In Whistleblower 21276-13W v. Commissioner, 147 T.C. ___, No. 4 (2016), here, the Tax Court interpreted the term "collected proceeds" which is the base to which the Whistleblower award percentage is based under § 7623(b) to include the following:
tax restitution $20,000,001
criminal fine $22,050,000;
civil forfeiture $32,081,693
Total $74,131,694
There was no question that collected proceeds included the tax restitution. Tax restitution is a payment with respect to Title 26 taxes and thus is a relatively easy fit in the term "collected proceeds" under § 7623(b). The dispute was over the criminal fines and civil forfeiture which are not collected under Title 26; rather, criminal fines and civil forfeitures are collected under Title 18, the general criminal code. (See Slip Op. 5 fns. 4 & 5, discussing 18 USC § 3571 (fines) and § 981(a)(1)(A) (civil forfeiture).) Bottom line, the Tax Court interpreted the term "collected proceeds" expansively and included the criminal fines and forfeitures.
An interesting point for readers of this blog is the payor of the amounts at issue. The opinion refers to the payor as the "targeted taxpayer." Actually, the payor was Wegelin & Co. ("Wegelin,", a Swiss Bank, which was not the U.S. taxpayer but was the conspirator required to pay the tax of the client-taxpayers via tax restitution in Wegelin's criminal case. The opinion does not specifically identify Wegelin, but gives enough details to identify Wegelin from the other public information. See the USAO SDNY press release dated 3/4/13, here. Technically, Wegelin was not a taxpayer per se, but I suppose the term "targeted taxpayer" was used for convenience because that concept is the usual application of § 7623(b).
One of the interesting steps in its holding was the following (Slip Op. 17-18) (bold-face supplied by JAT):
The Code itself refers to laws outside title 26 as internal revenue laws. As an example, section 6531 provides periods of limitation on criminal prosecutions:
SEC. 6531. PERIODS OF LIMITATION ON CRIMINAL PROSECUTIONS.
No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years--
* * * * * * *
(8) for offenses arising under section 371 of Title 18 of the United States Code, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof.
We find the reference in section 6531(8) to 18 U.S.C. sec. 371 to be especially illuminating inasmuch as the targeted taxpayer pleaded guilty to conspiracy to defraud the IRS, file false Federal income tax returns, and evade Federal income tax, in violation of 18 U.S.C. sec. 371. n15 Finally, the phrase “internal revenue laws” dates from the earliest version of the whistleblower statute enacted in 1867. At that time, the modern title 26 did not exist; internal revenue laws meant all revenue laws. We think it erroneous to impose a post facto restriction on the meaning of the phrase not intended by Congress when it enacted the legislation. In sum, the phrase “internal revenue laws” is not limited to those laws codified in title 26.
n15 Ours is not the only court to note that tax laws and related laws may be found beyond those codified in title 26. The District Court for the Northern District of California in Hom v. United States, 2013 WL 5442960 (N.D. Cal. Sept. 30, 2013) aff’d, ___ F. App’x ___, 2016 WL 1161577 (9th Cir. Mar. 24, 2016), stated: “[T]he issue here is whether [31 U.S.C.] Section 5314 is either an internal revenue law or related statute (either designation would make the disclosure [of taxpayer information under sec. 6103] permissible). The United States argues that [31 U.S.C.] Section 5314 is a ‘related statute’ under Section 6103 (Dkt. No. 13 at 6). This is correct. Congress intended for [31 U.S.C.] Section 5314 to fall under ‘tax administration.
