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Van Bemmelen v. Commissioner (155 T.C. No. 4)

On August 27, 2020, the Tax Court issued its opinion in Van Bemmelen v. Commissioner, 155 T.C. No. 4. The primary issue presented in Van Bemmelen was whether the administrative record could be supplemented with evidence not considered by the IRS’s Whistleblower Office when it rejected the petitioner’s claim.

Background

In 2018, the petitioner submitted a Form 211 to the IRS’s Whistleblower Office (WBO). In this claim, the petitioner references an October 2012 submission regarding the same taxpayer. The claim alleged that a multinational insurance company had engaged in a tax evasion scheme in the amount of approximately $858 million.

In a memorandum rejecting that the petitioner’s claims be rejected, the WBO stated that the allegations were not specific, credible, or were speculative in nature. The memorandum also stated that the information in the claim referenced the 2012 claim, which was likewise determined to lack substance. As a consequence, the WBO issued the petitioner a final determination letter under IRC § 7623(a) without ever commencing an action against or collecting proceeds from the target taxpayer. Petitioner timely petition the Tax Court for review of the determination by the WBO, and the IRS filed a motion for summary judgment.

Supplementation of the Record

The petitioner filed a motion to supplement the record with two items that were not included in the materials that that IRS certified as the administrative record. First, the petitioner moved to supplement the record with the 2012 submission. Second, the petitioner moved to supplement the record with the document dated subsequent to the filing of the petition which represents a presentation that the petitioner made to the IRS Criminal Investigation Division with respect to the original claim.

Tax Court Review of WBO Determination

The Tax Court reviews the action of the WBO for abuse of discretion. Kasper v. Commissioner, 150 T.C. 8, 21 (2018). The Tax Court will not substitute its judgment for that of the agency but instead confines itself to ensuring that the WBO’s determination remained within the bounds of “reasoned decision-making.” Dep’t of Commerce v. New York, 139 S. Ct. 2551, 2569 (2019); Balt. Gas & Elec. Co. v. Nat. Res. Def. Council, Inc., 462 U.S. 87, 105 (1983)). In the course of its review, the Tax Court will not compel the IRS to commence an audit or to provide an explanation of its decision not to commence an audit. See Cohen v. Commissioner, 550 F. App’x 10, 11 (D.C. Cir. 2014), aff’g 139 T.C. 299 (2012); Lewis v. Commissioner, 154 T.C. No. 8, *22 (Apr. 8, 2020).

In reviewing a determination of the WBO, the Tax Court generally confines its review to the administrative record. Kasper, 150 T.C. at 20; see James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996). The administrative record in a whistleblower case normally is expected to include all information provided by the whistleblower (whether provided with the whistleblower’s original submission or through a subsequent contact with the IRS). Treas. Reg. § 301.7623-3(e)(2)(i). The information that a whistleblower provides to the IRS’s operating divisions before submitting a Form 211 to the WBO may be relevant to the whistleblower’s claim for an award. See Whistleblower 21276-13W v. Commissioner, 144 T.C. 290 (2015). Absent a substantial showing made with clear evidence to the contrary, an agency is presumed to have properly designated the administrative record. See Oceana, Inc. v. Ross, 920 F.3d 855, 865 (D.C. Cir. 2019); see also Latif v. Obama, 677 F.3d 1175, 1178 (D.C. Cir. 2011); Nat. Res. Def. Council, Inc. v. Train, 519 F.2d 287, 291 (D.C. Cir. 1975).

Two Distinct Methods of Supplementation

An administrative record may be supplemented in one of two ways.  First, it may be supplemented by including evidence that should have been properly a part of the administrative record but was excluded by the agency.  Second, it may be supplemented by the addition of extrajudicial evidence that was not initially before the agency but that the party believes should nonetheless be included in the administrative record.” Animal Legal Def. Fund v. Vilsack, 110 F. Supp. 3d 157, 160 (D.D.C. 2015); WildEarth Guardians v. Salazar, 670 F. Supp. 2d 1, 5 n.4 (D.D.C. 2009). These two separate types of requests are subject to distinct standards. Oceana, Inc. v. Ross, 290 F. Supp. 3d 73, 78 (D.D.C. 2018).

A court will generally not consider any more or less than what was before the agency at the time it made its decision. This means the agency must compile all the information it considered directly or indirectly. However, it is the responsibility of the deciding agency to compile the administrative record, and the agency is presumed to have properly done so. Cape Hatteras Access Pres. All. v. U.S. Dep’t of Interior, 667 F. Supp. 2d 111, 114 (D.D.C. 2009); see also Sara Lee Corp. v. Am. Bakers Ass’n, 252 F.R.D. 31, 33-36 (D.D.C. 2008).

In order for a Court to order supplementation, the plaintiff 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. If for some reason, materials that were actually a part of the agency’s record were not properly included, whether by design or accident, they should be included in the record for the Court’s review. However, if it can be shown that the materials sought to be included in the record before the court, were indeed before the agency, supplementation is appropriate. Id.

However, the mere fact that the agency possessed a document or evidence at the time it made its decision does not mean that such evidence or document should necessarily become part of the administrative record. See Butte Cty., Cal. v. Chaudhuri, 887 F.3d 501, 507 (D.C. Cir. 2018). However, because the petitioner brought the 2012 submission to the WBO’s attention with respect to the present claim, the 2012 submission is probably part of the administrative record. Id.; see also Treas. Reg. § 301.7623-3(e)(2)(i).

In asking us to supplement the administrative record to include the 2019 submission, petitioner is asking us to consider evidence that was not (and could not) have been before the WBO when it made its decision in 2018. Although it is sometimes appropriate to consider extrarecord information, this is the exception, not the rule. Theodore Roosevelt Conversation P’ship v. Salazar, 616 F.3d 497, 514 (D.C. Cir. 2010). The Court of Appeals for the D.C. Circuit has recognized a small class of cases where a court may consult extra-record evidence when the procedural validity of the agency’s action remains in serious question. Hill Dermaceuticals, Inc. v. FDA, 709 F.3d 44, 47 (D.C. Cir. 2013); Esch v. Yeutter, 876 F.2d 976, 991 (D.C. Cir. 1989).

There are three discrete circumstances in which extrarecord evidence may be consulted: (1) if the agency “deliberately or negligently excluded documents 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). However, as the Supreme Court has long held, where there are administrative findings that were made at the same time as the decision there must be a strong showing of bad faith or improper behavior before such inquiry into the mental processes of administrative decisionmakers may be made. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971).

(155 T.C. No. 4) Van Bemmelen v. Commissioner

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