August 31, 2012 The Tax Lawyer

Whistling the Same Tune: How Kasper v. Commissioner Mirrors the False Claims Act and Strengthens the Tax Whistleblower System

Vol. 65, No. 3 - Spring 2012

John Didday

Abstract

    Political arguments about how to increase government revenues and whether or how to decrease government spending take a prominent place in today’s news. With tax revenues as a percentage of gross domestic product (GDP) “near an all-time low,” many arguments focus on whether altering tax rates would increase revenues. Perceived political gridlock makes one wonder whether a consensus on tax issues would require a storybook solution that increases revenues without raising, lowering, or changing taxes at all. One such solution is targeted enforcement of the Code: if the Service can collect more of the existing taxes owed, closing the “tax gap,” the government will bring in more revenue. Enter the tax whistleblower system, which, if optimized to increase incentives for citizens to report taxpayer underpayments and nonpayments, can boost Service recoveries without a single legislative act.

    This Note analyzes Kasper v. Commissioner, a recent Tax Court opinion that bolstered the tax whistleblower system by following in the tradition of the government’s largest private enforcement system—the False Claims Act (FCA). By adopting an expansive view of its own jurisdiction, the Tax Court took a step towards creating a more whistleblower-friendly system like that under the FCA. This decision, which takes small steps toward a whistleblower- controlled system, will not turn section 7623 into a clone of the FCA overnight—indeed, it could not. However, this sort of judicially created extension of process strengthens the tax whistleblower system and could serve to increase Service recoveries.

    In Kasper v. Commissioner, the Tax Court decided two questions under section 7623(b): (1) whether the Service’s decision to deny a whistleblower award constitutes an award  determination;” and (2) whether indirect evidence that the Service provided a whistleblower with notice of his award determination is sufficient to begin the statute’s 30-day appeals window. Both issues presented hurdles to the whistleblower’s appeal right, and on both issues Judge Haines supported that appeal right by finding that the Tax Court had jurisdiction.  The Tax Court first held that a zero-award decision is within the ambit of an appeal and second held that the Service must prove the appeals window has begun by direct evidence (for example, by presenting a postal receipt that an award determination letter was mailed).

    The holding impacted each interested party differently. For Kasper, the Tax Court’s jurisdiction over his appeal of the Whistleblower Office’s no-award determination allows him to continue contesting the decision through Tax Court review of that determination. For the Service, this decision results in an internal change in record keeping and paying incrementally more for each determination mailing. For future whistleblowers, the appeals window begins only after the Service proves by direct evidence that an award determination has been mailed; this gives whistleblowers more certainty in their appeal right.

    The greatest import of the decision, however, is the attitude expressed toward the Whistleblower Office: one supportive of tax whistleblowers. This decision comes at a time when the Whistleblower Office has expressed openness to change and when the government is under considerable political pressure to increase revenues. Given this context, Kasper and other opinions like it can exert significant influence on the development of the tax whistleblower system.

    Part II of this Note explains the history and structure of the tax whistleblower system as codified in section 7623. Part III compares section 7623 with the whistleblower provisions of the FCA. Part IV provides a review of Kasper. Part V provides analysis of Kasper’s direct implications. Part VI concludes by suggesting potential future developments in the system.

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