Whistleblower 1437716W v. Commissioner
T.C. Memo. 2021-113

On September 27, 2021, the Tax Court issued a Memorandum Opinion in the case of Whistleblower 1437716W v. Commissioner (T.C. Memo. 2021-113). The primary issues presented in Whistleblower 1437716W v. Commissioner were whether the whistleblower could proceed anonymously, and whether the WBO abused its discretion in denying the whistleblower-petitioner an award.

Held: Nope on both counts.

Background to “Old 77” Whistleblower and Whistleblower 1437716W

Peter J. Reilly, a Forbes tax contributor, nicknamed the whistleblower in Whistleblower 1437716W v. Commissioner “Old 77” in an article that came out in August 2019 written after the D.C. Circuit remanded a prior whistleblower case brought by Old 77, telling the Tax Court to keep Old 77’s actual identity off the books.  See Whistleblower 14377-16W v. Commissioner, 148 T.C. 510 (2017), remanded sub nom. In re Sealed Case, 931 F.3d 92 (D.C. Cir. 2019).

Reilly observed

Whistleblower 14377-16W is my new hero.  Old 77 as I have nicknamed him has a superpower far beyond the modest one I have developed.

Old 77 has a much more interesting and potentially lucrative superpower.  He can study the available information of public companies (e.g. Form 10-K) and determine what sort of tax shenanigans they must be up to.  Then he notifies the IRS and claims a reward.  If the IRS does not come across, he sues them in Tax Court.  When Judge Halpern counted up the score in Whistleblower 14377-16W v. Commissioner [148 T.C. 510] in 2017, he found that Old 77 had eleven cases in the Tax Court involving 21 separate whistleblower claims and as many as 50 separate taxpayers.

The Tax Court was less magnanimous, observing that Old 77 was a “serial whistleblower,” and his filings were gumming up the workings of the Tax Court.  The Tax Court noted

[In 148 T.C. 510 the Tax Court] denied [Old 77’s] motion to proceed anonymously, reasoning in part that disclosing the petitioner’s identity would allow the public to associate the present case with other whistleblower claims the petitioner has filed and thereby evaluate the extent to which claims by serial whistleblower filers affect the work of the Tax Court.

Whistleblower 14377-16WThe D.C. Circuit remanded the case, concluding that the Tax Court had abused its discretion by weighing against Old 77’s entitlement to anonymity his reliance on public information to file multiple whistleblower claims. Following remand, the IRS moved for summary judgment that the IRS’s Whistleblower Office (WBO) had not abused its discretion in denying Old 77 an award.

Factual Background

Under a cover letter dated February 12, 2010, petitioner filed a Form 211, Application for Award for Original Information, alleging that the target taxpayer had done all sort of sordid tax shenanigans related to gift cards, FICA tips, like-kind exchanges, et al.  In response to the question “Did the Service use the information the whistleblower provided to develop specific document requests or other inquiries of the taxpayer?” the WBO checked the “Yes” box.  Thus, any decision not to pursue the petitioner’s claims would be a denial, not a rejection, as discussed at length in this post about Mr. Rogers, one of Briefly Taxing’s favorite whistleblowers to date.

Ultimately, the underlings at the WBO issued a final Award Recommendation Memorandum to the WBO’s director, Lee Martin.  The initial section of that memorandum, captioned “Summary Basis for the Recommendation,” reads as follows:

I am recommending that a final denial letter be issued. There are no related claims. The alleged amount in dispute is over $2M. Alleged issues are non-recognition of gift-card income, overstatement of FICA tip credits, improper expensing of asset replacements and other capital improvements, and improper application of IRC 1031 (like-kind exchanges). The field has audited some of the reported issues, but no adjustments have been made to them.

Whistleblower 14377 16W Lot of InformationAn additional section of the Award Recommendation Memorandum was captioned “Claim Allegation Background and Summary.” It stated that the whistleblower’s submission was “based on research of publicly available information. He has filed numerous other claims, all based on publicly available information.”  In May 2016, the WBO sent the petitioner a letter advising him that it had made a final determination to deny his claim for an award. As the basis for that denial, the letter stated that the information the petitioner provided “did not result in any additional tax, penalties, interest or additional amounts.”

The petitioner brought this action under IRC § 7623(b)(4) asking the Tax Court to review the denial of his claim for a reward by the WBO. When the petitioner filed his petition, he also moved under Tax Court Rule 345(a) for permission to proceed anonymously. The IRS opposed the petitioner’s motion. The Tax Court initially denied the petitioner’s motion, for the reasons explained in 148 T.C. 510.

The petitioner appealed the Tax Court’s initial denial of his motion to the D.C. Circuit, which concluded that the Tax Court had abused its discretion by weighing his reliance on public information to file multiple whistleblower claims against the petitioner’s entitlement to anonymity. Following a hearing on the petitioner’s Rule 345(a) motion, the petitioner and the IRS submitted briefs addressing the petitioner’s request for anonymity. The IRS also then moved for summary judgment that the WBO did not abuse its discretion in denying the petitioner’s request for an award under IRC § 7623(b)(1).

The Petitioner’s Motion for Permission to Proceed Anonymously

Whistleblower 14377-16WIn the declaration he submitted in support of his motion for permission to proceed anonymously, the petitioner claimed to “fear significant economic and social harm from the disclosure of his identity.” The petitioner referred to “the tax, accounting, and finance professional community” as the “customary source of his livelihood.” He asserted in his motion that whistleblowers who provide “tax, accounting, and financial investment advice” are, upon identification, “routinely blacklisted by clients.” Thus, the petitioner claimed to have “legitimate fear” that disclosure of his identity would result in his being “blacklisted from his profession” and cause “severe financial harm to him and his family.”

The IRS’s Opposition to the Petitioner’s Motion

The IRS objected to the petitioner’s motion “because it failed to set forth a sufficient, fact-specific basis for protecting the confidentiality of petitioner which would override the strong, legitimate interest in allowing the public access to the record in this case.” Among other things, the IRS asserted “that the petitioner’s extensive use of the Tax Court to pursue whistleblower claims gleaned not from insider information necessitating the protection of a whistleblower’s confidentiality, but from petitioner’s examination of publicly available materials obviates the need for petitioner to proceed anonymously.”

Applicable Standards of Review for a Motion for Permission to Proceed Anonymously

IRC § 7623(b)(1) requires the payment of an award to an individual who provides information concerning underpayments of tax if the IRS, on the basis of that information, “proceeds with any administrative or judicial action” that results in the collection of proceeds. IRC § 7623(b)(4) allows whistleblowers to appeal award determinations (including determinations not to grant an award) and gives the Tax Court jurisdiction over those appeals.

Tax Court Rule 345(a) provides in relevant part that a petitioner in a whistleblower action may move the Tax Court for permission to proceed anonymously, if appropriate. Unless otherwise permitted by the Tax Court, a petitioner seeking to proceed anonymously must file with the petition a motion, with or without supporting affidavits or declarations, setting forth a sufficient, fact-specific basis for anonymity.

Whistleblower 14377 16W Anonymous3The Tax Court explained in Whistleblower 14377-16W, 148 T.C. at 515, that it will permit a whistleblower to proceed anonymously if the whistleblower “presents a sufficient showing of potential harm that outweighs counterbalancing societal interests.” In Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 205 (2011), the Tax Court recognized that “the social interests at stake [in a whistleblower case] are mixed.” “On the one hand, there is a strong social interest in protecting a whistleblower’s identity as a confidential informant.” Id. “On the other hand the people generally have a right to know ‘who is using their courts.’” Id. (quoting Doe v. Blue Cross & Blue Shield United of Wis., 112 F.3d 869, 872 (7th Cir. 1997)).

The Initial Denial of the Motion to Proceed Anonymously

In the prior opinion denying the petitioner’s Rule 345(a) motion, we compared his case to prior cases in which we had granted requests for anonymity and observed that the petitioner “made no plausible claim that he was (or may be) threatened physically.” Whistleblower 14377-16W, 148 T.C. at 517. Nor did the petitioner claim an employment relationship that would be threatened by disclosure of his identity. Finally, the Tax Court observed that the petitioner “is at no risk of the loss of employment-related benefits, such as retirement benefits.” Id.

In contrast to whistleblowers granted anonymity, the petitioner did not “identify a taxpayer who, upon learning his identity, would have the power to, and might be expected to, act against him.” Id. While the Tax Court accepted that the petitioner “may suffer some embarrassment or annoyance from denying the motion, his fears of marital discord, the alienation of unnamed business partners, and retribution from unnamed political figures are speculative.” Id. Therefore, the Tax Court concluded that the petitioner had not provide the Tax Court “with a sufficient ‘fact-specific’ justification for permission to proceed anonymously.” Id.

The D.C. Circuit rejected the premise that disclosing the petitioner’s identity would be “necessary to enable the public to gauge (1) the extent to which serial filers affect the work of the Tax Court or (2) whether any particular petitioner is a serial filer.” In re Sealed Case, 931 F.3d at 93. The court suggested that those purposes could be adequately served merely by giving each filer “a unique pseudonym.” Id. at 98.

Having found that the Tax Court had abused its discretion by denying the petitioner’s motion to proceed anonymously by weighing against him his status as a serial filer of whistleblower claims made on the basis of public information, the D.C. Circuit remanded the case to allow the Tax Court “to determine anew” whether the petitioner satisfied his burden under Rule 345(a) to set forth a “sufficient, fact-specific basis for anonymity.” Id. at 99.

Factors to Consider Regarding Proceeding Anonymously

In James v. Jacobson, 6 F.3d 233, 238 (4th Cir. 1993), the Fourth Circuit listed five of those factors that should be considered when a litigant seeks anonymity:

  1. Whistleblower 14377 16W Secret

    Whether the justification asserted by the requesting party is merely to avoid the annoyance and criticism that may attend any litigation or is to preserve privacy in a matter of sensitive and highly personal nature;

  2. Whether identification poses a risk of retaliatory physical or mental harm to the requesting party or even more critically, to innocent non-parties;
  3. The ages of the persons whose privacy interests are sought to be protected;
  4. Whether the action is against a governmental or private party; and
  5. The risk of unfairness to the opposing party from allowing an action against it to proceed anonymously.

In In re Sealed Case, 931 F.3d at 97, the D.C. Circuit opined that the five James factors “serve well as guideposts from which a court ought to begin its analysis” but cautioned trial courts not to “engage in a wooden exercise of ticking the five boxes.”

Holding of Tax Court

Taking into account the testimony presented at the hearing on the petitioner’s motion, the Tax Court concluded that—without treating the public’s interest in knowing petitioner’s identity as enhanced because of his status as a serial whistleblower—the petitioner still has not satisfied his burden of proving “a sufficient, fact-specific basis for anonymity.”

Specifically, the Tax Court observed that its disposition of the petitioner’s motion for permission to proceed anonymously turns on two questions:

  1. whether, because of the case’s procedural posture, the public’s interest in petitioner’s identity is atypically weak; and
  2. whether, in the post-remand proceedings, the petitioner made a stronger case for the potential harm that he or his wife could suffer from disclosure of his identity.

Because the Tax Court found that the answer to both questions were a resounding “no,” it followed that the Tax Court adhered to its original judgment that the petitioner failed to provide sufficient justification for proceeding anonymously.

Note on “Comprehensive” Analysis of Anonymity Issue

Whistleblower 1437716W To say that Judge Halpern’s examination and analysis of the retaliatory physical harm, harm to marriage and social relationships, and economic harm was “thorough” would be doing it a disservice.  The jurist’s analysis is a treatise on anonymity in the Federal courts.  If you are curious, I urge you to read the analysis.  It begins on page 30 of the Tax Court’s opinion…and goes through page 51…

You’re welcome for the summary.

(T.C. Memo. 2021-113) Whistleblower 14377-16W v. Commissioner

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