T.C. M em o . 2 0 2 0 -6 4

UNITED STATES TAX COURT

M ARTIN DOUGLAS FRANTZ, Pet i t i o ner v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 5 4 40 -1 8 W
. Fi l edM ay 1 9 , 2 0 2 0
.

M art i n Do u g l as Fran t z, p ro s e. Ni ch o l as R. Ro s ad o an dM ich ael Sk een , fo r res p o n d en t
.

M EM ORANDUM OPINION URDA, J ud g e: Pet i t i o n er, M art i n Do u g las Fran tz, s eek s rev i ew u n d er
s ect i on 7 6 2 3 (b )(4 ) o f d et erm in at i o n s o f t h e In t ern al Rev en u e Serv i ce (IRS) Wh i s t l eb l o wer Offi ce (W BO) th atd ecl i n ed t o m ak e wh i s t l eb l o wer award s t o h i m- 2
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[* 2 ] an d h i s wi fe. 1 M r. an dM rs . Fran t z s ub m i t t edan awardap pl i cat io n t o t h e W BO as s ert i ng th atth e tru s t ee o f t h ei r ch ap ter 7 b an krup t cy es t at e s i g n i fi can t l y
u n d ers t at edth e es t at e’ s t ax l iab i l i t y . Th e W BO i s s ueda d en ial o f t h e ap p li cat i o n wi t h res p ect t o th e b an krup t cy es t at e an d a reject i o n o f i twi t h res p ectt o th e t ru s t ee. M r. Fran t z ap p eal edt o th i s Co u rt , arg u i n g th atth e W BO fai ledt o p ro p erl y i n v es t i g at e. Res p o n d en th as m o v edfo r s u m m ary ju d g m en t u n d er Ru l e 1 2 1 , co n t en d i n g t h atth e W BO d i dn o tab u s e i t s d i s cret i o n wi th res p ect t o th es e d et erm i n at i o n s . M r. Fran t z o b

ject edan dfi l eda cro s s -m o t i o n fo r s u m m ary ju d g m en t . W e wi l l g ran tres p o n d en t ’ s m ot i o n an dd en y M r. Fran t z’
. Back gro u n d Th e fo l l o w i n g fact s are b as edo n th e p art i es ’ p l ead i n g s an dm o t i o n p ap ers , i n cl u d i n g th e at t ach edd ecl arat i o n s an dex h i b i t s . See Ru l e 1 2 1 (b ). M r. Fran t z l i vedi n Id ah o wh enh e t i m el y fi l edh i s p et i t io n .

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect atal l rel ev an tt i m es , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. W e ro u n d al l m o n et ary am o u n t s t o th e n eares td o l l ar.- 3
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[* 3 ] A. Sub m i s s i o n o f Fo rm 2 1 1 OnAp ri l 9 , 2 0 1 8 , th e Fran t zes s ub m it t eda Fo rm 2 1 1 , Ap pl i cat io n fo r Awardfo r Ori gi n al In fo rm at i o n , t o th e W BO rel at in g t o t h ei r ch ap t er 7 b an krup t cy
es t at e’ s 2 0 1 3 -1 7 t ax retu rn s. In th e b l an k s pace fo r “ [n ] am e o f t ax p ay er * * * an d
an y rel at edt ax pay ers wh o co m m i t t ed t he v i o l at i o n” t h e Fran t zes l i s t edb o t h t h e
es t at e o f M art in an d Cynt h i a Fran t z an dth e b an krup t cy es t at e t ru s tee. Th e Fran t zes al l eg ed --an dfo r p u rp o s es o f d eci d i n g res p on d en t ’ s m o t i o n , we
as s u m e (wi t h o u t fi n d i n g )--t h atth e t ru s t ee fi l edfal s e t ax retu rn s o n b eh al f o f t h e
es t at e, i m p ro p erl y o m i t t in g s i g n i fi can tam o u n t s o f i n co m e. Sp eci fi cal l y th e Fran t zes cl ai m edth atthe t ru s t ee fi l eda “ fal s e” 2 0 1 6 es t at e t ax retu rn thati n cl u d ed

“ n o K-1 s s t at i n g th at$ -0 - t ax es du e.” Acco rd i n g t o th e ap pl i cat i o n , a cert i fi ed p ub l i c acco u n tan t(C.P.A.) wo rk i n g fro m i nfo rm at i o n p ro v i d edb y th e Fran t zes
co n cl u d ed t h at t h e t ru s t ee’ s s up p o s edm al feas an ce h adp ro du ceda $ 1 ,4 1 1 ,1 4 5
u n d erp aym en t o f Fed eral an dSt at e i n co m e t ax es fo r 2 01 7 , an des t i m at eda t o t al
u n d erp aym en t o f “ g ro ss t ax ” o f $ 2 ,2 5 0 , 0 0 0 fro m 2 01 4 t o 2 0 1 7
. 2 Th e Fran tzes fu rt her s tat edth atth ey

h ad rep o rt edthe “ t ax frau d ” t o t h e Id ah o Dep art m en to f Rev enu e.

2 Al t h o ug h th e ap p l i cat i o n referen ced t he es tat e’ s 2 0 1 3 t ax ab l e y ear, t h e Fran t zes d i d n o t i n cl ud e t he 2 0 1 3 t ax ab l e y ear i n th e es t i m at i o n o f t h e s h o rt fal l
.- 4
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[* 4 ] Th e Fran t zes i ncl u d ed wi t h th ei r Fo rm 2 1 1 a l et ter fro m

th e C.P.A. wh o h ad cal cu l at edth i s s h o rt fal l , as wel l as th e b an krup t cy es t at e’ s 2 0 1 6 t ax retu rn (p rep aredb y

the t ru s t ee) an d a d raft am en d ed2 0 17 t ax retu rn fo r t h e es t at e, as p rep aredb y

th e C.P.A. 3 Th e l et t er s tat ed , i nt er al i a, t h at t he “ es t i m at ed2 0 1 7 i n co m e t ax retu rn [was ] b as edo n i n fo rm at i o n * * * [t h e Fran t zes ] h av e p ro v i d ed
u s ” an d fu rt h er ad v i s edth at“ [t ] h i s retu rns h o ul dn o tb e fi ledu n d er an y ci rcu m s t an ce.” B. Th e W BO’ s Co ns i d erat i o n Th e W BO as s i g n edtwo cl ai m n u m b ers i n res po n s e t o th e Fran t zes ’
s ub m i s si o n : o n e fo r t h e b an krup t cy es t at e (es t at e cl ai m) an do n e fo r t h e t ru s t ee

3 In s up p o rto f h i s m o t i on fo r s u m m ary ju d g m en t , res po n d en tat t ach eda co p y o f t h e Fran t zes ’ Fo rm

2 1 1 b u tn o ne o f t he s up p o rt i n g d o cu m en t s . Inh i s p l ead i n g s M r. Fran t z h as s up p l i edwh ath e cl ai m s t o b e t h e s up po rt i n g d o cu m en t s t o the Fran tzes ’ Fo rm

2 1 1 (i .e., th e C.P.A. l et t er, th e 2 0 16 es tat e t ax retu rn , an dth e draft am en ded2 0 1 7 es tat e t ax retu rn p rep aredb y t h e Fran t zes ’ C.P.A.). In ad d it i o n t o arg u in g thatthes e d o cu m en t s are i m m at eri al , res p o nd en targ u es th atwe s h o u ldn o tco n s i d er t h e am en d ed2 0 1 7 t ax retu rn i n tro du ced b y M r. Fran tz i n thi s p ro ceed in g b ecau se i ti s d at edwel l aft er t h e Fran tzes s ub m i t t ed t h e Fo rm 2 1 1 (an d t h u s was n otp arto f t h e p ack etco n s id eredb y th e W BO). M r. Fran t z co u n t ers th at t h e s ub s t an ce o f t h e ret u rn s ub m i t t edt o th e Co u rti s th e s am e as th atat t ach edt o t h e Fo rm 2 1 1 . W e wi l l co n si d er th es e d o cu m en t s i n th e l i gh tm o s tfav orab l e t o M r. Fran t z wh en d eci d i n g res p o n d en t ’ s m o t i on an dacco rd i n g l y wi ll v iew t h e d raft am en d edt ax retu rnb efo re u s as th e s am e i n s ubs t an ce as th e o n e at t ach edt o th e Fran t zes ’ Fo rm

2 1 1
.- 5
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[* 5 ] (t ru st ee cl ai m ). Th es e cl ai m s p ro ceed edal o n g d i fferen tp aths , wh i ch we l o o k d o wni n tu rn . 1
. Es t at e Cl ai m an dCl ai m Ex p an s i o n Two cl as s i fi ers 4 u n der t h e d i rect io n o f th e W BO rev i ewedth e Fo rm 2 1 1 wi t h res p ect t o th e es t at e. In the co u rs e o f t h e rev i ew the s eco n dcl as s i fi er
o b s erv edth atth e Fran t zes th em s el v es m i g h th av e recei v edu n rep o rt edi n co m e (as t h e ch ap ter 7 d eb t o rs ) i n l i g h to f t h e Fran t zes ’ p os i t i o n t h atth ei r b an krup t cy es t at e h ad fi l edfal s e t ax retu rn s o m i t t i n g i n co m e. Co n s i s t en t wi t h t he s eco n d cl as s i fi er’ s
reco m m en d at i o ns , th e W BO o p en eda n ew cl ai m i n t o th e Fran t zes ’ o wnFed eral i n d i v i du al i n co m e t ax rep o rt i n g (an ci l l ary cl ai m) an dreferred b ot h th e es t at e cl ai m
an d t h e an ci l larycl ai m

t o th e W BO area o ffi ce fo r ad d it i on al rev i ew. A W BO area o ffi ce co ord i n at o r l at er co n cl u dedth atn ei th er th e es t at e cl ai m
n o r t h e an ci l l ary

cl ai m warran t edan ex am i n at io n an dreco m m en d ed t he d en i al o f b o t h . As t o th e fo rm er, s h e co n s i d eredth e Fo rm 2 1 1 an dth e p ro bl em s i den t i fi ed b y th e Fran t zes ’ C.P.A., n am el y th atth e 2 0 1 6 es t at e t ax retu rn h adrep o rt eda s al es t ran s act io n o f “ As s et s , Part n ers h i p ”, b uth adn o ti n cl u d eda Fo rm 1 0 6 5 , U.S. Retu rn o f Part n ers h i p In co m e, Sch edu l e K-1 , Part n er’ s Sh are o f In co m e,

4 “ Cl as s ifi cat io n ’ s ro l e i s o n l y t o d et erm i ne i f th e i n fo rm at i o n o n th e Fo rm 2 1 1 warran t s fu rt her rev i ew.” In t ern al Rev enu e M an u al (IRM ) p t . 2 5 .2
. 1 .3 .1 (2 ) (J an . 1 1 , 2 0 1 8 ).- 6
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[* 6 ] Deduct i o n s, Cred i t s , et c. Th e co o rd i n at o r n o t edth at t h e Fran t zes h adn o t d et ai led an y

u n rep o rt ed Sch edu l e K-1 i n co m e an d co n cl u d ed , fro m h er o wn
rev i ew o f th e IRS’ i n fo rm at i o n return s p ro ces si n g s y s tem 5 th atth e Fran t zes ’ cl ai m i m p l i cat edo n l y $ 1 5 ,2 0 8 , wh i ch d i dn o t m eri tfu rt h er ex am i n at io n . W it h res p ectt o t h e an ci l l ary

cl ai m , th e co o rd i n at o r fo u n dn o al l eg edo r i den t i fi edv i o l at i on s i n th e Fran t zes ’ i n d i v i du al i n co m e t ax rep o rt i n g , n ot i n g fu rt h er t h at t h e Fran t zes were

“ n o tal l eg i n g a v i o l at i o n o f * * * [t h ei r o wn ] 1 0 4 0 ”. Bo t h cl ai m s were
s ub s equ en t l y

retu rn edt o th e t ax an al y s ts atth e W BO. Th ereaft er, a t ax an al y stdraft edan awardreco m m en d at io n m em o ran du m (ARM ) co ns i s t en twi t h th e co n cl u s i o n s o f t he area o ffi ce co o rd i n at o r. Th e ARM
reco m m en d edt o th e m an ag er o f t h e W BO AwardReco m m en d at i o n & Co o rd i n at i o n u n i t th atth e cl ai m s b e d en i ed b ecau s e “ l i t t l e o r n o au di tp o ten t i al
ex i s t s”, ex pl ai n i n g t h atth e p ot en t ial ad ju s t m en t s were “ b el o w th res h o l d t o warran t
an ex am i n at i o n .” Th e W BO s ub s equ en t l y

d en i ed t he es tat e cl ai m

an dth e an ci l larycl ai m rat h er t h anfo rwardth em t o an IRS ex am i n er fo r p o s si bl e fu rt h er act i o n , i n cl u d i n g

5 Th e IRS’ i nfo rm at i o n ret u rn s p ro ces si n g s y s tem recei v es d at a s ubm i t t edb y em pl o y ers an do t h er th i rd p art i es rep ort i n g t ax p ay er i n co m e du ri n g th e y ear. See Om an v . Co m

m i s s i on er, T.C. M em o . 2 0 1 0 -2 76 , 1 0 0 T.C.M . (CCH) 5 4 8 , 5 5 1 (2 0 1 0).- 7
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[* 7 ] th e i n it i at i o n o f an ad m i n i s t rat i v e o r ju d i ci al act i o n o r t h e co l l ect i o n o f p ro ceed s. OnJ u l y 2 5 , 2 01 8, t he W BO i n fo rm edthe Fran t zes o f t hes e d en i al s i n a l et t er wh ich s t at ed , i n t er al i a, that“ t h e i n fo rm at i o n y o u p ro v i d edd i dn o tres u l ti n t h e co l l ect i o n o f an y

p ro ceed s ” an dth at , th erefo re, “ y o u are n o tel i g ib l e fo r an award .” 2
. Tru s t ee Cl ai m Th e s am e t wo cl as s i fi ers wh o co n s i d eredth e es t at e cl ai m al s o ev al u at edth e t ru s t ee cl ai m . Duri n g h i s rev i ew t h e s eco n dcl as s i fi er d o cu m en tedth at“ [n ] o t ax i s su e [was ] s t at ed o r i d en t i fi ed ”. He reco m m en d edreject i o n o n t h e g ro u n dth at t h e Fran t zes ’ al l eg at io ns were “ n ots p eci fi c, cred i b l e, o r are s p ecu l at i v e”. He
ex p lai n edth at t h e Fran t zes ’ cl ai m p ro v i d ed“ [n ] o s p eci fi c an dcred i b l e i n fo rm at i o n ab o uta fed eral t ax i s s u e o r n on -co m p l i an ce” as wo u l d “ s up p orta p ot en t i al t ax
v i o l at i o n /al l eg at i o n ”, an dfu rt h er fai l edt o s up p l y “ d o cu m en t at i o n t o s upp o rtth e cl ai m .” In th e s am e J u l y

1 8 , 2 01 8 , ARM i n wh i ch s h e reco m m en d edd en i al o f t h e
es t at e an dan ci l l ary

cl ai m s, th e t ax an al y s tfro m the W BO al so reco m

m en d edth at t h e t ru st ee cl ai m

b e reject ed
. Th e ARM rel i edo n th e g ro u n d s p ro vi d ed b y th e
s eco n dcl as s i fi er, i .e., th e al l eg at i o n s reg ard i n g t he t ru s t ee were “ n ots p eci fi c, cred i b l e, o r are s p ecu l at i v e”.- 8
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[* 8 ] OnJ u ly

2 5 , 2 0 18 , th e W BO fo rm al l y reject edth e t ru s t ee cl ai m wi t h a l et t er
en t i t l ed“ Fi n al Deci s io n Un d er Sect i o n 7 62 3 (a)”. Th e l et t er s t at edi n p ert i n en t p art t h at“ [t ] he cl ai m h as b een reject edb ecau se t h e i nfo rm at i on p ro v i d edwas
s p ecu l at i v e an d/ o r d i dn otp ro v i d e s p eci fi c o r cred i b l e i n fo rm at i o n reg ard i n g t ax
u n d erp aym en t s o r v i o l at io n s o f i n t ern al rev en ue l aws .” 6

6 As ex p lai n ed , th e W BO s u m m ari l y reject edth e t ru s t ee cl ai m an dd i dn o t fo rwardi tt o an o p erat i n g d i v i si o n o f t h e IRS fo r co n s i derat i o n o f a p o s si b l e au d i t an d t h us d idn otp ro ceed wi t h an y ju d i ci al o r ad m in i s t rat i v e act io n o r co l l ectan y p ro ceed s o n t h e b as i s o f t h e Fran t zes ’ al l eg at i o n s . Th es e fact s, h owev er, are n o t ci t ed as th e b as is o f the W BO’ s reject i o n o f t h e t ru st ee cl ai m an dare n o t th e b as i s fo r o u r o p i ni o n . See SEC v . Ch en ery Co rp ., 3 3 2 U.S. 1 9 4 , 1 9 6 (1 9 4 7 ) (“ [A] rev i ewi n g co u rt , i n d eal i n g wi t h a d et erm i n at io n o r ju dg m en twh i ch an ad m i n is t rat i v e ag en cy al o n e i s au t h o ri zedt o m ak e, m u s tju d g e t h e p ro p ri et y

o f s u ch act i o n s ol el y

b y th e g ro un d s i n v o k edb y

th e ag en cy .”); s ee al s o Al ber v
. Co m m i s s i o n er, T.C. M em o . 2 0 2 0 -2 0 , at* 5 n .3
.- 9
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[* 9 ] C. Tax Co u rtPro ceed i n g s M r. Fran t z 7 t i m el y

p et i t i o n edth i s Co u rtfo r rev iew o f t h e W BO’ s d et erm i n at i o n s. 8 Res p o nd en ts ub s equ en t l y fi l eda m ot io n fo r s u m

m ary ju dg m en t t o wh ich M r. Fran t z o b

ject ed an dcro s s -m o v ed
.

Di s cu ss i o n I. Gen eral Pri n ci p l es A. Su m

m ary J u dg m en t Th e p u rp os e o f s u m

m ary ju d g m en t i s t o ex p ed it e l i t i g at i o n an d av o i dco st l y , t i m e-co n s u m i n g , an du n n eces s ary tri al s . Fl a. Peach Co rp . v . Co m m i s si on er, 9 0 T.C. 6 7 8 , 6 8 1 (1 9 8 8 ). Un d er Ru l e 1 2 1 (b ) t he Co u rtm ay g ran ts u m

m ary ju d g m en t wh en th ere i s n o g en u i n e d i s p u t e as t o an y m at eri al fact an da d eci s i o n m ay b e
ren d eredas a m at t er o f l aw. Su n d s t ran d Co rp . v . Co m m i s s io n er, 9 8 T.C. 5 1 8 , 5 2 0 (1 9 9 2), aff’ d , 1 7 F.3 d 9 6 5 (7 t h Ci r. 1 9 9 4 ). Ind eci d i n g wh et h er t o g ran t s u m m ary ju d g m en t , we co n s t ru e fact ual m at eri al s an di n feren ces drawn fro m th em i n th e

7 Al t h o ug h M r. an d M rs . Fran t z jo i n t l y s ub m i tt edth e award ap p l i cat i o n t o t h e W BO, M r. Fran t z i s t h e s o l e p et i t io n er i n t hi s cas e.

8 In h i s p et i t i o n M r. Fran t z ch eck edth e b o x t o i n di cat e t h ath e s o ug h t rev i ew o f a “No ti ce o f Det erm i nat i o n Co n cern i n g Yo u r Req u es t fo r Rel i ef Fro m J o i n tan d Sev eral Li ab i l i t y ” (i n n o cen t s p o u s e rel i ef) wi t h res p ectt o t ax y ears 2 0 1 3 th ro u g h 2 0 1 8 . W e d i s m i s sed h i s cl ai m fo r l acko f ju ri s d i ct io n i n s o m u ch as i t rel at edt o th e i n n o cen t s p o u s e rel i ef fro m 2 0 1 3 t o 2 0 1 8 an dtreat edh i s p et i t io n as a p et i t i o n fo r wh i st l eb l o wer act i on u n d er s ec. 7 6 2 3 (b )(4 ).- 1 0 -

[* 1 0 ] l i g h tm o stfav o rab l e t o t h e n o n m o v i n g p art y . Id
. Here, b o t h p art i es req u es t
s u m m ary ju d g m en twi t h res p ectt o th e W BO’ s d et erm i nat i on s . Si n ce we wi l l g ran tres p o n d en t ’ s m ot i o n , we draw fact u al i n feren ces i n fav o r o f M r. Fran t z. See Pal m o li v e Bl dg . In v’ rs , LLC v . Co m m i ss i o ner, 1 5 2 T.C. 7 5 , 8 2 (2 0 1 9 ). Ho wev er, t h e n o nm o v i n g p art y

m ay n o t res tup on th e m ere al l eg at i o n s o r d en i al s o f i t s p l ead i n g s b u ti n st eadm

u s ts etfo rt h s p eci fi c fact s s h o wi n g t hatth ere i s a g en u i n e d i s p u t e fo r t ri al . Ru l e 1 2 1(d ); s ee Cel o t ex Co rp . v . Cat ret t , 4 7 7 U.S. 3 1 7 , 3 2 4 (1 9 8 6). B. St an dardan dSco p e o f Rev i ew W e rev iew t h e W BO’ s d et erm i n at i o n s reg ard i n g an awardfo r ab u s e o f d i s cret i o n . 9 See Kas p er v . Co m m i s s i o n er, 1 5 0 T.C. 8 , 2 2 -2 3 (2 01 8 ). Ab u s e o f d i s cret i o n ex i s t s wh en a d et erm i n at i o n i s arb i t rary , cap ri ci o u s , o r wi t h o uts o u n d b as i s i n fact o r l aw. See M urp hy v . Co m m i s s i o n er, 1 2 5 T.C. 3 0 1 , 3 2 0 (2 0 0 5 ), aff’ d , 4 6 9 F.3 d2 7 (1 s tCi r. 2 0 0 6 ). In as cert ai n i n g wh et h er t h e W BO ab u s edi t s d i s cret io n , we g en eral l y
co n fi n e o u r rev i ew t o th e ad m i n i s t rat i v e reco rd . See Kas per v . Co m m i s s io n er, 1 5 0

9 M r. Fran tz arg ues th atb ecau se h e was “ b l o wi ng th e wh i s t l e o n h i m s el f as a res u l t o f i n cred u l o u s ci rcu m s t an ces ” an d was “ t h e o ri g i n at i n g t ax p ay er wh o b eco m es res p o n s i b l e fo r the t ax es i f h i s Es t at e d o es n ’ tp ay ”, d e n o v o rev i ew ap p li es . W e s ee n o ju s t ifi cat i o n t o d ep artfro m o u r wel l -es tab l is h ed s tan d ard s g o v ern i n g rev iew o f t he W BO’ s d et erm in at i o n s.- 1 1 -

[* 1 1 ] T.C. at2 0 . Inth is co n t ex tth e ad m i n i s t rat i v e reco rd “ co m p ri s es al l i n fo rm at i o n co n tai n edi n th e ad m i n i s t rat i v e cl ai m fi l e t h at i s rel ev an tt o t h e award d et erm i n at i o n an dn o tp ro t ect edb y * * * p ri v i l eg es .” Sec. 3 0 1 .7 6 23 -3 (e)(1 ), Pro ced
. & Ad m i n . Reg s . Th e ad m i n i s t rat i ve cl ai m fi le, i n turn , i s d efi n edt o i n cl u d e t h e “ Fo rm

2 1 1 , ‘ Ap p l i cat i o n fo r Awardfo r Ori g i n al In fo rm at i o n,’ fi l edb y t h e wh i s tl eb l o w er an dal l i n fo rm at i o n p ro v id edb y th e wh is t leb l o wer (wh et h er p ro v id edwi th t h e wh i s t leb l o wer’ s o ri g i n al s ubm i s s i o n o r t h ro u gh a s ub s equ en t
co n tactwi t h t he IRS).” Id . s ub p ara. (2 )(i ). 1 0 II. Wh i s t l eb l o wer Fram ewo rk Sect io n 7 6 2 3 (b ) p ro v i d es th e ci rcu m s t an ces i n wh i ch the IRS s h al l g i v e
m an d at o ry

(i .e., n o n d i s cret io nary ) award s t o wh i s tl eb l o wers . Befo re an awardcan b e p ai d , s ect io n 7 6 23 (b )(1 ) req u i res th atth e IRS fi rs t p ro ceed wi t h an

“ ad m i n i s t rat iv e o r ju di ci al act i o n ” an dco l l ectp ro ceed s fro m th e t arg ett ax p ay er.

1 0 In h i s o p p o s i t i o n t o res p o nd en t ’ s m o t i o n fo r s u m m ary ju d gm en t an dcro s s m o ti o n fo r s u m

m ary ju d g m en t , M r. Fran t z co n t en ds th at“ [r] es p o nd en t ’ s wh i st l eb l o wer fi l i ng s are m i s s i n g req ues t edIRS t ax return i n fo rm at i o n .” To th e ex t en tth atM r. Fran t z i s s u g g es t i n g th atth e ad m i n i s t rat i v e reco rdd o es n o ti n cl u d e t h e s up p o rt i n g d o cu m en t s t h at h e s ub m it t edwi t h th e Fo rm 2 1 1 , th atco n t en t i o n i s b el i edb y th e W BO wo rk

p ap ers i n tro du cedi n s up po rto f res p o nd en t ’ s m o t i o n , wh i ch refl ectco n s i derat i o n o f t h e at t ach m en t s t o th e Fo rm 2 1 1 . If M r. Fran t z i s i n s t eado b s erv i n g t h at res p on d en t d i dn o ti n t ro du ce t h e s up po rt i n g d o cu m en t s i n co n nect io n wi t h th e m ot i o n fo r s u m m ary ju d g m en t , h e i s co rrect --res p on d en td o es n o tth i n kth em

m at eri al . W e n on et h el es s co ns i d er s u ch d o cu m en t s i n t h e l i g h t m o stfav o rab le t o h i m , as fu rt h er d es cri b eds up ra n ot e 3
.- 1 2 -

[* 1 2 ] See Co h env . Co m

m i ss i o n er, 1 3 9 T.C. 2 9 9 , 3 0 2 (2 0 1 2 ), aff’ d , 5 5 0 F. Ap p ’ x 1 0 (D.C. Ci r. 2 0 1 4 ); s ee al s o Peral es v . Co m m i s s io n er, T.C. M em o . 2 0 1 8 -1 7 7 , at* 6
. Sect io n 7 6 2 3 (b )(4 ) g ran t s u s juri s di ct i o n t o rev i ew an y d et erm i n at io n reg ard i n g s u ch an award , i n cl u d i n g reject i o n s an dd en i al s . See Laceyv . Co m m i s s i o n er, 1 5 3 T.C. 1 4 6 , 1 6 9 (2 0 1 9); s ee al s o Co o per v . Co m m i s s io n er, 1 3 5 T.C. 7 0 , 7 5 -7 6 (2 01 0 ). Al t h o u g h we h av e ju ri s d i ct i o n t o rev i ew d et erm i n at i o n s , we d o n o th av e au t h o ri t y t o o rd er t h e IRS t o co m

m en ce an ad m i ni s t rat i v e o r ju d i ci al act i o n , o r t o rev iew t h e IRS’ d et erm i n at i on o f t h e al l eg ed t ax l iab i li t y t o wh i ch a wh i s t leb l o wer’ s cl ai m p ert ai n s . See Lacey v . Co m m i s s io n er, 1 5 3 T.C. at1 6 6 ; s ee al s o Co h en v . Co m m i s s i o n er, 1 39 T.C. at3 0 2 (ci t i n g Co op er v . Co m m i s s i o n er, 1 3 6 T.C. 5 9 7 , 6 0 0 (2 0 1 1)). Th i s cas e i nv o l v es two d i s t i n ctty p es o f d et erm i n at i o n s --reject i o n s an d d en ial s --an dwe d es cri b e each i n tu rn . A. Reject i o n Co n gres s h as en t ru s t edt o the W BO t he i ni t i al ev al u at i o n o f wh i s t l eb l o wer cl ai m s t o d et erm i n e wh et h er t h ey s at i s fy th e m i n i m

u m s t an dard s fo r an award
. 1 1

1 1 As we o bs erv ed i n Cl i n e v . Co m m i s si on er, T.C. M em o . 2 02 0 -3 5 , at* 5 n .3 , t h e cl ai m ev al uat i o n fu n ct i o n o f t h e W BO--wh i ch i n cl u d es cl ai m i n t ak e, (co n ti n u ed ...)- 1 3 -

[* 1 3 ] See Tax Rel i ef an dHeal t h Care Act o f 2 0 0 6 , Pub . L. No . 1 0 9 -4 3 2 , s ec. 4 0 6(b )(1 )(B), 1 2 0 St at . at2 9 6 0 (p ro v i d i n g th atth e W BO “ sh al l an al y ze i n fo rm at i o n recei v edfro m an y i n d i v i du al * * * an dei th er i nv es t i g at e th e m at t er i t sel f o r as si g n i tt o t h e ap p ro p ri at e In tern al Rev en u e Serv i ce o ffi ce”); s ee al s o
s ec. 3 0 1.7 6 2 3 -1 (c)(4 ), Pro ced . & Ad m i n . Reg s . Su ch i n i t i al ev al u at i o n t ak es p l ace b efo re an y

referral t o an IRS o p erat i n g d iv i si o n fo r th e d eci si o n wh et h er t o i n v es t i g at e t h e t arg ett ax p ay er. See Laceyv . Co m m is s i o n er, 1 53 T.C. at1 6 2 -1 6 3 ;
s ee al so Al b er v . Co m

m is s i o n er, T.C. M em o . 2 0 2 0 -2 0 , at* 7
. Wh en p erfo rm i n g i t s t h res h o l dev al u at i o n, t he W BO co n s i d ers wh et h er t he cl ai m : (1 ) co n t ai n s s p eci fi c, cred i b l e, an dn o ns p ecu lat i v e i nfo rm at i o n t h atth e wh i st l eb l o wer b el i ev es wi l l l eadt o co l l ect edt ax p ro ceed s , (2 ) rep o rt s fai l u re t o
co m p l y wi t h th e i n t ern al rev en u e l aws an d i den t i fi es th e p ers o n (s ) b el i ev edt o h av e fai l edt o co m

p l y wi t h th e i n t ern al rev en u e l aws , an d(3 ) p ro vi d es s ub s t an t i v e i n fo rm at i o n i n s upp o rt o f t h e wh i s t l eb l o wer’ s al l eg at io n s, i n cl u d in g al l av ai l ab l e d o cu m en t at i o n . See s ec. 3 0 1 .7 6 2 3 -1 (c)(1 ), (4 ), Pro ced . & Ad m i n . Reg s .; s ee al s o Laceyv . Co m

m i s s i on er, 1 5 3 T.C. at1 6 0 . As rel ev an t h ere, a cl ai m i s co ns i d ered

1 1 (...co n t i nu ed ) m o ni t o ri n g , an daward s p ro ces s i n g --h as recen t l y b een real i g n eds u ch th atth e o p erat i o n o f t h i s fu n ct i o n i s n ow s h aredb y th e Sm al l Bu si n es s / Sel f-Em p l o y ed d i v i s i on , wh i ch i s an o p erat i n g d i v i s i o n o f t h e IRS. See IRM p t . 1 .1 .2 6 .1 .3 .5 (J an . 1 1 , 2 0 1 8 ).- 1 4 -

[* 1 4 ] p u rel y

s p ecu l at i v e i f i tl ack s an y b as i s o r s up p o rtfo r t h e al l eg at i o n s. See Laceyv . Co m

m i s s i on er, 1 5 3 T.C. at1 6 1
. Th e W BO m ay

rejecta cl ai m o u t ri g h ti n i t s i n it i al ev al u at io n i f i t d et erm i n es t h atth e cl ai m

d o es n otm eetth e fo reg oi n g cri t eri a. 1 2 See s ecs . 3 0 1.7 6 2 3 -1 (c)(4 ), 3 0 1 .7 6 2 3 -3 (b )(3 ), Pro ced . & Ad m i n . Reg s . ; s ee al s o Laceyv . Co m m is si o n er, 1 5 3 T.C. at1 6 1 . “ Areject i o n i s a d et erm in at i o n th atrel at es s o l el y t o t h e wh i s t l eb l o wer
an d t h e i n fo rm at i o n o n th e face o f t h e cl ai m th atp ert ai n s t o th e wh i s t l eb l o w er.” Sec. 3 0 1.7 6 2 3 -3 (c)(7 ), Pro ced . & Ad m i n . Reg s. Sh o u ldth e W BO d et erm i ne t o rejecta cl ai m , i t m

u s t p ro v i d e t o th e wh i s t l eb l ower wri t t en n o t i ce s t at i ng th e b as i s fo r t h e reject i o n . See i d . p ara. (b )(3 ). B. Den i al A d en i al o f a cl ai m

o ccu rs wh en t h e W BO d o es n o trejectth e cl ai m i n th e t h res ho l db u tn o n et h el es s d et erm i n es n ott o g ran t an award . See i d . p ara. (c)(8 );
s ee al so Lacey

v . Co m m i s s i o n er, 1 5 3 T.C. at1 6 1-1 6 2 . “ Ad en i al i s a d et erm i n at i o n t h atrel at es t o or i m p l i cat es t ax p ay er i n fo rm at i o n . ” Sec. 3 0 1.7 6 2 3
- 3 (c)(8 ), Pro ced . & Ad m i n . Reg s . Co n s equ en t l y , as we h av e ex p l ai n ed , a d en i al i s

1 2 Bes i d es an o ut ri gh treject io n , th e W BO m ay al s o ch o os e t o n o t i fy

th e wh i st l eb l o wer o f t h e cl ai m d efi ci en cy

an dg i v e h i m

an o p p o rtun i t y

t o p erfect i t , o r i s su e t he wh i s t l eb l o wer a p rel i m i n ary reject i o n l et t er an di n v i t e h i m t o s ub m i t co m m en t s . See s ecs . 3 0 1 .7 62 3 -1 (c)(4 ), 3 01 .7 6 2 3-3 (c)(7 ), Pro ced . & Ad m i n . Reg s . Th e W BO d i d n o t em

p l o y th es e o p t i o n s i n t h e i n s t an tcas e.- 1 5 -

[* 1 5 ] m ad e aft er t h e W BO h as en g ag edi n s o m e s ub s t an t i ve co n s i d erat io n o f t h e cl ai m . See Lacey v . Co m m i s s io n er, 1 5 3 T.C. at1 6 1-1 6 2 . As i s t h e cas e fo r reject i o n s , th e W BO p ro v i d es wri t t en n o t i ce t o the wh i s t l eb l ower o f t h e d en i al o f
an y award , i n cl u d i n g th e b as is fo r t h e d en i al . See s ec. 3 0 1.7 6 2 3 -3 (c)(8 ), Pro ced
. & Ad m i n . Reg s . III. An al y s i s As ex p l ai n edp rev i o u s l y , th e W BO u l t i m at el y g en erat edth ree s ep arat e cl ai m s wi t h res p ectt o th e Fran t zes ’ Fo rm 2 1 1, wh i ch i td ecl i n edb y reject i o n (o f t h e t ru st ee cl ai m ) an db y

d en i al (o f t h e es t at e cl ai m an dth e an ci l larycl ai m ). No n e
o f t h es e d et erm i n at i o n s was an ab u s e o f d i s cret io n . A. Reject i o n o f t h e Tru s t ee Cl ai m Th e reco rdb efo re u s s h o ws th atth e W BO cl as s i fi ers ev al u at edth e Fran t zes ’ cl ai m as i trel at edt o th e t ru s t ee an dco ns i d ered i t s al l eg at i o ns . Duri n g h i s
co n si d erat io n , th e s eco n dcl as s i fi er o b s erv edthat“ [n ] o t ax i s s u e [was ] s t at edo r i d en t i fi ed ” an dthatthe t ru s t ee cl ai m i n cl u d ed“ [n ] o s p eci fi c an d cred i b le i n fo rm at i o n ab o uta fed eral t ax i s s u e o r n o n-co m p l i an ce”. Th e u l t i m at e d et erm i n at i o n ech o edth es e o b s erv at i o ns , wi t h t h e W BO reject i n g the cl ai m b ecau s e “ t he i nfo rm at io n p ro v i d edwas s p ecu l at iv e an d/ o r d idn o t p ro v i d e s p eci fi c- 1 6 -

[* 1 6 ] o r cred i b l e i n fo rm at i o n reg ard i n g t ax u n d erp aym en t s o r v i o lat i o n s o f i n t ern al rev en u e l aws .” 1 3 In rev iewi n g the W BO’ s reject i o n we d o n o ts ub st i tu t e o u r ju d g m en tfo r t h at
o f t h e W BO. W e i n st ead rev i ew o nl y fo r ab u s e o f d i s cret i o n . As an i n it i al m at t er, i n d eci d i n g n ott o fo rwardthe cl ai m fo r an y fu rt h er i nv es t i g at io n b y

an IRS
o p erat i n g d i v i s i o n , th e W BO p l ai n l y p erfo rm ed i t s ev al u at i v e fu n ct i o n . M o reo v er, t h e W BO’ s g ro u n d s i n s upp o rto f i t s d et erm i n at i o n t o rejectth e t ru s t ee cl ai m --t h atth e Fran t zes fai l ed t o p ro v i de s p eci fi c o r cred i b l e i n fo rm at i o n reg ard i n g t ax u n d erp aym en t s o r v i o l at io n s o f i n tern al rev en u e l aws --d o n o tap p ear t o l acka s o u n db as i s i n facto r l aw. Th e Fo rm 2 1 1 d i dn o tp ro vi d e o n i ts face i n fo rm at i o n ab o utt ax v i o l at i o n s o r u n d erp aym en t s o f t h e t ru s t ee b u ti n s t ead b ro ad l y al l eg ed “ t ax frau d ” o n t h e g ro u n dth atth e tru s t ee p ro v i d eda “ fal s e” 2 0 1 6
es t at e t ax retu rn t h at i n cl u d ed“ n o K-1 s s t at i n g that$ -0 - t ax es du e.”

1 3 W e h av e p rev i ou s l y

n o t edth atth e u s e o f t h i s “ an d/o r” fo rm u l at i o n o ft en m ak es i th ardt o d is cern t h e W BO’ s reas o ni n g, t hu s co m p l i cat i n g o u r rev i ew o r m ak i n g i t i m

p o ss ib l e al t o g et her. See, e.g
. , Lacey v . Co m m i s s i o n er, 1 53 T.C. 1 4 6 , 1 7 0 (2 01 9 ); Al b er v . Co m m i s s i o n er, at* 8 n . 5
. Inth i s cas e, h o wev er, t h e s eco n d cl as s ifi er ex pl ici t l y

p rem i s edh i s reject i o n reco m m en d at io n o n t h e co n cl u s i o n th at t h e Fran t zes h adp ro v id ed“ [n ] o s p eci fi c an d cred ib l e i nfo rm at i o n ab ou ta fed eral t ax i s s ue o r n o n-co m

p l i an ce”, a p o i n tl i k ewi se ad o p t edi n th e ARM . W e acco rd i n g l y

wi l l rev i ew wh et h er reject i on u n d er th atrat io n al e co n st i tu t ed an ab u s e o f d i s cret i o n .- 1 7 -

[* 1 7 ] Th e Fran t zes d i ds up p o rtth e Fo rm 2 1 1 wi t h a v o l um i n o us draftam en d ed 2 0 1 7 t ax retu rn s h o wi n g a s i g n i fi can tt ax l i ab i li t y . Bu t t h e v al u e o f t h i s retu rn was
s i gn i fi can t l y

d im i n i s hedb y

a l et t er (al s o at t ach edt o th e Fo rm 2 11 ) fro m

the C.P.A. wh o p rep aredth e am en d edretu rn . Th e C.P.A. cl ari fi edth atth e “ es t i m at ed 2 0 1 7 i nco m e t ax retu rn [was ] b as edo n i n fo rm at io n * * * [t h e Fran t zes ] h av e p ro v id edu s ” an dwarn edthat“ [t ] h i s retu rn s h o ul dn otb e fi l ed u n der an y ci rcu m s t an ce.” W e t h u s h o l dth atthe W BO d idn o tab us e i t s d is cret i o n wh en i treject edthe t ru s t ee cl ai m , an dwe wi l l g ran ts u m m ary ju d g m en tt o res p o nd en t as t o th i s cl ai m . B. Den i al o f t he Es t at e Cl ai m an dth e An ci l laryCl ai m W e l i k ewi s e s ee n o ab u se o f d i s cret i o n i n th e d en i al o f t h e es t at e cl ai m an d t h e an ci l l ary

cl ai m . Th e reco rdb efo re u s es t ab l i s h es th at t h e cl as si fi cat i o n fu n ct i o n o f t h e W BO ev al u at edth e es t at e cl ai m an d t h e an ci ll ary

cl ai m , co n si d eri n g th em

i n l i g h to f t h e ap p l i cab l e t ax rep o rt i n g an di n fo rm at i o n d eri v ed fro m th e IRS’ i n fo rm at i o n retu rn s p ro ces s i n g s y st em . Th e W BO co n cl u d edth at : (1 ) t h e es t at e cl ai m

i nv o l v edan am o u n tth atd i dn otwarran t an ex am in at i o n o f t h e b an krup t cy

es t at e an d(2 ) t he an ci l l ary cl ai m rev eal edn o al l eg edo r i d en t i fi ed
v i o l at i o n s i n th e Fran t zes ’ o wnt ax rep o rt i n g. Th e W BO acco rd i n g ly d idn o trefer t h es e cl ai m s t o an y IRS o p erat in g d iv i s i o n , an dthe IRS n ei t h er co m m en cedan y- 1 8 -

[* 1 8 ] act i o n ag ai n s t , n o r co ll ect ed an y p ro ceed s fro m , a t ax p ay er as a res u l to f t he i n fo rm at i o n th e Fran tzes s up p l i ed . M r. Fran t z d o es n otco n t es tth es e p o in t s . Ev en as s u m i n g th atth e t ru s t ee i m p ro p erl y o m i t t edi n co m e o n th e b an krup t cy

es t at e’ s t ax retu rn s , we s ee n o ab u s e o f d i s cret i o n i n th e d en i al o f t h es e cl ai m s wh ere t h ere was n o ad m i n i s t rat i v e o r ju d i ci al act i o n t ak en an d n o p ro ceed s
co l l ect edo n th e b as i s o f t h e i n fo rm at io n thatth e Fran t zes p ro v i d ed . Th e W BO reci ted i n i ts n o t i ce t h at“ th e i nfo rm at i on * * * [t h e Fran tzes ] p ro v i d edd i d n o t
res u l t i n th e co l l ect i o n o f an y p ro ceed s ”, an dthi s g ro u n d was s u ffi ci en t ju s t ifi cat i o n t o d en y th e cl ai m s . See Kas per v . Co m m i s s i o n er, 1 5 0 T.C. at2 7 -2 8
. Ag ai n , we wi l l g ran t s umm ary ju d g m en tt o res p o n d en tas t o th es e two cl ai m s . C. M r. Fran t z’ Co n t en t i o n s M r. Fran t z arg u es th atth e W BO ab us edi t s d i s cret i o n b y fai li n g t o l au n ch a t h o ro u g h i n v es t i g at i o n i n t o t h e Fran t zes ’ cl ai m s an das k s u s t o d i rect th e IRS t o d o
s o . W e h av e n o au t h ori ty t o rev i ew t h e IRS’ d eci s i o n n o t t o acto n the Fran t zes ’ al l eg at i o n s --t h atd eci s i o n i s res erv edt o th e d is cret i o n o f t h e IRS. See, e.g ., Lacey
v . Co m m i s s i o n er, 1 5 3 T.C. at1 6 3 (“ [S] ect i o n 7 6 2 3 (b ) d o es n o tco nv ertth e Tax Co u rti n t o an o v ers eer o f t h e IRS’ s au d i tan dco l lect i o n act iv i t y .”); Kas p er v . Co m m i s s i o n er, 1 5 0 T.C. at2 0 (“ Th e ques t i o n b efo re u s i s al so wh eth er t h e IRS
co l l ect edp ro ceed s as th e res u l to f an ad m i n i s trat i v e o r ju di ci al act i o n u s in g th e- 1 9 -

[* 1 9 ] wh i s t l eb lo wer’ s i n fo rm at i o n , n o t wh et h er i tco u l dh av e o r s h o u l dh av e.”);
s ee al so Co h en v . Co m

m i s s i o n er, 1 3 9 T.C. at3 0 2 -3 0 4; Co op er v . Co m m i ss i o n er, 1 3 6 T.C. at6 01 . An ds ect i o n 7 6 2 3 (b )(4 ) d o es n o tem p o wer u s t o req u ire fu rt h er ad m i n is t rat i v e o r ju d ici al act i o n . See Co h env . Co m m i s si o n er, 1 3 9 T.C. at3 0 2
. IV. Co n cl u si o n Fi n d i n g n o ab u s e o f d i s cret i o n i n t h e W BO’ s d et erm in at i o n s wi t h res p ect t o t h e Fran t zes ’ wh i st l eb l o wer cl ai m s, we wi l l g ran tres po n d en t’ s m ot io n fo r
s u m m ary ju d g m en tan dd en y

M r. Fran tz’ m o ti o n . To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er an dd eci s i o n wi l l b e en t ered
.