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BP Deepwater Horizon $12.9 Billion Tax Fraud Case Moves Ahead (1)

Nov. 25, 2019, 10:15 PMUpdated: Nov. 25, 2019, 11:35 PM

A whistleblower claim alleging that oil giant BP Plc fraudulently deducted $12.9 billion from its taxes should continue, the U.S. Tax Court ruled in a divided decision.

The case concerns a whistleblower’s allegation that BP deducted certain work as part of the clean-up of the Deepwater Horizon oil spill when it actually spent the money trying to conceal the spill’s size.

“I’m determined to make BP pay,” Richard E. Lacey, the whistleblower, told Bloomberg Tax. “They wronged the country.”

The decision clarified that the Tax Court believes it has authority under tax code Section 7623 not only to review whistleblower awards but also to look at how the IRS Whistleblower Office handles complaints.

That proved a bone of contention among the judges in the Nov. 25 decision.

“Because the opinion of the Court would have us inquire into the Commissioner’s decision making as to which whistleblower claims to investigate and which to ignore, I dissent,” said Judge Ronald L. Buch in a dissent joined by Chief Judge Maurice B. Foley and Judges Joseph W. Nega and Cary Douglas Pugh.

BP didn’t immediately respond to a request for comment. The IRS declines to comment on pending litigation.

The Complaint

Lacey said he worked as a senior financial analyst in BP’s credit department.

While Lacey argued that BP wrongly deducted the costs of the alleged concealment, he didn’t initially provide any sources for the claim, and the office rejected it.

Lacey followed up with a second claim that cited sources but was similarly rejected. The Tax Court said it lacks sufficient evidence to know whether that rejection was appropriate.

“The Commissioner did not submit with his motion any internal emails or memoranda by WBO personnel that were generated after the second submission,” Judge David D. Gustafson said.

The court, however, rejected the whisteblower’s request to find an actual error in the IRS’s handling, saying there wasn’t enough evidence yet to see whether the IRS needs to do more work in the case.

Gustafson’s opinion was joined by Judges Joseph H. Gale, Albert G. Lauber, Tamara W. Ashford, Patrick J. Urda, Elizabeth A. Copeland, and Courtney D. Jones.

The case is Lacey v. Commissioner, T.C., No. 9761-16W, 11/25/19.

(Adds comment from Lacey in the third paragraph.)

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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