Whistleblower Week – Designated Orders, March 2 – 6, 2020

This week was apparently Whistleblower Week at the Tax Court, featuring three separate whistleblower orders from Judges Copeland, Jones, and Kerrigan. We’ll also discuss a short order on limited entries of appearance (which has less importance after the Court’s recent administrative order regarding limited entries of appearance in the time of COVID-19), as well as an order to dismiss a deficiency case for lack of jurisdiction.

Other orders included:

  • An excellent refresher from Judge Urda on motions to vacate under Tax Court Rule 162 and Federal Rule of Civil Procedure 60(b).
  • An order from Judge Toro granting a motion to dismiss from Petitioner in a standalone innocent spouse case.
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The Whistleblower Orders

There were three orders granting summary judgment to Respondent in whistleblower cases. (There were technically four, but the orders in the unconsolidated Keane cases are essentially identical).

  • Docket No. 10662-19W, Horsey v. C.I.R. (Order Here)
  • Docket Nos. 22897-18W, 23240-18W, Keane v. C.I.R. (Orders Here & Here)
  • Docket No. 22395-18W, Lambert v. C.I.R. (Order Here)

These cases follow the Tax Court’s decision from last fall in Lacey v. Commissioner, 153 T.C. No. 8 (2019), which held that the Court has jurisdiction under I.R.C. § 7623(b)(4) to review decisions of the Whistleblower Office to reject a claim for failing to meet threshold requirements in the regulations applicable to whistleblower claims. See Reg § 301.7623-1(c)(1), (4). The Court has long held that it has no jurisdiction to force the IRS to audit or collect proceeds from target taxpayers and that if the IRS fails to audit and collects no proceeds from the target, the Court likewise has no jurisdiction to review the decision not to audit or collect proceeds. Cohen v. Commissioner, 139 T.C. 299, 302 (2012).

In Lacey, it was undisputed that the IRS did not audit the taxpayer and collected no proceeds. However, the Court determined that an initial rejection of the whistleblower complaint without a referral to the IRS operating division could be reviewed for abuse of discretion. The Court noted that permissible reasons for rejection at this level included those threshold regulatory requirements: that the whistleblower’s complaint provides specific and credible information that the whistleblower believes will lead to collected tax proceeds; reports a failure to comply with the internal revenue laws; identifies the persons believed to have failed to comply; provides substantive information, including all available documents; and does not provide speculative information. Under the regulations, the Whistleblower Office should first determine whether the claim is deficient in this regard, and if not, forward the case to an IRS operating division (e.g., LB&I for large business taxpayers, etc.).

At that point, a “classifier” in the operating division takes over, and determines whether to proceed with an audit. However, they too could determine that the claim was deficient for any of the reasons the initial classifier could. In Lacey, the Court denied summary judgment to Respondent because the administrative record was not sufficiently clear to discern whether the Whistleblower Office considered the whistleblower’s claim at all; thus it was likewise impossible to determine why the claim was rejected.

In these three cases, however, the Court has no trouble of the kind that tripped up the IRS in Lacey. In all of the cases, the IRS neither audited nor collected proceeds from the target taxpayers. And the Whistleblower Office, in each case, did refer the case to a “classifier” in the relevant operating division. That employee, in turn, determined that the initial claim was speculative and recommended that the IRS not proceed with further investigation of the target taxpayers. Unlike Lacey, all of this information was apparently included in the administrative record, and so the Court could grant summary judgment more easily.

In Keane, Judge Jones noted that the IRS may continue to run into problems where it rejects claims using “and/or” language in the determination letter. Here, the classifier rejected the claim because “the information provided was speculative and/or did not provide specific or credible information regarding tax underpayment or violations of internal revenue laws.” This is important, because under the Chenery doctrine, the Court may only review the IRS determination for the reasons that the IRS actually relied on in making its determination. See Lacey, 153 T.C. at *14 (citing Kasper v. Commissioner, 150 T.C. 8, 23-24 (2018)). Using “and/or” language makes the grounds for the IRS determination unclear. While Judge Jones notes that the record support both reasons here, other cases might be closer.

Judge Jones cites a memorandum opinion from Judge Gustafson, who raised a similar concern earlier this year. See Alber v. Commissioner, T.C. Memo. 2020-20. This aligns with his analogous view of the IRS’s practice in issuing Notices of Determination in CDP cases, where the IRS typically writes that “There was a balance due when the Notice of Intent to Levy was issued or when the NFTL filing was requested.” In a previous order (covered here), Judge Gustafson wondered whether someone at Appeals actually did verify that a balance due existed, given the lack of clarity in the notice.

What to distill from Lacey and these orders? First, the Tax Court can review an initial rejection from the Whistleblower Office—even if no proceeds are collected. Second, if an employee of the IRS operating division decides not to pursue collection after referral from the Whistleblower Office, that will generally be sufficient to resolve the case in favor of the IRS—though one might reasonably suspect a different result could lie if that classifier failed to meaningfully review the case, as potentially occurred in Lacey with the Whistleblower Office. Finally, if the administrative record provides multiple reasons for rejecting the claim in an “and/or” formulation, this could prove problematic for the IRS under Chenery if at least one reason isn’t supported in the administrative record.

Docket No. 722-19L, Jenkins v. C.I.R. (Order Here)

This short order from Judge Gale deals with a defective limited entry of appearance. Counsel attempted to file a motion to dismiss for Petitioners based on an electronically filed “limited” entry of appearance. However, the Tax Court’s previous administrative order authorizing limited entries of appearance only allowed her to do so on paper, and then only at the trial session itself. So, the Court struck the motion. Counsel found an easy remedy here, however, and simply entered an appearance normally, filed the motion to dismiss; the Court granted it days later.  

On May 29, the Court issued a new administrative order that authorizes the filing of a limited entry of appearance electronically, at any time during the pendency of a Tax Court case. It offers much more flexibility for practitioners to limit their representation to a prescribed proceeding. This includes the trial session itself, as did the previous order, but can also include motion hearings, pre-trial conferences, and other matters at anytime between the issuance of the Notice Setting Case for Trial until the adjournment of the trial session. Because the end of representation isn’t necessarily as clear-cut under this new order, the attorney must file a Notice of Completion at the end of the limited appearance; the Court is not required to approve the end of the representation.

Docket No. 18705-18S, Patten v. C.I.R. (Order Here)

This is the order that keeps a tax attorney up at night. It explains, in minute detail, the process by which an attorney missed the 90-day jurisdictional deadline to file a Tax Court petition in a deficiency case.

The Notice of Deficiency was dated June 22, 2018; the Petition was filed with the Tax Court on September 21, 2018: the 91st day after June 22. Apparently, Respondent’s counsel didn’t notice this in filing the Answer, but Judge Leyden’s chambers did. She issued an order to show cause, directing Respondent to provide the “postmarked U.S. Postal Service Form 3877 or other proof of mailing” regarding the notice of deficiency. After all, it’s not the date listed on the Notice of Deficiency that controls under the statute; it’s the date of mailing of the Notice of Deficiency. See I.R.C. § 6213(a).

Chief Counsel responded to the order and attached Form 3877 showing that the Notice was indeed mailed to Petitioner’s last known address by certified mail (along with two other addresses). The Notice sent to the last known address was returned, as was one of the other notices. But it looks like one notice was successfully delivered. (Of course, that’s irrelevant to the validity of the Notice itself, as Respondent established that the Notice was sent to the taxpayer’s last known address by certified mail. See I.R.C. § 6212.)

Respondent also showed that Petitioner, through his attorney, mailed the petition to the Court on September 19, 2018. As we know, the Court received it on September 21, 2018—one day late. Ordinarily, documents are “filed” when they are received—either by the IRS or the Tax Court.

So, can’t the mailbox rule under I.R.C. § 7502 save the taxpayer’s petition? Not here. Petitioner’s attorney, in his response to the order, acknowledged that the petition was mistakenly sent via FedEx Express, rather than FedEx Overnight due to an “office slipup”. While section 7502(f) allows taxpayers to use private delivery services, such as FedEx, UPS, or DHL, instead of the USPS, practitioners and petitioners alike must ensure that they are using a “designated delivery service.”

What’s a designated delivery service? Section 7502(f)(2) defines the type of services that the Secretary may designate, and Reg. § 301.7502-1(e)(2)(ii) describes the process of designating the service (i.e., publishing it in the Internal Revenue Bulletin). And in practice, the Secretary does so periodically—most recently in Notice 2016-30. The list also appears more accessibly on the IRS website.

So, does FedEx Express appear on this list of designated delivery services? No. Therefore, it can’t trigger the mailbox rule under section 7502. The petition is filed late, and the Tax Court has no jurisdiction to decide the case. Judge Leyden therefore dismisses the case—which involves liabilities for four separate tax years—for lack of jurisdiction.

The lesson for practitioners? Mail the petition so the Court receives it before the deadline. Otherwise, mail the petition via USPS certified mail. Train your office staff to only mail petitions to the Tax Court via USPS certified mail. Is there a good reason to ever use a private delivery service when mailing a Tax Court petition? I don’t see one, given the very real risks involved that bear out here. 

For the Second Time in About Five Years, the SG Decides Not to Take a Tax Equitable Tolling Case to SCOTUS

Just another short update on Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), on which I blogged here.  In that opinion, the D.C. Circuit held that the 30-day deadline in section 7623(b)(4) in which to file a whistleblower award petition in the Tax Court is not jurisdictional and is subject to equitable tolling under recent non-tax Supreme Court case law.  The DOJ had initially sought en banc rehearing of the Myers opinion, contending that the opinion could not be reconciled with the opinion in Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), on which I blogged hereDuggan held that the 30-day deadline in section 6330(d)(1) in which to file a Collection Due Process petition in the Tax Court is jurisdictional and not subject to equitable tolling.  Since the 2006 language of section 7623(b)(4) was rather obviously cribbed from the 2000-version language in section 6330(d)(1), I agree with the DOJ that the two opinions cannot be reconciled.

After the D.C. Circuit denied rehearing, the Solicitor General had to consider seeking certiorari in Myers.  Clearly, there was some struggle in the DOJ to figure out what to do, since the SG twice requested extensions of the time to file a cert. petition.  But, the last extension expired on March 2, and no further extension was sought or petition was filed by that date.  Thus, the D.C. Circuit’s opinion in Myers now controls all Tax Court whistleblower award cases under Golsen, since, under section 7482(b)(1), unlike most Tax Court cases, whistleblower award cases are only appealable to the D.C. Circuit.

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This is the second time in about five years that the DOJ, after losing a tax equitable tolling case and being unsuccessful in seeking en banc rehearing because of a conflict among the Circuits, has, in the end, decided not to seek cert.  The prior case was Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), on which I blogged hereVolpicelli held that the then-9-month (now 2-year) deadline in section 6532(c) in which to file a district court wrongful levy complaint is not jurisdictional and is subject to equitable tolling under recent non-tax Supreme Court case law.  Volpicelli is in conflict with several section 6532(c) opinions of other Circuits, including Becton Dickinson and Co. v. Wolckenhauer, 215 F.3d 340 (3d Cir. 2000), but all of the conflicting cases were decided before the new Supreme Court case law on jurisdiction began in 2004.

I am a little bummed out by the SG’s chickening out on seeking cert. in Myers, since in both Volpicelli and Myers, I wrote or co-wrote amicus briefs in the cases on behalf of tax clinics with which I had been then affiliated (Cardozo and Harvard, respectively).  And, more than the usual amicus, I was otherwise instrumental in pushing these cases forward as test cases.  I guess it is just my luck that any potential Supreme Court case I help generate gets passed on by the SG after much furor and ado below.  Given that I am retired and now just volunteering with the Harvard clinic, Myers was likely my last chance at getting to SCOTUS on an issue I cared strongly about.  But, maybe I should be like Yoda and sigh, “After all, there is another”.  In Boechler, P.C. v. Commissioner, Eight Circuit Docket No. 19-2003, the Eight Circuit has been asked to hold the section 6330(d)(1) filing deadline not jurisdictional and subject to equitable tolling.  Keith and I (on behalf of the Harvard clinic) are amicus there, as well.  Oral argument is expected shortly in Boechler, as the briefing is complete.

In a December post, I pointed out that the Tax Court had been holding back from deciding a number of whistleblower award cases pending the SG’s action regarding cert. in Myers.  See Tax Court orders in Aghadjanian v. Commissioner, Docket No. 9339-18W (dated 9/4/19 and 12/9/19); McCrory v. Commissioner, Docket No. 3443-18W (dated 9/4/19 and 12/6/19); Bond v. Commissioner, Docket No. 5690-19W (dated 10/8/19); Bond v. Commissioner, Docket No. 6267-19W (dated 10/30/19); Bond v. Commissioner, Docket No. 6982-19W (dated 11/5/19).  That has continued in other dockets.  See Tax Court orders in Berleth v. Commissioner, Docket No. 21414-18W (dated 1/22/20 and 2/2/20); Friedel v. Commissioner, Docket No. 11239-19W (dated 2/14/20); Damiani v. Commissioner, Docket No. 14914-19W (dated 2/18/20).

And, in the remand of Myers from the D.C. Circuit, we can all look forward to the Tax Court for the first time being confronted with deciding what constitutes substantive grounds for equitable tolling of a Tax Court filing deadline.  To decide this question, the Tax Court will have to borrow case law from other courts, including the Supreme Court, since the Tax Court has never before believed it had the power to grant equitable tolling.

Qui Tam Initiator Denied Right to Intervene in Criminal Case

In United States v. Wegeler, No. 17-1717 (3rd Cir. 2019) the Third Circuit refused to allow the person who brought a qui tam suit against the taxpayer to intervene in the taxpayer’s criminal tax case.  I would never have thought of having a third party participate in a criminal case.  So, the idea of making sure someone was convicted by becoming an intervenor in a criminal case caught my eye.  The outcome here does not surprise me from the perspective of granting an entrée into the criminal proceeding but, for reasons discussed below, does bother me if the outcome is no recovery for coming forward with the information.

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Before the whistleblower provisions created a statutory means of pursuing a monetary recovery for spilling the beans to the IRS, the qui tam provisions offered one way to do it.  Just as monetary awards for providing the IRS with information existed before and remain available to those who provide information to the IRS without going through the statutory provisions, qui tam suits remain an option.  The person with the information brings a suit against the third party for taking from the government and hopes that the government will intervene, take over the case, win the case and produce a recovery for the party who initiated the qui tam action.  Qui tam actions were never much of a path to recovery in the tax area, but they have existed as one path since the Civil War.

The Third Circuit had a reaction to the effort of the relator to intervene in the criminal prosecution similar to my reaction.  It explained:

the Supreme Court has observed, “in American jurisprudence at least, a private citizen lacks a judicially cognizable interest in the prosecution or non[-]prosecution of another.” Linda R.S. (“Linda”) v. Richard D., 410 U.S. 614, 619 (1973).

Jean Charte insists that she is the anomaly. Her case rests on the False Claims Act (“FCA”), 31 U.S.C. §§ 3729–3733 (2012), which is a statute that Congress enacted during the Civil War to stem fraud against the federal government. United States v. Bornstein, 423 U.S. 303, 309 (1976). The FCA includes a qui tam provision to encourage actions by private individuals — called relators — who are entitled to a portion of the amount recovered, subject to certain limitations. See § 3730(b), (d). In turn, a relator is required to provide the government with the information she intends to rely on so that the government can make an informed decision as to whether it should intervene. § 3730(b)(2). In the event that the government elects to pursue what is ultimately its claim through an “alternate remedy,” the statute provides that the relator retains the same rights she would have had in the FCA action. § 3730(c)(5).

This case started with Ms. Charte providing information about Mr. Wegeler alleging that he had defrauded the Education Department.  After initiation the qui tam action, she provided all of the information to the DOE required by the statute.  The government determined that Mr. Wegeler’s actions were so egregious that they required criminal prosecution rather than continuation of the FCA action.  The government succeeded in the prosecution and also obtained a judgment for $1.5 million in restitution.  Because it went the criminal route and because it obtained a plea agreement and a restitution order by going that route, the government did not pick up the FCA case. Ms. Charte thus faced the prospect of receiving nothing for having uncovered the wrongdoing and initiating the action that led to the prosecution.  To avoid that outcome and after learning of the plea agreement, Ms. Charte sought to intervene in the criminal case.

The district court denied her motion to intervene.  The Third Circuit stated:

Her appeal to us thus presents a question of first impression for our Court: whether a criminal proceeding constitutes an “alternate remedy” to a civil qui tam action under the FCA, entitling a relator to intervene in the criminal action and recover a share of the proceeds pursuant to § 3730(c)(5). The

Third Circuit denies Ms. Charte’s right to intervene and states that she can pursue her monetary judgement by continuing the FCA case on her own.  By this point, those few of you still reading this post may be wondering how a qui tam action involving the defrauding of DOE has anything to do with tax.  Turns out the government decided to go after Wegeler for tax evasion rather than for false billing of DOE.  The opinion does not make clear if the decision to pursue tax evasion stemmed from the ability to obtain a tax conviction easier than a conviction for false billing practices, but since the time of Al Capone, tax has served as a back-up for all sectors of the government, as proving tax fraud sometimes comes easier than other criminal provisions.

Ms. Charte probably did not realize she could have made a whistleblower referral to the IRS when, as an employee of a school run by Wegeler, she uncovered false billing.  Her focus was on telling the people who were harmed by the false billing.

The Third Circuit discusses the FCA proceedings and other matters related to her efforts that have nothing to do with tax.  I will not take up more space discussing a procedure that will have little overlap with anything most of our readers do, but there does seem to be one lesson here for parties bringing a qui tam or similar action regarding the defrauding of the government.  That lesson could be that at the same time they bring the qui tam action they should make a whistleblower referral to the IRS.  Since no one knows when the tax code might be used to prosecute someone for fraudulent activity in a non-tax area nor if the information the relator uncovered and brought to light will result in a tax prosecution, maybe it’s best to hedge your bets and bring the IRS in at the beginning.  It could also happen in many cases like the Wegeler case that the person defrauding one part of the government is also cheating on the IRS.  I don’t know enough about the private pursuit of remedies for uncovering fraud to pretend that I am an expert, but it appears that filing a whistleblower document with the IRS could not have hurt and could have resulted in an alternative method for recovering a reward.

If Ms. Charte does not receive any award here, it seems that the government is, in part, the loser because it has benefited from information without encouraging others with similar information to come forward.  Seems like the government should look for a way to reward Ms. Charte and not to cut off rights.  It took courage and effort to come forward and to initiate the qui tam proceeding.  The information seems to obviously have been valuable.  The relator deserves some recognition for that effort.  

D.C. Circuit Denies DOJ En Banc Rehearing Petition in Myers Whistleblower Case

Just a short update:  In Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), on which I blogged here, the majority of a 3-judge panel held that the 30-day deadline in section 7623(b)(4) to file a whistleblower award petition in the Tax Court is not jurisdictional and is subject to equitable tolling.  In a petition for en banc rehearing in Myers, on which I blogged here, the DOJ argued that not only was the panel wrong, but it had set up a clear conflict with the Ninth Circuit in Duggan v. Commissioner, 879 F.3d 1029 (9th Cir., 2018).  In Duggan, the Ninth Circuit held that the very-similarly-worded 30-day deadline in section 6330(d)(1) to file a Collection Due Process petition in the Tax Court is jurisdictional and not subject to equitable tolling.  On October 4, 2019, the D.C. Circuit issued an order denying the DOJ’s petition for en banc rehearing.  In the order, the court noted that none of the 11 D.C. Circuit judges (plus Senior Judge Ginsburg, who wrote the opinion) requested a vote on the petition for en banc rehearing.  Thus, that means that even dissenting Judge Henderson did not ask for a vote on the petition. 

Now, the Solicitor General will have to decide how upset the government is and whether to file a petition for certiorari with the Supreme Court.  Will the apparent indifference of all of the judges of the D.C. Circuit to reviewing the matter en banc suggest to the Solicitor General that maybe a majority of the Supreme Court will also think the Myers opinion is correct?

A Pair of Decisions Seeking Anonymity

The cases of John Doe v. United States, No. 1:19-cv-00720 (Ct. Fed. Cl. 7-29-2019) and In re: Sealed Case, No. 17-1212 (D.C. Cir. 7-26-2019) present situations in which the plaintiffs sought awards for information provided to the IRS. They come from different backgrounds to make their requests both in how the information was gathered and how often they provided information to the IRS. In one case the “old” law applied and in the other the new law governed. One plaintiff provided information from public sources and provided information on many different taxpayers. The other plaintiff provided information regarding his employer and continued to work at the employer at the request of the IRS. In one situation the court granted the protection of anonymity while in the other the court remanded the case because it found that the Tax Court considered impermissible factors in denying protection.

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Joe Doe came to the IRS with information and the IRS requested that he keep working for the company so he could continue providing information. He came forward in 2000 prior to the current whistleblower statute. Before the passage of the specific statute providing relief, the IRS had the authority to grant awards but the process was governed by administrative rules developed by the IRS over decades. He alleged that disclosure of his identity would put his or his family’s life at risk. The IRS argued that he did not make an adequate showing of the risk.

The IRS typically opposes motions to remain anonymous because of the general rule that court proceedings should be open. It may not always be vigorous in its arguments but it represents the normative position of openness of the system. In many ways the IRS is a bystander with no particular fight on the issue of anonymity and often some sympathy for the person providing the information. In some cases the IRS perceives that anonymity will make its defense more difficult.

In this case the court applied the five factor test found in the case of Does I through XIII v. Advanced Textile Corp., 214 F.3d 1058, 1067 (9th Cir. 2000). It focused on three of the tests: 1) plaintiffs interest in proceeding anonymously; 2) prejudice to the government and 3) the public interest.

Here, the court found that he made a well-founded interest in preserving his anonymity because of a reasonable fear of physical or economic harm. The court found that allowing the plaintiff to proceed anonymously would not hamstring the government’s ability to defend itself. Finally, the release of redacted documents can balance the public’s need for access with the plaintiff’s privacy concerns.

The John Doe case presents a fairly classic case of a request for protection and the court’s determination that he is entitled to protection. In contrast, the Sealed case sets up a much more difficult case with a much less sympathetic petitioner. I found myself in agreement with the Tax Court’s denial of anonymity. The decision here seems to open the door for anonymity much wider than I would open it.

The D.C. Circuit, in reversing the Tax Court, acknowledged that the petitioner in this case had no connection to the company he suggested to the IRS. In fact, the petitioner, who seemed to be trying to make a living or at least to supplement his income, searched public records for anomalies suggesting underreporting by certain companies. The IRS argued that among other reasons it wanted his name public it felt that the public had the right to know about serial filers of whistleblower claims.

The D.C. Circuit cited the Advanced Textile case but relied primarily on United States v. Microsoft, 56 F.3d 1448 (D.C. Cir. 1995) which makes perfect sense because the decision comes from its circuit. The court stated that the appropriate way to determine whether a litigant may proceed anonymously is “to balance the litigant’s legitimate interest in anonymity against countervailing interests in full disclosure.”

The presumption favors disclosure. Applying the balancing test the D.C. Circuit determines that the Tax Court abused its discretion by focusing on the serial filer issue. It found this focus improper. It also found the Tax Court failed to consider relevant factors in favor of non-disclosure and discounted the possible harm to the informant. The court remands the case for the Tax Court to properly run through the factors in the tests created by prior case law.

I anticipate that the Tax Court will continue to deny the request to proceed anonymously here. In any event the D.C. Circuit has stopped the use of serial filing of whistleblower request as a basis for always disclosing the identity of the informant. Good news for persons engaged in regularly seeking awards as a business model. This gives a fighting chance for these persons to achieve anonymity. That seems appropriate but when a party blows the whistle on an entity with which it has little or no contact, the need for anonymity will be more difficult, though certainly not impossible to demonstrate. The court must continue to run through the tests which properly balance the needs of the parties and not short circuit the test because the person providing the information does so on a regular basis.

Whistleblower Jurisdiction: Is Anyone Listening? – Designated Orders: July 22 – 26, 2019

This week featured three orders from Judge Armen, along with another brief order from Judge Kerrigan that extended the time for responding to a discovery request.

These will be among the last orders from Judge Armen. The Tax Court recently announced that Judge Armen retired from the bench, effective August 31, 2019. I’ve appeared before Judge Armen numerous times for trial sessions in Chicago. In those sessions, I always found him to be fair, thorough, and thoughtful. He always took time to walk pro se petitioners through the Court’s procedures, carefully listened to them, and explained the applicable law in an approachable manner. His presence on the bench will, indeed, be missed.

His first order is relatively unremarkable, save the exacting detail that Judge Armen uses to walk a pro se taxpayer through a relative simple issue (unsurprising, given his similar willingness to do so at trial sessions). Petitioner had contended that including unemployment income in gross income is “cruel, short-sighted, and runs afoul any theory of economic success.” That may well be, but Judge Armen painstakingly runs through the Code to demonstrate that unemployment income is specifically included in gross income under § 85 (and is otherwise generally includable under § 61(a)).

The other two orders are in pro se Whistleblower cases. Both grant summary judgment to the government because there was no administrative or judicial action to collect unpaid tax or otherwise enforce the internal revenue laws. For the Tax Court to obtain jurisdiction under IRC § 7623(b)(4), the IRS must commence such an action.

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Docket No. 17586-18W, Hammash v. C.I.R. (Order Here)

Petitioner submitted a Form 211, Application for Award for Original Information, with the IRS Whistleblower office, alleging that a certain business underreported taxes, and that the Petitioner had previously reported the business to the “IRS in California”. (One wonders whether Petitioner means an IRS office in California, or the California Franchise Tax Board; my clients often refer to the Indiana Department of Revenue as the “Indiana IRS”.) But, there wasn’t any further explanation or supporting documentation of the alleged malfeasance.

According to Respondent’s exhibits, the Whistleblower Office denied an award and didn’t otherwise refer the case for further investigation. The Petitioner timely filed a petition; from a review of the docket, it seems he may been represented by a POA at the administrative level, as a motion to proceed anonymously was originally filed by someone not admitted to practice before the Tax Court. The Court struck it from the record soon thereafter.

In any case, the particulars don’t really matter here. The limited information provided in the Form 211 isn’t what dooms Petitioner’s case; rather, it’s that the IRS never initiated an administrative or judicial proceeding to collect tax from the allegedly delinquent taxpayer.

For the Tax Court, this is a jurisdictional requirement under IRC § 7623(b)(4). The Tax Court is authorized to review a “determination regarding an award under [§ 7623(b)(1)-(3)]. IRC § 7623(a)(1), (2), and (3) provide for various awards. Paragraph (1) authorizes an award “[i]f the Secretary proceeds with any administrative or judicial action” related to detecting underpayments of tax or detecting and bringing to trial and punishment criminal tax violators. See IRC § 7623(a), (b)(1); see also Cohen v. Commissioner,139 T.C. 299, 302 (2012). Paragraph (2) and (3) awards are likewise premised upon an “action described in paragraph (1)”. Moreover, the government must collect some unpaid tax from the target taxpayer pursuant to such action, for the Tax Court to obtain jurisdiction.  

Neither an investigative action nor collection of proceeds occurred here. Petitioner didn’t provide any evidence to the contrary in the Tax Court proceeding; indeed, after the Tax Court struck his representative’s motion to proceed anonymously, he seemed to not participate at all. Therefore, summary judgment was appropriate and the Court sustained Respondent’s whistleblower determination.

Docket  No. 19512-18W, Elliott v. C.I.R. (Order Here)

This whistleblower claim contained substantially more detail than Hammash, but nevertheless Petitioner finds herself in the same situation.

Petitioner filed a Form 211, which according to the Court, alleged “a brokerage services firm . . . that was custodian for a certain qualified retirement plan was mishandling former plan participants’ accounts.” Unlike in Hammash, where it appears no outside review occurred, here the Whistleblower Office did forward the claim to a Revenue Agent at the IRS Tax Exempt and Government Entities division. The RA sent the claim back to the Whistleblower Office, noting that TEGE does not investigate custodians, but rather investigates qualified plans themselves.

The Whistleblower Office didn’t send the claim on to any other division of the IRS. Instead, it issued a denial letter essentially identical to the one in Hammash, noting that the information provided was speculative, lacked credibility, and/or lacked specificity.

Petitioner argued that her information was, in fact, credible and specific, and asked the Court to compel Respondent to investigate the claim.

While this case involved a much more engaged Petitioner with facially troubling allegations, one fact remains: it’s undisputed that the IRS did not conduct an administrative or judicial action to recoup any unpaid tax or otherwise prosecute violations of the internal revenue laws. No proceeds were collected either. Further, the Court cannot, under the limited jurisdiction provided in IRC § 7623, determine the proper tax liability of the target taxpayer or require the IRS to initiate an investigation. See Cooper v. Commissioner, 136 T.C. 597, 600 (2011).

Thus, the Court granted Respondent’s motion for summary judgment and sustained Respondent’s administrative denial of the whistleblower award claim.

One small nitpick: here and in Hammash, the Court determined that it lacked jurisdiction. Yet it “sustained” Respondent’s administrative determination. While it arrives at the same conclusion, I don’t believe that’s the proper result under Cohen or Cooper. Under those cases, the Court lacks the power to sustain or overturn the determination to deny the claim; it should therefore dismiss the case for lack of jurisdiction, rather than sustaining Respondent’s determination.

DOJ Seeks En Banc Rehearing of D.C. Cir. Myers Whistleblower Opinion

On July 2, 2019, the D.C. Circuit held that the 30-day filing deadline for bringing a Tax Court whistleblower award review suit at section 7623(b)(4) is not jurisdictional and is subject to equitable tolling. Myers v. Commissioner, 928 F.3d 1025. I blogged on the opinion here. Upset at its first loss in one of the cases in which Keith and I and the Harvard clinic have been making this argument as to various Tax Court filing deadlines (including in our amicus brief in Myers), the DOJ, on September 12, 2019, petitioned the D.C. Circuit to rehear the case en banc as to both the jurisdiction and equitable tolling rulings.

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I won’t repeat in detail from my prior post how the D.C. Circuit reasoned that the filing deadline is not jurisdictional under recent Supreme Court non-tax case law. But, basically, the court held that, while the Code section clearly gave the Tax Court jurisdiction to hear such cases, the Code section was not sufficiently clear, by using the words “such matter” in a parenthetical, that Congress also wanted the filing deadline to be jurisdictional. Absent such a “clear statement”, the Supreme Court’s current position is that filing deadlines are not jurisdictional. In the DOJ’s rehearing petition, the DOJ basically repeats what it argued before – that “such matter” necessarily implies the filing deadline as well as the subject matter of the case.

When the D.C. Circuit ruled (2 to 1) against the DOJ on this argument, the court stated that it recognized how its ruling was “in some tension with” both Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), and Guralnik v. Commissioner, 146 T.C. 230 (2016), each of which held that the section 6330(d)(1) Collection Due Process Tax Court filing deadline is jurisdictional and not subject to equitable tolling on language virtually identical to that in section 7623(b)(4).

My favorite passage from the rehearing petition is one with which I wholly agree:

The majority recognized that its holding “is in some tension” with that of the Ninth Circuit regarding “a similarly worded provision of the Internal Revenue Code, 26 U.S.C. § 6330(d)(1).” (Add.20.) But that is an understatement (to say the least). It is simply not possible to reconcile the decision in this case with Duggan.

The petition makes no new arguments, with the exception of (in the equitable tolling section) adding information (not previously given to the court) about how many whistleblower award claims are received each year — over 10,000. The DOJ argues that there would be huge administrative problems if equitable tolling were allowed because a lot of those claimants (including ones whose claims were long ago turned down) could now file late in the Tax Court. That, of course, is pure speculation. What the DOJ doesn’t mention is that, up to now, there have only been about 100 whistleblower award cases under 7623(b)(4) pending in the Tax Court at a time. This latter figure appeared in the appellant’s brief from a 2017 report of the whistleblower office.

In its rehearing petition, the DOJ also raised the specter that some awards may already have been given to one whistleblower, but if late Tax Court petitions are allowed, equitable tolling could lead to duplicate awards. I seriously doubt that is a real concern. Equitable tolling is a matter of equity. If a court saw that by a petitioner waiting so long, the IRS could now be in a situation to have to pay two awards, no doubt that is an equitable fact the court would consider in deciding whether tolling should be allowed.

The DOJ also makes an argument that it did not make before to the panel below — that there should be no equitable tolling because there is a cottage industry of lawyers that brings whistleblower award suits. In Sebelius v. Auburn Regional Medical Center, 568 U.S. 145 (2013), the Supreme Court held that there should be no equitable tolling because the Medicare concerns who were seeking reimbursement decision reviews before administrative boards were sophisticated companies who elected continuously to participate in the Medicare system and were well-represented by counsel. The Myers court pointed out that, by contrast, the Tax Court generally is a place where petitions are filed pro se by people who have never filed before — like Myers himself. So, it distinguished Auburn.

It troubles me that the DOJ did not give statistics to support its argument on how many whistleblowers (percentagewise) file pro se and represented Tax Court petitions. In any event, whistleblowers can’t be said to have elected to participate in the award system. Mr. Myers simply felt that his former employer had misclassified both him and other similar workers as independent contractors and suggested an audit.

Observations

I am told by people who do appellate work full time that the D.C. Circuit is stingy with grants of rehearings en banc. So, I am not expecting the petition to be granted. Then, the question will be whether the Solicitor General seeks cert.

This may be a similar situation to when, as an amicus, I helped persuade the Ninth Circuit in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), that the filing deadline in section 6532(c) for a district court wrongful levy suit is not jurisdictional and is subject to equitable tolling under recent Supreme Court case law. The DOJ also filed a petition for a rehearing en banc with the Ninth Circuit – pointing to a clear conflict with opinions of other Circuits holding the filing deadline jurisdictional and not subject to equitable tolling (though those opinions predated the 2004 change in Supreme Court case law on jurisdiction). The Ninth Circuit did not grant the en banc rehearing. Then, the DOJ did not pursue the matter by filing a cert. petition.

But, I would be happy to see the jurisdiction and equitable tolling issues elevated to the Supreme Court. So, I am not hoping for a similar SG abandonment of the Myers case. In the rehearing petition, the DOJ argues that this is a matter of exceptional importance to the IRS. But, then, people seeking rehearing always say that.

D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable tolling

As many of you know, the Tax Clinic at the Legal Services Center of Harvard Law School has been arguing, since its 2015 inception, that judicial filing deadlines in tax are not jurisdictional and are subject to equitable tolling under recent Supreme Court case law. Accepting this argument would upend decades of case law in the appellate courts and the Tax Court. We first made the argument in a Collection Due Process (CDP) case filed in the Tax Court. In Guralnik v. Commissioner, 146 T.C. 230, 235-238 (2016), an en banc Tax Court unanimously rejected our argument (but found another way to rule for the taxpayer). Later, in another case, Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), the Ninth Circuit also held the CDP filing deadline at section 6330(d) jurisdictional and not subject to equitable tolling. (In Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018), the Fourth Circuit said there were no facts that would justify equitable tolling, so it passed on deciding whether the CDP filing deadline was jurisdictional.) 

The whistleblower award jurisdiction of the Tax Court at section 7623(b)(4) dates from 2006 and was copied almost verbatim from the CDP filing deadline language. In a 2-1 opinion in Myers v. Commmissioner, U.S. App. LEXIS 19757 (D.C. Cir. July 2, 2019), rev’g 148 T.C. 148 (2017), the D.C. Circuit has just held that the whistleblower award petition filing deadline is not jurisdictional and is subject to equitable tolling. The D.C. Circuit reversed the Tax Court’s dismissal of the case for lack of jurisdiction. The Tax Court had so held because it felt that the whistleblower’s failure to timely file the petition within 30 days of the issuance of various notices that the Tax Court found were notices of determination deprived the Tax Court of jurisdiction. I previously blogged on the Tax Court’s Myers opinion here. The D.C. Circuit remanded the Myers case to the Tax Court for the Tax Court to decide, in the first instance, whether the confusing nature of the determinations and their being sent by regular mail (and not even mentioning possible Tax Court review) justified equitable tolling in this case to make the Tax Court petition timely.

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Facts

Davis Myers told the whistleblowers office that he thought a company at which he had worked had misclassified employees as independent contractors. He sought a mandatory whistleblower award under section 7623(b) for a portion of the proceeds of any audit of the company. In a series of four letters written by the office to him and sent by regular mail, the office declined to pay him an award. The letters did not state that they were determinations under the statute, nor did they explain that the next step the whistleblower could take to contest the letters was to file a Tax Court petition within 30 days. Myers was puzzled what to do next. He wrote various people in the government complaining of his lack of award and mentioning the letters he had received. After getting no satisfaction form anyone, he decided to try filing a Tax Court petition – more than a year after the date on the last letter.

In the Tax Court, the IRS moved to dismiss the petition for lack of jurisdiction, arguing that the filing deadline is jurisdictional. The Tax Court asked the IRS for proof of mailing of each letter. Normally, other tickets to the Tax Court are sent certified mail, but these letters hadn’t been. The IRS conceded that it had no proof of when the letters were actually mailed. But, pointing to Myers’ correspondence with other government individuals, the IRS argued that Myers had received the letters at least by the dates of such correspondence. Since he had waited more than 30 days thereafter to file, the IRS argued that the petition was untimely. In an opinion importing some of its case law from its deficiency jurisdiction, the Tax Court granted the IRS motion.

Myers then had 30 days to file either a motion to vacate under Rule 162 or a motion for reconsideration of findings or opinion under Rule 161. He filed such a timely motion, but styled it one for reconsideration when he uploaded it electronically though the Tax Court’s efiling system. After the Tax Court denied the motion, he filed a notice of appeal of the Tax Court case, seeking an appeal to the Tenth Circuit. The notice of appeal was filed more than 90 days after the entry of the decision in the Tax Court case. Section 7483 gives an appellant only 90 days from the decision’s entry to file an appeal. But, FRAP 13 provides that if a person files a timely motion to vacate the decision, then the 90-day period to appeal starts running on the date the Tax Court rules on the motion. The FRAP does not mention motions to reconsider findings or opinions, however.

The Tenth Circuit transferred the appeal to the D.C. Circuit because, under section 7482(b)(1), the D.C. Circuit is the sole proper appellate venue for whistleblower appeals from the Tax Court.

Myers had been pro se to this point. But, for the D.C. Circuit, Joe DiRuzzo and Alex Golubitsky entered appearances on Myers’ behalf. The Harvard Federal Tax Clinic filed an amicus brief in the D.C. Circuit case.

D.C. Circuit Rulings

Initially, in its ruling, the D.C. Circuit addressed whether it had proper appellate jurisdiction from the Tax Court. Only one Circuit had ruled precedentially on the issue, the Ninth in Nordvik v. Commissioner, 67 F.3d 1489, 1493-1494 (9th Cir. 1995). In Nordvik, the court held that, despite FRAP 13’s lack of mention of a motion for reconsideration, such a motion also triggers the running of the 90-day period beginning from the date the Tax Court rules on the motion. In Myers, the D.C. Circuit reasoned that many Tax Court petitioners file pro se, and there is no explanation in Tax Court rules as to the difference between the two types of motions. Indeed, the motions are governed by similar review standards. Further, in non-tax appeals, motions for reconsideration are treated the same as motions to vacate a judgment – i.e., both postponing the appeal period until after such motions are ruled on. In order not to create a trap for unwary pro se filers, the D.C. Circuit held that motions for reconsideration are treated the same as motions to vacate the decision for purposes of the 90-day period to appeal under FRAP 13. Thus, Myers had filed a timely notice of appeal within 90 days of the Tax Court’s ruling on his motion for reconsideration.

Regarding the question of whether the Tax Court whistleblower award petition’s filing deadline is jurisdictional, the appellate court took a liberal view of Myers’ pro se pleadings to consider this issue and the issue of equitable tolling (even though Myers had never mentioned that exact doctrine before the Tax Court).

But first, contrary to some of Myers’ arguments, the D.C. Circuit held that the letters were proper notices of determination, since there was no legal requirement that the notices be sent certified mail, mention Tax Court review, or mention a 30-day filing period to contest them. Further, the D.C. Circuit did not disturb the Tax Court’s holding that Myers actually received the letters more than 30 days before he filed the Tax Court petition, and the 30-day period started no later than the date of provable receipt.

Turning to whether Myers could be forgiven for not filing timely, this raised two separate questions: Whether the filing deadline is jurisdictional and, if not, whether it is subject to equitable tolling?

Section 7623(b)(4) provides: “Any determination regarding [a whistleblower] award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).” This language is virtually the same as the CDP jurisdiction language at section 6330(d)(1), from which it was copied. Section 6330(d)(1) provides: “The person may, within 30 days of a [CDP] determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” Both provide a deadline for filing a Tax Court petition 30 days after the issuance of a determination, and both contain an ending parenthetical stating “and the Tax Court shall have jurisdiction with respect to such matter”.

PT had published a post by Texas Tech Prof. Bryan Camp criticizing Guralnik’s holding that the CDP filing deadline is jurisdictional. The post can be found here. In the clinic’s amicus brief in Myers, we quoted Bryan’s criticism of the Tax Court’s logic that the jurisdictional grant was made in the same breath as the filing deadline, so the filing deadline must also be jurisdictional. In its Myers opinion, although the D.C. Circuit did not cite Bryan’s blog post, it clearly borrowed from it in coming to its conclusion.

Under recent Supreme Court case law, a filing deadline is almost never jurisdictional. But, Congress can override that conclusion by making a “clear statement” that the filing deadline is intended to be jurisdictional. The D.C. Circuit acknowledged that it may be pushing the law a bit farther than the Supreme Court had so far in its cases, but the D.C. Circuit simply did not see that Congress had made a clear statement that the filing deadline in section 7623(b)(4) is jurisdictional by inserting the parenthetical grant “with respect to such matter”. The D.C. Circuit wrote:

The IRS contends this constitutes a “clear statement” because the Congress “placed the jurisdictional language in the same sentence and subsection as the time limit.” As our amicus points out, however, the Supreme Court has explicitly rejected “proximity-based arguments” to that effect. See Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 155 (2013) [where a single sentence contained both the jurisdictional grant and a filing deadline, but the Supreme Court still held the filing deadline not jurisdictional] . . . .

On the contrary, the jurisdictional grant is separated from the rest of the provision by being put in parentheses and introduced by the word “and,” which announces a new independent clause. We therefore do not attach dispositive significance to the proximity between the provision setting the time period and the jurisdictional grant. . . .

The IRS counters that “the test is whether Congress made a clear statement, not whether it made the clearest statement possible.” See Duggan v. Commissioner, 879 F.3d 1029, 1034 (9th Cir. 2018). True enough, but we are not saying the Congress must “incant magic words in order to speak clearly.” Auburn, 568 U.S. at 153. The Congress need only include words linking the time period for filing to the grant of jurisdiction . . . .

Our dissenting colleague reads “such matter” in the parenthetical to provide the connection that makes the filing period jurisdictional. We agree that “such matter” means “the subject of litigation previously specified,” which is “an appeal to the Tax Court.” Dissent 3. In our view, however, the type of appeal to which “such matter” refers is most naturally identified by the subject matter of the appeal – namely, “any determination regarding an award under paragraph (1), (2), or (3)” – and not by the requirement that it be filed “within 30 days of such determination.”

Slip Op. at 16-19 (some citations omitted).

The majority distinguished the three recent court of appeals opinions in which the Harvard clinic had unsuccessfully argued that the innocent spouse filing deadline at section 6015(e) is also not jurisdictional (Rubel v. Commissioner, 856 F.3d 301(3d Cir. 2017), Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017), and Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018)) because the language in the innocent spouse jurisdictional grant contains an “if” condition that is not present in the CDP or whistleblower award provision. The D.C. Circuit wrote:

[Section 6015(e)(1)(A)] differs from the provision at hand in one critical respect: The grant of jurisdiction is followed by an “if” clause that expressly conditions jurisdiction upon timely filing. There is no conflict, therefore, between this case and the cited decisions. Indeed, we think § 6015(e)(1)(A) just shows one way the Congress could have more clearly conditioned the Tax Court’s jurisdiction upon timely filing in § 7623(b)(4), viz., with a parenthetical that stated “the Tax Court shall have jurisdiction with respect to such matter if the appeal is brought within such period.”

Footnote on slip op. at 18-19.

In his forthcoming law review article in The Tax Lawyer, Prof. Camp makes the similar distinction, concluding that section 6330(d)(1)’s filing deadline is not jurisdictional, while section 6015(e)(1)(A)’s filing deadline is jurisdictional. See “New Thinking About Jurisdictional Time Periods in the Tax Code.

The D.C. Circuit in Myers noted that its holding is “in some tension with that of another circuit regarding a similarly worded provision of the Internal Revenue Code, 26 U.S.C. §6330(d)(1)”, citing the Ninth Circuit’s opinion in Duggan and the Tax Court’s opinion in Guralnik, and writing:

This provision is nearly identical in structure to the one at hand. Nevertheless, for the reasons given above, we cannot agree that ‘timely filing of the petition [is] a condition of the Tax Court’s jurisdiction’ simply because ‘the filing deadline is given in the same breath as the grant of jurisdiction.’ Duggan, 879 F.3d at 1034.

Slip op. at 20.

Moving on to whether the filing deadline is subject to equitable tolling, the Myers court noted that in Irwin v. Dept. of Veterans Affairs, 498 U.S. 89 (1990), the Supreme Court laid down a rebuttable presumption that nonjurisdictional federal statutes of limitations are subject to equitable tolling. The Myers court dismissed the DOJ’s argument that the filing deadline, even if not jurisdictional, is not subject to equitable tolling because, the DOJ argued, the whistleblower award Tax Court filing deadline is similar to the internal administrative filing deadline held not subject to equitable tolling in the Auburn case. The scheme in Auburn involved health care providers seeking reimbursements from Medicare internal boards, where the providers were represented by counsel and were repeat players before the boards. The Myers court wrote:

None of these other indicators of legislative intent is present in this case: The Tax Court is not an “internal” “administrative body” and Tax Court petitioners are typically pro se, individual taxpayers who have never petitioned the Tax Court before. Moreover, the IRS points to no regulation or history of legislative revision that might contradict the Irwin presumption. That the whistleblower award statute is not unusually protective of claimants is the only consideration on the IRS side of the ledger. Without more, we are not persuaded to set aside a presumption that has been so consistently applied. See, e.g. Young v. United States, 535 U.S. 43, 49 (2002) (“It is hornbook law that limitations periods are customarily subject to equitable tolling”) (cleaned up).

Slip op. at 22.

The D.C. Circuit remanded the case to the Tax Court for the Tax Court to determine, in the first instance, whether the facts in Myers required equitable tolling.

Observations

The D.C. Circuit is the sole appellate jurisdiction for whistleblower award ruling appeals from the Tax Court. So, this is a nationwide victory for whistleblowers. But, the DOJ might seek reconsideration en banc or cert. because of the split with the Ninth Circuit in Duggan. I would not be shocked if the Supreme Court would grant cert., since it has always been the position of the Tax Court and the government that the filing of a timely petition is necessary to any of its jurisdictions. See Tax Court Rule 13(c). Yet, the Supreme Court has never said anything about the jurisdictional nature of the Tax Court’s filing deadlines or whether they are subject to equitable tolling.

In sum, I am delighted to report that, after a series of disappointing losses involving Tax Court filing deadlines, we finally have a winner — and one that might generate a Supreme Court opinion, depending on how the Solicitor General feels about the case.