Felix Luu

United States Tax Court

T.C. Memo. 2022-126

FELIX LUU,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

—————

Docket No. 714-20W. Filed December 28, 2022.

—————

Felix Luu, pro se.

Lesley A. Hale and Michael Skeen, for respondent.

MEMORANDUM OPINION

WEILER, Judge: Felix Luu, pursuant to Rule 121, 1 filed a Motion
for Summary Judgment on November 9, 2020. On January 4, 2021,
respondent filed his Response to petitioner’s Motion for Summary
Judgment. Commencing September 27, 2021, a remote hearing was held
to determine the accuracy of the administrative record. After the
hearing, on April 4, 2022, petitioner filed a First Supplement to his
Motion for Summary Judgment (petitioner’s original and supplemental
motions are hereinafter collectively referred to as Motion for Summary
Judgment). On June 27, 2022, respondent filed his Response
(Supplemental Response) to petitioner’s Motion for Summary

1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. All dollar amounts are rounded to the nearest dollar.

Served 12/28/22
 2

[*2] Judgment. Petitioner filed his Reply to respondent’s Supplemental
Response on July 5, 2022.

For the reasons below, we will deny petitioner’s Motion for
Summary Judgment and grant respondent’s Cross-Motion for Summary
Judgment. 2 Furthermore, we will enter a decision in this matter
affirming the Internal Revenue Service (IRS) Whistleblower Office’s
(WBO) final determination regarding petitioner’s whistleblower award.

Background

Petitioner submitted several Forms 211, Application for Award
for Original Information, each dated February 24, 2009, to the WBO.
Petitioner’s Forms 211 were related to his family’s business operations
in California, which included a retail supermarket and a poultry farm.
Petitioner served as the general manager of the retail supermarket and
was an equal shareholder 3 with his six siblings in the family’s business
operations. By letters dated April 14, 2009, the WBO acknowledged
receipt of petitioner’s application for award and Forms 211 and assigned
petitioner’s case an initial claim number of 2009-001609. 4

On December 8, 2009, petitioner, as a minority shareholder, filed
a verified complaint in the Superior Court of California, County of
Sacramento, to compel the payment of a dividend or declaratory relief,
injunctive relief, an accounting, and appointment of a receiver against
one or more California corporations and a California limited liability
company (Companies), some of which were organized as S corporations
for federal income tax purposes. In the verified complaint petitioner
contended that he had only recently learned that he had received a
lesser dividend than other shareholders of the Companies and that, on
the basis of his own internal investigation, the other shareholders had
been skimming profits from the Companies.

2 As noted infra p. 10, we recharacterize respondent’s Response and

Supplemental Response as a Cross-Motion for Summary Judgment. See Klein v.
Commissioner, 149 T.C. 341, 343 (2017).
3 While one of the family businesses was organized as an LLC and therefore
petitioner and his siblings are considered “members” under state law, we refer to them
as “shareholders” throughout this Opinion since a majority of the businesses are
organized as corporations and have elected S corporation status.
4 The record reflects that the WBO later deemed the initial claim the “master

claim,” and additional claim numbers were opened, per each target taxpayer, bearing
claim numbers 2009-001610 through 2009-001621.
 3

[*3] On December 1, 2009, the Companies’ six shareholders (excluding
petitioner) filed voluntary disclosures with the IRS. The IRS
preliminarily accepted these voluntary disclosures on January 12, 2010.

On December 10, 2009, petitioner wrote to the IRS and furnished
detailed information including copies of his verified complaint and third-
party accounting reflecting the Companies’ and the shareholders’
unreported income. Some of the information petitioner furnished was
not disclosed by the Companies’ other six shareholders in their
voluntary disclosures. However, the IRS ultimately did not use the
additional information petitioner furnished in making its adjustments
to the Companies’ unreported income.

On or around January 2011 the IRS commenced audits of returns
of one or more of the Companies. Petitioner, as a shareholder of the
Companies, was notified of the IRS audits. On August 15, 2011, an IRS
revenue agent (RA) interviewed the Companies’ president, and then on
August 26, 2011, the RA separately interviewed the Companies’ six
shareholders (excluding petitioner), along with their respective spouses.
According to the separately interviewed shareholders, cash funds were
being skimmed from the Companies and distributed to all shareholders.
Also, according to the shareholders interviewed, it was petitioner who
handled these cash distributions since he was involved in the financial
operations of the Companies. The RA subsequently met with the
Companies’ bookkeeper on September 29, 2011, and later held several
meetings with petitioner regarding the Companies’ audits.

The IRS ultimately proceeded with the assessment of additional
federal income tax and employment taxes against the Companies and
their shareholders. The assessments exceeded $2 million dollars and
were directly related to the unreported income and payroll tax issues
petitioner identified. The assessed additional taxes, including interest
and penalties, have been paid.

In 2014 petitioner sought appeal to the IRS Office of Appeals
(Appeals Office) 5 protesting the proposed tax deficiencies for the
Companies, as determined by the IRS, as being too low since the
assessments failed to include other sources of unreported income.
Ultimately, the Appeals Office declined to accept petitioner’s appeal

5 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent

Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019). We will use the name in effect at the times relevant to this case, i.e., the
Office of Appeals or Appeals.
 4

[*4] based on his protest disagreeing with the IRS audit findings and
seeking an increase in the proposed tax deficiency amounts.

On or about August 29, 2018, the WBO sent petitioner a
preliminary award recommendation letter. The purpose of the letter was
to seek petitioner’s agreement or disagreement with the preliminary
award recommendation, as determined by the WBO. Enclosed with the
WBO’s letter was a summary report explaining the preliminary award
recommendation of $368,289. Also enclosed was a response form and a
confidentiality agreement for petitioner to sign and return to the WBO.

The WBO also sought the IRS’s input in making petitioner’s
preliminary award recommendation. The IRS furnished the WBO a
report written by the RA who handled the Companies’ audits. The RA
completed several Forms 11369, Confidential Evaluation Report on
Claim for Award, one related to each of petitioner’s whistleblower
claims. 6 In her report to the WBO, the RA generally reflected petitioner’s
actions and cooperation during the Companies’ audits. Her report to the
WBO states that “throughout the audit [petitioner] has fully cooperated
with the IRS in providing additional documents and analyzing the
documents.”

Furthermore, the RA’s report to the WBO notes that the RA

believe[s] that if [petitioner] had not filed a 211 claim his
siblings would have not filed a voluntary disclosure and
provided the documents and cooperation necessary for the
government to determine the correct adjustments.
Therefore I believe that [petitioner] took the first step that
led to this examination that allowed the government to
collect more than $2 million dollars in taxes, penalties and
interest.

On or about September 25, 2018, petitioner signed the response
form and the confidentiality agreement and returned the forms to the
WBO, indicating that he wanted to receive “a more detailed explanation
of the award recommendation . . . .”

In response to petitioner’s request, by letter dated December 6,
2018, the WBO furnished petitioner a two-page memorandum entitled

6 Although the RA completed a Form 11369 for each claim number, the

completed forms, and the attached memorandums, were identical other than the target
taxpayer information portions of the forms.
 5

[*5] “Detailed Report.” The detailed report was broken into five parts:
(1) petitioner’s submission to the WBO, (2) the actions taken by the IRS
audit team based on the information furnished, (3) the proceeds
collected on the basis of information received from petitioner, (4) the
award percentage analysis performed by the WBO, and (5) the
determination of the proposed award amount. Within the detailed
report, the WBO outlined its analysis in determining petitioner’s award
percentage. The detailed report states, in relevant part:

The information provided identified taxpayer behavior that
the IRS was unlikely to identify or that was particularly
difficult to detect through the IRS’s exercise of reasonable
diligence. The WB provided information that the TP
underreported income and unreported payroll to reduce
their U.S. tax burden . . . [t]he WB also provided
documentation which supported their allegation.

The detailed report also states, in relevant part:

The whistleblower delayed informing the IRS after
learning the relevant facts, particularly if the delay
adversely affected the IRS’s ability to pursue an action or
issue. As an operation manager of the [redacted
Corporation 5] most likely the WB was aware of the
activities in 2006, however he did not report the actions to
the IRS until 2009 after being fired from the company.

The WBO’s preliminary award recommendation was based, in
part, on an internal memorandum 7 prepared by a WBO employee. In the
internal memorandum, the WBO employee outlined the background of
petitioner’s claim and made a basis for her award recommendation to
the WBO director. In part, the WBO employee stated in the
memorandum:

The WB brought new information during the examination
that allowed the exam team to show unreported income
from [redacted Corporation 4]. The unreported income
computations were based on kill sheets signed the United

7 The record contains three internal award recommendation memorandums for

the WBO director, dated June 15, 2018, August 15, 2018, and December 6, 2019,
respectively. The memorandums are nearly identical and contain much the same
explanation. The memorandums are updates to the earlier draft, and the final version
includes a summary of petitioner’s responses to the WBO.
 6

[*6] States Department of Agriculture (USDA). The RA did a
third-party contact to the USDA to get the kill sheets. The
RA prepared a spreadsheet showing what gross receipts
should be if the government used the total number of
chickens slaughtered per USDA records and average sales
prices and average purchase price provided by the WB.

In summary, the WB didn’t hand the adjustment to the
Service. The Service still had to take the appropriate audit
steps to calculate the correct unreported income and
unreported payroll. As a shareholder and manager of the
business, the WB was most likely aware of the fraudulent
activities and participated in the accumulation of cash.
According to the WB, he never participated in these
activities and he was not aware the cash accumulation and
underreporting of income. During the examination,
[redacted Taxpayer 2] and the other 5 siblings state that
the WB had full knowledge of the fraudulent activities
conducted in the business and participated in the cash
skimming operations.

The WBO’s internal memorandum also outlines positive and
negative factors of petitioner’s whistleblower claim. Positive factors
include: (i) “[t]he information provided identified taxpayer behavior that
the IRS was unlikely to identify or that was particularly difficult to
detect through the IRS’ exercise of reasonable diligence” and (ii) “[t]he
WB provided information that the TP underreported income and
unreported payroll to reduce their U.S. tax burden . . . this information
led the examiner to review this particular item which saved resources.
The WB also provided documentation which supported their allegation.
This again saved resources and led the examiner to specific accounts.”

The negative factors include: (i) “as an operation manager of the
[Companies] most likely the WB was aware of the activities in 2006,
however he did not report the actions to the IRS until 2009 after being
fired from the company”; and (ii) “as a shareholder and manager of the
[Companies] most likely the WB should be aware of the fraudulent
activities and participated in the accumulation of cash. The WB
acknowledges receipt of cash in 2008, but he never used the cash.
Receipt of cash should have been reported on his own tax return. It’s not
relevant that he didn’t spend the cash.”
 7

[*7] Finally, the WBO’s internal memorandum, in their discussion of
negative factors, stated that

[t]he WB directly or indirectly profited from the
underpayment of tax or noncompliance identified but did
not plan or initiate the actions. The WB clearly benefits
through the cash received and the underreported income
and payroll taxes. His flow through income from the S
Corp. was understated.

With the WBO’s letter dated December 6, 2018, and detailed
report, the WBO also furnished petitioner with a “Response to Detailed
Report” form giving petitioner three choices. One gave petitioner the
option to schedule an appointment to review the supporting documents
at the WBO in Washington, D.C. Petitioner exercised this option and
traveled to Washington, D.C., and examined the supporting documents
on October 23, 2019. By letter dated November 21, 2019, petitioner then
provided a detailed response disputing the WBO’s preliminary award
recommendation. Petitioner’s detailed response included a two-page
cover letter, a 118-page written response, and 18 attachments, which
totaled approximately 908 pages.

The WBO received petitioner’s comments and made a final
determination under section 7623(b), dated December 16, 2019,
determining that petitioner was entitled to an award percentage of 15%.
The calculated award amount was based on the taxes, penalties and
other amounts collected by the IRS from the Companies and their
shareholders. In the final determination, the WBO stated:

The Whistleblower Office has considered your Form 211(s),
Application for Award for Original Information, dated
02/24/2009, this includes any additional information you
may have provided in relation to the Form 211. On August
29, 2018, the Whistleblower Office sent you a preliminary
award recommendation. The Whistleblower Office
reviewed the comments you provided on the preliminary
award recommendation. The Whistleblower Office has
made a final decision that you are entitled to an award of
$371,04[9] under Internal Revenue Code (IRC) section
7623(b). The enclosed Determination Report explains the
determination and the calculation of the award.
 8

[*8] The final determination also included a one-page determination
report consisting of six numbered paragraphs. First, the determination
report listed the total taxes, penalties, and interest the IRS collected
using information petitioner provided. Next, the determination report
determined an award percentage of 15%, a gross proceeds award of
$394,313, a Budget Control Act reduction of 5.9% for the 2020 fiscal year
of $23,264, and a determined award amount made under section 7623(b)
of $371,085. Finally, the determination report included a statement
regarding the factors that contributed to the recommended award
percentage as follows: “The positive factors were applicable, however
they didn’t have sufficient impact to warrant an increase of the award
% above 15% after considered the negative factors.” The final
determination also included a “Waiver of Appeal” and explained to
petitioner that he would need to waive his appeal rights under section
7623 from the determination of the WBO dated December 16, 2019,
whereby the WBO would process the award amount for payment.

On January 13, 2020, petitioner timely appealed the WBO’s
determination to this Court pursuant to section 7623(b)(4). On April 6,
2020, respondent filed his Answer to petitioner’s Petition.

On the basis of good cause shown at the hearing the Court found
that the administrative record, as submitted by respondent, was
incomplete. 8 The Court also found petitioner’s testimony and the
evidence he furnished sufficiently compelling to establish that the
additional proposed trial Exhibits petitioner filed (201-P through 439-P)
are also part of the administrative record in this case. Consequently, at
the hearing the Court admitted the proposed joint trial Exhibits, as well
as petitioner’s additional proposed trial Exhibits, which are now
collectively deemed the complete administrative record in this case.

Discussion

I. Summary Judgment

A. Background

In his Motion for Summary Judgment petitioner advances the
same arguments as those found in his Petition. First, he alleges a
multitude of problems with the audits that gave rise to the total
proceeds upon which his award was based. Second, petitioner argues

8 In instances of “good cause” shown, we will allow the administrative record

to be supplemented. See Kasper v. Commissioner, 150 T.C. 8, 21 (2018).
 9

[*9] that the WBO erroneously incorporated negative factors in its
award percentage analysis using inaccurate facts. Third, petitioner
contends that the IRS personnel assigned to the audits underlying the
award determination failed to complete their due diligence regarding
the facts in the case.

In his written Response respondent counters petitioner’s
arguments regarding shortcomings in the underlying audits and argues
that petitioner’s arguments fail as a matter of law since section
7623(b)(4) does not confer on us jurisdiction to review the IRS’s decision
to audit a tax return on the basis of the whistleblower’s tip. Second,
respondent argues that petitioner has, for the first time, contended that
he did not have knowledge of the target taxpayers’ underreporting
despite opportunities to present such information to the WBO. Thus,
respondent argues that petitioner is now raising new arguments not
made before the WBO and that the WBO did not abuse its discretion
and properly relied upon the information at its disposal to determine the
award percentage.

In his Reply petitioner argues that he does, in fact, dispute the
amount awarded because the “source information” is incorrect.
Petitioner avers that he disputed the entirety of the preliminary award
determination, and therefore the WBO’s application of negative factors.
He states that the WBO did not furnish its internal award
recommendation memorandum and it was not until this proceeding that
the document was first disclosed. Petitioner also argues that the WBO’s
application of negative factors was improperly based on the self-serving
testimony of his fellow shareholders whom he blew the whistle on and
therefore their testimony offers little credibility.

In his Motion for Summary Judgment petitioner contends that he
discovered that his IRS whistleblower award recommendation was
based on the IRS’s audit of the target taxpayers. Petitioner also contends
that portions of the administrative record relating to the IRS auditors’
and group managers’ work papers remain missing. Specifically,
petitioner also contends that the IRS violated the Internal Revenue
Manual (IRM) and section 7214 by not issuing a Form 11369 transfer
memo and purposefully hiding relevant information regarding his
 10

[*10] claims. 9 However, representations by respondent indicate that no
such completed form exists in this case.

Also in his Motion for Summary Judgment, petitioner contends
that the negative factors the WBO listed against him are based on false
speculation. Petitioner contends that he was unaware of any fraudulent
activities being conducted by the Companies’ other shareholders. He
likewise disputes the IRS’s reliance on the shareholders’ statements, as
self-serving hearsay. Finally, petitioner directs us to court documents,
including declarations and depositions, to establish that he did not
participate in or have knowledge of the abovementioned fraudulent
activities.

Respondent also filed a Supplemental Response to petitioner’s
Motion for Summary Judgment. In his Supplemental Response,
respondent contends that the WBO explained itself in its final
determination and moreover in the WBO’s internal award
recommendation memorandum. According to respondent, it is petitioner
who has failed to establish that he is entitled to judgment as a matter of
law with respect to the negative factors the WBO relied on to decrease
his award percentage.

Although respondent has not filed a cross-motion for summary
judgment, he contends the administrative decision of the WBO should
be affirmed. Therefore, under the circumstances we will recharacterize
as a cross-motion for summary judgment respondent’s Response and
Supplemental Response. See Klein, 149 T.C. at 343. Having considered
the parties’ arguments, as well as the administrative record, we are now
prepared to decide this matter.

B. Applicable Law

Pursuant to section 7623(a) Congress has authorized the
Secretary (and his designee), under prescribed regulations, to pay
discretionary whistleblower awards for detecting underpayments of tax
or detecting and bringing to trial and punishment persons guilty of

9 The provisions of the IRM can be instructive in understanding the IRS’s

interpretation of a statute, see Ginsburg v. Commissioner, 127 T.C. 75, 87 (2006), and
in ascertaining the procedures the IRS expects its employees to follow, see Wadleigh v.
Commissioner, 134 T.C. 280, 294 (2010). The IRM does not, however, have the force of
law. See Marks v. Commissioner, 947 F.2d 983, 986 n.1 (D.C. Cir. 1991), aff’g T.C.
Memo. 1989-575; Vallone v. Commissioner, 88 T.C. 794, 807 (1987).
 11

[*11] violating the internal revenue laws. 10 The amount payable is to be
paid from the proceeds of the amounts collected. Id. Proceeds include
tax, penalties, interest, additions to tax, and any proceeds arising from
laws which the IRS is authorized to administer and enforce, including
criminal fines and forfeitures. I.R.C. § 7623(c).

When the Secretary proceeds with any administrative or judicial
action using information furnished by the whistleblower, such an
individual is entitled to receive an award of at least 15%, but not more
than 30%, of the proceeds collected. I.R.C. § 7623(b)(1). 11 The
determination of the amount of such an award—as made by the WBO—
depends on “the extent to which the individual substantially contributed
to such action.” Id. However, if the WBO determines that the claim for
an award is brought by an individual who planned and initiated the
actions that led to the underpayment of tax, then the WBO may
appropriately reduce the award; and if the individual is convicted of
criminal conduct arising from the planned and initiated actions, the
WBO is required to deny any award. I.R.C. § 7623(b)(3).

10The IRS has long had authority to pay discretionary awards to persons, now
called “whistleblowers,” who provide information leading to the recovery of unpaid
taxes. See I.R.C. § 7623. In response to concerns about the management of the
discretionary award regime, Congress enacted legislation in 2006 to address perceived
problems with the whistleblower program. Tax Relief and Health Care Act of 2006,
Pub. L. No. 109-432, div. A, sec. 406, 120 Stat. 2922, 2958 (effective Dec. 20, 2006). The
2006 legislation added to section 7623 a new subsection (b), which requires the
payment of nondiscretionary whistleblower awards in specified circumstances and
provides this Court jurisdiction to review IRS determinations regarding such awards.
See Cooper v. Commissioner, 135 T.C. 70, 73 (2010).
11 While not the case here,
[i]n the event the action described in [section 7623(b)(1)] is one which
the Whistleblower Office determines to be based principally on
disclosures of specific allegations (other than information provided by
the individual described in [section 7623(b)(1)]) resulting from a
judicial or administrative hearing, from a governmental report,
hearing, audit, or investigation, or from the news media, the
Whistleblower Office may award such sums as it considers
appropriate, but in no case more than 10 percent of the proceeds
collected as a result of the action (including any related actions) or from
any settlement in response to such action (determined without regard
to whether such proceeds are available to the Secretary), taking into
account the significance of the individual’s information and the role of
such individual and any legal representative of such individual in
contributing to such action.
See I.R.C. § 7623(b)(2)(A).
 12

[*12] In section 7623(b), Congress makes whistleblower awards
mandatory if certain requirements are met. Some of the requirements
are that the proceeds in dispute exceed $2 million and that for any
targeted individual, his or her gross income exceed $200,000 for the
taxable year subject to such action. I.R.C. § 7623(b)(5). In this case the
proceeds collected exceeded $2 million and some of the targeted
taxpayers were companies and not individuals; therefore, petitioner is
entitled to a minimum award of 15%. 12

While Congress provides for a mandatory award for information
brought by a whistleblower, ultimately the award amount is left to the
IRS since Congress has provided an award range of 15% to 30%
dependent upon the level to which the whistleblower “substantially
contributed” to the actions by the IRS. See I.R.C. § 7623(b).

A party may move for summary judgment regarding all or any
part of the legal issues in controversy. See Rule 121(a); Wachter v.
Commissioner, 142 T.C. 140, 145 (2014). Ordinarily, under our Rules,
we may grant summary judgment if the pleadings, stipulations and
exhibits, and any other acceptable materials show that there is no
genuine dispute as to any material fact and that a decision may be
rendered as a matter of law. See Rule 121(a) and (b); see also CGG
Americas, Inc. v. Commissioner, 147 T.C. 78, 82 (2016); Elec. Arts, Inc.
v. Commissioner, 118 T.C. 226, 238 (2002).

However, we have recently observed in an analogous setting
involving whistleblower claims that

[T]his 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 case involving
review of final agency action under the [Administrative
Procedure Act], 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.

12 Section 7623(b)(3) is not relevant in this case.
 13

[*13] Van Bemmelen v. Commissioner, 155 T.C. 64, 78–79 (2020).
Applying this principle, we may decide through summary judgment, on
the basis of the administrative record before us, whether the WBO’s
determination was arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.

According to that standard we confine ourselves to ensuring that
the determination remained within the bounds of reasoned decision
making. Id. at 72. Our scope of review in whistleblower cases is based
on the administrative record with limited exceptions. Kasper, 150 T.C.
at 20–21. Remand to the WBO for further administrative proceedings
may be appropriate in certain whistleblower cases under section
7623(b). See Whistleblower 769-16W v. Commissioner, 152 T.C. 172
(2019).

Our task is to review the award determination by the WBO. I.R.C.
§ 7623(b)(4). Under the Chenery doctrine we uphold the WBO’s
determination on the grounds it actually relied on when making its
determination. See Kasper, 150 T.C. at 23. The Chenery doctrine is an
administrative law principle that says that “a reviewing court, in
dealing with a determination or judgment which an administrative
agency alone is authorized to make, must judge the propriety of such
action solely by the grounds invoked by the agency.” SEC v. Chenery
Corp., 332 U.S. 194, 196 (1947) (describing its holding in SEC v. Chenery
Corp., 318 U.S. 80, 93–95 (1943)). 13

II. Analysis

Subsection (b)(4) of section 7623 gives us exclusive jurisdiction to
review “[a]ny determination regarding an award” under subsection
(b)(1)–(3). See Li v. Commissioner, 22 F.4th 1014, 1017 (D.C. Cir. 2022).

Section 7623(b)(4) does not grant us jurisdiction over decisions
by the IRS in its conduct of audits or collection activities. Cohen v.
Commissioner, 139 T.C. 299, 302 (2012), aff’d, 550 F. App’x 10 (D.C. Cir.
2014). As we have explained, “although Congress authorized the Court
to review the Secretary’s award determination, Congress did not
authorize the Court to direct the Secretary to proceed with an

13 Applying the Chenery doctrine we have said the WBO must clearly set forth

the grounds on which it made its determination, and we cannot uphold the WBO’s
determination “simply because findings might have been made and considerations
might be disclosed which might justify his ultimate conclusion.” Kasper, 150 T.C. at
23–24 (quoting Antioco v. Commissioner, T.C. Memo. 2013-35, at *25).
 14

[*14] administrative or judicial action.” Cooper v. Commissioner, 136
T.C. 597, 600 (2011).

Therefore, petitioner’s first and third arguments in his Motion for
Summary Judgment fail as a matter of law. See id. at 600–01.
Petitioner’s contention that the WBO should have requested that the
IRS further audit the target taxpayers is extraneous, because we lack
the authority to require the WBO or IRS to take further action.

Petitioner also cites section 7214 as being violated by the IRS in
his case. Section 7214 imposes a penalty on any IRS employees—acting
in their official capacity—who commit an enumerated offense. The
penalty is dismissal from office or discharge from employment and, upon
conviction thereof, a fine of not more than $10,000, imprisonment for not
more than five years, or both. See I.R.C. § 7214(a). This Code provision
has no application here. To the extent petitioner attempts to state a
claim under section 7214, it affords no private right of action, and we
are without jurisdiction to hear such a claim. See, e.g., Orion Contracting
Tr. v. Commissioner, T.C. Memo. 2006-211; Rice v. Commissioner, T.C.
Memo. 1978-334; Strong v. United States, No. CIV A 6:98-1452, 1998 WL
990581 (W.D. La. Dec. 10, 1998). Accordingly, we will limit our analysis
to any alleged error(s) with respect to the WBO’s award determination.

In general, our prior reviews of WBO actions have been focused
on the necessary questions of our jurisdiction and the scope of our review
(if any) in circumstances of WBO “rejections” or “denials.” See, e.g.,
Whistleblower 21276-13W v. Commissioner, 147 T.C. 121 (2016); see also
Li v. Commissioner, 22 F.4th at 1017. In this case we are tasked with
the more traditional function of reviewing the appropriateness of the
WBO’s award determination and petitioner’s subsequent appeal of the
WBO’s final determination. I.R.C. § 7623(b)(4).

Under the administrative proceedings for award determinations
the WBO is to prepare a preliminary award recommendation to the
whistleblower by sending

(i) A preliminary award recommendation letter that
describes the whistleblower’s options for responding to the
preliminary award recommendation;
(ii) A summary report that states a preliminary
computation of the amount of collected proceeds, the
recommended award percentage, the recommended award
amount (even in cases when the application of section
 15

[*15] 7623(b)(2) or section 7623(b)(3) results in a reduction of the
recommended award amount to zero), and a list of the
factors that contributed to the recommended award
percentage;
(iii) An award consent form; and
(iv) A confidentiality agreement.

Treas. Reg. § 301.7623-3(c)(2).

The whistleblower has 30 days from the date the WBO sends the
preliminary award recommendation letter to respond in one of the
following ways:

(i) If the whistleblower takes no action, then the
Whistleblower Office will make an award determination,
pursuant to paragraph (c)(6) of this section;
(ii) If the whistleblower signs, dates, and returns the
award consent form agreeing to the preliminary award
recommendation and waiving any and all administrative
and judicial appeal rights, then the Whistleblower Office
will make an award determination, pursuant to paragraph
(c)(6) of this section;
(iii) If the whistleblower signs, dates, and returns
the confidentiality agreement, then the Whistleblower
Office will provide the whistleblower with a detailed award
report, and an opportunity to review documents supporting
the report pursuant to paragraphs (c)(4) and (5) of this
section, and any comments submitted by the whistleblower
will be added to the administrative claim file; or
(iv) If the whistleblower submits comments on the
preliminary award recommendation to the Whistleblower
Office, but does not sign, date, and return the
confidentiality agreement, then the comments will be
added to the administrative claim file and reviewed by the
Whistleblower Office in making an award determination,
pursuant to paragraph (c)(6) of this section.

Id. subpara. (3).

The whistleblower (and the whistleblower’s legal representative,
if any) has the opportunity to review information from the
administrative claim file (not protected from disclosure by one or more
common law or statutory privileges) supporting the award report
 16

[*16] recommendation at the WBO’s office in Washington, D.C. Treas.
Reg. § 301.7623-3(c)(5). At the appointment, the WBO will provide for
viewing the information from the administrative claim file; however, the
whistleblower is not permitted to make copies of any documents or other
information. Id. The whistleblower will then have 30 days from the date
of the appointment to submit comments on the detailed report and the
documents reviewed at the appointment to the WBO. All comments will
be added to the administrative claim file and reviewed by the WBO in
making an award determination. Id.

After participation in the whistleblower administrative
proceeding has concluded and there is a final determination of tax (as
defined in Treasury Regulation § 301.7623-4(d)(2)), the WBO will
determine the amount of the award under section 7623(b)(1), (2), or (3),
and Treasury Regulation §§ 301.7623-1 through 301.7623-4, on the basis
of the WBO’s review of the administrative claim file. Treas. Reg.
§ 301.7623-3(c)(6). 14

As referenced above, the WBO is to analyze an individual’s claim
by applying the rules provided in Treasury Regulation § 301.7623-4(c)
to the information in the administrative claim file to determine an
appropriate award percentage. Id. para. (a)(1). The WBO is required to
consider all relevant factors in determining whether an award will be
paid, and if so, the amount of the award. Id. subpara. (2).

The regulations provide a list of factors to help determine the
whistleblower’s award percentage. See Treas. Reg. § 301.7623-4(b). The
WBO is to apply the following nonexclusive factors to support increasing
an award percentage:

(i) The whistleblower acted promptly to inform the
IRS or the taxpayer of the tax noncompliance.
(ii) The information provided identified an issue or
transaction of a type previously unknown to the IRS.
(iii) The information provided identified taxpayer
behavior that the IRS was unlikely to identify or that was

14 The WBO is to communicate the award to the whistleblower in a final

determination letter by stating the amount of the award. If, however, the
whistleblower has executed an award consent form agreeing to the amount of the
award and waiving the whistleblower’s right to appeal the award determination to this
Court, then the WBO will not send the whistleblower a final determination letter and
will make payment of the award as promptly as circumstances permit. Treas. Reg.
§ 301.7623-3(c)(6).
 17

[*17] particularly difficult to detect through the IRS’s exercise of
reasonable diligence.
(iv) The information provided thoroughly presented
the factual details of tax noncompliance in a clear and
organized manner, particularly if the manner of the
presentation saved the IRS work and resources.
(v) The whistleblower (or the whistleblower’s legal
representative, if any) provided exceptional cooperation
and assistance during the pendency of the action(s).
(vi) The information provided identified assets of the
taxpayer that could be used to pay liabilities, particularly
if the assets were not otherwise known to the IRS.
(vii) The information provided identified connections
between transactions, or parties to transactions, that
enabled the IRS to understand tax implications that might
not otherwise have been understood by the IRS.
(viii) The information provided had an impact on the
behavior of the taxpayer, for example by causing the
taxpayer to promptly correct a previously-reported
improper position.

Id. subpara. (1). Similarly, the WBO is to apply the following
nonexclusive factors to support decreasing an award percentage:

(i) The whistleblower delayed informing the IRS
after learning the relevant facts, particularly if the delay
adversely affected the IRS’s ability to pursue an action or
issue.
(ii) The whistleblower contributed to the
underpayment of tax or tax noncompliance identified.
(iii) The whistleblower directly or indirectly profited
from the underpayment of tax or tax noncompliance
identified, but did not plan and initiate the actions that led
to the underpayment of tax or actions described in section
7623(a)(2).
(iv) The whistleblower (or the whistleblower’s legal
representative, if any) negatively affected the IRS’s ability
to pursue the action(s), for example by disclosing the
existence or scope of an enforcement activity.
(v) The whistleblower (or the whistleblower’s legal
representative, if any) violated instructions provided by the
IRS, particularly if the violation caused the IRS to expend
additional resources.
 18

[*18] (vi) The whistleblower (or the whistleblower’s legal
representative, if any) violated the terms of the
confidentiality agreement described in [Treas. Reg.]
§ 301.7623-3(c)(2)(iv).
(vii) The whistleblower (or the whistleblower’s legal
representative, if any) violated the terms of a contract
entered into with the IRS pursuant to [Treas. Reg.]
§ 301.6103(n)-2.
(viii) The whistleblower provided false or misleading
information or otherwise violated the requirements of
section 7623(b)(6)(C) or [Treas. Reg.] § 301.7623-1(c)(3).

Treas. Reg. § 301.7623-4(b)(2).

Treasury Regulation § 301.7623-4(c)(1)(i) provides that

[i]f the IRS proceeds with any administrative or judicial
action based on information brought to the IRS’s attention
by a whistleblower, such whistleblower shall, subject to
paragraphs (c)(2) and (3) of this section, receive as an
award at least 15 percent but not more than 30 percent of
the collected proceeds resulting from the action (including
any related actions) or from any settlement in response to
such action. The amount of any award under this
paragraph depends on the extent of the whistleblower’s
substantial contribution to the action(s).

This regulation further provides that “[s]tarting the analysis at 15
percent, the Whistleblower Office will analyze the administrative claim
file using the factors listed in paragraph (b)(1) of this section to
determine whether the whistleblower merits an increased award
percentage of 22 percent or 30 percent.” Treas. Reg.
§ 301.7623-4(c)(1)(ii). Accordingly, the WBO may increase the award
percentage on the basis of the presence and significance of any positive
factors. Id.

Next, the WBO will analyze the contents of the administrative
claim file using the enumerated negative factors to determine whether
the whistleblower merits a decreased award percentage of 15%, 18%,
22%, or 26%. Id. Accordingly, the WBO may decrease the award
percentage on the basis of the presence and significance of any negative
factors. Id.
 19

[*19] The WBO furnished petitioner a preliminary award
determination as required. Next, upon the request of petitioner, the
WBO furnished a detailed report and then permitted petitioner to
inspect the WBO’s supporting documents. The WBO received
petitioner’s response to the preliminary findings and then issued a final
determination under section 7623(b). The WBO’s findings are set forth
in its written final determination letter dated December 16, 2019.

In this case the WBO’s determination of award concluded there
were both positive and negative factors present in calculating
petitioner’s award. First, the WBO increased petitioner’s award from the
minimum 15% to 22% on account of the existence of positive factors.
Next, however, the WBO applied negative factors and reduced
petitioner’s award to the minimum 15% award percentage. Below we
will further discuss our conclusions on this matter.

A. The WBO’s Award Calculation

The determination report, which was included with the WBO’s
final determination, reflects an award amount of $371,049. This award
determination is also calculated in the detailed report furnished to
petitioner by letter dated February 20, 2019.

The total award due of $394,313 is 15% of the proceeds collected
by the IRS from the target taxpayers. In a three-page Excel spreadsheet,
the WBO listed the amounts, taxpayer identification numbers, tax
periods, and dates of payment for all taxes, penalties, and interest
received. The total amount recovered, per the WBO Excel spreadsheet,
is $2,628,755. Petitioner does not appear to dispute the total amount
collected, as calculated by the IRS.

The adjustment to the total award due of $394,313 is then
adequately documented and explained by the WBO. The WBO explains
how under the Budget Control Act of 2011, as amended by the American
Tax Relief Act of 2012, the award amount is required to be reduced by a
sequestration percentage determined annually by the Office of
Management and Budget (OMB). 15 The WBO’s final determination

15 Sequestration is a measure by which Congress enforces mandatory spending

cuts across most government programs and agencies during the budgetary process.
Sequestration applies to all nonexempt direct spending when Congress fails to enact
certain budgetary legislation for the fiscal year. Budget Control Act of 2011, Pub. L.
No. 112-25, §§ 101–103, 125 Stat. 240, 241–46, as amended by American Taxpayer
 20

[*20] correctly explains how payments in excess of $10,000 are subject
to a federal income tax withholding amount, 16 reflecting a net payment
amount (after withholdings) to be received by petitioner. We conclude
the WBO has correctly calculated petitioner’s award amount.

B. Application of Positive Factors

The record reflects the WBO’s process in determining that two
positive factors existed, with the first positive factor being how the
information petitioner furnished was previously unknown to the IRS,
and second, that the information petitioner furnished identified
behavior that the IRS was unlikely to identify or was difficult to detect
by reasonable diligence. See Treas. Reg. § 301.7623-4(b)(1)(ii) and (iii).

The WBO’s award recommendation memorandum concludes
these positive factors increase petitioner’s percentage award from the
minimum 15% to 22% as permitted under the regulations. See Treas.
Reg. § 301.7623-4(c)(1)(ii). Under section 7623, an individual’s award
percentage depends on to “the extent to which [he] substantially
contributed to” the actions of the IRS against the target taxpayers. See
I.R.C. § 7623(b)(1). In this case the WBO analyzed the administrative
claim file and, using the information presented, it determined
petitioner’s award percentage. See Treas. Reg. § 301.7623-4(a)(1). The
WBO then multiplied the award percentage by the amount of collected
proceeds. Id. subpara. (2).

While the WBO fails to elaborate in great detail its conclusion to
arrive at a 22% tentative award percentage, rather than 30% (before
reduction) based on petitioner’s substantial contribution, we do not
conclude the WBO’s action was arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law in making this
determination. See Treas. Reg. § 301.7623-4(c)(ii). Petitioner does not

Relief Act of 2012, Pub. L. No. 112-240, § 901, 126 Stat. 2313, 2370 (codified as
amended at 2 U.S.C. § 901(a) (2012)). The applicability of the sequestration and the
sequestration percentage are determined on the basis of the government fiscal year
when the award is paid. The OMB calculates the sequestration percentage for each
fiscal year following the procedures set forth by statute. See 2 U.S.C. § 901(a).
16 The WBO correctly notified petitioner—in the preliminary and final

determinations—that his award is includible in gross income under section 61 and
subject to federal tax reporting and backup withholding requirements by the WBO in
the year of payment. The WBO correctly notified petitioner that his award will be
subject to a 24% backup withholding and may be offset against any outstanding federal
income tax liabilities that he has.
 21

[*21] appear to dispute the foregoing positive factors and tentative
award percentage increase (from 15% to 22%). Furthermore, petitioner
has not asserted that the WBO failed to include other relevant positive
factors.

Our conclusion as to the WBO’s proper application of positive
factors is based on the WBO’s application of this regulation and the
discretion given to the WBO in making its award percentage
determination. See Treas. Reg. § 301.7623-4(b)(1). Our conclusion is also
confirmed by petitioner, who has not disputed this portion of the WBO’s
award percentage calculation. Accordingly, we conclude the WBO has
adequately addressed all relevant positive factors in determining
petitioner’s award percentage. See id.

C. Application of Negative Factors

As mentioned, the record reflects that the WBO concludes there
are two negative factors present in petitioner’s claim. First, the WBO
determined petitioner delayed in informing the IRS after learning of the
relevant facts and particularly how the delay adversely affected the
IRS’s ability to pursue an action or issue. See Treas. Reg.
§ 301.7623-4(b)(2)(i). Second, the WBO determined petitioner
contributed to the underpayment of tax or noncompliance identified. See
id. subdiv. (ii).

In his original application for award petitioner explains his
limited role and involvement in the Companies and, upon his
subsequent discovery of the tax scheme, how he was essentially
prohibited from questioning the Companies’ operations by the other
shareholders. However, the WBO appears to ultimately rely on
statements by the RA to conclude there are two negative factors on the
“most likely” facts of this case. The RA furnished a seven-page
memorandum analyzing petitioner’s involvement in the Companies and
their skimming operations, as well as the information petitioner
furnished and its use to the RA during her audit. Along with the
memorandum, the RA identically completed Form 11369 for each of
petitioner’s claims, indicating how “the information provided led to
adjustments in the audit . . . such as expanding the scope of transactions
to be examined.” On the Forms 11369 the RA also indicated that four
favorable factors existed with respect to petitioner’s contributions and
six factors were not applicable (or did not exist). Finally, with respect to
“other information” the RA marked “yes” the following additional factor:
 22

[*22] (A) “Did the whistleblower participate in the actions that led to
the underpayment of tax.”

The record before us reflects that petitioner may have contributed
to the underpayment of tax or participated in the actions which led to
the underpayment of tax. We acknowledge how petitioner blew the
whistle on the Companies’ actions and its shareholders upon his
discovery of tax noncompliance. However, the record also reflects how
petitioner failed to promptly notify the IRS of the tax noncompliance
after learning of the relevant facts. We also find there to be material
analysis performed by the WBO explaining its conclusion in arriving at
a minimum 15% award percentage for petitioner. In sum, there is
sufficient evidence supporting the two negative factors applied by the
WBO.

Our task here is to review the agency determination and to
uphold it unless we find the WBO’s final determination to be arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with
law. Here it cannot be said that the IRS’s records do not support the
WBO’s conclusions. While petitioner contends at length that there are
additional facts refuting his involvement in and knowledge of the tax
noncompliance scheme, we decline to go behind the WBO’s
determination and second-guess the conclusion reached, since these
same contentions by petitioner were considered and rejected by the
WBO.

In our review we are unable to conclude that the WBO acted
arbitrarily, capriciously, with abuse of discretion, or otherwise not in
accordance with law in applying the negative factors under Treasury
Regulation § 301.7623-4(b) in accordance with the discretion given to it
in making its award percentage determination. Accordingly, we
conclude the WBO has adequately addressed all relevant negative
factors in determining petitioner’s award percentage.

III. Conclusion

The record before us reflects how the WBO relied on evidence
found in the administrative record in making its award determination.
The record also reflects how the WBO considered relevant positive and
negative factors in making its award determination. Finally, the record
reflects that the WBO followed proper administrative procedures and
considered petitioner’s arguments. Thus, we conclude petitioner has
failed to show that the WBO’s action in making its final determination
 23

[*23] was arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.

We will deny petitioner’s Motion for Summary Judgment, grant
respondent’s Cross-Motion for Summary Judgment, and enter a decision
affirming the WBO’s final determination under section 7623(b), dated
December 16, 2019.

To reflect the foregoing,

An appropriate order and decision will be entered.