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McCrory v. Commissioner (156 T.C. No. 6)

On March 2, 2021, the Tax Court issued its opinion in McCrory v. Commissioner, 156 T.C. No. 6. The underlying issue presented in McCrory was whether the preliminary award recommendation issued by the IRS’s Whistleblower Office under IRC § 7623(a) constitutes a binding “determination” within the meaning of IRC § 7623(b)(4)Not so much.

Procedural Background

The petitioner filed 21 Forms 211 (Application for Award for Original Information) with the IRS’s Whistleblower Office (WBO), alleging that 21 taxpayers underreported their tax obligations. The WBO sent the petitioner a letter recommending a preliminary award under IRC § 7623(a). The petitioner neither agreed nor disagreed with the preliminary award recommendation. What the petitioner did instead was file a petition seeking review of the preliminary award recommendation. The IRS moved to dismiss, arguing that the Tax Court lacked jurisdiction.

Short Holding and Takeaway

The preliminary award recommendation under IRC § 7623(a) does not constitute a “determination” within the meaning of IRC § 7623(b)(4), which is a prerequisite for Tax Court jurisdiction. The Tax Court thus lacks jurisdiction because no determination was issued to the petitioner that would have conferred jurisdiction on the Tax Court.

Whistler McCrory

A Perennial Whistleblower

Not only did the petitioner report 21 separate taxpayers, this was the petitioner’s ninth time blowing said whistle. One would think, therefore, that she knew her way around the whistleblower rodeo. The preliminary award recommendation letter stated that if the petitioner agreed with the award, she must check the box, sign, date, and return the letter to the WBO.  She did not. Neither did she disagree with the award.

Inspired, the petitioner instead created a third box on the response form stating that she neither agreed nor disagreed with the preliminary award recommendation. The petitioner further stated that she would need to see the administrative files to understand how the cases were handled by the WBO before she would agree.  The WBO did not acquiesce to this request, citing the fact that said administrative files contain a wealth of confidential taxpayer information.

If at First You Don’t Succeed…

You have to hand it to the petitioner for her gumption. After receiving this rebuke from the WBO, she filed a Tax Court petition requesting “disclosure of the information that would explain IRS decision-making” with respect to the preliminary award recommendation.

Tax Court Whistleblower Award Jurisdiction

The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. 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 statutory grant. See Phillips Petroleum Co. & Affiliated Subs. v. Commissioner, 92 T.C. 885, 888 (1989).

The Tax Court, nevertheless, has jurisdiction to determine whether it has jurisdiction. Hambrick v. Commissioner, 118 T.C. 348, 350 (2002); Pyo v. Commissioner, 83 T.C. 626, 632 (1984); Kluger v. Commissioner, 83 T.C. 309, 314 (1984).

This seems rather like the fox guarding the henhouse, but there you have it.

IRC § 7623(b)(4) provides that any determination regarding an award may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court will have jurisdiction with respect to such matter). See Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 186-187 (2011); Kasper v. Commissioner, 137 T.C. 37, 41 (2011). Although the petitioner timely filed her petition, the jurisdiction of the Tax Court was “nevertheless dependent” on a finding that a determination had been made. Kasper, 137 T.C. at 41.

So, What the Heck is a “Determination” for Whistleblowing Purposes?

Not surprisingly, IRC § 7623 does not “clearly” or “actually” define what constitutes a “determination” or require that the whistleblower be issued any particular form of notice. Kasper, 137 T.C. at 41; see Whistleblower 22231-12W v. Commissioner, T.C. Memo. 2014-157, at *11. The name or label of a document does not control whether the document constitutes a determination, and the Tax Court’s jurisdiction is established when the IRS issues a written notice that embodies a determination. Cooper v. Commissioner, 135 T.C. 70, 75 (2010).

Whelp, that clears it up.  But just for fun, what the actual hell do you mean?  A determination is a determination when it’s a determination.  So determined.

The Tax Court has previously held that a letter was determination when such letter was a “final administrative” decision regarding the whistleblower claims in accordance with the established procedures. Cooper, 135 T.C. at 76; Kasper, 137 T.C. at 41.

Similarly, the Court held that a letter constituted a “determination” when it contained a statement on the merits of a whistleblower claim, referred for the first time in a letter to the whistleblowers to the fact that a determination had been made on their claim, and did not indicate that further administrative procedures were available to the whistleblowers. Comparini v. Commissioner, 143 T.C. 274, 279 (2014).  The Tax Court has even held that the WBO may issue more than one determination in any given whistleblowin’ case.  Id. at 282-83.

Finally, a “determination” occurs where the WBO has notified the whistleblower that an award will be “forthcoming.” Whistleblower 4496-15W v. Commissioner, 148 T.C. 425, 430 (2017).

Candidly, this is the only thing that is “forthcoming” about this whole damn decision.

The Petitioner’s Unavailing Argument

The petitioner contends the preliminary letter embodied a “determination” because the letter: (1) requested that she waive her appeal rights; (2) did not indicate that the preliminary award amount would change; and (3) did not indicate that a subsequent determination would be issued.

The Tax Court was unimpressed—not by the petitioner’s lack of creativity, but by the petitioner’s lack of legal “authority” for her position.

Hoisted by the WBO’s Petard

The preliminary award recommendation did not denote a final administrative decision that petitioner would receive an award in a specific amount. See Whistleblower 4496-15W, 148 T.C. at 430. The letter explicitly stated that the award amount was a “preliminary recommendation” because the determination of tax is “not final and is subject to change.”

So, to be clear, the letter that the petitioner argued was a determination because said (1) did not indicate that the preliminary award amount would change and (2) did not indicate that a subsequent determination would be issued did in in fact indicate that the award could change and did in fact indicate that a subsequent determination could be issued.  This is, it appears, when “creativity” is at odds with “reality.”

Accordingly, because the petitioner’s administrative proceeding has not concluded and there has not been a final determination of tax, the WBO had not—nor was it permitted to under the Treasury Regulations—pay an award or issue a final decision letter to petitioner.  See Treas. Reg. § 301.7623-3(b)(2) (permitting the WBO to communicate the amount of an award at the conclusion of the administrative process and when there is a final determination of tax).

A Stark Reality

The preliminary award recommendation the WBO issued to the petitioner did not constitute a “determination” within the meaning of IRC § 7623(b)(4) because it was not a final administrative decision regarding the whistleblower claims in accordance with the established procedures. See Cooper, 135 T.C. at 76.  See, also, the fact that the letter actually stated in bold letters (maybe) that it wasn’t a freaking final determination.  Semantics, really.

(156 T.C. No. 6) McCrory v. Commissioner

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