Government Appeals Key Tax Court Decision

Mary Jane Wilmoth

Published On: April 26th, 2017

Trump Administration Passes on Chance to “Drain the Swamp.”

April 26, 2017. Washington, D.C. On April 24, the Trump Administration filed an appeal in a Tax Court case centered on defining the term “collected proceeds” in I.R.C. section 7623(b). The government 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 reasoning and properly held that whistleblowers are encouraged by law to turn in criminal tax cheats and big banks that violate criminal law.

In response to the government’s appeal, Stephen M. Kohn, of Kohn, Kohn and Colapinto and co-counsel for the case, stated:

“This case has enormous policy ramifications for the tax whistleblower program. If the Justice Department prevails in this appeal, whistleblowers who disclose credible information that results in the criminal prosecution of large tax cheats will be blocked from obtaining rewards. The position turns the entire whistleblower program on its head. The stronger your evidence, the greater the chance you will get no reward. Whistleblower advocates asked to meet with representatives from both the Justice and Treasury Departments. It was extremely disheartening that our requests for a simple meeting were rejected. The decision to appeal will only hurt honest taxpayers and will be celebrated by tax cheats.”

Dean Zerbe, co-counsel for the whistleblowers, authored an article in Tax Notes, also published April 24, that explains why the new administration should not have appealed the decision in Whistleblower 21276-13W. Zerbe saw the decision as to whether to appeal the decision as an opportunity for the Trump administration to make great strides in “Draining the Swamp.”

Tax Notes reports that Senator Chuck Grassley wants the IRS to explain the decision to file the reporting:

“At his confirmation hearing, now-Secretary Mnuchin gave his assurance that he’d work with me to support tax fraud whistleblowers,” Grassley told Tax Analysts in an email. “The IRS’ decision to appeal a victory for these whistleblowers seems in direct conflict with the assurance I received. The IRS should explain why it’s undermining a program that’s collected $3.4 billion that otherwise would have been lost to fraud.”

In an interview with Tax Notes, Kohn further expressed his disappointment with the appeal stating:

“the government’s interpretation is a ‘perverse reading of the law’ which could have a ‘devastating impact on the program’ by potentially excluding tax crimes from whistleblower rewards, where presumably the worst tax cheating may occur and the whistleblower may have the strongest evidence against the offenders.”

“The White House was given on a silver platter the chance to do the right thing, to help whistleblowers and go after big time tax crooks. The new administration instead decided to make life easier for the wealthy with Swiss bank accounts and corporations engaged in tax shelters,” Kohn said. “Instead of draining the swamp, the administration with this decision to appeal has just made the swamp bigger.”