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TAX TRENDS

The court found that this concession The WBO acknowledged to the 6103(h)(4)(A) permitted the IRS to
was a judicial admission that did not whistleblower that the information he disclose the taxpayers’ returns and return
need to be proved in litigation and, thus, provided was reviewed as part of the information that the WBO included
Bedrosian was bound by that admission. IRS’s investigation of the taxpayers, but in the administrative record supporting
Consequently, the court held that the the information did not result in the its determination.
penalty of $975,789.17 was below the assessment of additional tax, penalties, Sec. 6103(h)(4)(A) authorizes the
statutory maximum amount (50% of the interest, or other amounts with respect disclosure of tax returns or return infor-
account balance). to the issues raised by the whistleblower. mation in a federal judicial proceeding
The IRS also said the information pro- pertaining to tax administration if “the
Reflections vided was not relevant to the issues for taxpayer is a party to the proceeding, or
Why did the IRS think it could get away which additional tax, penalties, interest, the proceeding arose out of, or in connec-
with a clearly inadequate document like or additional amounts were assessed tion with, determining the taxpayer’s civil
Exhibit R? It claimed that Exhibit R was against the taxpayers the whistleblower or criminal liability.” Accordingly, Sec.
a self-authenticating business record that informed on. The whistleblower peti- 6103(h)(4)(A) would apply only if the
could be submitted into evidence without tioned the Tax Court for a review of the whistleblower’s case “arose out of, or in
a live witness under Federal Rule of WBO’s determination. connection with” determining the civil or
Evidence 902(12) because it was accom- In general, the Tax Court reviews criminal liabilities of the three taxpayers
panied by a custodian certification. But, as whistleblower cases based on the admin- the whistleblower informed on, with re-
the Third Circuit pointed out, authentic- istrative record, so the Tax Court ordered spect to any tax imposed under the Code.
ity (which was proved by the custodian the IRS to file redacted and unredacted Because the phrase “in connection
certificate) and relevance are “two separate copies of the administrative record com- with” sweeps less broadly than “arose out
matters.” As the court explained, a busi- piled by the WBO in the whistleblower’s of,” the Tax Court focused on the mean-
ness record may be self-authenticating, case. The IRS filed a redacted copy of ing of “in connection with.” Because the
but there must still be testimony linking the administrative record and requested statute did not define this phrase, under
a defendant with the documents to es- that the court excuse it from filing an the rules of statutory construction, the
tablish relevance. The IRS caught a break unredacted copy “to protect ... section court looked to the phrase’s ordinary
when Bedrosian’s counsel conceded the 6103 information and ... other identifying meaning at the time Sec. 6103 was
amount in the account; otherwise, the information.” Under Sec. 6103(a), returns enacted. At that time, based on diction-
IRS would have been out of luck. and return information generally must ary definitions, the court found that the
Bedrosian, No. 21-1583 (3d Cir. be kept confidential unless disclosure is phrase was defined broadly (and in rel-
7/22/22) specifically authorized by the Code. The evant part) to mean any link, association,
court then ordered the IRS to submit or relationship, and that this definition
Tax returns can be disclosed to the court, for review in camera, any was consistent with past interpretations
in whistleblower case documents that the Service wished to of the phrase by the Tax Court itself and
The Tax Court held that the exception in redact to preserve a privilege or protect various other courts.
Sec. 6103(h)(4)(A) authorized disclosure taxpayer information. However, the Tax Court also noted
of returns and return information that The IRS, in turn, moved that the court that the Supreme Court had found, in
the IRS sought to withhold in a whistle- modify its order by striking the portion interpreting another statute involving the
blower case. of it that directed the Service to submit disclosure of personal information, that
the entire unredacted administrative the phrase “in connection with” could be
Background record for review in camera, arguing that interpreted to be essentially indetermi-
An individual (whistleblower) provided there is no exception in Sec. 6103 that nate and, thus, the scope of the phrase
information to the IRS regarding three would permit the redacted information must be contained within reasonable
individuals. The IRS pursued actions to be disclosed to the court. The whistle- bounds. Thus, the Tax Court found that
against all three individuals (including blower filed a response opposing the it must exclude from the scope of Sec.
criminal actions with respect to two of IRS’s motion. 6103(h)(4)(A) those proceedings that
the taxpayers) and ultimately collected have only a “remote relation to” the deter-
proceeds from each of them. Nonetheless, The Tax Court’s decision mination of a taxpayer’s liability.
the IRS Whistleblower Office (WBO) The Tax Court held that in the specific Applying these principles in the con-
denied the whistleblower’s claim for an circumstances of this whistleblower’s text of Sec. 6103, the Tax Court had “no
award under Sec. 7623(b). case, the exception to disclosure in Sec. difficulty concluding that this case arose

54 October 2022 The Tax Adviser