United States Tax Court

T.C. Memo. 2022-126

FELIX LUU,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 714-20W. Filed December 28, 2022.

—————

Felix Luu, pro se.

Lesley A. Hale and Michael Skeen, for respondent.

MEMORANDUM OPINION

WEILER, Judge: Felix Luu, pursuant to Rule 121,1 filed a Motion 

for Summary Judgment on November 9, 2020. On January 4, 2021, 

respondent filed his Response to petitioner’s Motion for Summary 

Judgment. Commencing September 27, 2021, a remote hearing was held 

to determine the accuracy of the administrative record. After the 

hearing, on April 4, 2022, petitioner filed a First Supplement to his 

Motion for Summary Judgment (petitioner’s original and supplemental

motions are hereinafter collectively referred to as Motion for Summary 

Judgment). On June 27, 2022, respondent filed his Response

(Supplemental Response) to petitioner’s Motion for Summary 

1 Unless otherwise indicated, all statutory references are to the Internal 

Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulation 

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all 

relevant times, and all Rule references are to the Tax Court Rules of Practice and 

Procedure. All dollar amounts are rounded to the nearest dollar.

Served 12/28/22
2

[*2] Judgment. Petitioner filed his Reply to respondent’s Supplemental 

Response on July 5, 2022.

For the reasons below, we will deny petitioner’s Motion for 

Summary Judgment and grant respondent’s Cross-Motion for Summary 

Judgment.2 Furthermore, we will enter a decision in this matter 

affirming the Internal Revenue Service (IRS) Whistleblower Office’s

(WBO) final determination regarding petitioner’s whistleblower award.

Background

Petitioner submitted several Forms 211, Application for Award 

for Original Information, each dated February 24, 2009, to the WBO. 

Petitioner’s Forms 211 were related to his family’s business operations 

in California, which included a retail supermarket and a poultry farm. 

Petitioner served as the general manager of the retail supermarket and 

was an equal shareholder3 with his six siblings in the family’s business 

operations. By letters dated April 14, 2009, the WBO acknowledged 

receipt of petitioner’s application for award and Forms 211 and assigned

petitioner’s case an initial claim number of 2009-001609.4

On December 8, 2009, petitioner, as a minority shareholder, filed 

a verified complaint in the Superior Court of California, County of 

Sacramento, to compel the payment of a dividend or declaratory relief, 

injunctive relief, an accounting, and appointment of a receiver against 

one or more California corporations and a California limited liability 

company (Companies), some of which were organized as S corporations

for federal income tax purposes. In the verified complaint petitioner 

contended that he had only recently learned that he had received a 

lesser dividend than other shareholders of the Companies and that, on 

the basis of his own internal investigation, the other shareholders had

been skimming profits from the Companies.

2 As noted infra p. 10, we recharacterize respondent’s Response and 

Supplemental Response as a Cross-Motion for Summary Judgment. See Klein v. 

Commissioner, 149 T.C. 341, 343 (2017).

3 While one of the family businesses was organized as an LLC and therefore 

petitioner and his siblings are considered “members” under state law, we refer to them

as “shareholders” throughout this Opinion since a majority of the businesses are 

organized as corporations and have elected S corporation status.

4 The record reflects that the WBO later deemed the initial claim the “master 

claim,” and additional claim numbers were opened, per each target taxpayer, bearing 

claim numbers 2009-001610 through 2009-001621.
3

[*3] On December 1, 2009, the Companies’ six shareholders (excluding 

petitioner) filed voluntary disclosures with the IRS. The IRS 

preliminarily accepted these voluntary disclosures on January 12, 2010.

On December 10, 2009, petitioner wrote to the IRS and furnished

detailed information including copies of his verified complaint and thirdparty accounting reflecting the Companies’ and the shareholders’

unreported income. Some of the information petitioner furnished was 

not disclosed by the Companies’ other six shareholders in their 

voluntary disclosures. However, the IRS ultimately did not use the

additional information petitioner furnished in making its adjustments 

to the Companies’ unreported income.

On or around January 2011 the IRS commenced audits of returns 

of one or more of the Companies. Petitioner, as a shareholder of the 

Companies, was notified of the IRS audits. On August 15, 2011, an IRS 

revenue agent (RA) interviewed the Companies’ president, and then on 

August 26, 2011, the RA separately interviewed the Companies’ six

shareholders (excluding petitioner), along with their respective spouses.

According to the separately interviewed shareholders, cash funds were 

being skimmed from the Companies and distributed to all shareholders.

Also, according to the shareholders interviewed, it was petitioner who

handled these cash distributions since he was involved in the financial 

operations of the Companies. The RA subsequently met with the 

Companies’ bookkeeper on September 29, 2011, and later held several 

meetings with petitioner regarding the Companies’ audits.

The IRS ultimately proceeded with the assessment of additional 

federal income tax and employment taxes against the Companies and 

their shareholders. The assessments exceeded $2 million dollars and 

were directly related to the unreported income and payroll tax issues

petitioner identified. The assessed additional taxes, including interest 

and penalties, have been paid.

In 2014 petitioner sought appeal to the IRS Office of Appeals

(Appeals Office)5 protesting the proposed tax deficiencies for the 

Companies, as determined by the IRS, as being too low since the 

assessments failed to include other sources of unreported income. 

Ultimately, the Appeals Office declined to accept petitioner’s appeal 

5 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent 

Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981, 

983 (2019). We will use the name in effect at the times relevant to this case, i.e., the 

Office of Appeals or Appeals.
4

[*4] based on his protest disagreeing with the IRS audit findings and

seeking an increase in the proposed tax deficiency amounts.

On or about August 29, 2018, the WBO sent petitioner a 

preliminary award recommendation letter. The purpose of the letter was 

to seek petitioner’s agreement or disagreement with the preliminary 

award recommendation, as determined by the WBO. Enclosed with the 

WBO’s letter was a summary report explaining the preliminary award 

recommendation of $368,289. Also enclosed was a response form and a 

confidentiality agreement for petitioner to sign and return to the WBO.

The WBO also sought the IRS’s input in making petitioner’s 

preliminary award recommendation. The IRS furnished the WBO a 

report written by the RA who handled the Companies’ audits. The RA

completed several Forms 11369, Confidential Evaluation Report on 

Claim for Award, one related to each of petitioner’s whistleblower 

claims.6 In her report to the WBO, the RA generally reflected petitioner’s 

actions and cooperation during the Companies’ audits. Her report to the 

WBO states that “throughout the audit [petitioner] has fully cooperated 

with the IRS in providing additional documents and analyzing the 

documents.”

Furthermore, the RA’s report to the WBO notes that the RA

believe[s] that if [petitioner] had not filed a 211 claim his 

siblings would have not filed a voluntary disclosure and 

provided the documents and cooperation necessary for the 

government to determine the correct adjustments. 

Therefore I believe that [petitioner] took the first step that 

led to this examination that allowed the government to 

collect more than $2 million dollars in taxes, penalties and 

interest.

On or about September 25, 2018, petitioner signed the response 

form and the confidentiality agreement and returned the forms to the 

WBO, indicating that he wanted to receive “a more detailed explanation 

of the award recommendation . . . .”

In response to petitioner’s request, by letter dated December 6, 

2018, the WBO furnished petitioner a two-page memorandum entitled 

6 Although the RA completed a Form 11369 for each claim number, the 

completed forms, and the attached memorandums, were identical other than the target 

taxpayer information portions of the forms.
5

[*5] “Detailed Report.” The detailed report was broken into five parts:

(1) petitioner’s submission to the WBO, (2) the actions taken by the IRS 

audit team based on the information furnished, (3) the proceeds 

collected on the basis of information received from petitioner, (4) the 

award percentage analysis performed by the WBO, and (5) the 

determination of the proposed award amount. Within the detailed 

report, the WBO outlined its analysis in determining petitioner’s award 

percentage. The detailed report states, in relevant part:

The information provided identified taxpayer behavior that 

the IRS was unlikely to identify or that was particularly 

difficult to detect through the IRS’s exercise of reasonable 

diligence. The WB provided information that the TP 

underreported income and unreported payroll to reduce 

their U.S. tax burden . . . [t]he WB also provided 

documentation which supported their allegation.

The detailed report also states, in relevant part:

The whistleblower delayed informing the IRS after 

learning the relevant facts, particularly if the delay 

adversely affected the IRS’s ability to pursue an action or

issue. As an operation manager of the [redacted 

Corporation 5] most likely the WB was aware of the 

activities in 2006, however he did not report the actions to 

the IRS until 2009 after being fired from the company.

The WBO’s preliminary award recommendation was based, in 

part, on an internal memorandum7 prepared by a WBO employee. In the

internal memorandum, the WBO employee outlined the background of 

petitioner’s claim and made a basis for her award recommendation to 

the WBO director. In part, the WBO employee stated in the 

memorandum:

The WB brought new information during the examination 

that allowed the exam team to show unreported income 

from [redacted Corporation 4]. The unreported income 

computations were based on kill sheets signed the United 

7 The record contains three internal award recommendation memorandums for 

the WBO director, dated June 15, 2018, August 15, 2018, and December 6, 2019,

respectively. The memorandums are nearly identical and contain much the same 

explanation. The memorandums are updates to the earlier draft, and the final version 

includes a summary of petitioner’s responses to the WBO.
6

States Department of Agriculture (USDA). The RA did a 

third-party contact to the USDA to get the kill sheets. The 

RA prepared a spreadsheet showing what gross receipts 

should be if the government used the total number of 

chickens slaughtered per USDA records and average sales 

prices and average purchase price provided by the WB.

In summary, the WB didn’t hand the adjustment to the 

Service. The Service still had to take the appropriate audit 

steps to calculate the correct unreported income and 

unreported payroll. As a shareholder and manager of the 

business, the WB was most likely aware of the fraudulent 

activities and participated in the accumulation of cash. 

According to the WB, he never participated in these 

activities and he was not aware the cash accumulation and 

underreporting of income. During the examination, 

[redacted Taxpayer 2] and the other 5 siblings state that 

the WB had full knowledge of the fraudulent activities 

conducted in the business and participated in the cash 

skimming operations.

The WBO’s internal memorandum also outlines positive and 

negative factors of petitioner’s whistleblower claim. Positive factors 

include: (i) “[t]he information provided identified taxpayer behavior that 

the IRS was unlikely to identify or that was particularly difficult to 

detect through the IRS’ exercise of reasonable diligence” and (ii) “[t]he 

WB provided information that the TP underreported income and 

unreported payroll to reduce their U.S. tax burden . . . this information 

led the examiner to review this particular item which saved resources. 

The WB also provided documentation which supported their allegation. 

This again saved resources and led the examiner to specific accounts.”

The negative factors include: (i) “as an operation manager of the 

[Companies] most likely the WB was aware of the activities in 2006, 

however he did not report the actions to the IRS until 2009 after being 

fired from the company”; and (ii) “as a shareholder and manager of the 

[Companies] most likely the WB should be aware of the fraudulent 

activities and participated in the accumulation of cash. The WB 

acknowledges receipt of cash in 2008, but he never used the cash. 

Receipt of cash should have been reported on his own tax return. It’s not 

relevant that he didn’t spend the cash.”

[*6]
7

[*7] Finally, the WBO’s internal memorandum, in their discussion of 

negative factors, stated that

[t]he WB directly or indirectly profited from the 

underpayment of tax or noncompliance identified but did 

not plan or initiate the actions. The WB clearly benefits 

through the cash received and the underreported income 

and payroll taxes. His flow through income from the S 

Corp. was understated.

With the WBO’s letter dated December 6, 2018, and detailed 

report, the WBO also furnished petitioner with a “Response to Detailed 

Report” form giving petitioner three choices. One gave petitioner the 

option to schedule an appointment to review the supporting documents 

at the WBO in Washington, D.C. Petitioner exercised this option and 

traveled to Washington, D.C., and examined the supporting documents 

on October 23, 2019. By letter dated November 21, 2019, petitioner then 

provided a detailed response disputing the WBO’s preliminary award 

recommendation. Petitioner’s detailed response included a two-page 

cover letter, a 118-page written response, and 18 attachments, which 

totaled approximately 908 pages.

The WBO received petitioner’s comments and made a final 

determination under section 7623(b), dated December 16, 2019, 

determining that petitioner was entitled to an award percentage of 15%. 

The calculated award amount was based on the taxes, penalties and 

other amounts collected by the IRS from the Companies and their

shareholders. In the final determination, the WBO stated:

The Whistleblower Office has considered your Form 211(s), 

Application for Award for Original Information, dated 

02/24/2009, this includes any additional information you 

may have provided in relation to the Form 211. On August 

29, 2018, the Whistleblower Office sent you a preliminary 

award recommendation. The Whistleblower Office 

reviewed the comments you provided on the preliminary 

award recommendation. The Whistleblower Office has 

made a final decision that you are entitled to an award of 

$371,04[9] under Internal Revenue Code (IRC) section 

7623(b). The enclosed Determination Report explains the 

determination and the calculation of the award.
8

[*8] The final determination also included a one-page determination 

report consisting of six numbered paragraphs. First, the determination 

report listed the total taxes, penalties, and interest the IRS collected 

using information petitioner provided. Next, the determination report 

determined an award percentage of 15%, a gross proceeds award of 

$394,313, a Budget Control Act reduction of 5.9% for the 2020 fiscal year

of $23,264, and a determined award amount made under section 7623(b) 

of $371,085. Finally, the determination report included a statement 

regarding the factors that contributed to the recommended award 

percentage as follows: “The positive factors were applicable, however 

they didn’t have sufficient impact to warrant an increase of the award 

% above 15% after considered the negative factors.” The final 

determination also included a “Waiver of Appeal” and explained to

petitioner that he would need to waive his appeal rights under section 

7623 from the determination of the WBO dated December 16, 2019, 

whereby the WBO would process the award amount for payment.

On January 13, 2020, petitioner timely appealed the WBO’s 

determination to this Court pursuant to section 7623(b)(4). On April 6, 

2020, respondent filed his Answer to petitioner’s Petition.

On the basis of good cause shown at the hearing the Court found 

that the administrative record, as submitted by respondent, was 

incomplete.8 The Court also found petitioner’s testimony and the 

evidence he furnished sufficiently compelling to establish that the 

additional proposed trial Exhibits petitioner filed (201-P through 439-P)

are also part of the administrative record in this case. Consequently, at 

the hearing the Court admitted the proposed joint trial Exhibits, as well 

as petitioner’s additional proposed trial Exhibits, which are now 

collectively deemed the complete administrative record in this case.

Discussion

I. Summary Judgment

A. Background

In his Motion for Summary Judgment petitioner advances the 

same arguments as those found in his Petition. First, he alleges a 

multitude of problems with the audits that gave rise to the total 

proceeds upon which his award was based. Second, petitioner argues

8 In instances of “good cause” shown, we will allow the administrative record 

to be supplemented. See Kasper v. Commissioner, 150 T.C. 8, 21 (2018).
9

[*9] that the WBO erroneously incorporated negative factors in its

award percentage analysis using inaccurate facts. Third, petitioner 

contends that the IRS personnel assigned to the audits underlying the 

award determination failed to complete their due diligence regarding 

the facts in the case.

In his written Response respondent counters petitioner’s 

arguments regarding shortcomings in the underlying audits and argues 

that petitioner’s arguments fail as a matter of law since section 

7623(b)(4) does not confer on us jurisdiction to review the IRS’s decision

to audit a tax return on the basis of the whistleblower’s tip. Second, 

respondent argues that petitioner has, for the first time, contended that 

he did not have knowledge of the target taxpayers’ underreporting 

despite opportunities to present such information to the WBO. Thus, 

respondent argues that petitioner is now raising new arguments not 

made before the WBO and that the WBO did not abuse its discretion 

and properly relied upon the information at its disposal to determine the 

award percentage.

In his Reply petitioner argues that he does, in fact, dispute the 

amount awarded because the “source information” is incorrect. 

Petitioner avers that he disputed the entirety of the preliminary award 

determination, and therefore the WBO’s application of negative factors.

He states that the WBO did not furnish its internal award 

recommendation memorandum and it was not until this proceeding that

the document was first disclosed. Petitioner also argues that the WBO’s 

application of negative factors was improperly based on the self-serving 

testimony of his fellow shareholders whom he blew the whistle on and 

therefore their testimony offers little credibility.

In his Motion for Summary Judgment petitioner contends that he 

discovered that his IRS whistleblower award recommendation was 

based on the IRS’s audit of the target taxpayers. Petitioner also contends 

that portions of the administrative record relating to the IRS auditors’

and group managers’ work papers remain missing. Specifically, 

petitioner also contends that the IRS violated the Internal Revenue 

Manual (IRM) and section 7214 by not issuing a Form 11369 transfer 

memo and purposefully hiding relevant information regarding his 
10

[*10] claims.9 However, representations by respondent indicate that no 

such completed form exists in this case.

Also in his Motion for Summary Judgment, petitioner contends

that the negative factors the WBO listed against him are based on false 

speculation. Petitioner contends that he was unaware of any fraudulent 

activities being conducted by the Companies’ other shareholders. He 

likewise disputes the IRS’s reliance on the shareholders’ statements, as 

self-serving hearsay. Finally, petitioner directs us to court documents, 

including declarations and depositions, to establish that he did not 

participate in or have knowledge of the abovementioned fraudulent 

activities.

Respondent also filed a Supplemental Response to petitioner’s 

Motion for Summary Judgment. In his Supplemental Response, 

respondent contends that the WBO explained itself in its final 

determination and moreover in the WBO’s internal award 

recommendation memorandum. According to respondent, it is petitioner 

who has failed to establish that he is entitled to judgment as a matter of 

law with respect to the negative factors the WBO relied on to decrease 

his award percentage.

Although respondent has not filed a cross-motion for summary 

judgment, he contends the administrative decision of the WBO should 

be affirmed. Therefore, under the circumstances we will recharacterize 

as a cross-motion for summary judgment respondent’s Response and 

Supplemental Response. See Klein, 149 T.C. at 343. Having considered 

the parties’ arguments, as well as the administrative record, we are now 

prepared to decide this matter.

B. Applicable Law

Pursuant to section 7623(a) Congress has authorized the 

Secretary (and his designee), under prescribed regulations, to pay 

discretionary whistleblower awards for detecting underpayments of tax 

or detecting and bringing to trial and punishment persons guilty of 

9 The provisions of the IRM can be instructive in understanding the IRS’s 

interpretation of a statute, see Ginsburg v. Commissioner, 127 T.C. 75, 87 (2006), and 

in ascertaining the procedures the IRS expects its employees to follow, see Wadleigh v.

Commissioner, 134 T.C. 280, 294 (2010). The IRM does not, however, have the force of 

law. See Marks v. Commissioner, 947 F.2d 983, 986 n.1 (D.C. Cir. 1991), aff’g T.C.

Memo. 1989-575; Vallone v. Commissioner, 88 T.C. 794, 807 (1987). 
11

[*11] violating the internal revenue laws.10 The amount payable is to be 

paid from the proceeds of the amounts collected. Id. Proceeds include

tax, penalties, interest, additions to tax, and any proceeds arising from 

laws which the IRS is authorized to administer and enforce, including 

criminal fines and forfeitures. I.R.C. § 7623(c). 

When the Secretary proceeds with any administrative or judicial 

action using information furnished by the whistleblower, such an 

individual is entitled to receive an award of at least 15%, but not more 

than 30%, of the proceeds collected. I.R.C. § 7623(b)(1).11 The 

determination of the amount of such an award—as made by the WBO—

depends on “the extent to which the individual substantially contributed 

to such action.” Id. However, if the WBO determines that the claim for 

an award is brought by an individual who planned and initiated the 

actions that led to the underpayment of tax, then the WBO may 

appropriately reduce the award; and if the individual is convicted of 

criminal conduct arising from the planned and initiated actions, the 

WBO is required to deny any award. I.R.C. § 7623(b)(3). 

10 The IRS has long had authority to pay discretionary awards to persons, now 

called “whistleblowers,” who provide information leading to the recovery of unpaid 

taxes. See I.R.C. § 7623. In response to concerns about the management of the 

discretionary award regime, Congress enacted legislation in 2006 to address perceived 

problems with the whistleblower program. Tax Relief and Health Care Act of 2006, 

Pub. L. No. 109-432, div. A, sec. 406, 120 Stat. 2922, 2958 (effective Dec. 20, 2006). The 

2006 legislation added to section 7623 a new subsection (b), which requires the 

payment of nondiscretionary whistleblower awards in specified circumstances and 

provides this Court jurisdiction to review IRS determinations regarding such awards.

See Cooper v. Commissioner, 135 T.C. 70, 73 (2010). 

11 While not the case here, 

[i]n the event the action described in [section 7623(b)(1)] is one which 

the Whistleblower Office determines to be based principally on 

disclosures of specific allegations (other than information provided by 

the individual described in [section 7623(b)(1)]) resulting from a 

judicial or administrative hearing, from a governmental report, 

hearing, audit, or investigation, or from the news media, the 

Whistleblower Office may award such sums as it considers 

appropriate, but in no case more than 10 percent of the proceeds 

collected as a result of the action (including any related actions) or from 

any settlement in response to such action (determined without regard 

to whether such proceeds are available to the Secretary), taking into 

account the significance of the individual’s information and the role of 

such individual and any legal representative of such individual in 

contributing to such action.

See I.R.C. § 7623(b)(2)(A). 
12

[*12] In section 7623(b), Congress makes whistleblower awards 

mandatory if certain requirements are met. Some of the requirements

are that the proceeds in dispute exceed $2 million and that for any 

targeted individual, his or her gross income exceed $200,000 for the 

taxable year subject to such action. I.R.C. § 7623(b)(5). In this case the 

proceeds collected exceeded $2 million and some of the targeted

taxpayers were companies and not individuals; therefore, petitioner is 

entitled to a minimum award of 15%.12

While Congress provides for a mandatory award for information 

brought by a whistleblower, ultimately the award amount is left to the 

IRS since Congress has provided an award range of 15% to 30%

dependent upon the level to which the whistleblower “substantially 

contributed” to the actions by the IRS. See I.R.C. § 7623(b).

A party may move for summary judgment regarding all or any 

part of the legal issues in controversy. See Rule 121(a); Wachter v.

Commissioner, 142 T.C. 140, 145 (2014). Ordinarily, under our Rules, 

we may grant summary judgment if the pleadings, stipulations and 

exhibits, and any other acceptable materials show that there is no 

genuine dispute as to any material fact and that a decision may be 

rendered as a matter of law. See Rule 121(a) and (b); see also CGG

Americas, Inc. v. Commissioner, 147 T.C. 78, 82 (2016); Elec. Arts, Inc.

v. Commissioner, 118 T.C. 226, 238 (2002).

However, we have recently observed in an analogous setting 

involving whistleblower claims that

[T]his summary judgment standard is not generally apt 

where we must confine ourselves to the administrative 

record to decide whether there has been an abuse of 

discretion. . . . [I]n a “record rule” whistleblower case there 

will not be a trial on the merits. In such a case involving 

review of final agency action under the [Administrative 

Procedure Act], summary judgment serves as a mechanism 

for deciding, as a matter of law, whether the agency action 

is supported by the administrative record and is not 

arbitrary, capricious, an abuse of discretion, or otherwise 

not in accordance with law.

12 Section 7623(b)(3) is not relevant in this case.
13

[*13] Van Bemmelen v. Commissioner, 155 T.C. 64, 78–79 (2020). 

Applying this principle, we may decide through summary judgment, on 

the basis of the administrative record before us, whether the WBO’s

determination was arbitrary, capricious, an abuse of discretion, or 

otherwise not in accordance with law. 

According to that standard we confine ourselves to ensuring that 

the determination remained within the bounds of reasoned decision 

making. Id. at 72. Our scope of review in whistleblower cases is based 

on the administrative record with limited exceptions. Kasper, 150 T.C. 

at 20–21. Remand to the WBO for further administrative proceedings

may be appropriate in certain whistleblower cases under section 

7623(b). See Whistleblower 769-16W v. Commissioner, 152 T.C. 172 

(2019).

Our task is to review the award determination by the WBO. I.R.C. 

§ 7623(b)(4). Under the Chenery doctrine we uphold the WBO’s 

determination on the grounds it actually relied on when making its 

determination. See Kasper, 150 T.C. at 23. The Chenery doctrine is an 

administrative law principle that says that “a reviewing court, in 

dealing with a determination or judgment which an administrative 

agency alone is authorized to make, must judge the propriety of such 

action solely by the grounds invoked by the agency.” SEC v. Chenery

Corp., 332 U.S. 194, 196 (1947) (describing its holding in SEC v. Chenery

Corp., 318 U.S. 80, 93–95 (1943)).13

II. Analysis

Subsection (b)(4) of section 7623 gives us exclusive jurisdiction to 

review “[a]ny determination regarding an award” under subsection 

(b)(1)–(3). See Li v. Commissioner, 22 F.4th 1014, 1017 (D.C. Cir. 2022). 

 Section 7623(b)(4) does not grant us jurisdiction over decisions 

by the IRS in its conduct of audits or collection activities. Cohen v.

Commissioner, 139 T.C. 299, 302 (2012), aff’d, 550 F. App’x 10 (D.C. Cir.

2014). As we have explained, “although Congress authorized the Court 

to review the Secretary’s award determination, Congress did not

authorize the Court to direct the Secretary to proceed with an 

13 Applying the Chenery doctrine we have said the WBO must clearly set forth 

the grounds on which it made its determination, and we cannot uphold the WBO’s 

determination “simply because findings might have been made and considerations 

might be disclosed which might justify his ultimate conclusion.” Kasper, 150 T.C. at 

23–24 (quoting Antioco v. Commissioner, T.C. Memo. 2013-35, at *25). 
14

[*14] administrative or judicial action.” Cooper v. Commissioner, 136 

T.C. 597, 600 (2011).

Therefore, petitioner’s first and third arguments in his Motion for 

Summary Judgment fail as a matter of law. See id. at 600–01. 

Petitioner’s contention that the WBO should have requested that the 

IRS further audit the target taxpayers is extraneous, because we lack 

the authority to require the WBO or IRS to take further action.

 Petitioner also cites section 7214 as being violated by the IRS in 

his case. Section 7214 imposes a penalty on any IRS employees—acting 

in their official capacity—who commit an enumerated offense. The 

penalty is dismissal from office or discharge from employment and, upon 

conviction thereof, a fine of not more than $10,000, imprisonment for not 

more than five years, or both. See I.R.C. § 7214(a). This Code provision 

has no application here. To the extent petitioner attempts to state a 

claim under section 7214, it affords no private right of action, and we 

are without jurisdiction to hear such a claim. See, e.g., Orion Contracting

Tr. v. Commissioner, T.C. Memo. 2006-211; Rice v. Commissioner, T.C. 

Memo. 1978-334; Strong v. United States, No. CIV A 6:98-1452, 1998 WL 

990581 (W.D. La. Dec. 10, 1998). Accordingly, we will limit our analysis

to any alleged error(s) with respect to the WBO’s award determination. 

In general, our prior reviews of WBO actions have been focused 

on the necessary questions of our jurisdiction and the scope of our review

(if any) in circumstances of WBO “rejections” or “denials.” See, e.g., 

Whistleblower 21276-13W v. Commissioner, 147 T.C. 121 (2016); see also

Li v. Commissioner, 22 F.4th at 1017. In this case we are tasked with 

the more traditional function of reviewing the appropriateness of the

WBO’s award determination and petitioner’s subsequent appeal of the 

WBO’s final determination. I.R.C. § 7623(b)(4). 

Under the administrative proceedings for award determinations 

the WBO is to prepare a preliminary award recommendation to the 

whistleblower by sending

 (i) A preliminary award recommendation letter that

describes the whistleblower’s options for responding to the 

preliminary award recommendation;

(ii) A summary report that states a preliminary 

computation of the amount of collected proceeds, the 

recommended award percentage, the recommended award 

amount (even in cases when the application of section 
15

7623(b)(2) or section 7623(b)(3) results in a reduction of the 

recommended award amount to zero), and a list of the 

factors that contributed to the recommended award 

percentage;

(iii) An award consent form; and

(iv) A confidentiality agreement.

Treas. Reg. § 301.7623-3(c)(2).

The whistleblower has 30 days from the date the WBO sends the 

preliminary award recommendation letter to respond in one of the 

following ways:

(i) If the whistleblower takes no action, then the 

Whistleblower Office will make an award determination, 

pursuant to paragraph (c)(6) of this section;

(ii) If the whistleblower signs, dates, and returns the 

award consent form agreeing to the preliminary award 

recommendation and waiving any and all administrative 

and judicial appeal rights, then the Whistleblower Office 

will make an award determination, pursuant to paragraph 

(c)(6) of this section;

(iii) If the whistleblower signs, dates, and returns 

the confidentiality agreement, then the Whistleblower 

Office will provide the whistleblower with a detailed award 

report, and an opportunity to review documents supporting 

the report pursuant to paragraphs (c)(4) and (5) of this 

section, and any comments submitted by the whistleblower 

will be added to the administrative claim file; or

(iv) If the whistleblower submits comments on the 

preliminary award recommendation to the Whistleblower 

Office, but does not sign, date, and return the 

confidentiality agreement, then the comments will be 

added to the administrative claim file and reviewed by the 

Whistleblower Office in making an award determination, 

pursuant to paragraph (c)(6) of this section.

Id. subpara. (3).

The whistleblower (and the whistleblower’s legal representative, 

if any) has the opportunity to review information from the 

administrative claim file (not protected from disclosure by one or more

common law or statutory privileges) supporting the award report 

[*15]
16

[*16] recommendation at the WBO’s office in Washington, D.C. Treas. 

Reg. § 301.7623-3(c)(5). At the appointment, the WBO will provide for 

viewing the information from the administrative claim file; however, the 

whistleblower is not permitted to make copies of any documents or other 

information. Id. The whistleblower will then have 30 days from the date 

of the appointment to submit comments on the detailed report and the 

documents reviewed at the appointment to the WBO. All comments will 

be added to the administrative claim file and reviewed by the WBO in 

making an award determination. Id. 

After participation in the whistleblower administrative 

proceeding has concluded and there is a final determination of tax (as 

defined in Treasury Regulation § 301.7623-4(d)(2)), the WBO will 

determine the amount of the award under section 7623(b)(1), (2), or (3), 

and Treasury Regulation §§ 301.7623-1 through 301.7623-4, on the basis 

of the WBO’s review of the administrative claim file. Treas. Reg. 

§ 301.7623-3(c)(6).14

As referenced above, the WBO is to analyze an individual’s claim 

by applying the rules provided in Treasury Regulation § 301.7623-4(c) 

to the information in the administrative claim file to determine an

appropriate award percentage. Id. para. (a)(1). The WBO is required to 

consider all relevant factors in determining whether an award will be 

paid, and if so, the amount of the award. Id. subpara. (2).

The regulations provide a list of factors to help determine the 

whistleblower’s award percentage. See Treas. Reg. § 301.7623-4(b). The 

WBO is to apply the following nonexclusive factors to support increasing 

an award percentage: 

(i) The whistleblower acted promptly to inform the 

IRS or the taxpayer of the tax noncompliance.

(ii) The information provided identified an issue or 

transaction of a type previously unknown to the IRS.

(iii) The information provided identified taxpayer 

behavior that the IRS was unlikely to identify or that was 

14 The WBO is to communicate the award to the whistleblower in a final 

determination letter by stating the amount of the award. If, however, the 

whistleblower has executed an award consent form agreeing to the amount of the 

award and waiving the whistleblower’s right to appeal the award determination to this 

Court, then the WBO will not send the whistleblower a final determination letter and 

will make payment of the award as promptly as circumstances permit. Treas. Reg. 

§ 301.7623-3(c)(6).
17

particularly difficult to detect through the IRS’s exercise of 

reasonable diligence.

(iv) The information provided thoroughly presented 

the factual details of tax noncompliance in a clear and 

organized manner, particularly if the manner of the 

presentation saved the IRS work and resources.

(v) The whistleblower (or the whistleblower’s legal 

representative, if any) provided exceptional cooperation 

and assistance during the pendency of the action(s).

(vi) The information provided identified assets of the 

taxpayer that could be used to pay liabilities, particularly 

if the assets were not otherwise known to the IRS.

(vii) The information provided identified connections 

between transactions, or parties to transactions, that 

enabled the IRS to understand tax implications that might 

not otherwise have been understood by the IRS.

(viii) The information provided had an impact on the 

behavior of the taxpayer, for example by causing the 

taxpayer to promptly correct a previously-reported 

improper position.

Id. subpara. (1). Similarly, the WBO is to apply the following 

nonexclusive factors to support decreasing an award percentage:

(i) The whistleblower delayed informing the IRS 

after learning the relevant facts, particularly if the delay 

adversely affected the IRS’s ability to pursue an action or 

issue.

(ii) The whistleblower contributed to the 

underpayment of tax or tax noncompliance identified.

(iii) The whistleblower directly or indirectly profited 

from the underpayment of tax or tax noncompliance 

identified, but did not plan and initiate the actions that led 

to the underpayment of tax or actions described in section 

7623(a)(2).

(iv) The whistleblower (or the whistleblower’s legal 

representative, if any) negatively affected the IRS’s ability 

to pursue the action(s), for example by disclosing the 

existence or scope of an enforcement activity.

(v) The whistleblower (or the whistleblower’s legal 

representative, if any) violated instructions provided by the 

IRS, particularly if the violation caused the IRS to expend 

additional resources.

[*17]
18

(vi) The whistleblower (or the whistleblower’s legal 

representative, if any) violated the terms of the 

confidentiality agreement described in [Treas. Reg.] 

§ 301.7623-3(c)(2)(iv).

(vii) The whistleblower (or the whistleblower’s legal 

representative, if any) violated the terms of a contract 

entered into with the IRS pursuant to [Treas. Reg.] 

§ 301.6103(n)-2.

(viii) The whistleblower provided false or misleading 

information or otherwise violated the requirements of 

section 7623(b)(6)(C) or [Treas. Reg.] § 301.7623-1(c)(3).

Treas. Reg. § 301.7623-4(b)(2).

Treasury Regulation § 301.7623-4(c)(1)(i) provides that

[i]f the IRS proceeds with any administrative or judicial 

action based on information brought to the IRS’s attention 

by a whistleblower, such whistleblower shall, subject to 

paragraphs (c)(2) and (3) of this section, receive as an 

award at least 15 percent but not more than 30 percent of 

the collected proceeds resulting from the action (including 

any related actions) or from any settlement in response to 

such action. The amount of any award under this 

paragraph depends on the extent of the whistleblower’s 

substantial contribution to the action(s).

This regulation further provides that “[s]tarting the analysis at 15 

percent, the Whistleblower Office will analyze the administrative claim 

file using the factors listed in paragraph (b)(1) of this section to 

determine whether the whistleblower merits an increased award 

percentage of 22 percent or 30 percent.” Treas. Reg. 

§ 301.7623-4(c)(1)(ii). Accordingly, the WBO may increase the award 

percentage on the basis of the presence and significance of any positive 

factors. Id.

Next, the WBO will analyze the contents of the administrative 

claim file using the enumerated negative factors to determine whether 

the whistleblower merits a decreased award percentage of 15%, 18%, 

22%, or 26%. Id. Accordingly, the WBO may decrease the award 

percentage on the basis of the presence and significance of any negative 

factors. Id.

[*18]
19

[*19] The WBO furnished petitioner a preliminary award 

determination as required. Next, upon the request of petitioner, the 

WBO furnished a detailed report and then permitted petitioner to 

inspect the WBO’s supporting documents. The WBO received 

petitioner’s response to the preliminary findings and then issued a final 

determination under section 7623(b). The WBO’s findings are set forth

in its written final determination letter dated December 16, 2019.

In this case the WBO’s determination of award concluded there 

were both positive and negative factors present in calculating

petitioner’s award. First, the WBO increased petitioner’s award from the 

minimum 15% to 22% on account of the existence of positive factors. 

Next, however, the WBO applied negative factors and reduced

petitioner’s award to the minimum 15% award percentage. Below we

will further discuss our conclusions on this matter.

A. The WBO’s Award Calculation

The determination report, which was included with the WBO’s 

final determination, reflects an award amount of $371,049. This award 

determination is also calculated in the detailed report furnished to 

petitioner by letter dated February 20, 2019.

The total award due of $394,313 is 15% of the proceeds collected

by the IRS from the target taxpayers. In a three-page Excel spreadsheet, 

the WBO listed the amounts, taxpayer identification numbers, tax 

periods, and dates of payment for all taxes, penalties, and interest 

received. The total amount recovered, per the WBO Excel spreadsheet,

is $2,628,755. Petitioner does not appear to dispute the total amount

collected, as calculated by the IRS.

The adjustment to the total award due of $394,313 is then 

adequately documented and explained by the WBO. The WBO explains 

how under the Budget Control Act of 2011, as amended by the American 

Tax Relief Act of 2012, the award amount is required to be reduced by a 

sequestration percentage determined annually by the Office of 

Management and Budget (OMB).15 The WBO’s final determination

15 Sequestration is a measure by which Congress enforces mandatory spending 

cuts across most government programs and agencies during the budgetary process. 

Sequestration applies to all nonexempt direct spending when Congress fails to enact 

certain budgetary legislation for the fiscal year. Budget Control Act of 2011, Pub. L. 

No. 112-25, §§ 101–103, 125 Stat. 240, 241–46, as amended by American Taxpayer 
20

[*20] correctly explains how payments in excess of $10,000 are subject 

to a federal income tax withholding amount,16 reflecting a net payment 

amount (after withholdings) to be received by petitioner. We conclude

the WBO has correctly calculated petitioner’s award amount.

B. Application of Positive Factors

The record reflects the WBO’s process in determining that two

positive factors existed, with the first positive factor being how the 

information petitioner furnished was previously unknown to the IRS,

and second, that the information petitioner furnished identified 

behavior that the IRS was unlikely to identify or was difficult to detect 

by reasonable diligence. See Treas. Reg. § 301.7623-4(b)(1)(ii) and (iii).

The WBO’s award recommendation memorandum concludes 

these positive factors increase petitioner’s percentage award from the 

minimum 15% to 22% as permitted under the regulations. See Treas. 

Reg. § 301.7623-4(c)(1)(ii). Under section 7623, an individual’s award 

percentage depends on to “the extent to which [he] substantially 

contributed to” the actions of the IRS against the target taxpayers. See

I.R.C. § 7623(b)(1). In this case the WBO analyzed the administrative 

claim file and, using the information presented, it determined 

petitioner’s award percentage. See Treas. Reg. § 301.7623-4(a)(1). The 

WBO then multiplied the award percentage by the amount of collected 

proceeds. Id. subpara. (2).

While the WBO fails to elaborate in great detail its conclusion to

arrive at a 22% tentative award percentage, rather than 30% (before 

reduction) based on petitioner’s substantial contribution, we do not 

conclude the WBO’s action was arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law in making this 

determination. See Treas. Reg. § 301.7623-4(c)(ii). Petitioner does not 

Relief Act of 2012, Pub. L. No. 112-240, § 901, 126 Stat. 2313, 2370 (codified as 

amended at 2 U.S.C. § 901(a) (2012)). The applicability of the sequestration and the 

sequestration percentage are determined on the basis of the government fiscal year 

when the award is paid. The OMB calculates the sequestration percentage for each 

fiscal year following the procedures set forth by statute. See 2 U.S.C. § 901(a).

16 The WBO correctly notified petitioner—in the preliminary and final 

determinations—that his award is includible in gross income under section 61 and 

subject to federal tax reporting and backup withholding requirements by the WBO in 

the year of payment. The WBO correctly notified petitioner that his award will be 

subject to a 24% backup withholding and may be offset against any outstanding federal 

income tax liabilities that he has.
21

[*21] appear to dispute the foregoing positive factors and tentative 

award percentage increase (from 15% to 22%). Furthermore, petitioner

has not asserted that the WBO failed to include other relevant positive 

factors.

Our conclusion as to the WBO’s proper application of positive 

factors is based on the WBO’s application of this regulation and the 

discretion given to the WBO in making its award percentage 

determination. See Treas. Reg. § 301.7623-4(b)(1). Our conclusion is also 

confirmed by petitioner, who has not disputed this portion of the WBO’s 

award percentage calculation. Accordingly, we conclude the WBO has 

adequately addressed all relevant positive factors in determining

petitioner’s award percentage. See id.

C. Application of Negative Factors

As mentioned, the record reflects that the WBO concludes there 

are two negative factors present in petitioner’s claim. First, the WBO 

determined petitioner delayed in informing the IRS after learning of the 

relevant facts and particularly how the delay adversely affected the 

IRS’s ability to pursue an action or issue. See Treas. Reg. 

§ 301.7623-4(b)(2)(i). Second, the WBO determined petitioner 

contributed to the underpayment of tax or noncompliance identified. See

id. subdiv. (ii).

In his original application for award petitioner explains his 

limited role and involvement in the Companies and, upon his 

subsequent discovery of the tax scheme, how he was essentially 

prohibited from questioning the Companies’ operations by the other 

shareholders. However, the WBO appears to ultimately rely on 

statements by the RA to conclude there are two negative factors on the 

“most likely” facts of this case. The RA furnished a seven-page

memorandum analyzing petitioner’s involvement in the Companies and 

their skimming operations, as well as the information petitioner 

furnished and its use to the RA during her audit. Along with the 

memorandum, the RA identically completed Form 11369 for each of 

petitioner’s claims, indicating how “the information provided led to 

adjustments in the audit . . . such as expanding the scope of transactions 

to be examined.” On the Forms 11369 the RA also indicated that four

favorable factors existed with respect to petitioner’s contributions and 

six factors were not applicable (or did not exist). Finally, with respect to 

“other information” the RA marked “yes” the following additional factor: 
22

[*22] (A) “Did the whistleblower participate in the actions that led to 

the underpayment of tax.”

The record before us reflects that petitioner may have contributed

to the underpayment of tax or participated in the actions which led to 

the underpayment of tax. We acknowledge how petitioner blew the 

whistle on the Companies’ actions and its shareholders upon his 

discovery of tax noncompliance. However, the record also reflects how 

petitioner failed to promptly notify the IRS of the tax noncompliance 

after learning of the relevant facts. We also find there to be material

analysis performed by the WBO explaining its conclusion in arriving at 

a minimum 15% award percentage for petitioner. In sum, there is 

sufficient evidence supporting the two negative factors applied by the 

WBO.

Our task here is to review the agency determination and to 

uphold it unless we find the WBO’s final determination to be arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with 

law. Here it cannot be said that the IRS’s records do not support the

WBO’s conclusions. While petitioner contends at length that there are 

additional facts refuting his involvement in and knowledge of the tax 

noncompliance scheme, we decline to go behind the WBO’s 

determination and second-guess the conclusion reached, since these 

same contentions by petitioner were considered and rejected by the 

WBO.

In our review we are unable to conclude that the WBO acted

arbitrarily, capriciously, with abuse of discretion, or otherwise not in 

accordance with law in applying the negative factors under Treasury

Regulation § 301.7623-4(b) in accordance with the discretion given to it

in making its award percentage determination. Accordingly, we

conclude the WBO has adequately addressed all relevant negative

factors in determining petitioner’s award percentage.

III. Conclusion

The record before us reflects how the WBO relied on evidence 

found in the administrative record in making its award determination. 

The record also reflects how the WBO considered relevant positive and 

negative factors in making its award determination. Finally, the record 

reflects that the WBO followed proper administrative procedures and 

considered petitioner’s arguments. Thus, we conclude petitioner has 

failed to show that the WBO’s action in making its final determination 
23

[*23] was arbitrary, capricious, an abuse of discretion, or otherwise not 

in accordance with law.

We will deny petitioner’s Motion for Summary Judgment, grant 

respondent’s Cross-Motion for Summary Judgment, and enter a decision

affirming the WBO’s final determination under section 7623(b), dated 

December 16, 2019.

To reflect the foregoing,

An appropriate order and decision will be entered.