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Friday, April 30, 2010

Forbes: Can Tax Court Force IRS to Check Out Whistleblower's Claim?

Forbes, Can IRS Be Forced To Check Out Informant's Tip?:

In related lawsuits with broad implications for the new tax whistleblower law, the U.S. Tax Court is set to rule on a bounty-seeking informant's request that the IRS be ordered to investigate his tips.

The matter involves the estate of Dorothy Dillon Eweson, one of two children of famed Wall Street financier Clarence Dillon (1882-1979). She died in 2005 at age 92, leaving behind what has been estimated at $300 million held personally and in trusts.

Five years later, the estate remains mired in probate litigation. In court papers Ann S. Peipers, widow of Eweson grandson David H. Peipers, who died of Legionnaires disease at age 48 two months before his grandmother, charges that other Eweson heirs improperly maneuvered to cut back a huge inheritance for her still-minor son, a great-grandchild of Eweson.

Ann Peipers' new boyfriend, Nashville lawyer William Prentice Cooper III, sought to take advantage of the tax whistleblower law, which Congress passed in 2006. It mandates a minimum 15% reward for collections resulting from tips. In August 2008 Cooper filed with the IRS' new Whistleblower Office the first of several Form 211 applications "for award for original information."

On the forms and in supporting documents, Cooper said one trust set up in 1918 by Clarence Dillon holding $103 million was left out of Eweson's probate and that a large generation-skipping tax due to the IRS wasn't paid. Collectively, the Forms 211 allege failure to pay more than $100 million in taxes. He wrote on the Forms 211 he was "an attorney for, and the boyfriend of" Ann Peipers and that he got his information primarily "by examination of public records."

In September 2009 the IRS rejected Cooper's tips, writing him--in what looks like a form letter--"The information you provided did not identify a federal tax issue upon which the IRS will take action."

Cooper promptly filed twin lawsuits against the IRS in the Tax Court. He asked for orders to "direct" the IRS "to undertake a complete re-evaluation of the facts in this matter, begin an investigation of this matter, open a case file and take whatever steps may be necessary to determine" whether there is validity to his information.

Courts rarely issue such directives to executive-branch agencies. But there is some indication the Tax Court is taking Cooper's contentions seriously. In January Tax Court Judge John O. Colvin ordered the IRS to file a second round of briefs dealing with Cooper's arguments. The Tax Court traditionally is a slow-moving tribunal, so a decision still could be months away.

Cooper's two lawsuits are in the vanguard of what could be a slew of cases interpreting the scope, applicability and generosity of the new whistleblower law. Informant Bradley C. Birkenfeld is credited with blowing the whistle on massive tax evasion involving offshore accounts held by U.S. citizens at Swiss bank UBS AG. He is now serving a 40-month sentence for helping Orange County billionaire Igor Olenicoff hide a quarter-billion dollars offshore. Birkenfeld has hired lawyers to press both his bounty claim and his request for a presidential pardon.

The whistleblower law gives the Tax Court jurisdiction to review "any determination regarding an award." Cooper argues that a decision not to pursue his tip was in effect a determination of a zero award and thus is appealable to the Tax Court.

IRS lawyers say the Tax Court has jurisdiction only to review the sufficiency of an award if one actually is made. In any event, the IRS argues the Tax Court lacks the authority to order the IRS to start an investigation. A brief submitted over the name of IRS Chief Counsel William J. Wilkins said the agency "diligently investigated information" that Cooper provided "and properly concluded not to proceed" against the Eweson estate. However, the brief gave no details of the extent or nature of that diligence.

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This is very interesting because if William Prentice Cooper III can be investigated and it is discovered that he has a direct material interest in the outcome of the matter. This would also undermine his claim. The implications of this are profound because anaecdotally, many tax prosecutions begin because of a tip off and the incentive to make these tip offs will be reduced if whistleblowers are subject to a higher level of scrutiny.

Posted by: Tax Lawyer | Apr 30, 2010 11:04:38 PM