T.C. Memo. 2018-133
UNITED STATES TAX COURT
WILLIAM MARK SCOTT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1224-17W. Filed August 22, 2018.
William Mark Scott, pro se.
Philip Edward Blondin, Patricia P. Davis, and Kevin G. Gillin, for
respondent.
MEMORANDUM OPINION
JACOBS, Judge: This case is before the Court on respondent’s motion for
summary judgment filed April 11, 2018, pursuant to Rule 121.1 Petitioner filed his
response in opposition to motion for summary judgment on May 7, 2018. For the
1
Unless otherwise noted, all Rule references are to the Tax Court Rules of
Practice and Procedure, and all section references are to the Internal Revenue
Code of 1986, as amended.
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[*2] reasons discussed infra, we conclude that there is no dispute as to a material
fact and thus this case is ripe for summary adjudication.
Background
Petitioner is the former Director of the Internal Revenue Service (IRS)
Office of Tax Exempt Bonds (Tax Exempt Bonds). He worked for more than 19
years at the IRS and the IRS Office of Chief Counsel; he has more than 30 years’
experience in the area of tax-exempt municipal bonds.
On February 18, 2014, the IRS Whistleblower Office (Whistleblower
Office) received a Form 211, Application for Award for Original Information,
with an attached narrative and exhibits, from petitioner. The Form 211 alleges
that certain tax-exempt bonds issued by a U.S. city’s industrial development
agency (Agency) did not qualify for tax exempt treatment. The Form 211 alleged
that the bonds violated the general arbitrage yield restriction rules of section
1.148-2, Income Tax Regs., and thus concluded that the bonds were “taxable
private activity bonds”. The Form 211 noted that a prior examination of the bonds
was closed without any adjustments.
Petitioner’s claim was assigned claim No. 2014-006300, and the
Whistleblower Office sent petitioner a letter acknowledging receipt of his Form
211 on or about April 22, 2014. On May 16, 2014, petitioner’s Form 211 was
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[*3] forwarded for review to a subject matter expert in the IRS Tax Exempt and
Government Entities Division (TE/GE). On May 27, 2014, the Form 211 was
further forwarded to a tax-exempt bond subject matter expert, Randy Torres, for
additional review and recommendation.
On August 21, 2014, Mr. Torres sent a Form 11369, Confidential
Evaluation Report on Claim for Reward, to the Whistleblower Office. The Form
11369 stated that the bond issuance
is not recommended for another examination since the 2012
examination addressed and tested arbitrage issues and did not identify
an arbitrage issue. The Whistleblower assumes the bond yield
calculation was miscalculated because the Net Benefit test did not
include the SIDA fee as an investment fee. The WB did not provide
any schedules, documents or a bond yield calculation to show bond
yield was computed incorrectly.[2]
Upon receipt of the Form 11369, on October 29, 2014, Whistleblower
Office Analyst Steven Mitzel prepared an award recommendation memorandum
which recommended denial of petitioner’s claim based on the tax-exempt bond
subject matter expert’s decision not to pursue petitioner’s claim. Subsequently,
Analyst Mitzel sent petitioner a preliminary denial letter on December 8, 2014.
On February 10, 2015, petitioner responded to Analyst Mitzel’s letter. The
2
Petitioner objects to the admission of the above quoted portion of the Form
11369 on the grounds of hearsay. We admit it as a record kept in the course of a
regularly conducted activity of an organization. See Fed. R. Evid. 803(6).
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[*4] response encouraged respondent to reconsider the proposed denial and to
proceed with an examination of the bonds based on petitioner’s information.
Upon receipt of petitioner’s response, Analyst Mitzel forwarded the
response to TE/GE for additional consideration. On May 1, 2015, TE/GE
requested that the Whistleblower Office return petitioner’s claim to it to allow a
different person to review the merits of the claim. On February 16, 2016, the
reviewing tax-exempt bonds subject matter expert, James Held, sent a new Form
11369 to the Whistleblower Office, recommending the IRS not open a new
examination of the bond issuance for the following reasons.
1. A full-scope examination had previously been conducted revealing no
issues associated with the bond issue.
2. The arbitrage report provided in the prior examination indicated a
negative rebate liability.
3. No indications of fraud, abusive transactions, or other tax law
violations were found.
4. Petitioner, under penalties of perjury, stated in his claim “My review
has not identified any fraudulent activities” and “My review has not
uncovered any specific allegation of a tax law violation. Instead, I am
challenging the tax law conclusion reached by the law firm in this
matter, whose opinion has been and continues to be relied upon by
everyone involved in the transaction, including holders of the bonds,
the issuer and the Obligor”.
5. No credible evidence was provided by petitioner indicating that a
violation of the tax laws occurred. “Instead, he merely has a
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[*5] difference of opinion that does not constitute credible evidence and
does not warrant the reopening of the bond issuance.”
Whistleblower Office Analyst Joel Calandreli reviewed this Form 11369 on
September 22, 2016. On October 6, 2016, petitioner sent the Whistleblower
Office a letter containing additional information, which was forwarded to the tax-
exempt bonds subject matter expert. On October 12, 2016, the Whistleblower
Office received an email response from the tax-exempt bonds subject matter
expert, wherein the expert stated that the additional information did not change his
conclusion not to reopen the examination of the Agency.
On December 12, 2016, the Whistleblower Office prepared an updated
award recommendation memorandum and on December 13, 2016, the
Whistleblower Office issued petitioner a final denial. Efficient in its use of details
specific to petitioner’s claim, the final denial states:
The claim has been recommended for denial because the IRS took no
action based on the information that you provided. Common reasons
for declining to act on information include statute of limitations
issues, limited resources, or a conclusion that there are no material
issues.
Discussion
Summary judgment serves to “expedite litigation and avoid unnecessary and
expensive trials.” Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).
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[*6] Either party may move for summary judgment upon all or any part of the legal
issues in controversy, but we may grant summary judgment only if there is no
genuine dispute as to any material fact. Rule 121(a) and (b); Naftel v.
Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of
showing that there is no genuine dispute of material fact, and the Court views all
factual materials and inferences in the light most favorable to the nonmoving
party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). Rule 121(d)
provides that where the moving party properly makes and supports a motion for
summary judgment, “an adverse party may not rest upon the mere allegations or
denials of such party’s pleading” but rather must set forth specific facts, by
affidavits or otherwise, “showing that there is a genuine dispute for trial.”
A whistleblower award under section 7623(b) generally depends on two
prerequisites: (1) the Commissioner’s commencing an administrative or judicial
action and (2) the collection of proceeds. Cohen v. Commissioner, 139 T.C. 299,
302 (2012), aff’d, 550 F. App’x 10 (D.C. Cir. 2014); Cooper v. Commissioner,
136 T.C. 597, 600 (2011). We have held that we may not order the Commissioner
to commence an administrative or judicial action. See Cohen v. Commissioner,
139 T.C. at 302; Cooper v. Commissioner, 136 T.C. at 600-601.
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[*7] In his motion for summary judgment, and supported by the declaration of
Analyst Calandreli, respondent detailed all of the actions taken by the
Whistleblower Office and the Tax Exempt Bonds agents. Respondent stated that
the IRS reviewed petitioner’s submission and supplemental submission but took
no action and collected no proceeds.
Petitioner contends that respondent, in fact, commenced an administrative
action and collected proceeds related to the bond issuances. In the declaration
attached to his response in opposition to respondent’s motion for summary
judgment, petitioner states that he “obtained specific information and records
regarding two separate attempts by TEB [Tax Exempt Bonds] to disguise the
collection of proceeds on examinations initiated through submissions of Forms
211. The information and records collected relate specifically to Whistleblower
Office Claim No. 2015-005991 and Claim No. 2015-006729.” Petitioner asserts
that the IRS issued no-change letters to the governmental issuer of the bonds, but
the Tax Exempt Bonds division subsequently took administrative actions “so as to
collect millions in tax dollars from the beneficial owners of the bonds.” Petitioner
further asserts that in connection with these two claim numbers: “I have been
informed that TEB had failed to report these administrative actions and collections
on the Forms 11369 sent to the IRS Whistleblower Office”. Continuing, he states:
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[*8] “I have been informed that the IRS Whistleblower Office had been working
on denial letters based upon TEB’s erroneous Forms 11369 prior to receiving the
results of my independent research.” Petitioner further states: “I have been told
that the treatment of whistleblowers by TEB has been subject to active
consideration of a possible review by the Treasury Inspector General for Tax
Administration.”
In his response in opposition to respondent’s motion for summary judgment,
petitioner posits: “[b]ased on recent history, TEB would not have reported
administrative actions against the beneficial owners of the bonds on the Forms
11369.” Petitioner asserts that the administrative file does not preclude the
possibility of administrative actions against the beneficial owners of the bonds or
other possible collections. Consequently, petitioner argues:
Given that respondent failed to complete the administrative file, and
petitioner is legally unable to force the third-party conduit borrower
to execute an affidavit or declaration, or to produce records prior to
the date set for trial, respondent’s request for summary judgment is
premature. W.L Gore & Assoc. v. Commissioner, T.C. Memo. 1995-
96; Rule 121(e).
Respondent’s motion for summary judgment should be denied as
reasonable doubts as to material facts exist that are not included
within the administrative file, including whether TEB took actions to
collect directly from the actual taxpayers and whether the related
action has been completed and resulted in a collection.
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[*9] Petitioner’s statements are not compelling. First, we note that petitioner has
no personal knowledge of the IRS actions upon which he reports. He states that
he has been informed of the IRS’ alleged malfeasance in other situations and
presents what he has been told as true in this situation. Rule 121(d) provides that
“[s]upporting and opposing affidavits or declarations shall be made on personal
knowledge, shall set forth such facts as would be admissible in evidence, and shall
show affirmatively that the affiant or declarant is competent to testify to the
matters stated therein.” Our Rule 121 is modeled in large part after rule 56 of the
Federal Rules of Civil Procedure. Shiosaki v. Commissioner, 61 T.C. 861, 862
(1974). Consequently, “‘sheer hearsay’ * * * ‘counts for nothing’” on summary
judgment. Greer v. Paulson, 505 F.3d 1306, 1315 (D.C. Cir. 2007) (quoting
Gleklen v. Democratic Cong. Campaign Comm., Inc., 199 F.3d 1365, 1369 (D.C.
Cir. 2000)).
This is not the end of our analysis. Even though petitioner’s evidence
would not be admissible at trial, summary judgment evidence need not be in a
form that would be admissible at trial, so long as it is capable of being converted
into admissible evidence. Gleklen, 199 F.3d at 1369. But beyond the hearsay
issue, petitioner’s statements also suffer from relevancy problems. Even if
petitioner can establish that there was malfeasance in the other cases, i.e., Claim
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[*10] No. 2015-005991 and Claim No. 2015-006729, petitioner has presented no
evidence, admissible or otherwise, that such occurrences in fact occurred in his
case. Petitioner’s argument is missing a vital step; petitioner asserts malfeasance
in another case, then a gap of uncertainty, then his conclusion that malfeasance
exists in this case.
Petitioner appeals to Rule 121(e), citing the difficulty in acquiring factual
information in this case. Rule 121(e) provides the rule for instances when
affidavits or declarations are unavailable:
If it appears from the affidavits or declarations of a party opposing the
motion that such party cannot for reasons stated present by affidavit
or declaration facts essential to justify such party’s opposition, then
the Court may deny the motion or may order a continuance to permit
affidavits or declarations to be obtained or other steps to be taken or
may make such other order as is just. If it appears from the affidavits
or declarations of a party opposing the motion that such party’s only
legally available method of contravening the facts set forth in the
supporting affidavits or declarations of the moving party is through
cross-examination of such affiants or declarants or the testimony of
third parties from whom affidavits or declarations cannot be secured,
then such a showing may be deemed sufficient to establish that the
facts set forth in such supporting affidavits or declarations are
genuinely disputed.
In his response to respondent’s motion for summary judgment, petitioner asserts
that the administrative file is incomplete but that he has no means to acquire
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[*11] further documents and he is unable to force the Agency to execute an
affidavit or declaration or produce records.
In Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 188-189
(2011), we stated:
Rule 121(e) is modeled in large part after former rule 56(f) of the
Federal Rules of Civil Procedure (redesignated rule 56(d) in 2009
with nonsubstantive changes). In Keebler Co. v. Murray Bakery
Prods., 866 F.2d 1386 (Fed. Cir. 1989), applying former rule 56(f),
the court held that the plaintiff could not avoid summary judgment by
requesting discovery. The court characterized the plaintiff’s
opposition as saying, in effect: “we have no factual basis for opposing
summary judgment, but, if you stay proceedings, we might find
something.” Id. at 1389. The court observed: “If all one had to do to
obtain a grant of a Rule 56(f) motion were to allege possession by
movant of ‘certain information’ and ‘other evidence’, every summary
judgment decision would have to be delayed while the non-movant
goes fishing in the movant’s files.” Id. * * *
To conclude, we hold that there is no genuine issue as to any material fact
and we may render a decision as a matter of law. As previously noted, the IRS
examined the bonds issued by the Agency and the examination was closed without
any adjustments. Respondent, via sworn affidavit, states that no proceeds were
collected and petitioner presented no evidence that any such proceeds were
collected in this matter. Consequently, we shall grant respondent’s motion for
summary judgment, filed April 11, 2018.
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[*12] In the light of the foregoing,
An appropriate order and decision
will be entered.