Court Opinion

ID: 4338196
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:45:57.913638+00
Date Added: 2024-06-11T14:13:20.790592
License: Public Domain

WILLIAM PRENTICE COOPER, III, PETITIONER v.
                                                      COMMISSIONER OF INTERNAL REVENUE,
                                                                 RESPONDENT
                                               Docket Nos. 24178–09W, 24179–09W.                          Filed July 8, 2010.

                                                  P filed two claims for a whistleblower award with R under
                                               sec. 7623(b)(4), I.R.C. R sent a letter to P 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.

                                      70

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                                      (70)                              COOPER v. COMMISSIONER                                          71

                                                                                     OPINION

                                         KROUPA, Judge: These cases are before the Court on
                                      respondent’s motions to dismiss for lack of jurisdiction. We
                                      decide for the first time whether a letter sent by respondent
                                      to petitioner denying petitioner’s whistleblower claims con-
                                      stitutes a ‘‘determination’’ within the meaning of section
                                      7623(b)(4) 1 that would confer on us jurisdiction to review
                                      denial of the claims. We find that the letter was a determina-
                                      tion and that we therefore have jurisdiction.

                                                                                  Background
                                         The following information is stated for purposes of
                                      resolving the pending motions. At the time of filing the peti-
                                      tions, petitioner resided in Nashville, Tennessee.
                                         Petitioner, an attorney, submitted two Forms 211, Applica-
                                      tion for Award for Original Information, to the Internal Rev-
                                      enue Service (IRS) in 2008 concerning alleged violations of
                                      the Code. He alleged in the two claims that certain parties
                                      had failed to pay millions of dollars in estate and generation-
                                      skipping transfer tax.
                                         Petitioner alleged in one claim that a trust having over
                                      $102 million in assets was improperly omitted from the gross
                                      estate of Dorothy Dillon Eweson (Ms. Eweson), resulting in
                                      a possible $75 million underpayment in Federal estate tax.
                                      He learned of the alleged omission by representing the widow
                                      of Ms. Eweson’s grandson, who is also the guardian of a pur-
                                      ported beneficiary of the trust. He also verified the informa-
                                      tion by examining the public records and the records 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
                                      of Ms. Eweson’s death in 2005. Petitioner learned of the
                                      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 additional information to support the
                                      allegation several months after filing the claim. He provided
                                           1 All   section and Code references are to the Internal Revenue Code unless otherwise indicated.

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                                      72                     135 UNITED STATES TAX COURT REPORTS                                            (70)

                                      newly discovered filings from a New York Surrogate’s Court
                                      proceeding in which a corporate trustee challenged the trust
                                      modifications as designed primarily to evade taxation. Peti-
                                      tioner also provided a legal memorandum and draft legal
                                      documents from Ms. Eweson’s attorneys that indicated the
                                      trusts were modified as part of a scheme to avoid the genera-
                                      tion-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 and investigation whether petitioner’s information
                                      met the criteria for paying an award.
                                         The Whistleblower Office did not contact petitioner again
                                      until nine months later when the Office sent him a letter
                                      denying the claims (the letter). The letter stated that
                                      respondent had considered petitioner’s whistleblower claims.
                                      It explained that ‘‘an award determination * * * [could not]
                                      be made under section 7623(b)’’ 2 because petitioner ‘‘did not
                                      identify * * * federal tax issue[s] upon which the IRS will
                                      take action.’’ The letter further explained that an award was
                                      not warranted for either claim because petitioner’s informa-
                                      tion did not ‘‘result in the detection of the underpayment of
                                      taxes.’’
                                         Petitioner filed two separate petitions in this Court in
                                      response to respondent’s denial of the whistleblower claims.
                                      Respondent filed motions to dismiss for lack of jurisdiction in
                                      both proceedings on the ground that no determination notice
                                      had been issued to petitioner. Petitioner objected to the
                                      motions that the letter constituted a determination confer-
                                      ring jurisdiction on this Court under section 7623(b)(4) to
                                      review respondent’s denial of the whistleblower claims.

                                                                                     Discussion
                                         We decide for the first time whether respondent’s letter
                                      denying petitioner’s whistleblower claims constitutes a
                                      ‘‘determination’’ that gives this Court jurisdiction under sec-
                                      tion 7623(b)(4). We begin with the Tax Court’s jurisdiction.
                                           2 The   full text of sec. 7623(b) is set forth in the appendix.

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                                      (70)                          COOPER v. COMMISSIONER                                           73

                                      The Tax Court is a court of limited jurisdiction and may
                                      exercise jurisdiction only to the extent authorized by Con-
                                      gress. Judge v. Commissioner, 88 T.C. 1175, 1180–1181
                                      (1987); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The
                                      Tax Court is without authority to enlarge upon that statu-
                                      tory grant. See Phillips Petroleum Co. 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 Program
                                        The Secretary has long had the discretion to pay awards
                                      to persons providing information that aids in (1) detecting
                                      underpayments of tax and (2) detecting and bringing to trial
                                      and punishment persons guilty of violating the internal rev-
                                      enue laws. Sec. 7623(a). The discretionary whistleblower
                                      awards have been arbitrary and inconsistent, however,
                                      because of a lack of standardized procedures and limited
                                      managerial oversight. See Treasury Inspector General for
                                      Tax Administration Rept. 2006–30–092, The Informants’
                                      Rewards Program Needs More Centralized Management
                                      Oversight (June 2006). It took an average of 71⁄2 years for a
                                      discretionary award to be paid and an average of 61⁄2 months
                                      for a claim to be rejected. Id. at 8–9. Moreover, most rejected
                                      claims did not provide the rationale for the reviewer’s deci-
                                      sion because of concerns about disclosing confidential return
                                      information to the whistleblower. Id. at 7.
                                        Congress enacted legislation in 2006 to address perceived
                                      problems with the discretionary award regime (the 2006
                                      legislation). Tax Relief and Health Care Act of 2006 (TRHCA),
                                      Pub. L. 109–432, div. A, sec. 406, 120 Stat. 2958 (effective
                                      Dec. 20, 2006). The 2006 legislation amended section 7623 to
                                      require the Secretary to pay nondiscretionary whistleblower
                                      awards and to provide this Court with jurisdiction to review
                                      such awards. A whistleblower is now entitled to a minimum
                                      nondiscretionary award of 15 percent of the collected pro-
                                      ceeds if the Commissioner proceeds with administrative or
                                      judicial action using information provided in a whistleblower

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                                      74                 135 UNITED STATES TAX COURT REPORTS                                         (70)

                                      claim. 3 Sec. 7623(b)(1). The 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 adminis-
                                      tered by the IRS. 4 TRHCA sec. 406(b)(1), 120 Stat. 2959. The
                                      Whistleblower Office 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. The
                                      Office is authorized to seek additional 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 211. Id. sec. 3.02, 2008–
                                      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
                                      be appealed to this Court. Id. Awards will not be paid, how-
                                      ever, until there is a final determination of the tax liability
                                      and the amounts owed are collected. Id. sec. 3.08, 2008–1
                                      C.B. at 255.
                                         The Commissioner also issued procedural guidance on how
                                      whistleblower claims will be processed. See Internal Revenue
                                      Manual (IRM) pt. 25.2.2 (Dec. 30, 2008). 5 In general, whistle-
                                      blower 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 under-
                                      payment of taxes; or (c) result in the collection of proceeds.
                                      See id. pt. 25.2.2.12(2). The whistleblower will be notified by
                                         3 The award is reduced in certain circumstances. For 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 if 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.
                                         4 The 2006 legislation also requires the Secretary to provide an annual report to Congress on

                                      whistleblower claims filed and awards issued under sec. 7623. Tax Relief and Health Care Act
                                      of 2006, Pub. L. 109–432, div. A, sec. 406(c), 120 Stat. 2960.
                                         5 IRM pt. 25.2.2 was updated on June 18, 2010, to provide additional guidance for evaluating

                                      a whistleblower claim.

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                                      (70)                          COOPER v. COMMISSIONER                                           75

                                      the Whistleblower Office once an award decision has been
                                      made. See id. pt. 25.2.2.5(13).
                                      II. Analysis
                                         We must now decide whether respondent’s letter con-
                                      stituted 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 collect proceeds. Respondent
                                      argues that there can be a determination for jurisdictional
                                      purposes only if the Whistleblower Office undertakes an
                                      administrative or judicial action and thereafter ‘‘determines’’
                                      to make an award. Respondent incorrectly interprets 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 Tax-
                                      ation, Technical Explanation of H.R. 6408, The ‘‘Tax Relief
                                      and Health Care Act of 2006’’, at 89 (J. Comm. Print 2006)
                                      (‘‘The provision 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.’’).
                                      Accordingly, we find that our jurisdiction is not limited to the
                                      amount of an award determination but includes any deter-
                                      mination to deny an award.
                                         Respondent further contends that the letter was not a
                                      determination because it was not labeled a determination.
                                      We 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, 131 T.C. 47 (2008). Moreover, we have held in
                                      other contexts that our jurisdiction is established when the
                                      Commissioner issues a written notice that embodies a deter-
                                      mination. Craig v. Commissioner, 119 T.C. 252 (2002) (a form
                                      decision letter issued after an ‘‘equivalent hearing’’ con-
                                      stituted a ‘‘determination’’ conferring jurisdiction under sec-
                                      tion 6330(d)(1)); Lunsford v. Commissioner, 117 T.C. 159, 164
                                      (2001) (a written notice to proceed with the collection action
                                      constitutes a determination); Offiler v. Commissioner, 114
                                      T.C. 492, 498 (2000) (a determination notice is the jurisdic-
                                      tional equivalent of a deficiency notice pursuant to section
                                      6212).

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                                      76                 135 UNITED STATES TAX COURT REPORTS                                         (70)

                                         Respondent’s letter was issued in accordance with the
                                      award determination procedures. These procedures were
                                      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 peti-
                                      tioner after several months of investigating whether to
                                      pursue the claims. The letter states respondent’s final conclu-
                                      sion that petitioner is not entitled to an award and provides
                                      an explanation for this conclusion. Moreover, respondent’s
                                      reasons for denying the claim are taken verbatim from the
                                      IRM list of possible reasons for denying claims. See IRM pt.
                                      25.2.2.12(2). There is no dispute that the letter put Mr.
                                      Cooper on sufficient notice to file a petition with this Court
                                      as he did so timely. Respondent’s letter is therefore a deter-
                                      mination because it constitutes a final administrative deci-
                                      sion regarding petitioner’s whistleblower claims in accord-
                                      ance with the established 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.

                                                                                 APPENDIX

                                           Section 7623(b) provides as follows:
                                           SEC. 7623(b). AWARDS TO WHISTLEBLOWERS.—
                                             (1) IN GENERAL.—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, sub-
                                           ject to paragraph (2), receive as an award at least 15 percent but not
                                           more than 30 percent of the collected proceeds * * * resulting from the
                                           action * * * or from any settlement in response to such action. The
                                           determination of the amount of such award by the Whistleblower Office
                                           shall depend upon the extent to which the individual substantially
                                           contributed to such action.
                                             (2) AWARD IN CASE OF LESS SUBSTANTIAL CONTRIBUTION.—
                                                (A) IN GENERAL.—In the event the action described in paragraph (1)
                                             is one which the Whistleblower Office determines to be based prin-
                                             cipally on disclosures of specific allegations (other than information
                                             provided by the individual described in paragraph (1)) resulting from
                                             a judicial or administrative hearing, from a governmental report,
                                             hearing, audit, or investigation, or from the news media, the Whistle-

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                                      (70)                          COOPER v. COMMISSIONER                                           77

                                             blower Office may award such sums as it considers appropriate, but
                                             in no case more than 10 percent of the collected proceeds (including
                                             penalties, interest, additions to tax, and additional amounts) resulting
                                             from the action (including any related actions) or from any settlement
                                             in response to such action, 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.
                                                (B) NONAPPLICATION OF PARAGRAPH WHERE INDIVIDUAL IS ORIGINAL
                                             SOURCE OF INFORMATION.—Subparagraph (A) shall not apply if the
                                             information resulting in the initiation of the action described in para-
                                             graph (1) was originally provided by the individual described in para-
                                             graph (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 that led
                                           to the underpayment of tax or actions described in subsection (a)(2), then
                                           the Whistleblower Office may appropriately reduce such award. If such
                                           individual is 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.—Any 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 shall
                                           have jurisdiction with respect to such matter).
                                             (5) APPLICATION OF THIS SUBSECTION.—This subsection shall apply
                                           with respect to any action—
                                                (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 to such action, and
                                                (B) if the tax, penalties, interest, additions to tax, and additional
                                             amounts in dispute exceed $2,000,000.
                                             (6) ADDITIONAL RULES.—
                                                (A) NO CONTRACT NECESSARY.—No contract with the Internal Rev-
                                             enue Service is necessary for any individual to receive an award under
                                             this subsection.
                                                (B) REPRESENTATION.—Any individual described in paragraph (1) or
                                             (2) may be represented by counsel.
                                                (C) SUBMISSION OF INFORMATION.—No award may be made under
                                             this subsection based on information submitted to the Secretary unless
                                             such information is submitted under penalty of perjury.

                                                                               f

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