Tax Whistleblower Blog

Tax Whistleblower Information - Is it “Fruit from the Poisonous Tree?”

On February 27, 2008, Office of Chief Counsel (i.e. the legal arm of the IRS) issued Notice CC-2008-011 to clarify its concern of potential “evidentiary” problems with respect to information received under the Tax Whistleblower Reward Program.

Essentially, the Notice deals with 3 situations for which a tax whistleblower may be involved which could taint the information being provided such that (i) the IRS cannot legally use the information received from the informant, and (ii) any adjustment by the IRS that is dependent on that information or from information subsequently derived from that information may not be legally supportable (i.e. admissible in a court proceeding). This is referred by some legal scholars as the “fruit from the poisonous tree.”

In order to protect the integrity of the IRS and the Tax Whistleblower Reward Program under IRC § 7623, the Office of Chief Counsel has established a Whistleblower/Informant Cadre whereby a designated Chief Counsel Attorney in each eight SBSE Area has been given the responsibility to determine if such information is useful and identify whether there are any restrictions (is it tainted?) as to IRS use of the information. These same Chief Counsel Attorneys will assist with initial interview of an informant/whistleblower if such an interview is deemed necessary. Other duties include providing advice to the IRS on other informant/whistleblower issues.

A Tax Whistleblower can present the information directly to the IRS or engage a qualified Tax Whistleblower Attorney to assist in gathering the information before presenting such information to the IRS so that such information is “credible and specific” and is not otherwise tainted. Clearly it is advisable in such situations that the tax whistleblower be accompanied by a qualified attorney.

The situations identified as concern are Tax Whistleblowers that are –

1. Current Employee of the Taxpayer – “One bite rule” allows the IRS to receive such information even if it was received in an “illicit or illegal manner.” Result is simply that information may be accepted under the Tax Whistleblower Reward Program under certain situations.
2. Taxpayer’s representative (POA) before the IRS in an examination or other proceeding (appeals, court matter, collection matter, etc.). Result is that under no circumstances will such information be accepted under the Tax Whistleblower Program
3. Representatives of the taxpayer (i.e. attorneys/accountants) in that such information may be tainted as being subject to “privilege” under the Federal Rules of Evidence. Result is that information may be accepted under the Tax Whistleblower Reward Program under certain situations.

All potential Tax Whistleblowers should only engage a qualified andn experienced Tax Whistleblower Attorney who is aware of all such restrictions and is able to provide guidance on how to best proceed in a particular matter.