Joseph A. Insinga, retired Rabobank Finance Specialist, filed a petition with the Tax Court arguing that the IRS’s continued refusal to issue a formal determination constitutes a de facto rejection of his claim and appeals this de facto rejection. This filing details five years of interaction between Mr. Insinga and the IRS and has brought the operations of the IRS’s Whistleblower Office to the public’s attention. Mr. Insinga’s petition also raises several questions that should be looked at closer…
What information is award eligible?
Mr. Insinga goes to great lengths to state that he was the only way the IRS could get the information. However, this goes above and beyond the requirements of section 7623(b). The statute does not say that the IRS needs to proceed with an administrative or judicial action based "solely" on information provided by the tax whistleblower. The statute simply requires the IRS utilize the information. This is shown clearly in the last sentence of section 7623(b)(1), "The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action."
There are many ways for a whistleblower to make a substantial contribution even if they are not the sole or initial source of information about an underpayment. The IRM section on Award Computations, 184.108.40.206.2 (06-18-2010), itself does not require that a whistleblower’s information be the sole or initial source of information in order to be eligible for an award, so long as the case is not based on public information under section 7623(b)(2). Even if the whistleblower’s information was not the IRS’s original source of information and was public information about the underpayment, section 7623(b)(2)(A) still provides for an award of up to 10% of the collected proceeds “taking into account the significance of the individual’s information and the role of such individual and any legal representative of such individual in contributing to such action.”
It follows that one does not need to be the sole basis for the action, if you can get an award for "contributing" to an action. It appears from the Petition that Mr. Insinga's information went to the Field Revenue Agents directly working on the examination of the taxpayers. If this is the case, to actually use his help and not pay is both contrary to the statute and so patently unjust that we are concerned for the survival of the program if this position of the IRS is sustained.
When is there a de facto denial of a claim?
The Tax Court faces a new issue in Mr. Insinga’s Petition. Does the court have jurisdiction when the IRS fails to make an award determination? The answer must be yes otherwise a tax whistleblower could effectively be denied judicial oversight if the IRS just chooses not to act by simply never issuing an award determination. In Cooper v. Commissioner, the IRS was taking the position that a denial letter was not an award determination, and therefore the Tax Court did not have the jurisdiction to review their award denial. The Tax Court saw through that charade in Cooper and held that they have jurisdiction over negative award determinations, but Mr. Insinga has the harder argument that when the IRS sits on their proverbial hands, that is a de facto negative award determination. How long does a tax whistleblower need to wait before there is a de facto determination? Here, Mr. Insinga alleges there has been an administrative action and collection of tax. This may be a case where the court can determine that the IRS's failure to make an award determination is arbitrary, capricious, and unreasonable.
When should partial payments be made?
One of the issues raised in the Petition is that of "partial payments." There are two parts to this issue and both appear to be at play in Mr. Insinga's case. The first is what years must close for the IRS to make a determination. Most of the hundreds of submissions made by The Ferraro Law Firm to the IRS Whistleblower Office involve more than one tax year of a taxpayer, and many involve multiple taxpayers. If a tax whistleblower outlines five years of tax cheating by a taxpayer and the IRS is auditing on two-year audit cycles, when does the award determination get made? In all other areas of tax law the rule is clear that each tax year stands on its own. Following that line of thinking, whenever a year is closed and tax collected, the IRS should make an award determination for that year. To take a different position could cause decades of delays. Consider an amortization case, will the IRS wait 20 years until all of the years with improper amortization play out? The even more egregious position would be that in a case involving multiple taxpayers, all taxpayers identified must have all tax years at issue closed before an award determination can be made. It simply cannot be that case that this is the proper way to make award determinations. If 999 out of 1000 identified taxpayers close and pay and one tax cheat has one tax year open for unrelated issues the IRS cannot delay payment on the 999 taxpayers it collected from - to do so would be arbitrary, capricious, and unreasonable.
Is the naming the target taxpayers appropriate?
The Tax Court's proposed rule for redacting taxpayer names would have pulled the target taxpayers names out of this Petition but the rule itself misses the point. Mr. Insinga is not seeking to file anonymously. He has a first amendment right to tell the world of the evils he believes Rabobank et al. committed. Were he to file this Petition after the rule took effect he could provide his redaction index to any and all who would listen. The Proposed Rule will only be effective in anonymous cases where the Tax Court could already require that redaction as a condition of anonymity.
Is this an example of a larger pattern of Whistleblower Office dysfunction?
We have always said that with tax whistleblower cases you can lead a horse to water but you cannot make him drink. What would really be dysfunctional would be if the IRS had been offered quality information from Mr. Insinga that it did not otherwise have and failed to use it. Or if the IRS did in fact use his information and the IRS is failing to make an award determination in order to avoid judicial review of a denial or paying an award even though section 7623(b) requires paying an award.