Court Opinion

ID: 9384411
Source: CourtListenerOpinion
Date Created: 2023-04-03 19:01:25.030328+00
Date Added: 2024-06-11T17:17:53.331869
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-45

                        WHISTLEBLOWER 9252-18W,
                               Petitioner

                                          v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                    —————

Docket No. 9252-18W.                                           Filed April 3, 2023.

                                    —————

T. Scott Tufts, for petitioner.

John T. Arthur and Kimberly A. Daigle, for respondent.

                          MEMORANDUM OPINION

       LAUBER, Judge: In this whistleblower award case, the Internal
Revenue Service (IRS or respondent) has filed a Motion to Dismiss for
Lack of Jurisdiction. Respondent first contends that the information on
which petitioner’s claims are based was provided to the IRS before the
enactment of section 7623(b), which supplies the predicate for our juris-
diction. See § 7623(b)(4). 1 In any event, respondent contends that the
IRS Whistleblower Office did not “proceed[] with any administrative or
judicial action” on the basis of petitioner’s information, see § 7623(b)(1),
and hence that dismissal is required under Li v. Commissioner, 22 F.4th
1014 (D.C. Cir. 2022). Agreeing with respondent in both respects, we
will grant his Motion.

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

nue Code, Title 26 U.S.C., in effect at all relevant times.

                                 Served 04/03/23
                                        2

[*2]                              Background

       The following facts are derived from the parties’ pleadings and
Motion papers, the Declarations and Exhibits attached thereto, and
findings of fact made by the U.S. Court of Federal Claims in related lit-
igation commenced by petitioner. See infra pp. 2–3.

       In March 2018 petitioner filed with the IRS Whistleblower Office
more than 200 claims for award. These claims, each relating to a specific
restaurant, recounted information that petitioner had supplied, many
years previously, as an informant to the IRS Criminal Investigation Di-
vision (CI). Beginning in 2000 and continuing through 2005, petitioner
brought to the IRS’s attention information about alleged underreporting
of gross receipts (commonly called “skimming”) by fast food restaurants
connected with Target, a franchisor. In February 2002 petitioner and
the IRS executed a Confidential Informant Reward Agreement (CIRA).
The parties thereby agreed that, if tax liabilities were collected on the
basis of petitioner’s information, the IRS would pay him a specified per-
centage of the recovery. 2 When executing the CIRA petitioner waived
the right to file a claim for award on Form 211, Application for Award
for Original Information.

        In August 2007 CI initiated, on the basis of petitioner’s infor-
mation, an undercover investigation of Target. Evaluating information
obtained from the ensuing undercover meetings and from tax returns
filed by the relevant businesses, CI found no evidence to corroborate pe-
titioner’s allegations. In September 2007 a CI officer completed Form
13308, Criminal Investigation Closing Report, discontinuing the inves-
tigation. The IRS civil examination function was notified of the case,
but it initiated no civil examination of Target or any business related to
him. The IRS therefore declined to pay petitioner a CIRA reward.

       In 2011 petitioner commenced suit in the U.S. Court of Federal
Claims based on the CIRA, asserting three causes of action: (1) antici-
patory repudiation; (2) breach of duty of good faith and fair dealing; and
(3) a request for an accounting. The litigation lasted six years and gen-
erated three opinions addressing discovery disputes. See Confidential
Informant 59-05071 v. United States, No. 11-153C, 2016 WL 3960442
(Fed. Cl. July 21, 2016); Confidential Informant 59-05071 v. United

       2 In May 2005 petitioner and the IRS executed an amendment to the CIRA that

extended through December 31, 2005, the period during which he could supply infor-
mation potentially leading to a reward.
                                    3

[*3] States, 121 Fed. Cl. 36 (2015); Confidential Informant 59-05071 v.
United States, 108 Fed. Cl. 121 (2012). In one of those opinions the court
found that, “[a]t the time that [petitioner] provided information to the
IRS, . . . the provision of an award under section 7623 was entirely dis-
cretionary.” Confidential Informant 59-05071, 121 Fed. Cl. at 40.

       On October 16, 2017, the Court of Federal Claims ruled in the
Government’s favor in all respects, granting it summary judgment on
the first two causes of action and dismissing the third. See Confidential
Informant 59-05071 v. United States, 134 Fed. Cl. 698 (2017), aff’d, 745
F. App’x 166 (Fed. Cir. 2018). The court held (among other things) that
the IRS commenced no civil examination of any taxpayer on the basis of
the information petitioner had supplied. That decision was affirmed on
appeal. See Confidential Informant 59-05071, 745 F. App’x at 166.

       On March 6, 2018, shortly after the Court of Federal Claims ren-
dered its decision adverse to him, petitioner filed the Forms 211 at issue
in this case. These claims reiterate the information he had previously
supplied to CI, alleging skimming of gross receipts by 200+ restaurants
allegedly connected with Target.

       The Whistleblower Office acknowledged receipt of petitioner’s
claims and sent them to a “classifier” in the Small Business/Self-Em-
ployed (SB/SE) operating division. The role of a classifier is to “deter-
mine whether the information should be forwarded for further review.
Those claims that are not forwarded for further review can be rejected
or denied based on [the classifier’s] rationale for not forwarding the
claim.” Internal Revenue Manual 25.2.1.3.1 (May 28, 2020) (explaining
the “roles and responsibility of classification”).

        The SB/SE classifier recommended that petitioner’s claims be re-
jected. These recommendations were set forth in an Award Recommen-
dation Memorandum that was completed in April 2018. The classifier
listed each of petitioner’s 200+ claims restaurant by restaurant. In each
case petitioner’s allegation was that “[Target] is skimming cash off sales
and not reporting the income.” The classifier’s recommendation in each
case was to “Reject the Claim: Allegations are not specific, credible, or
are speculative.” The classifier’s rationale in each case was that the “in-
formation refers to a prior claim” submitted by petitioner, that the “prior
claim [was] rejected by CI,” and that “no new substantial information
. . . nor evidence of underreported income was submitted.”
                                    4

[*4] The Whistleblower Office agreed with the classifier’s recommen-
dations, and petitioner’s claims were not forwarded to any IRS exami-
nation team. On April 13, 2018, the Whistleblower Office issued peti-
tioner a Final Decision letter rejecting his claims. This letter explained
that each claim “has been rejected because the information provided was
speculative and/or did not provide specific or credible information re-
garding tax underpayments or violations of internal revenue laws.” On
May 11, 2018, petitioner timely petitioned this Court for review of that
determination.

                               Discussion

       The Tax Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. Judge v. Com-
missioner, 88 T.C. 1175, 1180–81 (1987); Naftel v. Commissioner, 85 T.C.
527, 529 (1985). Our jurisdiction in whistleblower award cases is de-
fined by section 7623(b)(4). It provides that “[a]ny determination re-
garding an award under paragraph (1), (2), or (3) [of subsection (b)] may,
within 30 days of such determination, be appealed to the Tax Court (and
the Tax Court shall have jurisdiction with respect to such matter).” By
its terms, the statute gives us jurisdiction only over determinations
made under section 7623(b), which authorizes the IRS to make non-
discretionary awards.

       Section 7623(b) was enacted as part of the Tax Relief and Health
Care Act of 2006 (TRHCA), Pub. L. No. 109-432, § 406(a)(1)(D), 120 Stat.
2922, 2958–59. The TRHCA was enacted on December 20, 2006. The
“effective date” provision for section 7623(b) states that it applies only
with respect to “information provided on or after the date of the enact-
ment of this Act.” TRHCA § 406(d), 120 Stat. at 2960. We have accord-
ingly held that we lack jurisdiction to review IRS determinations regard-
ing claims where the information on which the claims are based was
submitted to the IRS before December 20, 2006. See Whistleblower
19860-15W v. Commissioner, T.C. Memo. 2017-112, 113 T.C.M. (CCH)
1500, 1503; Wolf v. Commissioner, T.C. Memo. 2007-133, 93 T.C.M.
(CCH) 1273, 1274. On the other hand, we have held that jurisdiction
may exist if the IRS proceeded against a target taxpayer “using infor-
mation the whistleblower provided both before and after December 20,
2006.” Whistleblower 11332-13W v. Commissioner, 142 T.C. 396, 402
(2014).

      In this case the classifier determined that the claims at issue were
based on the same information that petitioner had submitted to CI
                                     5

[*5] during 2000–2005. That information led in February 2002 to exe-
cution of the CIRA, which was extended (via amendment in May 2005)
through December 31, 2005. Petitioner litigated his entitlement to a
CIRA reward for six years in the Court of Federal Claims. That court
rejected his arguments, ruling (among other things) that, “[a]t the time
that [he] provided information to the IRS, . . . the provision of an award
under section 7623 was entirely discretionary” because section 7623(b)
had not yet been enacted. Confidential Informant 59-05071, 121 Fed.
Cl. at 40. The classifier determined that petitioner, in the claims now
before this Court, had submitted “no new substantial information . . .
nor evidence of underreported income” in addition to the material to
which the Court of Federal Claims referred.

       Petitioner does not contend that the Forms 211 he submitted in
2018 contained any information—beyond that which he supplied to CI
before December 20, 2006—about alleged “skimming” operations at the
200+ restaurants that were the subject of his claims. Rather, he asserts
that we have jurisdiction because the information he supplied before De-
cember 20, 2006, was later “sought by the Service to be corroborated by
[CI].” Petitioner contends, in other words, that our jurisdiction depends,
not on when he supplied information to the IRS, but on when the IRS
used that information, e.g., by commencing an investigation.

       The statute’s “effective date” provision contradicts petitioner’s ar-
gument. It states unambiguously that section 7623(b) applies with re-
spect to “information provided on or after the date of the enactment of
this Act.” TRHCA § 406(d), 120 Stat. at 2960 (emphasis added). Our
opinions addressing this point likewise make clear that our jurisdiction
depends on whether “the information was provided before December 20,
2006.” Whistleblower 11332-13W, 142 T.C. at 402; see id. at 404 (ruling
that whistleblower must allege facts “establish[ing] that [the Commis-
sioner] proceeded against the targets using information the whistle-
blower provided after December 20, 2006”); Wolf, 93 T.C.M. (CCH) at
1274 (“Newly enacted section 7623(b)(4) . . . is made effective only for
information provided to [the Commissioner] on or after December 20,
2006 . . . .”).

       We have likewise held that a claimant cannot avoid the effective-
date bar by resubmitting to the IRS, after December 20, 2006, substan-
tially the same information that he supplied previously. See Whistle-
blower 19860-15W, 113 T.C.M. (CCH) at 1503 (finding no jurisdiction
where claimant submitted a letter in January 2007 requesting a payout
on the basis of “the materiality of the submissions . . . previously
                                    6

[*6] provided”). In this case it is undisputed that the information un-
derlying petitioner’s claims was supplied to the IRS well before the stat-
ute’s effective date, and he submitted no relevant new information when
he submitted his Forms 211 in 2018. We thus lack jurisdiction of this
case.

        In any event, assuming arguendo that petitioner supplied a scin-
tilla of new information after the statute’s effective date, we lack juris-
diction because the IRS took no action with respect to his claims. This
case, like whistleblower award cases generally, is appealable to the U.S.
Court of Appeals for the D.C. Circuit. See § 7482(b)(1) (penultimate sen-
tence); Kasper v. Commissioner, 150 T.C. 8, 11 n.1 (2018). That court
held in Li v. Commissioner, 22 F.4th 1014, that we lack jurisdiction to
review cases (like this one) where the IRS has issued a threshold rejec-
tion of a whistleblower’s claim.

       As the D.C. Circuit explained in Li, “an award determination by
the IRS [under section 7623(b)] arises only when the IRS ‘proceeds with
any administrative or judicial action described in subsection (a) based
on information brought to the Secretary’s attention by [the whistle-
blower].’” Id. at 1017 (quoting § 7623(b)(1)). In this case the IRS did not
“proceed[] with any administrative or judicial action” on the basis of in-
formation petitioner provided. To the contrary, the Whistleblower Office
rejected his claims upon determining that “the information [he] provided
was speculative and/or did not provide specific or credible information
regarding tax underpayments or violations of internal revenue laws.”
Because his claims were rejected at the threshold, they were not for-
warded to any IRS examination team for further investigation.

       In short, regardless of whether petitioner is deemed to have pro-
vided his information before or after the statute’s effective date, it is
clear that the Secretary did not “proceed[] with any administrative or
judicial action” on the basis of his information. The D.C. Circuit’s deci-
sion in Li thus dictates that we grant respondent’s Motion to Dismiss
for Lack of Jurisdiction.

      To implement the foregoing,

      An order will be entered granting respondent’s Motion to Dismiss
for Lack of Jurisdiction.