’s decision not to act on the whistleblower’s information. In Raymond Cohen v. Commissioner of Internal Revenue, 139 T.C. No. 12 (October 9, 2012), the Tax Court holds that section 7623(b) does not authorize the Tax Court to order the IRS to reopen Petitioner’s award claim.
The Petitioner, Raymond Cohen, is a CPA who provided information to the IRS Whistleblower Office regarding a corporation that he believes had unreported income from uncashed dividend checks that had not been turned over to the state. The Whistleblower Office informed Mr. Cohen that he was not entitled to an award because no proceeds were collected based on the information he provided. Mr. Cohen requested the Whistleblower Office to reconsider the claim. The Whistleblower Office reiterated the denial, noting that the claim was based on publicly available information. Mr. Cohen filed a petition with the Tax Court requesting that the Tax Court order the IRS to reopen his claim, arguing that the IRS abused its discretion by not acting on his information. The IRS moved to dismiss for failure to state a claim upon which relief can be granted.
The opinion’s reasoning starts with a review of the Tax Court’s ability to review whistleblower award determinations. Tax Court may exercise jurisdiction only to the extent authorized by Congress. In a whistleblower action, that jurisdiction is limited to the Commissioner’s award determination. The opinion states that the “jurisdiction under section 7623(b) does not contemplate that we review the Commissioner’s determinations of alleged tax liability to which the claim pertains. See Cooper v. Commissioner, 136 T.C. 597, 600 (2011) (Cooper II). Nor does section 7623 confer authority to direct the Commissioner to commence an administrative or judicial action. Id.” Mr. Cohen admits that his information did not lead to the Commissioner commencing an action against, or collecting any proceeds from the corporation. Nevertheless Mr. Cohen argues that he should be granted relief. Mr. Cohen first argues that he is entitled to relief because the IRS did not comply with the Administrative Procedure Act (“APA”). The opinion states that “[t]he APA, however, does not create a right of action or expand our jurisdiction. See Anonymous v. Commissioner, 134 T.C. 13, 19 (2010).” As the APA does not expand the Tax Court’s jurisdiction the Tax Court can provide relief under section 7623(b) only after the Commissioner has initiated an administrative or judicial action and collected proceeds. Mr. Cohen’s second argument is that he is entitled to a legal and factual explanation of respondent’s denial of the claim. While the opinion in Cooper II noted that the Commissioner had produced through the course of litigation a memorandum explaining why the whistleblower claim had been denied, the court “did not hold that the Commissioner was obligated under section 7623 to detail his legal and factual reasons for not pursuing a claim.” Mr. Cohen’s third argument is that he is entitled to equitable relief; however, the Tax Court is not a court of equity and section 7623 does not provide for equitable relief.
For these reasons, submissions made to the IRS Whistleblower Office should be carefully prepared and should act as a roadmap that the IRS can simply follow to detect underpayments, making the decision to act on the information an easy one for the IRS.
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