Tuesday, August 5, 2014

Whistleblower Award for FBAR Penalties? (8/5/14)

In Whistleblower 22231-12W v. Commissioner, T.C. Memo. 2014-157, here, the Tax Court accepted the IRS position that the jurisdictional prerequisite for Tax Court review -- a determination by the IRS WBO -- had not been made and, hence, the Tax Court did not have jurisdiction over a whistleblower claim still pending before the WBO.  The IRS asserted an alternative defense that FBAR penalties are outside the scop of the whistleblower statute, Section 7623(b), here.  The Tax Court deferred ruling on that issue because there had been no determination which is the jurisdictional prerequisite for the Tax Court to do anything  in the matter.

Here are some key excerpts of the opinion:\
At the hearing the Court received testimony from Stephen Whitlock, Director of the Office. He testified about the Office's procedures for processing claims generally and about its handling of the particular claim at issue here. We found his testimony instructive and credible in all respects. 
Petitioner filed Form 211, Application for Award for Original Information, with the Office in November 2010. On the application petitioner asserted that he was cooperating with the Department of Justice and the IRS Criminal Investigation Division in connection with the ongoing investigation of two Swiss bankers. Petitioner alleged that his cooperation with those agencies had led to, and would lead to more, information about these bankers' involvement in tax evasion by U.S. persons having undeclared offshore financial accounts. 
* * * * 
III. Foreign Bank Account Reporting 
In the alternative, respondent contends that this Court lacks jurisdiction because payments under title 31 are outside the scope of section 7623(b)(5)(B) and are therefore outside the scope of our jurisdiction under section 7623(b)(4). Petitioner agrees that this issue is jurisdictional and urges that the Court resolve it. 
Because we have concluded that the Office did not make a "determination" within the meaning of section 7623(b)(4) sufficient to confer jurisdiction on this Court, we need not decide whether FBAR payments are "additional amounts" for purposes of ascertaining whether the monetary threshold in section 7623(b)(5) has been met, or whether that question is a jurisdictional one. See Friedland v. Commissioner, T.C. Memo. 2011-217, 102 T.C.M. (CCH) 247, 249 (not addressing the monetary threshold question when granting respondent's motion to dismiss for lack of jurisdiction).
So, at least for  now, there is no court ruling on the authority of the IRS to make whistleblower awards under Section 7623(b) for information leading to FBAR penalties.  Notwithstanding that, it would seem a streatch for that expanded scope.


  1. Michael J. MillerAugust 6, 2014 at 5:10 AM

    I normally roll my eyes when Constitutional arguments are raised, but I believe that, depending on the facts, the Eighth Amendment's protection against excessive fines can come into play as a limit on the IRS"s discretion. I believe someone wrote a good article on this a few years ago.

  2. Michael, I believe you refer to Steven Toscher and Barbara Lubin, When Penalties Are Excessive -- The Excessive Fines Clause as a Limitation on the Imposition of the Willful FBAR Penalty (J. Tax Prac. & Proc. Dec. 2009-Jan. 2010), here.



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