A Landmark Case: Tax Court Rejects IRS “No Action” Letter
In 2006, President Bush signed the Tax Relief and Health Care Act of 2006. Among other important financial provisions, Section 406 of the Act deals specifically with the creation of the IRS Whistleblowers’ Office and augmentation of whistleblower awards. One of the first cases to be decided under the 2006 Act was William Prentice Cooper, III (Petitioner) v. Commissioner of Internal Revenue (Respondent, “Commissioner”). This case was filed July 8, 2010. Mr. Cooper, however, was not the beneficiary of the increased whistleblower awards; rather, his case tested the efficacy of the newly-instated “No Action Letter” in the Whistleblower Office Manual. Before discussing the nuances of the “No Action Letter,” it’s important to understand some of the background information behind this case.
Petitioner Cooper was representing the grandson of Ms. Dorothy Dillon Eweson when he realized, through his own examination of the trusts in question as well as public records, a large-scale tax evasion scam to avoid paying a generation-skipping transfer tax. Knowing this evasion was explicitly illegal, Petitioner Cooper filed a claim with the IRS Whistleblower Office in which he submitted newly discovered filings from a New York Surrogate Court proceeding in which a corporate trustee challenged the trust modifications as designed primarily to evade taxation. A legal memorandum and draft legal documents from Ms. Eweson’s attorneys indicating the trusts were modified as part of a scheme to avoid the generation-skipping transfer tax.
After receiving these documents, the Whistleblowers Office sent Cooper a letter stating, in short, that the claim did not involve any tax payments that the Service would be interested in pursuing, and would thus be ineligible for an award. After a number of motions from either side, the Tax Court determined that the IRS acted in a timely and fair manner in accordance with the IRS manual, and after even more appeals by Cooper, Tax Court eventually determined that it did indeed possess the jurisdiction to review the Service’s determination of Cooper’s claim. Thus, the Commissioner’s claim that Tax Court did not possess the jurisdiction to review whistleblower cases was denied. What does all this mean for the future of whistleblowing, and what is the “No Action Letter”?
Despite the fact that Petitioner Cooper did not obtain a monetary award, this case was still a landmark in that it set precedent for the power of the “No Answer Letter” as well as the jurisdiction for Tax Court. The court ruled that this official notice from the IRS, also known as the “No Action Letter,” does act as a final determination (correspondence officially stating the IRS’s verdict). According to Section 7623 (b), this letter is an official administrative document. In combination with the initial letter from the Commissioner, the two letters acted to grant Petitioner the full appeal rights. Though this may seem like a small point, the precedent is huge. Many whistleblower claims will no longer be subject to the whims of the IRS because they are now protected by appeal procedures established by the 2006 Act.
For the full text of Section 7623 (b), please click here
This entry was posted on Thursday, September 23rd, 2010 at 11:40 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.