Lippolis v. Commissioner

ROBERT LIPPOLIS, PETITIONER v. COMMISSIONER
OF INTERNAL REVENUE, RESPONDENT

Docket No. 18172–12W. Filed November 20, 2014.

R collected $844,746 of tax from the target as a result of an
audit performed in response to P’s whistleblower claim. By
letter to P, R said an award under I.R.C. sec. 7623(a) equal
to 15% of the amount collected had been approved. Thereafter,
P commenced this whistleblower proceeding pursuant to
I.R.C. sec. 7623(b)(4). I.R.C. sec. 7623(b)(5)(B) provides that
an award shall not be made under I.R.C. sec. 7623(b) unless
more than $2 million is in dispute in the action ($2 million
requirement). R moved to dismiss for lack of jurisdiction and
in that motion contends that P does not meet the $2 million
requirement. Held: The $2 million requirement is an affirma-
tive defense and is not jurisdictional. We will deny R’s motion
and allow time for R to file an appropriate motion for leave
to amend the answer.

Thomas C. Pliske, for petitioner.
Ashley M. Bender, for respondent.

OPINION

COLVIN, Judge: Petitioner commenced this whistleblower
proceeding pursuant to section 7623(b)(4). 1
1 Unless otherwise indicated, section references are to the Internal Rev-
enue Code in effect at all relevant times, and Rule references are to the
Tax Court Rules of Practice and Procedure. We round monetary amounts
to the nearest dollar.

393
394 143 UNITED STATES TAX COURT REPORTS (393)

Section 7623(b)(5) bars the making of an award under sec-
tion 7623(b) unless more than $2 million is in dispute in the
action ($2 million requirement). Respondent filed a motion to
dismiss for lack of jurisdiction in which respondent contends
that petitioner does not meet the $2 million requirement. For
reasons discussed below we will deny respondent’s motion.
Neither party requested a hearing, and we conclude that
none is necessary to decide respondent’s motion. For pur-
poses of deciding respondent’s motion, we consider the undis-
puted information contained in the pleadings, respondent’s
motion and documents attached to his motion, and peti-
tioner’s response.

Background
Petitioner resided in New York when he filed the petition.
Petitioner filed a whistleblower claim which the Internal
Revenue Service (IRS) Whistleblower Office received on
August 24, 2007. In the claim petitioner alleged, inter alia,
that an individual taxpayer and certain flowthrough entities
in which the individual taxpayer had a majority interest had
underreported income on their Federal income tax returns.
After reviewing the claim, the Whistleblower Office sent
the case to the IRS Examination Division, which examined
the target’s returns. Later, the Commissioner assessed and
collected from the individual taxpayer (and from his estate)
tax and interest of $844,746.
The Examination Division prepared a Form 11369, Con-
fidential Evaluation Report on Claim for Award, and
returned that form and the examination file to the Whistle-
blower Office. The Whistleblower Office concluded that peti-
tioner was not eligible for an award under section 7623(b)
pursuant to subsection (b)(5) but was eligible for an award
under subsection (a) of $126,712 (i.e., 15% of the amount the
IRS had collected from the target).
On June 12, 2012, the Whistleblower Office sent petitioner
a letter (June 12, 2012, letter) which stated, in part, that
‘‘[w]e have approved an award under I.R.C. section 7623(a)
in the amount of $126,711.85 based on your Form 211,
Application for Reward for Original Information dated
August 8, 2007. This award represents full payment of your
claim.’’
(393) LIPPOLIS v. COMMISSIONER 395

Discussion
A. Tax Court Whistleblower Jurisdiction
The Tax Court may exercise jurisdiction only to the extent
provided by Congress. See sec. 7442; Breman v. Commis-
sioner, 66 T.C. 61, 66 (1976); see also, e.g., Rules 13, 340(b).
We nevertheless have jurisdiction to decide whether we have
jurisdiction. SECC Corp. v. Commissioner, 142 T.C. 225, 229
(2014); Hambrick v. Commissioner, 118 T.C. 348 (2002); Pyo
v. Commissioner, 83 T.C. 626, 632 (1984); Kluger v. Commis-
sioner, 83 T.C. 309, 314 (1984).
The Tax Court’s jurisdiction over whistleblower cases is
provided by section 7623(b)(4). Paragraph (4) in pertinent
part provides that ‘‘[a]ny determination regarding any award
under paragraph (1), (2), or (3) may, within 30 days of such
determination, be appealed to the Tax Court (and the Tax
Court shall have jurisdiction with respect to such matter).’’
Section 7623(b)(1) provides for mandatory awards if certain
requirements are met. More specifically, section 7623(b)(1)
provides:
SEC. 7623(b). AWARDS TO WHISTLEBLOWERS.—
(1) IN GENERAL.— If the Secretary proceeds with any administrative
or judicial action described in * * * [section 7623](a) based on
information brought to the Secretary’s attention by an individual, such
individual shall, subject to paragraph (2), receive as an award at least
15 percent but not more than 30 percent of the collected proceeds
(including penalties, interest, additions to tax, and additional
amounts) resulting from the action (including any related actions) or
from any settlement in response to such action. The determination of
the amount of such award by the Whistleblower Office shall depend
upon the extent to which the individual substantially contributed to
such action.
Section 7623(b)(5)(B) provides in relevant part that ‘‘[sec-
tion 7623(b)] shall apply with respect to any action * * * if
the tax, penalties, interest, additions to tax, and additional
amounts in dispute exceed $2,000,000’’. The phrase ‘‘any
action’’ refers to ‘‘any administrative or judicial action’’ with
which the Secretary ‘‘proceeds’’ based on information pro-
vided by a whistleblower under section 7623. See sec. 7623(a)
and (b)(1).
396 143 UNITED STATES TAX COURT REPORTS (393)

B. Respondent’s Motion
In the motion respondent points out that the June 12,
2012, letter (1) states the Whistleblower Office had approved
an award under section 7623(a) and (2) makes no reference
to section 7623(b). 2 In the motion respondent also (1) con-
tends that petitioner is not entitled to an award under sec-
tion 7623(b) (and thus the Court lacks jurisdiction) because
petitioner does not meet the $2 million requirement, and (2)
acknowledges that section 7623(b)(5)(B) itself is not ‘‘jurisdic-
tional in character’’.
C. Whether the $2 Million Requirement Is Jurisdictional
In considering whether to grant respondent’s motion we
will decide (1) whether section 7623(b)(5)(B) is jurisdictional
or is an affirmative defense, and if the latter, (2) what proce-
dures apply to our consideration of the $2 million limit.
The Supreme Court has ‘‘endeavored in recent years to
‘bring some discipline’ to the use of the term ‘jurisdictional’ ’’,
cautioning courts not to ‘‘lightly attach those ‘drastic’ con-
sequences to limits Congress has enacted.’’ See Gonzalez v.
Thaler, 565 U.S. ll, ll, 132 S. Ct. 641, 648 (2012). Rec-
ognizing that ‘‘[j]urisdictional rules may * * * result in the
waste of judicial resources and may unfairly prejudice liti-
gants’’, see Henderson ex rel. Henderson v. Shinseki, 562 U.S.
428, 434 (2011), the Supreme Court has created a ‘‘readily
administrable bright line’’ rule for courts to use in deciding
whether a statutory provision affects a court’s jurisdiction,
see Arbaugh v. Y & H Corp., 546 U.S. 500, 503, 516 (2006);
see also Gonzalez, 565 U.S. at ll, 132 S. Ct. at 648;
Henderson, 562 U.S. at 435. Specifically, courts are to review
whether Congress ‘‘ ‘clearly states that a threshold limitation
on a statute’s scope shall count as jurisdictional’ * * * [b]ut
when ‘Congress does not rank a statutory limitation on cov-
2 The letter from the Whistleblower Office does not refer to sec. 7623(b),
but the phrase in the letter ‘‘[t]his award represents full payment of your
claim’’ obviously denies petitioner’s claim under that subsection. Denying
a whistleblower’s claim under sec. 7623(b) without saying so does not de-
prive this Court of jurisdiction. Cooper v. Commissioner, 135 T.C. 70 (2010)
(holding a Whistleblower Office letter constituted a determination where
it stated that an award determination could not be made under sec.
7623(b)).
(393) LIPPOLIS v. COMMISSIONER 397

erage as jurisdictional, courts should treat the restriction as
nonjurisdictional’ [in character].’’ Gonzalez, 565 U.S. at ll,
132 S. Ct. at 648 (quoting Arbaugh, 546 U.S. at 515, 516);
Henderson, 562 U.S. at 436. Moreover, the ‘‘jurisdictional
analysis must focus on the ‘legal character’ of the require-
ment, * * * which * * * [may be] discerned by looking to
the condition’s text, context, and relevant historical treat-
ment’’. Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 166
(2010) (citation omitted). The Supreme Court has stated that
this approach ‘‘is suited to capture Congress’ likely intent
and also provides helpful guidance for courts and litigants,
who will be ‘duly instructed’ regarding a rule’s nature.’’
Henderson, 562 U.S. at 436.
Available indicators of congressional intent are not suffi-
cient to support the conclusion that section 7623(b)(5)(B) is
jurisdictional. The text of section 7623(b)(5)(B) does not
clearly indicate that Congress intended this provision to
serve as a jurisdictional bar. See Henderson, 562 U.S. at 438.
Rather, an entirely separate provision, section 7623(b)(4),
provides that this Court has jurisdiction over ‘‘the matter’’
that is the subject of any determination regarding an award
under section 7623(b)(1), (2), or (3). The fact that the two
provisions are close together is not dispositive. See Gonzalez,
565 U.S. at ll, 132 S. Ct. at 651 (‘‘Mere proximity will not
turn a rule that speaks in nonjurisdictional terms into a
jurisdictional hurdle.’’). The legislative history sheds no light
on the question whether section 7623(b)(5) is jurisdictional.
It is noteworthy that when Congress has chosen to place an
amount in controversy as a jurisdictional bar on a Federal
court’s authority to review a matter, it has done so expressly.
See 16 U.S.C. sec. 814 (2012) (‘‘[The] United States district
courts shall only have jurisdiction of cases when the amount
claimed by the owner of the property to be condemned
exceeds $3,000[.]’’); 22 U.S.C. sec. 6713 (2012) (‘‘The district
courts of the United States shall have original jurisdiction,
concurrent with the United States Court of Federal Claims,
of any civil action or claim described in subparagraph (A)
that does not exceed $10,000.’’); 28 U.S.C. sec. 1332(a) (2012)
(‘‘The district courts shall have original jurisdiction of all
civil actions where the matter in controversy exceeds the
sum or value of $75,000[.]’’); id. sec. 1346 (‘‘The district
courts shall have original jurisdiction, concurrent with the
398 143 UNITED STATES TAX COURT REPORTS (393)

United States Court of Federal Claims, of * * * [a]ny other
civil action or claim against the United States, not exceeding
$10,000 in amount[.]’’). In sum, we conclude that section
7623(b)(5)(B) is not a jurisdictional requirement. 3
D. Whether Section 7623(b) Is an Affirmative Defense
We next decide whether section 7623(b)(5) creates an
affirmative defense that must be pleaded in the answer and
proved by the Commissioner 4 or whether it is an element of
petitioner’s case and must be pleaded in the petition and
proved by petitioner. Neither party included in the pleadings
any allegations relating to the $2 million requirement.
An affirmative defense is an ‘‘assertion of facts and argu-
ments that, if true, will defeat the * * * [cause of action],
even if all the allegations in the complaint are true.’’ Black’s
Law Dictionary 482 (9th ed. 2009); see also Saks v. Franklin
Covey Co., 316 F.3d 337, 350 (2d Cir. 2003). Rule 39 provides
a nonexhaustive list of affirmative defenses a party may
raise in this Court, including res judicata, collateral estoppel,
estoppel, waiver, duress, fraud, and the statute of limita-
tions. In deciding whether a statute provides an affirmative
defense, courts often consider practicality and fairness. 5 See
3 In a recent opinion we recognized that the parties disputed certain as-

pects of sec. 7623(b)(5), but we concluded that it was not necessary to
reach that issue. Whistleblower 22231–12W v. Commissioner, T.C. Memo.
2014–157, at *17.
4 Rule 39, Pleading Special Matters, provides that ‘‘[a] party shall set

forth in the party’s pleading any matter constituting an avoidance or af-
firmative defense, including res judicata, collateral estoppel, estoppel,
waiver, duress, fraud, and the statute of limitations. A mere denial in a
responsive pleading will not be sufficient to raise any such issue.’’ Para-
graph (b) of Rule 36, Answer, provides in pertinent part that ‘‘the answer
shall contain a clear and concise statement of every ground, together with
the facts in support thereof on which the Commissioner relies and has the
burden of proof.’’
5 In their commentary discussing the categorization of affirmative de-

fenses, Wright and Miller state:
‘‘Fairness’’ probably should be viewed as a shorthand expression reflect-
ing the judgment that all or most of the relevant information on a par-
ticular element of a claim is within the control of one party or that one
party has a unique nexus with the issue in question and therefore that
party should bear the burden of affirmatively raising the matter. [5
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure
sec. 1271, at 603 (3d ed. 2004).]
(393) LIPPOLIS v. COMMISSIONER 399

Hernandez-Miranda v. Empresas Diaz Masso, Inc., 651 F.3d
167, 176 (1st Cir. 2011); Ray v. Kertes, 285 F.3d 287, 295 (3d
Cir. 2002); Ingraham v. United States, 808 F.2d 1075, 1078–
1079 (5th Cir. 1987); Jicarilla Apache Tribe v. Andrus, 687
F.2d 1324, 1336 (10th Cir. 1982).
Since 1867 the Secretary has had the discretionary
authority to pay awards to persons who provide information
to the Commissioner that aids in detecting underpayments of
tax. Act of Mar. 2, 1867, ch. 169, sec. 7, 14 Stat. at 473 (codi-
fied by ch. 11, sec. 3463, 35 Rev. Stat. 686 (1873–74)). In
2006 Congress enacted section 7623(b) to encourage tax
whistleblowers to provide information regarding persons who
underpay tax or violate the internal revenue laws. See
Cooper v. Commissioner, 135 T.C. 70, 73 (2010). Section
7623(b)(4) provides this Court with jurisdiction over any
determination made by the Secretary regarding an award
under section 7623(b)(1), (2), or (3). Section 7623(b)(1) pro-
vides for mandatory rather than discretionary awards if cer-
tain requirements are met. See supra p. 395.
In assigning pleading obligations and the burden of proof
for the $2 million requirement, it is helpful to consider the
nature of the information that would show whether that
requirement has been met. In the motion respondent con-
tended that the ‘‘amount in dispute’’ in this ‘‘action’’ is
$844,746, i.e., the amount assessed and collected from the
target after consideration of petitioner’s whistleblower claim.
In a supplement to the motion respondent contends that ‘‘the
‘amount in dispute’ * * * is the maximum total of tax, pen-
alties, interest, additions to tax, and additional amounts that
could have resulted from the action(s) with which the IRS
proceeded based on the information provided, if the formal
positions taken by the IRS had been sustained.’’ 6 Petitioner
See also Ray v. Kertes, 285 F.3d 287, 295 (3d Cir. 2002).
6 Regulations first effective after the events in question here provide as

follows: ‘‘[T]he term amount in dispute means the greater of the maximum
total of tax, penalties, interest, additions to tax, and additional amounts
that resulted from the action(s) with which the IRS proceeded based on the
information provided, or the maximum total of such amounts that were
stated in formal positions taken by the IRS in the action(s)’’. See sec.
301.7623–2(e)(2), Proced. & Admin. Regs. The regulations are effective and
apply to information submitted on or after August 12, 2014, and to claims
Continued
400 143 UNITED STATES TAX COURT REPORTS (393)

contends that applying respondent’s standard would be dif-
ficult or impossible because respondent has not provided
sufficient information, particularly regarding the audit of the
target, showing whether the dispute was for more than $2
million. As a result, according to petitioner, whistleblowers
may have no basis for identifying an amount in dispute dif-
ferent from the amount assessed and collected. We need not
decide what constitutes the ‘‘amount in dispute’’ at this time.
The Commissioner generally should have easy access to all
of the records or documents that would show whether the
amount in dispute in ‘‘the action’’, i.e., ‘‘any administrative or
judicial action’’, sec. 7623(b)(1), initiated against the target as
a result of the whistleblower claim exceeds $2 million. Those
documents may not be available to the whistleblower and
may constitute confidential taxpayer information of the tar-
get. It would be unduly burdensome to require the whistle-
blower to provide or perhaps even to know of the existence
of those records. We conclude that section 7623(b)(5)(B) is an
affirmative defense and that the Commissioner bears the
burden of proof on this issue. See Rule 142; 7 Ray, 285 F.3d
at 295; see also ITSI T.V. Prods., Inc. v. Agric. Ass’ns, 3 F.3d
1289, 1292 (9th Cir. 1993) (‘‘ ‘When the true facts relating to
a disputed issue lie peculiarly within the knowledge of ’ one
party, the burden of proof may properly be assigned to that
party[.]’’ (quoting United States v. Hays, 369 F.2d 671, 676
(9th Cir. 1966))); Drexel Burnham Lambart Grp., Inc. v.
Galadari, 777 F.2d 877, 880 (2d Cir. 1985) (‘‘The party
asserting an affirmative defense usually has the burden of
proving it * * * [and] [t]his rule has particular cogency
where the facts in support of the defense are peculiarly
within the knowledge of the party asserting it.’’ (Citations
omitted.)); Adler v. Commissioner, 85 T.C. 535, 540 (1985);
Farmers Feed Co. v. Commissioner, 10 B.T.A. 1069, 1075–
1076 (1928) (determining the Commissioner had the burden

for award under sec. 7623(b) that are open as of August 12, 2014. Sec.
301.7623–2(f), Proced. & Admin. Regs.
7 Paragraph (a)(1) of Rule 142, Burden of Proof, provides: ‘‘(a) General:

(1) The burden of proof shall be upon the petitioner, except as otherwise
provided by statute or determined by the Court; and except that, in respect
of any new matter, increases in deficiency, and affirmative defenses, plead-
ed in the answer, it shall be upon the respondent. As to affirmative de-
fenses, see Rule 39.’’
(393) LIPPOLIS v. COMMISSIONER 401

of proving an exception to the statute of limitations because
that information was within his, and not the taxpayer’s,
realm of knowledge).
E. Conclusion
We will deny respondent’s motion to dismiss for lack of
jurisdiction. Rule 41, Amended and Supplemental Pleadings,
provides that ‘‘leave [to amend a pleading] shall be given
freely when justice so requires’’, and that ‘‘[a] motion for
leave to amend a pleading shall state the reasons for the
amendment and shall be accompanied by the proposed
amendment.’’ We will issue an order allowing respondent 60
days to file a motion for leave to amend the answer to raise
the section 7623(b)(5)(B) affirmative defense and to include
allegations of fact supporting the amendment to the answer.
If the Court grants respondent’s motion to amend raising the
section 7623(b)(5)(B) affirmative defense, petitioner will have
45 days from the date of service of the amendment to answer
to file a reply or 30 days from that date within which to
move with respect to the amendment to answer. See Rule 37.
To reflect the foregoing,
An appropriate order will be issued.

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