Court Opinion

ID: 9412835
Source: CourtListenerOpinion
Date Created: 2023-08-01 19:04:35.423669+00
Date Added: 2024-06-11T16:39:10.275999
License: Public Domain

United States Tax Court

                        T.C. Memo. 2023-98

                   SUZANNE JEAN MCCRORY,
                         Petitioner

                                  v.

          COMMISSIONER OF INTERNAL REVENUE,
                      Respondent

                             —————

Docket No. 19730-22W.                            Filed August 1, 2023.

                             —————

            Whistleblower (WB) filed with the Whistleblower
     Office (WBO) seven Forms 211, Application for Award for
     Original Information. The WBO assigned those forms
     seven associated claim numbers. The WBO eventually
     issued to WB a Final Award Decision Under Section
     7623(a) referencing all seven claim numbers and granting
     a single award of $1,694.31. WB filed a Petition seeking
     our review under I.R.C. § 7623(b)(4).

           R filed a Motion to Dismiss for Lack of Jurisdiction
     arguing that the Court lacks jurisdiction over the case
     because the award at issue was made under I.R.C.
     § 7623(a), rather than I.R.C. § 7623(b), and the amount in
     dispute here does not meet the requirements of I.R.C.
     § 7623(b)(5)(B).

           In Lippolis v. Commissioner, 143 T.C. 393 (2014), we
     held that the amount-in-dispute requirement of I.R.C.
     § 7623(b)(5)(B) is not jurisdictional, but must be raised as
     an affirmative defense. R maintains that Lippolis is
     inconsistent with the U.S. Court of Appeals for the D.C.
     Circuit’s decision in Li v. Commissioner, 22 F.4th 1014
     (D.C. Cir. 2022), cert. denied, 143 S. Ct. 372 (2022), and
     should be overruled.

                          Served 08/01/23
                                         2

[*2]         Held: The D.C. Circuit’s decision in Li does not
       require us to revisit the holding of Lippolis.

              Held, further, under Lissack v. Commissioner, 68
       F.4th 1312, 1320 (D.C. Cir. 2023), aff’g 157 T.C. 63 (2021),
       and Whistleblower 972-17W v. Commissioner, No. 972-
       17W, 159 T.C., slip op. at 5–10 (July 13, 2022), the Tax
       Court has jurisdiction to review the WBO’s determination
       here because the IRS proceeded with an action and
       collected proceeds based on WB’s information.

              Held, further, consistent with our holding in
       Lippolis, R’s contentions regarding the monetary threshold
       in I.R.C. § 7623(b)(5)(B) must be pleaded in R’s Answer as
       affirmative defenses.

               Held, further, R’s Motion will be denied.

                                    —————

Suzanne Jean McCrory, pro se.

Alex Shlivko, for respondent.

                         MEMORANDUM OPINION

       TORO, Judge: As we have explained before, section 7623 1
provides for awards to individuals (commonly referred to as
whistleblowers) who submit information to the Government about third
parties who have underpaid their taxes or otherwise violated the
internal revenue laws. Whistleblower 972-17W v. Commissioner,
No. 972-17W, 159 T.C., slip op. at 4 (July 13, 2022) (reviewed opinion).
Section 7623(a) authorizes discretionary payments in certain
circumstances, while section 7623(b) provides for nondiscretionary (i.e.,
mandatory) awards. We have jurisdiction to review awards under
section 7623(b), but not those under section 7623(a).

      Now before the Court is a Motion to Dismiss for Lack of
Jurisdiction the Commissioner of Internal Revenue (Commissioner)

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

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times.
                                        3

[*3] filed on December 7, 2022. The Commissioner maintains that we
lack jurisdiction here because, in his view, the award at issue was made
under section 7623(a), rather than section 7623(b), and the amount in
dispute does not meet the requirements of section 7623(b)(5)(B). In
Lippolis v. Commissioner, 143 T.C. 393 (2014), we held that the amount-
in-dispute requirement of section 7623(b)(5)(B) is not jurisdictional, but
must be raised as an affirmative defense. The Commissioner now
asserts that Lippolis is inconsistent with the U.S. Court of Appeals for
the District of Columbia Circuit’s decision in Li v. Commissioner, 22
F.4th 1014 (D.C. Cir. 2022), cert. denied, 143 S. Ct. 372 (2022), and
should be overruled. Petitioner, Suzanne Jean McCrory, opposes the
Motion. For the reasons we set out below, we disagree with the
Commissioner and will deny the Motion.

                                 Background

      The following facts are drawn from the parties’ pleadings and
Motion papers. They are stated solely for the purpose of deciding the
Motion and not as findings of fact in this case. See Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

      In 2018, Ms. McCrory filed with the IRS Whistleblower Office
(WBO) seven Forms 211, Application for Award for Original
Information, relating to seven separate taxpayers. The WBO assigned
a claim number to each of the seven Forms 211 (2018-012740, 2018-
012741, 2018-012742, 2018-012743, 2018-012744, 2018-012745, and
2018-012746), but considered them together in one administrative
proceeding.

       With respect to five of the claim numbers (2018-012740, 2018-
012741, 2018-012742, 2018-012743, and 2018-012744), the IRS took no
action based on Ms. McCrory’s information, and an IRS classifier
recommended rejecting them because the allegations were not specific,
were not credible, or were speculative, or because the classifier could not
identify the target. For another claim number (2018-012746), a revenue
agent surveyed the target’s return, determined that the target was in
compliance, and took no further action. 2 The remaining claim number
(2018-012745) prompted the IRS to audit a target’s return and,
ultimately, to determine nearly $180,000 in total adjustments.

      2 As a result, no audit or examination ensued, and no proceeds were collected.
                                        4

[*4] On June 14, 2022, the WBO issued to Ms. McCrory a Final Award
Decision Under Section 7623(a) (Decision Letter). The Decision Letter
listed all seven claim numbers in the “Re:” line and stated that “[the
WBO] has made a final decision that you are entitled to an award of
$1,694.31.” The Decision Letter did not identify which claim numbers
the award related to, but explained the award computation in an
attached Determination Report. The Report, also listing all seven claim
numbers, stated that the “[f]inal tax, penalties, interest, and other
amounts collected based on information provided by Whistleblower”
were “$179,672.20” and that the recommended award percentage was
1%, subject to a modest reduction under the Budget Control Act of 2011,
Pub. L. No. 112-25, 125 Stat. 240. The Report cited section 7623(b)(2)
to justify the amount of the award and did not analyze the claim
numbers individually. 3

       Regarding judicial review, the Decision Letter stated as follows:

       This letter is a final determination for purposes of filing a
       petition with the United States Tax Court. If you disagree
       with this determination, you have 30 days from the date of
       this letter to file a petition with the Tax Court.

Consistent with the letter’s instructions, Ms. McCrory timely filed the
Petition to commence this case. Subsequently, the Commissioner filed
the Motion now before us, and Ms. McCrory filed an Opposition to
Respondent’s Motion to Dismiss for Lack of Jurisdiction. On March 30,
2023, we asked for supplemental briefing, and the parties responded
with their respective views on May 1, 2023. We now turn to the
jurisdictional issue presented.

                                   Discussion

I.     The Tax Court’s Jurisdiction in Whistleblower Cases

       Like all federal courts, we are a court of limited jurisdiction.
Whistleblower 21276-13W v. Commissioner, 155 T.C. 21, 26 (2020). We
exercise jurisdiction only over matters that Congress expressly
authorizes us to consider. Id.; see also I.R.C. § 7442. Of course, we
always have jurisdiction to determine whether we have jurisdiction.

         3 A Preliminary Award Recommendation Under Section 7623(a) and the

associated Summary Report provided to Ms. McCrory on March 16, 2022, similarly
listed all seven claim numbers, provided a single preliminary award amount, and did
not analyze the claims individually.
                                         5

[*5] Whistleblower 21276-13W, 155 T.C. at 26. And we must assure
ourselves of our jurisdiction even when not asked to by the parties. Id.

      Section 7623(b)(4) defines our jurisdiction in whistleblower cases.
See Rogers v. Commissioner, 157 T.C. 20, 26 (2021); see also Lissack v.
Commissioner, 68 F.4th 1312, 1320 (D.C. Cir. 2023), aff’g 157 T.C. 63
(2021). It provides that “[a]ny determination regarding 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).” I.R.C. § 7623(b)(4). In
other words, the Tax Court has jurisdiction to review any determination
regarding a whistleblower award under section 7623(b)(1), (2), and (3).
Determinations under those provisions generally are made by the WBO,
which reviews whistleblower claims to determine whether an award will
be paid and, if so, decides the amount of the award. See, e.g., I.R.C.
§ 7623(b)(1), (2)(A), (3).

       The conditions under which the WBO makes a determination are
described in greater detail in section 7623(b)(1), which provides as
follows:

       If the Secretary proceeds with any administrative or
       judicial action described in subsection (a) based on
       information brought to the Secretary’s attention by an
       individual, such individual shall, subject to paragraph (2),
       receive as an award at least 15 percent but not more than
       30 percent of the proceeds collected as a result of the action
       (including any related actions) or from any settlement in
       response to such action (determined without regard to
       whether such proceeds are available to the Secretary). The
       determination of the amount of such award by the [WBO]
       shall depend upon the extent to which the individual
       substantially contributed to such action.

       In Li, the D.C. Circuit interpreted section 7623(b)(1) to limit our
jurisdiction in certain circumstances. 4 Specifically, the D.C. Circuit held
that the Tax Court lacks jurisdiction to review a threshold rejection of a
whistleblower claim—i.e., the WBO’s determination that a claim should
be rejected at the outset without taking any further action. Li v.

        4 An appeal in this case ordinarily would lie in the D.C. Circuit. See I.R.C.

§ 7482(b)(1) (flush language); see also Kasper v. Commissioner, 150 T.C. 8, 11 n.1
(2018).
                                     6

[*6] Commissioner, 22 F.4th at 1017; Whistleblower 972-17W, 159 T.C.,
slip op. at 6–7; see also Rogers, 157 T.C. at 28 (describing rejection
characteristics). The D.C. Circuit reasoned that the WBO makes an
award determination under section 7623(b)(1) when the IRS actually
proceeds with an action based on a whistleblower’s information. Li v.
Commissioner, 22 F.4th at 1017. In the case of a rejection, the WBO
rejects the whistleblower’s claim at the threshold, without the IRS’s ever
taking action against the target taxpayer. Id. Therefore, the D.C.
Circuit concluded, the WBO’s decision to reject a claim is not an award
determination under section 7623(b)(1), (2), or (3), and the Tax Court
does not have jurisdiction to review that decision under section
7623(b)(4). Li v. Commissioner, 22 F.4th at 1017.

      The D.C. Circuit recently had occasion to consider Li’s scope. In
Lissack, the D.C. Circuit held that our Court has jurisdiction over a
whistleblower case if the IRS proceeds with an action related to the
whistleblower’s information, even if the WBO ultimately determines
that the whistleblower is not entitled to an award. See Lissack v.
Commissioner, 68 F.4th at 1321 (“The fact that the IRS conducted an
examination here suffices to distinguish Lissack’s case from Li.”); see
also Whistleblower 972-17W, 159 T.C., slip op. at 7–10 (reaching the
same conclusion on similar facts).

II.   Monetary Thresholds in Section 7623

       The Commissioner’s specific challenge in this case seeks to apply
Li to a different limitation under section 7623—namely, the rule that
the Court generally does not review award determinations properly
made under section 7623(a) as opposed to section 7623(b).

       Section 7623(a), which authorizes the WBO to issue purely
discretionary awards, governs if certain monetary thresholds under
section 7623(b) are not met.           Those thresholds provide that
section 7623(b), rather than section 7623(a), applies with respect to any
action if the proceeds in dispute exceed $2 million, I.R.C. § 7623(b)(5)(B),
and, for an action against an individual, if the individual’s gross income
exceeds $200,000 for any taxable year subject to the action, I.R.C.
§ 7623(b)(5)(A); see Smith v. Commissioner, 148 T.C. 449, 461 (2017)
(explaining that the $200,000 threshold applies to individuals and the
$2 million threshold applies to all taxpayers). We have held that the
thresholds established by section 7623(b)(5) are not jurisdictional.
Rogers, 157 T.C. at 27 ($200,000 threshold); Lippolis, 143 T.C. at 397–98
($2 million threshold). Rather, the thresholds constitute affirmative
                                          7

[*7] defenses that the Commissioner must raise in his answer and with
respect to which he bears the burden of proof. Rogers, 157 T.C. at 27;
Lippolis, 143 T.C. at 400.

       In his Motion, the Commissioner argues that Li requires us to
revisit these holdings, pointing to Lippolis in particular.            The
Commissioner argues that, like the threshold rejections addressed in Li,
a WBO decision under section 7623(a) is not a determination under
section 7623(b)(1), (2), or (3) that the Court may review. The
Commissioner further argues that the $2 million threshold in
section 7623(b)(5)(B) is not met in this case and, therefore, we should
dismiss the case for lack of jurisdiction. But, as explained below, Li does
not require the result that the Commissioner seeks.

III.   Analysis

       As we have already noted, the D.C. Circuit held in Li that this
Court lacks jurisdiction to review a threshold rejection issued by the
WBO because, in such a case, the IRS takes no action with respect to a
whistleblower’s claim. Li v. Commissioner, 22 F.4th at 1017. But the
D.C. Circuit recently confirmed that our Court does have jurisdiction
when the IRS proceeds with an action related to a whistleblower’s
information and nevertheless declines to grant an award under
section 7623(b). Lissack v. Commissioner, 68 F.4th at 1321. As the
Commissioner’s Motion points out, the latter situation is analogous to
one in which the IRS issues an award pursuant to section 7623(a) after
proceeding with an action based on a taxpayer’s information and
collecting proceeds. See Lippolis, 143 T.C. at 396 n.2 (observing that,
when the WBO grants an award under section 7623(a), it implicitly
denies an award under section 7623(b)).            Thus, accepting the
Commissioner’s own analogy, Lissack contradicts the position advocated
in the Motion. Moreover, neither Li nor Lissack addressed specifically
this Court’s precedent on the jurisdictional status of the monetary
thresholds of section 7623(b)(5) or cast any doubt on that precedent. In
short, we cannot agree with the Commissioner that Li requires us to
revisit our holding in Lippolis. 5 See also Lissack v. Commissioner, 68
F.4th at 1321 (“An ‘unusually high degree of clarity’ is required to treat
statutory requirements as jurisdictional and, as just explained,

        5 Additionally, to the extent the Commissioner argues that this case should be

dismissed for lack of jurisdiction because the award was nominally made under
section 7623(a), we have consistently held that the labeling of an award does not
determine our jurisdiction. See, e.g., Rogers, 157 T.C. at 27 n.8; Lippolis, 143 T.C.
at 396 n.2.
                                         8

[*8] subsection (b)(4) does not clearly support the Service’s reading.”
(quoting Myers v. Commissioner, 928 F.3d 1025, 1035 (D.C. Cir. 2019),
rev’g and remanding 148 T.C. 438 (2017))).

       The lessons of Li and Lissack as applied to this case are
straightforward. First, the cases confirm that this Court does not have
jurisdiction to review the WBO’s actions when the WBO decides to reject
a claim without proceeding with any further action. Second, when the
IRS does proceed with an action related to the whistleblower’s
information, as the Commissioner concedes it did here, we have
jurisdiction. 6 In exercising that jurisdiction, we will continue to follow
our precedents in Lippolis and Rogers. Accordingly, if the Commissioner
wishes to raise the monetary thresholds of section 7623(b)(5) to defeat
Ms. McCrory’s claims, he must do so in his Answer and satisfy his
burden of proof. See Rogers, 157 T.C. at 27; Lippolis, 143 T.C. at 400.

IV.    Conclusion

      For the reasons stated above, the Commissioner’s Motion will be
denied.

       To reflect the foregoing,

       An appropriate order will be issued.

        6 The WBO issued a single final award decision covering all seven Forms 211

discussed above, and our jurisdiction under section 7623(b)(4) extends to that award
decision as a whole. We express no view as to how Li would apply if the WBO had
followed the classifier’s recommendation and issued a decision letter specifically
rejecting certain of Ms. McCrory’s claims. That is not what happened here, and we
review what the WBO did, not what it might have done.