Whistleblower 15977-18W v. Commissioner
T.C. Memo. 2021-143

On December 29, 2021, the Tax Court issued a Memorandum Opinion in the case of Whistleblower 15977-18W v. Commissioner (T.C. Memo. 2021-143). The primary issue presented in Whistleblower 15977-18W was whether the IRS’s Whistleblower Office (WBO) abused its discretion in concluding that the whistleblower claim did not provide specific and credible information sufficient to establish that the target taxpayer was citizen of United States at birth.

Held: Discretion sound—no abuse here.

Background

In early September 2017 the WBO received the petitioner’s Form 211. The petitioner provided information to the WBO attempting to show that a certain individual (target) was a dual citizen of the United States and Country X and was subject to, but failed to pay, substantial amounts of various Federal taxes. In support of that claim, the petitioner provided a copy of the target’s birth certificate showing that the target was born in the United States, information about the target’s parents’ activities in the United States at the time of the target’s birth, details about how the target rose to a position of prominence and influence in Country X, and information about the target’s various assets and family wealth. However, in the space on Form 211 reserved for the target’s Social Security number, the petitioner entered “N/A Foreign National”.

WB 15977 TechnicallyThe petitioner could not technically find a single public record that the target ever exercised any of the fundamental rights or privileges of a U.S. citizen, including obtaining a Social Security number or a passport. But wait; there’s more. The petitioner also emphasized that there was no public record that the target ever renounced U.S. citizenship.

In so emphasizing these points, the petitioner opined that the target may not have been aware of the target’s status as a U.S. citizen, and if so, the petitioner suggested that the target could not have knowingly surrendered U.S. nationality under any of the provisions related to expatriating acts set forth in 8 U.S.C. § 1481.

So, to recap, the target was allegedly born in the United States, but may not have known that he was a citizen by birth, and if he didn’t know, he could not have renounced his citizenship.

Bold strategy, Cotton. Let’s see how it plays out.

Whistleblower 15977-18W v. Commissioner

Jurisdiction

IRC § 7623(a) authorizes the IRS to pay discretionary whistleblower awards from collected proceeds. In contrast, IRC § 7623(b) makes whistleblower awards mandatory if certain statutory requirements are met.[1] IRC § 7623(b)(4) vests the Tax Court with jurisdiction to review “[a]ny determination regarding an award under paragraph (1), (2), or (3)” of subsection (b), including rejections and denials of claims for awards.[2] Ultimately, the Tax Court concluded that the petitioner properly invoked the Tax Court’s jurisdiction under IRC § 7623(b).[3]

A Demand for Remand

WB 15977 Send it BackIn Whistleblower 769-16W v. Commissioner,[4] the Tax Court held that in appropriate circumstances it may remand a whistleblower case to the WBO for further consideration. The Supreme Court likewise observed that remand may be appropriate if the administrative record does not support the agency action, if the agency failed to consider all relevant factors, or if the reviewing court cannot evaluate the challenged agency action on the basis of the record presented.[5] In the present case, however, the administrative record is sufficiently developed and adequately supports the WBO’s determination to reject the petitioner’s claim for an award. Thus, the petitioner’s demand (motion) for remand was denied.

No Obligation to Allow Perfection of a Claim in Tax Court Case Context

The petitioner’s request to be permitted to perfect the claim is likewise misplaced. Treas. Reg. § 301.7623-1(c)(4) provides in relevant part that, if the whistleblower does not provide specific and credible information, the WBO has the discretion to reject the claim or inform the whistleblower of any deficiencies and provide the whistleblower an opportunity to perfect the claim for award. The regulation goes on to state that, if the WBO rejects the whistleblower’s claim for lack of specific and credible information, as was the case here, the whistleblower may perfect and resubmit the claim.[6] Under the circumstances, the petitioner may elect to perfect and resubmit the claim to the WBO, but the WBO is not obliged to permit the petitioner to do so within the context of this action.

*Editor’s Note – An Afterward: The Abrogation of Lacey and Cooper in 2022

In the January 2022 case of Li v. Commissioner,[7] the D.C. Circuit abrogated the Tax Court’s Lacey and Cooper decisions, finding that the Tax Court lacked jurisdiction over the initial rejection of a whistleblower award before the WBO makes an award determination under subsections (b)(1)-(3).

In Cooper, the Tax Court held that an initial rejection of a whistleblower award is in fact an award determination under IRC § 7326(b)(4), rejecting the argument that “there can be a determination for jurisdictional purposes only if the Whistleblower Office undertakes an administrative or judicial action and thereafter ‘determines’ to make an award.”[8] Instead, the Tax Court held that it had jurisdiction even over threshold rejections of whistleblower awards, interpreting the statute to expressly permit an individual to seek judicial review in the Tax Court of the amount or denial of an award determination.[9]

This position was echoed in the Tax Court’s decision in Lacey, where the Tax Court found jurisdiction on the grounds that a denial or rejection is a (negative) determination regarding an award, and, therefore, the Tax Court has jurisdiction where, pursuant to the WBO’s determination, the individual does not receive an award.[10]

The Cooper and Lacey Courts held that a threshold rejection of a whistleblower award request constituted such an award determination because the rejection of an award was a so-called “negative” award determination.[11] The D.C. Circuit disagreed, finding that a threshold rejection of a whistleblower’s Form 211 for vague and speculative information is not a negative award determination, as there is no determination as to an award under subsections IRC § 7326(b)(1)-(3), whatsoever.

Pursuant to IRC § 7326(b)(1), 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].”[12] A threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer.[13] Therefore, the D.C. Circuit held that there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.

(T.C. Memo. 2021-143) Whistleblower 15977-18W v. Commissioner


Footnotes:
  1. See Van Bemmelen v. Commissioner, 155 T.C. 64, 71 (2020).
  2. See Lacey v. Commissioner, 153 T.C. 146, 163-64 (2019).
  3. See, e.g., Lacey, 153 T.C. at 163-64; Lippolis v. Commissioner, 143 T.C. 393, 396 n.2 (2014).
  4. 152 T.C. 172, 181-182 (2019).
  5. See Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985).
  6. Id.; see Rogers v. Commissioner, 157 T.C. 20, 29-30 (2021); Lacey, 153 T.C. at 161 n.15.
  7. 22 F.4th 1014, 1016 (Jan. 11, 2022).
  8. 135 T.C. 70, 75 (2010).
  9. Id.
  10. Lacey, 153 T.C. at 150 n.5, 163 n.19.
  11. Lacey, 153 T.C. at 163 n.19 (citing in accompanying text Cooper, 135 T.C. 70); see also id. at 150 n.5 (holding that “a ‘rejection’ is also a ‘determination’”).
  12. IRC § 7623(b)(1).
  13. See Cline v. Commissioner, T.C. Memo. 2020-35, slip op. at *13-*14.
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