1 5 7 T.C. No . 5

UNITED STATES TAX COURT

M ICHAEL LISSACK, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 3 9 9 -1 8 W
. Fi l edAu gu s t 1 7 , 2 0 2 1
.
P fi l edFo rm

2 1 1 , Ap p l i cat i o n fo r Awardfo r Ori g i n al In fo rm at i on , cl ai m i n g t h atT h adfai l ed t o rep ortm em b ers h i p fees as g ro s s i n co m e. R i n i t i at edan ex am i nat i o n o n th e b as is o f P’ s cl ai m . Du ri n g th e ex am i nat i o n R d et erm i n edth atT h adp ro p erl y treat edth e m em b ers hi p fees as n o n t ax ab l e d ep o s i t s b u tal s o d i s co vered an u n rel at ed i s su e--t h atT m ay

h av e cl ai m ed an erro n eo u s d edu ct i on . R ex p an d ed th e s co p e o f t h e ex am i n at i o n t o i n cl u d e t h e l at ter i s s u e an du l t i m at el y d i s al l o w edth e d educt i o n , y iel d i ng a $ 6 0 m i l l i o n ad ju s tm en t . R s ub
s equ en t l y d en i edP’ s wh i s t l eb l o wer cl ai m o n the g ro u n dth ath e h ad n o ts up p l i edan y

i n fo rm at i o n ab o u t the erro n eo u s d edu ct i o n . A wh i st l eb l o wer i s el i g ib l e fo r an award o nl y i f R “ p ro ceed s wi th an [] ad m i n i s trat iv e o r ju d i ci al act io n * * * b as ed o n i n fo rm at i o n ” s up p l i edb y

th e wh i s tl eb l o wer an d co l l ect s p ro ceed s “ as a res u lto f t h e act i o n .” I.R.C. s ec. 7 6 2 3 (b )(1 ). Th e p art i es h av e fi l edcro ss -m o t i o n s fo r s u m m ary ju d g m en tad dres s edt o th e qu es t i o n wh et h er P i s en t i t l ed t o an awardu n d er th i s s tan d ard
.

Served 08/17/21- 2
- Hel d : Al t h ou g h R p ro ceed edwi th an ad m i n i s t rat i v e act i o n , P i s n o t el i g ib l e fo r a wh i s tl eb l o wer award b ecau s e R d i d n o t co l l ect an y p ro ceed s “ as a res ul to f t h e act i o n .” See I.R.C. s ec. 7 6 2 3(b )(1 ). Th e ex am i n at io n o f t h e erro n eo u s d edu ct i o n i s s u e co n st i tu t es a s ep arat e ad m i n i st rat i v e act i o n th atwas n o ti n i t i at ed o n t h e b as i s o f P’ s cl ai m . See s ec. 3 0 1
. 7 6 2 3 -2 (a)(2 ), (b )(1 ) an d(2 ), Ex am pl e (2 ), Pro ced . & Ad m i n . Reg s . Hel d , fu rt h er, t h e co n s t ru ct i o n o f I.R.C. s ec. 7 6 2 3 (b )(1 ), as s et fo rt h i n th es e reg u l at i o n s, i s v al i du n d er Ch ev ro n , U.S.A., In c. v . Nat
. Res . Def. Co u n ci l, In c., 4 6 7 U.S. 8 3 7 (1 98 4 ).

Sco t t A. Kn o tt , Eri ca L. Brad y -Gi t li n , an dGreg o ry S. Ly n am , fo r p et i t i o n er. Pau l Co l l eran an dTara P. Vo l u n g i s , fo r res po n d en t .
OPINION LAUBER, J u d g e: In2 0 0 9 p et i t i o n er fi l ed a cl ai m fo r a wh is t leb l o wer awardu n d er s ect i on 7 62 3
. 1 He i n fo rm edthe In t ern al Rev en u e Serv ice (IRS o r res p o n den t ) t h at a g ro up o f en t i t i es h adfai ledt o i n cl u d e i n g ro s s i n co m e m i l l i o n s o f d o l l ars o f m em

b ers hi p fees . Th e IRS W h i s t l eb lo wer Offi ce (Offi ce) p ro ces s edh i s cl ai m an dreferred i tt o a rev enu e ag en t , wh o i n i t i at edan ex am i n at io n . Th e rev e1 Un l es s o t h erwi s e i nd i cat ed , al l s tatu to ry referen ces are t o th e In t ern al Rev enu e Co de i n effect atal l rel ev an tt i m es , an dRu l e referen ces are t o t h e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
-

n u e ag en td et erm in edth atthe en t i t i es h adp ro p erl y treat edth e m em

b ers h i p fees as
n o n t ax ab l e d ep o s it s . Bu th e s ep arat el y d i sco v eredan u n rel at edi s s u e--t h atth e
en t i t i es h adcl ai m edan erro n eo u s d edu ct i o n --an d m ad e a $ 6 0 m i l l i o n ad ju s t m en t
o n th atacco u n t . Th e Offi ce d en i edp et i t i o n er’ s cl ai m b ecau s e t h e ad

ju s tm en twas
u n rel at edt o t h e i n fo rm at i o n he h ads up p l i ed
. Sect io n 7 6 2 3 (b )(1 ) p ro v i d es th ata wh i s t l eb l o wer i s en t i t l edt o an award
o n l y i f th e IRS p ro ceed s “ b as edo n ” t h e i n fo rm at i o n h e s upp l i edan dco l l ect s p ro ceed s “ as a res u lto f t h e act io n .” Th e p art i es h av e fi l edcro s s -m o t i on s fo r
s u m m ary ju d g m en tas t o wh et her p et it i on er i s en t i t l edt o an award u nd er t h i s
s t an d ard . Co n cl u di n g th atres p o n d en th as th e b et t er arg u m en t , we wi ll g ran th i s
m o ti o n fo r s u m

m ary ju d g m en tan dd en y

p et i t i o n er’ s . Back gro u n d Th e fo l l o w i n g fact s are d eri vedfro m th e p art i es ’ p l ead i n g s an dm ot i o n p ap ers , i n cl u di n g a d ecl arat io n th atat t ach edth e ad m i n i s t rat i v e reco rd . Pet i t io n er
res i dedi n M as s ach us et t s wh en h e fi l edh i s p et i t i o n . W e h av e juri s d i ct i o n u n d er
s ect i on 7 6 2 3 (b )(4 ). Pet i t i o ner fi l eda Fo rm 2 1 1 , Ap p l i cat i o n fo r Awardfo r Ori g i n al In fo rm at i on , wh i ch th e Offi ce recei v edo n Feb ru ary 6 , 2 0 0 9. Pet i t i o n er i d en t i fi edan affi li at edg ro up o f en t i ti es (Targ et ) t h at d ev el o p edco n d o m i ni u m s an do ffered g o l f- 4
-

an d b each cl ub m em

bers h i ps t o co nd o m i n i u m res i d en t s . Th e res i d en t s p ai ds ub
s t an t ial up fro n tm em

bers h i p fees , wh ich Targ ettreat edas n o n tax ab l e d ep os i t s i n th e y ear recei v ed . Pet i t i o n er al l eg edth at , i n No vem b er 2 0 08 , Targ etch an g edi t s refu ndp ol i cy

s u ch th atTarg etacq u i red“ co m p l et e co n tro l o v er” t h e fees recei v ed th aty ear. Pet i ti o n er as s ert edthatTarg etwas th u s req u i redt o i ncl u d e th e m em b ers h i p fees i n g ro s s i n co m e. Th e Offi ce as s ig n edn i n e cl ai m n um b ers t o p et it i o n er’ s cas e, ev i den t l y co rres p o n d in g t o th e v ari o u s en ti t ies co m pri s i ng Targ et . Th e cl ai m was referred t o No ra Beard s l ey , th e Offi ce’ s s en i o r t ax an al y s t. M s . Beard s l ey rev iewed p et i t i o n er’ s cl ai m an d d et erm in edth ati tap p earedt o i d en t i fy a d i s cern i b le Fed eral t ax i s su e. 2 See In t ern al Rev enu e M an ual (IRM ) p t . 2 5 .2
. 2 .1 2 (1 )(e) (Dec. 3 0 , 2 0 0 8 ). Sh e acco rd i n g ly

fo rward edthe cas e t o th e IRS Larg e Bu s i n es s & In t ern at i o n al Di v is i o n (LB&I), wh i ch ex am i n es “ co rp o rat i o n s an d p art n ers h i p s wi t h as s et s g reat er t h an $ 1 0 m il l i o n .” See IRM p t . 1
. 1 .2 4
. 1 (2 ) (Sep t . 2 4 , 2 0 2 0 ). A rev en u e ag en t(RA) i n LB&I rev i ewedp et i t i o n er’ s al l eg at i o n s b yres earch i n g Targ etan dan al y zi n g th e g ro up ’ s t ax retu rn s an dIRS acco u n ttran 2 M s . Beard s l ey

i n i ti al l y i n fo rm edp et i t i o n er t h atthe Offi ce was reject i n g h i s cl ai m b ecau s e h e s ub m i t t edi tb efo re Targ et ’ s t ax retu rn s fo r 2 0 0 8 were du e. M s . Beard s ley s ub s equ en t l y

d et erm i n ed t h atth i s was n o ta v al i dreas o n fo r reject i o n an d reo p en edth e cas e.- 5
-

s cri pt s . InJ u l y

2 0 1 1 the RA i n i t i at eda Fo rm 1 1 3 69 , Co n fi d en t i al Ev al uat i o n Rep ort o n Cl ai m

fo r Award . Th e RA n o t edth at“ no au d i to r i n v es ti g at i o n [h ad b een ] p l an n ed ” b y

LB&I b u tthatth e “ [i ] n fo rm at i o n s ub m i t t edb y th e wh is t l eb l o wer was s u ffi ci en tt o warran tb eg i n n i ng o f ex am i n at i o n .” Aft er ex am in i n g the fact s an drel ev an t l aw t h e RA co ncl u d edth atTarg et

“ d i d n o th av e u n fet tered ri g h t an dd o m i n i o n o v er t he d ep os i t s ” an dth u s “p ro p erl y
ex cl u d edth e d ep o s i t s fro m g ro s s i n co m e i n t h e y ear recei v ed .” Fi n di n g thatTarg etp ro p erl y

“ d eferred the reco g n i t i o n o f th e d ep o s i ts ,” t h e RA “ p ro p o s e[d ] n o ad
ju s t m en trel at edt o t h e m em b ers h i p d ep o s it s i ss u e.” Th e RA ret urn edFo rm

1 1 3 6 9 t o th e Offi ce o n Au g u s t 1 9 , 2 0 1 1
. A few
m o nt h s l at er h e p rep areda rep o rtfo r th e Offi ce, s t at in g th at“ th e wh i s t l eb l o wer cl ai m was fu l l y i n v es t i g at ed ” an d“ n o ch an g e was p ro p o s ed .” Bu t h e i n d i cat ed th ath e h adi den t i fi edan o th er i s s u e, n am el y a d edu ct i o n i n ex ces s o f $ 6 0 m i l l i o n th atTarg eth adcl ai m ed“ fo r i n t erco m p an y b add eb t . ” See s ec. 1 6 6 . He s t at edth at th e b add eb ti s su e wo u l dt ak e s o m e t i m e t o ex am i n e b u tth ati t was “ u n rel at edt o th e s ub jecto f t h e wh is t leb l o wer cl ai m s .” M s. Beard s l ey d eci d edt o k eep the cas e
o p en u n t i l th e RA fi ni sh edh i s fu rt h er i n v es t i g at io n . In 2 0 1 3 th e RA co m

p let edh i s ex am i n at i o n , an dth e IRS i s s u edTarg etn o t i ces of p ro p o s edad

ju s t m en t . Th e RA d i sal l owedth e $ 6 0 m i l l i o n b ad d eb td edu c-- 6
-

t i on an dm ad e a n um

b er o f o th er (rel at iv el y

m i no r) ad

ju s tm en t s, al l fo r t ax y ear 2 0 0 9 . Th es e o t h er ad

ju s t m en t s affect edfo u r en t i t i es wi t h i n Targ etan d i ncl u d ed
s u ch it em s as s al ari es an dwag es , t ax es an d l i cen s es , an dp art n ers h i p l os s es . Th e RA fo rward ed t o M s . Beard s l ey th e en t i re cas e fi l e, i ncl u d i n g th e Fo rm s 4 5 4 9 , In co m e Tax Ex am i n at i o n Ch an g es , an dFo rm s 8 8 6 -A, Expl an at i o n o f It em s , th ath adb een i s s u edt o Targ et . Th es e d o cu m en t s s h o wed t h atn o n e o f t h e ad ju s t m en t s h adan yt h i n g t o d o wi t h th e m em b ers h ip d ep o s i t s i s s u e. Wh en M s . Beard s ley as k ed t h e RA wh et h er t h e “ wh i s t l eb l o w er s ub m i s s i o n co nt ri bu t e[d ] t o
an y o f t h e ad j us t ed i s s u es ,” h e rep l i ed(wi t h em p h as i s ) t h atp et i t i o n er h adn o t“p ro v i d edan y i n fo rm at i o n fo r t h e ad

ju s t ed i s s ues .” M s . Beard s l ey rev i ewedp et i t i o n er’ s s ub m i ss i on s an d co n fi rm edth ath e h adm ad e n o al l eg at io n s an ds ub m i t t edn o fact s rel at ed t o Targ et ’ s i n t erco m p an y d eb t(o r an y o t h er ad

ju st m en t ). M s . Beard s l ey acco rd i ng l y reco m m en d edth atth e Offi ce d en y p et i ti o n er’ s cl ai m fo r award . Sh e ex p l ai n edth at , al th o u g h “ t here was an as s es s m en tfo r ad
d i t i o nal t ax es ,” t h e i n fo rm at i on p et i t i o n er s up pl i ed“ was n o trel ev an tt o th o s e i s s u es .” Th e Offi ce ag reed wi t h M s . Beard s l ey ’ s reco m m en d at i o n an do n Decem b er 7 , 2 01 7 , i s su eda fi n al d et erm i n at i o n l et t er d en y i n g p et i t io n er’ s cl ai m . Th e l et t er
s t at edth atth e cl ai m

h adb een d en i ed“b ecau se t h e IRS t o o kn o act i on o n th e- 7
-

i s su es y o urai s ed . * * * Th e IRS d i das s es s ad d i t io n al t ax , * * * b u t th e i n fo rm at i on y oup ro v i d edwas n o t rel ev an tt o t h os e i s s u es .” Pet i t i o ner t i m el y

p et it i o n edth i s Co u rtfo r rev i ew o f t h e Offi ce’ s d et erm i n at i on . On Sep t em

b er 1 , 2 0 2 0 , res p o n d en t fi l eda m o t i o n fo r s umm ary ju d g m en t . Pet i t io n er t i m el y

res p o n d edt o th atm ot i on an dfi l ed , o n Oct o b er 5 , 2 02 0 , a cro s s m o ti o n fo r p art i al s umm ary ju d g m en t . Di s cu ss i o n A. Su m

m ary J u dg m en tSt an d ard Th e p u rp os e o f s u m

m ary ju d g m en t i s t o ex p ed it e l i t i g at i o n an d av o i dco st l y , t i m e-co n s u m i n g , an du n n eces s ary tri al s . Fl a. Peach Co rp . v . Co m m i s si on er, 9 0 T.C. 6 7 8 , 6 8 1 (1 9 8 8 ). Un d er Ru l e 1 2 1 (b ) we m 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 te as t o an y m at eri al factan da d eci s i o n m ay b e ren d ered
as a m at t er o f l aw. Su n d s t ran dCo rp . v . Co m m i s s io n er, 9 8 T.C. 5 1 8, 5 2 0 (1 9 9 2 ), aff’ d , 1 7 F.3 d9 65 (7 t h Ci r. 1 99 4 ). Ho wev er, t h i s s u m m ary ju d g m en ts t an d ard “ i s
n o tg en eral l y

ap t ” wh en rev i ewi n g wh i s t l eb l o w er award d et erm i n at i o ns b ecau s e we “ co nfi n e o u rs el v es t o th e ad m i n i s t rat i v e reco rdt o d eci d e wh et her t here h as b een anab us e o f d i s cret i o n .” Van Bemm el en v . Co m m i ss i o n er, 1 5 5 T.C. 6 4 , 7 8 (2 0 2 0). “ In cas es t h at are d eci d edo n th e ad m i ni s t rat i v e reco rd* * * , th is Co u rt
o rd i n ari ly d eci d es th e i s su es rai s edb y th e p art i es b y

rev i ewi n g the ad m i n is t rat i v e- 8
-

reco rdu s i n g a s u m

m ary ad ju d i cat i o n p ro cedu re.” Ro wen v . Co m m i s s i o n er, 1 5 6 T.C. _

_ , _

_ (s l i p o p . at9 ) (M ar. 3 0 , 2 02 1 ). B. An al y s i s Sect io n 7 6 2 3 (a) au t h o ri zes th e p aym en to f s u m s n eces s ary fo r “ d et ect i n g
u n d erp aym en t s o f t ax ” o r “ d et ect i n g an d b ri ng i n g t o tri al an dp u n i s h m en tp ers o ns g u i l ty o f v i o l at i ng th e i n t ern al rev en u e l aws o r co n n i v i n g atth e s am e.” Sub s ect i o n (b )(1 ) p ro v i d es fo r n o n d is cret i on ary (i .e., m an dat o ry ) award s o f atl eas t1 5 % an d
n o tm o re t h an 3 0% o f th e co l l ect edp ro ceed s i f al l s t at edreq u i rem en t s are m et . Un d er s ect i o n 7 62 3 (b )(1 ), an award can b e p ai do nl y i f th e IRS “ p ro ceed s wi t h
an [] adm i n is t rat i v e o r ju d i ci al act i o n * * * b as edo n i n fo rm at io n b ro u g h tt o th e Secret ary ’ s at t en t i o n.” Th e wh i s t l eb l o wer i s en t i t ledt o an awardo nl y i f t h e IRS
co l l ect s m o n ey

“ as a res u l to f t h e act i o n .” 3 Sec. 7 62 3 (b )(1 ). In 2 0 1 4 th e Dep art m en to f t he Treas u ry (Treas u ry ) i s su edreg u l at io ns i n t erp ret i ng s ect i o n 7 6 2 3(b ). T.D. 9 6 8 7 , 2 0 1 4 -3 6 I.R.B. 4 86 . Th es e reg u l at i o n s d efi n e k ey t erm s u s edi n the s t atu t e an ds up p l y ex am p l es s h o wi ng h o w th es e d efi n i t i o n s ap p ly . See s ec. 3 0 1 .7 6 2 3 -2 , Pro ced . & Ad m i n . Reg s . Th es e reg u lat i o n s ap p l y “ to

3 Th e o ri g i n al v ers i o n o f t h e s t atu t e co n t ai n eda s l i g h tl y d ifferen tcl au s e, p ro v id i n g th atwh i s t l eb l owers wo u l drecei v e a p ercen t ag e o f th e co ll ect edp ro ceed s “ res u l t i n g fro m

th e act i o n .” See 2 6 U.S.C. s ec. 7 6 2 3 (b )(1 ) (2 0 1 2). Becau s e th es e cl au s es h av e t h e s am e m ean i n g , we wi l l refer t o t h e cu rren tv ers i on o f t h e s t atu te fo r co n v en i en ce.- 9
-

i n fo rm at i o n s ub m i t t ed o n o r aft er Au g u s t1 2 , 2 0 14 , an dt o cl ai m s fo r awardu n der
s ect i on s 7 6 2 3 (a) an d 7 6 23 (b ) t h atare o p en as o f” t h atd at e. Id . p ara. (f). Pet i t i o n er’ s cl ai m was “ op en ” as o f Au g u s t1 2 , 2 0 14
. Am o n g th e t erm s d efi n edb y th e reg u l at io n s i s th e v erb p h ras e “ p ro ceed s b as edo n .” Id
. p ara. (b ). Th e IRS “ p ro ceed s b as edo n ” th e wh i s t l eb l o wer’ s i n fo rm at i o n wh en h i s i n fo rm at i on “ s ub s t an t i al ly co n t ri b u t es t o an [ad m in i s t rat iv e o r ju d i ci al ] act i o n ag ai n s ta p ers o n i d en t i fi edb y th e wh i s t l eb l o w er.” Id . p ara. (b )(1 ). Th ati s tru e wh en th e IRS “ i n i t i at es a n ew act i o n, ex p an d s th e s co pe o f an o n g o i n g act i on , o r co nt in u es t o p u rs ue an o n g o i n g act i o n , th atth e IRS wo ul dn oth av e i n i
t i at ed , ex p an dedthe s co p e o f, o r co n t in u edt o p u rs u e, b u tfo r th e i n fo rm at i o n p ro v i d ed .” Ib i d . On t h e o t h er h an dth e IRS d o es n o t“p ro ceed b as ed o n ” th e wh i s t leb l o wer’ s i n fo rm at i o n wh en i tm erel y “ an al y zes t he i nfo rm at i on p ro v i d edo r i n v es t i gat es a m at t er rai s edb y th e i n fo rm at i o n p ro v i ded .” Ib i d
. Th e reg u l at i o n i ll u s t rat es th es e p ri n ci p l es wi th fo u r Ex am pl es , o n e o f wh i ch h as p art i cu l ar rel ev an ce h ere. See i d . p ara. (b )(2 ), Ex am p l e (2 ). Th i s Ex am

p l e p o s i t s a wh i s tl eb l o w er wh o p ro v i d es fact s d et ai l i ng h o w a t ax p ay er u n derp ai dt ax i n Year 1 . Th e IRS i ni t i at es an ex am i n at i o n , i n ves t i g at es th os e fact s, th en ex p an d s th e ex am i n at i o n t o d et erm i n e wh eth er t h e t ax p ay er, b y en g ag i n g i n t h e s am e act i vi t i es , al s o u n derp ai dt ax i n Year 2 . Duri n g th e ex am i n at i o n t h e IRS o b t ai n s ,- 1 0 -

th ro u g h i n fo rm at i o n d o cu m en treq u es t s (IDRs ) an ds u m m o ns es , “ ad d i t i o n al fact s th atare u n rel at edt o th e act iv i t i es d es cri b edi n the i n fo rm at i on p ro v i d edb y th e wh i st l eb l o wer.” Ib id . “ Bas ed o n th es e ad d i t io n al fact s , ” t h e IRS fu rt h er ex p an d s th e s co p e o f t h e ex am i n at i o n fo r Years 1 an d 2 . Ib id
. Ex am pl e 2 co n cl u d es thatth e IRS “ p ro ceed s b as edo n ” t h e wh is t leb l o wer’ s i n fo rm at i o n b y

i n i t i at i n g th e Year 1 ex am i n at io n an d ex p an d i n g i tt o i ncl u d e t h e
s am e i s s u e fo r Year 2 . Onth e o t h er h an d , Ex am p l e 2 co n cl ud es : Th e p o rt i on s o f t h e IRS’ s ex am i n at i o n o f t h e t ax p ay er i n b ot h Year 1 an dYear 2 rel at i n g t o th e ad d i t i o n al fact s o b t ai nedth ro ug h t he i s su an ce o f IDRs an ds u m m o n s es are n o tact i o n s wi t h wh i ch th e IRS p ro ceed s b as ed on th e i n fo rm at i o n p ro v id edb y th e wh is t leb l o wer b ecau s e t he i n fo rm at i o n p ro v i d edd i dn o ts ub st an t i al l y co n t ri b u t e t o th e act i o n . [Ib i d .] In s h o rt , th e reg ul at i o n co n cl u d es th atth e p o rt i o n o f t h e ex am i n at i o n t hati s u n rel at ed t o t h e fact s an di s s u e i d en t i fi edb y th e wh i st l eb l o wer i s a s ep arat e “ adm i n i s trat i v e act i o n.” See i d . p ara. (a)(2 ) (d efi n in g “ ad m i ni s t rat i v e act i on ” as “ al l o r a p o rt i on ” o f an IRS ex am i n at i o n). Onh i s Fo rm

2 1 1 p et i t i o ner cl ai m edth atTarg et recei v edm il l i o ns o f d o l l ars i n m em b ers h i p fees du ri n g 2 0 0 8 b utd i dn oti n cl u d e t h es e am o u n t s i n g ro ss i n co m e o n th e t h eo ry

th atth ey were n o n t ax ab l e d ep o s i t s . Pet it i o n er co n t en dedth at Targ et ’ s th eo ry

was i n co rrect b ecau se o f an as s ert edch an g e i n th e rel ev an tfact s --- 1 1 -

s p eci fi cal l y , an al l eg edrev i s i o n t o Targ et ’ s refu n d p o l i cy fo r m em b ers h i p fees
. Th e IRS i n i t i at ed an ex am i n at io n , an dres po n den tco n ced es th ati two u l dn o th av e i n i t i at edth e ex am i n at i on “b u tfo r t h e i n fo rm at i o n p ro v id ed .” See s ec. 3 0 1 .7 6 2 3
- 2 (b )(1 ), Pro ced . & Ad m i n . Reg s . Th e ex am i n at i o n o f t he m em b ers h i p d ep o s i t s i s su e i s t h u s an “ ad m i n i st rat i v e act i o n ” t h atwas i n it i at edo n th e b as i s o f t h e i n fo rm at i o n p et i t i on er s up p l i ed . See i b i d
. Th i s “ ad m i ni s trat i v e act io n ,” h o w ev er, res u l tedi n n o ad j u s tm en t s t o i n co m e
an d n o co l lect edp ro ceed s . In d eed , th e RA co n cl u d edthatTarg eth ad“p ro p erl y
ex cl u d edth e d ep o s i t s fro m g ro s s i n co m e i n t h e y ear recei v ed .” Becau se t h e IRS d i dn o t co l l ectan y

p ro ceed s “ as a res ul t o f th [i s ] act i o n ,” s ee s ec. 7 6 23 (b )(1 ), p et i
t i on er i s n o tel i g i bl e fo r a wh is t l eb l o wer award
. Du ri n g th e co u rs e o f t h e ex am i nat i o n th e RA d i s co v ered an en t i rel y s ep arat e i s su e--a d educt i o n th atTarg etrep ort edfo r i n t erco m p an y b add eb t . Th e RA was al ert ed t o thi s i s s u e, n o tb y an y i n fo rm at i o n i n p et i t i o n er’ s Fo rm 2 1 1 , b utb y

th e RA’ s i n dep en d en trev i ew o f Targ et ’ s t ax retu rn s. Th e RA ex p an d edth e au d i tt o i n cl u d e t h e b add eb ti s s u e o n th e b as i s o f “ ad d it i o n al fact s t h atare u n rel at edt o th e act i vi t i es d es cri b edi n t h e i n fo rm at i o n p ro v i d edb y ” p et i t i o n er. Sec. 3 0 1 .7 6 2 3
- 2 (b )(2 ), Ex am

p l e (2 ), Pro ced . & Ad m i n . Reg s. Th is p o rt i o n o f t he ex am i n at i o n , th erefo re, was “ n ot [an ] act i o n [] wi t h wh i ch th e IRS p ro ceed [ed ] b as ed o n th e- 1 2 -

i n fo rm at i o n p ro v i d edb y

th e wh i s t leb l o wer.” Ib id .; s ee Wh i s t l eb l o wer On e 1 0 6 8 3
- 1 3 W v . Co m m i s s i o n er, 1 4 5 T.C. 2 0 4 , 2 0 6 (2 0 15 ) (s t at in g th atco ll ect i o n m u s tb e

“ at tri b u t ab le i n s o m e way t o th e i n fo rm at i o n th at* * * [t h e wh i s t l eb l o wer] p ro v id ed ”). Th e ad m i ni s trat iv e reco rds h o ws th at t h e Offi ce d idn o tab 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 . M s . Beard s l ey rev i ewedh i s al l eg at i o n s
an d fo rward edh i s Fo rm

2 1 1 t o an RA i n LB&I. Th e RA p erfo rm edan ex am i n at i on o f p et it i o n er’ s cl ai m

an du l t i m at el y

“p ro po s e[d ] n o ad

ju s t m en trel at ed t o th e
m em b ers h i p d ep o s i t s i s s u e.” Bu th e i n fo rm edM s . Beard s l ey th atdu ri n g th e ex am in at i o n h e d i s co v ered“ i s s u es u n rel at edt o th e wh i s t l eb l o wer i s s u e”--n am el y , th atTarg et“ t o oka d edu ct i o n fo r i nt erco m p an y b add eb t .” M s . Beard s l ey d eci ded t o k eep th e cas e o p enwh il e t h e RA ex am i n ed t he b add eb ti s su e. Aft er co m

p l et i n g h i s ex am i n at i o n t he RA s en t M s . Beard s l ey co p ies o f t h e Fo rm s 4 5 4 9 an d8 8 6 -A d i s al l o wi n g th e $ 6 0 m il l io n b add eb td edu ct i o n . Th es e d o cu m en t s m ad e cl ear t h at t h e d efi ci en cy d et erm i n at i on d i dn o tari s e fro m t h e
m em b ers h i p d ep o s i t s i s s u e. M s . Beard s l ey n ev ert h el es s t o okth e ex t ra s t ep o f
as k i n g th e RA wh et h er t h e “ wh i s t l eb lo wer s ub m is s i o n co n t ri b u t e[d ] t o ” t h e b ad d eb t ad ju s t m en t . Th e RA p ro m

p t l y res po n d ed , em

p h as i zi n g thatp et i t i on er h adn o t

“p ro v i d edan y

i n fo rm at i o n fo r t h e ad

ju s t edi s s ues .” M s . Beard s l ey ag ai n rev i ewed- 1 3 -

p et i t i o n er’ s s ub m i s s i on s an d co n fi rm edth at t h ey co n t ai n edn o i n fo rm at i o n rel at ed t o the i n t erco m

p an y b add eb t . Onth e b as i s o f t h i s reco rd we h av e n o d iffi cu l t y
co n cl u d in g th atth e Offi ce d i dn o tab u s e i t s d i s cret i on i n d en y i n g p et i t i o n er’ s cl ai m fo r an award
. C. Pet i t i o ner’ s Arg um en t s 1
. Val i di ty

o f t h e Reg u l at io n Pet i t i o ner s up p l i edn o i n fo rm at i o n t o t h e IRS ab o u tTarg et ’ s i n t erco m p an y b ad d eb td educt i o n . Bu th e u rg es th at“ Co n g res s d id n o t i n ten dt o l i m i taward s d i rect l y t o t h e i s s u es th atth e wh i s t l eb l o wer p ro v i d edi n fo rm at io n o n.” Reco g n i zi n g th e i m

p ed i m en t s th atth e reg u lat i o ns i m p o s e t o th i s arg u m en t , p et i t i on er
co n ten d s t h atth e reg u l at i o n s are t o th atex t en t i n v al i d
. In ad dres si n g p et i t i on er’ s ch al l en g e we ap p l y t h e fam i l i ar t wo -s tep t es to f Ch ev ro n , U.S.A., In c. v . Nat . Res . Def. Co u n ci l , In c., 4 6 7 U.S. 8 37 (1 9 8 4 ). Fi rs t
we as k “ wh et h er Co n g res s h as d i rect l y s p o k en t o t h e p reci s e qu es t i o n at i s su e.” Id . at8 4 2 ; s ee Ci t y o f Arl in g t o n v . FCC, 5 6 9 U.S. 2 90 , 2 96 (2 0 13 ). “ If t h e i n t en t
o f Co ng res s i s cl ear, t h at is th e en do f t h e m at t er; fo r t h e co u rt , as wel l as th e ag en cy , m u s tg i v e effect t o th e u n am b i g uo u s l y ex p res s edi n t en to f Co n g res s . ” Ch ev ro n , 4 6 7 U.S. at8 4 2-8 43 . “ If t h e s t atu t e i s s i len to r am bi g uo u s wi t h res p ectt o the qu es ti o n ati s s u e, s t ep t wo o f Ch ev ro n req u ires th e co urtt o g i v e d eferen ce t o th e- 1 4 -

ag en cy ’ s co n s t ru ct i o n , s o l on g as i t i s p erm is si b l e an d n o t‘ arb i t rary , cap ri ci o u s , o r
m an i fes t l y

co n t raryt o th e s t atu t e.’ ” Whi rl po o l Fi n. Co rp . & Co n s o l . Sub s . v . Co m m i s s i o n er, 1 5 4 T.C. 1 4 2 , 1 7 5 (2 0 2 0) (q uo t i n g Ch ev ro n , 4 67 U.S. at8 4 4 ).
a. Ch ev ro n St ep On e Sect io n 7 6 2 3 (b )(1 ) p ro v i d es th at , “ [i ] f t h e Secret ary p ro ceed s wi t h an y

ad
m i n i s trat i v e o r ju d i ci al act i on d es cri b ed i n s ub sect io n (a) b as edo n i nfo rm at i o n b ro u gh t t o th e Secret ary ’ s at t en t i o n b y an i n d i v idu al ,” t hati n d iv i du al wi ll , s ub ject t o s p eci fi edco n d i t i on s , recei ve an awardo f 1 5 % t o 3 0 % o f th e am o u n t co l l ect ed
. Co n g res s d i d n o t d efi n e t h e t erm “ ad m i n i s t rat iv e o r ju d ici al act i o n .” An ds ect i o n 7 6 2 3 (b ) d o es n o t o t h erwi s e d em arcat e t h e co nt o u rs o f an “ act i on ” i n a cas e s u ch as th i s , wh ere t he IRS ex am i n at i on ex p an d s t o m at t ers u nrel at edt o t he i s s u e i d en t i
fi edb y th e wh i s t l eb l o wer an dt o th e fact s h e s upp l i ed . Co n g res s t h erefo re d i dn o t
s p eakd i rect ly

t o th e qu es ti o n ath an d
. Pet i t i o ner co n ten d s th atth e s t atu t e i s u n am b i g u ou s an dth atth e ch al l en g ed reg u l at i o n s are i nco n s i s t en twi t h Co ng res s ’ i n ten t . He em p h as i zes th e wo rd“ an y ” i n the s t atu t e’ s o p en i n g cl au s e, wh i ch as k s wh ether t h e Secret ary h as p ro ceed ed wi th “ an y ad m i n i s t rat i ve o r ju d i ci al act i o n * * * b as edo n i nfo rm at i on b ro u g h tt o th e Secret ary ’ s at t en t i o n b y ” t h e wh i s t l eb lo w er. Acco rd i n g t o p et i t i o n er, “ t h e
s t atu te d o es n o treq u ire t h atth e p ro ceed s o n wh i ch th e awardi s d et erm i n edfl o w- 1 5 -

d i rect l y fro m th e wh i s t l eb l o wer’ s i n fo rm at i on .” If t h e IRS i n i ti at es “ an y ” act i o n, h e co nt en d s , th en thatact i o n i n i t s en t i ret y co n st i tu t es th e “ act i o n ” fo r p u rp o s es o f
s ect i on 7 6 2 3 . Here, t h e IRS d idi ni t iat e an act i o n , v i z., an ex am i n at i o n o f Targ et . An dp et i t i o n er co n ten d s th atth e IRS p ro ceed edwi t h th i s act i o n “ bas edo n i n fo rm at i o n ” h e p ro v i d ed , v i z., h i s i d en t i fi cat i o n o f Targ etas a p o s si bl e au d i tcan d i
d at e. W e d i s ag ree wi t h p et i t i o n er’ s s ub m i s s io n th atth e s t atu t e i s u nam b ig u o u s . Sub s ect io n (b )(1 ) refers t o an y ad m i n i s t rat i v e o r ju d i ci al act i o n “ d es cri b edi n s ub
s ect i on (a).” Sec. 7 6 2 3 (b )(1 ). Bu ts ub s ect i o n (a) d o es n o td es cri b e o r d efi n e an

“ ad m i n i s trat iv e o r ju di ci al act i o n .” Sub s ect i o n (a) d o es n o tev en refer t o th att erm . It sp eak s o nl y o f p ay in g an award“ fro m th e p ro ceed s o f am ou n t s co l l ect edb y
reas on o f the i nfo rm at io n p ro v i d ed .” Sec. 7 6 2 3(a) (fl u s h l an g u ag e). Sub s ect i o n (b ) t h u s refers t o a d es cri pt i o n i n s ub s ect i o n (a) t h atd o es n o t
ex i s t . An dwh ereas s ub s ect i on (b ) i n i t ial l y refers t o co m m en cem en to f “ an y

* * * act i on ,” i td efi nes t h e al l o wab le award b y referen ce t o p ro ceed s co l l ect ed“ as a
res u l t o f t h e act i o n .” Sec. 7 6 2 3 (b )(1 ) (em p h as is ad d ed ). Fo r b o th reas o n s , th e
s t atu te l eav es am

p l e s co p e t o th e Secret ary t o d efi n e t h e t erm

“ ad m i n i s t rat i v e o r ju d i ci al act i o n .” He d i ds o i n th e reg u l at i on s , wh i ch d efi n e an “ ad m in i s t rat i v e- 1 6 -

act i on ” t o m ean “ al l o r a p o rt i o n o f” an IRS ci v i l o r cri m in al p ro ceed i n g . Sec. 3 0 1 .7 6 2 3 -2 (a)(2 ), Pro ced . & Ad m i n . Reg s . Th e referen ce i n s ub s ect i o n (a) t o “ am o u n t s co ll ect ed b y reas o n o f t h e i n fo rm at i o n p ro v i ded ” i s al s o am b i gu o u s . Sec. 7 6 2 3 (a) (fl u s h l an g u ag e) (em p h as i s ad d ed ). Th e p h ras e “ b y

reas o n o f” m ay

p l au s i b l y b e i n t erp ret edt o req u i re a s ub
s t an t iv e co n t ri bu t i o n b y

th e wh i s t l eb l o wer, i .e., th e fu rn i s h i n g o f fact u al i n fo rm at i on th atactu al l y hel p s th e IRS i d en t i fy wh ere t h e b o di es are b uri ed . Th i s i n t erp ret at i o n i s arg u ab l y

s up p o rt edb y

the fi n al s en t en ce o f s ub sect i o n (b )(1 ), wh i ch
s ay s that t h e am o un to f an y award“ s h al l d ep en do n th e ex ten tt o wh i ch th e * * * [wh is t l eb l o wer] s ubs t an ti al l y co n t ri b ut edt o s uch act i o n .” Onth e o t h er h an d , th e

“ b y reas o n o f” req u i rem en t m i g h tb e d eem eds at i sfi ed , as p et i t io n er u rg es , i f a wh i st l eb l o wer p ro v i d es n o u s efu l fact u al i n fo rm at i o n b u to n l y th e n am e o f an al l eg ed l y n o nco m p l i an tt ax pay er. Th is i s p reci sel y th e s orto f s t atu t o ry am

b i g u i t y th atm ay u s efu l l y b e d is p el l edb y

reg ul at i o n . Pet i t i o ner ci t es n o t h i n g i n th e s t atut e’ s l eg i s l at i v e h i st o ry t o s up p o rth i s i n t erp ret at io n . Rat h er, h e rel i es s o l el y o n a t ech n i cal ex p lan at i o n p rep aredb y th e
s t aff o f th e J oi ntCo m

m i t t ee o n Tax at i o n (J CT). See St aff o f J . Co m m . o n Tax at i o n , Tech n i cal Ex p l an at i on o f H.R. 6 4 0 8 , Th e “ Tax Rel i ef an dHeal t h Care Acto f 2 0 0 6,” at8 8 (J . Co m m . Pri n t2 0 0 6 ). Su ch t ech ni cal ex p l an at i o n s are g en -- 1 7 -

eral ly p rep aredb y

J CT s t aff m em

b ers aft er a t ax l aw h as b een draft ed
. 4 Th es e
ex p lan at i o n s are “ n o tp arto f t h e l eg i s l at iv e h i s to ry ” an d d o n o tco n st i tu t e “ d i rect
ev i d en ce o f l eg i sl at iv e i nt en t .” Zi n n iel v . Co m m i ss i o ner, 8 9 T.C. 3 5 7 , 3 6 6 -3 6 7 (1 9 8 7); s ee Un i t edSt at es v . W oo d s , 5 7 1 U.S. 3 1 , 4 8 (2 0 1 3) (ru l i n g t h atJ CT
ex p lan at i o n s are n o t “ leg i t i m at e t o o l [s ] o f s t atu t o ry i n t erp ret at i o n ” (qu o t i n g Bru es ewi t z v . Wy eth LLC, 5 6 2 U.S. 2 2 3 , 2 42 (2 0 11 ))). In an y ev en tth e J CT s tat em en t o n wh i ch p et i t i o n er rel i es fal l s far s h o rto f
s h o wi n g th at“ Co ng res s h as d i rect l y s p ok en t o th e p reci s e qu es t io n ati s s u e.” Ch ev ro n , 4 6 7 U
. S. at 8 4 2
. Co n g res s ad d ed s ect i o n 7 6 2 3 (b ) t o es t ab l i sh a m an d at o ry award p ro g ram , as a s up pl em en tt o the p reex i s t i n g p ro g ram u n d er wh i ch al l award s were d is cret i on ary wi t h t h e IRS. See 2 6 U.S.C. s ec. 7 6 2 3 (2 0 0 0). Befo re d es cri b i ng th e n ew l aw, the J CT s t aff n o t ed t h at , u nd er p reex i s t i n g IRS ad m i n i s trat i v e g u i d el i n es fo r d i scret i o n ary award s, a wh is t leb l ower co u ld recei v e a s m al l award(up t o 1 % o f t h e am o u n treco v ered ) i f h i s i n fo rm at i o n “ cau s edth e i n v es t i
g at i o n , b u th adn o d i rectrel at i o n s h i p t o th e d et erm i n at i o n o f t ax l i ab i l i t i es .” Tech n i cal Ex p l an at i o n , s up ra, at8 8
.

4 Th i s p art i cu l ar ex p l an at i o n was p ub l i s h edtw o d ay s aft er th e Ho us e p as s ed th e b i l l an dth e s am e d ay th atth e Sen at e p as s edth e b i l l
.- 1 8 -

Th i s s tat em en td o es n o th el p p et i t i o n er. Th e J CT s t aff was reci t in g a p reex i s t in g IRS ad m in i s t rat i v e g u id el i ne; th ere i s n o ev i d en ce t h atCo n g res s i n t en d ed t o i nco rp o rat e t h i s g u i d el i n e i n t o th e t ex to f t he am en d ed s tatu t e. M o reo ver, t h e g u i d el i n e ad dres s edth e s ect i o n 7 6 2 3 (a) d i s cret i o n ary p ro g ram , u n d er wh ich th e IRS m i g h t p ay

a 1 % awardt o a wh i s t l eb l o wer wh o s i m p l y i d en ti fi ed a n o n co m p l i an tt ax p ay er, wi t h o ut s up p l y i n g an y s ub s t an t i v e i n fo rm at i o n ab o u tthe t ax
v i o l at i o n . Th ere i s n o ev i den ce t h atCo n g res s o r t h e IRS b el i ev edthats u ch “ t i p ” award s s ho u ld h av e an y

ro l e t o p l ay

u n d er s ect i o n 7 6 2 3 (b ), wh i ch au t h o ri zes
m an d at o ry

award s ran gi n g fro m

1 5% t o 3 0 % o f t h e co l l ect edp ro ceed s. b
. Ch ev ro n St ep Two Un d er s t ep two we m

u s tev al u at e wh ether t h e reg u l at i on i s a “ reas o n ab l e i n t erp ret at io n ” o f t h e s t atu t e. Ch ev ro n , 4 6 7 U.S. at8 4 4 . W e wi l l g iv e d eferen ce t o the ag en cy ’ s co n st ru ct i on u nl es s i ti s “ arb i t rary , cap ri ci o us , o r m an i fes t l y co n traryt o th e s t atu t e.” Ib i d. “ In o t h er wo rd s we m u s ts u s tai n t he reg u l at i o n s o l o n g
as i trep res en t s a ‘ reas o n ab l e i n t erp ret at io n’ o f t h e l aw Co ng res s en act ed
. ” Oak
b ro o k Lan dHo l d in gs , LLC v . Co m m i s s i o n er, 1 5 4 T.C. 1 8 0, 1 9 6 (2 0 2 0 ) (qu o t i n g Ch ev ro n , 4 6 7 U
. S. at 8 4 4 ); s ee Fel l er v . Co m m i s s i o n er, 1 3 5 T.C. 4 9 7 , 5 0 8 (2 0 1 0 ) (co n cl u d i n g th atth e Secret ary ’ s co n s t ru ct i o n n eedn o tb e th e o n l y p erm i s s i b l e- 1 9 -

o n e). W e h av e n o d i ffi cu l t y co n cl u d i ng th atth e reg u lat i o n p as s es m u s t er u n d er th i s t es t . Th e reg u l at i o n s i s s uedi n 2 01 4 d efi n e wh ati tm ean s fo r t h e Secret ary t o

“p ro ceed [] b as edo n i n fo rm at i o n ” p ro v i d edb y a wh i s t l eb l o wer. Sec. 3 0 1
. 7 6 2 3
- 2 (b )(1 ), Pro ced . & Ad m i n . Reg s . Th e reg u l at i o n s al s o d efi n e “ adm in i s t rat i v e act i on ” as “ al l o r a p o rt i o n o f an * * * [IRS] ci v i l o r cri m i nal p ro ceed i n g.” Id
. p ara. (a)(2 ). Th is m ean s th ata m u l t i -i s s ue ex am i n at i o n m ay co m pri s e m o re t h an
o n e ad m i n i s t rat iv e act i o n . Wh i l e n o td is p u t i ng th e v al id i t y o f t h es e d efi ni t i o n s , p et i t i o n er i n s i st s th at Ex am pl e 2 “ ad d s n ew l i m it i ng ru l es ” t h atare “ m an i fes t l y
co n traryt o th e p l ai n l an g u ag e” o f th e s tatu t e an dth e b al an ce o f t h e reg u l at i o n s . W e d i s ag ree. Parag rap h (b )(1 ) o f t h e reg u l at i on s up p l i es g en eral ru les fo r ev al u at i n g wh en th e IRS “ p ro ceed s b as edo n ” o r “ d o es n o tp ro ceed b as ed o n ” i n fo rm at i o n
s ub m i t t edb y t h e wh i s tl eb l o wer. Parag rap h (b )(2 ) s ay s th atth es e p ri n ci pl es “ m ay b e i l l u st rat edb y

the fo l lo w i n g ex am

p l es ,” o f wh i ch th ere are fo u r. Ex am p l e 2 i l lu s trat es a cas e wh ere an ad m i n i st rat i ve act i o n rep res en t s a p o rt i o n o f a l arg er IRS ex am i nat io n, a s itu at i o n ex p l i ci t l y co n t em p lat edb y the d efi n i t i o n o f “ ad m i n i s trat i v e act i o n ” i n p arag rap h (a)(2 ).- 2 0 -

By way o f an al o g y , as s u m e t h attwo d i fferen twh is t l eb l o wers al l eg e t h ata
co rp o rat i o n u n derp ai di t s t ax . Th e fi rs twh is t leb l o wer cl ai m s t h at t he co rp o rat i o n fai l edt o rep o rtg ro s s i nco m e, an dth e IRS i n i ti at es an ex am i n at i o n . A y ear l at er th e s eco n dwh i s tl eb l o wer as s ert s th atthe s am e co rp o rat i o n cl ai m ed an i m p ro p er d educt i o n , an dth e IRS ex p an d s i t s ex am in at i o n t o i n cl u d e t h ati s su e. In th i s h y p ot het i cal s cen ari o th e t wo p o rt i o n s o f t h e ex am i n at i o n co n s t i tu t e
s ep arat e “ ad m in i s t rat i v e act i o n s .” Sec. 3 0 1 .7 62 3 -2 (a)(2 ), Pro ced . & Ad m in . Reg s . Th e u nrep o rt edi n co m e i n ves t i g at i o n i s an act i on wi t h wh i ch t h e IRS p ro ceed edo n th e b as i s o f t h e fi rs twh i st l eb l o wer’ s i n fo rm at io n . An d t he d edu ct i on i n ves t i g at i o n i s an act i o n wi t h wh i ch th e IRS p ro ceed edo n th e b as i s o f t h e s eco n d wh i s t l eb l o wer’ s i n fo rm at i on . Ex am

p l e 2 cl ari fi es t h ata wh i s t leb l ower wi l l b e reward edo n l y i f th e i n fo rm at i o n t h ath e s up p l iedres u l t s i n an ad ju st m en t . Th i s i s fu l l y

co n s i s t en t wi th s ect i o n 7 6 2 3 (b )(1 ), wh i ch p ro v i d es t h ata wh i s tl eb l o wer i s el i gi b l e fo r an awardo n l y

i f t h e IRS co l l ect s p ro ceed s “ as a res u lto f th e act i o n ” an do n l y i f t h e wh i st l eb l o wer “ s ub s t an t i al l y co n t ri b u t edt o s uch act i o n . ” Cf. Co o kv . Co m m i s s i on er, 2 6 9 F.3 d8 5 4 , 8 5 8 (7 th Ci r. 2 0 0 1 ) (n o t i n g that“ ex am p l es s et fo rt h i n reg u l at i o n s rem ai n p ers uas iv e au th o ri t y s o l o n g as th ey

d o n o t co nfl i ct wi t h th e reg u l at i o n s th em s el v es ”), aff’ g 1 1 5 T.C. 1 5 (2 0 0 0 ).- 2 1 -

Th i s h y p o t h et i cal s cen ari o i s i d en ti cal i n p ri nci p l e t o th e s i tu at io n i n th i s
cas e, ex cep tth atth e d edu ct i o n act io n h ere was tri g gered , n o tb y a s eco n dwh i s t l eb l o wer, b u t b y

th e RA’ s i n d ep en d en ti n v es t i g at i o n o f u n rel at eden t ri es o n Targ et ’ s t ax return s . Parag rap h s (a)(2 ) an d (b )(1 ), co up l edwi t h Ex am p l e 2 , wo rkt o g et h er t o en s u re t hata wh i s t l eb l o wer i s reward edo n ly fo r p ro v id i n g i n fo rm at io n th at
s ub s t an t i al l y

co n t ri b u t es t o a d i s t i n ct“ adm i n i s trat i v e act i o n .” Oth erwi s e wh i st l eb l o wers wo ul d b e i n cen t i v i zedt o fi l e i n n u m erab le cl ai m s as m ere fi s h i n g
ex p ed i t i o n s , h o p i n g th atth e IRS wi l l fi n ds o m et h i n g wro n g wi t h th o s e t ax p ay ers ’ retu rn s (rel at ed to th e i n fo rm at i o n t h ey s upp l i edo r n o t ). Th ere i s n o ev i d en ce t h at Co n g res s wi sh edt o en co u rag e t h i s s o rt o f b eh av i o r. In s u m , we co n cl u d e t h atth e reg u l at o ry p ro v i s i o n s ati ss u e, t ak en t o get h er,
are n o t“ arb i t rary , cap ri ci o u s , o r m an i fes t l y co n t raryt o the s t atut e.” Ch ev ro n , 4 67 U.S. at8 4 4 . Treas u ry

reas o n ab l y

d et erm i nedth ata m

u l t i p l e-i s s u e IRS ex am i n at i on co u l dco m

p ri s e m ore t h an o n e “ ad m i n is t rat i v e act i o n.” An di treas o n ab l y
co n cl u d ed t h at t h e IRS d o es n ot“p ro ceed b as edo n ” t h e wh is t leb l ower’ s i n fo rm at i on u n l es s th ati n fo rm at i o n s ub s t an t i al l y co n t ri b u t es t o th e “ ad m i ni s t rat i v e act io n ” th atg en erat es p ro ceed s. W e acco rd i n g l y rejectp et i t i o n er’ s ch al l en g e t o th e reg u l at i o n ’ s v al i di t y .- 2 2 -

2
. “ Rel at edAct i on ” Pet i t i o ner n ex t co n ten d s th at , ev en i f Ex am p l e 2 i s v al id , h e s h o ul dn o n eth el es s p rev ai l b ecau s e t he p ort i o n o f t h e ex am i n at i o n p ert ai n i n g t o th e b add eb t i s su e co n s t i tu t es a “ rel at edact i o n .” Sect i o n 7 6 2 3 (b )(1 ) p ro v i d es th ata wh i s t l eb l o wer i s en t i tl edt o an awardi f p ro ceed s are “ co ll ect ed as a res u l to f t he act i o n (i ncl ud i ng an y

rel at edact i o n s ).” A “ rel at ed act i o n” i s “ an act i o n ag ai ns ta p ers o n
o th er t han th e p ers o n (s ) i d en ti fi edi n th e i n fo rm at i on p ro v i d edan ds ub jectt o th e
o ri g i nal act i o n (s ).” Sec. 3 0 1
. 7 6 2 3 -2 (c)(1 ), Pro ced . & Ad m i n . Reg s. Anact i o n i s
n o ta “ rel at edact i o n” u n l es s “ [t ] h e fact s rel at i n g t o th e u n derp aym en to f t ax * * *
are s ub s t an t ial l y

th e s am e as th e fact s d es cri b edan dd o cu m en t edi n th e [o ri g i n al ] i n fo rm at i o n p ro v i d ed .” Id . p ara. (c)(1 )(i ). Th e ad m i ni s trat iv e act i o n i n wh ich th e RA p u rs u edth e b add eb ti s s u e i s n o t a “ rel at edact i o n ” fo r t wo d i s ti n ct reas o n s. Fi rs t , th atact io n was n ot“ an act i o n ag ai n s ta p ers on o t h er t h an th e p ers o n(s ) i d en t i fi edi n th e i n fo rm at i o n p ro v i d ed .” Id . p ara. (c)(1 ). Th e b add eb tact i o n , l i k e t h e m em b ers h i p d ep os i t s act i on , was ag ai n s tth e s am e g ro up o f n i ne en t i t i es t o wh i ch we refer as Targ et . Seco n d , th e

“ [t ] h e fact s rel at i n g t o ” th e b add eb t act i o n an d t he m em b ers h i p d ep o si t s act i o n
were n o t “ s ub s t an ti al l y

th e s am e.” Id . p ara. (c)(1 )(i ). Pet it i on er’ s rel i an ce o n th e

“ rel at edact i o n ” cl au se i s th u s u n av ai l i ng .- 2 3 -

Pet i t i o ner l arg el y

i g n o res th e t ex t o f th i s reg u l at i o n an di n s teadh i t ch es h i s wag on t o the Fal s e Cl ai m s Act , 3 1 U.S.C. s ecs . 3 72 9 -3 7 3 3 (2 0 06 ), wh i ch h e s ay s
s erv edas a m o d el fo r t h e d raft ers o f s ect i o n 7 6 2 3 (b ). He arg u es th at , u n d er th e Fal s e Cl ai m s Act , “ i f an ad m i n i s t rat i v e act io n u n d er a d i fferen tl eg al th eo ry wo u l d b e m ore effi ci en t , th e rel at or i n th e cas e wo u l ds t i ll b e ab l e t o co l l ectan awardfo r
am ou n t s co l l ect edb y

the Go v ern m en t .” Th i s as s ert i o n i s m is p l aced fo r atl eas t two reas o n s . Fi rs t, the Fal s e Cl ai m s Act , wh i ch i s fo u n d i n t it l e 3 1 o f t h e U.S. Co d e, h as n o ap p li cat i o n t o a t ax cas e s u ch as th i s . Seco n d , th e IRS d i d n otp u rs u e

“ a d i fferen t l eg al th eo ry ” fo r t he m em b ers h ip d ep o s i t s i s s u e. Rat h er, i treco v ered p ro ceed s b y

ex am i ni ng an en t i rel y

u n rel at edi ss u e--t h e b ad d eb td edu ct i o n --th at
was g ov ern edb y

d ifferen tl aw an dd i fferen tfact s . 3
. Di s p u t es o f M at eri al Fact Al th ou g h p et i t i o n er arg u es th at h e i s en t i t ledt o s u m m ary ju d g m en t, h e co nt en d s th atd i s p u t es o f m at eri al factp rev en tu s fro m g ran t i n g res p o n d en t ’ s cro s s m o ti o n . He as s ert s th atth e ad m i n i s t rat i ve reco rdi s d ev o i d o f i nfo rm at i o n co n cern i n g “ h o w an d wh en ” t h e RA i d en t i fi ed t h e b add eb t i s s u e. In h is v i ew fu rt h er d i s co v ery i s n eces s ary

“ t o s h ow t h e fu l l s t o ry

o f t h e au d i t ,” i n cl u d i ng wh eth er p et i
t i on er’ s Fo rm 21 1 s o m eh o w t i p p edth e IRS o ff t o th e b add eb t d edu ct i o n .- 2 4 -

In Van Bemm el en , 1 5 5 T .C. at7 9 , we h el d t h atwh i s t l eb l o w er award cas es
are n o trev iewedu n d er t h e t y p i cal s u m m ary ju dg m en ts t an d ard . Th ati s b ecau s e wh i st l eb l o wer cas es are “ reco rdru l e” cas es . Ib i d . Ina “ reco rdru l e” cas e we

“ co n fi ne o u rs el v es t o th e ad m i ni s t rat i v e reco rdt o d eci d e wh et h er t h ere h as b een
an ab us e o f d i s cret i o n .” Id . at 7 8 . On ce t he Co m m i s s i o n er cert i fi es th e ad m i n i strat i v e reco rd , “ 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 i n g , as a m at t er
o f l aw, wh et h er t h e * * * [Offi ce’ s ] act i o n i s s up p o rt edb y th e ad m i n i s t rat iv e
reco rdan di s n o tarb i t rary , cap ri ci o u s , an ab u se o f d i s cret i on , o r o t h erwi s e n o ti n
acco rd an ce wi t h l aw.” Id
. at 7 9
. In wh i st l eb lo wer award cas es th e “ ad m i n i s t rat i v e reco rdco m p ri s es al l i n fo rm at i o n co n t ai n edi n th e ad m i n i s trat i v e cl ai m fi l e t hati s rel ev an tt o th e award d et erm i n at i o n an dn o tp ro t ect edb y o n e o r m o re co m m on l aw o r s t atu t o ry p ri v i
l eg es .” Sec. 3 0 1 .7 6 2 3 -3 (e)(1 ), Pro ced . & Ad m i n. Reg s . If a wh i s tl eb lo wer b el i ev es th atth e ad m i n i s t rat i v e reco rdi s i n s u ffi ci en t , th en h e i s free t o fi l e a m o t i on t o s up p l em en tth e reco rd . See Van Bemm el en , 1 5 5 T.C. at7 3 ; Kas p er v . Co m m i s s i o n er, 1 5 0 T.C. 8 , 2 0 -2 1 (2 0 1 8 ) (ci t in g Es ch v . Yeu t t er, 8 7 6 F.2 d9 7 6 , 9 9 1 (D.C. Ci r. 1 9 8 9 )) (n o t i n g ex cep t i o n s t h atm ay ju st i fy s up p l em en t at i o n ). Al
t ern at i v el y , th e wh i s t l eb l ower m ay fi l e a m o t i o n t o co m

p el p ro du ct i o n o f d o cu m en t s . See Wh is t l eb l o wer On e 1 0 6 8 3 -1 3 W , 1 4 5 T.C. at 2 0 6 -2 0 7 . Pet i t i o n er h as- 2 5 -

fi led no m o t i o n o f ei t h er s o rt . Thu s , fo r p u rp os es o f res o l v in g t h e p art i es ’ cro s s m o ti o n s fo r s u m

m ary ju d g m en t , we are co n fi n edt o th e ad m in i st rat i ve reco rdth at i s b efo re u s. Th e ad m i ni s trat iv e reco rdth at i s b efo re u s m ay n o tco n t ai n ex h au s ti v e i n fo rm at i o n ab o u t “ h o w an dwh en ” t h e RA i d en t i fi edth e b add eb ti s s u e, e.g . , wh i ch l i ne en tri es o n wh i ch retu rn s cau g h th i s at t en t i o n , o r t h e d at e(s ) o n wh ich h e g l ean ed th es e i n si g ht s . Bu tthe reco rd p ro vi d es m o re th anen o ug h ev i d en ce t o
co n fi rm th atp et i t i o n er i s n o tel i g i b le fo r a m an dat o ry award
. Th e reco rdco n t ai ns al l o f p et i t io n er’ s s ub m i s s i o n s t o th e Offi ce: No n e o f t h es e s ubm i s s i o ns i n cl u d es
an y i n fo rm at i o n ab o u tTarg et ’ s i n t erco m p an y d eb t , Targ et ’ s rep ort i ng o f a b ad d eb t d edu ct i o n , o r the fact s thatwo ul d b e rel ev an t i n as s es s i n g the p ro pri et y o f
s u ch a d educt io n. In res p on s e t o M s . Beard sl ey ’ s s peci fi c qu es t i o n wh et h er t h e

“ wh i s t l eb l o wer s ub m i s s i o n co nt ri b u t e[d ] t o an y o f t h e ad ju s t edi s s u es ,” t h e RA rep l i ed(wi t h em

p has is ) t h atp et i t i o n er h adn o t“p ro v i d edan y i nfo rm at i o n fo r t h e ad ju s t edi s s u es .” Becau s e p et i t i o n er d idn o t s up p l y an y i n fo rm at i o n ab o u tth e b ad d eb t i s s u e (o r ab o utth e o t h er i s s u e t h atg en erat edan ad ju s tm en t ), h e i s n o ten t i t l ed t o an awardu n d er s ect i o n 7 6 2 3 (b ). No am o un to f d i sco v ery wi l l ch an g e th i s fact
.- 2 6 -

To i m p lem en tth e fo reg o i n g , Anap p ro p ri at e o rd er an dd eci s i o n wi l l b e en t eredfo r res p on d en t .