Does a letter from the IRS denying whistleblower claim confer jurisdiction upon the Tax Court to review that claim?

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By Stephen R. Diamond, CPA

William Prentice Cooper, III, Petitioner


Commissioner of Internal Revenue, Respondent

135 T.C. No. 4

IRC Sec. 7623(b) provides awards to whistleblowers if the secretary of the treasury proceeds with any administrative or judicial action that is based on information brought to the secretary's attention by an individual. The amount of such reward shall depend upon the extent to which the individual substantially contributed to the action. The code section also provides that any determination regarding an award under this section of the code may be appealed to the Tax Court and the Tax Court will have jurisdiction with respect to such matter.


At the time of filing his petitions, William Prentice Cooper III (petitioner) lived in Nashville, TN.

Petitioner, an attorney, submitted two Forms 211 (Application for Award for Original Information) to the IRS in 2008 alleging two claims that certain parties had failed to pay millions of dollars in estate and generation-skipping transfer tax.

Petitioner alleged that a trust having in excess of $102 million was omitted from the gross estate of Dorothy Eweson (Ms. Eweson) which resulted in an underpayment of federal estate tax of $75 million. He learned of the alleged omission while representing the widow of Ms. Eweson's grandson and verified the information by examining public records and the records of his client.

Petitioner alleged in his second claim that Ms. Eweson impermissibly modified two trusts as part of a scheme to avoid generation-skipping tax. The two trusts had a total value of over $200 million at the time of Ms. Eweson's death. Petitioner learned of the alleged violations through his representation of the widow of Ms. Eweson's grandson as well as by examining the public records. Petitioner also submitted information he discovered from a New York Surrogate Court proceeding in which the trust modifications were being challenged because they were designed primarily to evade taxes.

The IRS Whistleblower Office acknowledged to petitioner it had received the whistleblower claims and that they would be used to determine whether further investigation was warranted. The Whistleblower Office also told petitioner that he would be informed at the conclusion of the investigation whether he met the criteria for paying an award.

Nine months later the Whistleblower Office finally contacted petitioner and responded that an award could not be made because petitioner did not identify any federal tax issues the IRS would take action upon and an award was not warranted because the information did not result in the detection of any underpayment.

Petitioner filed two separate petitions with the Tax Court in response to the IRS letters stating that no reward was available. The commissioner filed two motions to dismiss both cases for lack of jurisdiction on the premise that no determination had been issued to the petitioner. Petitioner objected and claimed the letters he received disallowing the award were in fact a determination conferring jurisdiction upon the Tax Court.


This was the first time the Tax Court had to decide whether the commissioner's letter denying the award claim was a "determination" that conferred jurisdiction upon the Court. As stated in Hambrick[1] and other cases, the Tax Court has jurisdiction to determine whether or not it has jurisdiction.

The Tax Court noted the secretary has long had discretion to pay awards to persons who provide information that aids in detecting underpayments of tax and for detecting and bringing to trial and punishment persons guilty of violating internal revenue laws. However, this discretion has been arbitrary and inconsistent due to lack of standardized procedures and limited oversight. Prior records indicated it took an average of 7.5 years for a discretionary award to be paid and an average of 6.5 months for a claim to be rejected.[2]

In 2006, Congress enacted legislation to address perceived problems with the award program and amended IRC Sec. 7623 to require the secretary to pay nondiscretionary whistleblower awards and to provide the Tax Court with jurisdiction to review such awards. The whistleblower has thirty days from the issuance of a non-discretionary award determination to file a petition with the Tax Court.

In 2008, the commissioner issued guidance to taxpayers for filing nondiscretionary whistleblower award claims. Whistleblowers must fully complete and submit a Form 211. The receipt of this form will be acknowledged in writing by the Whistleblower Office. When a final determination is made, the Whistleblower Office will send correspondence to the whistleblower. Whistleblower Office determinations may be appealed to the Tax Court, but awards will not be paid until there is a final determination of the tax liability and the amounts owed are collected. Generally, whistleblower claims will be denied when the information does not (1) identify a federal tax issue upon which the IRS will act; (2) result in the detection of an underpayment of taxes; or (3) result in the collection of the proceeds.

The question the Tax Court needed to decide was whether the commissioner's letters to the petitioner denying the award constituted a determination under IRC Sec. 7623(b)(4). The commissioner argued that there was no award determination because the information the petitioner provided was not used to detect underpayments or to collect proceeds. The commissioner argued there can only be a determination for jurisdictional purposes if the Whistleblower Office undertakes an administrative or judicial action and then "determines" an award. The Tax Court stated the statute expressly permits an individual to seek judicial review of the amount or denial of an award determination, and therefore the jurisdiction of the Tax Court is not limited to the amount of an award but also includes any determination to deny an award.

The commissioner then argued that the letters sent to petitioner were not a determination because they were not labeled a determination. The Tax Court has previously held that the name or label of a document does not control whether the document constitutes a determination[3] and that jurisdiction to the Tax Court is established when the commissioner issues a written notice that embodies a determination.[4]

In this case the commissioner's letters were issued in accordance with the award determination procedures. The commissioner issued the letters to petitioner after receiving and reviewing the whistleblower claims and after several months of investigating whether to pursue those claims. The letters provided the commissioner's final conclusion that petitioner was not entitled to an award and provided an explanation for the conclusion. Furthermore, the commissioner's reasons for denying the claims were taken verbatim from the IRM list of possible reasons for denying claims. There is no dispute the letters put petitioner on sufficient notice to file a petition with the Tax Court and petitioner did so in a timely manner. Accordingly, the Tax Court ruled the letters were a determination because they constituted a final administrative decision regarding the whistleblower claim of the petitioner in accordance with established procedures and therefore the Tax Court had jurisdiction to review the denial of the claim.

About the author:

Steven R. Diamond is a CPA with a tax practice located in Westport, CT. His practice is limited to compliance issues and representation before the IRS. He has his M.S.M. degree in taxation from Florida International University and is admitted to practice before the United States Tax Court. Diamond also taught a course preparing EAs and CPAs to take the Tax Court admission exam for non-attorneys.

Reprinted from EA Journal, courtesy of the National Association of Enrolled Agents

[1] 118 T.C. 348 (2002)

[2] Treasury Inspector General for Tax Administration Rept. 2006-30-092, The Informants' Rewards Program Needs More Centralized Management Oversight (June 2006)

[3] Wilson v. Commissioner, 131 T.C. 47 (2008)

[4] Craig v. Commissioner, 119 T.C. 252 (2002)



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