Leslie Book

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Tax Court Decides Scope and Standard of Review in Whistleblower Cases

In a fully reviewed Tax Court opinion, Kasper v Commissioner, the Tax Court held that the scope of review in whistleblower cases is subject to the record rule and that the standard of review is abuse of discretion. The opinion is an important development in the progression of treating tax cases as a subset of cases within the mainstream of administrative law generally and the Administrative Procedure Act.


The opinion concerns whistleblower claim relating to a former employee’s allegations that his employer had a longstanding pattern of uncompensated overtime for its employees. The whistleblower claim connected to taxes because it claimed that the millions of dollars in unpaid overtime would have led to substantial employment tax on the compensation.

The IRS rejected the claim in 2011, and in so doing sent a boilerplate rejection that was not really responsive to the particulars of the claim. In a bankruptcy proceeding involving Kasper’s former employer, IRS collected over $37 million in taxes relating to unpaid withholdings. Kasper wanted some of that, connecting his whistleblower claim to the IRS actions in the bankruptcy proceeding.

The opinion notes that the parties tried the case to “establish the contents of the administrative record and ordered the parties to brief the issues of the scope and standard of review in whistleblower cases to help us figure out both what we can look at and how to look at the IRS’s work in whistleblower cases.”

The opinion clears the fog on the scope and standard of review in whistleblower cases. In so doing, it explores an issue we have covered in PT and an area that I have discussed extensively in IRS Practice and Procedure, especially in revised Chapter 1.7, namely the precise relationship between the APA and the workings of the IRS.

The importance of Kasper is that it establishes that whistleblower cases, unlike deficiency cases which predate the APA and which have a defined set of procedures establishing a clear legislative exception to the path of judicial review of agency action, are subject to the same rules as applied to court review of other agency adjudications. There are there main aspects of that principle:

  • Scope of Review: Tax Court review of whistleblower determinations are subject to the record rule, meaning that the parties are generally bound to the record that the agency and party made prior to the agency determination
  • Standard of Review: the Tax Court will review whisitleblower determinations on an abuse of discretion basis; and
  • Chenery Rule Applies: The Tax Court can uphold the Whistleblower Office determination only on the grounds it actually relied on when making its determination.

What makes Kasper one of the most significant tax procedure cases of the new year is that in reaching those conclusions it walks us through and synthesizes scope and standard of review and Chenery principles in other areas, such as spousal relief under Section 6015 and CDP cases under Section 6220 and 6330.

In what I believe is potentially even more significant is its discussion of exceptions within the record rule that allow parties to supplement the record at trial.   To that end the opinion lists DC Circuit (which it notes in an early footnote would likely be the venue for an appeal even though the whistleblower lived in AZ ) summary of those exceptions:

  • when agency action is not adequately explained in the record;
  • when the agency failed to consider relevant factors;
  • when the agency considered evidence which it failed to include in the record;
  • when a case is so complex that a court needs more evidence to enable it to understand the issues clearly;
  • where there is evidence that arose after the agency action showing whether the decision was correct or not; and
  • where the agency’s failure to take action is under review

As I observe in IRS Practice and Procedure, the clarity so to speak of cases such as Kasper in bringing categories of tax cases within the confines of administrative law is belied by the complexity and at times uncertainty surrounding basic administrative law principles. As  Kasper notes, there can be (and often are) disputes about what is the agency record, and nontax cases establish that the agency itself does not have the final word on what constitutes the record.

On the merits, the Tax Court concluded that the information that Kasper provided did not lead to the collection of the employment taxes in the bankruptcy case. Even though the whistleblower office did not consider the evidence pertaining to the bankruptcy court proceedings, the opinion notes that the IRS would have filed its proof of claim in the ordinary course, so its error in note considering the information was harmless.

NTA Issues 2017 Annual Report to Congress

Earlier today, the NTA released the 2017 Annual Report to Congress. In addition to its sections on most serious problems, legislative recommendations, ten most litigated issues and a dedicated volume on research studies, this year the report contains a Purple Book, which is a new feature and is described as a “concise summary of 50 legislative recommendations that she believes will strengthen taxpayer rights and improve tax administration.”

In the next few days, we will be reviewing the report, and will flag areas of interest for our readers. I am especially interested in the Purple Book, and think setting off recommendations relating to taxpayer rights in a separate volume is an excellent way to highlight the importance of taxpayer rights and help ensure that the IRS embraces taxpayer rights as a guiding principle of tax administration.

A good place to start is the preface, where the NTA discusses the funding challenges that IRS has faced and continues to face. While noting that a lack of funding is a major challenge, she notes that should not be the end of the conversation:

At the same time, limited resources cannot be used as an all-purpose excuse for mediocrity. There is not a day that goes by inside the agency when someone proposes a good idea only to be told, “We don’t have the resources.” In the private and nonprofit sectors, saying “we don’t have the resources” is the beginning of the discussion, not the end. Yet with the IRS, lack of resources often has become a reflexive excuse for not doing something, or worse, for doing things “to save resources” that harm taxpayers, foster noncompliance, and undermine taxpayer and employee morale.

The consequences of poor taxpayer service and a defeatist attitude toward tax administration are far reaching. The preface emphasizes that the IRS can do a “better job of using creativity and innovation to provide taxpayer service, encourage compliance, and address noncompliance.”

I look forward to reading the report.

NTA’s Reaction to Today’s Post on Misclassified Workers

Keith’s post this morning referenced the National Taxpayer Advocate Nina Olson’s blog post discussing the Mescalero case; her office reached out to us to provide some additional information that she had intended to share in a future blog post of her own.  Below is the latest, straight from the NTA:

After my blog posted, an analyst from TEGE contacted my senior research advisor, asking how we had come up with the estimate that it took only 1 or 2 hours to identify the workers and their tax payments.  My research advisor explained that there is a systemic way of searching and compiling the records.  Apparently the IRS had been searching each worker’s record manually, which took hours and hours…..This made me feel very sad, because clearly this analyst cared deeply and wanted to do the right thing.

It appears to me that the CCA may have been driven by the IRS’s concerns that is it “did not have the resources” to do these manual searches.  My office has committed to working with TEGE to show them how to do systemic searches, and then my office will go back to Chief Counsel and ask them to reconsider its CCA.

What is most disturbing about all this is that no one took seriously enough the taxpayer’s right to pay no more than the correct amount of tax, such that someone would think to explore whether there was a systemic way to pull this information.  This shows that there is still much work to do to embed the Taxpayer Bill of Rights in every aspect of IRS activity.

Thanks to the NTA for reaching out to Procedurally Taxing, and allowing us to publish her views.

For an index to all of the NTA’s blog posts see here

The NTA plays an important role in highlighting when tax administration neglects to take into account fundamental taxpayer rights, as well as highlighting ways that tax administrators can embrace and promote those rights.

Relatedly, the NTA is convening the third international taxpayer rights conference in the Netherlands on May 3rd and 4th. I attended the first two conferences, and I learned a great deal about tax administration generally and how other countries (and the US) are faring in incorporating taxpayer rights into all facets of tax administration. Information about the conference, including an agenda and registration, can be found here.

Some More Reading on The Tax Legislation that Was Formerly Known as the Tax Cuts and Job Act/Twitter and Tax

As we have over the past few weeks, we will occasionally be linking interesting articles, blog posts, tweets, etc on the recently-signed tax legislation. While many of the provisions do not directly address tax administration, they will have a major impact on taxpayers, advisors and the way IRS administers the law (let alone my soon to start classes at Villanova on Business Tax and Individual Income Tax!)


Professor Brian Galle has a post in Medium on a charitable contribution strategy that states may employ as a workaround to the 10,000 S&L deduction limit

What I’ve called the “charity at home” plan would grant a 100% credit against state income taxes for any charitable contribution to the state government (or perhaps a subdivision of donor’s choice)

Professor Andy Grewal in Notice & Comment on why the charitable contribution strategy may not work

Whether the charitable contribution strategy works will depend on the details of a given state’s plans, but there are unquestionably some serious legal and practical obstacles.

Ed Zollars in Current Federal Tax Developments describes the workings of of the passthrough income deduction regime and especially the ambiguity around the term “specified trade or business.”

Professors Lily Batchelder and David Kamin in an LA Times op-ed on the passthrough loophole, including major problems for taxpayers and IRS that has to administer the boondoggle

It could take the IRS and Treasury Department many years to clarify exactly how the pass-through loophole works. By then, the new deduction will be on the verge of expiring, creating further uncertainty and risks for regular employees.

Professor Francine Lipman over at Surly discussing changes to the CTC and the requirement that families with children who do not have a Social Security number can no longer qualify for any amount of CTC.

On a somewhat unrelated point, above I have linked to the twitter accounts. I am a recent convert to Twitter; in addition to its being a usefuld distraction when I had about 125 exams to grade, it is increasingly a great way to get real time information on a host of tax developments.

Kelly Phillips Erb (Tax Girl) also has a piece at Forbes on the top 100 tax twitter accounts to follow for 2018.

Procedurally Taxing has had a twitter feed for a long time; you can follow that here. I have recently dipped my toes in Twitter as well; I encourage readers to follow me here

Happy reading (now back to my exams, or more likely some time wasting on Twitter).

9th Circuit Defers on Important Privilege Waiver Case

 US v Sanmina Corp considers whether by disclosing the existence of purportedly protected documents the taxpayer has waived various privilege claims it is asserting with respect to memos that its in house tax counsel prepared.

I will briefly describe the issue and the recent 9th Circuit unpublished opinion that remanded the case back to the trial court.


On its 2009 tax return, Sanmina had claimed about a half billion in a worthless stock deduction in one of its subsidiaries. The purportedly worthless sub had two related party receivables with an approximate $113 million book value. Notwithstanding the healthy book value, Sanmina claimed that the FMV of the receivables was zilch.

IRS examined Sanmina’s tax return and sent an information document request for documents that supported the deduction. Sanmina gave to IRS a valuation report from DLA Piper, its outside counsel. That report (not surprisingly) supported the taxpayer’s view that the receivables had no fair market value. Included in the report was a footnote that referenced internal memos that Sanmina’s tax counsel had prepared, one in 06 and the other in 09.

IRS asked for those two memos; Sanmina resisted, leading to IRS to summons them and bring an enforcement action when Sanmina did not comply. In 2015, the district court held that both memos were protected by attorney client and work product privilege and that the “mere mention” of the memos in the DLA Piper valuation report did not amount to the party’s waiving the privilege.

The government appealed, arguing that the 2006 memo was really not subject to the attorney client privilege because it was not a communication, as the taxpayer had failed to prove that when it was written it actually was circulated to anyone or the result of anyone in Sanmina seeking advice on the issue. It also argued that the 06 memo was not subject to the work product privilege because it was not prepared in anticipation of litigation, in part due to the time that elapsed between the writing of the memo and Sanmina taking the deduction. The government conceded that the 09 (but not the 06) memo was privileged, but argued that the cloak of protection was lost for both memos due to Sanmina having waived any privilege when it served up the DLA Piper valuation report that relied on and mentioned both memos.

The government on appeal based its waiver argument on two different approaches. First, the government argued that on a careful read of the DLA Piper report it was apparent that the report itself was heavily dependent on the two memos, notwithstanding that their existence was only specifically mentioned in a footnote in the report. Second, the government argued that under the Federal Rules of Evidence it was improper for the taxpayer to selectively waive the privilege when there are documents “that concern the same ‘subject matter’ that ought in fairness to be considered together.”

The 9th Circuit’s brief unpublished opinion vacated the earlier district court order and remanded the case back to the district court, with its opinion emphasizing that the district court should have done more in terms of analyzing the memos themselves:

Our resolution of this case would be greatly facilitated by a more informed analysis from the district court. More specifically, we prefer the district court review the documents in camera and reconsider its ruling on the asserted privileges following its review of the pertinent documents.


This dispute has been festering for close to three years. How much disclosure beyond acknowledging existence to trigger a waiver of privilege is an interesting issue, as is the reach of privilege on an internal memo that a taxpayer’s in house counsel wrote years before the taxpayer claimed the deduction in question.

Additional Links:

Video and audio link to oral argument at 9th Circuit 

District Court decision

Miller & Chevalier tax blog coverage of case (including links to briefs)

Follow up to Some Interesting Sources on Tax Legislation (and a Little Procedure Too)

We have previously offered some suggestions for readers wanting additional insights on the major tax legislation Congress pushed through and President Trump signed into law last week. Here are some more interesting reads:


An update on the must read The Games They Will Play article that describes how the “final law introduces fundamental—and in our view insurmountable—structural problems to the income tax.” This is I think the most important tax article of the year and an essential read.

Tax and twitter maestro Professor Andy Grewal suggests that 2017 prepayment of 2018 property taxes may not generate a 2017 deduction;

Professor Ellen Aprill explains in a guest post on Medium why the new law imposing a 21% excise tax on highly paid University employees has a hefty technical glitch that seems to unintentionally exclude employees of public universities;

Forbes tax blogger Tony Nitti on the 20% deduction on pass through income, a major source of future game playing (and complexity). This is terrific;

Professor Sam Brunson over at Surly discussing the implications of the repeal of deductions for dependents as well as the trade offs from the law’s boosting the standard deduction and increasing the CTC. An important read for low and moderate income families—the comment exchange is also good;

A Law360 piece on another of the law’s big winners: tax professionals;

Professor Dan Shaviro offering some preliminary thoughts on the international provisions;

And finally on a completely unrelated topic, if you have had enough substance and want some procedure, Frank Agostino and his team have a new monthly tax controversy journal out, and it includes a practical and important discussion of the about to be implemented passport revocation rules.

IRS Loses (Again) in Challenge to PTIN User Fee Regs

Readers may recall our discussing the IRS’s loss in Steele v IRS, where a federal district court in DC struck down the IRS’s requirement that preparers pay a user fee to get or renew a PTIN.

While IRS reopened its PTIN program after the loss, pending an appeal, IRS sought a stay of the court’s order enjoining it from charging fees for preparers who were applying for or renewing a PTIN. This week that same district court ruled against the IRS.

I describe the outcome and issue below.


Getting a court to stay an injunction is difficult. The DC circuit has described a stay as an “extraordinary remedy” that intrudes into the ordinary process of court review. To that end, the standard for granting a stay to an injunction is based on a 4-factor test:

(1) the likelihood that the party seeking the stay will prevail on the merits of the appeal;

(2) the likelihood that the moving party will be irreparably harmed absent a stay;

(3) the prospect that others will be harmed if the court grants the stay; and

(4) the public interest in granting the stay

The DC Circuit has traditionally employed a sliding-scale approach, meaning, for example, that if one factor was particularly strong, it could make up for a weaker showing on another factor.

Most of the discussion in the brief memorandum opinion denying the stay of the injunction revolved around the court’s view of factors 1 and 2, namely that it did not believe that the IRS would prevail on appeal or suffer irreparable harm in the absence of a stay.

As to the first point, the opinion returned to the themes in its original opinion.

In a nutshell, what the earlier opinion and this opinion emphasized was that even though the 11th circuit in Brannen had found that the user fee regulations were valid, that was a pre-Loving opinion. Loving’s rationale and the interconnectedness of the PTIN and invalid testing/education regime led the court to conclude that the PTIN regulations were improper. Furthermore,  the district court found that obtaining a PTIN number is no longer a “service or thing of value” – the standard required to impose a fee under the Independent Offices Appropriations Act. To that end, the court stated that IRS “cannot use an invalidated regulatory scheme to bootstrap in a fee.”

In emphasizing that the IRS was unlikely to prevail on the merits, the district court was blunt:

In sum, the Court is not persuaded that the government’s rehashed arguments present “serious, substantial, difficult and doubtful” issues. The Court has not been presented with any new information that has come to light since it ruled on this matter and remains convinced that the case was correctly decided.

While that alone according to the court was sufficient to decide against granting the stay, the opinion also discussed that the IRS did not prove the case that it was suffering irreparable harm. As support for its position that the original decision was irreparably harming it, IRS said that it was losing all PTIN fees during the appeal and that it needed to cut services.

In rejecting the IRS’s argument about harm, the opinion discussed the high standard that needed to be met to establish harm:

Plaintiffs must demonstrate that the injury is “of such imminence that there is a clear and present need for equitable relief to prevent irreparable harm.” Id. (internal quotations removed). Moreover, the injury “must be beyond remediation” and “mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay are not enough.” Id. (internal quotations removed).

The court was skeptical on the IRS’s argument that it could not obtain the fees if it eventually won on appeal:

First off, the Court is not convinced that the government will be unable to recoup uncollected fees should they ultimately prevail. While it might not be easy, the government is unable to say with absolute certainty that a restitution claim would not be viable. Additionally, it is not clear to the Court why if the government, by its own admission, can refund PTIN holders… it cannot also retroactively charge PTIN holders who were not required to pay a fee during the pendency of the appeal. Given these outstanding questions, the government has not established that the harm is “certain,” “not theoretical,” and “beyond remediation.

More pressing to its conclusion was the court’s discussion of how small a percentage the fees are to the IRS’s overall budget:

Here, the government acknowledges that a loss of $ 37.6 million would constitute a mere 0.3% of the IRS’s yearly budget. ECF 82-3 at 9. Put simply, 0.3% is a rounding error when considering the IRS’s overall budget. And courts have consistently found that greater magnitudes of economic harm fall short of the bar for irreparable harm. See e.g. ConverDyn v. Moniz, 68 F. Supp. 3d 34, 48 (D.D.C. 2014) (finding that a $ 10 million expected loss, or 10% of revenues, was “not of sufficient magnitude”); TGS Tech., Inc. v. U.S. Dep’t of Air Force, 1992 WL 19058, at *4 (D.D.C.1992) (holding that plaintiff did not establish irreparable injury when loss amounted to “only” twenty percent of business).

Finally, the court found unavailing the government’s argument that IRS would have to transfer funds from other programs, in part because it felt that IRS could “decide to discontinue the issuance of PTINs entirely during the pendency of the appeal, which would dramatically reduce the cost to the government.”


This is the latest and not last of the Loving fallout. In the absence of direct and clear Congressional oversight authority, IRS is swimming upstream in its underfunded efforts to get in front of a diverse paid preparer community. This opinion, as the original opinion from this past summer, underestimates the potential benefits associated with a uniform preparer identification requirement and the costs associated with additional obstacles that can prevent IRS from easily associating preparers with tax returns.

Stay tuned as this underlying case winds its way through the appeal process.

Treasury Intends to End Allowing Outside Counsel To Participate in Exams

Last month Treasury issued Identifying and Reducing Regulatory Burdens in response to Executive Order 13789. In the report Treasury indicated that it plans to substantially revise regulations under Section 7602 that allowed the participation of private contractors to “participate fully” when the IRS interviewed taxpayers or witnesses who were summoned during an examination. In particular, Treasury has stated its intention to remove the power of private domestic attorneys to participate with IRS employees in interviewing witnesses summoned during an examination.


The report Treasury issued was in response to an executive order that directed the Secretary of the Treasury to identify significant tax regulations that (i) impose an undue financial burden on U.S. taxpayers, (ii) add undue complexity to the Federal tax laws, or (iii) exceed the statutory authority of the IRS. In June, Treasury identified eight regulations, and the report issued last month discusses the plan to mitigate or eliminate the burdens.

One of the regulations discussed was the regulations under Section 7602 that gave IRS power to use outside contractors to assist in interviewing summoned witnesses in an exam. As Keith previously discussed the regulations have been controversial, and while in US v Microsoft district court in Washington found that Treasury had the authority to issue those regulations, the court was troubled by the outside firm participation in the IRS audit of Microsoft, and suggested that Congress may scale the practice back. There has been proposed legislation to do that, though it has not moved much since its introduction.

The Treasury report states that“[u]nder the amendment currently contemplated by Treasury and the IRS, outside attorneys would not be permitted to question witnesses on behalf of the IRS, nor would they be permitted to play a behind-the-scenes role, such as by reviewing summoned records or consulting on IRS legal strategy.” In explaining why, the report embraces the criticism of the practice:

When the IRS enlists outside attorneys to perform the investigative functions ordinarily performed by IRS employees, the government risks losing control of its own investigation. RS investigators wield significant power to question witnesses under oath, to receive and review books and records, and to make discretionary strategic judgments during an audit— with potentially serious consequences for the taxpayer. The current regulation requires the IRS to retain authority over important decisions, but the risk of a private attorney taking practical control may simply be too great. These powers should be exercised solely by government employees committed to serve the public interest, not by outside attorneys. These concerns outweigh any countervailing need for the IRS to contract with outside attorneys. Treasury remains confident that the core functions of questioning witnesses and conducting investigations are well within the expertise and ability of the IRS’s dedicated attorneys and examination agents.

The Executive Order notes however that Treasury intends to retain the power to allow outside experts who are not US lawyers to help with summons proceedings. The report mentions that subject matter experts, including economists, engineers or non US lawyers, may be necessary in a small subset of cases because of a possible “compelling need” to provide expertise that IRS employees may lack.


Treasury candidly discussed why the practice of bringing in outside counsel in summons proceedings was on balance not consistent with some of the key values that underlie sound tax administration. While IRS resources are spread thin, and at times the complexity of cases challenges even the most seasoned IRS employees, IRS does have at its disposal attorneys from the government, including DOJ attorneys who may be able to provide the perspective and expertise that can help ensure that IRS has what it needs to do its job properly in an exam. In addition, Congress should ensure that IRS has the resources it needs so it does not routinely feel that it is outgunned when examining taxpayers who by the nature of the businesses will present complex returns. Relying on the private sector to help with core tax functions in an exam (or collection for that matter, though that is another story) is not the way to sound tax administration, and this report refreshingly tells us why. It carries additional weight when the government itself acknowledges those costs.