IRS Memorandum on Disclosure of Unidentified Taxpayer Information in Whistleblower Proceedings

IRS Permits Disclosure of Unidentified Taxpayer Data in Whistleblower Reviews

The IRS ruled in a non-precedential memorandum that return information of taxpayers not identified by a whistleblower may be disclosed during non-docketed administrative proceedings if the disclosure arises from determining civil or criminal liability and does not impair investigations. The decision, issued under Internal Revenue Code Section 6103, expands whistleblowers’ access to audit files while exposing unidentified taxpayers to heightened privacy risks. The memorandum explicitly states it "may not be used or cited as precedent," limiting its precedential value.

The Whistleblower’s Tip: How an Audit Expanded Beyond the Original Targets

The whistleblower’s journey began with a Form 211, the official submission under Section 7623(b), which establishes the IRS Whistleblower Program and mandates awards for substantial contributions to tax enforcement. The tip identified a single entity and one officer, providing the IRS with a narrow starting point for its investigation. After auditing the returns of the named entity and officer, the Service expanded its examination to include additional officers’ returns—taxpayers who were not identified by the whistleblower and were otherwise unknown to them. These became the "unidentified taxpayers" at the center of the dispute.

While adjustments were made to several of these unidentified taxpayers, the IRS determined that only one of the additional officers received adjustments tied to the specific issue the whistleblower had flagged. This distinction proved critical in the administrative claim file, which the Whistleblower Office compiled as part of its award determination process under Section 7623(b)(4). The file contained all information considered by the IRS in evaluating the whistleblower’s claim, including return information of the unidentified taxpayers. The inclusion of this third-party data raised immediate concerns about privacy and the scope of permissible disclosures during non-docketed administrative proceedings.

The Legal Tug-of-War: Privacy vs. Whistleblower Access

The whistleblower’s demand for full access to the administrative claim file collided with the IRS’s statutory duty to protect taxpayer privacy under Section 6103. The dispute hinged on two competing interpretations of disclosure authority.

The whistleblower argued that Section 7623(b)(4) entitles them to review the entire claim file to verify the accuracy of the award calculation. Under Treasury Regulation § 301.7623-3(c)(5), the Whistleblower Office may offer a non-docketed review of the file upon request, but the whistleblower contended this review must include all return information considered in the award determination—including data on unidentified taxpayers. Without this access, they claimed, they could not challenge whether the IRS properly accounted for all collected proceeds.

The IRS countered that its hands were tied by Section 6103(h)(4)(A), which permits disclosures of return information only “in connection with” tax administration proceedings. The agency acknowledged that whistleblower proceedings are administrative in nature, but it emphasized that Section 6103(k)(13) restricts whistleblower access to information that is “otherwise unavailable.” The IRS interpreted this to mean that only information not already in the whistleblower’s possession—such as internal deliberations or taxpayer identities not previously disclosed—could be shared. The agency warned that broader disclosures risked violating Section 6103(a), which broadly prohibits unauthorized disclosures of return information.

The IRS’s position found support in the Tax Court’s decision in Whistleblower 972-17W, 159 T.C. 1 (2022), which held that the phrase “in connection with” in Section 6103(h)(4)(A) establishes a “quite broad” standard. The court found that the whistleblower’s information need only contribute to the IRS’s determination of tax liability to satisfy the connection requirement. However, the court did not address whether this broad interpretation extended to disclosures of third-party return information in non-docketed reviews. The IRS seized on this silence, arguing that the absence of explicit authorization in the regulations or statute precluded wholesale disclosures.

The tension reached its peak when the administrative claim file—which included return information of unidentified taxpayers—was compiled for the whistleblower’s award review. The IRS faced a dilemma: deny access and risk undermining the whistleblower’s ability to verify the award, or grant access and potentially violate taxpayer confidentiality. The agency’s refusal to disclose the full file without further statutory clarity set the stage for the legal confrontation that followed.

IRS Greenlights Disclosure—With Guardrails

The IRS resolved the tension by ruling that return information of unidentified taxpayers could be disclosed to the whistleblower during the award review, provided the disclosure did not identify a confidential informant or impair an investigation. The agency grounded its decision in two statutory pillars: the broad “in connection with” standard and the explicit disclosure authority in § 6103(h)(4)(A).

First, the IRS held that the civil liabilities of the unidentified taxpayers arose “in connection with” the whistleblower administrative proceeding because the taxpayers’ liabilities were determined following the Service’s investigation into the entity and officer identified by the whistleblower. The Tax Court had already established in Whistleblower 972-17W, 159 T.C. 1 (2022) that the “in connection with” standard is “quite broad” and is satisfied when a whistleblower’s information contributes to the IRS’s determination of additional tax. The IRS applied that reasoning here, finding that the whistleblower’s tip directly led to the civil tax liabilities at issue.

Second, the IRS determined that § 6103(h)(4)(A) authorized the disclosure because the administrative claim file review was a tax administration proceeding and the disclosure did not identify a confidential informant or seriously impair a tax investigation. Section 6103(h)(4)(A) permits the IRS to disclose return information “to the extent necessary to conduct a whistleblower administrative proceeding,” and the flush language of the statute explicitly bars disclosure only if it would identify a confidential informant or seriously impair a tax investigation. The IRS cited Delegation Order 11-2 (Rev. 5), IRM 1.2.2.12.2, Exhibit 1.2.2-2, which delegates to appropriate officials the authority to make impairment determinations under § 6103(h)(4). In this case, the IRS found no facts indicating that disclosure would identify a confidential informant or seriously impair an investigation, clearing the way for the return information to be shared.

The IRS also rejected the argument that § 6103(k)(13), enacted in 2019 by the Taxpayer First Act, overrides § 6103(h)(4)(A). Section 6103(k)(13) authorizes the Service to disclose return information to a whistleblower who provides information under § 7623(a), but only to the extent necessary to obtain information that is not otherwise reasonably available regarding the correct determination of tax liability or the amount to be collected. The IRS noted that Congress amended § 6103(k)(6) to exclude from its reach disclosures covered by § 6103(k)(13), but made no amendments to § 6103(h)(4). The agency concluded that the two sections govern in distinct roles and serve different purposes, and therefore § 6103(k)(13) does not restrict the scope of § 6103(h)(4)(A).

The IRS’s decision thus greenlights disclosure of unidentified taxpayer return information in whistleblower award reviews, but only with guardrails: no confidential informant identification and no impairment of any investigation.

What This Means for Whistleblowers, Taxpayers, and Practitioners

The IRS’s ruling in Whistleblower 972-17W (159 T.C. 1, 2022) clarifies that § 6103(h)(4)(A)—which permits disclosure of return information in tax administration proceedings—applies only to docketed cases or formal IRS enforcement actions. The court held that non-docketed whistleblower reviews under § 7623(b) are not "administrative proceedings" under § 6103(h)(4)(A), leaving whistleblowers with no statutory right to IRS records during pre-award stages. The IRS reinforced this distinction by noting that § 6103(k)(13)—which authorizes limited disclosures to whistleblowers for status updates—does not expand § 6103(h)(4)(A)’s scope.

For Whistleblowers: Whistleblowers gain broader access to IRS files only after docketing a case in Tax Court, where § 6103(h)(4)(A) applies. The court in 972-17W noted that non-docketed reviews are discretionary, meaning the IRS may permit limited disclosures under § 6103(k)(13) but is not obligated to provide full claim files. Practitioners advising whistleblowers should emphasize that award disputes in Tax Court (under § 7623(b)(4)) are the primary avenue for obtaining IRS records, while pre-award stages remain constrained by the IRS’s internal policies.

For Taxpayers: Unidentified taxpayers’ return data may be exposed if linked to a whistleblower’s tip, particularly if the case proceeds to Tax Court. The IRS’s decision does not alter the confidentiality protections for confidential informants under § 6103(h)(4)(A), but it underscores that return information may be disclosed if it is not tied to a specific taxpayer identity. Taxpayers should be aware that whistleblower claims can trigger audits, and their return data may be reviewed even if they are not the original target of the whistleblower’s submission.

For Practitioners: The IRS’s ruling reaffirms that § 6103(h)(4) disclosures are case-specific, with impairment determinations (under Delegation Order 11-2) playing a critical role in whistleblower award calculations. The court in 972-17W highlighted that the IRS’s final regulations under § 7623 dropped the term "pertinent" from non-docketed reviews, leaving practitioners to navigate discretionary disclosures without clear statutory guardrails. Advisors should counsel clients that Tax Court litigation is often necessary to obtain full access to IRS records, and that § 6103(k)(13) disclosures are limited to status updates unless the case is docketed.

This is a non-precedential interpretation of IRS guidance and does not constitute formal regulatory authority.

Forward-Looking Note: The IRS has not issued formal guidance on what constitutes "pertinent" information in whistleblower claim files, leaving practitioners to rely on Tax Court dicta and IRS memoranda for interpretation. Whether the agency will clarify this term in future regulations remains an open question, particularly as whistleblower cases continue to proliferate under § 7623(b).