T.C. Memo. 2014-92
UNITED STATES TAX COURT
WHISTLEBLOWER 11332-13W, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11332-13W. Filed May 20, 2014.
Sealed, for petitioner.
Sealed, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: This case is before the Court on the whistleblower’s
motion to seal and the whistleblower’s motion to proceed anonymously under
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[*2] Rule 345(a).1 2 The whistleblower has demonstrated that sealing the record is
appropriate in this circumstance because failure to do so could result in severe
physical harm to the whistleblower. The whistleblower has also demonstrated that
proceeding anonymously is necessary to protect the whistleblower’s professional
reputation, economic interests and personal safety. We will grant both motions.
Background
The following information is stated only for purposes of resolving the
pending motions and not for purposes of establishing the validity of the
whistleblower’s claim.
Petitioner is a whistleblower that reported a tax fraud scheme to the
Government. During the whistleblower’s employment, the whistleblower learned
of a tax structure involving the whistleblower’s employer and several related
entities and subsidiary companies (targets). When the whistleblower raised
concerns over the tax structure to the whistleblower’s employer, the
whistleblower’s employer used physical force and armed men to intimidate the
1
The Court is issuing this Memorandum Opinion because there is a lack of
whistleblower caselaw.
2
All section references are to the Internal Revenue Code in effect for all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure, unless otherwise indicated. All amounts are rounded to the nearest
dollar.
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[*3] whistleblower and prevent disclosure. The whistleblower was subsequently
fired. The whistleblower reported the tax scheme to the Government and for
several years assisted the Government in its investigation of targets. Based partly
on the whistleblower’s information, the Government eventually recovered more
than $30 million in taxes, penalties and interest.
The whistleblower filed a Form 211, Application for Award for Original
Information, on February 4, 2008 and submitted to the IRS Whistleblower Office
(Whistleblower Office) documentary evidence related to the targets’ actions the
whistleblower disclosed. Subsequently, the whistleblower resubmitted Form 211
on August 12, 2011, seeking an award under section 7623(b). The Whistleblower
Office sent the whistleblower an award determination under section 7623(a). The
whistleblower filed the petition seeking judicial review of the Whistleblower
Office section 7623(a) award determination.
Throughout the investigation Government investigators warned the
whistleblower that the targets and individuals the whistleblower reported were
dangerous and were linked to violent events and terrorist organizations. Indeed,
the whistleblower alleges that over the last 10 years at least one person who
reported alleged wrongdoing against one of the targets was killed under suspicious
circumstances. After learning that the whistleblower was subpoenaed to provide
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[*4] documents to the Government, targets filed multiple retaliatory actions
against the whistleblower to determine the whistleblower’s role in the
investigation and to silence the whistleblower. The whistleblower incurred
significant personal expense, spent time and suffered professional reputational
costs defending against these actions that were designed to intimidate and threaten
the whistleblower.
The whistleblower has also received significant physical threats. The
whistleblower received a death threat from the targets, communicated through
their counsel. After learning of the individuals and entities involved, the
Government offered to place the whistleblower in the witness protection program.
The whistleblower declined placement in the witness protection program, but
requested and was granted confidential informant status. The whistleblower was
also forced to hire counterterrorism experts to advise the whistleblower’s family
on safety and protect the whistleblower on trips abroad. This protection cost the
whistleblower tens of thousands of dollars. Despite their efforts, targets have not
discovered the identity of the whistleblower. They were aware only that the
whistleblower was subpoenaed by the Government.
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[*5] The whistleblower filed the motion to seal and the motion to proceed
anonymously at the same time the whistleblower filed the petition. Respondent
filed notices of no objection to both motions.
Discussion
We are asked to decide whether the docket record in this case should remain
sealed and whether the whistleblower should be permitted to proceed
anonymously. We begin by describing the general presumption of openness that
attaches to judicial proceedings. Generally, official records of all courts shall be
open and available to the public for inspection and copying. Nixon v. Warner
Commcns., Inc., 435 U.S. 589, 597 (1978); In re Coordinated Pretrial Proceedings
in Petroleum Prods. Antitrust Litig., 101 F.R.D. 34, 38 (C.D. Cal. 1984). Hearings
and the evidentiary record of proceedings before this Court shall be open to the
public. Secs. 7458, 7461(a). Common law, statutory law and the U.S.
Constitution all support this important principle. Warner Commcns., Inc., 435
U.S. at 597; Willie Nelson Music Co. v. Commissioner, 85 T.C. 914, 917 (1985);
In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 101
F.R.D. at 38. The right to inspect and copy judicial records, however, is not
absolute. Warner Commcns., Inc., 435 U.S. at 598. Courts have supervisory
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[*6] power over their own records and files and courts have denied access to
records where the court files might become a vehicle for improper purposes. Id.
Sealing the Record
This Court has broad discretionary power to control and seal, if necessary,
records and files in our possession. Willie Nelson Music Co. v. Commissioner, 85
T.C. at 918. We may, in our discretion, seal the record or portions of the record if
justice so requires and the party seeking such relief demonstrates good cause. Sec.
7461(b)(1); Rule 103(a); AT&T Co. v. Grady, 594 F.2d 594, 596 (7th Cir. 1978);
Willie Nelson Music Co. v. Commissioner, 85 T.C. at 920; Tavano v.
Commissioner, T.C. Memo. 1991-237, aff’d, 986 F.2d 1389 (11th Cir. 1993). To
determine whether sealing the record is appropriate, we must weigh the
presumption, however gauged, in favor of public access to judicial records against
the interests advanced by the parties. Warner Commcns., Inc., 435 U.S. at 602;
AT&T Co. v. Grady, 594 F.2d at 596; Willie Nelson Music Co. v. Commissioner,
85 T.C. at 919.
Taxpayers seeking to seal court records must come forward with appropriate
testimony and factual data to show good cause. United States v. United Fruit Co.,
410 F.2d 553, 557 n.11 (5th Cir. 1969); Estate of Yaeger v. Commissioner, 92
T.C. 180, 189 (1989); Willie Nelson Music Co. v. Commissioner, 85 T.C. at 920
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[*7] (citing Wyatt v. Kaplan, 686 F.2d 276, 283 (5th Cir. 1982)); Tavano v.
Commissioner, T.C. Memo. 1991-237. Taxpayers may not rely on conclusory or
unsupported statements to establish claims of harm that would result from
disclosure. Willie Nelson Music Co. v. Commissioner, 85 T.C. at 920; In re
Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 101 F.R.D.
at 44.
Good cause has been demonstrated and records have been sealed where
there is a demonstrated risk of physical harm to the taxpayer or the taxpayer’s
family. Anonymous v. Commissioner, 127 T.C. 89, 92-93 (2006). Good cause
has also been demonstrated where patents, trade secrets or confidential
information are involved or where an individual’s business reputation will be hurt.
See In re Smith, 656 F.2d 1101 (5th Cir. 1981) (striking an individual’s name from
factual resumes on due process grounds as resumes were prepared in criminal
proceeding where the individual was not indicted); Crystal Grower’s Corp. v.
Dobbins, 616 F.2d 458 (10th Cir. 1980) (sealing portions of record involving
documents alleged to be subject to attorney-client privilege or work product
doctrine); In re Sarkar, 575 F.2d 870 (C.C.P.A. 1978) (sealing record involving
patent application proceeding so that the information would remain a trade secret
in the event of an adverse decision); Sendi v. Prudential-Bache Sec., 100 F.R.D.
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[*8] 21 (D.D.C. 1983) (sealing parties’ tax returns to protect confidentiality and
privacy interests). Merely asserting annoyance, embarrassment or harm to a
person’s personal reputation, however, is generally insufficient to demonstrate
good cause and overcome the strong common law presumption in favor of access
to court records. Willie Nelson Music Co. v. Commissioner, 85 T.C. at 921, 925
(record not sealed where nationally known entertainer sought to avoid public
scrutiny or news coverage of case); Tavano v. Commissioner, T.C. Memo.
1991-237 (record not sealed where taxpayer had civil suit pending against
employer and did not want employer to learn facts of case).
The whistleblower’s counsel submitted an affidavit that demonstrates the
severe degree of harm the whistleblower and the whistleblower’s family members
would risk if we do not seal the record. The affidavit and the petition demonstrate
several key facts. First, targets are linked to terrorist organizations. The
whistleblower received a death threat, communicated through targets’ counsel, in
connection with the whistleblower’s cooperation with the Government
investigation. Targets used armed guards to break into the whistleblower’s office.
Finally, the Government offered to place the whistleblower into the witness
protection program. We find this fact compelling. It demonstrates the credibility
of the death threat and the true risk of severe physical harm to the whistleblower.
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[*9] The supporting documents also demonstrate that targets have engaged in a
pattern of harassment and litigious behavior with the goal of intimidating the
whistleblower to remain silent. Targets’ conduct has caused the whistleblower to
spend significant amounts of money to defend against several actions in multiple
forums and to hire counterterrorism experts to protect the whistleblower and the
whistleblower’s family. Additionally, targets’ actions against the whistleblower
have caused damage to the whistleblower’s professional reputation. The Court
also agrees with the whistleblower that the facts in this case are very specific and
involve numerous events that would be recognizable by targets and in turn, might
enable them to discover the whistleblower’s identity.
In toto, we find these facts compelling. The whistleblower has
demonstrated that the whistleblower and the whistleblower’s family are at
significant risk of severe physical harm if the case does not remain sealed. Targets
have shown a pattern of intimidation, aggression and physical threats of harm
towards the whistleblower. This Court will not place the whistleblower or the
whistleblower’s family in jeopardy as there is a substantial risk that if the record is
not sealed, targets will uncover the whistleblower’s identity and seek retribution.
We must evaluate this risk of physical harm against the public interest in
access to judicial records. See Warner Commcns., Inc., 435 U.S. at 602; Does I
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[*10] Thru XXIII v. Advanced Textile Corp., 214 F.3d 1058, 1069 (9th Cir.
2000); AT&T Co., 594 F.2d at 596; Willie Nelson Music Co. v. Commissioner, 85
T.C. at 919. After careful consideration of the alleged facts of this case, we find
that the balance favors the whistleblower. The risk of extreme physical harm to
the whistleblower and the whistleblower’s family outweighs the countervailing
public interest favoring open judicial proceedings.
Permission To Proceed Anonymously
The whistleblower has also requested permission to proceed anonymously.
Proceeding anonymously is necessary to protect the whistleblower’s professional
reputation, economic interests and personal safety.
Recently, this Court adopted Rule 345 to create a mechanism to preserve the
anonymity of whistleblowers and non-party taxpayers. Whistleblowers seeking to
proceed anonymously must file a motion with this Court setting forth a sufficient,
fact-specific basis for anonymity. Rule 345(a). The petition and subsequent
filings are temporarily sealed pending a ruling by the Court on the motion to
proceed anonymously. Id. A whistleblower is permitted to proceed anonymously
if the whistleblower presents a sufficient showing of harm that outweighs
counterbalancing societal interests in knowing the whistleblower’s identity. See
Whistleblower 14106-10W v. Commissioner, 137 T.C. 183 (2011); see also Does I
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[*11] Thru XXIII, 214 F.3d at 1068. The decision whether to allow a party to
proceed anonymously rests within the sound discretion of the trial court.
Anonymous v. Commissioner, 127 T.C. at 94; see James v. Jacobson, 6 F.3d 233,
238 (4th Cir. 1993); see also sec. 7461(b)(1).
This Court has granted a motion to proceed anonymously where the
taxpayer faced a risk of severe physical harm if the taxpayer’s identity was
revealed. See Anonymous v. Commissioner, 127 T.C. at 94 (holding that risk of
“severe physical harm” to taxpayer and family outweighed the general public
interest in knowing taxpayer’s identity). Moreover, this Court has granted a
whistleblower’s request to proceed anonymously where the whistleblower was
susceptible to professional stigma, retaliation and economic duress. See
Whistleblower 14016-10W v. Commissioner, 137 T.C. at 203-204. The Court’s
decisions are consistent with the IRS Whistleblower Office general administrative
practice of keeping whistleblowers’ identities confidential. See id. at 205.
The whistleblower has satisfied the whistleblower’s factual burden to
proceed anonymously. The facts alleged in the petition and the affidavit attached
to the motion to proceed anonymously demonstrate that disclosure of the
whistleblower’s identity could result in the risk of retaliation, social and
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[*12] professional stigma and economic duress.3 Most importantly, disclosure of
the whistleblower’s identity would place the whistleblower and the
whistleblower’s family at risk of physical harm. Targets are alleged to have ties to
terrorist organizations and have already used armed men to raid the
whistleblower’s offices. Moreover, targets previously threatened the
whistleblower’s life. The Government’s concern over the individuals and entities
involved prompted it to offer the whistleblower placement in the witness
protection program. There is no better evidence of the credibility of the death
threat and the real risk that the whistleblower faces if the whistleblower’s identity
is revealed. In short, the nature and severity of potential harm that could befall the
whistleblower outweighs the societal interest in knowing the whistleblower’s
identity.
For the foregoing reasons, we will grant the whistleblower’s motion to seal
and the whistleblower’s motion to proceed anonymously.
An appropriate order will be issued.
3
Revealing the whistleblower’s identity, although a secondary consideration
here, could adversely affect the whistleblower’s professional reputation, current
employment and future employment opportunities.