McCrory v. Commissioner
T.C. Memo. 2021-116

On October 4, 2021, the Tax Court issued a Memorandum Opinion in the case of McCrory v. Commissioner (T.C. Memo. 2021-116). The primary issue presented in McCrory v. Commissioner was whether the IRS Whistleblower Office’s rejections of the petitioner’s claims were unsupported by the administrative record and were arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.

Background to Whistleblower Claims in McCrory v. Commissioner

McCrory v. CommissionerThe petitioner submitted six Forms 211 (Application for Award for Original Information), on April 5, 2018, in which she alleged that certain individuals (target taxpayers) may not have reported taxable income from settlements or jury awards. The IRS received these forms and assigned a claim number to each of them. The petitioner then submitted thirteen additional Forms 211, most of which were dated April 22, 2018. On these forms, the petitioner made the same allegations that she had made in the first set of WB claims but with respect to different target taxpayers. Once again, the IRS received these forms and assigned a claim number to each of them.

Each set of claims was accompanied by a cover letter in which petitioner disclosed that her allegations were based on a “hypothesis” and were supported by publicly available information. For each claim she attached certain publicly available information.

In each of the 19 Award Recommendation Memoranda (ARM), the IRS Whistleblower Office (WBO) reflected that a classifier reviewed petitioner’s allegations, compared them with relevant IRS records, and recommended rejection of petitioner’s claims because the “[a]llegations are not specific, credible, or are speculative.”

Awards Under IRC § 7623

An individual may be entitled to an award under IRC § 7623(a) for providing the IRS with information leading to the detection of underpayments of tax or the detection and bringing to trial and punishment persons guilty of violating the internal revenue laws. IRC § 7623(b) makes whistleblower awards mandatory if certain requirements are met. See Van Bemmelen v. Commissioner, 155 T.C. 64, 71 (2020). A whistleblower award under IRC § 7623(b)(1) requires that the IRS initiate an administrative or judicial action and collect tax proceeds. See Cohen v. Commissioner, 139 T.C. 299, 302 (2012), aff’d per curiam, 550 F. App’x 10 (D.C. Cir. 2014); Cooper v. Commissioner, 136 T.C. 597, 600 (2011).

Tax Court Jurisdiction & Scope of Review
McCrory Jurisdiction
…and where the Tax Court’s begins.

The Tax Court has jurisdiction over any determination made by the IRS regarding an award under IRC § 7623(b)(1), (2), or (3), including rejections and denials of claims for awards. See IRC § 7623(b)(4); Lacey v. Commissioner, 153 T.C. 146, 163-64, 169 (2019). Although it has jurisdiction to review such determinations, the Tax Court does not have authority to order the IRS to commence an administrative or judicial proceeding, or to review the IRS’ determination of the alleged tax liability to which a whistleblower’s claim pertains. See Lacey, 153 T.C. at 164; Cohen, 139 T.C. at 302 (citing Cooper, 136 T.C. at 600).

The Tax Court limits its review to the administrative record to decide whether there has been an abuse of discretion. Van Bemmelen, 155 T.C. at 78; see also Kasper v. Commissioner, 150 T.C. 8, 22 (2018). In such cases (and the instant cases are no exception), the Tax Court reviews, as a matter of law, whether the agency action is supported by the administrative record and is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. Rogers v. Commissioner, 157 T.C. No. 3, slip op. at *11) (Aug. 2, 2021) (citing Van Bemmelen, 155 T.C. at 79).

WBO Evaluation and Rejection

McCrory RejectionPursuant to IRC § 7623 and the regulations thereunder, the WBO performs an initial evaluation of a whistleblower’s submission to determine whether the claim, on its face, meets minimum standards. See Van Bemmelen, 155 T.C. at 81-83; Lacey, 153 T.C. at 159-60; Worthington v. Commissioner, T.C. Memo. 2020-141; Treas. Reg. § 301.7623-1(c)(1), (4). A rejection occurs when the whistleblower’s submission is insufficient on its face because it fails to meet certain threshold requirements. Treas. Reg. § 301.7623-3(c)(7); see also Lacey, 153 T.C. at 168-69.

If, in its initial evaluation, the WBO determines that a claim is deficient, it can (and will) “reject” the claim. Lacey, 153 T.C. at 161. Submissions that “provide speculative information or that do not provide specific and credible information regarding tax underpayments or violations of internal revenue laws do not provide a basis for an award” and may be summarily rejected by the WBO. Treas. Reg. § 301.7623-1(c)(1).

Abuse of Discretion?
McCrory Hardly
In a word…

In the present case, the WBO received, initially evaluated, and completed an ARM for every claim. On each ARM the classifier completed all appropriate sections, checked the boxes next to multiple command codes, indicating that the classifier retrieved information from IRS databases and systems, and included a bulleted review reflecting that the classifier compared the petitioner’s allegations with relevant information from the IRS’ databases and systems, including information about the target taxpayers.  Finally, on each ARM, the classifier recommended rejection of the claim because, “[a]llegations are not specific, credible, or are speculative.”

Consequently, the WBO did not abuse its discretion, and the WBO’s rejections of petitioner’s claims were not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. See Van Bemmelen, 155 T.C. at 79.

(T.C. Memo. 2021-116) McCrory v. Commissioner

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