T.C. M em o . 2 0 2 0 -1 4 1

UNITED STATES TAX COURT

JOHN W ORTHINGTON, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 9 0 2 6-1 9W
. Fi l edOct o b er 8 , 2 02 0
.

P s ub m i t t edt o th e Wh i st l eb lo wer Offi ce (“ W BO”) o f th e In t ern al Rev enu e Serv i ce (“ IRS”) a cl ai m o n Fo rm 2 11 , “ Ap p l i cat i o n fo r Awardfo r Ori g in al In fo rm at i o n ”, as l at er s up p l em en t ed , al leg i n g th atan en t it y

o r o perat i o n o f l aw en fo rcem en t ag en ci es o f co o perat i n g co u n t i es (“ T”) l ack eds t atu s as a l eg al en t i ty an dtherefo re i l l eg al l y co l l ect ed , fro m

co u rtaward s , m i l l i o ns o f d o l l ars o f “ tax free i l leg al m o n i es ”. A “ cl as s i fi er” i n th e IRS’ s Sm al l Bu s i nes s / Sel f-Em p l oy ed (“ SB/ SE”) Op erat in g Di v i s i o n i n i ti al ly d et erm i n edthatP’ s cl ai m “ m ay m eet[I.R.C. s ec.] 7 6 2 3 (b ) cri t eri a” an d p ro p o s edth at th e m at t er b e referred fo r “ Cri m i n al In v es ti g at io n ”. Ho wev er, o th er W BO p ers on n el p erfo rm ed“ res earch ” ab o u t T, co n cl u d ed thatth e al l eg at i o n s i n P’ s cl ai m

“ ap p ear t o b e s p ecu l at i v e”, an dreco m m en d ed th atth e cl ai m

b e ret u rn edt o th e cl as s i fi er “ fo r co ns i d erat i o n o f t hi s ad d i ti o n al i n fo rm at i o n an dfo r ad d i ti o n al res earch
. ” Th e SB/ SE cl as s i fi er t h en d et erm i n edth at“ th e cl ai m l ack s s p eci fi c/ cred i b l e i n fo rm at i o n , i s p u rel y

s p ecu l at i v e i n n atu re, o r d oes n o t al l eg e a t ax i s su e” an dreco m

m en d ed“ Reject th e Cl ai m ”. Th e W BO i s s u eda- 2

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[* 2 ] fi nal d et erm i n at io n l et ter t h ats t at ed : “ Th e cl ai m h as b een reject ed b ecau s e t he IRS d eci d edn o tt o p u rs u e t h e i nfo rm at i o n y o up ro vi d ed .” P fi l eda p et i t i o n i n th i s Co u rt . R m o vedfo r s u m m ary ju d g m en tu n der Tax Co u rtRu l e 1 2 1 , arg u i n g th at“ th e Wh i st l eb l o wer Offi ce d i dn o t ab u s e i t s d i s cret i o n i n reject i n g p et i t i o n er’ s cl ai m fo r award ” an dal s o as s ert in g th at“ th e Wh is t leb l o wer Offi ce d i dn o t ab u s e i t s d i s cret i o n i n d en y in g p et it i on er’ s cl ai m fo r award ”. (Em p h as is ad d ed .) P fi l eda cro s s -m o t i o n fo r s umm ary ju d g m en t , as k i ng th e Co u rtt o “ ord er s tri ctco m p l i an ce wi th th e i n t en to f co n g res s an dth e IRS m an u al , t o ‘ req u i re t he wh i s t l eb l ower o ffi ce t o an al y ze wh i s tl eb l o w er cl ai m s ’ an dan al y ze th em u n d er the p ro per IRS co d es s up p o rt edb y

fo rm 2 1 1 .” Hel d : P’ s m o t io n wi l l b e d en iedb ecau s e t h e ad m in i s trat iv e reco rdd o es n o ts h o w th atth e W BO n ev er an al y zed h is cl ai m an d b ecau s e t he Co u rtcan no tco m p el th e W BO t o actas P req u es t s . Hel d , fu rt h er, R’ s m o t i o n wi l l b e d en i edb ecau s e t h e W BO’ s fi nal d et erm i n at io n l et ter i s equ i v ocal as t o wh et h er i t co n s t itu t eda th res h o l d “ reject i o n ” b as edo n th e face o f P’ s cl ai m o r a s ub s t an ti v e “ d en i al ” m ak i ng a d eci s i o n n o tt o au d i t aft er p erfo rm i n g res earch o u t s i d e t h e cl ai m .

J o h n W o rt h i ng t o n , fo r h i m s el f. Ni ch o l as R. Ro s ad o, fo r res p o n d en t
.- 3

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[* 3 ] M EM ORANDUM OPINION GUSTAFSON, Jud ge: Pet i t i o ner J o h n W o rth i ng t o n h as ap p eal ed , p u rs u an t t o s ect io n 7 6 2 3 (b )(4 ), 1 th e d et erm i n at i o n o f t h e Wh i s t l eb l o wer Offi ce (“ W BO”) o f th e In t ern al Rev en u e Serv i ce (“ IRS”) t h atd en i es h i m a wh i s t l eb lo wer award
. Res po n d en t , th e Co m

m is s i o n er o f t h e IRS, h as fi l eda m o t i o n fo r s u m m ary ju d g m en tu n d er Ru l e 1 2 1 , an d M r. W o rt h i n g t o n h as fi leda cro s s-m ot i o n . W e wi l l d en y b o th m ot io n s . Back gro u n d M r. W o rt h i n g t o n ’ s Fo rm s 2 1 1 Th e W BO fi rs trecei v ed fro m M r. W o rt hi n g t o n a Fo rm 2 11 , “ Ap p l i cat i o n fo r Award fo r Ori g in al In fo rm at i o n ” (al o n g wi th at t ach m en t s ), d at ed No v em b er 1 4 , 2 0 1 8 , o n wh i ch h e erro n eo u sl y n am edh i m s el f as th e t arg et t ax p ay er. Th e W BO s en tM r. W o rt h i n g t on a “ Prel i m i n ary Reject i o n Let t er”, t h e g ro u nd s o f wh i ch were t h at“ [t ] h e Fo rm 2 1 1 l i st s the t ax p ay er an dwh is t leb l o wer [as ] th e s am e i nd i v i du al ”. M r. W o rt h i n g to n th en s en tth e W BO a s eco n d,
s up p lem en t al Fo rm

2 1 1 (wi th at t ach m en t s ), d at ed Decem b er 1 0, 2 0 1 8 . W e refer t o

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de o f 1 98 6 as i n effect atal l rel ev an t t im es (co d i fi ed i n 2 6 U.S.C.), an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedure.- 4

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[* 4 ] th e t wo Fo rm s 2 1 1 an dth ei r at t ach m en t s co ll ect i v el y as M r. W o rt h i n g t o n ’ s

“ cl ai m ”. Th e en t i ty

o r o p erat i o n (“ th e Targ et ”) as t o wh i ch M r. W o rth i ng t o n s en t i n fo rm at i o n i s th e p ro du cto f “ i n t erl ocal ag reem en t s ” i n wh i ch the “ co m p o n en t
en t i t i es ” are co u n ty

l aw en fo rcem en tag en ci es i n a St at e. M r. W o rth i n g to n h as b een in v o l v ed i n a co n tro vers y wi th th e t arg etan dth os e ag en ci es ab o u twh et h er, i n wh ats en s e, an d t o wh atex t en tthe t arg eti s a “ l eg al en t i ty ”. In an at t ach m en tt o h i s cl ai m , M r. W o rt h i n g t o n s u m m ari zes th e s i tu at io n as fo l l o ws : [Targ et ] p ro s ecu t o rs wri te l eg al b ri efs an d ap p ear i n ad m i n is trat i v e h eari n g s cl ai m i n g th ey

are * * * [Targ et ] an dreq u es tm o n i es fo r * * * [Targ et ]
. Th e co u rtaward s m o n i es t o * * * [Targ et ] . Th o s e i l leg al m o n i es are d i s b u rs edt o t h e co m p o n en t en t i ti es an d* * * [Targ et ] p o l i cy Bo ard . (Ex hi bi t3 ) [Targ et ] p ro s ecu t o rs wri te l eg al b ri efs req u es ti n g fi n es , fees , an d res t i tu t i o n fo r * * * [Targ et ] . Th ree s ep arat e * * * St at e Co u rt s co l l ectm on i es fro m

d efen d an t s fo r * * * [Targ et ]
. (Ex h i b i t4 .) Th e t h ree co u rt s s en dch eck s m ad e o u tt o * * * [Targ et ] , wh i ch g et cas h edan d p l acedi n th e * * * [Targ et ] fu nd . (Ex h i b it5 a, 5 b , 5 c an d 5 d ). Th e * * * [Targ et ] p o l i cy Bo ards p en ds th e t ax free m o ni es o n * * * [Targ et ] em

p l o y ees , th ey

co u l dn o th av e h ired o th erwi s e. * * * [Targ et ] al s o ag rees t o rei m b u rs e t h e co m

p o n en ten t i t i es fo r ex p en ses o u to f t he t ax free i l l eg al m o n i es . (Ex h i b i t 6 a an d 6 b )- 5
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[* 5 ] [Targ et ] co m

p on en ten t i t [i ] es are ju d ici al l y es t o p p edfro m

cl ai m i n g * * * [Targ et ] was a l eg al en t i ty , h av i ng arg u edi n m u l ti p l e cas es th at * * * [Targ et ] was n o ta l eg al en t i ty . (Ex h i b i t7 a an d7 b ) Th e * * * St at e Sup rem e Co u rtru n s a J IS s y s t em [J u d i ci al In fo rm at i o n Sy s t em ] wh i ch k eep s tracko f t h e m o n i es i l l eg al l y co l l ect edfo r * * * [Targ et ] . (Ex h i b i t8 ) Th e * * * St at e Co u rt s h av e ru l edth at* * * [Targ et ] d o es n o tl eg al l y ex i s t an di s al s o u n der t h e * * * Co u n ty Um b rel la. (Ex h i b i t 9 ) Th e * * * St at e Leg i s l atu re s pen d s i ll eg al ly co l lect ed* * * [Targ et ] m o n i es p u rs u an tt o a s t atu t e.

* * * * * * * In cl o si n g , * * * [Targ et ’ s ] co m p o nen ten t it i es kn ew t h ey co u ldn o t u s e * * * [Targ et ] as a l eg al en t i ty , y etth ey ch o s e t o u s e * * * [Targ et ] as a l eg al en t i ty

an dco l l ect edm i l l i o n s o f d o l l ars i n i l l eg al rev en u e fro m

th e y ear 2 0 0 [0 ] t o th e y ear 2 0 18
. M i l l io n s o f u nt ax edrev en u e was o b t ai nedu si ng th e ad m i t ted
“ n o n -en t i ty [”] * * * [Targ et ] . Th e i l l eg al l y co l l ect edm on i es s ho u l d b e ret u rn edo r t h e co m

p o n en ten t i t i es s h o u l dp ay t ax es o n th e rev enu e co l l ect edan d s p en tb y

the * * * [Targ et ] p o l i cy b o ardo n em p l o y ees th ey kn ew t h ey

co u l dn o th av e. Org an i zedcri m e s t atut es were v i ol at edkn o wi n g l y an dth e U.S. Tax co d es th atro ut i n el y

ap p ly t o o rg an i zed cri m e o rg an i zat i o n s s h o u l d al s o ap p l y

t o th es e g ov ern m en ten t i ti es o r a cl ear d o ub l e s t an d ardo f ju s t i ce wo u l db e creat ed
. Up o n recei p t o f p et i t io n er’ s s up p l em en tal Fo rm 2 1 1 , th e W BO s en t M r. W o rt h i n g t o n an ackn o w l ed g m en tl et t er d at ed M arch 2 2 , 2 0 1 9 , i n fo rm in g h i m th atth e W BO as s i g neda cl ai m n u m b er t o h i s cl ai m .- 6

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[* 6 ] Th e W BO’ s fi rs treferral t o SB/ SE Onth ats am e d at e, th e W BO s en t M r. W o rt h in g t o n ’ s cl ai m t o a “ cl as s i fi er” i n the IRS’ s Sm al l Bu si n es s / Sel f-Em pl o y ed(“ SB/ SE”) Op erat i n g Di v i s io n . Hi s cl ai m was as s i gn edt o SB/ SE Cl as s i fi er M ari e Ho l t
. M s . Ho l ti n SB/ SE co m

p l et edwh atth e Co m

m i s s i o n er cal l s a “ Cl as s i fi cat i o n Sh eet ” (t ho u g h i td o es n o t b ear t h att i t l e). Itwas u n d at edb u trefl ect ed

“ Cl as s i fi cat i o n Res earch ” d at ed“ 4 / 1 2 / 2 0 1 9 ”. A b l an ken ti t led“ IRC 7 6 2 3(a)/ (b )”
s t at ed : “ Al l eg at i o n s m ay m eet7 6 2 3 (b ) cri t eri a”. Th e “ Al l eg at i o n Su m m ary ” o n th ats h eets t at ed : “ Org an i zedCri m e, RICO Act ”; th e “ Cl as s i fi cat i on ’ s Reco m m en d at i o n ” s tat ed : “ Cri m i n al In v es t ig at i o n ”; an dthe “ Bas i s fo r t h e Reco m m en d at i o n ” s tat edth e fo l l o w i n g fo u r b u l l et p o i n ts :

• Un ab l e t o i d en t i fy

th e TP’ s EIN th ro u g h IDRS res earch o n Accu ri n t an dIDRS.

• Rev i ewedth e d o cu m en t s p ro v i d edwi th Fo rm 2 1 1i n p ap er an d o n t h e USB d ri v e.

• W B s t at es that* * * [Targ et ] i s n o ta l eg al en t i ty an ds h o u l d n ot b e co l l ect i n g fu n d s . Do cu m en t s p ro v i d edwere co p i es o f ch eck s wri t t en t o * * * [Targ et ] . It i s n o ta fed eral t ax IRS i s s u e t o d et erm i n e i f t h e TP i s a l eg al en ti ty t o rep res en t i n co u rtp ro ceed i ng s . Rev i ew o f t h e d o cu m en t s fo r a fed eral t ax i s s u e was u n su cces s fu l . Cl as s i fi er h as n o tfo u n da fed eral t ax i s s u e fo r t o [s i c] b e ad dres s ed b y th e IRS.- 7
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[* 7 ] • W B h as i d en t i fi edOrg an i zedCri m e an d RICO Act
.

Al l eg at i o n s i n vo l v e am o u n t s g reat er t h an $ 1M an d Ti t le 1 8 an d 3 1 al l eg at i o n s . Sen d th i s cl ai m t o Cri m i n al i n v es t i gat i on t o co n s i d er. [Em

p has i s ad d ed .] Th e W BO’ s react i o n t o SB/ SE’ s Cl as s i fi cat i o n Sh eet OnAp ri l 1 8 , 2 0 1 9, Tax Ex am i n in g Tech n ici an As hl ee Geo rg e em ai led Pro g ram M an ag er St ev en M i t zel an di n fo rm edh i m th atM r. W o rt h i n gt o n ’ s cl ai m
m etth e referral cri t eri a fo r cri m i n al i nv es t ig at i o n . M s . Geo rg e h adev i d en tl y recei v edM s . Ho l t ’ s “ Cl as s i fi cat i o n Sh eet ”. (Fro m co n t ex ti tap p ears th at M s . Geo rg e an dM r. M i tzel b o th wo rk edi n the W BO.) Ho wev er, wh en th e cl ai m was th en fo rward edt o Lau ra M ei s , a s en i o r t ax
an al y s t wi th th e W BO, s h e em ai l edM s . Geo rg e as fo l l o ws : W e are n o tg oi n g t o fo rwardth i s cl ai m t o CI as a referral atth i s t i m e. Si n ce t h e cl as s i fi er co u l dn o ti d en ti fy th e en t i ty , i t i s u ncert ai n th at th ere i s u n rep ort ed i n co m e. [Targ et ] i s a m

ul t i -ju ri s d i ct i on al n arco t i cs t as kfo rce s erv i n g * * * Co u nt i es . Cal lers h av e t h e o p t i o n o f g i v i n g t h ei r n am e o r rem ai n i ng an o n ym o us . Th is i s a 2 4 h o u r l i n e t o rep o rts u s pect edn arco t i cs act i v i ty , i .e. M ari

ju an a g ro wi ng , dru g h o u s es , an dm et h l ab s . Th i s i s al s o wh atI fo u n do n res earch i n g th i s cl ai m reg ard i n g the * * * [Targ et ] t ax p ay er an dth e W B * * * [t h e wh i s t l eb l o wer, i .e., M r. W o rth i ng t o n ]
.- 8

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[* 8 ] M s . M ei s ’ s em ai l then i ncl u d es , fro m a co u rt o p in i o n , a l o n g ex cerp tth at b eg in s “ W ort h i n g t o n s u ed* * * [Targ et ] co m p l ai n i n g o f a * * * v i ol at i o n ” o f a St at e s t atu t e t h atap p ears t o b e an al o g o us t o th e Fed eral Freed o m o f In fo rm at i o n Act , 5 U.S.C. s ec. 5 5 2 (2 0 1 8 ). Th e ex cerp t i ncl u d es : “ W e h ol dth at* * * [Targ et ] i s n o ta s ep arat e l eg al en t i ty s ub jectt o s u i t . Acco rd i n g l y , th e * * * co u rtp ro p erl y d i s m i s s edW ort hi n g t o n’ s co m p l ai n tfo r fai l ure t o s t at e a cl ai m . Affi rm ed .” Th e
co u rto p i n i o n th atM s. M ei s qu o t edap p ears n o t t o b e i n th e cert ifi ed ad m i n is trat i v e reco rd(ex cep tfo r h er q u o t at i on o f t h e ex cerp t). M s . M ei s ’ s em ai l
co n cl u d ed b y

s t at i n g : Fro m th i s i nfo rm at io n, the al l eg at io n [s ] i n th e fi l edF2 1 1 ap pear t o b e s p ecu l at i v e. I reco m

m en dy o uretu rn i tt o the cl as s i fi er fo r co n s i d erat i o n o f t h i s ad di t i o n al i n fo rm at i on an dfo r ad d i t i o n al res earch
. Th e W BO’ s s eco n dreferral t o SB/ SE As M s . M ei s reco m

m en d ed , M r. W o rt h i n gt o n ’ s cl ai m was retu rn ed t o SB/ SE “ fo r 2 n d l o o k ”. M s . Ho l ti n SB/ SE th en p rep aredan o th er Cl as s ifi cat i o n Sh eetth atup d at edth e p rev i o u s s h eetco m p l et edAp ri l 1 2, 2 0 1 9 . On th i s up d at ed
s h eetthe b lan ken t i t l ed“ IRC 7 6 2 3 (a)/ (b )” s tat ed : “ Treatas a 7 62 3 (a) cl ai m fo r p u rp os es o f t he reject i o n . Th e al l eg at i o ns m ay d es cri be an am o u n tg reat er t h an $ 2 m i l l i o n , b utth e cl ai m

l ack s s p eci fi c/ cred i b l e i n fo rm at i o n , i s p u rel y s p ecu l at i v e- 9

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[* 9 ] i n n ature, o r d oes n o tal l eg e a t ax i s s u e”. Th e “ Cl as s ifi cat i o n’ s Reco m m en d at i o n ” s tat edn ot“ Cri m in al In v es t i g at i o n ” (as o n th e p ri o r s h eet ) b u t rat h er: Reject th e Cl ai m : Al l eg at i o n s are n ots p eci fi c, cred i b l e, o r are s p ecu l at i v e - Al leg at i o ns are p urel y s p ecu l at i v e i n n atu re. Th e s heet res t at edth e fo u r b ul letp o i n t s t h at were o n h er p rev i o u s Cl as s i fi cat i o n Sh eet , s ee s upra p p . 6 -7 , an dth en ad d ed :

• Res earch edTP o n Go o g l e cl as s i fi er i s s t i l l u n ab le t o i d en t i fy th e TP’ s EIN.

• Rev i ewedi n fo rm at i o n fro m CI An al y s t . Th e al l eg at i on s ap p ear s p ecu l at i v e, i tap p ears th i s en t i ty i s n o tan i n d ep en den t l eg al en t it y . Aft er rev i ewi n g th e fo rm 2 1 1 at t ach m en t s , ad d i t io n al i n fo rm at i o n fo u n db y

CI i tap p ears th atth e TP i s n o ta l eg al en t it y . Al l eg at i o n s are s p ecu lat i v e we are n o tab l e t o v eri fy / v al i d at e t h e al l eg edv i o l at i o n s o f t h e RICO Act an d Org an i zedCri m e. No s p eci fi c an dcred i b le i n fo rm at i o n ab o u ta fed eral t ax i s s u e o r n o n co m p li an ce. Reject i n g cl ai m

fo r fai li n g t o i n cl u de s p eci fi c an dcred i b l e i n fo rm at i o n t o s up p o rta p ot en t i al t ax v i o l at i o n / al l eg at i o n , as wel l as d o cu m en tat i o n t o s up p o rtth e cl ai m . M r. W o rt h i n g t o n ’ s cl ai m was th en tran sm i t tedb ackt o th e W BO. Th e W BO’ s react i o n t o SB/ SE’ s s eco n dCl as s i fi cat io n Sh eet OnM ay 9 , 2 0 1 9 , aft er rev i ewi n g th e s eco n d Cl as s i fi cat i on Sh eetco m p l et ed b y M s . Ho lti n SB/ SE, M s . Geo rg e d raft edwh atth e Co m m i ss i o ner cal l s an

“ AwardReco m

m en d at i o n M em o ran du m ”. Th at t i t l e d o es n o tap p ear o n the- 1 0 -

[* 1 0 ] m em o ran du m , wh i ch i s i n factth e s am e upd at ed “ Cl as s i fi cat io n Sh eet ” t h at M s . Ho l ti n SB/ SE p rep ared --wi t h h er en try fo r “ IRC 7 6 23 (a)/ (b )”, h er “ Al l eg at i o n Su m m ary ”, t h e “ Cl as s i fi cat i o n ’ s Reco m m en d at io n ”, an dh er b u l l etp o i nt s g i v i n g th e “ Bas i s fo r t h e Reco m m en d at i o n ”. Onth e h ead er o f th atfo rm M s. Geo rg e ad d edh er n am e as s en d er an d, as th e reci p i en t , ad d ed“ Kei th DeHart -M an ag er, In i t i al Cl ai m

Ev al uat i o n ”. In a fo rm erl y b l an k b o x fo r “ Su m

m ary Reco m m en d at i o n ” s he ad ded : “ Reco m m en d ed fo r reject i on b y

cl as s i fi cat i o n . Ap p ro v al t o i s s u e t h e reject i o n l et t er au th o ri zedu n d er t h e Del eg at io n Ord er, d at ed J u l y 1 4 , 2 0 1 6”. Det erm i n at i on l et t er OnM ay 9 , 2 0 1 9 , th e W BO m ai l edt o M r. W o rt h in g t o n a “ Fi n al Deci s i o n Un d er Sect i o n 7 6 2 3 (a)” t hats t at edas fo l l ows : Th e Wh i s tl eb l o w er Offi ce h as co n s i d ered y ou r Fo rm 2 1 1 , Ap p l icat i o n fo r Awardfo r Ori g in al In fo rm at i o n , d at ed1 2 / 10 / 2 0 1 8. In t ern al Rev en u e Co de s ect i o n 7 6 2 3 p ro vi d es th atan awardm ay b e p ai do n l y i f t h e i n fo rm at i o n p ro v i d edres ul t s i n th e co l l ect i o n o f t ax , p en al t i es , i n t eres t , ad d i ti o n s t o t ax , o r ad d i t io n al am o u n t s . Th e Wh i s t l eb l o w er Offi ce h as m ad e a fi n al d eci s i o n t o rejecty o u r cl ai m fo r an award
. Th e cl ai m

h as b een reject edb ecau s e th e IRS d eci dedn o tt o p u rs u e th e i n fo rm at i o n y o up ro v i d ed
. Th i s l et t er i s a fi n al d et erm i n at i o n fo r p u rp o s es o f fi l i n g a p et i t io n wi th the Un i t edSt at es Tax Co urt . If y o u d i s ag ree wi th t h i s d et erm i nat i o n , y o u h av e 3 0 d ay s fro m the d at e o f t hi s l et t er t o fi l e a- 1 1 -

[* 1 1 ] p et i t i o n wi th th e Tax Co u rt
. In fo rm at i o n ab o u t fi l i n g a p et i t i on can b e fo u n d on th e Tax Co u rt ’ s web s i t e. * * * Tax Co u rtp ro ceed i n g s OnJ u ne 3 , 2 0 19 , M r. W o rt h i n g t o n fi ledh i s p et i t i o n wi th th is Co u rt
. OnM arch 4 , 2 02 0 , th e Co m m i s s i o n er fi l edh is m ot i o n fo r s u m m ary ju d g m en t , al o n g wi th a s upp o rt i n g d ecl arat i o n , an dex h i bi t s . (Th e Co m m i s s i o n er al s o fi leda cert i fi cat i o n o f t h e ad m in i st rat i v e reco rdan dthe d o cu m en t s i n th at
reco rd .) Th e Co m

m is s i o n er’ s m o ti o n as ks u s t o h o l dthat“ th e Wh i s t l eb l ower Offi ce d i d n o t ab u s e i t s d i s cret io n i n reject i n g p et i t i o n er’ s cl ai m fo r award ” an d al s o as s ert s th at “ th e Wh i s t leb l o wer Offi ce d i dn o tab u s e i ts d i s cret i o n i n d en y i n g p et i t i o n er’ s cl ai m

fo r award ”. (Em

ph as i s ad ded .) M r. W o rth i ng t o n fi leda cro s s -m o t i on th atas s ert s th e W BO ab u s edi t s d i s cret i o n i n two res pect s : (1 ) He s tat es th at“ th e fi n al d en i al was b as edup o n the d eci s i o n o f t h e ag en cy em p l oy ee m ad e p ri o r t o th e s up p l em en t al i n fo rm at io n . * * * In factth ey

ad m i t o n th e reco rdt o d eci d i n g n o t t o u s e t h e i n fo rm at i o n, wh i l e u s i n g a cl as si fi cat i o n s h eetth ats t at edth ere was n o s up p o rt i n g d o cu m en t at i o n . ” (2 ) He
s t at es th at“ th e ag en cy d eci si o n was i m p ro p erl y m ad e p u rs u an tt o 7 6 2 3 (a) wh en i t
s h o u ldh av e b een m ad e p u rs u an tt o 7 62 3 (b ).”- 1 2 -

[* 1 2 ] Di s cu ss i o n I. Su m

m ary ju d g m en ts t an dard s Bo th p art i es h av e fi l edm o t i o n s fo r “ s u m m ary ju d gm en t”, an dthe Co m m i s s i o n er’ s m ot io n ex p l i ci t l y i n v o kes Ru l e 1 2 1 (t h e Tax Co u rt ’ s an al o g t o Ru l e 5 6 o f t h e Fed eral Ru l es o f Ci v i l Pro cedu re). Gen eral l y s p eak in g , u n der Ru l e 1 2 1 (b ) t h e Co u rtm ay g ran ts u m

m ary ju d g m en twh en “ th ere i s n o g enu i n e d i s p u t e as t o an y

m at eri al factan d * * * a d eci s io n m ay b e ren d eredas a m at t er o f l aw.” Su n d s tran dCo rp . v . Co m m is s i o n er, 9 8 T.C. 5 1 8, 5 2 0 (1 9 9 2 ), aff’ d, 1 7 F.3 d 9 6 5 (7 th Ci r. 1 9 94 ). Th e Co m m i s s i on er’ s m o t i o n reci tes th i s s t an d ard
. Ho wev er, we h av e recen t l y o b s erv edth at
-- th i s s u m m ary ju dg m en t s t an d ard i s n o tg en eral l y ap twh ere we m

u s t co n fi n e o u rs el v es t o t h e ad m i n is trat i v e reco rdt o d eci d e wh eth er t here h as b een an ab u s e o f d i s cret i o n . * * * [I] n a “ reco rdru le” wh i s t l eb l ower cas e t here wi l l n o t b e a t ri al o n th e m eri ts . Ins u ch a cas e i n v o l v in g rev i ew o f fi n al ag en cy act i o n u n der t h e APA, s u m m ary ju d g m en ts erv es as a m ech an i s m fo r d eci d in g , as a m at t er o f l aw, wh et h er th e ag en cy

act io n i s s up p o rt edb y

th e ad m i n i st rat i v e reco rdan di s n o tarb i trary , cap ri ci o us , an ab u se o f d i s cret i on , o r o th erwi se n o ti n acco rd an ce wi th l aw. * * * Van Bemm el en v . Co m

m is s i o n er, 1 5 5 T.C. _

_ , _

_ (s l i p o p . at 2 5 -2 6 ) (Au g . 2 7 , 2 0 2 0 ). As we ex p l ai n b el o w, n ei th er p art y ’ s m ot i on fo r s u m m ary ju d g m en ti s
s up p ort edb y

th e ad m i n i s trat i v e reco rd
.- 1 3 -

[* 1 3 ] II. Wh i s t l eb l o wer p ri n ci p l es A. Th res h o l dev al u at i o n an dreject i o n Sect io n 7 6 2 3 (b ) p ro v i d es th e ci rcu m s t an ces i n wh i ch the IRS s h al l g i v e (i n th e wo rd s o f t h e t i t l e t o s ub s ect i o n (b )) “ A w ard s t o Whi s t l eb l o wers ” an dch arg es th e W BO wi th p erfo rm i n g th e i n i t i al ev al u at i o n o f wh i s t l eb lo wer cl ai m s t o d et erm i n e wh eth er t h ey

m eetth e m i n i m

u m s tan d ard s fo r an award . See 2 6 C.F.R.
s ec. 3 0 1.7 6 2 3 -1 (c)(4 ), Pro ced . & Ad m i n . Reg s . Th i s i ni t i al ev al u at i o n o ccu rs b efo re an y

fu rt h er act i o n o n th e i n fo rm at i o n s etfo rt h i n th e cl ai m . Th e t h res h o l d cri t eri a b y

wh i ch th e W BO ev al u at es a cl ai m ’ s p o t en t i al el ig i b il i ty fo r an award i n cl u d e t h atthe cl ai m :

• “ co n t ai n [s ] s p eci fi c * * * i n fo rm at i o n”;

• “ co n t ai n [s ] * * * cred i b l e i n fo rm at i o n ”;

• p ro v i d es “ i n fo rm at i o n t h atth e wh i s t l eb l o w er b el i ev es wi l l l ead t o co l lect ed[t ax ] p ro ceed s ”;

• rep o rt s “ fai l [u re] to co m p l y wi th t h e i n t ern al rev en u e l aws ”;

• “ i den t i f[i es ] th e p ers o n (s ) b el iev edt o h av e fai l ed t o co m p l y wi th th e i nt ern al rev en u e l aws ”;

• “p ro vi d e[s ] s ub s t an t i v e i n fo rm at i o n , i n cl u d i n g al l av ai lab l e d ocu m en t at i o n ”; an d

• d oes n o t“p ro v i d e s p ecu l at i v e i n fo rm at i o n”.- 1 4 -

[* 1 4 ] Lacey

v . Co m m i s s i o n er, 1 5 3 T.C. 1 46 , 1 6 0 (2 0 1 9 ) (qu o t i n g 2 6 C.F.R. s ec. 3 0 1 .7 6 2 3 -1 (c)(1 ), (4 )). If a cl ai m fai l s t o m eetth o s e cri t eri a, t h en th e W BO m ay s u m m ari l y “ reject ” th e cl ai m wi th o u t fu rt h er co n s i d erat i o n . “ A reject i o n i s a d et erm i n at i o n t h at rel at es s o l el y

t o t h e wh i s t leb l o wer an dth e i n fo rm at i o n o n th e face o f t h e cl ai m th at p ert ai n s t o th e wh i s t l eb l ower.” 2 6 C.F.R. s ec. 3 01 .7 6 2 3 -3 (c)(7 ). Su ch a t h res h o l d reject i o n b y

th e W BO wi l l n eces s ari l y p recl ud e an y

s ubs equ en tad m i n i st rat i v e o r ju d i ci al act i o n ag ai n s tan y t ax p ay er an d an y

s ub s equ en tco l l ect io n o f p ro ceed s fro m th e t ax p ay er o n th e b as i s o f t h e i n fo rm at i on p ro v i d ed . See Lacey v . Co m m i s s i o n er, 1 5 3 T.C. at1 6 8-1 6 9
. B. Sub s t an t i ve co ns i derat i o n an d d en i al A “ d en i al ” i s d i fferen tfro m a “ reject i o n ”. “ A d en i al i s a d et erm i n at io n th at rel at es t o o r i m

p li cat es t ax p ay er i n fo rm at i o n .” 2 6 C.F.R. s ec. 3 0 1.7 6 2 3 -3 (c)(8 ). Th e W BO h an d l es a d en i al o f a cl ai m s i m i l arl y t o a reject i o n , i n thatb o th d et erm i n at i o n s res u l ti n t h e W BO’ s p ro vi d i n g wri t t enn o ti ce t o th e t ax p ay er
s t at i n g th ati td ecl i n es t o m ak e an awardan dg i v i n g the b as is fo r i t s d et erm i n at i o n . See i d . p aras . (b )(3 ), (c)(7 ) an d(8 ). Th e W BO’ s d en i al o f a cl ai m i n d icat es th at

“ th e IRS ei th er d id n o tp ro ceed b as edo n th e i n fo rm at i o n p ro v i dedb y th e wh i st l eb l o wer * * * o r d i dn o tco l l ectp ro ceed s ” as a res u lto f p ro ceed i n g ag ai n s t- 1 5 -

[* 1 5 ] th e t ax pay er o n th e b as i s o f t h e wh i s t l eb l o wer’ s i n fo rm at i o n . Id
. p ara. (c)(8 ). A d en i al i s a d et erm i n at i o n th ati s m ad e aft er t h e W BO en gag es i n s o m e
s ub s t an t i ve co ns i derat io n o f th e cl ai m . See Laceyv . Co m m i s s i o ner, 1 5 3 T.C. at 1 6 1 -1 6 2
. C. St an dardan ds co p e o f Tax Co u rtrev i ew o f wh i s t l eb l o wer award s Sect io n 7 6 2 3 (b )(4 ) p ro v i d es th ata “ det erm in at i o n reg ard i n g an award ” m ay b e “ ap p eal ed t o th e Tax Co u rt(an dth e Tax Co u rts h al l h av e juri s d i ct i o n wi th
res p ectt o s u ch m at t er).” As we h el di n Kas p er v . Co m m i s si o n er, 1 5 0 T.C. 8 , 2 1 -2 3 (2 0 1 8 ), i n a wh i s t leb l o wer cas e o ur rev i ew i s g en eral l y res tri ct edt o th e ad m i n is trat i v e reco rd , an dwe rev i ew th e W BO’ s d et erm i n at i o n s n otd e n o vo b u t rat h er fo r ab u s e o f d is cret i on . Anab u s e o f d i s cret io n ex i s t s wh en a d et erm i n at i o n i s arb i trary , cap ri ci ou s , o r wi th o u ts o u n db as i s i n facto r l aw. M urp h y v . Co m m i s s i o n er, 1 2 5 T.C. 3 0 1 , 3 2 0 (2 0 0 5), aff’ d, 4 6 9 F.3 d2 7 (1 s tCi r. 2 0 0 6 ). D. Rev i ew o f s t at edg ro u n ds In Lacey v . Co m m i s s i o n er, 1 5 3 T.C. at1 6 9 , we h el dthatwh en we rev i ew fo r ab u s e o f d i s cret i o n th e W BO’ s s u m m ary reject i o n o f a cl ai m , we rev iew t h e W BO’ s s t at ed g ro u n d s th atth e cl ai m fai l edt o m eetcert ai n th res h o l d req ui rem en t s . In th at ci rcu m st an ce we d o n ots u s t ai n th e reject i o n o n th e u n st at ed g ro u n d s th at th ere h as b een n o ad m i n is trat i ve o r ju d i ci al act i on i n it i at edb y , n o r p ro ceed s- 1 6 -

[* 1 6 ] co ll ect edb y , th e IRS as a res u l to f t he i n fo rm at i o n th at i s t h e b as i s o f th e wh i st l eb l o wer’ s cl ai m . Th ati s, we rev i ew t h e d et erm i n at i o n th atth e W BO actu al l y m ad e, as refl ect edi n i t s d et erm in at i o n l et t er, an d n o ta h y p ot h et ical d et erm i n at i o n th ati td i d n o tactu al l y m ak e. E. No p o wer t o o rd er an au d it Th e Tax Co u rt d o es “ n o trev i ew t h e IRS’ s d eci s io n wh et h er t o au d i ta t arg et i n res p o n s e t o a wh i st l eb l ower’ s cl ai m an d * * * we h av e n o au th o ri ty t o req u i re th e IRS t o ex p l ai n a d eci s i o n n o tt o au d i t .” Id . at1 6 4
. W e n o wap p l y

th e fo reg o i n g p ri n ci p l es t o ru l e o n t h e p en d i n g m o t i o n s . III. M r. W o rth i ng t o n ’ s m o t i o n M r. W o rth i ng t o n m ak es two co n t en t i o ns th atwe ad dres s h ere. A. Fai l u re t o an al y ze M r. W o rth i ng t o n arg u es th atth e W BO fai l edwh o l es al e t o an al y ze h i s

“ s up p l em en t al i n fo rm at i o n ”, b y wh i ch h e m ean s h i s s eco n d Fo rm 2 1 1 (an dth e d o cu m en t s h e s en twi th i t ). He th erefo re as k s u s t o “ ord er s tri ctco m p l i an ce wi th th e i n t en to f co n g res s an dthe IRS m an u al , t o ‘ req u ire t h e wh i s t l eb l o wer o ffi ce t o
an al y ze wh i s tl eb l o w er cl ai m s ’ an dan al y ze th em u n d er the p ro per IRS co des
s up p ort edb y

fo rm 21 1 .” Fo r two reas o n s we reject th i s arg u m en t
.- 1 7 -

[* 1 7 ] 1
. Lacko f fact u al s up p o rt Th e reco rdb efo re u s d o es n o ts up p o rtM r. W o rthi n g t o n ’ s co n t en t i o n . Hi s
m o ti o n as s ert s th at
-- th e ag en cy

d i dn o tan al y ze t h o se cl ai m s o n ce t h e s up p lem en t al i n fo rm at i o n was p ro v i d ed . By n o td oi n g th e an al yti cal req u i rem en t an dd o i n g th em

u n der t h e wro n g s tatu t e, t h e Ag en cy v i o l at edthe IRS co d es an dth e i n t en to f Co n g res s i n Pub l i c Law 1 0 9 -4 32
. Th e ag en cy

reco rds h o ws th e fi nal d en i al was b as edup o n th e d eci si o n o f t he ag en cy em p l o y ee m ad e p ri o r t o th e s up p l em en t al i n fo rm at i o n . * * * Infactth ey ad m i to n the reco rdt o d eci d i n g n o t t o u s e t h e i n fo rm at i o n , wh il e u s i n g a cl as s i fi cat i o n s h eetth ats t at ed th ere was n o s up p o rt i n g d o cu m en t at i o n . Th ati s , M r. W o rt h i n g to n ’ s as s ert i o n th atth e W BO i g n o redh i s s up p l em en t al i n fo rm at i o n i s s i m

p l y an i n feren ce h e m ak es fro m th e Cl as s i fi cat i o n Sh eet : [T] h atcl as s i fi cat i o n s h eets t at ed“ Al l eg at i o n s are n o ts p eci fi c, cred ib l e, o r are s p ecu l at i v e. al l eg at i o n s are p u rel y s pecu l at i v e i n n atu re.” Th atcl as s i fi cat i o n s h eetd i dn o ti n cl u d e an y an al y s i s o f t h e s up p l em en t al i n fo rm at io n . Ins h o rt , th e ag en cy reco rds h o w s th e ag en cy u s edth e p rev i o u s cl as s ifi cat i on p ri o r t o th e s up pl em en t al i n fo rm at i o n s h eett o d en y th e cl ai m s an dd i d n o ts en dth e s up p l em en t al i n fo rm at io n fo r ag en cy an al y si s as req u i redb y

l aw an d th e Ag en cy

m an ual s . M r. W o rt h i n g t o n th i n ks thatb ecau s e (i n h i s v i ew) t h e s t at em en ts o n th e cl as s ifi cat i o n s h eet s are s o wro n g i n l i g h to f h i s s ub m i s s i o n , th e W BO m u s th av e i g n o redh i s s ub m is s i o n . Iti s n ots o . Th e Cl as s i fi cat i o n Sh eet s an dem ai l s th atwe qu o t e ab o v e s h o wth atth e p ers o n n el wh o co m p o sedth em

d i dl earn ab o u t th e- 1 8 -

[* 1 8 ] Targ etfro m

M r. W ort hi ng t o n ’ s s ub m i s s io n s . Bu tth ey ev i d en t ly co n cl u d ed th atev i d en ce was l ack i n g t o s ho w k ey p ro p o s i t i on s ab o u tth e Targ et ’ s ci rcu m s t an ce t h atwo u l db e n eces s ary t o an y co l l ect i o n o f t ax p ro ceed s . Th e ad m i n is trat i v e reco rdd o es n ot s up p o rth i s co nt en t i o n th atth e W BO fai l ed t o
co n si d er h i s cl ai m .

2
. “ Fo rci n g an i n v es t i g at i o n ” Aware o f t h i s Co u rt ’ s h ol d i n g s th atwe d o n o t h av e p o wer t o o rd er t h e IRS t o p erfo rm

an au d i t , s ee Laceyv . Co m m i s s i o n er, 1 53 T.C. at1 6 4 , M r. W o rt h i n g t o n i n s is t s thati s n o twh ath e i s at t em p t i n g : Th i s ap p eal i s n o t ab o utfo rci n g an i n ves t i g at i o n , i ti s ab o u tfo rci n g th e an al yt i cal req u i rem en t s o f t h e s t atu t es an dthe IRS m anu al s th em s el ves , an d u n der t h e ri g htawardth res h o l do u t l in edi n TRS [s i c] 2 6 7 6 23 (b ) n otTRS 2 6 76 2 3 (a). Bu t wh atM r. W o rt h i n g to n as k s i s th atwe “ o rd er s tri ctco m p l i an ce wi th th e i n t en t
o f co n gres s an dth e IRS m anual , t o ‘ req u i re t h e wh i s t l eb l o wer o ffi ce t o an al y ze wh i st l eb l o wer cl ai m s ’ an dan al y ze t h em u n d er t h e p ro p er IRS co d es s up p o rt edb y fo rm 2 1 1.” As ag ai n s tthe Co m m i s s i o n er’ s res p o n s e t h atth e W BO d i dan al y ze h i s cl ai m , h e rep l ies i n effect th atwe s h ou l do rd er t he W BO t o real l y an al y ze i t , an d th atwe s h o u l do v ers ee t h e W BO’ s p erfo rm an ce t o as s u re i t s “ s tri ctco m pl i an ce”. Th o ug h he ev i d en t ly

kn ows n o tt o s ay i ti n s o m an y wo rd s , wh atM r. W o rt h i n g t o n- 1 9 -

[* 1 9 ] i s as ki n g u s t o d o i s t o o rd er t h e IRS t o ex am i n e t h e Targ et --an dth en t o
s up erv i s e t h atau d i t . Th is we can n o td o . B. M an d at ory v s . d is cret i o n ary award M r. W o rth i ng t o n al s o fau l t s th e W BO’ s fi n al d et erm in at i o n fo r l ab el i n g h i s cl ai m n o tas a cl ai m

fo r a “ m an d at o ry ” awardu n d er s ect i o n 7 6 2 3 (b ) b u ti n s t eadas a cl ai m fo r a d i s cret i o n ary

awardu n d er s ect i o n 7 6 2 3 (a). He co n t en d s :

“ M oreo v er, t h e ag en cy

h as al s o n ow ad m i t t edth e ag en cy d eci s io n was i m

p ro p erl y
m ad e p u rs uan tt o 7 62 3 (a) wh en i ts h o u l dh av e b een m ad e p u rs u an tt o 7 6 2 3 (b ).” Sect io n 7 6 2 3 (b ) p ro v i d es fo r cert ai n award s th atth e wh is t leb l o wer “ s h al l

* * * recei v e” (i .e., s o -cal l ed“ m an d at o ry ” award s ), an di t ap pl i es o n l y wh ere “ t h e p ro ceed s i n d i s p ut e [i n an act i o n b et ween th e IRS an dth e t arg ett ax p ay er, s ee 2 6 C.F.R. s ec. 3 01 .7 62 3 -2 (e)] ex ceed $ 2,0 0 0 ,0 0 0.” Sec. 7 62 3 (b )(5 )(B). Fo r l es s er
am ou n t s “ the Secret ary * * * i s au th o ri zedt o p ay s u ch s u m s as h e d eem s
n eces s ary ” (s o -cal l ed“ d i s cret i on ary ” award s ) un d er s ect i o n 7 6 2 3 (a). M r. W o rt h i n g t o n as s ert s (an dfo r p u rp o ses o f t h i s o p i ni o n we as su m e) t hatth e W BO co n s tru ed h i s cl ai m as d is cret i o n ary

u n der s ect io n 7 62 3 (a) b ecau s e i t reck o n edi n co rrect l y

th atl es s t h an $ 2 m il l i o n was i n d i sp u t e i n co n n ect i o n wi t h th e cl ai m . Bu tthi s as s ert i o n h as n o effect o n o u r ru l i n g o n ei th er p arty ’ s m o t i o n.- 2 0 -

[* 2 0 ] W e h av e h el dth atth e $ 2 m i l l i o n “ i n d i sp u t e” p ro vi s i o n o f s ect i on 7 6 2 3 (b )(5 )(B) “ i s n o t a ju ri s d i ct i o nal req u i rem en t ” b u t , rat h er, i s an affi rm at i v e d efen s e up o n wh i ch th e Co m m i s s i o n er b ears the b u rd en o f p ro o f , s ee Li p p o l i s v . Co m m i s s i o n er, 1 4 3 T.C. 3 9 3 , 4 0 0 (2 0 1 4), an d wh i ch h e h as n o t p l ead edh ere, s ee i d . at3 9 8 . Th ati s , wh ere t he W BO d en ies o r reject s a wh i s t l eb l ower cl ai m , we h av e juri sd i ct i o n t o rev i ew i t s fi n al d et erm i n at i o n wh et h er o r n o t th e am ou n ti n d i s p u t e tu rn s o u t t o b e $ 2 m i l l i o n . Co n s is t en twi th th ath o l d i n g , th e W BO i s s u ed t o M r. W o rth i n g t o n a d et erm i nat i o n th at ex pl i ci t l y s tat es : “ Th i s l et ter i s a fi n al d et erm i n at i o n fo r p u rp o s es o f fi l i n g a p et i t i on wi th th e Un i t edSt at es Tax Co u rt .” W e h av e ju ri s d i ct i o n t o rev iew t h atd et erm i n at i o n , an dth e Co m m i s s i o n er d o es n o t
co n ten d o th erwi s e. M o reo ver, i n a cas e l i ke t hi s o n e, wh ere t h ere h as b een n o
co l l ect i o n act i on , th e W BO’ s an al y zi n g th e cl ai m u nd er s ect i on 7 6 2 3(a) as
o p p o s edt o s ect i o n 7 6 2 3 (b ) m ak es n o p ract ical d i fferen ce, an dwe p ercei v e n o h arm t o M r. W o rth in g t o n as a res u l to f t h e l ab el u s edb y th e W BO. W e wi l l d en y

M r. W o rth i n g t o n ’ s m o t io n . Th e W BO d i d n o tfai l t o co n s id er h i s cl ai m , an dwe can n o tg ran t h i s req u es tthatwe o rd er t h e IRS t o u s e h i s i n fo rm at i o n t o ex am i n e t h e Targ et
.- 2 1 -

[* 2 1 ] IV. Th e Co m

m is s i o n er’ s m o ti o n W e wi l l d en y

th e Co m m i s s i on er’ s m o t i o n b ecau s e i ti s u n cl ear wh et h er t h e W BO’ s fi n al d et erm i n at i o n i s a reject i o n o f t h e cl ai m o r a d en i al o f t h e cl ai m , an d th e m o t i o n p erp etuat es th at am b i g u i ty . As we n o t edab o v e, “ reject i o n ” an d

“ d en i al ” are t wo d i s t i n ctru li n g s . Acco rd i ng t o th e reg u l at i on s , a “ reject io n ” i s a th res ho l dru l i n g m ad e o n t he b as i s o f d efect s o n th e face o f t he cl ai m i t s el f, 2 6 C.F.R. s ec. 3 01 .7 62 3 -3 (c)(7 ); an da “ den i al ” i nd i cat es th at“ th e IRS ei ther d i d
n o tp ro ceed b as edo n the i n fo rm at i o n p ro vi dedb y th e wh i s t l eb l o wer * * * o r d i d
n o tco ll ectp ro ceed s ” as a res u lto f p ro ceed i n g ag ai n s tth e t ax pay er o n t h e b as i s o f th e wh i s tl eb l o w er’ s i n fo rm at i o n , i d . s ub p ara. (8 ). Th e fi n al d et erm in at i o n i s s u ed b y th e W BO t o M r. W o rt h i n g to n fai l s t o refl ectth i s d i s t i n ct i o n . A. In co ns i s t en cy

i n th e ad m i ni s trat i ve reco rd Th e fact s i n th e ad m i n i s trat i v e reco rd(s et o u ti n th e “ Back g ro u n d ” ab o v e) fai l t o m ak e a s uffi ci en t d i s t i n ct i o n b etween i n s u ffi ci en cy o n the face o f t h e cl ai m (wh ich wo u l dwarran treject i on o f t h e cl ai m ) an da d eci s io n n ott o p ro ceedwi th an
ex am i n at i o n (wh i ch wo ul dwarran td en i al o f t h e cl ai m ).

1
. SB/ SE’ s act i o n SB/ SE p ers o nn el m ad e t h e i n i t i al cl as s ifi cat i o n o f M r. W o rt h i n g to n ’ s cl ai m
an d reco m

m en ded“ reject i o n ” o n i t s face rat h er t han “ den i al ” o n i ts m eri t s . Th e- 2 2 -

[* 2 2 ] Co m

m i s si o n er s t at es i n h i s m o t i o n th ath e “ di s ag rees wi th th e i m p l i cat i o n i n Laceyth at o nl y th e IRS Op erat i n g Di vi s i o n s can m ak e a d eci s i o n n ott o p ro ceed wi th an act i o n . 1 5 3 T.C. No . 8 , s l ip . o p . at * 3 6 .” Bu t then , i n o rd er t o as s ertth at th e d et erm i n at i o n ati s s u e h ere d i di n v o l v e an IRS o p erat i ng d i v i s i o n ’ s (u n rev i ewab l e) d eci s i on n o tt o au d i t , th e Co m m i s s i o n er arg ues th at“ SB/ SE Cl as s i fi er Ho l trev i ewedth e cl ai m an dd ecl i n edt o refer t h e cl ai m fo r ex am i n at i o n
an d i n st eadd eci dedthatthe IRS s h o u l dn o tfu rt h er i nv es t ig at e p et it i on er’ s cl ai m . ” Th u s, h e s eem s t o fo l l ow t h e fl aw h e s ees i n Lacey i n o rd er t o arg u e t hati f t h e d eci s i o n was m ad e b y

SB/ SE, th en i tm

u stb e an u n rev i ewab l e au d i td eci s i o n o n th e m eri t s . Lacey d i do b s erv e anes sen t i al l y b i n ary reg im e, s u gg es t edi n th e reg u l at i o n s
an d b o rn e o u ti n th e fact s i n Lacey , i n wh i ch th e W BO m ad e t h e i ni t i al th res h o l d ju d g m en t s ab o u t d efect s o n th e face o f t h e cl ai m an dth enan o p erat i n g d i v i s i o n
m ad e t h e d eci s i o n wh et h er o r n o tt o au d it . Ho w ev er, aft er t h e o ccu rren ce o f t h e fact s o n wh i ch o u r Op i n i o n i n Laceywas p red i cat ed , th e cl ai m ev al u at i o n fu n ct i o n
o f t h e W BO was real i g n ed : Th e o p erat i o n o f t h i s fu n ct i on i s n ow s h aredb y th e SB/ SE Op erat i n g Di vi s i on , wh i ch i s an o p erat i n g d i v i s i o n o f t h e IRS. Sp eci fi cal l y , th e m o re recen t In t ern al Rev en u e M an u al p t . 1 .1 .2 6 .1 .3 .5 (J an . 1 1 , 2 0 1 8 ), s tat es as fo l lo ws fo r “ In i t i al Cl ai m s Ev al u at i o n ”:- 2 3 -

[* 2 3 ] (1 ) Effect i ve J u l y 1 0 , 2 0 1 6 , * * * th e In i t i al Cl ai m Ev al u at i o n Team (ICE) [o f t h e W BO] , was real i g n edt o Sm al l Bu s i n es s / Sel f-Em

pl o y ed(SB/ SE). ICE wi l l co nt i nu e t o actas th e p ri m ary recei p tan dco n tro l fu n ct i o n res po n s i b l e fo r p erfo rm in g wh i s t l eb l ower cl ai m

i n t ak e, m on i t o ri n g, [an d ] awardp ro ces s i n g * * *
. (2 ) Th e Wh i s t l eb l o wer Offi ce h as s trat eg y , p o l i cy , ad m i n i s trat io n , o v ers i g h t , rev i ew, an drep o rt i n g res p on s ib i l i ty fo r th e IRS W h i s tl eb l o w er Pro g ram . * * * (3 ) SB/ SE h as o p erat i o n al res p o n s i b i l i ty fo r t h e ICE Un i t
. * * * W e d o n o tco n s i d er i t i m

p ro p er fo r t h e IRS t o reo rg an ize i t s el f t o al l o cat e t h e i n i t i al cl as s i fi cat i on fu n ct i o n t o SB/ SE an dt o al l o cat e s o m e au di td eci s i o n s t o th e W BO. See Tax Rel i ef an d Heal th Care Act o f 2 0 06 , Pub. L. No
. 1 0 9 -4 32 , s ec. 4 0 6(b )(1 )(B), 1 2 0 St at . at2 9 6 0 (p ro v i d i n g th atth e W BO “ sh al l an al y ze i n fo rm at i o n recei v edfro m an y i n d i v i du al * * * an dei th er i nv es t i g at e th e m at t er i t sel f o r as si g n i tt o th e ap p ro p ri at e In tern al Rev en u e Serv i ce o ffi ce”). If s u ch an al lo cat i o n o f du t i es i s p erm i s s i b l e, t h en th e i s s u e i s n otwh i ch IRS
o ffi ce m ad e th e d et erm i nat i o n b u trat her wh atth e n atu re o f t h at d et erm i n at i o n was . Th e ad m i n is trat iv e reco rdi n th i s cas e d o es n o ts h o w M s . Ho l t as th e d eci s i o n m ak er. Her fu n ct i o n was th ato f a cl as s i fi er m ak i n g th e th res h o l d ev al u at i o n o f t he
s u ffi ci en cy

o f t h e cl ai m o n i t s face, an di twas ev i d en t l y M s . M ei s i n t h e W BO wh o o v erru l edh er i n i ti al reco m m en d at io n o f referral t o th e Cri m i nal In v es t i g at i o n- 2 4 -

[* 2 4 ] d i v i s i o n an d , i n effect , t o l dh er t o re-d o h er Cl as s i fi cat i o n Sh eetan d
reco m m en dreject i o n o n th e g ro u n d s th atth e cl ai m was s p ecu l at i v e (co n s i s t en t wi th reject i o n ). M s . Ho ltd i ds o , an dSB/ SE’ s act i o n was th erefo re co n si st en twi t h reject i o n (n o td en i al ) o f t h e cl ai m .

2
. Th e W BO’ s act i o n Ho wev er, M s . M ei s (t h e W BO o ffi ci al wh o g av e M s . Ho l t th ati n s tru ct i o n ) h ad h ers el f d o n e “ res earch ” o u t s i d e t h e cl ai m an du rg edM s . Ho ltt o d o m o re

“ res earch ” h ers el f. Su ch res earch s eem s t o b e i n co n s i s t en twi th wh atth e reg u l at i o n s p ro v i de co ncern i n g a t h res h ol d reject io n , an dth i s “ res earch ” b y b o t h SB/ SE an dth e W BO t en d s t o wardch aract eri zi n g th e s ub seq u en t act i o n as a d en ial . Ho wev er, i f t h e d et erm i n at i o n was a d en ial , n otan act i o n b as eds o l el y o n th e cl ai m , th en th e i n fo rm at i o n g en erat edi n th e res earch s h o ul dh av e b een i n cl u d edi n th e ad m i n i s trat iv e reco rd
. Ev i den t l y i t was n o t . Th e co u rto p i ni o n th at M s . M ei s qu o t es i n h er em ai l s eem s t o b e m i s s i n g fro m thatreco rd(ex cep tfo r t h e
ex cerp tth ats h e quo t es ). So i ti s d i ffi cu l t t o ch aract eri ze t he p ro ces s s eto u ti n th e ad m i n is trat i v e reco rdas l ead in g t o ei th er reject i o n o r d en ial
.- 2 5 -

[* 2 5 ] 3
. Th e W BO’ s fi n al d et erm in at i o n Ou r rev i ew i s m ad e s o m ewh ats i m p l er, h o wev er, b y

th e p ri n ci p l e t h at , as we
s t at edab o v e, s ee s up ra p t. II.D, wh atwe rev i ew i s the act u al d et erm i n at io n refl ect edi n th e W BO’ s l et t er. Wh en we l o o k t o the fi n al d et erm i n at i o n l et t er s en t t o M r. W o rth i n g t o n , we s ee an ap p aren ts el f-co n trad i ct io n . It s tat es : “ Th e cl ai m h as b een reject edb ecau s e t he IRS d eci d edn o tt o p u rs u e th e i n fo rm at i o n y o u p ro v id ed .” (Em

p h as i s ad d ed .) “ [D] eci d [i n g ] n o t t o p u rs u e t h e i nfo rm at i on ” wo u l d
s eem , u n d er t h e reg u lat i o n s , 2 t o i n d i cat e a d en i al ; b u tth e l et t er s ay s th e cl ai m i s b ei n g reject ed . Th i s i n co n s i s t en cy i n th e fi n al d et erm i nat i on l et t er l ik ewi s e ap p ears i n th e Co m

m i s s i o n er’ s m o t i o n , wh i ch we n o w d i s cu ss . B. In co ns i s t en cy

i n th e m o t i o n Th e m o ti o n as k s u s t o h o l dth at“ th e Wh i st l eb l o wer Offi ce d i dn o tab u s e i t s d i s cret i o n i n reject i ng p et i t i o n er’ s cl ai m fo r award ” an d al s o as s ert s th at“ th e Wh i s t l eb l o wer Offi ce d idn o t ab u s e i t s d is cret i o n i n d en y in g p et i t i o n er’ s cl ai m fo r award ”. (Em

p has is ad d ed .) Th i s i n co n s i s ten cy recu rs th ro u g h o u t th e m o t io n .

2 See 2 6 C.F.R. s ec. 3 0 1
. 7 6 2 3 -3 (c)(8 ) (p ro v i d i n g fo r “ den i al ” wh ere “ th e IRS * * * d i dn otp ro ceed b as edo n th e i n fo rm at i on p ro v i d edb y th e wh i s tl eb l o wer”).- 2 6 -

[* 2 6 ] 1
. Reject i o n i n th e m o t i o n Onth e o n e h an d , th e m o t i o n freq u en t l y rep eat s t h atthe W BO “ reject ed ” M r. W o rt h i n g t o n ’ s cl ai m . Itas s ert s --co n s i st en twi th a reject i o n --t h atv ari ou s p ers o n n el d et erm i n edth atth e cl ai m was “ s pecu l at i v e”, t h ati t s “ [a] l l eg at i o n s are
n o ts p eci fi c, cred i b l e, o r are s p ecu l at i v e”, t hati t “ fai l [ed ] t o i n cl u d e s p eci fi c an d cred i b l e i n fo rm at i o n t o s up po rta p o t en t i al t ax v i o l at i o n, as wel l as * * * fai l [ed ] t o p ro v id e d o cu m en t at i on t o s up p o rtth e cl ai m ”. If “ reject i o n” i s the co rrect ch aract eri zat i on , th en we wo u l dn eedt o d eci d e wh et h er t h e W BO ab u s edi ts d i s cret i o n i n m ak i n g a t h res h o l dd et erm i nat i on th at th e cl ai m was s p ecu lat iv e o r fai l edt o al l eg e a t ax i s s u e. Bu tn o co h eren t d et erm i n at i o n o f reject i o n was s t at edb y th e W BO i n i t s fi n al d et erm i n at i o n n o r d efen d edb y

th e Co m m i ss i o n er i n h i s m o t i o n . Th e Co m m i s s i on er h as n ot m ad e an arg u m en tju s ti fy i n g a t h res h o l dreject i o n .

2
. Den i al i n th e m o t i o n Onth e o th er h an d , th e m o t i o n al s o m ak es as s ert i o n s co n s i s t en twi th a d en i al
o f t h e cl ai m , s t at i ng fo r ex am p l e: 3 0. Res p o nd en td i dn o t p ro ceed wi th an ad m i n i s trat iv e o r ju d i ci al act io n ag ai n s tth e p u rp o rt ed t ax p ay er an dd i d n o tco l l ectan y p ro ceed s b as ed on p et i t i o n er’ s i n fo rm at i o n . * * *- 2 7 -

[* 2 7 ] To th e s am e effect , th e Co m m i ss i o ner’ s rep ly

s eem s t o p res up p os e a d en i al wh en i ts t at es : “ [T] h e SB/ SE Op erat i n g Di v i s i o n * * * d ecl in edt o co m m en ce an
au d it .” Co n si s t en t wi th a d en i al , th e m ot i o n al s o as s ert s : [T] h e Wh i s t l eb l o wer Offi ce rev i ewedp et i t i o n er’ s cl ai m an d s en tth e cl ai m t o th e SB/ SE Op erat i n g Di vi s i o n fo r i n v es t i g at i o n . * * * SB/ SE Cl as si fi er Ho l trev i ewedth e cl ai m an dd ecl i n edt o refer t h e cl ai m fo r ex am i n at i o n an di n s t eadd eci dedth atthe IRS s h o u l dn o tfu rt h er i n v es t i gat e p et i t i o n er’ s cl ai m . * * * SB/ SE Cl as s i fi er Ho l tco n v ey ed th e d eci si o n n o t t o p u rs u e p et i t i o n er’ s cl ai m t o th e Wh i s t l eb l o wer Offi ce. * * * Bu t th e m o t i o n th en s eem s t o v eer i n o rd er t o s t at e: “ Th erefo re, t h e Wh i s t leb l o wer Offi ce reject edp et i t i on er’ s cl ai m ”. (Em p h as is ad d ed .) In the n ex t s en t en ce, h o wev er, t h e m o t i o n ri g h t s i ts el f an ds t at es : “ Becau s e t h e u n d is p u tedm at eri al fact s d em o n s trat e t h e Wh is t l eb l o wer Offi ce d i dn ot ab u s e i t s d is cret i o n i n d en y i n g p et i t i o n er’ s cl ai m

fo r award , th i s Co u rts h o u l d g ran tres p o nd en t ’ s m o t i o n .” (Em p h as i s ad d ed .) W e can no tg ran tth e Co m m i ss i o ner’ s m ot i o n , b ecau s e we
can n otd i s cern i n i t --n o r i n t h e W BO’ s fi n al d et erm i nat i o n --a co h eren t ru l i n g
co n si s t en twi th th e reg u lat i o n s an ds up p o rt ed b y th e ad m i n i s trat i v e reco rd
. Th e p ro b lem , we s tres s , i s n o ts i m p l y th at o f a p o o rl y

draft edd et erm i n at i o n . If t h e fi n al d et erm i nat i o n m ad e a “ reject i o n ” t hati tex p l ai n edp o orl y b utth atth e ad m i n is trat i v e reco rdju st i fi ed , th en we m i gh tb e ab l e t o s us t ai n th e reject i o n . Or i f t h e fi n al d et erm i n at i on m ad e a “ d en i al ” t h ati tex p l ai n edp oo rl y b u t th atth e- 2 8 -

[* 2 8 ] ad m in i s trat i v e reco rdju s t i fi ed , th en we m i g h tb e ab l e t o s u s t ai n th e d en i al
. 3 Bu t i n th i s i n s t an ce we can n o t t el l wh atth e W BO act u al l y d et erm in ed , an dth i s
u n cl ari ty i n th e fi n al d et erm i n at i o n l et t er co rres p o n d s t o a l acko f cl ari ty th ataro s e i n the p reced i ng ad m i n i s trat iv e p ro ces s an dthatrecu rredth ereaft er i n th e Co m m i s s i o n er’ s m ot io n . W e wi l l th erefo re d en y th e m o t i o n an d wi l l o rd er t h e p art i es t o s h o w cau s e wh y th e cas e s h o u l d n o tb e rem an d edt o th e W BO fo r fu rt h er
co n si d erat io n . To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er wi ll b e i s s u ed
.

3 Cf. To uru s Reco rd s , In c. v . DEA, 2 5 9 F.3 d 7 31 , 7 39 (D.C. Ci r. 2 00 1 ) (“ Al th ou g h th e n o t i ce b y

wh i ch th e DEA d en i edTo u ru s ’ ap p l i cat i on t o p ro ceed i n fo rm a p aup eri s was i n s u ffi ci en tt o s at i s fy th e req u i rem en t s o f t h e APA, th e i n t ern al m em o ran da upo n wh i ch i twas b as edare s u ffi ci en t ”). By s el ect i v e qu o t at i o n an dg en ero u s u s e o f el l i ps es , we co ul d ed i t th e W BO’ s fi n al d et erm i n at i o n l et t er t o ap pear t o s t at e ei th er a reject i o n o r a d en i al an dco u ldth en ex cerp ts en t en ces fro m

th e ad m i n i s trat i v e reco rdas a ju s t i fi cat i o n fo r t h e ap p ro ach we h adch o s en . Bu t To uru s d o es n ots u g ges tthi s m et h od , wh i ch wo u l dco n s t i tu t e n o ta d is cern m en to f t h e W BO’ s actu al d et erm in at i o n b u trat her a co nco ct i o n o f o u r o wn .