In an opinion issued September 24, 2025, the D.C. Circuit held in favor of a tax whistleblower in a decision that could mark a turning point for judicial review of the IRS tax whistleblower program. Although there has been no shortage of litigation around the program, wins for whistleblowers are extremely rare, especially on anything beyond jurisdictional questions.

This recent opinion in In Re: Sealed Case could help turn that tide, or it may simply be a one-off.

The Story

But first, the facts. The whistleblower filed with the IRS when they realized that the large investment banking firm that they worked for was helping offshore hedge funds dodge U.S. taxes. Specifically, instead of foreign clients directly holding stock, the firm would hold stock on their behalf, then pay them the equivalent of the dividends they would have earned. With this dance, the firm was trying to sidestep the withholding taxes on dividend payments to foreign investors.

After the whistleblower learned that multiple similar firms were doing the same dodgy practice, they took their concerns to the IRS. They spoke with IRS investigators repeatedly and filed Forms 211 to become an official whistleblower.

Here’s where the story gets even more interesting: when the whistleblower stopped hearing from the IRS, they went to the Wall Street Journal, which ultimately published two stories based off their information. That led to a Senate investigation, with which the whistleblower cooperated, that culminated in a report naming the firms the whistleblower had previously identified, along with a few more. The whistleblower filed new Forms 211 adding in those firms.

Ultimately, the IRS recovered against numerous firms for the bad behavior, and the whistleblower was rewarded with the 30% maximum of the proceeds collected.

Except in one instance, where the whistleblower was given the midpoint (22%) on the stated grounds that the IRS was already auditing that firm before receiving their information.

It’s that claim they took to court, seeking the same 30% they had received for their other tips.

The Ruling and Takeaways

While the Tax Court sided with the IRS, the Circuit reversed on appeal. It reviewed the evidence cited by the agency in support of the lower award percentage on this claim, which the agency and the Tax Court had taken as showing that the IRS was already pursuing that taxpayer before it received the whistleblower information. The Circuit, however, noted that on its face, the evidence only showed that the audit started before the whistleblower’s information, not that the IRS looked at the specific issues in question. Thus, the evidence could not support the IRS’s stated reason for the midpoint award.

The interesting thing here is the standard of review. Like many whistleblowers, the whistleblower here had argued for de novo review by the courts rather than the abuse of discretion standard that is typically applied. Moving judicial review to a more critical standard has been a focus of whistleblower advocates, including Senator Grassley, who has introduced a bill to codify it. Unfortunately, the Circuit sidestepped the issue, finding that the IRS position was not supported even under the more deferential standard.

But even while it did not explicitly address the standard, its analysis was a win for whistleblowers. The Circuit’s review showed that even this deferential standard is not toothless. Indeed, the Circuit did not just accept the IRS’s stated reasoning; it looked for “some concrete, affirmative indication to support the Whistleblower Office’s theory”. When it found none, it overturned and remanded. So, while abuse of discretion remains the standard, it is not simply a free pass.

The big question coming out of the ruling is how pivotal a role was played by the disparate treatment of the whistleblower’s other awards. Would they have gotten the same critical review without those examples as a comparison?

On the one hand, the appellate court did not do a searching re-evaluation of the evidence. It simply took it at face value, but found that it did not speak to the question that the agency had relied on it to answer. That should be the court’s task in any case. But on the other hand, there is no doubt that the whistleblower’s having repeatedly received 30% put the IRS on the defensive in having to justify a downward departure.

Either way, there is no doubt whistleblower advocates will be putting this ruling front and center when arguing for fair treatment and maximum awards.