Judgment summary
The petitioner, John R. Dee, submitted whistleblower information to the IRS Whistleblower Office (WBO) regarding a target taxpayer. The WBO forwarded the information to an examination team that had recently finished work on a pre-existing audit of that taxpayer. The examination team reported that it had already identified and acted on the issues the petitioner identified. The WBO denied the petitioner's claim for an award under I.R.C. section 7623(b), and the petitioner petitioned the Tax Court for review.
The case came before the Court on the respondent's Motion for Summary Judgment. The Court concluded that it had jurisdiction over the case and granted the respondent's Motion.
The Court held that it has jurisdiction over whistleblower cases when the whistleblower's information is received by an examination team regarding an open examination as defined by Rev. Proc. 2005-32. It held further that the petitioner had not shown that the administrative record required completion or supplementation, and that the WBO's determination to deny the claim was not an abuse of discretion.
Background
On March 1, 2010, the petitioner submitted to the IRS Whistleblower Office (WBO) Form 211, Application for Award for Original Information. He claimed that a target taxpayer (the Named Taxpayer) underreported its federal income tax by an estimated $10.85 million for tax year 2008. The petitioner claimed to have identified issues relating to unreported income from gift card breakage and improper deductions relating to depreciation and impairments. His claims were based on publicly available information, including his review of the Named Taxpayer's 2008 SEC Form 10-K.
After an initial review, on March 9, 2010, the WBO assigned the claim to Analyst Guadalupe Ortiz. Analyst Ortiz forwarded the claim to Joe Ann Booker, a whistleblower subject matter expert, on May 24, 2010.
Unrelated to the petitioner's claim, the IRS was already conducting an audit of the Named Taxpayer. According to the IRS Audit Plan, the examination commenced on or about October 30, 2009, and anticipated finishing substantive work in April 2010. The IRS issued Notices of Proposed Adjustments on April 6 and 7, 2010. The IRS concluded the audit on June 2, 2010, with the execution of Form 4549, determining no adjustments for tax year 2008. At that time, the examination team had not yet received the petitioner's information.
On or about July 6, 2010, the petitioner's claim was referred to Dawn Cotter, a revenue agent with the examination team (RA Cotter). At this time, the examination was still undergoing internal IRS review. RA Cotter completed Form 11369 on August 4, 2010, analysing the petitioner's information in three categories: gift card breakage, depreciation, and impairments. She stated that examination of the gift card breakage and depreciation issues before the petitioner's information was received resulted in no change. She stated that the impairments issue had resulted in an increase to income of approximately $2,663,898, but for tax year 2007, not tax year 2008.
RA Cotter indicated that no issues were added to the audit after receipt of the petitioner's information and that all issues had already been considered before the audit concluded on June 2, 2010.
No documented action was taken by the WBO on the claim until August 2015, when it was reassigned to WBO analyst Lev Glikman. On August 19, 2015, Analyst Glikman mailed a preliminary denial letter. On October 6, 2015, he prepared an award recommendation memorandum recommending denial, concluding that no administrative action had been taken on the basis of the petitioner's information. On October 6, 2015, the WBO issued a final determination denying the claim because the IRS took no action based on the information provided. On November 5, 2015, the petitioner timely filed a Petition with the Court.
Core dispute
The petitioner disputed the WBO's denial of his whistleblower award claim. The central questions were whether the Court had jurisdiction over the petition, whether the administrative record should be completed or supplemented with additional documents, and whether the WBO abused its discretion in denying the claim on the basis that no administrative action was taken based on the petitioner's information.
Court findings
On jurisdiction, the Court reviewed D.C. Circuit authority, including Li v. Commissioner, Lissack v. Commissioner, Kennedy v. Commissioner, and Estate of Insinga v. Commissioner. The Court noted that it lacks jurisdiction where a claim is rejected at the threshold or forwarded to an examination team where no examination occurs, but has jurisdiction where a claim is forwarded to an active or open examination, regardless of whether action was taken.
The Court considered when an examination should be treated as closed. It found that the conclusion of an audit as embodied by an audit report would be a flawed bright line, and instead adopted the definition of a closed case set out in Rev. Proc. 2005-32, section 4.01. The Court found that this case appeared to be an agreed case for the purposes of that revenue procedure, and that the IRS case against the Named Taxpayer was not closed on July 6, 2010, when the examination team received the petitioner's information, because the case was still undergoing internal review. It added that even if the case was not an agreed case, no Notice of Deficiency had issued, so the period for filing a petition could not have expired. The Court concluded that it had jurisdiction.
On completing and supplementing the record, the Court found that the petitioner relied on portions of the Named Taxpayer's 2010 SEC Form 10-K, portions of other cases he had filed in the Tax Court, and a summary of an alleged conversation with Analyst Glikman. The Court found that nothing about the 2010 SEC Form 10-K contradicted the position that the audit was completed before the examination team received the petitioner's information. It held that the petitioner had not shown these documents were actually before the WBO, so they could not qualify as omitted evidence, and that they did not meet any of the three exceptions for extrarecord evidence.
Regarding the alleged conversation with Analyst Glikman, in which he purportedly stated "Collections? What collections? How could you know? You can't know that!", the Court found the conversation appeared to concern other unrelated cases, offered nothing of substance, and did not fall within any exception. The Court declined to complete or supplement the record.
On the merits, the Court applied Treas. Reg. section 301.7623-2(b)(1) and found that the whistleblower's information did not substantially contribute to an action against the target taxpayer, and that the IRS did not initiate a new action, expand the scope of, or continue to pursue the ongoing action based on the petitioner's information. The Court found the petitioner's contention that the IRS and WBO fabricated a false record rested entirely on unsupported speculation that was contradicted by the record and timeline.
Outcome
The Court concluded that it had jurisdiction over the petition. It concluded that the WBO's determination to deny the petitioner's claim for an award was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. The Court granted the respondent's Motion for Summary Judgment. An appropriate order and decision will be entered.
Major issues / areas of contention
- Whether the Tax Court had jurisdiction over the whistleblower petition where the claim was forwarded to an examination team after that team had finished work on a pre-existing audit.
- When an examination should be considered closed for the purpose of determining whistleblower jurisdiction.
- Whether the administrative record should be completed or supplemented with the 2010 SEC Form 10-K, documents from other Tax Court cases, and a summary of a conversation with Analyst Glikman.
- Whether the WBO abused its discretion in denying the whistleblower award claim on the basis that no administrative action was taken based on the petitioner's information.