# United States Tax Court

T.C. Memo. 2022

- 126

FELIX LUU

,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

—————

Docket N o. 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 S upplement to his

M otion for S ummary J udgment ( petitioner’s original and supplement a l
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 n earest dollar.



### Served 12/28/222

[* 2 ] Judgment

. Petitioner filed his Reply to respondent’s Supplemental Response on July 5, 2022.

For the reasons below, we will deny petitioner’s M otion for Summary Judgment and grant respondent’s C ross

- M otion for S ummary J udgment

. 2 Furthermore, we will enter a decision in this matter affirming the I nternal Revenue Service (I RS ) Whistleblower Office ’s (WBO ) final determination regarding petitioner’s whis tleblower award

.

Background

Petitioner submitted several Form s 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 shareholder 3 with his six siblings in the family’s business operati ons

. By letter s dated April 14, 2009, the WBO acknowledged receipt of petitioner’s application for award and Form s 211 and assign ed petitioner’s case an initial claim number of 2009

- 001609

. 4

On December 8, 2009

, petitioner , as a minority shareholder, filed a verified complain t 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 cor poratio ns and a California limited liability company ( Companies), some of which were organized as S corporations
for f ederal income tax purposes

. In the verified compla i nt p etitioner
contend ed 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 ha d been skimming profits from the Companies

.

2 As noted infra p. 10

, we recharacterize respondent’s Response and Supplemental Response as a C ross

- M otion for S ummary J udgment. 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 s tate law

, we refer to them as “shareholders” throughout this O pinion since a majority of the businesses are organized as corporations and have elected S corporat ion statu s.

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

- 0016 10 through 2009

- 001621

.3

[* 3 ] On December 1, 2009

, the Companies’ six shareholders (e xcluding petitioner) filed voluntary disclosures with the IRS

. The IRS preliminarily accepted the se voluntary disclosures on January 12, 2010.

On December 10, 2009, petitioner wrote to the IRS and furnishe d
detailed information including copies of his verified complaint and third

party 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 disclo sures

. 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 commence d audit s of returns of one or more of the Companies

. Petitioner, as a shareholder of the Companies

, was notified of the IRS audit s

. On August 1 5, 2011

, an IRS
revenue agent (RA) interviewed the Companies’ president

, and then on August 2 6 , 2011

, the RA separately inter viewed 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, a ccording to the shareholders interviewed , it was petitioner who
handled the se cash distribution s since he was in volved in the financial operations of the Companies

. The RA subsequently met with the Companies ’ bookkeeper on September 29, 2011

, and later h eld several meetings with petitioner regarding the Companies’ audit s

.

The IRS ultimately proceeded with the assessment of additional federal income tax and employment taxes against the Companies and
their shareholders. The assessment s exceeded $2 million dollars and were directly related to the unreported income and payroll tax issues petitioner identified. The assess ed 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

assessment s fail ed to include other sources of unreported income. Ultimately

, the Appea ls 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

.

O n or about August 29, 2018, the WBO sent petitioner a preliminary award recommendation letter

. T he purpose of the letter was to seek petitioner’s agreement or disagreement with the pre liminary award recommendation, as determined by the WBO. Enclosed with the
WBO’s letter was a s ummary r eport explain ing the preliminary award recommendation of $368,28 9

. A lso 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’ audit s

. The RA completed several Forms 11369, Confidential Evaluation Report on Claim for Award, one related to each of petition er’s whistleblower
claims. 6 In her report to the WBO, the RA generally reflect ed petitioner’s actions and cooperation during the Companies’ audit s

. H er report to the
WBO states that “throughout the audit [petitioner] has fully cooperated with the IRS in p roviding 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] too k the first step that

le d 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, p etitioner signed the response
form and the confidentiality agreement and r eturned the forms to the
WBO , indicating th at 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 f orms, and the attached memorandum s , were identical other than the target taxpayer information portion s of the f orm s

.5

[* 5 ] “Detailed Report .” T he d etailed r eport 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 propos ed award amount. Within the d etailed

r eport , the WBO outlined its analysis in determining petitioner ’ s award
percentage. The d etailed r eport states

, in relevant part:

The information provided identified taxpayer behavior that
the IRS was unlikely to identi fy 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 d etailed r eport also state s, 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 ac tion 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.

T he WBO’s preliminary award reco mmendation was based , in
part, on an internal memorandum 7 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 state d 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 unrepo rted income computations were based on kill sheets signed the United

7 The record contains three internal a ward r ecommendation m emorandums for
the WBO director, dated June 15, 2018, August 15, 2018

, and December 6, 2019

, respectively . The memorandum s are nearly identical and contain much the same explanation . The memorandums a re update s 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 use d the total number of chickens slaughtered per US D A 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 th e 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 activitie s conducted in the business and participated in the cash skimming operations.

The WBO’s internal memorandum also outline s positive and negative factors of petitioner’s whistleblower claim. Positive factors include: (i) “ [t] he information provided identifi ed 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

un reported payroll to re duce their U.S. tax burden

. . . this information
led the examiner to revie w this particular item which saved resources. The WB also provided documentation which supported their allegation. This again saved resources and le d the examiner to specific accoun ts. ”

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 be en 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 bu t 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 petition er with a “ Response to De tailed Report” form giving petitioner three choices . One g ave 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 Washi ngton

, D.C.

, and examined the supporting documents on October 23, 2019. By letter dated November 21, 2019, petitioner then provided a detailed respon se 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 f inal

d etermination u nder s ection 7623(b), dated December 16, 2019, determining that petitioner wa s 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 f inal d etermination, the WBO state d :

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 Of fice 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 f inal d etermination also included a one

- page d etermination

r eport consisting of six numbered paragraphs. F irst

, the determination
report listed the total taxes, penalties

, and interest the IRS collected using information petitioner provided

. Next

, the determination r eport determined an award percentage of 15%

, a gross proceeds award of $394,313, a Budget Control Act reduction of 5.9% for the 2020 f iscal y ear of $23,264 , and a determined award amount made under section 7623(b) of $371,08 5

. Finally, the determination report included a statement regarding the factors that contribu ted to the recommended award percentage as follows: “The positive fac t ors were applicable, however they didn’t have sufficient impact to warrant an increase of the award

% above 15% after considered the negative factors.” T he f inal
d etermination also included a “ Wa i ver of Appeal” and explained to petitioner that he would need to waive his appeal rights under s ection 7623 from the determination of the WBO dated December 16, 2019

, whereby the WBO would process the award amount for payme nt.

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 A nswer to petitioner’s P etition.

On the basis of good cause shown at the hearing the Court fo und that the administrative record, as submitted by respondent, was incomplete. 8 The Court also found petitioner’s testimony and the
evidence he furnished suffi ciently compelling to establish that the additional proposed trial E xhibits 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 E xhibits, as well

a s petitioner’s additional proposed trial E xhibits, which are now collectively deemed the complete administrative record in this case

.

Discussion

I. Summary Judgment

A. Background

In his M otion for S ummary J udgment petitioner advance s the same arguments as those found in his P etition. First, he allege s a multitude of problems with the audit s that gave rise to the total proceeds upon which his award was based. Second, petitioner argue s

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

contend s that the IRS personnel assigned to the audit s underlying the award determination failed to complete their due diligence regarding
the facts in the case.

In his written R esponse r espondent counter s petitioner’s arguments regarding shortcomings in the underlying audit s and argues
that petitioner’s argument s 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 argue s 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 argue s that petitioner is now raising new arguments no t 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 R eply p etitioner argue s that he does, in fact, dispute the
amount awarded because the “s ource 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 state s that the WBO did not furnish its internal award
recommendation memora ndum and it was not until this proceeding that
the document was first disclosed. P etitioner also argue s that the WBO’s application of negative factors was improperly based on t he self

- serving testimony of his fellow shareholders who m he blew the whistle on and therefore their testimony offers l ittle credibility.

In his M otion for S ummary J udgment 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

th at portions of the administrative record relating to the IRS auditors ’
and group managers’ work papers remain missing

. Specifically

, p etitioner also contends that the IRS violated the Internal Revenue
Manual (IRM) and section 7 214 by not issuing a Form 11369 transfer memo and purposefully hiding relevant information regarding his10

[* 10 ] claims. 9 H owever, representations by respondent indicate that no such completed form exists in this case.

Also in his M otion for S ummary J udgment , petitioner contends
that the negative factors the WBO listed against him are based on false speculation. Petitioner contends that he was un aware 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 th e abovementioned fraudulent
activities.

Respondent also filed a S upplemental R esponse to petitioner’s

M otion for S ummary J udgment. In his S upplemental Response, respondent contends that the WBO explained itself in its f inal
d etermination and moreover in the WBO’s internal a ward
recommendation m emorandum. 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 resp ondent’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 authorize d the Secretary (and his designee) , under prescribed regulations, to pay discretionary whistleblower awards for detecting underpayments of tax or detecting and brin g ing to trial and punishment persons gui l ty of

9 The provisions of the IRM can be instructive in understanding the IRS ’s interpretation of a statute, see G insburg 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 administe r 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 b y the WBO

— depends on “the extent to which the individual substantially contributed
to such action .” Id. However, i f 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 i f the i ndividual 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 W histleblower O ffice 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 he aring, from a governmental report, hearing, audit, or investigation, or from the news media, the

W histleblower O ffice 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 action s) 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 ] I n 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

ta xable 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

tax payers were c ompanies 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% depend ent up on 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 th ere 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 S ection 7623(b)(3) is not relevant in this case

.13

[* 13 ] Van Bemmel en 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
other wise 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 (194 3)). 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)

.

S ection 7623(b)(4) does not grant us jurisdiction over decisions by the IRS in its conduct of audits or collection activities. Co hen v. Commissioner

, 139 T.C. 299, 302 (2012)

, aff ’d

, 550 F. App ’x 10 (D.C. Cir. 2014)

. A s 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 u ltimate 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 sec tion 7214 as being violated by the IRS in his case. Section 7214 imposes a penalty on any IRS employee s— acting in their official capacity

— who commit an enumerated offense. The penalty is dismissal from office or discharge from employment and, upon

convicti on thereof, a fine of not more than $10,000, imprisonment for not more than five years, or both. See I.R.C. § 7214(a). Th is 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 j urisdiction 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 , o ur prior reviews of WBO actions ha ve been focused

on t he 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.4 th at 1017. In this case we are tasked with
the more traditional function of review ing 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 prelimi nary 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 section15

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 whist leblower 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 awar d 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 conf identiality 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, the n 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).

T he whistleblower (and the whistleblower ’ s legal repre sentative, 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 privilege s ) 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 . T he 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 fil e 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 Reg ulation § 301.7623

- 4(d)(2) ), the WBO will
determine the amoun t 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 abo ve , the WBO is to ana lyze an individual’s claim by applying the rules provided in Treas ury Reg ulation § 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 whistleblowe r’ 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 throug h 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 use d 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

no t 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 W BO 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 act ion 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 initia te 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 discl osing 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 an y) 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.] § 3 01.7623

- 1(c)(3)

.

Treas. Reg. § 301.7623

- 4(b)(2).

Treas ury Reg ulation § 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 whistleb lower 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 t o such action. The amount of any award under this paragraph depends on the extent of the whistleblower ’ s substantial contribution to the action(s).

Th is regulation further provide s 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. 76 2 3

- 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

. A ccordingly, the WBO may decrease the award
percentag e 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 un der 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 d etermination of a ward conclude d there
were both positive and negative facto rs present in calculating petitioner’s award . First

, the WBO increas ed petitioner’s award from the
minimum 15 % to 22 % on account of the existence of positive factors

. Next, however, the WBO applie d negative factors and reduce d petitioner’s award to the minimum 15 % award percentage

. Below we
will further discuss our conclusion s on this matter

.

A. The WBO’s Award Calculation

T he determination report, which was included with the WBO’s final determination, reflects a n award amount of $371,04 9

. This award
determination is also calculated in the detailed report furnished to petitioner by letter dated February 20, 2019

.

The total a ward due of $394,313 is 15% of the proceeds collected by the IRS from the target taxpayers. In a three

- page E xcel spreadsheet,
the WBO listed the amounts

, taxpayer identification number s , t ax

p eriod s , and date s of payment for all taxes, penalties, and interest
received. T he total amount recovered, per the WBO E xcel spreadsheet

, is $2,628,755. Petitioner does not appear to dispute t h e total amount
collected , as calculated by the IRS

.

The adjustment to the total award due of $3 94,313 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 T he WBO’s f inal d etermination

15 Sequestration is a measure by which Congress enforces mandatory spending

cuts across most g overnment programs and agencies during the budgetary process. Sequestration applies to all nonexempt direct spending when Congress fails to enact certain budgetary legislation for th e fiscal year. Budget Control Act of 2011

, Pub. L.

No. 112

- 25, §§ 101

– 103, 125 Stat. 240, 241

– 46, as amended by American Taxpayer20

[* 20 ] correctly explain s 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 F actors

T he record reflects the WBO ’s process in determining that two positive factors existed , w ith 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 identif y or w as difficult to detect by reasonable diligence. See Treas. Reg. § 301.76 2 3

- 4(b)(1) (ii) and (iii)

.

The WBO ’s a ward r ecommendation m emorandum concludes
these positive factor s increase petitioner’s percentage award from the minimum 15% to 22% as permitted under the r egulations. See Treas. Reg. § 301.7623

- 4( c )(1)(ii )

. Under s ection 7623

, a n individual’s award
percentage depends on to “the extent to which [he] substantially

contr ibuted to” the actions of the IRS against the target taxpayers. See I.R.C. § 7623(b)(1). In this case the WBO an alyzed the administrative
claim file and , using the information presented

, it determined petitioner’s award percentage. See Treas. Reg. § 301.76 2 3

- 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 gr e at 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 makin g 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 for th by statute. See 2 U.S.C. § 901(a).

16 The WBO correctly notifie d 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 notifie d 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 t he 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

.

O ur 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 t he WBO has adequately addressed all relevant positive factors in determining petitioner’s award percentage

. See i d

.

C. Application of N egative F actors

As mentioned, t he record reflects that the WBO concludes there

are two negative factors present in petitioner’s claim. First , the WBO
determine d petitioner delayed in informing the IRS after learning of the
relevant fact s and particularly how the delay adversely affected the
IRS’ s ability to pursue an action or issue. See Tr eas. 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 a pplication 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 rel y on statements by the RA t o conclude there are two negative factors on the “most likely” facts of this case. T he 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 le d to adjustments in the audit

. . . such as expanding the scope of transactions
to be examined .” On the Form s 11369 the RA also indicated that four
favorable factors existed with respect to pe titioner’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 le d to the underpayment of ta x. ”

The record before us reflects that petitioner may have contribute d to the underpayment of tax or participate d 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% awa rd 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

, w e 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 act ed
arbitrar il y, capricious ly

, with abuse of discretion

, or otherwise not in
accordance with law in applying the negative factors under Treas ury Reg ulation § 301.762 3

- 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 eviden ce 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 adm inistrative procedures and
considered petitioner’s arguments. Thus, we conclude petitioner has
failed to show that the WBO ’s action in making its final determination23

[* 23 ] was arbitrary, capricious, an abuse of discretion

, or otherwise not
in accordance wit h law

.

W e will deny petitioner’s M otion for S ummary J udgment , grant respondent’s C ross

- M otion for S ummary J udgment

, and enter a decision affirming the WBO’s final determination under section 7623(b), dated December 16, 2019.

To reflect the foregoing,

An appropriate o rder and d ecision will be entered

.