IRS Beats Back Challenge to Rule Limiting Whistleblower Awards

A tax whistleblower’s challenge to the determination of his award and related IRS rules was dismissed by a federal court Wednesday.

The IRS’s determination of the John Doe plaintiff’s award is “committed to agency discretion by law” and therefore not subject to judicial review, Judge Eli J Richardson said for the US District Court for the Middle District of Tennessee. And the challenge to the rulemaking failed because the plaintiff lacked standing to bring it, he said.

Doe acknowledged that the IRS had discretion under IRC §7623(a) to determine the amount of his whistleblower award, but argued that Treasury regulations and other IRS guidance afforded the court a meaningful standard by which to measure whether the agency had abused that discretion.

Richardson disagreed. The Treasury regulations provided certain procedural standards, but substantively applied only to information supplied to the IRS and claims that were open as of Aug. 12, 2014. Doe submitted the final documents related to his claim no later than February 2006. Doe’s reliance on the other IRS guidance failed because it relied on the application of the Treasury regulations, Richardson said.

And Doe’s challenge to the rule limiting his award—the IRM $10 Million Fixed Maximum Dollar Cap and 2018 Award Policy Change—failed because he didn’t allege that it would affect him in the future. To rule for Doe, the court would need to “concoct new allegations” that the whistleblower intends to submit another IRS whistleblower award and that it would be subject to the cap and policy change, Richardson said.

Doe started providing the IRS with information related to a Fortune 100 company’s years-long scheme, which utilized the improper creation and use of an offshore company, in August 1995. According to the opinion, he provided information about how the company manipulated both financial reporting and tax liabilities to their own, third party and counter party benefit.

In a 2023 award ruling, the IRS indicated that the tax, penalties, interest, and other amounts collected based on information provided by Doe totaled $1.6 billion. In accordance with the regulations in effect at the time Doe made his submissions, the IRS awarded him $10 million. Doe argued that he was entitled to $240 million.

In fiscal year 2024, the IRS paid whistleblowers a total $123.5 million, and the information gained through whistleblower reports resulted in $474.7 million in proceeds collected, according to the IRS Whistleblower Office’s Fiscal Year 2024 Annual Report.

Barrett Johnston Martin & Garrison PLLC and Zerbe Miller Fingeret Frank & Jadav LLP represent the whistleblower.

The case is Doe v. Internal Revenue Service, M.D. Tenn., No. 3:24-cv-00019, 11/12/25.