Whistleblower’s claim is not entitled to Tax Court review

In a case of first impression, the Tax Court held that it could not order the IRS to reopen an individual’s whistleblower claim under Sec. 7623(b), and the court dismissed his petition (Cohen, 139 T.C. No. 12 (2012)).

Sec. 7623(b) authorizes an award to a whistleblower if the IRS proceeds with any administrative or judicial action based on information an individual brings to the IRS’s attention. Under Sec. 7623(b)(4), the Tax Court has jurisdiction to review any award determination the IRS makes. However, the Tax Court has no jurisdiction in cases in which the IRS has not initiated an administrative or judicial action and collected proceeds.

Raymond Cohen submitted a whistleblower claim involving alleged tax law violations by a public corporation. The Whistleblower Office in Ogden, Utah, evaluated his claim and then notified him he was not entitled to an award because no proceeds were collected. Cohen then requested the claim be reconsidered, to which the Whistleblower Office replied that the claim was denied because it was based on publicly available information. In his suit, Cohen claimed that he was entitled to a legal and factual explanation of the claim’s denial.

The Tax Court, however, held that the IRS is not obligated under Sec. 7623 to explain its reasons for denying a claim. In addition, the Tax Court denied Cohen’s other arguments. First, the court explained that the IRS’s action was not arbitrary and capricious and therefore did not violate the Administrative Procedure Act because the Whistleblower Office was entitled to deny the claim on the grounds that it did. Cohen was not entitled to equitable relief because the Tax Court is not a court of equity and Sec. 7623 does not provide for equitable relief.

In conclusion, the Tax Court noted that Sec. 7623(b)(4) authorizes the court to review “any award determination,” but that relief was unavailable because the IRS never instituted an action or collected any proceeds. It sympathized with Cohen’s frustration that the IRS did not pursue his claim but reiterated that Congress had not given the court any power to review that failure.

—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor.