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Friedel v. Commissioner (T.C. Memo. 2020-131)

On September 17, 2020, the Tax Court issued a Memorandum Opinion in the case of Friedel v. Commissioner (T.C. Memo. 2020-131). The primary issue before the court in Friedel was whether the IRS Whistleblower Office abused its discretion in rejecting a German national’s whistleblower claim against six targets, all of whom were officials within the German government on the basis that they had committed (inter alia) fiduciary fraud, breach of trust, bond fraud, identity theft, torture, abuse of power, corruption, and human trafficking and because they are “criminal Nazi judges and prosecutors.”

The Rhine Runneth with the Crazy

There must be something in the water in der hinterland, because this is the second case this year brought by a crazy German against other German nationals, accusing them of all sorts of crimes against humanity (but failing to allege that any such crimes, in any way, violated U.S. Federal revenue laws). See, Alber v. Commissioner, T.C. Memo. 2020-20 (Jan. 30, 2020) (finding that petitioner was engaged in a lifelong game of Marco Polo with reality, which by all metrics, he was winning handily). I am not proposing that the Rhine is running with crazy wasser, but someone has put a bee in certain receptive Bavarian bonnets.

The Crazy, in Sum

Herr Friedel came to the conclusion that Nazis were running amok in the German government, and, dammit, he was going to do something about it. Sad Nazis were judges and prosecutors, who, one might reasonably assume had not found in Herr Friedel’s favor at some time in the recent past. Friedel explained that the Nazis had committed tax fraud by failing, nay, refusing to submit IRS Forms 1099-OID, 1096, and 1040. The Tax Court notes that Herr Friedel supplied little information to support his claims. What he did provide was a memorandum setting forth his allegations, an identity theft affidavit, and letters that “appear to be from a German court and a German prosecutor that are written entirely in German.” What he did not include, however, were any allegations whatsoever regarding the U.S. tax liability of any of the alleged Nazis.

In Defense of the Whistleblower Office’s Treatment of the Crazy

After the Alber case, one has to assume that the IRS’s Whistleblower Office (WBO) had grown weary of claims that dripped with crazy like honey from a hive. Nevertheless, the WBO assigned six claim numbers, one for each alleged Nazi, and referred them to two patient “classifiers” in the IRS Small Business/Self-Employed Operating Division, rather than simply defenestrating them.

The first classifier reviewed the allegation that a German court committed fiduciary fraud, breach of trust, and bond fraud. Concluding, one can assume rather quickly, that the petitioner’s allegations failed to concern any Federal tax issue, the first classifier “officially” concluded that the petitioner’s allegation lacks credibility based upon the failure to supply any substantiating documents to support the claim.

The second classifier reviewed the remaining five allegations, ostensibly against the Nazi prosecutors (not to be confused with the Nuremberg prosecutors, these prosecutors were, themselves, Nazis). As with the first classifier, the second “ascertained” that each allegation concerning non-U.S. persons and that the allegations for “no relation” whatsoever U.S. tax issues. He also noted that the petitioner, technically, didn’t exactly identify any “tax periods” or “money amounts,” just that shit had gone down, and the aggression wouldn’t stand, man.

The WBO’s Rejection of the Crazy

The WBO issued final determination letters rejecting each of the petitioner’s claims on April 30, 2019. Begrudgingly, each of the letters informed the petitioner of his right to file a petition with the Tax Court within 30 days if he disagreed with a determination. The surprise of no one, least of all the WBO, the petitioner so petitioned the Tax Court for review of the terminations. The petitioner was postmarked by Deutsche Post on June 11, 2019 and was filed by the court 13 days later.

The Crazy Comes to Roost

Herr Friedel did not take kindly to emotional summary judgment that was filed mid-July 2020. In response, Friedel submitted a one page “response” written entirely in German. The Tax Court ordered him to file a certified English translation of his response pursuant to Administrative Order No. 2020-02 (requiring that all documents filed with the Tax Court must be filed in English or include a certified English translation). Whether because the German words that he had used just didn’t have the same effect translated in English, or he thought that the Tax Court was part of the grand Nazi conspiracy, the petitioner replied rather tersely to the Tax Court’s polite request (order) that he provide an English translation. He stated simply “get an interpreter/translator.” (At this time, dear reader, your author did a spit-take and spent the next ten minutes cleaning up tea from his monitors and keyboard.)

The Tax Court Dispenses with the Crazy

Although the Tax Court found that the petitioner had failed to file his petition within 30-day filing. Specified in IRC § 7623(b)(4), based on the 2019 decision by the D.C. Circuit in Myers v. Commissioner, 928 F.3d 1025, 1036 (D.C. Cir. 2019), rev’g and remanding 148 T.C. 438 (2017), the Tax Court begrudgingly followed the precedent set forth by the D.C. Circuit and found that IRC § 7623(b)(4) sets forth a non-jurisdictional claim-processing rule, the violation of which does not deprive the Tax Court of the authority to hear the case. Id. at 1037. Thus, the Tax Court decided the case on its “merits,” of which the Tax Court quickly explained Herr Friedel’s case was totally lacking.

The Tax Court reviews the IRS’s determination as to whether a whistleblower is entitled to an award under IRC § 7623(b)(1) by applying an abuse-of-discretion standard. Kasper v. Commissioner, 150 T.C. 8, 22 (2018). Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). In Lacey v. Commissioner, 153 T.C. 146, 166-169 (2019), the Tax Court held that it had jurisdiction to review, for abuse of discretion, a determination by the WBO to reject the whistleblower claim for failure to meet certain basic criteria pursuant to Treas. Reg. § 301.7623-1(c). Such regulation provides that the WBO may summarily reject claims if such claims supply only speculative information or lack specific and credible information regarding violations of internal revenue laws.

Before any whistleblower award can be paid, IRC § 7623(b)(1) requires that the IRS first proceed with an “administrative or judicial action” and then collect proceeds from the target taxpayer. See Cohen v. Commissioner, 139 T.C. 299, 302 (2012), aff’d, 550 F. App’x 10 (D.C. Cir. 2014); Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 189 (2011). While the Tax Court has jurisdiction to review the IRS’ award determination, IRC § 7623 does not provide the Tax Court with authority to direct the IRS to commence an administrative or judicial action. Cooper v. Commissioner, 136 T.C. 597, 600-601 (2011). If the IRS proceeds with no administrative or judicial action, there can be no whistleblower award. Id. at 601.

The Tax Court noted that the chief violations petitioner alleged – fiduciary fraud, bond fraud, and identity theft by German Government officials (read: Nazis) – had zero nexus to the United States or to Federal tax law. Herr Friedel’s Form 211 mentioned “tax fraud” only in connection with his query whether the targets were required to file certain IRS forms; however, he supplied no support for the “notion” that the German court was required to file with the IRS Form 1099-OID (Original Issue Discount), or that the German judges or prosecutors were required to file Forms 1040. See Treas. Reg. § 1.6049-5(b)(6) (providing that amounts “paid and received outside the United States” are not reported on Form 1099-OID); Treas. Reg. § 1.6012-1(b)(1)(i) (providing that a “nonresident alien individual” need not file Form 1040 unless he is “engaged in a trade or business in the United States”).

As a consequence of the foregoing, and not the least bit owing to the fact that the petitioner was a certifiable German loon, the Tax Court had “no difficulty concluding” that the WBO did not abuse his discretion in rejecting the petitioner’s claims.

(T.C. Memo. 2020-131) Friedel v. Commissioner

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