On October 27, 2021, the Tax Court issued its opinion in Insinga v. Commissioner (157 T.C. No. 8). The primary issue presented in Insinga v. Commissioner was whether the Tax Court’s jurisdiction over a whistleblower petition filed under IRC § 7623(b)(4) was extinguished by the death of the petitioner-whistleblower.
Held: Heck no; whistle on whistler.
Background to Insinga v. Commissioner
Pursuant to IRC § 7623(b)(4), the petitioner filed a timely petition in the Tax Court for review of an adverse determination of the IRS Whistleblower Office (“WBO”) regarding his claims for an award. His claims and petition sought awards in connection with eight target taxpayers and ninety-four transactions. Subsequently, the petitioner amended the petition to include only two such taxpayers, though it is unclear how many transactions these two ne’er-do-wells were responsible for.
The petitioner in Insinga v. Commissioner died in March 2021.
Seizing on this rather fortunate turn of events, the IRS sought to wriggle itself out of the case. The estate of the petitioner however moved to substitute itself and carry on the decedent-petitioner’s whistlin’ ways.
Tax Court Jurisdiction and Dead People
Congress granted to the Tax Court jurisdiction over whistleblower award determinations in IRC § 7623(b)(4), which confers jurisdiction with respect to any determination regarding a whistleblower award. Until now, however, IRC § 7623 and its legislative history was silent with respect to survivability of whistleblower claims.
Although Tax Court Rule 63(a) provides that, if a petitioner dies, the Tax Court may order substitution of the proper parties. However, before ordering such a substitution, the Tax Court must first determine whether it continues to have jurisdiction over an appeal filed pursuant to IRC § 7623(b) after the petitioner-whistleblower who filed it has died.
In deficiency cases, it is “well settled” that a petitioner’s death does not divest the Tax Court of jurisdiction “over his income tax liability for years already in issue.” Deficiency jurisdiction is based on a timely filed petition, and “that jurisdiction continues unimpaired” after the petitioner’s death, because “the action is one which survives against the petitioner’s estate.”
The prerequisites to the Tax Court’s acquiring jurisdiction in an IRC § 7623(b) whistleblower case are the WBO’s issuance to the whistleblower of a final determination and the whistleblower’s filing of a petition. As such, the Tax Court found (and the parties did not dispute) that these prerequisites were met in this case.
Evaluating the prerequisites to its jurisdiction under IRC § 7623(b) and “other sorts of cases” under its jurisdictional penumbra, the Tax Court concluded that it continued to have jurisdiction over the petition upon the death of the petitioner-whistleblower. Consequently, the Tax Court held that the death of a petitioner-whistleblower, who has filed a petition in the Tax Court that is pending at the time of his death, does not extinguish the Tax Court’s jurisdiction over the petition.
Survival of Federal Claims, Generally
When a Federal statute does not specifically address survival rights, Federal common law provides the general rule that rights of action under Federal statutes survive a plaintiff’s death if the statute is remedial, not penal. The Federal Circuit has expressed this rule by holding that, in the absence of a statutory provision to the contrary, common law supplies a presumption in favor of the survival of a remedial right of action arising under a Federal statute.
Courts of Appeals have applied a three-factor test to ascertain whether a statute is remedial or penal, examining:
- whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public;
- whether recovery under the statute runs to the harmed individual or to the public; and
- whether the recovery authorized by the statute is wholly disproportionate to the harm suffered.”
No court has yet decided whether IRC § 7623(b) has a remedial or a penal purpose. However, opinions addressing the treatment of claims arising under the False Claims Act (“FCA”), are illuminating because such qui tam actions involve the “roughly analogous” circumstance of a “relator” who (like a whistleblower) brings information regarding illegal activity to the attention of the government and, upon successful prosecution of the claim, shares in the recovery. Courts have generally held that a decedent-plaintiff’s claim under the FCA was remedial and therefore survived his death.
Survival of a Whistleblower Claim, Specifically
The 2006 amendments to IRC § 7623(b) evince an intent to encourage whistleblowers to provide information (by limiting the IRS’s discretion to deny certain awards). The 2006 amendments also had the practical effect of increasing the amount of proceeds from which a so-called “mandatory” award under IRC § 7623(b)(1) could be paid, by setting the “floor” for a mandatory award at the 15% threshold that the IRS previously imposed administratively and by increasing the ceiling for such awards to 30%.
Applying the three-factor test set forth in NEC Corp., the Tax Court concluded that
- Like the purpose of the FCA’s qui tam remedy, the purpose of the award provisions of IRC § 7623(b) is to redress individual wrongs of the whistleblower in bringing his claim (such as retaliation by his employer or professional ostracism) by compensating him for the harm he may incur by doing so;
- IRC § 7623(b) is intended to provide a remedy to the whistleblower for bringing his claim by providing mandatory compensation for claims where the collected proceeds meet certain statutory thresholds; and
- the recovery due to the whistleblower under IRC § 7623(b)(1), which “shall depend upon the extent to which the individual substantially contributed to such action,” shows that the whistleblower’s recovery is proportional to the harm he incurs in bringing his claim.
These three factors weighed in favor of holding (and the Tax Court, therefore, did so hold) that IRC § 7623(b) has a remedial purpose, and, therefore, the petitioner-whistleblower’s Tax Court petition survived his death. This conclusion is bolstered by the holding in Figueroa, which observed that the starting point at Federal common law is a presumption that a remedial Federal cause of action survives where the statute does not contain an explicit statement to the contrary.
- Lacey v. Commissioner, 153 T.C. 146, 163 (2019) (citing Cooper v. Commissioner, 135 T.C. 70 (2010)). ↑
- Beatty v. Commissioner, T.C. Memo. 1980-168, *7 (citing Nordstrom v. Commissioner, 50 T.C. 30 (1968), and Yeoman v. Commissioner, 25 T.C. 589 (1955)). ↑
- IRC § 6213(a). ↑
- Duggan v. Commissioner, 18 B.T.A. 608, 625 (1930); see also Nordstrom, 50 T.C. at 31-32 (citing Duggan, 18 B.T.A. at 625, and Yeoman, 25 T.C. at 593). ↑
- See McCrory v. Commissioner, 156 T.C. No. 6, slip op. at 7 (Mar. 2, 2021) (holding that a preliminary award determination letter does not entitle a whistleblower to invoke our jurisdiction and citing Kasper v. Commissioner, 137 T.C. 37, 41 (2011), for the proposition that “[t]he jurisdiction of this Court is nevertheless dependent upon a finding that a ‘determination’ has been made”). ↑
- See Ex parte Schreiber, 110 U.S. 76, 80 (1884); see also United States ex rel. Hood v. Satory Global, Inc., 946 F. Supp. 2d 69, 81 (D.D.C. 2013) (holding that a claim arising under the False Claims Act survives the death of the relator-plaintiff). ↑
- See Figueroa v. Sec’y of Health & Human Servs., 715 F.3d 1314, 1319 (Fed. Cir. 2013). ↑
- United States v. NEC Corp., 11 F.3d 136, 137 (11th Cir. 1993) (quoting First Nat’l Bank & Tr. Co. in Macon v. Flatau (In re Wood), 643 F.2d 188, 191 (5th Cir. 1980)). The inner 12-year-old in me has to chuckle at the fact that ever-so-straight-laced Judge Gustafson cited In re Wood when discussing “penal” statutes. Apparently, In re Tallywhacker was inapposite. ↑
- 31 U.S.C. §§ 3729-3733. ↑
- NEC Corp., 11 F.3d at 139. ↑
- See Smith v. Commissioner, 148 T.C. 449, 458 (2017). ↑
- See Staff of J. Comm. on Taxation, Technical Explanation of H.R. 6408, the “Tax Relief and Healthcare Act of 2006,” as introduced in the House on December 7, 2006, at 88-89 (J. Comm. Print 2006). ↑
- 11 F.3d at 137-39. ↑
- 715 F.3d at 1319. ↑