Forbes, IRS Ordered To Surrender Informant Documents; Federal Judge's Ruling in California Monex Case Undercuts IRS Whistleblower Office:

In an unusual decision, a federal judge on Tuesday said he would order the IRS Service to give 25 boxes of whistleblower-provided documents to lawyers for a California precious-metals firm fighting an old but large tax bill.

Magistrate Judge Robert N. Block said the IRS "immediately" would have to stop going through the paperwork, return the originals to the company that generated them and not keep any copies. Eventually, the agency would get back documents not deemed to be protected by legal privileges. …

The ruling represents a noteworthy setback for the IRS. Last year, the agency sued a group of companies known as Monex, a Newport Beach, Calif., metals dealer, seeking to collect on a decade-old tax assessment that had grown to $378 million. The lawsuit said the Carabini family, which controls Monex, fraudulently moved assets into other companies to avoid the tax bill. Monex has denied liability.

But the case took a convoluted turn this spring, nearly a year after the suit was filed. That's when longtime Monex accounting employee Vincent A. Spondello, invoking a 2006 law requiring the IRS to pay informants a minimum reward of 15% of the back taxes collected as a result of their information, filed a claim with the IRS Whistleblower Office for what could be $57 million or more for himself . Ten days later he and his lawyers sent the IRS 25 boxes of Monex records dating back to the mid-1990s. In court filings, Spondello also disclosed that in the 1990s he had anonymously informed on Monex to the IRS. Even one of Spondello's own lawyers has called him "a rat." …

The IRS Whistleblower Office, set up to implement the new whistleblower law, aims to receive tips and documents in confidence, weed out any legally privileged information and forward the remainder to other IRS units for possible audit or even criminal investigation.

The IRS argued that this procedure should be followed in the Monex case. "The government is opposed to Whistleblower [Office] turnover of the documents," said Assistant U.S. Attorney Andrew Pribe, a U.S. Justice Department employee who is the lead lawyer for the IRS in the case.

However, Judge Block's order Tuesday strips the Whistleblower's Office in this case of both its document gatekeeper function and its ability to keep informant information secret.