Bruce Edward Johnson

United States Tax Court

T.C. Memo. 2024-94

BRUCE EDWARD JOHNSON,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 12448-19W. Filed October 17, 2024.

__________

Bruce Edward Johnson, pro se.

Jessica R. Nolen and Philip Edward Blondin, for respondent.

MEMORANDUM OPINION

VASQUEZ, Judge: In this whistleblower award case petitioner

seeks review pursuant to section 7623(b)(4) 1 of a final decision issued by

the Internal Revenue Service (IRS) Whistleblower Office (WBO),

denying petitioner’s claim for a whistleblower award. Pending before

the Court is respondent’s Motion for Summary Judgment, contending

that the WBO’s denial of petitioner’s claim was not an abuse of its

discretion. Petitioner has objected. For the reasons that follow, we will

grant respondent’s Motion and sustain the WBO’s determination.

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

Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax

Court Rules of Practice and Procedure.

Served 10/17/24

2

[*2] Background

The following facts are based on the parties’ pleadings and Motion

papers, including the attached Declarations and Exhibits. See Rule

121(c). Petitioner resided in Iowa when he petitioned this Court.

Initial Whistleblower Claim

In 2010 petitioner commenced his whistleblower claim by filing

Form 211, Application for Award for Original Information, alleging that

the target, an entertainment and hospitality provider, had repeatedly

violated internal revenue laws. Petitioner claimed that the target’s

various activities including gambling, restaurants, and an event hall

were commercial, rather than charitable, and should preclude its

qualification for tax-exempt status. Additionally, petitioner contended

the target owed unpaid unrelated business income tax (UBIT) in excess

of $40 million for tax years 2006, 2007, and 2008 for revenue generated

from its purported commercial activities. On March 16, 2010, the WBO

sent a letter to petitioner, acknowledging receipt of his Form 211 and

assigning the case a claim number.

TE/GE Referral and Examination

Shortly thereafter, the WBO referred the claim to the Tax Exempt

and Government Entities (TE/GE) Division in Dallas, Texas. On a date

not established by the record, the case was assigned to TE/GE Revenue

Agent (RA) Marshall Jackson, who opened an examination of the target

for the tax years 2012, 2013, and 2014.

Proposed Adjustments

On June 14, 2017, RA Jackson concluded TE/GE’s examination

and determined that the target owed UBIT for income derived from

commercial hospitality activities for all three tax years. RA Jackson

proposed adjustments totaling close to $1.4 million 2 reflecting a UBIT

deficiency as well as additions to tax for the failure to file, pursuant to

section 6651(a)(1). In Form 11369, Confidential Evaluation Report on

Claim for Award, RA Jackson confirmed his reliance on the

2 Because of our holding herein, we need not decide whether the “proceeds in

dispute” exceeded $2 million pursuant to section 7623(b)(5)(B).

3

[*3] whistleblower’s information 3 to initiate the examination and to

calculate the proposed adjustments. At the same time, RA Jackson

acknowledged that the target was not in agreement with the proposed

adjustments and that, as a result, the case would be sent to Appeals. 4

Appeals and Reversal

Appeals Officer Kim Nguyen determined that the target’s exempt

purpose included “aiding the County by operating the facility in lieu of

the County and contributing to the economic growth and development

of the County.” Viewed within this context, the revenue streams from

the entertainment and hospitality facilities “contribute[] importantly to

the achievement of that exempt purpose by improving the services

available to patrons visiting the facilities, raising additional revenue,

and supplying more jobs for the economy.” Appeals Officer Nguyen’s

characterization of these revenue streams as exempt income reversed

the UBIT deficiencies and additional payments identified in the

examination and resulted in no changes in the amount of tax owed by

the target for tax years 2012, 2013, and 2014.

On June 4, 2019, the WBO issued a denial letter to petitioner

indicating that it was denying petitioner’s claim because the information

he provided did not result in the collection of any proceeds. The letter

also stated that it was “a final determination for purposes of filing a

petition with the United States Tax Court.”

On July 3, 2019, petitioner timely mailed the Petition, which the

Court filed on July 8, 2019. On October 17, 2019, respondent filed his

Answer. Thereafter, respondent filed a Motion for Summary Judgment,

and petitioner filed an Objection thereto.

On January 12, 2023, this Court stayed proceedings pending the

resolution of a jurisdictional question raised in Lissack v. Commissioner,

No. 21-1268 (D.C. Cir. filed Dec. 16, 2021), and Villa-Arce v.

Commissioner, No. 22-1006 (D.C. Cir. filed Jan. 13, 2022), by the U.S.

3 Between May 13, 2010, and December 6, 2016, petitioner sent an additional

14 letters to the examination team. These contained supplemental information for his

claim and included newspaper articles, financial reports, and summaries and analysis

of relevant court decisions.

4 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 the case, i.e., the

Office of Appeals or Appeals.

4

[*4] Court of Appeals for the District of Columbia Circuit. On May 26,

2023, the D.C. Circuit resolved the jurisdictional question. See Lissack

v. Commissioner, 68 F.4th 1312, (D.C. Cir. 2023), vacated and remanded

on other grounds, 144 S. Ct. 2707 (2024); Villa-Arce v. Commissioner, 68

F.4th 1328, 1332 (D.C. Cir. 2023). Accordingly, we can now proceed.

Discussion

I. Jurisdiction

Section 7623 provides for awards to whistleblowers who submit

information to the Government about third parties who have underpaid

their taxes or otherwise violated the internal revenue laws.

Whistleblower 972-17W v. Commissioner, 159 T.C. 1, 4 (2022). Section

7623(a) authorizes discretionary payments in certain circumstances,

while section 7623(b) provides for nondiscretionary awards.

In the event a whistleblower is unsatisfied with an award

determination, Congress has authorized judicial review of the award

determination in our Court. § 7623(b)(4). However, the Tax Court’s

jurisdiction to review a whistleblower award determination is not

without limits. Specifically, the D.C. Circuit has held that the Tax Court

lacks jurisdiction to review a threshold rejection of a whistleblower

claim—i.e., the WBO’s determination that a claim should be rejected at

the outset without any further action. Li v. Commissioner, 22 F.4th

1014, 1017 (D.C. Cir. 2022); Whistleblower 972-17W, 159 T.C. at 6–7;

see also Rogers v. Commissioner, 157 T.C. 20, 28 (2021) (describing

rejection characteristics). The D.C. Circuit has reasoned that the Tax

Court has jurisdiction to review a WBO award determination under

section 7623(b)(1) when the IRS actually proceeds with an action against

the target taxpayer. Shands v. Commissioner, 111 F.4th 1, 9 (D.C. Cir.

2024) (noting that the “jurisdictional inquiry focuses on what the IRS

did — i.e., whether it ‘proceed[ed] with any administrative or judicial

action’” (quoting Li v. Commissioner, 22 F.4th at 1017)), aff’g 160 T.C.

388 (2023). In Lissack and Villa-Arce, the D.C. Circuit explicitly

declined the opportunity to extend the scope of Li, holding that the Tax

Court has jurisdiction if the IRS proceeds with an action. See Lissack v.

Commissioner, 68 F.4th at 1320–21 (“The fact that the IRS conducted

an examination here suffices to distinguish Lissack’s case from Li.”).

This is true even if the WBO acknowledges that the examination was

related to the whistleblower’s information yet ultimately determines

that the whistleblower is not entitled to an award. Id.; Villa-Arce v.

5

[*5] Commissioner, 68 F.4th at 1332; see also Whistleblower 972-17W,

159 T.C. at 7–10 (reaching the same conclusion on similar facts).

In this case the WBO referred petitioner’s claim to TE/GE, which

proceeded with administrative action. The WBO subsequently issued a

final award decision denying petitioner’s claim. Accordingly, this Court

has jurisdiction over this case. See Whistleblower 972-17W, 159 T.C.

at 7–10.

II. Summary Judgment

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). Under Rule 121(a)(2), which

articulates the general standard for evaluating a summary judgment

motion, we 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. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). But this standard “is not

generally apt” when reviewing whistleblower award determinations

because, in such a case, there is no trial on the merits. Van Bemmelen

v. Commissioner, 155 T.C. 64, 78-79 (2020). Rather, in a whistleblower

case, where we review agency action under the Administrative

Procedure Act, we generally “confine ourselves to the administrative

record to decide whether there has been an abuse of discretion.”

Id. at 78.

Our Rules recognize this distinction, clarifying that in cases in

which judicial review is based solely on the administrative record, Rule

121(a)(2) does not apply, and the parties must provide “statement[s] of

facts with references to the administrative record.” Rule 121(j). In this

context, summary judgment serves as a mechanism for deciding, as a

matter of law, whether the agency action is supported by the

administrative record or whether the WBO’s determination was

“arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” Van Bemmelen, 155 T.C. at 72 (quoting Kasper v.

Commissioner, 150 T.C. 8, 21 (2018)). In conducting this analysis, we

do not substitute our judgment for that of the agency, but instead

confine ourselves to ensuring that its determination was “within the

bounds of reasoned decisionmaking.” Id. (quoting Dep’t of Com. v. New

York, 139 S. Ct. 2551, 2569 (2019)). With respect to factual matters, this

includes accepting the agency’s determinations so long as they are not

clearly erroneous. See Kasper, 150 T.C. at 23 (citing Fargo v.

6

[*6] Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff’g T.C. Memo.

2004-13).

III. Analysis

In his Motion for Summary Judgment, respondent argues that we

should sustain the WBO’s determination to deny the whistleblower an

award because the whistleblower’s information did not lead to the

collection of any proceeds. Petitioner counters that the WBO’s denial

was an abuse of discretion based on their adoption of a clearly erroneous

view of the law.

Under this statutory scheme, a whistleblower must meet two

conditions to qualify for a nondiscretionary award. First, the Secretary

must “proceed[] with an[] administrative or judicial action described in

subsection (a) based on information brought to the Secretary’s attention”

by the whistleblower. § 7263(b)(1). Second, the Secretary must derive

proceeds from this action. Id.; see Cohen v. Commissioner, 139 T.C. 299,

303 (2012) (“We can provide relief under section 7623(b) only after the

Commissioner has initiated an administrative or judicial action and

collected proceeds.”), aff’d, 550 F. App’x 10 (D.C. Cir. 2014); Cooper v.

Commissioner, 136 T.C. 597, 600 (2011) (“[A] whistleblower award is

dependent upon both the initiation of an administrative or judicial

action and collection of tax proceeds.”).

Petitioner satisfies the first condition. The information from the

whistleblower prompted an administrative action, an examination for

the target’s 2012, 2013, and 2014 tax years. At the conclusion of the

examination, adjustments were proposed for all three tax years.

However, the administrative record establishes, and petitioner does not

dispute, that all proposed deficiencies were reversed on appeal, resulting

in the target’s owing no taxes. Thus, the administrative action did not

lead to the collection of any proceeds. As a result, petitioner fails to

satisfy the second condition to qualify for an award under section

7623(b).

Petitioner does not allege any material dispute as to these facts.

He does not contend that respondent collected proceeds pursuant to the

examination for tax years 2012, 2013 and 2014. 5 Instead, petitioner

5 In the Petition, petitioner mentions a July 1, 2019, article in which a local

government official is quoted as saying that “parts of [target’s] operations are no longer

tax exempt as a result of the IRS investigation.” Petitioner offers no substantiation of

7

[*7] insists that “[t]his Court need only correct the Appeals Officer’s

erroneous view of the law and remand the case directing that the correct

rule of law be applied.” However, we do not have authority to “review

the Commissioner’s determinations of the alleged tax liability to which

the claim pertains.” Cohen, 139 T.C. at 302. Nor do we have authority

“to direct the Secretary to proceed with an administrative or judicial

action.” Cooper, 136 T.C. at 600. While petitioner’s concerns about the

charitable function of the target may be sincere, we cannot grant him

the relief he seeks.

We conclude that the WBO did not abuse its discretion in denying

petitioner’s claim for an award because, as the administrative record

makes clear, petitioner’s information did not lead to the collection of any

proceeds from which an award could be made.

IV. Conclusion

Finding no abuse of discretion in any respect, we will grant

respondent’s Motion for Summary Judgment and sustain the WBO’s

determination to deny petitioner an award.

We have considered all other arguments made by the parties, and

to the extent not discussed above, find those arguments to be irrelevant,

moot, or without merit.

To reflect the foregoing,

An appropriate order and decision will be entered.

this assertion and does not raise this argument in his Objection. Even if petitioner

had done so, “collected proceeds” in whistleblower cases do not include self-reported

amounts collected when a taxpayer changes its reporting for years that are not part of

the action, even if the target’s behavior was influenced by a prior examination. See

Whistleblower 16158-14W v. Commissioner, 148 T.C. 300 (2017).