Today the Tax Court released its opinion in Whistleblower 22716-13W v. Commissioner, holding that FBAR civil penalties are not “additional amounts” within the meaning of section 7623(b)(5)(B), and they are not “assessed, collected, … [or] paid in the same manner as taxes”; therefore, FBAR payments must be excluded in determining whether the $2,000,000 “amount in dispute requirement” has been satisfied. 

This case appears to be the continuation of the saga of Whistleblower 22231-12W, whose petition to the Tax Court was dismissed for lack of jurisdiction because the IRS had not yet made a determination regarding his case.  However, on September 6, 2013, the IRS Whistleblower Office issued a final determination letter informing the whistleblower that his claim relating to Taxpayer 1 had been denied.  The letter stated that the claim had been denied because (1) the Government had obtained complete information about Taxpayer 1’s offshore accounts directly from the Swiss bank, without any assistance from petitioner; and (2) petitioner in any event could not qualify for a nondiscretionary award because his claim did not meet the $2,000,000 threshold in section 7623(b)(5)(B).  Petitioner petitioned the Tax Court for review of this determination.   Respondent moved for summary judgment on the basis of petitioner’s alleged failure to satisfy section 7623(b)(5)(B).

Judge Lauber’s opinion in this case gives a history of the Bank Secrecy Act, and FBAR penalties, and how enforcement of the Bank Secrecy Act came to be delegated to the IRS.  From there the case moves on to an analysis of the language of section 7623(b)(5)(B), and specifically the meaning of “additional amounts.”  The opinion traces the meaning of “additional amounts” throughout the Internal Revenue Code and how the Tax Court has interpreted this phrase in the past.  The Court also looked to Williams v. Commissioner, where the Court ruled that FBAR penalties were not additional amounts for purposes of determining Tax Court jurisdiction to hear deficiency and CDP cases.  Judge Lauber concludes that “additional amounts” as used in section 7623(b)(5)(B) means civil penalties set forth in chapter 68, subchapter A, and FBAR penalties are not among the tax penalties enumerated in that portion of the code.

It is interesting that the Court has taken the time to differentiate “additional amounts” in collected proceeds from the “additional amounts” in the monetary threshold.  We look forward to additional opinions weighing in on the definition of collected proceeds.  Even if FBAR penalties are ultimately found to be part of collected proceeds, whistleblowers will need to reach the $2,000,000 threshold of section 7623(b)(5)(B) based on tax, penalties, interest, additions to tax, and additional amounts.  Judge Lauber ended the opinion noting that the petitioner may be correct that section 7623 would offer stronger incentives to whistleblowers if FBAR civil penalties were treated like tax liabilities for purposes of deterring eligibility for nondiscretionary awards under section 7623(b)(5)(B), and might more effectively advance the objectives that Congress envisioned for it.  “But if this is a gap in the statute, it is a gap that only Congress, and not this Court, can fill.”