Cohen v. Commissioner

RAYMOND COHEN, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 26925–11W. Filed October 9, 2012.

R denied P’s whistleblower award claim under I.R.C. sec.

7623(b). P concedes that information he provided R has not

led to R instituting an action or collecting proceeds. P filed a

petition requesting that we order R to reopen his award claim.

R moved to dismiss for failure to state a claim. Held: I.R.C.

sec. 7623(b) does not authorize P’s requested relief. Held, fur-

ther, P did not state a claim upon which relief can be granted.

Raymond Cohen, pro se.

Jonathan D. Tepper, for respondent.

OPINION

KROUPA, Judge: This case is before the Court on respond-

ent’s motion to dismiss for failure to state a claim under Rule

401 and petitioner’s motion for summary judgment under

Rule 121. This case stems from a whistleblower claim under

section 7623(b). Petitioner challenges respondent’s decision

not to pursue whistleblower information he provided. Peti-

tioner alleges respondent denied his claim for an award with-

out instituting an administrative or judicial action or col-

1 All Rule references are to the Tax Court Rules of Practice and Procedure, and all section

references are to the Internal Revenue Code, unless otherwise indicated.

299

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300 139 UNITED STATES TAX COURT REPORTS (299)

lecting any proceeds. We must decide whether we may order

respondent to reopen petitioner’s whistleblower claim under

section 7623(b). We hold that no relief is available. We shall

dismiss the petition and deny as moot petitioner’s motion for

summary judgment.

Background

We summarize the factual background and procedural his-

tory to rule on the instant motions. Petitioner’s allegations

are assumed solely for the purpose of deciding the motions. 2

Petitioner resided in New Jersey when he filed the petition.

Petitioner acts pro se in this matter.

Petitioner is a certified public accountant. Petitioner pro-

vided respondent whistleblower information that petitioner

believed to be actionable.

Specifically, petitioner learned of alleged tax law violations

when his wife served as an executrix for an estate. The

estate held uncashed stock dividend checks issued by a

public corporation (taxpayer). 3 Petitioner’s wife requested

the taxpayer honor those checks and pay all unpaid divi-

dends. The taxpayer would not release dividends without

petitioner’s wife presenting an original check issued within

the last 10 years.

Petitioner suspected that the taxpayer customarily

retained possession of unclaimed proceeds resulting from

uncashed dividend checks and unredeemed bonds (unclaimed

assets). In 2009 petitioner requested information from the

State comptroller under that State’s Freedom of Information

Law (FOIL). The comptroller provided petitioner the amount

of uncashed dividends that the taxpayer had reported for cer-

tain stocks. The taxpayer had not reported any uncashed

dividends for those stocks from 2005 to 2008.

Petitioner also reviewed allegations in pleadings from a

civil proceeding against the taxpayer. See generally Frankel

v. Cole, No. 06–cv–439, 2007 WL 2683673 (E.D.N.Y. Sept. 7,

2007). Petitioner asserts that the allegations in that civil

2 We note that petitioner advanced factual allegations in the petition, the amended petition,

and the pleadings associated with the instant motions. We construe all allegations in the light

most favorable to petitioner. See, e.g., Ballantine v. Commissioner, 74 T.C. 516, 522–523 (1980).

3 We refrain from using information identifying the alleged taxpayer to whom the claim re-

lates. See Rule 345(b).

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(299) COHEN v. COMMISSIONER 301

case corroborate his allegation that the taxpayer possesses

unclaimed assets worth more than $700 million.

Petitioner alleged that the taxpayer was obligated by law

to turn over the unclaimed assets to the State. Petitioner fur-

ther alleged that the unclaimed assets the taxpayer retained

constituted unreported income for Federal tax purposes.

Petitioner submitted his allegations to respondent on Form

211, Application for Award for Original Information (claim).

Respondent notified petitioner that the matter had been

assigned to his Whistleblower Office in Ogden, Utah. The

Whistleblower Office evaluated the claim to determine

whether an investigation was warranted and an award was

appropriate. A few weeks later the Whistleblower Office

informed petitioner he was not eligible for an award because

no proceeds were collected. Petitioner requested the Whistle-

blower Office to reconsider the claim. The Whistleblower

Office reiterated the denial, noting that the claim was based

on publicly available information.

Petitioner filed a petition and an amended petition in this

Court. Petitioner requests that the Court order respondent to

reopen the claim. Respondent moved to dismiss for failure to

state a claim upon which relief can be granted. Petitioner

opposed the motion and filed a motion for summary judg-

ment.

Discussion

This case presents an issue of first impression in this

Court. We are asked to decide whether any relief is available

under section 7623(b) when a taxpayer alleges that the

Commissioner denied a claim without initiating an adminis-

trative or judicial action or collecting proceeds. Petitioner

contends that respondent abused his discretion by not acting

on his information. Petitioner argues respondent must

explain the reason he denied the claim and reopen the claim.

Respondent contends we can provide relief under section

7623(b) only after the Commissioner initiates an administra-

tive or judicial action and collects proceeds.

I. Standard of Review

We begin with the standard of review for a motion to dis-

miss for failure to state a claim. A petition should be simple,

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302 139 UNITED STATES TAX COURT REPORTS (299)

concise and direct. Rule 31(b). A whistleblower petition must

provide the basis on which the taxpayer disagrees with the

determination, supporting facts and a prayer setting forth

the relief sought. Rule 341(b)(3)–(5). We construe all

pleadings to do substantial justice. Rule 31(d). We may dis-

miss a petition for failure to state a claim upon which relief

can be granted. Rule 40. Dismissal for failure to state a claim

is appropriate where, even if all of the allegations contained

in a pleading are true, a claim fails as a matter of law. See

Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.

2008).

II. Whistleblower Award Determination Review

We now consider the relief available under section 7623.

We may exercise our jurisdiction only to the extent author-

ized by Congress. Kasper v. Commissioner, 137 T.C. 37, 40

(2011). In a whistleblower action, we have jurisdiction only

with respect to the Commissioner’s award determination.

Sec. 7623; Cooper v. Commissioner, 135 T.C. 70, 75–76 (2010)

(Cooper I).

Generally, an individual who provides information that

leads the Commissioner to proceed with an administrative or

judicial action shall receive an award equal to a percentage

of the collected proceeds. See sec. 7623(b)(1). A whistleblower

award depends upon the Commissioner commencing an

administrative or judicial action and collecting proceeds. See

Whistleblower 14106–10W v. Commissioner, 137 T.C. 183,

189 (2011). Our jurisdiction under section 7623(b) does not

contemplate that we review the Commissioner’s determina-

tions of the alleged tax liability to which the claim pertains.

See Cooper v. Commissioner, 136 T.C. 597, 600 (2011)

(Cooper II). Nor does section 7623 confer authority to direct

the Commissioner to commence an administrative or judicial

action. Id.

Respondent contends we should dismiss the petition

because petitioner has not alleged any claim for relief avail-

able under section 7623(b). We agree. We are mindful that

we should construe the petition so as to do justice. Petitioner

disagrees with respondent’s decision not to act on his

information. Petitioner acknowledges, however, that the

claim did not lead to the Commissioner commencing an

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(299) COHEN v. COMMISSIONER 303

action against, or collecting any proceeds from, the taxpayer.

Petitioner has not alleged that he met the requirements to

be eligible for any relief under section 7623(b).

III. Petitioner’s Arguments

We now address petitioner’s arguments that he should

nevertheless be granted relief. Petitioner is concerned that

respondent will collect proceeds from the taxpayer after

denying the claim. He would therefore be precluded from an

award despite providing actionable information.

First, petitioner argues that he is entitled to relief because

respondent did not comply with the Administrative Proce-

dure Act (APA). See 5 U.S.C. secs. 551–559, 701–706 (2006).

The APA, however, does not create a right of action or expand

our jurisdiction. See Anonymous v. Commissioner, 134 T.C.

13, 19 (2010). We can provide relief under section 7623(b)

only after the Commissioner has initiated an administrative

or judicial action and collected proceeds. Petitioner has not

alleged the section 7623(b) threshold requirements have been

met. 4

Second, petitioner contends that he is entitled to a legal

and factual explanation of respondent’s denial of the claim.

See Cooper v. Commissioner, 136 T.C. at 601. In Cooper II,

we noted that the Commissioner had produced through the

course of litigation a memorandum explaining why the

whistleblower claim had been denied. Id. We did not hold

that the Commissioner was obligated under section 7623 to

detail his legal and factual reasons for not pursuing a claim.

There is no relief available before the prerequisites of section

7623(b) are satisfied.

Third, he argues that he is entitled to relief on equitable

grounds. This Court, however, is not a court of equity and

section 7623 does not provide for equitable relief. See

4 Petitioner contends the respondent’s decision was arbitrary and capricious. See 5 U.S.C. sec.

706(2)(A) (2006). Petitioner argues that respondent’s stated reason for denying the claim was

inconsistent with his procedures. The Commissioner will not process an award claim if the infor-

mation provided did not identify a Federal tax issue upon which the Commissioner took action,

result in the detection of an underpayment of tax or result in the collection of proceeds. Internal

Revenue Manual pt. 25.2.2.5(2) (June 18, 2010). The Whistleblower Office stated in the first de-

nial letter that the information did not lead to the collection of proceeds. Respondent may refuse

to process an award claim for this reason. See id. Petitioner also contends respondent incorrectly

concluded that petitioner relied on publicly available information. Petitioner alleges, however,

that he relied on pleadings from a civil proceeding and information provided through a FOIL

request. Both sources are public information.

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304 139 UNITED STATES TAX COURT REPORTS (299)

Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Stovall v.

Commissioner, 101 T.C. 140, 149–150 (1993). Section 7623(b)

does not provide any relief before whistleblower information

leads to an administrative or judicial action and the collec-

tion of proceeds.

IV. Conclusion

In toto, section 7623(b)(4) authorizes our review of any

award determination. Petitioner seeks relief that is unavail-

able because respondent never instituted an action or col-

lected any proceeds. We can appreciate petitioner’s frustra-

tion that information that he believes is actionable was not

pursued. Congress, however, has charged the Commissioner

with resolving these claims and has not provided any rem-

edies until after an administrative or judicial action and the

collection of proceeds. For that reason, we will grant respond-

ent’s motion to dismiss for failure to state a claim. We will

also deny as moot petitioner’s motion for summary judgment.

To reflect the foregoing,

An appropriate order and order of dis-

missal will be entered.

f

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