DBTC Law Firm


Rewarding Whistleblowers with Secrecy

The Internal Revenue Code has long rewarded whistleblowers who report tax fraud by providing them a percentage of taxes collected as their reward. Such whistleblowers are frequently jilted lovers or disgruntled or fired bookkeepers, administrative assistants, or other insiders who get financial reward and revenge by reporting their employers’ indiscretions. Confidentiality of the whistleblower can accompany the award. Such whistleblowing has, however, become its own “big business” along with questions of confidentiality.

Internal Revenue Code §7623(b) awards a percentage of collected proceeds from a whistleblower’s information as a reward to the whistleblower. Rule 345(a) of the Tax Court Rules of Practice and Procedure provides privacy protection for those people who are allowed to request anonymity from the court. The reasons for anonymity must be factually demonstrated.

While in a conventional case this could protect the employment of an ongoing employee who has reported his employer, a Federal Court of Appeals case decided on July 26, 2019 (124 AFTR 2d, 2019-5090) disclosed that whistleblowing had become big business, and with it new questions regarding confidentiality.

The case disclosed that the whistleblower was not a jilted lover, disgruntled employee, bookkeeper or insider, but rather a self-described “analyst of financial institutions” who derived from publicly filed records probable tax evasion. In that case, this professional whistleblower claimed that the corporation had evaded paying nearly $100 million in taxes. Of more interest, the decision reflected that this particular whistleblower had as many as 56 separate whistleblower reports pending before the Tax Court and the Internal Revenue Service, indicating that this was a large scale and potentially highly profitable enterprise. The Tax Court created a new label for this phenomenon, “a serial claimant” or “serial filer.”

The Tax Court held that because the whistleblower was not risking loss of employment, there was no need to ensure anonymity. The United States Court of Appeals reversed the Tax Court, advising that whether this whistleblower, or any other whistleblower, was a “serial filer” was irrelevant to whether they were entitled to confidentiality, and declared that there was no precedent for a public policy disfavoring anonymity for serial filers who rely upon publicly available information.

The case was returned to the Tax Court to consider whether the whistleblower had made a factually supported basis for protecting his identity.