Lately, a few disgruntled whistleblowers have been going to Tax Court to try to roust the IRS and get what they believe to be their fair share to the crooked pot. But rousting the IRS can be a tough sell.
Take William Prentice Cooper III, who took on the IRS in Cooper v. Commissioner. An attorney, Cooper claimed evidence that estate tax scofflaws failed to pay millions in estate tax and generation-skipping tax. Cooper claimed the IRS could grab up to $200 million in tax.
Sounds like the kind of information the IRS would be interested in, no? When the IRS denied his claims, he went to Tax Court, which dismissed his claim too. Why? The IRS examined his allegations and decided not to pursue them.
In a whistleblower case, said the Tax Court, its jurisdiction is limited to reviewing the IRS’s award determination. The court can’t go into the merits of the claim, nor can it decide whether the IRS should have gone after someone or should have collected. That’s just not how it works.
Cooper learned of major omissions of assets from an estate resulting in up to a $75 million underpayment in Federal estate tax. His second claim alleged that two trusts were part of a scheme to avoid tax. But the IRS wasn’t impressed and denied his claims about nine months after he filed them. The IRS didn’t take action and that mean there was no revenue. That meant Cooper couldn’t get a share.
That may seem harsh or arbitrary, but the Tax Court doesn’t have the ability to order the IRS to go after someone, no matter how juicy the claim might sound. In a similar case involving a CPA, Raymond Cohen, the accountant had his claim denied and met the same fate. Cohen learned from his wife about uncashed company checks in an estate. A searching of State filings supported his theory that the company was stashing about $700 million worth, he claimed.
But his IRS claim was denied. In Tax Court, he claimed the denial was arbitrary and he was entitled to a legal and factual explanation. The Tax Court just said no. The IRS didn’t collect—for whatever reason—and that meant there was no share for Cohen. Cohen even tried to invoke equitable relief but the court said it wasn’t a court of equity.
Bottom line? After the Birkenfeld whistle-blowing case, there will be many more disappointed whistleblowers. All you can do is make your claim as compelling as you can and cross your fingers.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.