Opinion
20442-18W
09-06-2022
WHISTLEBLOWER 20442-18W, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge.
In this whistleblower case petitioner challenges the decision of the Internal Revenue Service (IRS or respondent) to deny an award under section 7623(b). On December 8, 2021, petitioner filed a Motion to Compel Production of Documents, to which the IRS has responded. On July 13, 2022, the Court issued an opinion in Whistleblower 972-17W v. Commissioner, 159 T.C. 1, which has relevance to certain arguments advanced by respondent in resisting petitioner's Motion to Compel. We will direct supplemental briefing in light of that opinion.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
In April 2012 the IRS Whistleblower Office (WBO) received from petitioner a Form 211, Application for Award for Original Information, alleging tax underpayments by a corporate taxpayer (Target) for tax years 2007-2011. Between October 2012 and July 2016 petitioner made supplemental submissions to the WBO. These supplemental submissions allegedly expanded his claim to cover Target's 2012-2015 tax years.
Beginning in June 2013, following a "taint" review, the WBO forwarded petitioner's Form 211 and supplemental submissions to personnel in the Large Business & International Division (LB&I) responsible for examining Target's 2007-2009 and 2010-2012 tax returns. Members of those exam teams eventually completed Forms 11369, Confidential Evaluation Report on Claim for Award, with attached narrative memoranda. See Internal Revenue Manual (IRM) 24.2.1.5.5 (May 28, 2020). Those documents recommended that petitioner's claim be denied because: (1) Target was already under examination when LB&I received petitioner's information, (2) the exam teams had issued Information Document Requests (IDRs) to Target before petitioner's information was received, (3) petitioner did not identify any issues not already known to the exam teams, and (4) petitioner's information did not lead to modifications of LB&I's audit plan. As one IRS officer explained: "The exam team concluded that there was no specific inside information provided in the initial Claim [or] in the Supplemental submissions about [Target's] business operations that had the potential for further audit consideration beyond what the Exam Team had already known and had under examination for tax years 2007-2009."
In July 2018, after reviewing the Forms 11369 and accompanying information, a WBO senior analyst prepared an Award Recommendation Memorandum recommending denial of petitioner's claim. The analyst concluded that the team conducting Target's 2007-2009 examination had already identified the issues to which the Form 211 referred; that the exam team had drafted Notices of Proposed Adjustment (NOPAs) for manager review by the time they received petitioner's information in June 2013; that petitioner supplied no information that had the potential for further audit consideration beyond what the exam team already knew and had under consideration; and that the team did not consider petitioner's information for the 2010-2012 audit cycle.
In September 2018 the WBO issued petitioner a final determination letter denying his claim for an award. Petitioner alleges, and the WBO did not deny, that the IRS recovered some additional tax from Target as a result of the examination(s). But the notice explained: "The claim has been denied because the IRS identified the issue prior to receipt of your information and your information did not substantially contribute to the actions taken by the IRS."
After the case was docketed in this Court the parties filed, and on April 9, 2019, we granted, a joint motion for protective order under Rule 103. The stated purpose for this protective order was to enable respondent to disclose to petitioner, pursuant to section 6103(h)(4), "taxpayer return information . . . of the third-party taxpayer(s) identified in petitioner's whistleblower claim."
The parties then commenced informal discovery. Respondent represents that he has produced the WBO's complete administrative file for petitioner's claim, "redacted for attorney client communication, attorney work product, deliberative process, and information barred from disclosure under . . . Section 6103." Respondent represents that he supplied petitioner with a privilege log (subsequently revised) explaining redactions to the administrative file.
Dissatisfied with respondent's production, on December 8, 2021, petitioner filed a Motion to Compel Production of Documents. Respondent filed, the next day, a Motion for Summary Judgment. Petitioner's Motion asks that the IRS be required to produce the WBO's complete administrative file, with no redactions, and its complete audit files for Target's 2007-2015 years.
Respondent timely opposed the Motion. He contends that the redactions to the administrative file are justified by the attorney-client privilege, the deliberative process privilege, and/or his obligation to protect confidential taxpayer information under section 6103. Respondent contends that the 2007-2015 audit files for Target are outside the scope of permissible discovery because they were not considered by the WBO and thus are not part of the administrative record. Alternatively, respondent contends that the audit files cannot be disclosed to petitioner because they constitute confidential taxpayer return information protected by section 6013.
On July 13, 2022, the Court issued an opinion in Whistleblower 972-17W, 159 T.C. 1. In that case (as apparently in this) the IRS reviewed the information the whistleblower provided and recovered proceeds from the target taxpayers. But the WBO denied an award on the ground that the whistleblower's information was not relevant to any of the issues that generated the additional tax.
Desiring to test that premise, the whistleblower sought access to an unredacted copy of the administrative record compiled by the WBO. Respondent resisted disclosing an unredacted copy in order "to protect . . . section 6103 information and . . . other identifying information." Id. at 4. We rejected respondent's position, holding that disclosure to the whistleblower of the targets' tax returns and return information was authorized by section 6103(h)(4)(A). See 159 T.C. at 17. That section permits the IRS to disclose, in a judicial proceeding pertaining to tax administration, return or return information that "arose out of, or in connection with, determining the taxpayer's civil . . . liability . . . in respect of any tax imposed [by the Code]." See § 6103(h)(4)(A).
While approving disclosure under section 6103(h)(4)(A), we noted that the scope of permissible disclosure was not unlimited. "[T]he information available in a whistleblower case," we explained, "generally will be limited to the administrative record the WBO develops or a properly supplemented record, because that is the record that is subject to the Court's review." Whistleblower 972-17W, 159 T.C. at 22 (citing Kasper v. Commissioner, 125 T.C. 8, 20 (2018)). We elaborated this point as follows:
Nothing in section 6103(h)(4)(A) or our holding gives whistleblowers license to seek tax returns or return information that the WBO did not collect as part of its administrative process. That such documents might exist in the hands of the IRS generally or in the files of an examination team that audited a target taxpayer does not (without more) make those documents part of the administrative record and triggers no need for an evaluation under section 6103(h)(4)(A).Ibid. Finally, while ruling that "the Commissioner may not resist disclosure by appealing to section 6103(a)," we noted that he remains free "to propose more targeted redactions under Rule 27(a) and (d) and Rule 103(a)." Id. at 26.
The Court would benefit from additional briefing from the parties in light of this recent Court-reviewed opinion. We request that the parties address the following questions (and any others they believe pertinent): (1) the extent (if any) to which section 6103 justifies redactions to the WBO administrative record to prevent disclosure to petitioner of third-party tax information, (2) the extent (if any) to which the other redactions respondent has proposed to the WBO administrative record-i.e., redactions unrelated to section 6013-are objectionable, and (3) the extent (if any) to which the IRS audit files for Target's 2007-2015 tax years can be considered part of the administrative record of this case. It is accordingly
ORDERED that on or before October 3, 2022, the parties shall file supplemental memoranda addressing the matters discussed above. It is further
ORDERED that respondent's Motion for Summary Judgment, filed December 9, 2021, is held in abeyance.