Does Death of a Whistleblower Mean Death of the Claim?

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Miami Legal Services is looking to add an attorney to their tax clinic. Here is a link to the job announcement. Keith

In Insinga v. Commissioner, 157 T.C. No. 8 (2021) the Tax Court holds that the claim for payment a whistleblower has for providing information to the IRS does not die with the whistleblower.  Joseph Insinga filed his whistleblower case on April 25, 2013 and passed away on March 22, 2021 while the case was still pending.  If a whistleblower was required to stay alive until the end of a Tax Court case when cases can last so long, it would be quite a limiting factor.  Fortunately for the heirs of Mr. Insinga, the Court finds that death does not terminate his claim but it takes several pages of a precedential opinion to get there.

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The Court mentions that substantial development of the case has occurred by the time of this opinion through orders entered in 2016 and 2017.  Unfortunately, a portion of this case is sealed which means that for purposes of access on the Court’s website through Dawson the entire docket is sealed and the links to the orders which would ordinarily be available in a case without a sealed document are unavailable here since the sealing of any document results in the inability of the public to see the docket at all.  This is one of the features of Dawson the Court is working on but I have not seen an announcement regarding when the public might be able to see docket entries that are not sealed in cases where one sealed document exists.  If you want to see the orders, and if these orders are not sealed, you cannot go to the clerk’s office yet to view the file but you could call the clerk’s office and order the documents.  Because of the reference to the orders and the dates in this opinion, it will be relatively easy to identify for the clerk which documents you seek.  This will not be the case in other cases with sealed documents since you will need the clerk to read you the docket in order to select the documents you would like to see.  I also do not know if the Court sends out orders for free since they would be free if Dawson did not block the view of the docket or if you must pay the fee for the order the way you would for documents submitted by the parties. 

When Mr. Insinga passed away, a motion for substitution of party was filed shortly thereafter seeking to substitute the person appointed as personal representative for the estate.  The statute creating the whistleblower jurisdiction of the Tax Court is silent on the issue of survivability of whistleblower claims.  Because this issue was one of first impression in the Tax Court, the opinion in the case is precedential.

The court notes that in its deficiency jurisdiction survivability is not a problem:

In deficiency cases, which constitute most of the cases before this Court, “it is well settled that a petitioner’s death does not divest this Court of jurisdiction over his income tax liability for years already in issue”. Beatty v. Commissioner, T.C. Memo. 1980-168, 1980 Tax Ct. Memo LEXIS 414, at *7 (citing Nordstrom v. Commissioner, 50 T.C. 30 (1968), and Yeoman v. Commissioner, 25 T.C. 589 (1955)).3 Our deficiency jurisdiction is based on a timely filed petition, see sec. 6213(a); and (as held by our predecessor, the Board of Tax Appeals) “that jurisdiction * * * continues unimpaired” after the petitioner’s death,4 because “the action is one which survives against * * * [the petitioner’s] estate”, Duggan v. Commissioner, 18 B.T.A. 608, 625 (1930);5 see also Nordstrom v. Commissioner, 50 T.C. at 31-32 (citing Duggan v. Commissioner, 18 B.T.A. at 625, and Yeoman v. Commissioner, 25 T.C. 589, 593 (1955), in support of its holding that the Court’s jurisdiction over a case continues unimpaired by the death of a taxpayer and even though there is no personal representative appointed to act in the place and stead of the decedent).

To decide whether the whistleblower statute is one in which the claim survives death, the Court looks to federal common law.  It finds:

Federal statutes survive a plaintiff’s death if the statute is remedial, not penal. See Ex parte Schreiber, 110 U.S. 76, 80 (1884); see also United States ex rel. Hood v. Satory Global, Inc., 946 F.Supp.2d 69, 81 (D.D.C. 2013) (holding that a claim arising under the False Claims Act survives the death of the relator-plaintiff). The Court of Appeals for the Federal Circuit has expressed this rule by holding that, in the absence of a statutory provision to the contrary, common law supplies a presumption in favor of the survival of a remedial right of action arising under a Federal statute. See Figueroa v. Sec’y of Health & Human Servs., 715 F.3d 1314, 1319 (Fed. Cir. 2013).

This raises the issue of which statutes are remedial and which are penal.  The Court finds a three-part test from appellate case law:

(1) whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public; (2) whether recovery under the statute runs to the harmed individual or to the public; and (3) whether the recovery authorized by the statute is wholly disproportionate to the harm suffered.” United States v. NEC Corp., 11 F.3d 136, 137 (11th Cir. 1993) (quoting First Nat’l Bank & Tr. Co. in Macon v. Flatau (In re Wood), 643 F.2d 188, 191 (5th Cir. 1980)).

Although no existing precedent exists regarding the remedial or penal nature of the whistleblower provision, the Court finds a close cousin in the qui tam provisions of the False Claims Act found in 31 U.S.C. secs. 3729-3733.  Qui tam actions have never been a big part of federal tax claims, in other areas of federal law the qui tam precedent is robust.  The Court analyzed the NEC case cited above in which the 11th Circuit went through the three tests to find that qui tam actions met the criteria for remedial provisions in concluding that the provisions survived death.  It then looked at the purpose of the whistleblower provisions:

Applying the three-factor test set forth in NEC Corp., 11 F.3d at 137-139, we conclude: (1) Like the purpose of the FCA’s qui tam remedy, the purpose of the award provisions of section 7623(b) is to redress individual wrongs of the whistleblower in bringing his claim (such as retaliation by his employer or professional ostracism) by compensating him for the harm he may incur by doing so.12 (2) Section 7623(b) is intended to provide a remedy to the whistleblower for bringing his claim by providing mandatory compensation for claims where the collected proceeds meet certain statutory thresholds. And (3) the recovery due to the whistleblower under section 7623(b)(1), which “shall depend upon the extent to which the individual substantially contributed to such action”, shows that the whistleblower’s recovery is proportional to the harm he incurs in bringing his claim. Consequently, these three factors weigh in favor of holding (and we therefore do hold) that section 7623(b) has a remedial purpose, and therefore the petitioner-whistleblower’s Tax Court petition survives his death.

The Court notes that this result is also consistent with the applicable regulations and Court rules.  The opinion reaches a logical and unsurprising conclusion.  Not too many cases apply federal common law.  Any other result would create inconsistency with other tax provisions and an unintended harshness.  The heirs must still prevail in the underlying claim to the extent the orders in 2016 and 2017 have not already decided issues in the case.

Comments

  1. Keith, good write up. Thanks.

    I am working on a project now where I am discussing the decision in the case.

    Insinga involved a § 7623(b) claim at the judicial review stage. My questions that some readers may have ideas on are:

    1. What if WB dies while the § 7623(b) claim has been filed with the WB office but is still in process administratively with no determination? My gut tells me that the claim should survive death.

    2. What about the § 7623(a) discretionary claim? My gut tells me that that claim should survive death as well. I would be surprised if the IRS took the position that the claim did not survive death and thus would process and pay the claim, if it deems appropriate, regardless of death. Unlike the (b) claim, there is no judicial review of the IRS action on the (a) claim, except perhaps some type of APA abuse of discretion if the IRS were to do something really stupid in processing the claim. (An extreme example: say the IRS (a) claim determination letter (or equivalent) says that there is no award because the moon is made of blue cheese, a statement demonstrably false because everyone knows the moon is made of green cheese; the whistleblower might be able to bring an arbitrary and capricious action under the APA (although not sure which court that would be brought in.)

    • Jack Townsend says

      I just checked the IRM (which one should do often) and found IRM 25.2.2.8.3 (01-12-2018).
      Deceased Whistleblowers, providing in the opening: ““For all claims, both IRC § 7623 (a) and (b), determination letters (rejection/denial/award) may be issued to the deceased’s estate when the Whistleblower Office is able to identify an individual with fiduciary responsibility for the estate (“point of contact” or “POC” ).”

  2. HAROLD A,. CHAMBERLAIN says

    THE WHISTLEBLOWER STATUTE WAS ENACTED TO HELP IRS ADMINISTRATION OF
    LAWS. IT WOULD SEEM TO BE CONTRARY TO THE BENEFIT CONGRESS SOUGHT TO DENY THE DECEDENT’S PRE-DEATH CLAIM IF IT PRODUCED A PLANNED RESULT.
    FEDERAL COMMON LAW UNDERSTANDS THIS. IRS ALSO UNDERSTANDS BUT SEEKS THE BENEFIT WHILE SEEKING TO AVOID PAYING THE BILL

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