Wai-Cheung Wilson Chow and Deanne Chow v. Comm’r, No. 14249-18W, T.C. Memo 2021-106 | September 1, 2021 | Buch | Dkt. No. 14249-18W

Short Summary:  This case involves a review of a rejected whistleblower claim.  The Whistleblower Office determined that the Chows’ claim, in which they alleged that their former landlord owned numerous properties from which she collected rents and did not report income, was not credible.  The Chows appealed, and the Tax Court affirmed the IRS’ determination.

Key Issue:  Did the Chows, the whistleblowers in this case, make a credible claim that entitled them to an award under the IRS Whistleblower statute?

Primary Holdings: 

• The Chows rented a home in California from an individual (the “Target Taxpayer” or “Target”). The Chows claimed that the Target Taxpayer boasted about owning several other rental properties that she rented to tenants on a cash-only basis to avoid paying taxes on the income.
• The Chows therefore filed Form 211, Application for Award for Original Information, with the IRS in April, 2018.
• The Whistleblower Office reviewed the claim and ultimately recommended rejecting the Chows’ claim because the allegations were not credible. As the basis for this recommendation, the classifier stated that the Target Taxpayer’s tax filings indicated income from one rental property and the database revealed that the Target owned only one property.
• The Chows filed a timely petition for review of the Whistleblower Office’s determination.
  

Key Points of Law:

• Section 7623 of the Internal Revenue Code provides that a whistleblower award may be paid only if the information provided results in the collection of tax, penalties, interest, additions to tax, or additional amounts. If certain requirements are met, the whistleblower is entitled to receive as an award a percentage of the amount collected, but only if the IRS initiates or expands an “administrative or judicial action” based on the whistleblower’s information and proceeds are collected as a result.
• A review of the Whistleblower Office’s determination regarding whether a whistleblower is entitled to an award is limited to the administrative record to decide whether there has been an abuse of discretion. See Van Bemmelen v. Commissioner, 155 T.C. 64, 78 (2020).
• A review of final agency action is conducted under the Administrative Procedure Act, 5 U.S.C. §§ 551-559, 701-706, deciding, as a matter of law, whether the agency action is supported by the administrative record and is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
• Under §7623(b)(4), the Tax Court has jurisdiction over the appeal of any determination under § 7623, if such appeal is made within 30 days of such determination.
• Finding that a claim lacks credibility after searching an IRS database and not finding any corroborating information is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. The IRS is not required to perform a deeper evaluation of a whistleblower’s claim before issuing a rejection.  Moreover, the Court cannot direct the IRS to commence or continue an audit.
• When the Whistleblower Office decides to reject a claim, it may, but is not required, first offer the whistleblower a chance to perfect the claim.

Insight:  The Whistleblower provision of the Internal Revenue Code could prove valuable under the right circumstances.  However, the circumstances of this case did not rise to the level necessary to satisfy the requirement of I.R.C. § 7623.

Have a legal question? Contact Jason Freeman, Freeman Law, Texas.

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