Court of Appeals to Decide Key Tax Whistleblower Case

Case could have devastating impact on IRS Whistleblower Program

Yesterday, the Appellees in a pivotal tax whistleblower case, Whistleblower 21276-13W, filed their brief arguing that proceeds recovered from criminal violations of the tax laws should be included in whistleblower reward calculations. Kohn, Kohn & Colapinto partners Stephen Kohn and David Colapinto, along with Dean Zerbe and Felipe Bohnet-Gomez of Zerbe, Miller, Fingeret, Frank & Jadav serve as co-counsel to the whistleblowers and filed the brief on their behalf.

This case centers on defining the term “collected proceeds” in I.R.C. section 7623(b). The government, who filed an appeal in April, argued that two whistleblowers, who exposed criminal fraud committed by a major company, should not be rewarded for proceeds collected under the criminal tax laws. The U.S. Tax Court previously rejected this argument, and properly held that whistleblowers are encouraged by law to turn in criminal tax cheats and big banks that violate criminal law. 

If the court rules for the government in this case, the consequences to the IRS Whistleblower Program will be disastrous. The largest tax fraud cases inevitably include criminal fines and penalties, and are often primarily criminal in nature. Whistleblowers who disclose credible information, that result in the criminal prosecution of large tax cheats, will be blocked from obtaining rewards. This will have an adverse effect on the ability of IRS to incentivize those whistleblowers with the most important information about the largest tax evasion schemes to report violations.

• Appellee’s Brief
• 147 T.C. No. 4- Whistleblower 21276-13 W v. CIR (Aug. 3, 2016)
• IRS Whistleblower Resources