Keep your Eye on the Prize: IRS Whistleblower Claims and Judicial Review Process

On January 12, 2022, the National Taxpayer Advocate (Advocate) released the  2021 Annual Report to Congress, stating that calendar year 2021 was "the most challenging year taxpayers and tax professionals have ever experienced." IR-2022-11. Notably, one category appearing for the first time on the Advocate’s “Most Litigated Issues” list is “whistleblower award determinations” under I.R.C. Section 7623(b)(1). The Advocate identified 12 opinions issued in the Tax Court where taxpayers challenged an IRS determination on issuing whistleblower awards between June 1, 2020, and May 31, 2021. In FY 2020, the Whistleblower Office made 169 awards to whistleblowers totaling more than $86 million, which included 30 awards under I.R.C. Section 7623(b).  IRS Pub. 5241, Fiscal Year 2020 Annual Report IRS Whistleblower Office (Dec. 2020).

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• Tax Court Lacks Jurisdiction in Tipster’s Appeal, DC Circ. Says
  Learn how, according to the D.C. Circuit, the Tax Court's review over whistleblower claims arises only when the IRS proceeds with an administrative action. If the IRS decides not to proceed with a claim, the D.C. Circuit says the Tax Court does not have the authority to reverse that judgment. Mandy Mobley Li v. Comm'r, 2022 U.S. App. LEXIS 697, __ F.4th __ (D.C. Cir. 2022).

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  • Business Entities. Treasury released final regulations under R.C. Section 958, requiring an aggregate approach to determine the Subpart F inclusion for a CFC owned by a domestic partnership. Treasury also released accompanying proposed regulations extending the aggregate approach to domestic partnerships that own an interest in a PFIC. T.D. 9960, 87 Fed. Reg. 3,890 (Jan. 25. 2022).
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  • Practice, Procedure and Controversy. IRS provided information about when and how the IRS will issue a Notice of Employment Tax Determination Under R.C. Section 7436(Section 7436 Notice) and how taxpayers can petition for Tax Court review of certain IRS determinations under that section. Rev. Proc. 2022-13, modifying and superseding I.R.S. Notice 2002-5.
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