Whistleblower 8391-18W

United States Tax Court

161 T.C. No. 5

WHISTLEBLOWER 8391-18W,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

—————

Docket No. 8391-18W. Filed October 16, 2023.

—————

In 2006 an audit team for R opened an examination
for T. In 2008 P submitted to R’s Whistleblower Office
(WBO) a claim for an award, identifying T as a participant
in a dividend tax withholding scheme. In 2009 the audit
team received information relating to T, of which P was the
source. The WBO concluded that the audit team used P’s
information during the pre-existing examination of T and
that proceeds were collected as a result of this action. In
2018 the WBO issued to P a final determination that P was
entitled to a mandatory award of 22% of the collected
proceeds. P contends that the WBO abused its discretion
by not determining an award of 30%. P also contends the
WBO abused its discretion by not paying the 22% while P
challenged the withholding of the remaining 8%, by not
paying interest on the award due to P, and by applying a
sequestration reduction to P’s proposed award.

Held: The WBO did not abuse its discretion with
regard to P’s claim identifying T.

Held, further, I.R.C. § 7623(b) does not provide for
the payment of interest on a mandatory award to a
whistleblower.

—————

Served 10/16/23
 2

Kaitlyn T. Devenyns, T. Barry Kingham, and Jason D. Wright, for
petitioner.

George E. Heuring, Jr., Eric R. Skinner, Stephanie S. Washington, and
Jadie T. Woods, for respondent.

OPINION

NEGA, Judge: On September 20, 2018, petitioner filed a Motion
for Partial Summary Judgment (petitioner’s Partial Motion). On July
10, 2020, respondent filed a Motion for Summary Judgment
(respondent’s Motion). On September 8, 2021, petitioner filed a Motion
for Summary Judgment (petitioner’s Motion).

On February 28, 2022, petitioner lodged a Motion to Supplement
the Record (petitioner’s First Motion to Supplement). By Order issued
July 21, 2022, we granted petitioner’s First Motion to Supplement in
part and ordered that the parties file “a first supplement to the
administrative record that shall include sub-exhibit 2-P of Exhibit B, the
letter relating to claim number 2010-000949 in Exhibit F, and Exhibits
A, C, D, E, G, H, I, K, M, and N”; petitioner’s First Motion to Supplement
was otherwise denied. On August 24, 2022, the parties filed the First
Supplement to the Administrative Record.

On September 7, 2022, petitioner filed a Motion to Supplement
the Administrative Record (Second Motion to Supplement). By Order
issued February 16, 2023, the Court granted petitioner’s Second Motion
to Supplement and ordered that the parties file “a second supplement to
the administrative record that shall include Exhibits O, P, and Q.” On
March 17, 2023, the parties filed the Second Supplement to the
Administrative Record. In April and May 2023 the parties filed
supplemental briefs, responses, and replies to address the two
supplements to the administrative record, as ordered by the Court on
March 3, 2023.

For the reasons set forth below, we will deny petitioner’s Partial
Motion, deny petitioner’s Motion, and grant respondent’s Motion.
 3

Background

I. Petitioner’s Background and the Senate Investigation

Petitioner was an employee of Redacted 3 from 1995 until June
2005. In 2003–04, petitioner became aware of various tax strategies
being employed and marketed by Redacted 3. Generally, these
transactions involved the establishment of trading platforms that
permitted offshore hedge funds to avoid paying taxes on dividends
received from entities in the United States. Petitioner does not have a
tax background and was not involved in the marketing, development,
promotion, or implementation of Redacted 3’s tax transactions.

In June 2005 petitioner contacted the Criminal Investigation
Division (CID) of the Internal Revenue Service (IRS), making
allegations against Redacted 3 regarding a dividend withholding tax
scheme and submitting two binders of Redacted 3 internal documents
related to the withholding tax issue. On July 25, 2005, petitioner filed
an initial Form 211, Application for Award for Original Information,
referencing the information that he had previously submitted to CID.
The Form 211 identified a taxpayer other than Redacted 2, 4, or 5 and
does not form the basis of this case. Petitioner met with CI officials from
June 2005 through May 2006 to discuss the withholding tax scheme
issue.

On or about March 21, 2006, petitioner submitted Form 211 that
identified Redacted 2 as a participant in the dividend tax withholding
scheme.

On June 3, 2006, the IRS campus in Ogden, Utah, received from
petitioner two Forms 211 making allegations against taxpayers other
than Redacted 2, 4, and 5 regarding the withholding tax issue. These
Forms 211 do not form the basis of this case.

In October 2007, after a year of no contact by the IRS regarding
his submissions, petitioner began meeting with members of the U.S.
Senate’s Permanent Subcommittee on Investigations (PSI). In
November 2007 petitioner provided documents to the PSI, and from
November 2007 through September 2008 petitioner continued to work
with the PSI by explaining the documents, structures, and strategies
and by identifying key players from various companies involved in the
withholding tax issue.
 4

In 2008 the PSI conducted a hearing on withholding tax on
dividends paid to non-U.S. residents. As part of this hearing, the PSI
issued a report entitled “Dividend Tax Abuse: How Offshore Entities
Dodge Taxes on U.S. Stock Dividends” (Senate PSI Report). The Senate
PSI Report discusses multiple financial institutions, including Redacted
2. The Senate PSI Report discusses two types of transactions relevant
to the instant case: total return swap (TRS) transactions and securities
or stock lending (SL) transactions. These transactions were used by
U.S. financial institutions, including Redacted 2, to avoid withholding
taxes on dividends received from U.S. corporations in which its foreign
clients were invested.

On October 2, 2008, petitioner submitted a claim for reward
package consisting of Form 211, a six-page cover letter, and nine
exhibits. The claim concerned the withholding tax schemes employed
by all of the taxpayers addressed in the Senate PSI Report, including
Redacted 2. In late October 2008 members of the PSI contacted
respondent’s Whistleblower Office (WBO) to turn over the information
obtained during the PSI hearing. On October 27, 2008, IRS personnel
met with PSI officials to inventory the information obtained from the
Senate hearing, including two CD-ROMs of information provided by
petitioner.

On December 9, 2008, IRS Large Business & International
(LB&I) (formerly Large and Mid-Size Business (LMSB or LB)) counsel
notified the LB&I Financial Services group that they had received the
PSI/whistleblower information, which included taxpayer-specific
information related to the dividend withholding tax scheme.

II. Petitioner’s Claim

On December 15, 2008, the WBO received from petitioner a bulk
claim submission containing Forms 211 regarding multiple taxpayers
related to the information submitted to the PSI concerning the dividend
withholding tax scheme, including the Form 211 that forms the basis for
the instant case concerning Redacted 2, 4, and 5. In that Form 211,
petitioner alleged that Redacted 2, 4, and 5 participated in the dividend
withholding tax scheme that he had exposed to the PSI.

On January 9, 2009, the WBO assigned legacy claim No. 29-92347
to petitioner’s claim submission related to Redacted 2, 4, and 5
(petitioner’s claim). Petitioner’s claim was assigned claim No. 2010-
000949 when it was migrated to the WBO’s new e-trak claim system.
 5

III. Audit of Redacted 2, 4, and 5

In June 2006 an LB&I audit team, Field Team 1197, secured for
examination Redacted 4’s and Redacted 5’s Forms 1042, Annual
Withholding Tax Return for U.S. Source Income of Foreign Persons, for
the taxable year 2003. LB&I Revenue Agent Steven A. Alperin of Field
Team 1197 prepared an Examiner’s Risk Analysis Worksheet for
Redacted 4 and Redacted 5, identifying nonresident alien withholding
taxes under sections 1441, 1442, 1446, and 1461, 1 including the SL
transactions, as issues to be examined for taxable year 2003 (and
taxable years 2004 through 2006, if applicable).

In March 2008, LB&I Field Team 1197 requested and secured for
examination Redacted 4’s and Redacted 5’s Forms 1042 for taxable years
2004 through 2006. On March 12, 2008, Computer Audit Specialist
Team Manager Richard Goldstein approved Form 4764, Coordinated
Examination Program Audit Plan, for Computer Audit Specialist Henry
Klein’s assistance to the audit team for Redacted 4’s taxable years 2004
through 2006.

On April 11, 2008, the audit team, including Howard J. Klionsky,
held a telephone conference to discuss the TRS transaction issue. On
May 27, 2008, Mr. Klionsky prepared Form 4764B, Examination Plan
Issue Leadsheet (Exam Plan Leadsheet), for Redacted 5’s Form 1042 for
taxable year 2003, for Issue 01441.01-02, Liability of Withholding
Agent, relating to dividends received.

On July 22, 2008, Mr. Klein received Redacted 5’s response to the
TRS transaction issue from Mr. Klionsky. In September 2008, Mr. Klein
prepared Form 4564, Information Document Request, requesting
computer files from Redacted 2 for its 2006 taxable year.

On October 24, 2008, the audit team personnel held a meeting to
discuss the TRS transaction issue. On November 6, 2008, the audit
team personnel held another meeting on the TRS transaction issue.

On November 25, 2008, Mr. Alperin prepared Exam Plan
Leadsheets for Redacted 4’s and Redacted 5’s Forms 1042 for taxable
years 2003 through 2006 for Issue 01441.00-00, Withholding of Tax on

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

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure.
 6

Nonresident Aliens. Also on November 25, 2008, Mr. Alperin prepared
Exam Plan Leadsheets for Redacted 5’s Forms 1042 for taxable years
2003, 2004, and 2006 for Issue 01441.00-00, Withholding of Tax on
Nonresident Aliens.

On December 4, 2008, audit team personnel conducted a
workshop on the TRS transaction issue.

On January 5, 2009, Kyunghee Piraino, the subject matter expert
for LB&I whistleblower claims, emailed members of the audit team to
inform them that they were being granted access to the PSI database for
documents from the PSI’s investigation related to Redacted 2 and that
petitioner was the source of the PSI information. On January 7, 2009,
the audit team received a copy of Redacted 5’s TRS schedules that were
previously requested by Mr. Klionsky. As part of its ongoing
examinations of Redacted 4 and Redacted 5, the audit team reviewed
the PSI documents, including documents related to the trading activity
conducted by Redacted 2 with respect to the TRS transactions and the
SL transactions. The audit team used information from the PSI
database to request information from Redacted 2 through Information
Document Requests.

The audit team determined that Redacted 4 and Redacted 5 had
failed to properly withhold taxes on dividends paid to its foreign-based
clients related to the TRS transactions for taxable years 2000 through
2012. In June 2014, the IRS entered into Forms 906, Closing Agreement
on Final Determination Covering Specific Matters, with Redacted 4 and
Redacted 5 for taxable years 2003 through 2010. The total amount of
proceeds collected from Redacted 2 was $88,023,225.01, comprising
$72,719,718.85 from Redacted 4 for the SL transactions and
$15,303,506.16 from Redacted 5 for the TRS transactions. Redacted 4
and Redacted 5 made payments to the IRS based on the amounts set
forward in the Closing Agreements on June 16, 2014.

IV. The WBO’s Determination

On or about September 24, 2014, the audit team completed Form
11369, Confidential Evaluation Report on Claim for Award, for
petitioner’s claim. The Form 11369 was prepared and executed by audit
team member John Topping and signed by his manager, Gerald Charles.
The Form 11369 noted in relevant part that: (1) the taxpayer was
already under audit or investigation for the tax year or years identified
by the whistleblower; (2) the information provided led to adjustments in
 7

the audit or investigation plan for this type of issue, such as expanding
the scope of transactions to be examined or including specific
transactions the whistleblower identified in the sample; (3) the
whistleblower contributed to the development of facts in the audit or
investigation because the IRS used the information provided to develop
specific document requests or other inquiries of the taxpayer; and
(4) some or all of the information provided by the whistleblower came
from judicial or administrative proceedings, government reports,
hearings, audits or investigations, or the media.

The Form 11369 was forwarded to the WBO on September 24,
2014, and it included a narrative describing petitioner’s contribution to
the identification of the issues to be examined or investigated and
relevant documents from the withholding tax examinations of Redacted
4 and Redacted 5.

Felipe Castellanoz, a senior tax analyst with the WBO who
managed petitioner’s claim, reviewed the Form 11369 package
submitted by the audit team. Upon review of the Form 11369 package,
Mr. Castellanoz concluded that respondent used petitioner’s
information during a pre-existing administrative action and that
proceeds were collected as a result of this action.

In January 2016, pursuant to the WBO’s then-current
procedures, Mr. Castellanoz began monitoring activity for Redacted 4’s
and Redacted 5’s 2003 through 2008 taxable years on the IRS’s
Integrated Data Retrieval System (IDRS). Because Redacted 4’s returns
for taxable year 2013 were being controlled for a possible examination,
Mr. Castellanoz concluded that he would need to continue monitoring
the target taxpayers in IDRS before an award determination could be
made by the WBO.

In June 2016 the WBO received Form 11369 for Redacted 4’s
taxable year 2013. The Form 11369 states that petitioner’s claim “was
reviewed for the limited purpose of determining applicability to DOJ
Swiss Banking Program activity involving this bank and its U.S.
customers with Swiss accounts. Alleged activity is unrelated to bank’s
U.S. customers with Swiss accounts.” Because there was no connection
between petitioner’s claim and the DOJ Swiss Banking Program,
petitioner’s information was not used in an action relating to the DOJ
Swiss Banking Program.
 8

In September 2017 on the basis of IDRS research Mr. Castellanoz
determined that LB&I Field Team 1197 had secured for examination
Redacted 4’s Form 1042 for the taxable year 2013; the examination was
related to the Form 11369 received by the WBO in June 2016 and was
closed in July 2017 as “Survey After Assignment.” Also in September
2017 Mr. Castellanoz conducted an analysis of Redacted 4’s and
Redacted 5’s Transcript and Payment Reconciliations for taxable years
2003 through 2005, which confirmed that LB&I initiated the
examinations of Redacted 4 and Redacted 5 before obtaining access to
the PSI database. After undertaking this research, Mr. Castellanoz
determined that there were no ongoing withholding tax examinations of
Redacted 4 and Redacted 5. Accordingly, on September 26, 2017, Mr.
Castellanoz submitted a draft Award Recommendation Memorandum
(ARM) to his manager, Steven Mitzel, recommending that petitioner
receive an award of 22% of the proceeds collected using petitioner’s
information.

On September 26, 2017, Mr. Mitzel returned the draft ARM to
Mr. Castellanoz to expand on the reasons for proposing an award
percentage different from that used in prior claims filed by petitioner
with regard to other taxpayers involving the same dividend withholding
tax issues. As a result of Mr. Mitzel’s comments, on September 26, 2017,
Mr. Castellanoz emailed Ms. Piraino to have her ask LB&I Field Team
1197 when and for what reasons it started examining Redacted 4’s and
Redacted 5’s Forms 1042.

On November 2, 2017, Ms. Piraino forwarded the audit team’s
answers to Mr. Castellanoz. LB&I Field Team 1197 responded that the
PSI/whistleblower information did not lead the audit team to examine
the target taxpayers’ Forms 1042 for taxable years 2003 through 2006
because it was a “subsequent year examination,” and that, in addition
to the TRS transactions and the SL transactions, the audit team was
examining other unrelated issues for Redacted 4’s and Redacted 5’s
Forms 1042 for taxable years 2003 through 2008.

On November 14, 2017, Mr. Castellanoz revised his ARM to
expand on the reasons he had recommended a different award
percentage for petitioner’s claim (22%) as compared to petitioner’s other
claims with the same withholding tax issues (30%). Mr. Castellanoz
noted that petitioner’s other claims had been handled differently. The
audit team for petitioner’s claim was already pursuing the dividend
withholding tax issues for Redacted 4 and Redacted 5 when they
received the PSI/whistleblower information.
 9

The WBO relied on the documents in Form 11369, research
conducted by the WBO, and communications from the audit team to
establish that, before receiving access to the PSI database on or about
January 5, 2009, the audit team had already identified and were already
examining the dividend withholding tax issues, specifically the SL
transactions and the TRS transactions, entered into by Redacted 4 and
Redacted 5, respectively.

The WBO determined that a positive factor existed to increase the
award percentage from the minimum award of 15%, in accordance with
section 7623(b), the regulations under section 7623, and internal
guidance at Internal Revenue Manual 25.2.2 (Aug. 7, 2015). The revised
ARM summarized petitioner’s claim and concluded:

The Service collected additional proceeds in the amount of
$88,023,225.01 from REDACTED 2 as a result of actions
taken based on the whistleblower’s information. The
information provided identified taxpayer behavior that the
Service was unlikely to identify. The information provided
by the whistleblower was specific and responsible for the
identification of the taxpayer and the understanding of the
transaction. I recommend an award percentage of 22% of
the proceeds collected based on the whistleblower
information.

On January 3, 2018, the WBO issued a Preliminary Award
Recommendation Letter (PARL) to petitioner, proposing an award of
$18,084,957.47 based on an award percentage of 22% of collected
proceeds. The PARL also noted that the Budget Control Act of 2011, as
amended by the American Taxpayer Relief Act of 2012, requires
automatic reductions for sequestration 2 based on the amount
determined by the Office of Management and Budget (OMB) for the year
in which the payment is made. Attached to the PARL were a Summary
Report, a Response to Summary Report, and a Confidentiality
Agreement for petitioner’s review. The Summary Report determined

2 Sequestration is a measure by which Congress enforces mandatory spending

cuts across most government programs and agencies during the budgetary process.
Budget Control Act of 2011, Pub. L. No. 112-25, §§ 101–103, 125 Stat. 240, 241–46,
amended by American Taxpayer 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 based on the government
fiscal year when the award is paid, with the procedures for this calculation set out by
statute. See 2 U.S.C. § 901(a).
 10

that a positive factor existed to justify an increase to 22% because “[t]he
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.”

On January 17, 2018, the WBO received an executed Response to
Summary Report and Confidentiality Agreement, wherein petitioner
requested a more detailed explanation for the preliminary award
recommendation and an opportunity to review the supporting
documents.

On January 19, 2018, the WBO issued a Detailed Award
Recommendation Letter (DARL) to petitioner, providing greater detail
on the proposed preliminary award recommendation. Attached to the
DARL was a Detailed Report and a Response to Detailed Report for
petitioner’s review. The Detailed Report stated in relevant part:

The field team had already identified REDACTED 2’s
withholding tax issues prior to receiving the
PSI/whistleblower information for consideration. They had
opened the taxpayers 200312-200512 F-1042 withholding
tax returns for exam and they had identified the TRS-
dividend withholding issue prior to receiving the
information. However, the PSI/whistleblower information
did assist the field team in developing the withholding tax
issues. The information helped the team identify
connections between the lending and swap transactions
which enabled them to better understand the withholding
tax implications. The field team used the
PSI/whistleblower information to request information from
REDACTED 2 through IDRs. Therefore, the award
amount is increased to 22%.

On February 9, 2018, the WBO received an executed Response to
Detailed Report, wherein petitioner asked to schedule an appointment
to review the supporting documents underlying the preliminary award
recommendation. On March 12, 2018, petitioner’s counsel sent a letter
challenging the preliminary award recommendation that petitioner
receive an award based on 22% of proceeds collected from the actions
against Redacted 4 and Redacted 5. The letter stated, inter alia, that
petitioner doubted the claim that the audit team raised the TRS
transaction issue without the PSI/whistleblower information; claimed
petitioner should receive at least 30% of the proceeds from the SL
 11

transaction issue; questioned the delay in proposing the award; claimed
petitioner should benefit from the target taxpayers’ ceasing the SL
transactions and TRS transactions in 2008; and requested the amount
of the award based on 22% of collected proceeds be paid immediately
while petitioner challenged the withholding of the remaining 8%.

On March 21, 2018, Mr. Castellanoz prepared a revised ARM
after considering petitioner’s assertions in the March 12, 2018, letter.
The revised ARM proposed to maintain the recommended award of 22%
of collected proceeds. Specifically, the revised ARM noted that “[t]here
is no indication anyone within the IRS alerted Field Team 1197 about
the TRS/Stock Lending issues involving REDACTED 2. The field team
has specifically stated that the whistleblower’s pre-2008 contacts with
the IRS regarding the TRS withholding issues was not the reason they
began pursuing these issues.”

On April 2, 2018, the WBO sent petitioner a Final Determination
Under Section 7623(b) (Final Determination) that petitioner is entitled
to an award of $18,084,957.47 based on an award percentage of 22% of
collected proceeds. The Final Determination again noted that the award
was subject to an automatic sequestration reduction of a percentage
determined annually by the OMB in the year of payment. The Final
Determination reiterated the WBO’s conclusion that the “information
provided identified connections between transactions, or parties to
transactions, that enabled the IRS to understand tax implications that
might not have otherwise been understood.”

On May 3, 2018, petitioner timely filed his Petition with this
Court.

Discussion

I. Summary Judgment Standard

The purpose of summary judgment is to expedite litigation and
avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). 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. Rule 121(a)(2);
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17
F.3d 965 (7th Cir. 1994). The summary judgment standard provided in
Rule 121 has a slightly different application when reviewing
whistleblower award determinations because “we must confine
ourselves to the administrative record to decide whether there has been
 12

an abuse of discretion.” Van Bemmelen v. Commissioner, 155 T.C. 64,
78 (2020); see also Rule 121(j). In a so-called record rule whistleblower
case, “summary judgment serves as a mechanism for deciding, as a
matter of law, whether the [WBO’s] 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,
155 T.C. at 79.

II. Legal Background

Section 7623 provides for awards to individuals (commonly
referred to as whistleblowers) who submit information to the IRS about
third parties who have underpaid their taxes or otherwise violated the
internal revenue laws. Section 7623(a) authorizes discretionary
payments in certain circumstances, while section 7623(b) provides for
nondiscretionary (i.e., mandatory) awards. Under section 7623(b)(1), a
whistleblower generally is entitled to a mandatory award if the
Secretary of the Treasury proceeds with an administrative or judicial
action based on information provided by the whistleblower and collects
proceeds as a result of the action. The whistleblower is entitled to
receive an award of at least 15%, but not more than 30%, of the proceeds
collected, depending on “the extent to which the individual substantially
contributed to such action.” § 7623(b)(1).

The Tax Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. Kasper v.
Commissioner, 137 T.C. 37, 40 (2011); Judge v. Commissioner, 88 T.C.
1175, 1180–81 (1987); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
Section 7623(b)(4) confers on our Court jurisdiction over any appeal of a
determination that a whistleblower is entitled to an award under section
7623(b)(1). Whistleblower 972-17W v. Commissioner, 159 T.C. 1 (2022).

Our scope of review of whistleblower award determinations is
properly limited to the administrative record, and the applicable
standard of review is for abuse of discretion. Kasper v. Commissioner,
150 T.C. 8, 20, 22 (2018); see Whistleblower 769-16W v. Commissioner,
152 T.C. 172, 177 (2019). Further, in reviewing whistleblower award
determinations, we follow the Chenery doctrine so as to judge the
propriety of the WBO’s determination solely on the grounds it actually
relied on in making its determination. See Kasper, 150 T.C. at 23–24;
see also SEC v. Chenery Corp., 332 U.S. 194, 196 (1947); SEC v. Chenery
Corp., 318 U.S. 80, 93–94 (1943).
 13

Consequently, in reviewing a whistleblower award determination
for abuse of discretion, we do not substitute our judgment for the WBO’s
but rather decide “whether the agency’s decision was ‘based on an
erroneous view of the law or a clearly erroneous assessment of the
facts.’” Kasper, 150 T.C. at 23 (quoting Fargo v. Commissioner, 447 F.3d
706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13).

If the record before the agency does not support the agency
action, if the agency has not considered all relevant factors,
or if the reviewing court simply cannot evaluate the
challenged agency action on the basis of the record before
it, the proper course, except in rare circumstances, is to
remand to the agency for additional investigation or
explanation.

Whistleblower 769-16W, 152 T.C. at 178 (quoting Fla. Power & Light Co.
v. Lorion, 470 U.S. 729, 744 (1985)).

III. The Parties’ Cross-Motions for Summary Judgment

The question central to both motions is whether the WBO abused
its discretion in recommending an award of 22% instead of 30%.
Petitioner argues that the WBO acted arbitrarily and capriciously in
recommending a 22% award, when, in other claims involving the “same
issue,” he received a 30% award. On the other hand, respondent
contends that the WBO did not abuse its discretion when applying a 22%
award because its determination was sufficiently supported by the
administrative record and within the bounds of reasoned decision
making. We agree with respondent.

Under the administrative proceedings for award determinations,
the WBO is to prepare and send to the whistleblower a preliminary
award recommendation containing a PARL, a summary report, an
award consent form, and a confidentiality agreement. Treas. Reg.
§ 301.7623-3(c)(2).

The whistleblower has 30 days from the date the WBO sends the
PARL to respond by agreeing to the preliminary award recommendation
(and thus waiving any and all administrative and judicial appeal rights),
requesting a detailed report and opportunity to review supporting
documentation, adding comments to the administrative claim file, or
taking no action. Id. subpara. (3).
 14

Should the whistleblower request the opportunity to review
information from the administrative claim file, the whistleblower will
then have 30 days from the appointment date to submit comments to
the WBO on the detailed report and the documents reviewed, which will
then be added to the administrative claim file and reviewed by the WBO
when making its award determination. Id. subpara. (5).

After participation in the whistleblower administrative
proceeding has concluded and there has been a final determination of
tax (as defined in Treasury Regulation § 301.7623-4(d)(2)), the WBO will
determine the award amount under section 7623(b)(1), (2), or (3) and
Treasury Regulation §§ 301.7623-1 through 301.7623-4, on the basis of
its review of the administrative claim file. Treas. Reg. § 301.7623-
3(c)(6). As referenced above, as part of this review the WBO is tasked
with analyzing an individual’s claim by applying the rules provided in
Treasury Regulation § 301.7623-4(c) to the administrative claim file to
determine an appropriate award percentage. Id. para. (a)(1). The WBO
must consider all relevant factors in determining whether an award will
be paid, and, if so, the award amount. Id. subpara. (2).

The regulations provide lists of positive and negative factors to
help determine the whistleblower’s award percentage. See Treas. Reg.
§ 301.7623-4(b). Application of the following nonexclusive positive
factors may support increasing the award percentage:

(i) The whistleblower acted promptly to inform the
IRS or the taxpayer of the 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
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 identifies assets of the
taxpayer that could be used to pay liabilities, particularly
if the assets were not otherwise known to the IRS.
 15

(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). On the other hand, the application of the following
nonexclusive factors may support decreasing the 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.
(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).
 16

Treas. Reg. § 301.7623-4(b)(2). The regulations further provide 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 contributions to the action(s).

Treas. Reg. § 301.7623-4(c)(1)(i).

Starting the analysis at 15%, the WBO will analyze the
administrative claim file using the enumerated positive factors to
determine whether the whistleblower merits an increased award
percentage of 22% or 30%. Id. subdiv. (ii). The WBO will then 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. Thus, the
WBO may increase or decrease the award percentage on the basis of the
presence and significance of any positive or negative factors. Id.

The regulations also caution that the application of the positive
and negative factors “cannot be reduced to a mathematical equation.”
Id. Rather, the “factors are not exclusive and are not weighted and, in
a particular case, one factor may override several others.” Id. Further,
while the presence and significance of positive factors may offset those
of negative factors, the absence of a negative factor does not itself
constitute a positive factor. Id. Likewise, “the [WBO] may determine
separate award percentages on an action-by-action basis and apply the
separate award percentages to the collected proceeds attributable to the
corresponding actions.” Treas. Reg. § 301.7623-4(a)(2).

Petitioner urges us to find that the WBO abused its discretion in
recommending a lower award percentage (22%) in the present claim
compared to the award percentage recommended in claims against other
taxpayers involving the same dividend withholding tax scheme (30%).
Petitioner also urges a more formal “adjudication” of the positive factors
identified during the WBO’s review of the instant claim, assigning error
to the WBO’s ultimate determination that one positive factor’s presence
 17

and significance warranted an increased award percentage. Petitioner’s
arguments miss the mark.

When applying the positive and negative factors, the WBO is
vested with broad discretion and must exercise its judgment in
determining the appropriate award percentage for each claim before it.
See Luu v. Commissioner, T.C. Memo. 2022-126, at *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 also Treas. Reg. § 301.7623-4(c)(1)(ii) (“The
Whistleblower Office may increase the award percentage based on the
presence and significance of positive factors.” (Emphasis added.)). The
positive and negative factors do not require comparisons or consistency
between claims, even if brought by the same whistleblower or involved
in a common scheme. See Treas. Reg. § 301.7623-4(b). On the facts here,
the award percentage recommended in petitioner’s other claims is
simply not a consideration in the determination of the appropriate
award percentage for petitioner’s claim.

Further, while petitioner notes that each claim involves the
“same” dividend withholding tax issue, the mere fact that the claims
arise from a common scheme does not ipso facto make each claim
identical. To the contrary, the record before us shows that petitioner’s
claim here, unlike petitioner’s other claims that were responsible for the
identification of taxpayers, was supported by valuable supplemental
information to an audit that was already opened. Cf. Apruzzese v.
Commissioner, T.C. Memo. 2019-141, at *10, *13 (finding no abuse of
discretion in WBO’s determination of 22% award where whistleblower
provided information that contributed to already-initiated audit), aff’d,
811 F. App’x 1 (D.C. Cir. 2020). Rather than acting inconsistently in
recommending a 22% award, Mr. Castellanoz considered the
administrative claim file, sought additional information from the audit
team, and addressed comments from his manager to expand on the
differing percentages among petitioner’s claims. At each step of his
review of petitioner’s claim, Mr. Castellanoz exercised reasoned
judgment in reaching his determination that a 22% award was
appropriate.

Our task is to review the WBO’s determination and to uphold it
unless we find the final determination to be arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law. See Luu,
 18

T.C. Memo. 2022-126, at *22. Here, we find that the WBO did not err
in recommending a 22% award. Thus, we will grant respondent’s Motion
and deny petitioner’s Motion.

IV. Petitioner’s Partial Motion

Petitioner’s Partial Motion alleges that the WBO additionally
erred by (1) not paying the 22% immediately while petitioner challenged
the remaining unpaid 8%; (2) not paying interest on the award due to
petitioner; and (3) applying a sequestration reduction to petitioner’s
award proposal. We will briefly address each in turn.

A. Immediate Payment of 22%

Regarding petitioner’s first argument, the regulations make clear
that three events must occur before the payment of a whistleblower
award: (1) there is a final determination against the target; (2) the WBO
makes a determination of the award relating to that tax and
communicates that determination to the whistleblower in a
determination letter; and (3) all appeals of the WBO’s determination are
final or the whistleblower has executed a consent form agreeing to the
WBO’s determination and waiving his right to appeal it. Treas. Reg.
§ 301.7623-4(d)(1); see Lewis v. Commissioner, 154 T.C. 124, 132 (2020).
Petitioner declined to execute a consent form and instead exercised his
right to appeal the WBO’s award determination to this Court. As a
result, all appeals of the WBO’s determination are not yet final, and thus
petitioner has no present entitlement to a payment of 22% of the
proceeds.

B. Interest

Turning to petitioner’s second argument, we find no support for
his assertion that he is entitled to interest on his award. The plain text
of section 7623(b) does not provide for the payment of interest, and
substantive canons of construction preclude any expansive reading of
the provision’s silence on the issue. In addition to the general rule that
courts must construe waivers of immunity strictly in favor of the
sovereign, see McMahon v. United States, 342 U.S. 25, 27 (1951), the so-
called no-interest rule imposes a further level of strictness, see Lib. of
Cong. v. Shaw, 478 U.S. 310, 318 (1986) (“When Congress has intended
to waive the United States’ immunity with respect to interest, it has
done so expressly . . . .”). “[T]he sovereign is not liable for interest unless
there is a statutory requirement or a contract to pay it.” Busser v.
United States, 130 F.2d 537, 538 (3d Cir. 1942) (first citing Tillson v.
 19

United States, 100 U.S. 43 (1879); and then citing United States v. North
Carolina, 136 U.S. 211 (1890)). Here, there is no such explicit statutory
requirement. Although section 6611 provides an explicit statutory
requirement for the payment of interest, it is limited to overpayments of
tax. There is no overpayment at issue in this case. Accordingly,
petitioner is not entitled to interest on his award. 3

C. Sequestration

As to petitioner’s final argument, it is not an abuse of discretion
to apply the sequestration reduction when paying a whistleblower
award. Lewis, 154 T.C. at 141. Accordingly, we find that the WBO did
not err in the application of a sequestration reduction to petitioner’s
award.

Finding no abuse of discretion, we will thus deny petitioner’s
Partial Motion.

Conclusion

We have considered all remaining arguments the parties made,
and, to the extent not addressed, we conclude they are irrelevant, moot,
or meritless.

To reflect the foregoing,

An appropriate order and decision will be entered.

3 To the extent that petitioner cites the Takings Clause of the Constitution, we

likewise find this argument unpersuasive; a section 7623 claim does not create a
private property interest. See Lewis, 154 T.C. at 138 n.11.