What’s Happening in Myers and Whistleblower Cases After the Decision the Statute is a Claims Processing Rule

In 2019 the D.C. Circuit held in Myers v. Commissioner, 928 F.3d 1025, that the language creating the Tax Court’s basis for jurisdiction to hear whistleblower cases did not create a jurisdictional filing deadline.  It also held the time period subject to equitable tolling.  So, can the subsequent history of Myers provide insight into how the Tax Court will handle equitable tolling cases in Collection Due Process cases (CDP)?  No, it cannot because the Court held off on looking into equitable tolling waiting for the outcome in Boechler, but the post-Myers cases do provide insight into what happens when no one raises the issue of late filing.

Since the Myers decision, it does not appear that the Tax Court has issued any other rulings on whistleblower cases deciding an equitable tolling issue.  This signals how rarely equitable tolling issues present themselves. The IRS Whistleblower Office Annual Report to Congress (of which the most recent report posted to IRS.gov is for FYE 2020; see https://www.irs.gov/pub/irs-pdf/p5241.pdf) says in Table 3 on page 24 that there were 118 IRC 7623(b) claims in litigation as of 9/30/20, but then confusingly notes:  “There are closed claims that are in litigation. Table 3 identifies only open claims.”  Does that mean that Tax Court cases are not in the 118 or are in the 118?  This probably means that the 118 cases in litigation are pending Tax Court cases.  The Tax Court has reported to Congress that during FYE 2021 there were 63 whistleblower (WB) cases filed.  https://www.ustaxcourt.gov/resources/budget_justification/FY_2023_Congressional_Budget_Justification.pdf

The benefit of Myers to taxpayers who file late, however, appears to be in prohibiting the Tax Court from issuing orders to show cause why a whistleblower case should be dismissed for lack of jurisdiction (LOJ).  This post will discuss four opinions below, each of which suggests that the Tax Court would have issued orders to show cause to dismiss for lack of jurisdiction due to late filing, had the filing deadline been jurisdictional.  This provides a window into what will happen with late filed CDP cases where the IRS does not raise the timing of the filing.    In Myers any benefit from the D.C. Circuit opinion as confirmed by the Supreme Court in Boechler will come from the application of equitable tolling.

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Looking at the whistleblower cases decided since the Myers decision, Carl Smith found the following cases:

(1)  In Whistleblower 15977-18W, T.C. Memo. 2021-143 (12/29/21), the taxpayer lost on summary judgment because the Tax Court upheld a determination by the WB office that the WB did not provide specific enough information.  (Query whether the more recent D.C. Circuit case, Li v. Commissioner, would have required the Tax Court to dismiss this case for LOJ because the WB office did not appear to take any action on the claim beyond asking SB/SE to look into the claim.  There is no mention of any proceeding done against the taxpayer.)  The WB office issued a notice of determination to the WB on Oct. 16, 2017.  The WB, who lived overseas, may not have received the notice of determination until after the 30 days to petition expired.  In any event, the WB petitioned the Tax Court on Aug. 16, 2018.  The IRS did not raise to the Tax Court that the case should be dismissed for late filing.  Here’s footnote 3 from the opinion:

Petitioner resided outside of the United States when the petition was filed.  In Myers v. Commissioner, 928 F.3d 1025, 1036-1037, 442 U.S. App. D.C. 110 (D.C. Cir. 2019), rev’g and remanding 148 T.C. 438 (2017), the Court of Appeals for the D.C. Circuit held that the 30-day period for filing a petition to initiate a whistleblower action is subject to equitable tolling. The D.C. Circuit is the appellate venue for this case. See sec. 7482(b)(1) (penultimate sentence). We thus follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Consistently with Myers, we hold that we have jurisdiction to consider this case. And since neither party has questioned the filing of the petition after the 30-day period or addressed the subject of equitable tolling, we will proceed to consider the pending motions.

The Tax Court did exactly what it should have.  It no longer has the right to raise timeliness issues on its own.  This will happen more and more now that the CDP cases have entered the pool of cases subject to the claims processing rule. 

(2)  Similar is Damiani, T.C. Memo. 2020-132, where the court saw that, obviously, the petition was not timely filed.  Here’s a bit from the Damiani opinion:

The Office agreed with Mr. Wiggins’ recommendation and on June 14, 2019, issued a final determination letter rejecting petitioner’s claims. The letter stated in pertinent part that “[t]he claim has been rejected because the information submitted did not identify an issue regarding tax underpayments or violations of internal revenue laws.” The letter informed petitioner: “If you disagree with this determination, you have 30 days from the date of this letter to file a petition with the Tax Court.”

Petitioner petitioned this Court for review of the Office’s determination. Her petition was mailed from Germany, postmarked by Deutsche Post on July 31, 2019, and was received and filed by the Court on August 12, 2019. 

. . . .

Consistently with Myers, we hold that we have jurisdiction to consider this case. And since neither party has questioned the filing of the petition after the 30-day period or addressed the subject of equitable tolling, we will proceed to consider respondent’s motion for summary judgment.

(3) Also similar is Friedel, T.C. Memo. 2020-131.  Here’s a bit from the Friedel opinion:

The Office agreed with both recommendations and issued on April 30 and May 8, 2019, final determination letters rejecting petitioner’s claims. Each letter stated in pertinent part that “[t]he claim has been rejected because the IRS decided not to pursue the information you provided.” The letters informed petitioner: “If you disagree with this determination, you have 30 days from the date of this letter to file a petition with the Tax Court.”

Petitioner petitioned this Court for review of the Office’s determinations. His petition was mailed from Germany, postmarked by Deutsche Post on June 11, 2019, and was received and filed by the Court on June 24, 2019. 

. . . .

[S]ince neither party has questioned the filing of the petition after the 30-day period or addressed the subject of equitable tolling, we will proceed to consider respondent’s motion for summary judgment.

(4)  Also similar is Stevenson, T.C. Memo. 2020-137, where the court expressed concern that the petition might not have been timely, but did not actually find facts as to the 30-day deadline.  The court there wrote:

Section 7623(b)(4) provides that “[a]ny determination regarding an award * * * 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).” The Office issued its determination letter to petitioner on April 10, 2019. He signed his petition on May 2, 2019, but the mailing date is unclear. See sec. 7502(a). The petition was received and filed by the Court on May 13, 2019, more than 30 days after the date on which the Office issued the determination letter.

. . . .

Since neither party has questioned the filing of the petition after the 30-day period or addressed the subject of equitable tolling, we will proceed to consider respondent’s motion for summary judgment.

In all of these cases, the IRS successfully moved for summary judgment.  Perhaps the IRS was so confident it would win on summary judgment that it did not bother to raise the petition untimeliness issues. In the amicus brief the Tax Clinic at the Legal Services Center of Harvard Law School filed for the Center for Taxpayer Rights in Boechler at the cert. stage, we predicted this outcome.  It may well turn out that it is more important to taxpayers that the Tax Court can’t raise timeliness issues on its own if a deadline is not jurisdictional than that the taxpayers can also raise equitable tolling. 

As the recent post on the application of 7459 pointed out by detailing the number of dismissals in deficiency, CDP, innocent spouse, and WB cases, there will be more (1) cases in which the IRS just misses the late filing and so doesn’t raise the issue than (2) cases where the IRS will raise the issue and the taxpayer will argue for equitable tolling.  It may be that the WBs in each of the above cases had an equitable tolling argument (e.g., non-receipt during the 30-day period, like Ms. Castillo), but they never had to present one.

D.C. Circuit Narrows Tax Court Whistleblower Award Jurisdiction

In Li v. Commissioner, No. 20-1245 (D.C. Cir. 2021) the court holds that the Tax Court lacks jurisdiction to hear appeal of threshold rejection of whistleblower award requests.  The case arrived in the circuit court after the Tax Court held the IRS did not abuse its discretion in rejecting the award request.  In deciding the Li case the D.C. Circuit also found that two prior precedential Tax Court cases, Cooper v. Commissioner, 135 T.C. 70 (2010) and Lacey v. Commissioner, 153 T.C. 146 (2019), were wrongly decided.  As we have discussed here, all appeals of whistleblower cases from the Tax Court go to the D.C. Circuit because of the language in IRC 7482.  Therefore, the decision in the Li case binds the Tax Court in its consideration of future whistleblower cases unless the Supreme Court takes up the issue.  Having knocked out two precedential Tax Court opinions in one blow, the Li case will create at least one more when the Tax Court takes up the issue again.

An interesting side note in this case before moving on to the jurisdictional issue involves the D.C. Circuit’s appointment of an amicus to argue the issue of jurisdiction before it.  Neither Ms. Li, the IRS nor the Tax Court raised any jurisdictional concerns and the court felt the need to have legal argument from a lawyer on the jurisdictional point, as the Supreme Court had done in a case involving jurisdiction, Sebelius v. Auburn Regional Medical Center, where it appointed John Manning, my dean at Harvard Law School, to brief the jurisdictional issue. 

Robert Manhas and Robert Loeb filed an amicus brief in Li concluding that the Tax Court lacked jurisdiction to hear the case at the time of the filing of the Tax Court petition.  After the amicus brief was filed making the argument that the courts lacked jurisdiction, the DOJ (but not the taxpayer) filed a “final reply brief” (i.e., in addition to the DOJ prior reply brief) in which the DOJ changed position and agreed with the amicus that the Tax Court, and therefore, the D.C. Circuit, lacked jurisdiction.  No one briefed the argument that the Tax Court actually had jurisdiction.  So, once again, a pro se taxpayer effectively lost on an issue without representation.

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The taxpayer had submitted a Form 211, and the reviewer in the IRS Whistleblower Office (WBO) decided that the information on the target taxpayer was too vague and speculative to forward the Form 211 for further action.  The WBO issued a determination letter telling the whistleblower that she could contest the decision by petitioning the Tax Court.  She did, pro se.  After she lost in the Tax Court, she appealed pro se. 

Neither the IRS nor Ms. Li nor the Tax Court identified a possible jurisdictional issue.  The Tax Court decision found that:

the WBO adequately performed its evaluative function in reviewing Li’s application and did not abuse its discretion by rejecting it for an award.

The D.C. Circuit, sua sponte, wondered whether the Tax Court lacked jurisdiction and so appointed an amicus to argue that jurisdiction was lacking.  In the published ruling, the D.C. Circuit overturns Tax Court precedent that holds that pretty much any reason (even a preliminary ruling) for turning down an award can be the subject of a Tax Court suit.  The D.C. Circuit finds that it only has jurisdiction to rule on the whistleblower decision if the Tax Court had jurisdiction.  Since it determines the Tax Court lacked jurisdiction, it only has jurisdiction to cure the defect caused by the incorrect exercise of jurisdiction.  It writes:

After review, we conclude that Cooper and Lacey were wrongly decided. The Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests.

Subsection (b)(4) of § 7623 gives the Tax Court exclusive jurisdiction over only a “determination regarding an award” under subsections (b)(1)(3). The Cooper and Lacey Courts held that a threshold rejection of a whistleblower award request constituted such an award determination because the rejection of an award was a so-called “negative” award determination. Lacey, 153 T.C. 163 n.19 (citing in accompanying text Cooper, 135 T.C. 70); see also id. at 150 n.5 (“[A] ‘rejection’ is also a ‘determination’. . . .”). We disagree. A threshold rejection of a whistleblower’s Form 211 for vague and speculative information is not a negative award determination, as there is no determination as to an award under subsections (b)(1)(3) whatsoever. Per subsection (b)(1), an award determination by the IRS arises only when the IRS “proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention by [the whistleblower]. . . .” 26 U.S.C. § 7623(b)(1) (emphasis added). A threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer. See Cline v. Comm’r, 119 T.C.M. (CCH) 1199, 2020 WL 1249454, at *5 (T.C. 2020). Therefore, there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.2

In this case, the WBO rejected Li’s Form 211 for providing vague and speculative information it could not corroborate, even after examining supplemental material Li herself did not provide. The WBO did not forward Li’s Form 211 to an IRS examiner for further action, and the IRS did not take any action against the target taxpayer. There was no proceeding and thus no “award determination” by the IRS for Li’s whistleblower information. Therefore, the Tax Court had no jurisdiction to review the WBO’s threshold rejection of Li’s Form 211.

This Court regrets that Li was informed otherwise by letter to her from the WBO. However, “no action of the parties can confer subject-matter jurisdiction upon a federal court.” Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).

Finally, the parties have called our attention to our decision in Myers v. Comm’r which contains the statement that “’written notice informing a claimant that the IRS has considered information that he submitted and has decided whether the information qualifies the claimant for an award’ suffices to constitute a ‘determination’ for the purpose of § 7623(b)(4).” 928 F.3d 1025, 1032 (D.C. Cir. 2019). Upon review, we conclude that this statement is not a holding concerning the issue in the present case. This statement was responding to petitioner’s argument that the WBO denial letter in his case did not contain enough information to qualify as a “determination” under the statute. Id. We subsequently declined to “craft requirements out of whole cloth” regarding what information a WBO denial letter must contain. Id. at 1033. By contrast, the question in this case asks whether § 7623(b)(4) confers jurisdiction only when there is both an IRS action based on whistleblower information and proceeds collected from that action. As this issue was not squarely before us in Myers, the above statement from Myers does not bind our decision today.

The Li decision will undoubtedly cause attorneys in the whistleblower bar to take notice and this may be a case in which a petition for certiorari is filed since the issue is important to the determination of the Tax Court’s jurisdiction and no possibility of a circuit split exists.

The Myers case referred to in the final quoted paragraph is still pending in the Tax Court after a trip to the D.C. Circuit.  If I recall the facts there, Myers may be in a similar situation to Li (though the parties are, I think, in discovery about whether the IRS actually used the information and conducted an audit of the taxpayer).  Will the IRS now move to dismiss the Myers case for lack of jurisdiction?  Remember that jurisdictional issues can be raised at any time.  The D.C. Circuit opinion in Myers created the conflict in the circuits on the jurisdictional issue recently argued in Boechler before the Supreme Court.  If Myers is dismissed belatedly for lack of jurisdiction, does that cause the opinion of the D.C. Circuit in that case to be vacated, canceling it as precedent?  The continuing precedential validity of Myers regarding the interpretation at issue in Boechler, though, will no doubt be decided by the Boechler case, as it is unlikely that, after Boechler, the D.C. Circuit will differ in future whistleblower rulings from the ruling of the Supreme Court in CDP cases.

Does Death of a Whistleblower Mean Death of the Claim?

Miami Legal Services is looking to add an attorney to their tax clinic. Here is a link to the job announcement. Keith

In Insinga v. Commissioner, 157 T.C. No. 8 (2021) the Tax Court holds that the claim for payment a whistleblower has for providing information to the IRS does not die with the whistleblower.  Joseph Insinga filed his whistleblower case on April 25, 2013 and passed away on March 22, 2021 while the case was still pending.  If a whistleblower was required to stay alive until the end of a Tax Court case when cases can last so long, it would be quite a limiting factor.  Fortunately for the heirs of Mr. Insinga, the Court finds that death does not terminate his claim but it takes several pages of a precedential opinion to get there.

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The Court mentions that substantial development of the case has occurred by the time of this opinion through orders entered in 2016 and 2017.  Unfortunately, a portion of this case is sealed which means that for purposes of access on the Court’s website through Dawson the entire docket is sealed and the links to the orders which would ordinarily be available in a case without a sealed document are unavailable here since the sealing of any document results in the inability of the public to see the docket at all.  This is one of the features of Dawson the Court is working on but I have not seen an announcement regarding when the public might be able to see docket entries that are not sealed in cases where one sealed document exists.  If you want to see the orders, and if these orders are not sealed, you cannot go to the clerk’s office yet to view the file but you could call the clerk’s office and order the documents.  Because of the reference to the orders and the dates in this opinion, it will be relatively easy to identify for the clerk which documents you seek.  This will not be the case in other cases with sealed documents since you will need the clerk to read you the docket in order to select the documents you would like to see.  I also do not know if the Court sends out orders for free since they would be free if Dawson did not block the view of the docket or if you must pay the fee for the order the way you would for documents submitted by the parties. 

When Mr. Insinga passed away, a motion for substitution of party was filed shortly thereafter seeking to substitute the person appointed as personal representative for the estate.  The statute creating the whistleblower jurisdiction of the Tax Court is silent on the issue of survivability of whistleblower claims.  Because this issue was one of first impression in the Tax Court, the opinion in the case is precedential.

The court notes that in its deficiency jurisdiction survivability is not a problem:

In deficiency cases, which constitute most of the cases before this Court, “it is well settled that a petitioner’s death does not divest this Court of jurisdiction over his income tax liability for years already in issue”. Beatty v. Commissioner, T.C. Memo. 1980-168, 1980 Tax Ct. Memo LEXIS 414, at *7 (citing Nordstrom v. Commissioner, 50 T.C. 30 (1968), and Yeoman v. Commissioner, 25 T.C. 589 (1955)).3 Our deficiency jurisdiction is based on a timely filed petition, see sec. 6213(a); and (as held by our predecessor, the Board of Tax Appeals) “that jurisdiction * * * continues unimpaired” after the petitioner’s death,4 because “the action is one which survives against * * * [the petitioner’s] estate”, Duggan v. Commissioner, 18 B.T.A. 608, 625 (1930);5 see also Nordstrom v. Commissioner, 50 T.C. at 31-32 (citing Duggan v. Commissioner, 18 B.T.A. at 625, and Yeoman v. Commissioner, 25 T.C. 589, 593 (1955), in support of its holding that the Court’s jurisdiction over a case continues unimpaired by the death of a taxpayer and even though there is no personal representative appointed to act in the place and stead of the decedent).

To decide whether the whistleblower statute is one in which the claim survives death, the Court looks to federal common law.  It finds:

Federal statutes survive a plaintiff’s death if the statute is remedial, not penal. See Ex parte Schreiber, 110 U.S. 76, 80 (1884); see also United States ex rel. Hood v. Satory Global, Inc., 946 F.Supp.2d 69, 81 (D.D.C. 2013) (holding that a claim arising under the False Claims Act survives the death of the relator-plaintiff). The Court of Appeals for the Federal Circuit has expressed this rule by holding that, in the absence of a statutory provision to the contrary, common law supplies a presumption in favor of the survival of a remedial right of action arising under a Federal statute. See Figueroa v. Sec’y of Health & Human Servs., 715 F.3d 1314, 1319 (Fed. Cir. 2013).

This raises the issue of which statutes are remedial and which are penal.  The Court finds a three-part test from appellate case law:

(1) whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public; (2) whether recovery under the statute runs to the harmed individual or to the public; and (3) whether the recovery authorized by the statute is wholly disproportionate to the harm suffered.” United States v. NEC Corp., 11 F.3d 136, 137 (11th Cir. 1993) (quoting First Nat’l Bank & Tr. Co. in Macon v. Flatau (In re Wood), 643 F.2d 188, 191 (5th Cir. 1980)).

Although no existing precedent exists regarding the remedial or penal nature of the whistleblower provision, the Court finds a close cousin in the qui tam provisions of the False Claims Act found in 31 U.S.C. secs. 3729-3733.  Qui tam actions have never been a big part of federal tax claims, in other areas of federal law the qui tam precedent is robust.  The Court analyzed the NEC case cited above in which the 11th Circuit went through the three tests to find that qui tam actions met the criteria for remedial provisions in concluding that the provisions survived death.  It then looked at the purpose of the whistleblower provisions:

Applying the three-factor test set forth in NEC Corp., 11 F.3d at 137-139, we conclude: (1) Like the purpose of the FCA’s qui tam remedy, the purpose of the award provisions of section 7623(b) is to redress individual wrongs of the whistleblower in bringing his claim (such as retaliation by his employer or professional ostracism) by compensating him for the harm he may incur by doing so.12 (2) Section 7623(b) is intended to provide a remedy to the whistleblower for bringing his claim by providing mandatory compensation for claims where the collected proceeds meet certain statutory thresholds. And (3) the recovery due to the whistleblower under section 7623(b)(1), which “shall depend upon the extent to which the individual substantially contributed to such action”, shows that the whistleblower’s recovery is proportional to the harm he incurs in bringing his claim. Consequently, these three factors weigh in favor of holding (and we therefore do hold) that section 7623(b) has a remedial purpose, and therefore the petitioner-whistleblower’s Tax Court petition survives his death.

The Court notes that this result is also consistent with the applicable regulations and Court rules.  The opinion reaches a logical and unsurprising conclusion.  Not too many cases apply federal common law.  Any other result would create inconsistency with other tax provisions and an unintended harshness.  The heirs must still prevail in the underlying claim to the extent the orders in 2016 and 2017 have not already decided issues in the case.

In Whistleblower Case Tax Court Admonishes IRS For Failing to Follow Its Own Rules

Rogers v Commissioner is a Tax Court opinion that explores the IRS process for whistleblower claims and the impact of administrative law principles when the IRS fails to follow its own guidance. The case involves a series of allegations against nine family members and acquaintances who Rogers claimed had “conspired to commit grand theft through conversion of the assets of Mr. Rogers’ mother.”  As the opinion recounts, Rogers claimed that the nine fraudulently shifted assets away from his mother causing her to be “[divested] of her financial assets and property without her direct knowledge or control.”

The opinion discusses the process the Whistleblower Office (WBO) employs to review claims. That has recently changed, with SBSE operating division classifiers reviewing the claim (it used to be done principally by WBO staff). In this case the classifier recommended that the Service reject the claim because the “allegations are not specific, credible, or are speculative.”

In response, the WBO sent a letter to Rogers stating that it rejected his claim because it “decided not to pursue the information you provided.” The letter did not identify the reason for rejecting as being tied to a credibility determination.

Rogers appealed to the Tax Court seeking review of the WBO’s award determination under Section 7623(b)(4). The IRS filed an answer and then filed a motion for summary judgment. The Tax Court rejected the IRS’s motion, and in so doing issued a precedential opinion that clarified a few prior important principles and also established some new ones. In this post I will highlight some of the major points in the opinion.

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As an initial matter the opinion notes that the monetary thresholds for mandatory awards under 7623(b) are not jurisdictional and are affirmative defenses that the government must plead and prove. There are two thresholds for mandatory awards; a $200,000 income test and $2 million dispute test. A prior opinion established that the $2 million test was not jurisdictional and Rogers extends that reasoning to the $200,000 test. As the government failed to raise that defense in its answer, the opinion proceeded to the merits of the motion.

As I discussed in Tax Court Decides Scope and Standard of Review in Whistleblower Cases WBO appeals are subject to the record rule, meaning that generally the Tax Court is bound to the record below (scope of review). The standard of review is abuse of discretion, meaning that the Tax Court will not sustain a decision when a determination is arbitrary, capricious, or without sound basis in fact or law.  

As part of that abuse standard review, administrative law precedent establishes that an agency that fails to follow its own regs has abused its discretion.  In addition, under the Chenery doctrine the Tax Court “can uphold the WBO’s determination only on the grounds it actually relied on when making its determination….This means that the WBO must clearly set forth the grounds on which it made its determination, so that we don’t have to guess.” 

These points are key in this case, as the opinion discusses how the WBO letter to Rogers purported to reject his claim but in fact was a denial. 

The regulations under 7623 distinguish between WBO office rejections and denials. Under the regulations, “[a] rejection is a determination that relates solely to the whistleblower and the information on the face of the claim that pertains to the whistleblower.” Sec. 301.7623-3(c)(7), Proced. & Admin. Regs.; see also Internal Revenue Manual (“IRM”) pt. 25.2.1.1.3(7) (Apr. 29, 2019).

As the opinion notes a denial “is fundamentally different from a “rejection.” Under the regulations, “[a] denial is a determination that relates to or implicates taxpayer information.” Sec. 301.7623-3(c)(8), Proced. & Admin. Regs.; see also IRM pt. 25.2.1.1.3(3) (“A denial is a determination that is made for reasons beyond the information contained on the Form 211. [sic] (e.g., the Service did not proceed based on the information provided by the whistleblower, the case was surveyed or no changed by the operating division, the issue(s) alleged by the whistleblower were no change issues, the issues alleged by the whistleblower were below threshold, the statute has expired on the issues raised by the whistleblower, there are no collected proceeds).”).

The distinction matters, as there are different process for denials as compared to rejections. And it matters even more for purposes of this case because the Tax Court is going to hold the IRS to the procedures it has established in the regs:

On its face, the Letter states that the WBO is rejecting Mr. Rogers’ claim. But the WBO Letter fails to include any rationale that would support a rejection under the regulations….

Rather than focusing on the whistleblower and explaining what he failed to [do it] switches its focus to the agency itself and what the agency chose to do. Thus, the Letter tells Mr. Rogers that “the IRS decided not to pursue the information you provided.” While this may be a plausible explanation for a denial, it does not explain the basis of a rejection.

The opinion continues with a reference to the late great Yogi Berra:

In short, the regulatory framework gave the WBO two distinct paths for action — rejection or denial. Having come to that “fork in the road,” the WBO Letter followed Yogi Berra’s advice and “took it.” The Yankee great’s suggestion was sound in context, as both prongs of the fork led to his home. But with respect to a whistleblower award, the two prongs of the regulations lead to very different places. By including the “decided not to pursue” rationale as the reason for its purported rejection, the WBO Letter in effect said to Mr. Rogers “we reject your claim because we are denying the claim.” This statement was self-contradictory — and therefore impermissible — under the regulations.

There is more to the opinion and I will highlight some of the main points below.

Under Chenery the Tax Court will look beyond the determination letter to see if there was other material in the record as a “determination letter that is silent or muddled with respect to a supportable rationale may still be sustained if other materials in the record clarify the agency’s reasoning.” 

After performing that inquiry the opinion concluded that the rest of the record contradicted the rationale it gave Rogers in the letter. I found this part of the opinion interesting, as it revealed the likely reason why the WBO used the language it did with Rogers. Rejections generate fewer opportunities to perfect a claim; thus WBO likely did not want to have Rogers resubmit his claim and take additional IRS resources in dealing with additional submissions. 

The opinion did not look favorably at this tactic, emphasizing that the “WBO is not free to take away with double speak rights that the regulations plainly provide.” 

And for good measure the opinion rebukes the WBO for failing to treat Rogers fairly:

As the Supreme Court recently observed: “If men must turn square corners when they deal with the government, it cannot be too much to expect the government to turn square corners when it deals with them.” Niz-Chavez v. Garland, 593 U.S. ___, ___, 141 S. Ct. 1474, 1486 (2021). We cannot countenance intentional obfuscation on the part of the WBO. And neither the WBO Letter alone nor the Letter coupled with the administrative record here provides a coherent account of the WBO’s determination that is consistent with the regulations. That, in turn, represents an abuse of discretion, and accordingly we must deny the Commissioner’s motion

Conclusion

The opinion also explores the implications of the shifting of some WBO functions to SBSE in light of a general reluctance of courts to interfere with agency enforcement decisions. 

But the main takeaway from Rogers is that the opinion explores how even limited abuse of discretion review such as that in WBO determinations can ensure that the IRS treat individuals transparently and in line with its own procedures.

As the opinion notes, “it may well be that Mr. Rogers’ claim is nothing more than a personal dispute that the IRS will decide not to pursue even if Mr. Rogers provides additional information. Nevertheless, the WBO must comply with the regulations, and Mr. Rogers is entitled to transparency and candor as to the reasons for its ultimate determination. We cannot countenance intentional obfuscation by the WBO, nor will we bless attempts to improperly shield cases from judicial review

Whistleblower Case Dismissed – Could All Writs Provision Have Saved It?

In McCrory v. Commissioner, 156 T.C. No. 6 (2021) the Tax Court issued a precedential opinion holding that McCrory came to the Tax Court before she received what the Tax Court felt was the proper ticket.  Ms. McCrory represented herself in the Tax Court case.  As discussed below, she may have had an argument that she did not make.  It’s tough for everyone when the court creates precedent based on a one sided argument.

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Ms. McCrory sent the IRS 21 separate claims for whistleblower awards in 2015.  Her claims were based on public records and alleged that the taxpayers about whom she provided information had underreported awards obtained in a litigation settlement.  She received from the IRS Whistleblower office a letter offering her an award if she agreed to accept the award in full settlement and waive her right to go to court.  The letter also offered a second option by which she would indicate disagreement with the proposed offer.  Instead of accepting the offer or indicating disagreement, she asked for access to the IRS administrative file in order to make a more informed decision.

This seemingly reasonable request pits her need for information against the requirement that the IRS keep taxpayer information confidential – a tension that exists regularly in whistleblower cases.  The IRS told her it could not provide the information she wanted, and she petitioned the Tax Court in response to the IRS letter denying her the right to information.  The letter denying her the right to information did not deny her whistleblower claim.

The IRS moved to dismiss her petition for lack of jurisdiction arguing that she filed the petition prematurely.  Essentially, the IRS argues that the Tax Court lacks jurisdiction to review its determination regarding the information she may see and even if at some point the Tax Court has jurisdiction over the issue of the information she can see, it lacks that jurisdiction prior to the time the IRS makes a formal determination regarding the amount of award she should receive, if any. As the Tax Court frames the case:

The sole issue for decision is whether the letter respondent sent to petitioner recommending a preliminary award under section 7623(a) constitutes a “determination” within the meaning of section 7623(b)(4).

The tricky thing about whistleblower cases is that the statute doesn’t say what action by the IRS constitutes a determination.  Unlike deficiency cases where the statute provides much more guidance regarding the “thing” that gives a taxpayer a ticket to the Tax Court, the whistleblower statute comes up short in this area.  The court notes:

[w]e have held that the name or label of a document does not control whether the document constitutes a determination” and that “our jurisdiction is established when the Commissioner issues a written notice that embodies a determination.” Cooper v. Commissioner, 135 T.C. 70, 75 (2010).

The Tax Court had not previously issued a specific opinion regarding the document the IRS calls a preliminary award recommendation and whether this letter could qualify as a basis for Tax Court jurisdiction.  In the Cooper case the court held that another letter that did not call itself a determination letter did provide a basis for jurisdiction. 

So, Ms. McCrory’s petition in the context of the whistleblower statute deserved a close look.  The court described her argument as follows:

Petitioner contends the preliminary letter embodied a “determination” because the letter: (1) requested that she waive her appeal rights; (2) did not indicate that the preliminary award amount would change; and (3) did not indicate that a subsequent determination would be issued.

In finding that the letter Ms. McCrory received did not serve as a determination of the type to provide it with jurisdiction, the court was not surprisingly influenced by the wording of the letter stating it was a preliminary award determination.  Even though the IRS may not have changed its mind had she checked the box declining the proffered settlement, the court found that another step needed to occur before the IRS had issued the type of determination needed to invoke its jurisdiction.  It noted that the sending of the preliminary award letter complied with the framework of the regulations under section 7623(a).

Ms. McCrory also requested that the court order the IRS to issue a determination so she could move forward and save her time and the court’s time in getting to a determination of the proper amount of her award.  The court declined to do this since it had no jurisdiction over the matter.  It said:

In the event we agree with respondent, as we have, petitioner alternatively asks that the Court either order respondent to issue a final decision or consider the preliminary award recommendation a final decision in the interests of judicial economy. As previously stated, the Court may exercise jurisdiction only to the extent authorized by Congress and is without authority to enlarge upon that statutory grant. Judge v. Commissioner, 88 T.C. at 1180-1181Naftel v. Commissioner, 85 T.C. at 529; see Phillips Petroleum Co. & Affiliated Subs. v. Commissioner, 92 T.C. at 888Section 7623(b)(4) authorizes this Court to exercise jurisdiction when a determination has been made. Kasper v. Commissioner, 137 T.C. at 41. Since we have concluded that respondent has not made a “determination”, we lack authority to enlarge upon that statutory grant by deeming the preliminary award recommendation to be a “determination” for purposes of our review. Likewise, we decline to order respondent to issue a final decision or to intervene in the whistleblower administrative process.

This portion of the opinion drew a comment from former frequent guest blogger Carl Smith.  Carl found it very disappointing to see this last sentence in a precedential T.C. opinion without a discussion of the All Writs Act.  The All Writs Act allows a supervising court to order an agency to act.  In a case years ago named Insinga, Judge Gustafson asked the parties to brief the applicability of the All Writs Act in a similar case.  In a PT post Carl wrote on the Tax Court’s Myers opinion, he discussed and linked to the order in Insinga.  Here’s from the order:

The amicus curiae (National Whistleblower Center) argues in the alternative that where an award determination has been unreasonably delayed, the Tax Court has jurisdiction–in light of § 7623(b)(4) and under § 706(1) of the Administrative Procedures Act (“APA”), 5 U.S.C. § 551 et seq.–to “compel agency action unlawfully withheld or unreasonably delayed”. Respondent counters that the APA itself confers no jurisdiction and that the mandamus statute (28 U.S.C. § 1361) by its terms gives jurisdiction only to “[t]he district courts”. Respondent is correct; but the “All Writs Act” (28 U.S.C. § 1651) applies to “all courts established by Act of Congress” (cf. 26 U.S.C. § 7441, establishing the U.S. Tax Court); and the U.S. Court of Appeals for the D.C. Circuit has held in Telecommunications Research and Action Center v. FCC, 750 F.2d 70, 75 (D.C. Cir. 1984) (“TRAC“), that, in view of the APA and the All Writs Act, “it is clear–and no party disputes this point–that” if a statute (there, 28 U.S.C. § 2342(1)) confers on a court exclusive jurisdiction to review a final agency order, then even before the final order has been issued, the court has “jurisdiction over claims of unreasonable [agency] delay”. (The D.C. Circuit would appear to be the default venue for any appeal in this case; see 26 U.S.C. § 7482(b)(1).)

We have not decided whether the reasoning in TRAC applies to the Tax Court and its jurisdiction under § 7623(b)(4). Nor have we decided whether, if the APA does not directly apply, this case nonetheless presents one of those instances in which the Tax Court, “in appropriate circumstances, borrow[s] principles of judicial review embodied in the APA.” Ewing v. Commissioner, 122 T.C. 32, 54 (2004) (Thornton, J., concurring).

We believe we ought not to reach those questions if we do not need to do so.

The issue in Insinga was rendered moot before Judge Gustafson ruled when the IRS issued a final determination letter. 

Maybe Ms. McCrory will consider doing a motion to reconsider the All Writs Act authority, though it is possible that the judge will still say he declined to issue an order, whether or not he had the power.  This may be an opportunity for someone in the Whistleblower bar to step in and assist a pro se petitioner on a matter that might have broader implications.  The opinion does not state that he lacks the power, though it is clearly implied by the sentences preceding the holding that discuss lack of power in other situations.

Odds and Ends: Designated Orders 10/26/20 to 10/30/20

As the United States Tax Court made their conversion from their prior court filing system to the DAWSON system, we are no longer going to have designated orders selected by the Tax Court. Instead, we can browse the orders of the day and select which orders are worthy of interest. Perhaps the longest orders are the best ones, but I have found that short orders might be ones of interest also.

While Samantha Galvin had substantive orders in the last week of designated orders, my last week of designated orders was earlier and I felt more like they were odds and ends being cleaned out. There were 7 designated orders in the week that I will give brief descriptions for as they were generally 2-4 pages in length and varied in category.

Dismissal for Lack of Jurisdiction

  • Docket No. 5103-19, Joseph C. Ho v. C.I.R., Order of Dismissal for Lack of Jurisdiction 10/28/20 available here.

One of the strict rules for the Tax Court is the deadline for filing a petition within the prescribed time period. For a notice of deficiency, the time period is a 90-day period that is generally provided on the notice mailed out by the IRS.

Mr. Ho was able to meet the deadline for filing his petition. The problem is that he mailed it to the wrong place. He mailed his petition by certified mail to the IRS in Holtsville, New York, where it arrived on his deadline of February 11, 2019. It was forwarded by the IRS on March 8 and the Tax Court received it on March 14 (both dates after the 90-day period expired). The result is that the Court granted the IRS’s motion to dismiss for lack of jurisdiction.

All is not lost for Mr. Ho, however. The motion from the IRS states: “Although the petition was not timely filed in this case, Respondent’s counsel has been working with Petitioner to attempt to administratively resolve this case…Petitioner informed Respondent’s counsel that he has no objection to the granting of this motion.”

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Motion to Dismiss for Lack of Prosecution 1

  • Docket No. 13644-19, Timothy Stevens, Jr., v. C.I.R., Order of Dismissal and Decision 10/28/20 available here.

If you spend time working Tax Court cases, you become familiar with motions to dismiss for lack of prosecution. In person or in a court order, there is an inevitable discussion between the Tax Court judge and IRS Counsel about the lack of responsiveness from the petitioner. Usually, the petitioner files the petition and does nothing else. The IRS Counsel will usually relate about attempts to contact the petitioner like telephone calls and mail that got no response. That is the case here, but I want to commend Judge Gale for the thorough order in this case. The order goes through the case law involved supporting the order of dismissal. If you want to read through textbook analysis of the law supporting a Tax Court judge’s order of dismissal in a case, I would recommend that you look at this order.

Motion to Dismiss for Lack of Prosecution 2

  • Docket No. 2322-19, Jaideep S. Chawla v. C.I.R., Order of Dismissal and Decision available 10/27/20 here.

Once again, we have a routine order of dismissal based on the motion to dismiss for lack of prosecution. In this instance, I wanted to note petitioner’s letter where petitioner stated that “petitioner’s name is now John Adams; multiple lawsuits have been filed by petitioner against the Internal Revenue Service related to the alleged tax bill; and the petitioner will not pay any debt until the Internal Revenue Service releases all federal tax filings of President Barack Obama to petitioner.” Following that letter, the petitioner did not appear for the remote hearing on the case. Understandably, the respondent’s motion to dismiss for lack of prosecution was granted by the Court.

Incompetent Person Needing Next Friend

  • Docket No. 3136-20S, Laura B. Walker v. C.I.R., Order 10/30/20 available here.

The IRS filed a motion to change or correct the caption in this case to name the petitioner’s daughter, Kimberly Walker Fuller, as her next friend. They represent that Laura Walker is currently incapacitated and unable to manage her own financial affairs, plus she previously appointed Ms. Fuller as her agent to handle such matters. Ms. Fuller has no objection to the granting of the motion.

Tax Court Rule 60(a)(1) requires a case seeking redetermination of a deficiency be brought by and in the name of the person that the deficiency was determined against, or by the fiduciary entitled to institute a case on behalf of such a person. Rule 60(d) provides that a representative, such as a guardian, conservator, or like fiduciary, may bring a Tax Court case on behalf of the incompetent person. An incompetent person without a duly appointed legal representative may act by a next friend.

Ms. Fuller has a power of attorney that allows her to act as Ms. Walker’s agent for purposes that include pursuing claims and litigation and pursuing tax matters. The power of attorney is not affected by Ms. Walker’s subsequent disability or incapacity, and is governed by Pennsylvania law.

The Court reviewed Pennsylvania law and the power of attorney form. Finding that the power of attorney form is sufficient, the Court recognized Ms. Fuller to commence and prosecute the case on Ms. Walker’s behalf and recognized her as next friend pursuant to Rule 60(d). The caption was also ordered to be changed.

Whistleblower Denial

  • Docket No. 10452-19W, Bobbi J. Marvel v. C.I.R., Order and Decision (order here).

The Tax Court has jurisdiction under I.R.C. section 7623(b)(4) to review decisions of the Whistleblower Office to reject a claim for failing to meet the threshold requirements applicable to whistleblower claims. In short, a whistleblower needs to prove that there was administrative or judicial action to collect unpaid tax or otherwise enforce the internal revenue laws based on the information provided by the whistleblower.

Here, the whistleblower submitted that the target taxpayer had not filed tax returns for tax years 2013 through 2018. The issue is that the IRS did not pursue any action because the unfiled tax returns fell below the threshold for an audit. Since the IRS did not audit the target taxpayer, they did not take any action based on the whistleblower’s information. In the Tax Court’s review, there was thus no abuse of discretion by the IRS examiner and the Court sustained the final determination denying the whistleblower claim.

CDP – No Hearing in Person

  • Docket No. 14307-18 L, Scott Allan Webber v. C.I.R., Order available 10/30/20 here.

This case has been documented at previous times in Procedurally Taxing because of some groundbreaking issues related to collection due process (here and here).

This time, there is discussion of the Court granting an IRS motion to modify the remand instructions for remanding the case to be reviewed by IRS Appeals. The hearing on the motion to modify the remand instructions was going to be conducted by video conference or telephone unless the parties agreed to meet in person. Mr. Webber filed a motion to reconsider the Court order because he wanted the hearing to be in person. Mr. Webber has 6-8 bankers boxes of records that contain potential relevance to the case.

The Court repeats that it is not going to adjudicate Mr. Webber’s entitlement to an overpayment regarding the credit elect in controversy and that the issue on remand is whether the IRS allowed the overpayment but failed to credit it. That is a question of what the IRS did, not what Mr. Webber did. Those records would likely be in IRS records about Mr. Webber’s case and not Mr. Webber’s records about his transactions. Since Mr. Webber did not explain the relevance of his boxes of documents, the Court denied his motion for reconsideration.

Results for Motion to Compel

  • Docket No. 25934-17, Dean Kalivas v. C.I.R., Order available 10/26/20 here.

In this case, IRS Counsel filed a motion to compel production of documents with regard to 4 requests. Mr. Kalivas did not file a response to the court, but sent it to IRS Counsel. In their status report, the IRS summarized Mr. Kalivas’s response that he had no documents for requests 1, 2, and 4. Also, he provided documents for request 3 during informal discovery and had no further documents to provide. IRS Counsel stated in their status report that requests 3 and 4 were now moot.

Request 1 concerned whether payments made by Richard McKinney to Mr. Kalivas were taxable income or repayments of a loan. Request 2 concerned Mr. Kalivas’s entitlement to Schedule C and E expense deductions.

The Tax Court granted the motion to compel in part so that Mr. Kalivas is precluded from producing at trial documents responsive to those 2 requests that he failed to produce prior to the order. The motion to compel was denied in part, with prejudice, in that they do not take as established the taxability of Mr. McKinney’s payments or how Mr. Kalivas would not be entitled to the Schedule C and E expense deductions.

Not groundbreaking cases this week, but I think there have been some pearls of wisdom to find in my last post on designated orders. Overall, writing about designated orders has been a great experience as it stretched my writing abilities. In addition, I have learned about the Tax Court and areas of tax law outside of the Low Income Taxpayer Clinic realm (whistleblower cases, for example). I am grateful for this opportunity with Procedurally Taxing and look forward to writing on the next tax topics.

The Effect of an Order to Show Cause, Designated Orders August 24-28 and September 21-25, 2020

Docket No. 14410-15, Lampercht v. CIR (order here)

Up until now, I was the only designated orders’ author who had yet to cover this case which has had eight orders designated in it since March of 2018. The case’s recent orders have addressed discovery-related matters, and in this order on petitioner’s motion, the Court reconsiders a previously issued “order to show cause.” It decides to withhold its final ruling in part to allow more time for petitioners to comply, discharge it in part, and make it absolute in part.

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The Tax Court strongly encourages parties to engage in informal discovery, so it is somewhat rare to encounter an order related to discovery.  Tax Court Rule 91(f) allows the Court to issue an “order to show cause” related to stipulations when one of the parties “has refused or failed to confer with an adversary with respect to entering into a stipulation” or “refused or failed to make such a stipulation of any matter.”

The order describes the effect an “order to show cause” has on the parties and the proceedings. The case involves several different types of documents all of which appear to be difficult obtain and some which may not even exist. The first documents addressed by the Court relate to property owned by petitioners in another country. Earlier on, petitioners conveyed that their ability to obtain the documents was symmetrical to the IRS’s ability, so the Court ordered petitioners to execute a waiver which the IRS could use to obtain the documents. Even with the waiver, the IRS was unsuccessful but learned that petitioners could obtain the documents by requesting them from the local authorities where the property is located. As a result, the Court sets a specific date for the petitioners to do this or else the order will be made absolute.

Next, petitioners state that certain business-related records do not exist, and they wish to provide affidavits instead. The IRS challenges the sufficiency of the affidavits, but the Court says the IRS can press his criticisms of petitioners’ explanation at trial and dismisses the “order to show cause” as it relates to these items.

Finally, petitioners contend that they were unable to get necessary records from their bank in order to participate in the IRS’s voluntary offshore disclosure program. The IRS also needs a waiver from petitioners to attempt to obtain the bank records. The petitioners executed a waiver but it was ultimately returned because it was not notarized, and petitioners failed to provide the identity verification requested. The Court makes the “order to show cause” absolute as it relates to this item.

What is the effect of an “order to show cause” being made absolute? In this case, it means that petitioners are precluded from offering any evidence at trial with the respect to the item or the inexistence of the item. In other words, the Court will not allow petitioners to use their alleged inability to the obtain records serve as a reason for their inaction at trial.  

Docket No. 13892-19, Malone v. CIR (order here)

This next order involves the Court’s concern with a petitioner’s capacity to engage in litigation and a conflict that may arise if a certain family member tries to help him.

The tax return at issue in the case is a section 6020(b) substitute for return which didn’t account for any of petitioner’s business expenses. The case was scheduled for trial in June 2020 but was delayed due to Covid-19 and since then parties have kept the Court apprised of their progress in monthly status reports. In the reports, petitioner’s counsel repeatedly states that petitioner has not made much progress with retrieving and organizing documents due to side effects of brain surgery he had in February 2019.

Since the petitioner has not made much progress, the Court is concerned with petitioner’s capacity under rule 60(c). Petitioner’s counsel states that petitioner’s family is helping him gather documents and information but does not identify which family members are assisting him which also raises the potential conflict concern for the Court.

Petitioner may wish to challenge the IRS’s determination of his filing status. This is permitted because a substitute for returns does not constitute “separate” returns for purposes of section 6013(b) (see Millsap v. Commissioner, 91 T.C. 926 (1988)).  The 6020(b) substitute for return used married filing separate status, so the Court speculates that if petitioner challenges his filing status and files a married filing joint tax return, then petitioners’ spouse may have a conflict of interest in helping him gather documents and information, unless his spouse disavows themselves of innocent spouse relief.

Without additional information, the Court isn’t sure that petitioner’s counsel can proceed without the appointment of a representative or if petitioner does not have such a duly appointed representative, a next friend or guardian ad litem.

To resolve their concerns the Court specifically asks whether petitioner was married during the year at issue, and if so, the status of petitioner’s spouse’s tax liability that year, including whether petitioner plans to submit a joint return. The Court also asks whether petitioner’s spouse has a conflict of interest or potential conflict of interest that may prohibit them from acting on petitioner’s behalf.

Docket No. 6341-19W, Sebren A. Pierce (order here)

This order provides the Court with another opportunity to reiterate its record rule and standard of review in whistleblower cases. The Court also cites its Van Bemmelen opinion which Les mentions in his very recent post on the record rule here.

In this designated order, the Court is addressing petitioner’s motion for summary judgement. Petitioner’s case alleged that a certain State had defrauded taxpayers of more than $43 billion in connection with the incarceration of prisoners in that State who were wrongfully prosecuted. The whistleblower office’s final decision rejected the claim “because the information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.”

After pleadings were closed, petitioner filed a motion for summary judgment asserting that he is entitled to a whistleblower award of 15% to 30% of the amount and requests an advance payment of $20 million, with any discrepancies in the award amount to be resolved by IRS audit.

The Court goes on to explain that is not how summary judgment works in whistleblower cases. The Court cannot determine that petitioner is entitled to an award and force the IRS to pay up, because it is not a trial on the merits. The Court explains that the de novo standard of review petitioner desires is not possible.

Orders not discussed, include:

  • Docket No. 1781-14, Barrington v. CIR (order here), petitioner’s motion to compel is denied because it is inadequately supported since petitioner cannot yet show that the IRS has failed to respond to formal discovery.
  • Docket No. 18554-19W, Wellman v. CIR (order here) the IRS’s motion for summary judgment in this whistleblower case is granted and petitioner does not object.
  • Docket No. 13134-19L, Smith v. CIR (order here), the IRS’s motion summary judgment is granted in a CDP case where petitioners submitted an offer in compromise but were not current with estimated tax payments.

The Record Rule in Tax Court Whistleblower Proceedings

The Tax Court’s memorandum opinion in Neal v Commissioner highlights some of the unique aspects of whistleblower cases, including whether Tax Court should supplement the administrative record when there is a claim that the record is deficient. 

To set the stage, I include the language from the syllabus to the opinion:

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P [the petitioner] was a consultant who worked for target (“T”) and, at T’s request, assembled information to give to an IRS agent who conducted an audit. P left T in 2012, and in 2014 he submitted to R’s Whistleblower Office (“WBO”) a Form 211, “Application for Award for Original Information”, making allegations of tax issues concerning T. The WBO determined that an audit of T’s returns was already underway and that the same issue that P raised in his Form 211 in 2014 had been raised in another individual’s Form 211 that had been previously submitted in 2010 and had been forwarded to the agent. The WBO did not forward P’s Form 211 to the agent and denied P’s claim for an award on the grounds that “the information you provided did not result in the collection of any proceeds”. R made adjustments to T’s liability and collected tax. P filed a petition in the Tax Court seeking review of the WBO’s denial of an award. 

In other words, the WBO denied the award because it found that someone else had beaten Mr. Neal to the punch. Neal appealed the determination in Tax Court. The IRS moved for summary judgment based on the certified administrative record, as it argued that the earlier whistleblowing meant that with respect to Neal “no administrative or judicial action occurred and no proceeds were collected as a result of information provided in the claim.”

Neal disagreed with the facts and information in the record. He alleged that the record 1) omitted information he had provided to the agent and 2) failed to show that the WBO forwarded his Form 211 to the agent. Neal claimed to have played a prominent role with the examining agent and audit of the target even though the record did not corroborate that.

In deficiency cases, the Tax Court generally takes in evidence on a de novo basis. Not so in whistleblower cases.  As a refresher, in 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. (For my post on Kasper and more on standard and scope of review see Tax Court Decides Scope and Standard of Review in Whistleblower Cases.)

While the Tax Court is generally bound to the record, that does not mean that the Tax Court is obligated to accept what the IRS provides as the certified record. For example in Van Bemmelen v. Commissioner, the Tax Court noted that in a whistleblower case an administrative record may be “supplemented” in one of two ways:

either by (1) including evidence that should have been properly a part of the administrative record but was excluded by the agency, or (2) adding extrajudicial evidence that was not initially before the agency but the party believes should nonetheless be included in the administrative record. [citations omitted]

In Neal, the focus was on the first way, as Neal claimed that the IRS failed to include in the record relevant information pertaining to the audit and Neal’s role in eventually leading to collected proceeds from the target.  The Neal opinion is important as it highlights that an allegation that the record is inadequate is met with a presumption of administrative regularity. That means that “[a]bsent a substantial showing made with clear evidence to the contrary” [as per the Van Bemmelen case] unsupported allegations will not be enough to warrant supplementing the record.

In Neal, the Tax Court held an evidentiary hearing to resolve the challenge to the sufficiency of the administrative record.  The hearing failed to generate the facts needed for Neal to meet the bar of a “substantial showing” with “clear evidence”. For example, the IRS’s examining agent credibly testified that he did  “not ever see Mr. Neal’s Form 211, that he did not recall ever making any information requests of Mr. Neal, that he did not recall ever receiving any documents from Mr. Neal, and that he did not remember ever seeing Mr. Neal before the day of trial.” 

The Neal opinion is also interesting in that it further applies and refines the summary judgment standard in whistleblower cases, and it discusses the distinction in these cases from typical deficiency cases where the parties and the court are not similarly constrained by the record below:

[I]n a “record rule” whistleblower case there will not be a trial on the merits. In such a case involving review of final agency action under the APA, summary judgment serves as a mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 

In Neal, the distinction between the rationales for denying the government’s summary judgment motion did not matter:

That distinction (denying the motion where the record shows a dispute of fact versus denying the motion where the record fails to support the conclusion) does not affect the outcome in this case since, as we explain below, the administrative record does not reflect any dispute of fact as to, nor any lack of support for, the WBO’s determination.

Conclusion

In A Legislative History of the Modern Tax Whistleblower Program [$], an article that came out today in Tax Notes, Dean Zerbe argues that the Tax Court’s approach to review in whistleblower cases is wrong as a matter of law. Dean was formerly chief investigative counsel and tax counsel for the Senate Finance Committee. In that capacity he was the lead counsel responsible for drafting section 7623(b), the mandatory whistleblower award provision. He believes that the legislative history supports a finding that the standard of review is de novo (which would allow the Tax Court to conduct a trial and the parties to make their own record in court). In the article Dean states that Chief Counsel and the Tax Court failed to consider that history in Kasper, which, as he notes, involved a pro se taxpayer who failed to fully brief the issue. Keith has suggested that when there are pro se cases that may trigger precedential opinions on issues, the Tax Court should have a process in place to ensure amicus involvement. The issues in those cases deserve full briefing, and there are many important Tax Court opinions involving pro se petitioners.

As the Tax Court hears more whistleblower appeals it will confront many thorny issues surrounding the adequacy of the record.  The record rule, and its exceptions, is a more familiar issue for other courts used to a constrained review of administrative agency actions.  In addition, it is possible that there will be challenges to the standard of review and record rule in circuit courts, as Kasper may not be the last word on that issue.