Lawrence W. Doyle & John F. Moynihan v. Commissioner

T.C. Memo. 2020-139

UNITED STATES TAX COURT

LAWRENCE W. DOYLE AND JOHN F. MOYNIHAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4865-19W. Filed October 8, 2020.

Ps submitted to the Whistleblower Office (“WBO”) of the
Internal Revenue Service (“IRS”), pursuant to I.R.C. sec. 7623(b)(1),
two Forms 211, “Application for Award for Original Information”,
with which they provided “specific credible documentation”
supporting their allegations that several related entities (the “target”)
failed to comply with the requirements of I.R.C. sec. 501(c)(3) for
tax-exempt organizations. The claims were referred to two operating
divisions of the IRS--the Tax Exempt and Government Entities
(“TEGE”) Division and the Criminal Investigation (“CI”) Division.
TEGE recommended denial of the claim and reported that no
investigation of the target was underway; but CI’s report was
equivocal as to whether it was “working with” Ps to investigate the
target. The WBO issued a determination denying Ps’ claim on the
ground that “the IRS took no action based on the information that you
provided.” Ps filed a petition with this Court.

R moved for summary judgment on the dual grounds that “the
IRS [1] did not proceed with an administrative or judicial action
against the [target] Entity and [2] did not collect any proceeds based
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[*2] on petitioners’ claims.” Ps opposed the motion, arguing that the
WBO abused its discretion by not auditing the target and by
concluding that the IRS did not proceed with any action on the basis
of Ps’ information.

Held: Because the WBO’s determination was not based on the
non-collection of proceeds, R may not rely on that supposed ground
to defend the determination.

Held, further, the WBO’s determination that CI did not
“proceed[] with any * * * action” for purposes of I.R.C. sec.
7623(b)(1) was not supported by the administrative record and thus
constituted an abuse of discretion; and R’s motion for summary
judgment will be denied.

Lawrence W. Doyle and John F. Moynihan, for themselves.

Patricia P. Davis, for respondent.

MEMORANDUM OPINION

GUSTAFSON, Judge: Petitioners, Lawrence W. Doyle and John F.

Moynihan, have appealed, pursuant to section 7623(b)(4),1 the determination of

the Whistleblower Office (“WBO”) of the Internal Revenue Service (“IRS”) that

denies them a whistleblower award. Respondent, the Commissioner of the IRS,

1
Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986 as in effect at all relevant times (codified in 26 U.S.C.),
and all Rule references are to the Tax Court Rules of Practice and Procedure.
 -3-

[*3] has moved for summary judgment, asserting that the WBO did not abuse its

discretion when it denied petitioners’ claims, because the IRS did not use their

information to conduct any examination or to collect any proceeds. Petitioners

oppose the motion, contending that the IRS’s Criminal Investigation (“CI”)

Division undertook an examination that is based on their information. For the

reasons stated below, we will deny the Commissioner’s motion.

Background

MDA’s Form 211

Petitioners are associated in some manner with MDA Analytics, LLC

(“MDA”). In August 2017 MDA submitted to the WBO a Form 211, “Application

for Award for Original Information”. Petitioners’ names appear on MDA’s

Form 211. The form included publicly available information about several related

entities (whom we refer to collectively as the “target”), alleging: that the target

failed to comply with the requirements of section 501(c)(3) for tax-exempt

organizations; that the target accepted foreign funds transfers as a “foreign agent”,

thereby vitiating charitable tax-exempt protection; and that the target made

material misrepresentations to the IRS and to other governmental agencies

concerning the target’s organization and operations. The Form 211 stated that

MDA had “[n]o relationship [to the target] other than concerned taxpayers”.
 -4-

[*4] MDA claimed in its Form 211 (and the Commissioner does not dispute)

that--

Petitioners submitted approximately 100 exhibits in excess of 6,000
pages compiled from their three-plus year investigation. Those
exhibits and evidence lay out the clear framework of the wrongdoings
committed by * * * [the target] and include the following:
Applications; Determination Letters and Articles of Incorporation;
Income Statements; Tax Returns (foreign and domestic); Consent
Decrees; Memorandums of Understanding with foreign governments;
Program Plans for Entity in question; Partnerships; Audits, foreign
and domestic; Contractual Agreements with Non-Governmental
Organizations; Reviews of State Registration Forms; IG Reports of
Entities, foreign and domestic; Internal Legal Reviews of Entity in
Question; Reviews of E-mail Exchanges between Entity Executives
and Governmental Officials; Donor Tax Returns; Regulatory
Reviews, Actions, and Subsequent Legal Settlement with Entity
Partner; Interviews with Whistleblower and Current and Former
Executives of Entity.

A WBO employee made a notation that “WB” (the whistleblower) had “submitted

specific credible documentation.”

Petitioners’ Forms 211

The WBO replied to MDA with a letter advising that only individuals are

eligible to file claims for awards and that MDA’s Form 211 must be resubmitted

by individuals. Each petitioner promptly filed his own separate Form 211, which

the WBO received in September 2017. Both of petitioners’ Forms 211 made the
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[*5] same statements that had been in MDA’s Form 211 and, we infer, had the

same attachments as MDA’s Form 211.

WBO’s first referral to TEGE

The WBO reviewed petitioners’ Forms 211 (and their attachments) and

referred this information to the IRS office with subject matter responsibility over

the issues raised, i.e., the Tax Exempt and Government Entities (“TEGE”)

Division. (Since the WBO made this referral, rather than issuing a threshold

“rejection” of the claims, cf. 26 C.F.R. sec. 301.7623-1(c)(4), Proced. & Admin.

Regs., we infer that the WBO continued to consider that petitioners’ claims, like

MDA’s, presented “specific credible documentation”.)

TEGE’s referral to CI

A subject matter expert (“SME”) at TEGE received petitioners’ claims on

March 16, 2018. On April 2, 2018, the SME “[r]eceived an E-Mail from Lynn

Brinkley area Manager. Indicating that I should transfer this case and all related

cases to CI per CI request.” The SME therefore completed a Form 11369,

“Confidential Evaluation Report on Claim for Award”, and transferred petitioners’

claims to CI.
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[*6] CI’s reported decision not to investigate

In July 2018 CI reported its decision on a Form 11369 dated July 10, 2018,

that it declined to investigate the target or any of the issues that petitioners raised

in their Forms 211. Line 12 of the form asked: “Was this claim surveyed or

declined”; and the box indicating “Yes” was checked, and the blank was filled

“Declined by Criminal Investigation”. Line 12(A) asked: “Did the whistleblower

information result in opening any other investigation with respect to the

taxpayer(s) identified on this Form 11369 or any other taxpayers where an issue

unrelated to the whistleblower issue(s) was discovered”; and the box indicating

“No” was checked. Line 12(B) asked: “Was the claim declined due to a lack of

criminal potential”; and the box indicating “Yes” was checked, and the blank was

filled “Individual notated in the claim who had personal knowledge denied making

those statements in an interview with federal agents.” CI returned petitioners’

claims to the WBO.

When the WBO received the Form 11369 from CI, it was incomplete. An

entry dated 07/20/2018 in the WBO’s “Claim Action Listing” stated: “Received

F11369, missing year in box 6. Requesting F11369 have a year in box 6.” An

entry dated 08/03/2018 notes: “2d request for completed F13369 [sic]”. An entry

dated 08/16/2018 stated:
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[*7] F11369 is incomplete. Response received from the field is
unacceptable, missing SSN’s [Social Security numbers] & EIN’s
[employer identification numbers] taxpayer and WB. Emailed SA to
revise and told its [sic] somebody else’s job, NO ICE [initial claim
evaluation] indicators to release.

CI thereafter completed the form, and an entry dated 08/21/2018 recorded that the

WBO “[r]eceived F11369 declined by CI. Per lead instructions assign back to

TEGE.”2

WBO’s second referral to TEGE

After receiving petitioners’ claims from CI, the WBO, on about August 21,

2018, again assigned the claims to TEGE for review. On September 20, 2018, the

SME at TEGE composed an entry in his “Case Chronology Record” that stated:

The whistleblower alleges that the Taxpayers fail[ed] to comply with
501c3 requirements; accepted foreign funds transfers as a foreign
agent; thereby vitiating charitable tax exempt protection, and may
have made material misrepresentations to IRS and other
governmental agencies in re organization and operations.

2
Petitioners allege--but the administrative record does not reflect--that, in
this same general time period, one of them had a telephone conversation on
August 1, 2018, with a Special Agent of the Federal Bureau of Investigation who
said, “I can’t say enough about what you and your colleagues have done in filing
your submission and providing your materials. We greatly appreciate everything
you and your colleagues have done in your work.” Such non-record information
might be pertinent to a motion to supplement the administrative record, see
Van Bemmelen v. Commissioner, 155 T.C. __, __ (slip op. at 15-16) (Aug. 27,
2020), or to a request to obtain discovery; but we do not consider such information
in ruling on the Commissioner’s motion for summary judgment.
 -8-

[*8] Facts: The organizations have filed all appropriate Forms 990/990PF
and 990T for the periods of 2014-2017. A review of the organization
web site indicates that the activities are within the scope of 501(c)(3).
Review of the supporting documents appears to be created by the
whistleblower organization, and not specific and credible. The
whistleblower did not provide evidence and supporting
documentation which is creditable. This claim were [sic] declined by
Criminal Investigation, because individual notated in the claim who
had personal knowledge denied making those statements in an
interview with federal agents.

Conclusion: These claims are being rejected[3] and not selected for
examination, because the allegations are speculative in nature, the
evidence submitted was not creditable, and because individual
notated in the claim who had personal knowledge denied making
those statements in an interview with federal agents. * * *

On the same day, he prepared and signed a Form 11369 to the same effect. Where

line 12 of the form asked: “Was this claim surveyed or declined”, the box

indicating “Yes” was checked; and the blank was filled with the same three-

paragraph narrative, quoted above, that was in the entry on his “Case Chronology

Record”. Where line 12(A) asked: “Did the whistleblower information result in

opening any other investigation with respect to the taxpayer(s) identified on this

Form 11369 or any other taxpayers where an issue unrelated to the whistleblower

3
Although the SME stated that the claims were being “rejected”, he
manifestly used that term in a colloquial sense, and not indicating a threshold
“rejection” based on the face of the claims by reference to minimum criteria of
eligibility. Cf. Lacey v. Commissioner, 153 T.C. 146, 161-163 (2019)
(distinguishing threshold “rejection” of a claim from a merits “denial” of a claim).
The claims were in fact thereafter “denied” in due course.
 -9-

[*9] issue(s) was discovered”, the box indicating “No” was checked. Line 13

asked: “Was the claim transferred or reassigned”; and the box indicating “No”

was checked.

WBO’s preliminary decision to deny the claim

By October 31, 2018, petitioners’ claims were back in the WBO, assigned to

Analyst Debra McCullum. After a review of the administrative claim file, the

analyst issued preliminary denial letters to petitioners on October 31, 2018. Each

letter stated:

PRELIMINARY DENIAL LETTER

The Whistleblower Office has considered your application for an
award dated August 1, 2017 and made a preliminary decision to deny
your claim. Internal Revenue Code (IRC) section 7623(b) provides
that an award may be paid only if the Secretary proceeds with an
administrative or judicial action based on the information provided
and the action results in the collection of tax, penalties, additions to
tax, and additional amounts based on the information provided.

The claims listed above have been recommended for denial because
the IRS took no action based on the information that you
provided. * * *

If you believe that the Internal Revenue Service has erred in this
preliminary decision, please submit your written comments within
30 days of the date of this letter to the undersigned * * *[.]

This letter is NOT a final determination for purposes of filing a
petition with the United States Tax Court under IRC
section 7623(b)(4). Following the 30 day period for your comments,
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[*10] the Whistleblower Office will issue you a final determination. Any
comments received regarding this preliminary decision will be
considered by the Whistleblower Office in making a final
determination.

Petitioners’ response to the preliminary denial

On behalf of both petitioners, Mr. Doyle mailed a response to the WBO on

November 20, 2018,4 which stated as follows:

I write in strong opposition to the Preliminary Denial Letter
and must say that it has taken me and my colleagues by utter surprise
and amazement. With all due respect to those within the IRS
involved in reviewing our submission and issuing the Preliminary
Denial, there must be a significant error given that it is public
knowledge that the IRS is clearly investigating * * * [the target], and
is an active participant in the joint law enforcement effort being run
out of * * * [city and State] and elsewhere within the justice system
focused on * * * [the target]. It is also evident, based on information
and communications referenced below, that many of the issues
relating to tax fraud and 501(C)3 violations raised in our report are
very much a focus of the joint FBI/IRS investigation into * * * [the
target]. This investigation is ongoing. Our report gave rise to it and
provided the basis for meaningful parts of it specifically within the
realm of tax code violations and related issues of non-compliance
within the law relating to charitable endeavors. Communications we
have had with specific law enforcement agents, upon which I will
expound more within this letter, confirm these very facts.

4
To the same effect, petitioners allege in their opposition to the
Commissioner’s motion that, after they sent their November 20, 2018, response to
the WBO, they “met with CI * * * on no less than five occasions, which meetings
are not reflected in the Respondent’s administrative record”, and they support this
allegation with their joint declaration (submitted under penalty of perjury in
compliance with 28 U.S.C. sec. 1746 (2018)). We do not consider this non-record
allegation in ruling on the Commissioner’s motion for summary judgment.
 - 11 -

[*11] Our submission sets out evidence of a number of specific IRS
tax code violations committed by * * * [the target] in connection with
its global activities. The report memorialized our more than 2 year
investigation which remains ongoing. The report is more than 6000
pages in length, and was supported by 95 Exhibits setting out
confirming proof of our findings. All of these materials and pages,
including original contracts with foreign governments, exchanges
between * * * [target] officials and foreign and domestic government
officials, and reviews of each and every * * * [target] federal form
990 have been shared with and receipt confirmed by the
Whistleblower Office in Ogden, Utah.

As indicated previously, we shared this report, our evidence,
our notes of investigation, and our exhibits with the federal agents in
* * * [city]. The FBI in * * * [city] has thanked us profusely and
praised our report excessively. As one individual close to the
investigation commented to me, “you and your colleagues have saved
numerous federal agents thousands of hours of work.”

Our report reached the joint FBI/IRS Task Force in * * *
[State] in * * * [month and year]. * * * [Petitioners’ colleague] was
in touch with the United States Attorney * * * [location and name] on
* * * [date], who then referred us to FBI Special Agent * * * [name].
For the next several months, two members of our team * * * have
been in regular contact with Special Agent * * * [name] providing
information on an ongoing basis given that our investigative efforts
continue to this very day. We have shared all of the same materials
submitted to the IRS Whistleblower Office with these offices and
agents. We have received both confirmation and excessive
compliments on the quantity and quality of our work and the case
manner in which we presented it.

To take a step back at this juncture, though, our efforts and
ongoing work product are a result of not only thousands of hours of
our own self-financed personal investigative pursuits but also endless
hours of engagement with legal professionals, tax attorneys,
accountants, and charity experts all well versed in the specific nature
 - 12 -

[*12] of the work we have submitted. We pushed hard in challenging these
individuals to critique our work. They pushed back hard so that our
work product is fully vetted, refined, and exhaustive. Additionally,
prior to and/or subsequent to making our formal IRS Whistleblower
Submission, we engaged or communicated with both current and
former law enforcement officials, tax professionals and others within
a wide array of state and federal offices including the following: IRS,
DOJ, FBI, US Postal Inspection Service, Treasury Inspector General
Tax Administration, Counsel and Chief Counsel on the US House of
Representatives Committee on the Judiciary, and officials within
selected State Attorneys General, Secretaries of State, and/or
Consumer Affairs offices.

In a similar fashion to the expressly stated gratitude and
amazement at our work product that we received from Special Agent
* * * [name], we have also received praise and compliments from
countless others as well. Not once has any single individual within
these professional ranks or elsewhere pushed back in a manner that
would indicate that our investigative efforts and work product were
misdirected or misinformed. On the contrary, the transparency we
have provided in our efforts and submission has been enlightening to
many of these professionals. This same transparency is central to any
robust investigative endeavor of the sort that we understand that the
IRS/CID is engaged in as an active and full participant looking into
the true nature of * * * [the target]. We further understand that this
investigation is currently ongoing. Furthermore, it is also clear, that
the claims and allegations, including supporting evidence, that our
team has provided to you as part of our whistleblower claim is central
to this investigation; that it helped launch it; and the evidence of the
violations set out in our submission are being actively investigated by
the IRS and FBI in * * * [city]. Thus, it is simply cannot be the case
that the “IRS took no action in this matter.”

The assertion that the IRS is not investigating our claims is also
belied by public reporting. There have been a number of public, press
reports confirming the IRS role in the investigation of * * * [the
target] being pursued out of * * * [city]. For example, the photograph
 - 13 -

[*13] shared by my colleague Mr. Moynihan in his communication with
you depicts an IRS agent and an FBI agent participating in a search
warrant in this investigation in * * * [city]. This picture is dated * * *
[date].

In conclusion, we are confident that your office in * * * [city]
can confirm the above. We also are confident that upon review you
will agree that your letter to us is fully inconsistent with the feedback
we have received elsewhere from other former and current
government officials and was thus issued in error. As such, please
accept this letter in strong opposition to the notice of Preliminary
Denial. We respectfully request that the above information be
confirmed within your agency and that our efforts are accorded the
full and appropriate consideration and credit that they deserve. We
look forward to this confirmation and the withdrawal of this
Preliminary Denial so that the rule of law upon which our nation
stands can be upheld and so that Americans everywhere can have
confidence that lady justice truly is blind.

Of course, we stand ready to provide proof and confirmation of
any of the above.

WBO’s consultation with CI

The WBO analyst reacted as follows to petitioners’ submission of

November 20, 2018:

Upon receipt of petitioners’ response to the preliminary denial
letter, I conducted a diligent search of the IRS Integrated Data
Retrieval System to confirm there were no open IRS examinations
involving * * * [the target]. I also coordinated with the
Whistleblower Office CI liaison to confirm with CI headquarters that
there is no ongoing CI investigation of * * * [the target].
 - 14 -

[*14] That “coordinat[ion] with the Whistleblower Office CI liaison” apparently

consisted of a two-email exchange between Laura Meis in the WBO and David

Denning in CI. On January 30, 2019, she stated: “We have a WB that claims he is

working with an IRS agent jointly with the FBI regarding” the target. She

described in some detail the nature of petitioners’ allegations, and she quoted one

paragraph (also quoted above) of petitioners’ November 2018 letter:

Our report reached the joint FBI/IRS Task Force in * * *
[State] in * * * [month and year]. * * * [Petitioners’ named
colleague] was in touch with the United States Attorney * * *
[location and name] on * * * [date], who then referred us to FBI
Special Agent * * * [name]. For the next several months, two
members of our team * * * have been in regular contact with Special
Agent * * * [name] providing information on an ongoing basis given
that our investigative efforts continue to this very day. We have
shared all of the same materials submitted to the IRS Whistleblower
Office with these offices and agents. We have received both
confirmation and excessive compliments on the quantity and quality
of our work and the case manner in which we presented it.

The email concluded with a single bullet-point question (emphasis added)--

• Can you please confirm that IRS CI is not working with these
WBs on any investigation with these [target] entities?

CI’s succinct emailed reply from Mr. Denning to the WBO, sent February 11,

2019, stated in its entirety:

Hi Laura,
The claim was appropriately declined by criminal investigation.
 - 15 -

[*15] WBO’s final determination

The WBO analyst drafted an award recommendation memorandum that

stated:

I am recommending the issuance of a Final denial letter because the
IRS took no action based on the information the WB provided. IDRS
shows no audit activity for the prior and subsequent years. * * * The
analyst has reviewed the WB’s response and contacted CI HQ to
determine whether CI is still involved in an investigation. Based on
the response from CI HQ the preliminary denial decision will not be
revised. The decision by the operating division (CI) is final.

On February 19, 2019, the WBO sent each petitioner a final determination letter

denying his claim. Each letter stated:

FINAL DETERMINATION

The Whistleblower Office has considered your Form 211, Application
for Award for Original Information, dated August 1, 2017. * * *

Internal Revenue Code (IRC) section 7623 provides that an award
may be paid only if the Secretary proceeds with an administrative or
judicial action based on the information provided and the action
results in the collection of tax, penalties, interest, additions to tax, or
additional amounts based on the information provided. The
Whistleblower Office has made a final determination to deny your
claim for an award.

The claim has been recommended for denial because the IRS took no
action based on the information that you provided. * * * [Emphasis
added.]

This letter is a final determination for purposes of filing a petition
with the United States Tax Court. Under IRC section 7623(b)(4), you
 - 16 -

[*16] have 30 days from this determination to file a petition with the Tax
Court.

The final determination letters did not explicitly state lack of collected tax

proceeds as a basis for denial of the claims.

On March 11, 2019, petitioners filed a timely petition challenging the

WBO’s final determination.

The Commissioner’s motion for summary judgment

The Commissioner filed his motion, contending: “The supporting

documents from the administrative claim file fully support the Whistleblower

Office’s determination that the IRS did not proceed with an administrative or

judicial action against the [target] Entity and did not collect any proceeds based on

petitioners’ claims.” Specifically, the Commissioner contended:

[T]he Whistleblower Office sent petitioners’ claims to the TEGE
SME, who reviewed petitioners’ information and did not open an
examination of the Entity’s tax returns. The IRS CI also reviewed
petitioners’ claims and declined to pursue a criminal investigation[5]
due to lack of criminal potential and because the “individual notated

5
See also the motion at 4 (“CI declined to investigate the [target] Entity or
any of the issues raised by petitioners’ in their Forms 211”); id. at 6 (“the
Whistleblower Office CI liaison * * * confirmed with CI headquarters that there is
no ongoing CI investigation of the [target] Entity”); the Commissioner’s reply at 3
(“two IRS operating divisions considered petitioners’ claim and declined to open
an examination”); id. at 4 (“the Whistleblower Office CI liaison who confirmed
with the Acting Deputy Chief of Staff at CI headquarters in February of 2019 that
there is no ongoing CI investigation of the entities”).
 - 17 -

[*17] in the claim who had personal knowledge denied making those
statements in an interview with federal agents.” Moreover, a search
of the IRS Integrated Data Retrieval System by the Whistleblower
Analyst confirmed there are no open IRS examinations involving the
[target] Entity. The supporting documents from the administrative
claim file fully support the Whistleblower Office’s determination that
the IRS did not proceed with an administrative or judicial action
against the [target] Entity and did not collect any proceeds based on
petitioners’ claims. [Emphasis added.]

Petitioners opposed the motion. They argue that their claims and other

information strongly support their allegations of tax violations by the target and

that the IRS failed to respond reasonably to the information they had provided.

The opposition concludes:

WHEREFORE, Petitioners pray that this Honorable Court:

1. Deny the Respondent’s Motion for Summary Judgment;
and

2. Direct judgment on the pleadings in favor of Petitioners
and direct the appointment of an independent investigator outside of
the Internal Revenue Service to review this submission due to the
clear abuse of discretion present in this matter or, alternatively, direct
the Whistleblower Office to assign new investigators within the office
under the review of a U.S. Tax Court appointed monitor to review the
claim; or

3. Order the Respondent to initiate informal discovery as
requested in the Petitioners’ Branerton Letter.

We hold below that some of petitioners’ arguments lack merit, but one contention

requires us to deny the Commissioner’s motion.
 - 18 -

[*18] Discussion

I. General legal principles

A. Whistleblower claims and the WBO’s function

In section 7623(b), entitled “Awards to Whistleblowers”, Congress

provided an incentive for providing to the IRS information on taxpayers’

noncompliance with the tax laws, in return for which--if the IRS uses that

information to collect proceeds--the whistleblower will be entitled to a percentage

of the collected proceeds. Section 7623(b)(1) provides:

If the Secretary proceeds with any administrative or judicial action
described in subsection (a) based on information brought to the
Secretary’s attention by an individual, such individual shall * * *
receive as an award * * * [a percentage] of the collected proceeds
* * * resulting from the action * * *.

By those terms, a whistleblower will receive an award only if (1) the IRS

“proceeds with * * * [an] action” on the basis of his information and (2) the IRS

collects proceeds as a result of that action. The WBO will deny the claim if it

determines that “the IRS either did not proceed based on the information provided

by the whistleblower * * * or did not collect proceeds” as a result of proceeding

against the taxpayer on the basis of the whistleblower’s information. 26 C.F.R.

sec. 301.7623-3(c)(8).
 - 19 -

[*19] B. Standard and scope of Tax Court review of whistleblower awards

1. The “record rule” and the abuse-of-discretion standard

Section 7623(b)(4) provides that a “determination regarding an award” may

be “appealed to the Tax Court (and the Tax Court shall have jurisdiction with

respect to such matter).” As we held in Kasper v. Commissioner, 150 T.C. 8, 21-

23 (2018), in a whistleblower case our review is generally restricted to the

administrative record, and under this “record rule” we review the WBO’s

determinations not de novo but rather for abuse of discretion. An abuse of

discretion exists when a determination is arbitrary, capricious, or without sound

basis in fact or law. Id. at 21-22; Murphy v. Commissioner, 125 T.C. 301, 320

(2005), aff’d, 469 F.3d 27 (1st Cir. 2006). As we explained in Cline v.

Commissioner, T.C. Memo. 2020-35, at *15 (fn. refs. omitted):

It is not to the Tax Court but to the Secretary of the Treasury
that Congress has given the authority to “make the inquiries,
determinations, and assessments of all taxes”, sec. 6201, and to
“collect the taxes”, sec. 6301. The Tax Court has no practical means
for evaluating the IRS’s audit priorities, its allocation of its audit
resources, or its judgments about the likelihood of collecting
particular liabilities. Congress has given to the Tax Court not plenary
oversight over the IRS but rather circumscribed jurisdiction to review
certain actions in certain circumstances. In the award context,
Congress has given the Tax Court jurisdiction to review the
determinations of the WBO. Consequently, “we do not review the
IRS’s decision whether to audit a target in response to a
whistleblower’s claim and * * * we have no authority to require the
 - 20 -

[*20] IRS to explain a decision not to audit.” Lacey v. Commissioner,
153 T.C. * * * [146, 164 (2019)].

2. Reviewing the grounds stated

“[T]he Tax Court reviews a WBO determination by reference to the grounds

that it states, not by reference to post hoc rationalizations.” Lacey v.

Commissioner, 153 T.C. at 165 (citing SEC v. Chenery Corp., 332 U.S. 194, 196

(1947)); see Kasper v. Commissioner, 150 T.C. at 23-24. We therefore look to the

final determination letter and generally consider only the grounds stated therein,

not other grounds advanced by the Commissioner’s counsel in the litigation but

not by the WBO in its determination.

C. Summary judgment

Generally speaking, under Rule 121(b) the Court may grant summary

judgment when “there is no genuine dispute as to any material fact and * * * a

decision may be rendered as a matter of law”. Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The Commissioner’s

motion cites this rule and invokes this standard.

However, we have recently observed that--

this summary judgment standard is not generally apt where we must
confine ourselves to the administrative record to decide whether there
has been an abuse of discretion. * * * [I]n a “record rule”
whistleblower case there will not be a trial on the merits. In such a
 - 21 -

[*21] case involving review of final agency action under the APA,
summary judgment serves as a mechanism for deciding, 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 law. * * *

Van Bemmelen v. Commissioner, 155 T.C. at __ (slip op. at 25-26). That

distinction (the more demanding standard of denying the motion if the record

simply shows a dispute of fact versus the less demanding standard of denying the

motion only if the record fails to support the conclusion) does not affect the

outcome in this case since, as we explain below, the administrative record does not

support a critical premise of the WBO’s determination, and we therefore deny the

motion even under the less demanding standard.

II. Analysis

The Commissioner cites materials from the administrative record to make a

showing that petitioners’ claims were referred to IRS personnel in two operating

divisions--TEGE and CI--and that, in the words of section 7623(b)(1), neither

division decided to “proceed[] with any administrative or judicial action * * *

based on information brought to the Secretary’s attention by” petitioners. The

Commissioner’s motion asserts that “[t]he supporting documents from the

administrative claim file fully support the Whistleblower Office’s determination

that the IRS [1] did not proceed with an administrative or judicial action against
 - 22 -

[*22] the [target] Entity and [2] did not collect any proceeds based on petitioners’

claims.” We address each aspect of this alleged two-fold determination.

A. Lack of collected proceeds

The Commissioner’s motion errs by stating, as a supposed second aspect of

the WBO’s determination, that the IRS “did not collect any proceeds based on

petitioners’ claims”. A lack of collected proceeds will indeed properly result in

the denial of an award, because the only award to which a whistleblower may

become entitled is a percentage “of the collected proceeds * * * resulting from the

[administrative or judicial] action” that is “based on information brought to the

Secretary’s attention by” the whistleblower. Sec. 7623(b)(1). If there are no

proceeds, there can be no award. However, we do not know of any evidence in the

administrative record in this case establishing whether tax proceeds were

collected.

More important for present purposes, the final determination letters did not

assert a lack of collected tax proceeds as a basis for denying the claims. As we

noted, supra part I.B.2, citing Lacey v. Commissioner, 153 T.C. at 165, we review

only the determination that the WBO made, not other determinations that it might

have made but did not make.
 - 23 -

[*23] Admittedly, it might seem that, if there had been no “administrative or

judicial action * * * based on information brought to the Secretary’s attention by”

the whistleblower, then it must inevitably be true that there could therefore be no

“proceeds collected as a result of the action” that was never taken.

Sec. 7623(b)(1) (emphasis added).

However, proving non-collection of proceeds would be a different

undertaking, supported by a different sort of evidence, from proving that no

administrative or judicial action was commenced. The latter might seem to

necessitate the former; but since we do not know what we do not know, we decline

to grant summary judgment on an assumed fact for which the Commissioner’s

motion did not make a showing and that the WBO did not determine. Therefore,

we consider further only the WBO’s actual determination--i.e., that “[t]he claim

has been recommended for denial because the IRS took no action [i.e.,

administrative or judicial action] based on the information that you provided.”

B. Lack of administrative or judicial action

The WBO concluded that, in the words of section 7623(b)(1), the IRS did

not “proceed[] with any administrative or judicial action * * * based on

information brought to the Secretary’s attention by” petitioners. The record shows

that the WBO referred petitioners’ claims to two operating divisions--TEGE and
 - 24 -

[*24] CI--and that the WBO concluded that neither division proceeded with any

action and that therefore the claims should be denied. Against the

Commissioner’s argument, petitioners make some contentions that lack merit and

one that we must sustain.

1. Whether the IRS’s audit decisions were correct

Much of petitioners’ argument assails the IRS’s failure to audit the target

after petitioners had submitted a wealth of information that, they maintain, amply

justified such an audit. Petitioners argue both (1) that their information--

acknowledged by the WBO’s initial evaluators as “specific credible

documentation”--demonstrated convincingly that the target was violating the

Internal Revenue Code and (2) that the IRS’s consideration of their information

must have been cursory, misguided, and undiscerning.6 Petitioners conclude that

6
For example, petitioners’ claims had included allegations from an
individual with personal knowledge, but CI’s Form 11369, by which it declined to
investigate the target, stated that the “[i]ndividual notated in the claims who had
personal knowledge denied making those statements in an interview with federal
agents.” Petitioners contend that CI or the WBO was unduly credulous of that
denial: “[T]hat individual’s interview comprises only a small part of the evidence
included with the submission. Further, the Petitioners specifically allege that the
‘individual’ is complicit in the actions of the Subject Entity [i.e., the target] and,
on numerous occasions, knowingly signed documents under penalties of perjury
that contained falsehoods and/or omissions.”
 - 25 -

[*25] the IRS “does not seem to have much of an interest in actually investigating

the submission.”

Petitioners stoutly dispute the Commissioner’s “assertion that the statute

does not ‘confer [on the Tax Court] the authority to direct the IRS to commence an

administrative or judicial action.’” They ask us to review the IRS’s decision not to

audit and, when we see how deficient its process was, to “direct the appointment

of an independent investigator outside of the Internal Revenue Service to review

this submission due to the clear abuse of discretion present in this matter or,

alternatively, direct the Whistleblower Office to assign new investigators within

the office under the review of a U.S. Tax Court appointed monitor to review the

claim[s].”

As we explained, see supra part I.B.1, quoting Cline v. Commissioner,

at *15, such “monitor[ing]” or take-over of the IRS’s audit function is plainly

outside the power we have been granted. In reply to the Commissioner’s

contentions to this same effect, petitioners object that “[r]espondent boldly

contends that this Court has no authority to do much of anything and, therefore,

seems to believe that it [the IRS] can act (or fail to act) as it wishes with little to no

recourse.” However counter-intuitive it may be, as we noted above, “we do not

review the IRS’s decision whether to audit a target in response to a
 - 26 -

[*26] whistleblower’s claim and * * * we have no authority to require the IRS to

explain a decision not to audit.” Lacey v. Commissioner, 153 T.C. at 164.

Consequently, we must reject all of petitioners’ arguments and requests for relief

that presume otherwise.

2. Whether CI proceeded with any action

We cannot as quickly dispose of petitioners’ contention that, as a matter of

fact, CI did investigate the target and thus did “proceed[] with any administrative

or judicial action * * * based on information brought to the Secretary’s attention

by” petitioners, for purposes of section 7623(b)(1). If the record does not support

the WBO’s conclusion that CI did not conduct an investigation of the target using

petitioners’ information, then the WBO abused its discretion when it determined

that “the IRS took no action based on the information that you provided”; and that

error may have resulted in a premature denial of an award that may eventually

become due, depending on the results of that investigation.

Prompted by petitioners’ allegations--explicit and detailed, with names,

dates, and locations--the WBO’s email put a single direct question to CI: “Can

you please confirm that IRS CI is not working with these WBs on any

investigation with these [target] entities?” CI’s reply was a non-answer that looks
 - 27 -

[*27] like it may have been a deliberate evasion: “The claim was appropriately

declined by criminal investigation.”

But was CI “working with” petitioners or not? CI did not say. And it gives

us no confidence in the WBO’s determination to note (as the administrative record

shows) that in 2018 CI had to be asked three times to complete its Form 11369 for

this case, giving “unacceptable” responses to the WBO and grousing that it’s

“somebody else’s job”. We therefore hold that the administrative record,

containing petitioners’ detailed allegations and CI’s non-response, fails to support

the WBO’s conclusion that CI had not proceeded with any action based on

petitioners’ information. Accordingly, we deny the motion on the grounds that the

WBO abused its discretion in reaching its conclusion, because not all of its factual

determinations underlying that conclusion are supported by that record.

Conclusion

We will deny the Commissioner’s motion for summary judgment because

the WBO’s factual conclusion that there had been no “proceed[ing]” under

section 7623(b)(1) was an abuse of its discretion, and we will order the parties to

propose a schedule for further proceedings.
 - 28 -

[*28] To reflect the foregoing,

An appropriate order will be issued.