TAX COURT OPINION

Case: William Prentice Cooper, III
Docket Number: 24178-09W
Judge: Kroupa
Opinion Type: reported
Filed: 07/08/2010
Pages: 12

UNITED STATES-TAX-COURT WILLIAM PRENTICE COOPER,,I*II, Petitioner v . COMMISSIONER OF INTERNAL REVENUE,, Responden t Docket Nos . 24178-09W, 24179-09W, . Filed July 8, 2010 . P filed two claims for a whistleblower award with . 7623(b)(4), I . R .-C . R sent a letter to P R under 'sec . denying the claims because an award determination could not-be made under'- sec . 7623(b), I .R . C . P subsequently filed petitions in this Court seeking review of R' s denial of the whistleblower claims - R'filed motions to dismiss these cases for lack of jurisdiction on the ground that no determination'notice under sec . 7623(b) I .R,C ., was sent to P, to which P objected that the letter R sent was .a valid determination notice . Held : R's letter .was a determination conferring . jurisdiction on this Court . We shall=therefore deny R's motions to dismiss for lack of jurisdiction . Joseph G . Giannola and Robert J .~Mauceri ,for petitioner . Holly H . Styles and Alex Shlivko ,, for respondent .. SERVED 8 2010 OPINIO N KROUPA, Judge : These cases are . before the Court on respondent's motions to dismiss for . lack of jurisdiction . decide for the first time whether 'a letter sent by respondent to petitioner denying petitioner's whistleblower claims constitute s "determination" within the meaning of section .7623(b)(4)1 tha t confer on us jurisdiction to review denial of the claim s We find that the letter . was„.a,determination and that we therefore have jurisdiction . Background The following information is stated for purposes o f resolving the pending motions .. At the time of filing the petitions, petitioner resided in Nashville, Tennessee . Petitioner, an attorney, submitted two Forms 211 , Application for,Award for original Information, tothe Interna l RevenueService,(IRS) in 2008 concerning alleged violations-, o the Code . He alleged in the two claims that certain parties ha d failed-'to pay millions,of dollars in estate and generation . kipping transfer tax : Petitioner alleged in one claim that,a trust havin g .$102 million in assets .was-improperly, omitted from the gros s ( estate of Dorothy Dillon Eweson (Ms . Eweson ), resulting in a 'All section and Code references-are to the Interna l Code unless otherwise indicated . possible . .>.$75 million underpayment in "Federal estate tax . learned of the alleged omission by r'presenting, ' the widow of Ms . Eweson's grandson, who is also-the . guardian of a purporte d beneficiary of the trust . He also verified the information by examining the .public records and therecords .of his client . Petitioner alleged in the other°claim that Ms . Eweson impermissibly modified .two -trusts :as 'part of a scheme'to-avoid " the generation-skipping transfer tax . The trusts at issue had a combined-value of over,$200 million at the time (cid:127)of Ms . Eweson's { death in 2005 . Petitioner learned'ofthe alleged violation through his representation of the widow-.of Ms .„Eweson's grandson . He also verified the- .information by examining the-public records and the records of-his client . Petitioner submitted additiona l information-to,support the allegationrseveral months after filin g the claim He provided newly discovered filings from a New Yor k Surrogate Court proceeding in which a corporate truste e challenged the :-trust modifications asIdesigned1primarily to evad e taxation . Petitioner also provided alegal memorandum and draf t legal documents from Ms Eweson's attorneys that indicated th e trusts were modified as .part -o f a scheme to avoid the generation- skipping transfer tax . Respondent's Whistleblower Office (Whistleblower Office) notified petitioner that it had received the whistleblower claims . The Office explained that petitioner's information would be used to,determine whether to further investigate the'alleged, : violations . ; The Whistleblower Office also told petitioner that .. , he would be informed at-the conclusion of the review an d investigation whether petitioner's information met the criteria , for paying an award . The .Whistleblower Office,did_not contact, petitioner agai n until nine, months-later when the offi° ce-sent- him a Metter denyin g the claims,(the letter) . The letter,,,stated that .respondeht,~ha d considered petitioner's whistleblower claims . It .explainedrrtha t "an award determination * * * [could not] be made -under sectio n 7623 (b) , 2 because petitioner . "did not~,identify * issue [ .s]' upon which the IRS will take action . " further explained°that an award, ; was not warranted for eithe r claim because petitioner's information did not "resultrin,th e detection of the . underpayment of taxes . ." Petitioner filed two separate petitions in-this Courti n response to respondent's' denial of the whistleblower claims . Respondent, filed motions, to dismi ss-for lack of . jurisdiction an_ ; both proceedings on the ground that' no, .determination notice .had been issued to petitioner . -Petitioner, objected to . -themotions,,. -that the letter constituted^a determination conferring this Court = with jurisdiction ;under .section .7623,(b) .(4) to review respondent' s denial of the whistleblower;claims . 2The full text of sec . 7623(b) is set forth in the Appendix . Discussion We.'decide for the first-time whether respondent's lette r denying'petitioner's whistleblower claims constitutes" a "determination" that gives this Court jurisdiction : under section 7623(b)(4) . We begin,with the Tax Court's . jurisdiction . .The Tax Court is a court of limited jurisdictIonand .may exercis e jurisdiction only to the extent authorized by Congress .- Judge v . Commissioner , 88T .C . 1175, .1180-1181! (1987) ; Naftel v . '' Commissioner , 85'T .C .527, 529 (1985) . .The Tax Court is'without authority to enlarge upon that-statutory grant . ''See Phillips Petroleum Coy v . Commissioner , 92~T .C°. 885, 888 (1989) . . We nevertheless have jurisdiction to determine whether we have jurisdiction . Hambrick v ., Commissioner , 118 T .C . 348 (2002) ; Pyo v . Commissioner ; '. 83 T .C . 626,''632 (1984) Kluger v . Commissioner , 83 T .C . 309, 314 (1984) . We turn. now'to,an overview-of our jurisdiction regarding whistleblower claims . I . Overview-of- the Whistleblower Award Progra m The Secretary has(cid:127)long had the discretion to pay awards t o persons providing information that aids in ('1) detecting underpayments of tax and (2) detecting and bringing to . trial an d punishment persons guilty of violating the internal revenue laws . Sec .. 7623(a) . .', . The,,discretionary whistleblower awards have been arbitrary and inconsistent, however, because,of a lack of , standardized(cid:127)procedures and limited managerial oversight . . See Treasury Inspector General for Tax Administration Rept . 2006-30- . 092, The~Informants' Rewards,Program Needs More , Centralize d Management Oversight . (June 2006) . -- .n. It , took an average of ;7% .year s forFaAdiscretionary award to .be :_paid and an-average of-6% months for a claim to be rejected . Id . at .8-9 . Moreover, most rejecte d claims did not provide-the rationale for the reviewer's decisio n because of concerns about , disclosing„confidential return information to the whistleblower .. Id . at 7 . Congress .enacted legislation in 2006ato address perceive d problems with ._the discretionary award .regime (the 200 6 legislation) . Tax,Relief and Health .Care,Act .of 2006-(TRHCA) ., Pub . L . 109-432, div . A ;, ;sec 406 ,- 120 Stat ., 2958 (effective,;Dec . the Secretary to pay nondiscretionary whistleblower awards and t o provide this-Court with .jurisdiction to review such awards . , whistleblower is now entitled to .a minimum nondiscretionary percent of the collected .proceeds if the Commissioner, . proceeds with administrative,or, .judicial action using informatio n provided in a-: whistleblower claim .3 Sec .- 7623 (b) (1)_ The 3The award is reduced in certain circumstances . Fo r example, the award is reduced where the whistleblower .planned or . initiated the actions-that led to the underpayment of tax . Sec . 7623(b)(2) and (3) . Furthermore, an award is available only i f the taxpayer had gross income exceeding $200,000 for ' any' year at issue and if the amount in dispute (including tax, penalties , additions to. tax and additional-amounts) exceeds '$2 million . , Sec . 7623(b)(5) 120 Stat . 2960 . whistleblower has .30 days from the issuance of a . non- discretionary award determination to :file°a petition in this Court . Sec . 7623 (b) (4 ) .The 2006 legislation also directed, the Secretary to issue guidance for, the . operation of a Whistleblower .Office administere d by the IRS .4 . TRHCA sec . 406(b)(1) 120.Stat . 2959 . Th e WhistleblowerOffice is responsible for reviewing submitted whistleblower claims or assigning them to-the appropriate-IRS office for review . Id . sec . 406(b) (1) (B) , 120 Stat . 2960 . Th e office-is authorized to seekwadditional . :assistance from the whistleblower if necessary . Id . sec .' 406(b) (1) (C) (2) . .,The Commissioner issued :guidance-.to .taxpayers on,filing nondiscretionary whistleblower award claims in-early 2008 . See Notice 2008-4, 2008-1 C .B . 253 . Whistleblowers must fully- complete and .. submit a Form 2'11 . : :_ Id . sec . 3 .02, 20.08-1 C .B ., at 254 . The Whistleblower Office will acknowledge receipt of the claim in writing . Id . sec . 3 .05, 2008-1 C .B . :-at 255 . The Whistleblower'Office will send correspondence to the whistleblower .once a final determination .regarding the claim has . been made . > Id . sec . . 3 :11,' .2008=1-,C .B at 256, Final Whistleblower Office determinations regarding awards may b e 4The 2006 legislation also requires the Secretary to provide an annual report to Congress on whistleblower claims filed-and y awards issued under sec .'7623' . . Tax Relief and Health Care-Act of 2006, Pub .- L . 109-432, div . A, sec .' .406(c), 120 Stat .(cid:127)2960 appealed . to this Court . Id . Awards will not be paid-, however ; until,-there is a final ..;. determination of the . tax(cid:127) liability and th e amounts owed are collected . Id . sec . 3 .08,°2008-1°C .B' . at 255 . . . The Commissioner also issued procedural guidance on ho w whistleblower claims will .be'processed . See Internal'' Revenu e Manual (IRM) " pt . 25 .2 .2 (Dec .' 30, - ,2008) .5 In general , whistleblower : claims will be,denied where the : information provided , does 'not . .(a) identify a , Federal 'tax issue upon which - the . IRS ; will ".act ; (b) result ' in -the : detection of an underpayment-of taxes; .or .(c) result""in the collection of proceeds . ;See id . .pt . 25 .2 .2 .12 ( 2) . The whistleblower ..will be notified ,, by' th e Whistleblower Office once-an award decision has been made . id . pt . .25 .2 .2 .5(13) .~ II . Analysi s We must now decide . whether .;resporndent'_s letter constituted .a determination ,under section,7623 (b) '(4) . Respondent argues ' that : :. .there was-no award . .determination ;because petitioner's-information. was not used to detect . underpayments of tax .or to collec t proceeds .,, Respondent argues that°. there can be a,determinatio n for jurisdictional purposes only if the Whistleblower Offic e undertakes an„administrative-or,judicial action and thereafter .., "determines " to make an award . Respondent incorrectly interpret s SIRM pt . 25 .2' .2 was updatedon June 18, 2010, to provid e additional guidance for evaluating a= .whistleblower claim . °x section 7623(b)(4) . The statute expressly permits an .individual to seek judicial review in this Court of the,amount or denial of an award-determination . See Staff of Joint Comm . on Taxation, Technical' Explanation of H .R . 6408 ; . .The "Tax Relief and Health Care Act of 2006", . at 89(J . Comm . Print2006) ("The provisio n permits an individual to appeal the amount or .a denial of an award determination to the . United . States -Tax Court * * within 30 days of such determination ) . Acjcordingy , . we find that our jurisdiction - is not limited . to the amount ,of an award - determination but includes any determination to°deny - an award ... Respondent further contends that the letter was not a determination because it was not labeled a determination : find"the labeling not dispositive . We have held that the name or label of a document does not control whether the document constitutes a determination . See Wilson v . Commissioner , 13 1 T .C . 4'7 .(2008) . Moreover, we have held in other contexts-that our jurisdiction' is established when the_ Commissioner issues a written notice that embodies a determination . Craig v . Commissioner , -119 „ .T .C . 252 (2002) (a form decision letter °issued after an "equivalent hearing" constituted a(cid:127) "determination" . conferring jurisdiction,- .under"section ;6330 (d) (l-) ) ; ;r 'Lunsford v . ' Commissioner , 117 T .C . 159, . 164 (2001) ; ( a written notice t o proceed with the collection action constitutes a determination) ; Offiler v . Commissioner , 114 T .C . 492, ; 498 ( 2000) (a - '10 - determination notice is the .jurisdictional equivalent of, a deficiency notice pursuant to :section 6212 ) Respondent's letter was issued in .accordance .with the,,award determination procedures . These procedures wer.e(cid:127)established-in , the IRM and Notice 2008-4 . Respondent issued the letter to , petitioner after receiving and reviewing the whistleblower, ., claims . Respondent issued the ..letter .to petitioner after .. severa l months of investigating whether to"pursue the ;claims .- :The letter. states respondent ' s ,final, conclusion ,;that petitioner is not, ;, entitled to-an award and,provides ..an explanation for . thi s conclusion . -Moreover, respondent' ,s reasons for .. denying th e are taken verbatim from .the,'IRM'list of'-possible . reason s denying claims See-IRM sec . 25 .2 .2 .12(2) . There i s that the letter put-Mr : Cooper on sufficient notice t o petition with this, Court as' he did . so .timely Respondent' s letter-is,,therefore a , determination because it constitutes'a : final: :administrative decision regarding petitioner' s whistleblower claims in accordance with :the establishe d procedures Accordingly, we find%that we have jurisdiction . to review-the denial of the claims . , For the foregoing reasons,, we shall deny respondent's=, . , motions to dismiss ., Appropriate orders will . be issued . -SEC . 7623(b), .: Awards to Whistleblowers .-- (1) '. ,In,°general = -If the Secretary , proceeds ' wit h any administrative or judicial action described-i n subsection (a) :based on ,information : brought to theSecretary ' s, attention by .an .individual' such-individual shall ,- : subject - to paragraph ( 2),"receive as an award at least 15 percent but collected proceeds * * * resulting from-the action .* ;* . * or from any . settlement in response to such action . The determination °of the amount bf ; :such award by'the Whistleblower Office shal'1 _ depend ...upon the -extent :to which theindividual 'substantially contributed to 'suc h action :' not more than '30 'percent of, the .- (2) . Award in case of less- substantia l contribution .- (A) In general . -'In the event the action -described in paragraph (1)'-scone .which the Whstleblower .Office determines to be based - principally",on :disclosures of,specific ;-allegations (other than information provided by the individua l described in paragraph .(1))resulting from a judicial or administrative hearing, from a - governmental_ report',- hearing, audit, or investigation, or from the news medi'a ; .th e Whistleblower Office may award such sums as i t considers . appropriate, but in :no case,more'than 1 0 percent of the collected proceeds (includin g penalties, interest, additions"to°tax, and additional-amounts) ,, resultirig~from 'the . action (including ;any related actions) or from-any settlement in response to such action,, taking into account the significance of{theindividual's information and the role ofsuch individual and any legal' representative of Isuch individual in contributing to such action . (B) Nonapplicati'on'-off paragraph" wher e .individual is-original source of information .- Subparagraph=(A) shall not apply if the- informatio n resulting in the initiation of the action described in paragraph ( 1) .was originally provided by the individua l described in paragraph (1) . (3) Reduction in or denial of award .--If"the Whistleblower-Office determines :.that .the claim for an award under paragraph (1) or~(2) is brought by an individual who .planned and initiated . the actions tha t led to the underpayment of tax . or actions described i n subsection . ( a) (2) , then ther..Whistleblower Office ma y appropriately reduce such award . If such individual i s convicted of ,criminal conduct arising from the role ; described in the preceding sentence, the Whistleblower' . Office shall deny any award .. .(4)-. .Appeal of award determination ..-An y determination regarding an award under paragraph (1) , (2 ) . , or (3) -may, within 30 days ';of such determination, , be appealed to the Tax Court (and the Tax Court shal l have jurisdiction with respect to such matter) . (5) Application of this subsection .- This-subsection : } shall apply with respect to any actio n r(A) ;,against any taxpayer, but in the-case of any . individual, only if such individual' s gross income exceeds°$200,000'for any ,taxable--year subject t o such action,,: and ' (B) if the tax, penalties, interest, addition s to tax, and additional amounts in dispute excee d $2,000,000 . ,,(.6) Additional, rules ., ; (A) No contract necessary ., No contract wit h Internal Revenue-Service is necessary for any individual to receive an award . under this subsection . (B) Representation . . Any, ind"ividual .described i n paragraph (1) or . (2) may be,represented by .counsel . (C) .Submission of information . No award""may b e made under-this subsection based on informatio n submitted to the Secretary unless such -is(cid:127)submitted under penalty .of perjury .