Court Opinion

ID: 9397214
Source: CourtListenerOpinion
Date Created: 2023-05-24 19:03:18.944279+00
Date Added: 2024-06-11T17:19:22.305681
License: Public Domain

United States Tax Court

                          160 T.C. No. 14

                       JEREMY BERENBLATT,
                            Petitioner

                                 v.

          COMMISSIONER OF INTERNAL REVENUE,
                      Respondent

                            —————

Docket No. 7208-17W.                             Filed May 24, 2023.

                            —————

           P was one of over 100 people interviewed by the IRS
     as part of an investigation that ultimately led to large
     recoveries from various institutional and individual
     taxpayers. His interview took place in November 2007.
     During that interview, P explained to two special agents
     and one revenue agent of the IRS his conclusion that a
     particular transaction, involving digital foreign exchange
     options, was fraudulent because it lacked economic
     substance.

            P did not have any further contact with the IRS
     about the investigation until the summer of 2015, more
     than seven years later, when he submitted Form 211,
     Application for Award for Original Information, to the IRS
     WBO alleging that the information he had provided in his
     interview was instrumental to the IRS’s eventual
     recoveries. (P alleged that the IRS began propounding the
     economic substance theory—and thus began winning
     lawsuits—only after P’s interview.) The WBO issued a
     determination letter denying P’s claim for award. The
     denial was based on representations from the primary IRS
     special agent who interviewed P that the IRS had already
     known the relevant information before P’s interview.

                          Served 05/24/23
                                            2

              P invoked this Court’s jurisdiction under I.R.C.
        § 7623(b)(4) to review the WBO’s determination. In the
        course of discovery, P filed Motions to Compel R to produce
        various documents and respond to various interrogatories
        covering periods both before and after P’s interview with
        the IRS.

               Held: R’s designation of the administrative record in
        a whistleblower case enjoys a presumption of correctness
        absent clear evidence to the contrary. Discovery aimed at
        completing the designated record shall be allowed only
        upon a significant showing that there is material in the
        IRS’s possession indicative of bad faith on the IRS’s part or
        of an incomplete record.

               Held, further, P has not made any significant
        showing of bad faith or an incomplete record in connection
        with his requests for document production. He has made a
        limited showing of an incomplete record with respect to one
        of his interrogatory requests. We will therefore compel R
        to supplement his interrogatory response in that regard,
        but we will deny the remaining components of P’s Motions
        to Compel.

                                      —————

Martin E. Karlinsky, for petitioner.

Elizabeth C. Mourges, Bartholomew Cirenza, and Nancy M. Gilmore, for
respondent.

                                       OPINION

     COPELAND, Judge: Petitioner, Jeremy Berenblatt, has brought
an action against the Commissioner (Respondent) of the Internal
Revenue Service (IRS) under section 7623(b)(4) 1 to appeal a denial by

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

Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                    3

the IRS’s Whistleblower Office (WBO) of his application for a
whistleblower award. Before the Court are three pending motions:
(1) Petitioner’s Motion to Compel Production of Documents,
(2) Petitioner’s Motion to Compel Responses to Interrogatories, and
(3) Respondent’s Motion for Summary Judgment. (We hereafter refer to
Petitioner’s two Motions together as the Motions to Compel.) We
previously granted Petitioner’s Motion to Stay Proceedings to address
these discovery disputes. Therefore, we will address only the Motions
to Compel at this time.

                              Background

      The following facts are taken from the parties’ pleadings and
supporting documents. They are stated solely for the purpose of
disposing of Mr. Berenblatt’s Motions to Compel and not as findings of
fact.

       On July 1, 2015, the WBO received from Mr. Berenblatt Form
211, Application for Award for Original Information, dated June 25,
2015. The substantive information in the Form 211 was contained in an
attached memorandum. Mr. Berenblatt sent the WBO a followup
memorandum in support of his Form 211, dated December 8, 2015. We
refer to the June 25 memorandum and the December 8 memorandum
collectively as the Form 211 memoranda.

I.    Form 211 Memoranda

      The Form 211 memoranda set forth the facts alleged in this
paragraph and the paragraphs that follow. Mr. Berenblatt worked as a
stock trader in the late 1990s, with an expertise in foreign currency
exchange. He earned a significant amount of income during the year
2000, after which he was approached about investing in a digital foreign
exchange option transaction known as Short Options Strategies (SOS).
SOS was billed as an opportunity for legally minimizing taxes. A digital
option is a type of option where the payoff is either a fixed amount or
nothing at all, depending on whether the underlying asset passes a
stated strike price.

      Mr. Berenblatt completed an SOS investor application and
funded a trading account. However, he ultimately determined that the
probability of the options’ yielding a nonzero payoff was negligible, such
that the transaction lacked a nontax business purpose and was
potentially fraudulent. In the words of the June 25 memorandum: “[Mr.
Berenblatt] concluded that it would be impossible to ever make money,
                                     4

as the lottery payout [i.e., the nonzero option payoff] would never
materialize. . . . The only conceivable benefit from the deal was the
extraordinary tax benefit that had nothing to do with any plausible
return on the investment.” Mr. Berenblatt did not move forward with
the investment.

       In late 2007 a special agent (SA) in the IRS’s Criminal
Investigation Division (CID) called Mr. Berenblatt to request a meeting.
The agent mentioned that the U.S. Government would soon convene a
grand jury investigation into some of the SOS promoters. In or around
November 2007 Mr. Berenblatt met with Shawn Chandler, another CID
SA, at Mr. Chandler’s New York office. A third CID SA, Christine
Mazzella, and IRS Revenue Agent (RA) Arthur Mason also participated
in the meeting. During the meeting, Mr. Berenblatt related his analysis
of the SOS transaction to the agents. He explained that the probability
distribution for payoffs on the digital options was skewed by the fact
that the intermediary bank “controlled the trade and its pricing.”

        Mr. Berenblatt claims that he was the first person to provide the
IRS with a successful litigation tactic for proving the fraudulence of the
SOS transaction. He claims that before his interview, the IRS’s primary
litigating position was that the SOS transactions fell afoul of the “step
transaction” doctrine—an argument that had failed in court. According
to Mr. Berenblatt, after his interview the IRS began winning cases
relating to SOS and similar tax shelters by using the reasoning he had
provided to the IRS first.

      Mr. Berenblatt seeks an award related to the U.S. Government’s
recovery of at least $1.4 billion in restitution, forfeiture, and settlement
proceeds and at least $5.9 billion in unpaid taxes stemming from digital
options and similar shelters.

II.   WBO Review

       In September 2015 the WBO assigned Senior Tax Analyst Laura
Meis to review Mr. Berenblatt’s whistleblower award application. After
reviewing the Form 211 and the June 25 memorandum, Ms. Meis
contacted Mr. Chandler, the primary CID SA who had interviewed Mr.
Berenblatt in November 2007. Ms. Meis corresponded by email and
phone with Mr. Chandler, who related that (1) “[Mr. Berenblatt’s] claim
as being the first person to provide pertinent and relevant information
is not accurate”; (2) Mr. Berenblatt “had not provided any documents for
the [SOS] investigation and . . . he was not called to testify [in any
                                          5

related trials]”; and (3) the SOS investigation had been ongoing for two
years before Mr. Berenblatt’s interview.

       Mr. Chandler soon thereafter submitted to the WBO a Form
11369, Confidential Evaluation Report on Claim for Award. Mr.
Chandler checked the “No” box next to the following pertinent questions
in item 11:

       A. Did the Service use the information the whistleblower
       provided to develop specific document requests or other
       inquiries to the [allegedly noncompliant] taxpayer?

       B. Did the Service use the information provided by the
       whistleblower to validate the completeness and accuracy of
       the taxpayer’s response to information requests?

       C. Did the whistleblower provide additional information
       that would not have been obtained through general audit
       or investigative techniques?

       ....

       G. Did the whistleblower provide technical or legal
       analysis of the taxpayer’s records or transactions that
       would not otherwise have been done by the Service?

     Mr. Chandler also included the following narrative with that
Form 11369:

       The investigation of the [target] taxpayers was well under
       way by the time the Whistleblower met with, and provided
       information to, Internal Revenue Service–Criminal
       Investigation in or around November 2007. (See attached
       articles: one regarding the law firm of [Taxpayer F],[2]
       former employer of . . . [Taxpayer P] and [Taxpayer U],
       ordered to pay a $76 million fine to the IRS in March 2007
       and the other article dated May 18, 2006, regarding
       [Taxpayer H’s] involvement relative to the tax shelter
       transactions discussed by the Whistleblower.)          The

        2 Identifying information about the subjects of Mr. Berenblatt’s whistleblower

claims is being redacted in accordance with Rule 345(b) and this Court’s protective
order of August 7, 2017. The pseudonyms for the target taxpayers are taken from the
reference list of redacted information submitted by Mr. Berenblatt.
                                     6

      whistleblower was one of hundreds of individuals identified
      as having had contact with the taxpayer(s) relative to the
      tax shelter transactions at issue in the investigation. The
      whistleblower did not provide any new information relative
      to the investigation. The whistleblower was not considered
      a viable potential witness in the investigation and did not
      testify during the two criminal trials in this matter. In
      addition, over 100 individuals had been interviewed in the
      investigation at the point in time the Whistleblower met
      with Internal Revenue Service–Criminal Investigation in
      or around November 2007 and a vast number of financial
      and tax related subpoenaed records had been analyzed as
      well.

        As indicated in the narrative, Mr. Chandler attached to the Form
11369 several print articles from major news sources. These articles
reported the following pertinent information: (1) a law firm identified by
Mr. Berenblatt avoided prosecution in March 2007 by admitting that it
developed and marketed tax shelters and paying a $76 million penalty
to the IRS and (2) a bank identified by Mr. Berenblatt was the subject
of a federal investigation into digital options tax shelters as early as May
2006. None of the articles discussed specific legal theories or litigation
strategies regarding the alleged tax shelters.

       Sometime after her communication with Mr. Chandler, Ms. Meis
prepared a memorandum for the WBO recommending a preliminary full
denial of Mr. Berenblatt’s award application. In support of this
recommendation, Ms. Meis exclusively cited the claims, information,
and news articles relayed to her by Mr. Chandler. The WBO sent a
preliminary denial letter to Mr. Berenblatt dated January 4, 2017. Ms.
Meis then prepared a memorandum recommending a final full denial of
Mr. Berenblatt’s application.           This memorandum contained
substantially the same supporting information as Ms. Meis’s earlier
memorandum. The WBO adopted Ms. Meis’s recommendation and sent
Mr. Berenblatt a final denial letter, dated March 2, 2017, explaining
that “the IRS identified the issue(s) prior to receipt of your information
and your information did not substantially contribute to the actions
taken by the IRS.” Mr. Berenblatt timely submitted his Petition to this
Court on March 30, 2017, invoking our jurisdiction under section
7623(b)(4) to consider appeals of whistleblower award determinations
by the IRS.
                                         7

III.   Discovery Disputes

       On May 14, 2019, Respondent filed with this Court the documents
that the IRS contends constitute the entire IRS administrative record of
Mr. Berenblatt’s whistleblower claim. Mr. Berenblatt believes that the
produced record is inadequate, and he attempted to obtain further
documents and responses from Respondent through informal discovery.
After Respondent rejected many of those requests, Mr. Berenblatt filed
the Motions to Compel asking us to require Respondent to produce the
following documents and to respond (or supplement his previous
responses) to the following interrogatories: 3

       Request No. 2(a): All Documents [created or modified
       between March 24, 2007, and March 24, 2008] containing
       the objectives, strategies, and progress of the SOS Shelter
       Investigation—such as, for example, when the IRS or [U.S.
       Department of Justice (DOJ)] first identified [Taxpayer H]
       and [Taxpayer T] as targets of the investigation, including
       but not limited to Forms 6085, also known as the “30-Day
       Workplan,” or its equivalent, prepared as part of routine
       management and supervision of the SOS Shelter
       Investigation.

       Request No. 12: With respect to each witness retained as
       an expert in an SOS Product litigation, provide a copy of
       each written report prepared by such witness, and all
       related communications and/or correspondence (including
       emails) between IRS/DOJ personnel and such expert
       witnesses.

       Request No. 23: Documents concerning the “over 100
       individuals [that] had been interviewed in the
       investigation at the point in time the Whistleblower met
       with the Internal Revenue Service” referenced by Shawn
       Chandler.

        3 The identifying numbers for the requests correspond to Mr. Berenblatt’s

original—and lengthier—requests for documents and responses. We denied without
prejudice his motions to compel Respondent to take action on those earlier requests,
as those motions failed to specify the particular documents or interrogatories whose
production or response he sought to compel.
                             8

Request No. 24: Documents comprising the “financial and
tax related subpoenaed records” referenced by Shawn
Chandler.

Interrogatory No. 1(c): Describe SA Chandler’s role in the
SOS Shelter Investigation and position on the SOS Shelter
Investigation team including his role in interviews of
potential witnesses and other individuals in connection
with the SOS Shelter Investigation, including the selection
of individuals, the preparation for interviews, and the
materials saved from or prepared after interviews.

Interrogatory No. 3(e): Identify all Documents concerning
the Berenblatt Interview, including the preparation for,
scripts for, scheduling of, notes from, participation in, and
follow-up from that interview—including but not limited to
notes from [Revenue] Agent Arthur Mason who was
present and taking notes at the interview.

Interrogatory No. 5: Identify the “over 100” individuals
referred to in the Form 11369.

Interrogatory No. 6: Identify the “financial and tax related
subpoenaed records” referred to in the Form 11369.

Interrogatory No. 9: Identify all individuals who provided
information to SA Chandler and the SOS Shelter
Investigation from September 24, 2006, to September 24,
2008, concerning Taxpayer H’s and Taxpayer T’s
involvement in the SOS Shelter, including information
concerning the lack of business purpose and/or economic
substance of the SOS Shelter and information concerning
Taxpayer H’s role with respect to the design, management,
and execution of such investments, as well as all
Documents that refer, relate to, or contain such
information.

Interrogatory No. 10(a): Describe how SA Chandler and SA
Christine Mazzella searched for Documents related to
Berenblatt and his Petition following commencement of
this action, including but not limited to any searches of
computer hard drives, network drives, and emails for
records stored electronically, including specific search
terms used.
                                    9

      Interrogatory No. 10(b): Describe how SA Chandler and SA
      Christine Mazzella searched for Documents related to
      Berenblatt and his Petition following commencement of
      this action, including but not limited to any searches of
      physical records in secure IRS storage facilities or
      anywhere else the records are held, including how many
      boxes or files were examined.

      Interrogatory No. 10(d): Describe how SA Chandler and SA
      Christine Mazzella searched for Documents related to
      Berenblatt and his Petition following commencement of
      this action, including but not limited to how SA Chandler
      and SA Mazzella determined whether a Document was
      responsive or unresponsive.

       Respondent objected to the Motions to Compel on four primary
grounds: (1) some of the requests seek tax return information whose
disclosure is prohibited by section 6103; (2) some of the requests seek
secret grand jury information whose disclosure is prohibited by Rule 6(e)
of the Federal Rules of Criminal Procedure; (3) some of the requests seek
documents protected by the exception for attorney work product and/or
the deliberative process privilege for government agencies; and (4) all of
the requested documents are outside of the administrative record
concerning Mr. Berenblatt’s award claim and therefore are not relevant
to this litigation.

                               Discussion

I.    Overview

       To date, this Court has not explicitly addressed the proper
standards for evaluating discovery requests in the specific context of
whistleblower appeals under section 7623. Thus, Mr. Berenblatt’s
Motions to Compel present questions of first impression. We first review
the relevant content of section 7623, assure ourselves of jurisdiction in
this case, and review the proper scope and standard of review for
whistleblower cases. We then announce our standard for discovery
requests in section 7623 cases (following relevant precedent from the
                                          10

U.S. Court of Appeals for the District of Columbia Circuit) 4 and apply
that standard to Mr. Berenblatt’s Motions to Compel.

II.    Section 7623 Background

       Section 7623 provides for awards to individuals who provide the
IRS with information regarding third parties found to have underpaid
their taxes or otherwise violated the internal revenue laws. (Such action
is colloquially known as “blowing the whistle,” and thus these
individuals are commonly referred to as “whistleblowers.”)            See
Whistleblower 972-17W v. Commissioner, No. 972-17W, 159 T.C., slip op.
at 4 (July 13, 2022). Section 7623(a) authorizes discretionary awards,
and section 7623(b) mandates awards in certain cases. For example,
mandatory awards are available only when the proceeds in dispute
exceed $2 million. I.R.C. § 7623(b)(5); see also Van Bemmelen v.
Commissioner, 155 T.C. 64, 71 (2020). The mandatory award provisions
are at issue in this case, so we look more closely at section 7623(b)(1)
and (2), which provides in relevant part as follows:

              (1) In general.—If the Secretary proceeds with any
       administrative or judicial action [against a taxpayer who
       has underpaid any tax or who has violated, or conspired to
       violate, the tax laws] based on information brought to the
       Secretary’s attention by an individual, such individual
       shall . . . 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 . . . .           The
       determination of the amount of such reward 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
              principally on disclosures of specific allegations
              (other than information provided by the individual
              described in paragraph (1)) resulting from a judicial

        4 In deciding whistleblower cases, we generally follow the precedent of the D.C.

Circuit, to which an appeal of our decision in such cases would lie (absent a contrary
stipulation by the parties). See I.R.C. § 7482(b) (flush language); Golsen v.
Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).
                                          11

               or administrative hearing, from a government
               report, hearing, audit, or investigation, or from the
               news media, the Whistleblower Office may award
               such sums as it considers appropriate, but in no case
               more than 10 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), 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.

(Emphasis added.)

       Thus, there are two prerequisites governing an award under
section 7623(b): The IRS must (1) proceed with an administrative or
judicial action based on the whistleblower’s information (action
requirement) and (2) collect proceeds as a result of the action (collection
requirement). See Treas. Reg. § 301.7623-1(a) (“The awards provided
for by section 7623 and this paragraph must be paid from collected
proceeds . . . .”). 5

      Treasury Regulation § 301.7623-2(b)(1) clarifies the action
requirement of section 7623(b)(1):

        [T]he IRS proceeds based on information provided by a
        whistleblower    when     the   information    provided
        substantially contributes to an action against a person

        5 The effective-date provision for Treasury Regulation §§ 301.7623-1, -2, and -3
reads as follows: “This rule is effective on August 12, 2014. This rule applies to
information submitted on or after August 12, 2014, and to claims for award under
sections 7623(a) and 7623(b) that are open as of August 12, 2014.” Treas. Reg.
§§ 301.7623-1(f), -2(f), and -3(f). Mr. Berenblatt initially provided information to the
IRS in 2007, but he did not file his claim for award until 2015. The first sentence of
the effective-date provision, standing alone, entails at a minimum that all claims
submitted on or after August 12, 2014 (like Mr. Berenblatt’s) are subject to the
regulations. The second sentence appears to then expand the class of claims to which
the first sentence would otherwise apply, rather than narrowing it. Mr. Berenblatt
submitted all the relevant information pertaining to his claim on July 1, 2015 (i.e.,
after August 12, 2014) when he filed his Form 211, notwithstanding that he had
submitted substantially the same information during his 2007 interview. Therefore,
we hold that these regulations apply to this case.
                                   12

       identified by the whistleblower. For example, the IRS
       proceeds based on the information provided when the IRS
       initiates a new action, expands the scope of an ongoing
       action, or continues to pursue an ongoing action, that the
       IRS would not have initiated, expanded the scope of, or
       continued to pursue, but for the information provided.

      Treasury Regulation § 301.7623-2(d)(1) clarifies the collection
requirement of section 7623(b)(1):

       [T]he terms proceeds of amounts collected and collected
       proceeds (collectively, collected proceeds) include: Tax,
       penalties, interest, additions to tax, and additional
       amounts collected because of the information provided [by
       the whistleblower] . . . .

      Section 7623(b)(4) further provides that an award determination
by the WBO under section 7623(b) may be appealed to this Court.

III.   Jurisdiction

       A.    General Principles

       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.
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.

       The relevant jurisdictional provision in a whistleblower case is
section 7623(b)(4). It provides that “[a]ny determination regarding an
award under [section 7623(b)](1), (2), or (3) may . . . be appealed to the
Tax Court (and the Tax Court shall have jurisdiction with respect to
such matter).” 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).

       B.    Tax Court Jurisdiction

      In Li v. Commissioner, 22 F.4th 1014, 1017 (D.C. Cir. 2022), the
D.C. Circuit clarified that we do not have jurisdiction over an appeal of
                                    13

a “threshold rejection” of a whistleblower award claim where the IRS
does not proceed with any relevant administrative or judicial action
against the target taxpayers. In so holding, the D.C. Circuit observed
that “an award determination by the IRS 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 whistleblower].’” Id. (quoting I.R.C. § 7623(b)(1)) (alteration in
original). After Li, in Whistleblower 972-17W, 159 T.C., slip op. at 7–10,
we held that if the IRS proceeded with an action against target
taxpayers identified by the whistleblower’s information and collected
proceeds from the target taxpayers, our Court has jurisdiction over the
appeal notwithstanding the WBO’s contention that the collection was
not based on the issues identified by the whistleblower.

       We now likewise hold that we have jurisdiction over cases, like
this one, where the IRS proceeded with an administrative or judicial
action against the target taxpayers and, at some point after the
whistleblower provided information, collected proceeds in connection
with the issue or issues raised by the whistleblower. Our rationale is
essentially the same as in Whistleblower 972-17W: If the question of
whether the IRS prevailed in the various SOS shelter collection actions
“based on” Mr. Berenblatt’s information were jurisdictional, then we
could not determine whether we have jurisdiction until deciding
virtually the entire case on its merits. Moreover, it would be unclear
what scope and standard of review to apply in making that jurisdictional
determination. See id. at 9–10. Here, with an “action” commenced and
“collection” of proceeds, we conclude that we have jurisdiction to review
Mr. Berenblatt’s appeal of the denial of his claim for an award.

IV.   Standard and Scope of Review in Whistleblower Cases

       In reviewing an award determination of the WBO, we employ the
standard of review of section 706(2)(A) of the Administrative Procedure
Act, which generally tells a reviewing court to reverse agency action that
it finds “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” Kasper v. Commissioner, 150 T.C. 8, 21 (2018).

       Our scope of review of WBO determinations is generally confined
to the administrative record (the so-called record rule). Id. at 20; cf.
James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir.
1996). “Ordinarily the record is comprised of those documents that were
before the administrative decisionmaker,” including “all the information
it considered directly or indirectly.” Cape Hatteras Access Pres. All. v.
                                    14

U.S. Dep’t of Interior, 667 F. Supp. 2d 111, 114 (D.D.C. 2009) (first citing
Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971);
and then citing Amfac Resorts, L.L.C. v. U.S. Dep’t of Interior, 143 F.
Supp. 2d 7, 12 (D.D.C. 2001)). As articulated by the D.C. Circuit, a court
generally should have before it neither more nor less information than
the agency (here, the WBO) had when it made its determination. Hill
Dermaceuticals, Inc. v. FDA, 709 F.3d 44, 47 (D.C. Cir. 2013).

      Because our standard of review for WBO award determinations
is abuse of discretion and our scope of review is limited to the
administrative record, we must be cautious in granting motions to
compel discovery.

V.    Discovery in Whistleblower Cases

       In general, the propriety of a discovery request hinges on the
underlying substantive dispute and how this Court may resolve that
dispute. See Rule 70. In particular, Rule 70(b)(1) provides, in relevant
part: “Discovery may concern any matter not privileged that is relevant
to the subject matter involved in the pending case.”

       However, in the context of record-rule cases, the D.C. Circuit has
held that “[d]iscovery typically is not available,” given the presumption
that the agency has properly designated the record. Air Transp. Ass’n
of Am. v. Nat’l Mediation Bd., 663 F.3d 476, 487 (D.C. Cir. 2011) (citing
Air Transp. Ass’n of Am., No. 10-0804, 2010 U.S. Dist. LEXIS 144089,
at *5 (D.D.C. June 4, 2010)). According to that court, there are two
narrow exceptions to this general rule: “[I]f a party makes a significant
showing—variously described as a strong, substantial, or prima facie
showing—that it will find material in the agency’s possession indicative
of bad faith or an incomplete record, it should be granted limited
discovery.” Id. at 487–88 (citing Air Transp. Ass’n of Am., 2010 U.S.
Dist. LEXIS 144089, at *5). In its reference to the applicable standard
(“variously described as strong, substantial, or prima facie”), the D.C.
Circuit summarized several strands of previous caselaw. Cf. Air Transp.
Ass’n of Am., 2010 U.S. Dist. LEXIS 144089, at *5 (collecting cases).

      Therefore, whistleblowers may be granted limited discovery if
they make a significant showing that there is material in the IRS’s
possession indicative of bad faith on the IRS’s part in connection with
the case or of an incomplete administrative record compiled by the IRS.
In evaluating the adequacy of the whistleblower’s showing, we will bear
in mind that (as noted by the U.S. District Court for the District of
                                   15

Columbia) “a party must provide good reason to believe that discovery
will uncover evidence relevant to the Court’s decision to look beyond the
[designated] record.” Amfac Resorts, L.L.C., 143 F. Supp. 2d at 12.
Condoning discovery beyond these conditions would belie this Court’s
limited scope of review in whistleblower cases. In this case, Mr.
Berenblatt has not alleged bad faith; therefore, we focus on whether the
record was incomplete and briefly address the rules for completing the
designated record.

VI.   Discovery Aimed at Completing the Administrative Record

      In Air Transport Association of America, the D.C. Circuit
countenanced discovery aimed at remedying an “incomplete record.”
Since the D.C. Circuit did not explicitly define that phrase in Air
Transport Association of America (or subsequently), we now look to
other applicable law and precedents.

      A.     Treasury Regulation § 301.7623-3(e)

      Treasury Regulation § 301.7623-3(e) provides a general
statement regarding a whistleblower’s administrative record and a list
of materials that the IRS has determined will always be included in that
record, namely:

      Treas. Reg. § 301.7623-3(e) Administrative record. (1) In
      general.     The administrative record comprises all
      information contained in the administrative claim file that
      is relevant to the award determination and not protected
      by one or more common law or statutory privileges.
                   (2) Administrative claim file.             The
             administrative claim file will include the following
             materials relating to the action(s) to which the
             determination relates—
                          (i) The Form 211, ‘‘Application for
                   Award for Original Information,’’ filed by the
                   whistleblower and all information provided
                   by the whistleblower (whether provided with
                   the whistleblower’s original submission or
                   through a subsequent contact with the IRS).
                          (ii) Copies of all debriefing notes and
                   recorded     interviews     held    with   the
                   whistleblower (and the whistleblower’s legal
                   representative, if any).
                                  16

                          (iii) Form(s) 11369, ‘‘Confidential
                   Evaluation Report on Claim for Award,’’
                   including narratives prepared by the relevant
                   IRS office(s), explaining the whistleblower’s
                   contributions to the actions and documenting
                   the actions taken by the IRS in the case(s).
                   The Form 11369 will refer to and incorporate
                   additional documents relating to the issues
                   raised by the claim, as appropriate, including,
                   for example, relevant portions of revenue
                   agent reports, copies of agreements entered
                   into with the taxpayer(s), tax returns, and
                   activity records.
                          (iv) Copies of all contracts entered into
                   among the IRS, the whistleblower, and the
                   whistleblower’s legal representative (if any),
                   and an explanation of the cooperation
                   provided by the whistleblower (or the
                   whistleblower’s legal representative, if any)
                   under the contract.
                          (v) Any information that reflects
                   actions by the whistleblower that may have
                   had a negative impact on the IRS’s ability to
                   examine the taxpayer(s).
                          (vi) All correspondence and documents
                   sent by the Whistleblower Office to the
                   whistleblower.
                          (vii) All notes, memoranda, and other
                   documents made by officers and employees of
                   the Whistleblower Office and considered by
                   the official making the award determination.
                          (viii)    All     correspondence     and
                   documents received by the Whistleblower
                   Office from the whistleblower (and the
                   whistleblower’s legal representative, if any)
                   in the course of the whistleblower
                   administrative proceeding.
                          (ix) All other information considered by
                   the official making the award determination.

       For purposes of evaluating whether a whistleblower has made a
significant showing that there is material in the IRS’s possession
indicative of an incomplete record, we will deem all materials listed in
                                          17

Treasury Regulation § 301.7623-3(e) to be necessary parts of the
complete record.

        B.     Materials Directly or Indirectly Considered

       In Van Bemmelen, 155 T.C. at 74 (quoting Cape Hatteras Access,
667 F. Supp. 2d at 114), we explained that a complete administrative
record must contain “all the information [the WBO] considered directly
or indirectly” in reaching its decision. Accordingly, we may allow limited
discovery if a whistleblower makes a significant showing that the IRS
has failed to include materials that the WBO considered, directly or
indirectly, in reaching its decision. However, in evaluating the strength
of the whistleblower’s showing, we will be mindful that “[a]bsent a
substantial showing made with clear evidence to the contrary, an agency
is presumed to have properly designated the administrative record.” Id.
at 74. Indeed, for a Court to order completion of the designated record,
“the [petitioner] must overcome this strong presumption of regularity by
putting forth concrete evidence that the documents it seeks to ‘add’ to
the record were actually before the decisionmakers.” Id. at 74–75
(quoting Cape Hatteras Access, 667 F. Supp. 2d at 114). 6

        C.     Extra-Record Evidence

      In Van Bemmelen, we explained that in exceptional
circumstances we may supplement the designated record with evidence
that the WBO neither directly nor indirectly considered (i.e., “extra-
record” evidence). The D.C. Circuit has “recognized a small class of cases
where district courts [or, as here, our Court] may consult extra-record
evidence when ‘the procedural validity of the [agency]’s action . . .
remains in serious question.’” Hill Dermaceuticals, Inc., 709 F.3d at 47
(second and third alterations in original) (quoting Esch v. Yeutter, 876
F.2d 976, 991 (D.C. Cir. 1989)). Specifically, the D.C. Circuit has

         6 For clarity, we emphasize the distinction between a motion to compel

discovery and a motion to complete or supplement the record. The former motion seeks
to obtain material relevant to the case that was not included in the administrative
record. If a petitioner discovers such material, he or she may then proceed with the
latter motion and move the court to either “complete” the administrative record with
material that should have been included in the designated record but was excluded by
the agency or “supplement” the administrative record with material that was not
initially before the agency but that the petitioner believes should nonetheless be
considered in conjunction with the administrative record (i.e., extra-judicial or extra-
record evidence). Our standards for evaluating motions to complete and supplement
the record are set out in Van Bemmelen, 155 T.C. at 73–78.
                                    18

identified three standards under which extra-record evidence may be
consulted:

       (1) if the agency “deliberately or negligently excluded
       documents [from consideration] that may have been
       adverse to its decision,” (2) if background information was
       needed “to determine whether the agency considered all
       the relevant factors,” or (3) if the “agency failed to explain
       administrative action so as to frustrate judicial review.”

City of Dania Beach v. FAA, 628 F.3d 581, 590 (D.C. Cir. 2010) (quoting
Am. Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008)); see
also James Madison Ltd. by Hecht, 82 F.3d at 1095.

      Importantly, City of Dania Beach discussed only supplementing
the administrative record and not “discovery.” Here, we note that our
disposition of Mr. Berenblatt’s Motions to Compel is not dependent on
City of Dania Beach’s three standards. Therefore, we leave for
consideration in a future case whether discovery is appropriate to
uncover extra-record evidence.

       D.    Summary of Discovery Rules

       On the basis of the foregoing, we hold that whistleblower
discovery requests are appropriate upon a significant showing that
(1) there is material in the IRS’s possession indicative of bad faith on the
IRS’s part in connection with the case or (2) there is material in the IRS’s
possession indicating that the designated record omits material the
WBO actually considered (directly or indirectly) or that otherwise falls
under a category listed in Treasury Regulation § 301.7623-3(e).

VII.   Analysis of Mr. Berenblatt’s Motions to Compel

       Mr. Berenblatt’s discovery issues are thorny given the length of
time the SOS tax shelter investigation had been ongoing before his
involvement and the substantial records compiled by IRS CID before his
interview. Importantly, while we have allowed whistleblowers to add
material to the designated administrative record at times, we have not
allowed them to conduct fishing expeditions during discovery. With this
background in mind, we evaluate Mr. Berenblatt’s individual discovery
requests.

      Mr. Berenblatt has not supported his Motions to Compel with any
evidence of bad faith on the IRS’s part, and he has specifically
                                    19

disclaimed any such allegation. He does contend that the record
produced by the IRS excludes certain documents related (in some way)
to his claim for award, namely, the interview documents and
subpoenaed records referred to in Mr. Chandler’s Form 11369 narrative,
expert reports from the SOS litigation, and additional notes and memos
related to his interview with IRS CID.

         Therefore, Mr. Berenblatt’s contentions center on his insistence
that the administrative record produced by the IRS is incomplete.
Respondent vehemently disagrees and, in connection with this
litigation, provided a 765-page administrative record, accompanied by a
declaration of Ms. Meis attesting to its completeness and accuracy.
Respondent contends that Mr. Berenblatt’s requests are outside the
scope of discovery and that he “did not contribute any information that
. . . respondent used in any way in [his] investigations of the subjects of
petitioner’s whistleblower claim.” Thus, we are left to sort through
whether Mr. Berenblatt has made a significant showing of an
incomplete record.

      A.     Compelling Additional Document Production

             1.     Mr. Berenblatt’s Contention of an Incomplete Record

       Mr. Berenblatt’s document request Nos. 23 and 24 ask for any
documents relating to the “over 100 individuals [who] had been
interviewed in the [SOS] investigation” before the IRS’s interview with
Mr. Berenblatt, along with the “financial and tax related subpoenaed
records” referenced by Mr. Chandler in his Form 11369 narrative. Mr.
Berenblatt argues that the complete administrative record would
include all such documents because SA Chandler was the decision
maker for purposes of the record rule, insofar as he completed the Form
11369 on which Ms. Meis relied.           Thus, he contends that the
administrative record must include all documents available to SA
Chandler at the time he completed the Form 11369 because they were
considered at least indirectly in reaching a decision on Mr. Berenblatt’s
claim.

       These contentions fail. First of all, Ms. Meis and her colleagues
in the WBO were the decision makers for Mr. Berenblatt’s award claim,
not Mr. Chandler. Moreover, Mr. Berenblatt has failed to show that the
WBO indirectly considered the interview documents and subpoenaed
records. Mr. Chandler’s Form 11369 narrative contains no description
whatsoever of the contents of the interview documents or subpoenaed
                                        20

records (nor does the narrative clearly imply what those contents are).
Regardless, Respondent has taken the position that Mr. Berenblatt did
not contribute to the investigation because the IRS investigation was
already well underway at the time of Mr. Berenblatt’s interview.
Respondent is in effect arguing that there was not a substantial
contribution (nor any contribution) under section 7623(b)(2).

       Mr. Berenblatt counters that any relevant documents available to
the WBO when it ruled on his claim are discoverable whether or not the
WBO reviewed them. Mr. Berenblatt cites one of our previous opinions
for the proposition that “the administrative record [in a collection due
process case] includes not only material that the settlement officer
reviewed but also material that was available for his review.” Emery
Celli Cuti Brinckerhoff & Abady, P.C. v. Commissioner, T.C. Memo.
2018-55, at *21 (holding that an IRS settlement officer abused his
discretion in failing to consider information submitted by the taxpayer
after the due date for submissions but before issuance of the notice of
determination). However, the documents at issue in Emery had been
sent by the taxpayer directly to the settlement officer whose decision we
were reviewing for abuse of discretion. Likewise, in the two similar
cases we cited in Emery—Thompson v. U.S. Department of Labor, 885
F.2d 551, 553–56 (9th Cir. 1989), and West v. Commissioner, T.C. Memo.
2010-250, slip op. at 11 n.11—the litigating parties sent relevant
documents to the agency decision makers or otherwise brought those
documents to their attention.

       We therefore find Emery inapposite here. 7 If any potentially
available document in the IRS’s possession at the time the WBO made
its decision were discoverable, that would render the record rule all but
meaningless. Here, there is no evidence or contention that Mr.
Berenblatt submitted the interview documents or subpoenaed records to
the WBO. Discovery of items available to Mr. Chandler or the WBO is
limited to those relevant to Mr. Berenblatt’s contribution to the ongoing
investigation and generally does not extend to those created before his
interview.

       As clarified in Treasury Regulation § 301.7623-3(e)(2)(iii), the
administrative record includes any Form 11369 prepared with respect
to the whistleblower’s case (e.g., the Form prepared by Mr. Chandler,

        7 This Court has noted before that “[w]histleblower cases are just different

[from collection due process cases such as Emery]”—in part because whistleblowers do
not come before us in their capacity as taxpayers. Kasper, 150 T.C. at 20.
                                           21

which has already been included in the administrative record). The
regulation further notes that “[t]he Form 11369 will refer to and
incorporate additional documents relating to the issues raised by the
claim, as appropriate.” This regulation does not explicitly include all
such “additional documents” in the record. Even assuming that the
documents “incorporate[d]” into the Form 11369 are per se part of the
record, for the reasons stated above Mr. Chandler cannot be said to have
incorporated the interview records and subpoenaed documents into his
Form 11369. 8 There is no good evidence (let alone a significant showing)
that any of the documents at issue in request Nos. 23 and 24 are part of
the complete administrative record.          We therefore reject Mr.
Berenblatt’s argument that his administrative record is incomplete
because it did not include the interview documents and subpoenaed
records obtained before his interview.

                2.      Mr. Berenblatt’s Contention of Negligence

       Mr. Berenblatt suggests that even if the WBO neither directly nor
indirectly considered the interview documents and subpoenaed records,
it should have reviewed them and was negligent in failing to do so. If
this is true, Mr. Berenblatt might qualify for discovery by virtue of
showing that extra-record evidence can be consulted pursuant to the
first City of Dania Beach standard (viz, if the WBO deliberately or
negligently excluded from consideration documents that may have been
adverse to its decision). 9

        However, Mr. Berenblatt’s own submissions to the WBO—in
particular, the December 8 memorandum—belie his theory of
negligence. In that memorandum Mr. Berenblatt cites Stobie Creek
Investments, LLC v. United States, 82 Fed. Cl. 636 (2008) (No. 05-748),
aff’d, 608 F.3d 1366 (Fed. Cir. 2010), apparently the first case in which
the Government prevailed against an SOS shelter. Mr. Berenblatt
contends that the Government’s expert witness, David F. DeRosa,
“echoed” the nontax business purpose (lack of economic substance)
argument that Mr. Berenblatt had conveyed to the IRS agents during

        8 Meanwhile, we cannot accept (and the regulation does not indicate) that just
any external document that a Form 11369 “refer[s] to”—however glancingly—is per se
part of the record.
        9 We reiterate that we are not here deciding whether extra-judicial or extra-

record evidence is discoverable in whistleblower cases. Therefore, we entertain Mr.
Berenblatt’s allegation of negligence only to show that it does not affect our disposition
of his Motions to Compel.
                                        22

his November 2007 interview. However, we take judicial notice that Dr.
DeRosa’s Expert Report submitted in that case is dated September 14,
2007—before Mr. Berenblatt’s interview. 10 See United States’ Response
to Plaintiffs’ Motion in Limine to Exclude Reports and Testimony of Dr.
David F. DeRosa, Exhibit 1, Stobie Creek Invs., LLC. Dr. DeRosa’s
report opines on an SOS shelter transaction and includes the following
relevant statements (supported by ample fact-specific analysis):

       I concluded that the Participants’ digital options had the
       “appearance” of a sweet spot, but that the sweet spot could
       never materialize because [the intermediary bank] would
       prevent the sweet spot from being hit.

Id. at 25.

       Given the inability to satisfy any of the business purposes
       addressed above, I conclude that the Participants created
       no meaningful advantage by contributing the offsetting
       options to Stobie Creek Investments, LLC, and that
       therefore Stobie Creek Investments, LLC had no business
       purpose in the context of these transactions.

Id. at 93.

       Given that Mr. Berenblatt referenced Dr. DeRosa’s testimony in
his December 8 memorandum to the WBO and, further, that Dr.
DeRosa’s expert report indicates the Government had already developed
the nontax business purpose argument before Mr. Berenblatt’s
interview, we conclude that the WBO was not negligent in failing to
review the interview documents and subpoenaed records at issue (or, at
worst, its failure was harmless error). The existence of Dr. DeRosa’s
report strongly suggests that such a review would have been
superfluous. 11

       10 The report was filed in the Court of Federal Claims on March 19, 2008, but
is dated September 14, 2007.
        11 We emphasize that we are not here deciding that Mr. Berenblatt’s Form 211

claim for award lacks merit. Rather, we determine only that the existence of Dr.
DeRosa’s report—and its label of September 14, 2007—defeats any significant showing
of WBO negligence in failing to exhaustively review interview documents and
subpoenaed records collected in connection with the SOS litigation.
                                          23

               3.      Remaining Document Requests

       Mr. Berenblatt’s remaining document requests—Nos. 2(a) and
12—are for documents “containing the objectives, strategies, and
progress of the SOS Shelter Investigation” and for expert witness
reports prepared for the IRS during SOS litigation. Mr. Berenblatt does
not contend that the WBO directly or indirectly considered any of these
documents, nor are we aware of any evidence to that effect. Nor do any
of these records fall under one of the categories listed in Treasury
Regulation § 301.7623-3(e). Moreover, we find these requests to be
overly broad and unduly burdensome because they seek workplans and
routine work investigation documents regardless of whether those
records relate to information that Mr. Berenblatt provided to the IRS or
fall within the timeframe of Mr. Berenblatt’s disclosures. Accordingly,
these discovery requests amount to a fishing expedition. We also agree
with Respondent that much of the information requested (in particular,
most or all of the expert witness reports) is publicly available and thus
obtainable from another source. See Rule 70(c). Therefore, we cannot
uphold any of Mr. Berenblatt’s four document requests. 12

        B.     Compelling Additional Answers to Interrogatories

       Most of Mr. Berenblatt’s interrogatory response requests seek to
compel responses that Respondent has already provided or
identification of documents that Respondent asserts do not exist. Our
discovery rules do not allow duplicative requests, and we cannot compel
discovery of nonexistent information. Rule 70(c). Neither will we
compel Respondent to prove a negative. As with the document requests,
we will not sanction a fishing expedition nor compel responses related
to information outside the designated administrative record without a
significant showing of bad faith or an incomplete record. With that
background, we find that one of Respondent’s partial responses to Mr.
Berenblatt’s interrogatory response requests was sufficiently terse or
indirect as to call into question whether the WBO improperly failed to
include information in its possession that might be a proper part of Mr.
Berenblatt’s administrative record.

        12 In supplemental filings with this Court, Mr. Berenblatt has proposed seeking

discovery of certain documents that the IRS identified as being in the possession of the
District Court for the Southern District of New York, which oversaw the grand jury
investigation of the SOS shelter promoters. Mr. Berenblatt cannot proceed with this
third-party discovery unless and until it becomes clear that some or all of these
documents are discoverable in his case under the standards set out here.
                                    24

       Interrogatory No. 3(e) asks Respondent to identify all documents
pertaining to Mr. Berenblatt’s November 2007 interview with the two
CID SAs and RA Mason, or more specifically to “[i]dentify all Documents
concerning the Berenblatt interview . . . including but not limited to
notes from [Revenue] Agent Arthur Mason who was present and taking
notes at the interview.”

       The Internal Revenue Manual (IRM) instructs that handwritten
notes are to be kept in the investigative file; however, it does not require
agents to take notes during an interview. IRM 9.4.5.9.3 (Feb. 1, 2005).
It also allows agents to use their discretion on whether to prepare a
Memorandum of Interview: “A memorandum of interview is an informal
note or document containing information that the person desires to
memorialize.” IRM 9.4.5.7.4(1) (May 15, 2008).

       Respondent has replied to interrogatory No. 3(e) stating that he
already disclosed the documents related to Mr. Berenblatt’s interview.
However, Respondent leaves unclear whether RA Mason took notes,
stating that “Special Agent Chandler does not believe RA Arthur Mason
took notes at the interview.” (Emphasis added.) By contrast, Mr.
Berenblatt has conveyed his recollection that RA Mason took notes
throughout the interview. We have no reason to doubt the sincerity or
accuracy of Mr. Berenblatt’s memory. And because Treasury Regulation
§ 301.7623-3(e)(2)(ii) refers to “[c]opies of all debriefing notes and
recorded interviews held with the whistleblower,” any notes that RA
Mason took at the interview are part of the complete record. Therefore,
we will compel Respondent to clarify whether RA Mason took notes
during Mr. Berenblatt’s interview and, if so, whether such notes still
exist, were lost, or were destroyed.

       The remaining interrogatory response requests either were
adequately addressed or seek information from before Mr. Berenblatt’s
involvement with the SOS shelter investigation or beyond the scope of
inquiry in a whistleblower claim. For example, in interrogatory No.
10(a) Mr. Berenblatt asks Respondent to describe how the special agents
searched for information pertinent to his administrative record. It is
Mr. Berenblatt’s burden in the first instance to make a significant
showing that the administrative record is incomplete, not Respondent’s
obligation to defend how the administrative record was compiled.
                                  25

VIII. Overall Observations Regarding the Motions to Compel

       Because all of Mr. Berenblatt’s document requests and most of his
interrogatory response requests are unsupported by a significant
showing of bad faith or an incomplete record, we will deny his Motions
to Compel except as to interrogatory response request No. 3(e), as noted
above. Generally, we will allow only limited discovery targeted to Mr.
Berenblatt’s contact with the IRS and not the entirety of the SOS
investigation before his involvement.

IX.   Conclusion

       Mr. Berenblatt asks this Court to compel discovery seeking
information and documents that the WBO never considered. Most of
Mr. Berenblatt’s discovery requests in his Motions to Compel clearly go
well beyond the administrative record. He has not tried to show bad
faith in Respondent’s designation of the administrative record or
handling of his claim, and we see no such evidence. Moreover,
Respondent adequately answered most of Mr. Berenblatt’s interrogatory
response requests, with the one exception noted above. Respondent’s
remaining objections (concerning section 6103, Rule 6(e) of the Federal
Rules of Criminal Procedure, the exception for attorney work product,
and the deliberative process privilege) do not apply to the specific
interrogatory response we are compelling.

      To implement the foregoing,

      An appropriate order will be issued.