Mandy Li v. Commissioner of Internal Revenue

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 5, 2021 Decided January 11, 2022

No. 20-1245

MANDY MOBLEY LI,

APPELLANT

v.

COMMISSIONER OF INTERNAL REVENUE,

APPELLEE

On Appeal from a Decision and Order

of the United States Tax Court

Mandy Mobley Li, pro se, argued the cause and filed the

briefs for appellant.

Matthew S. Johnshoy, Attorney, U.S. Department of

Justice, argued the cause for appellee. With him on the briefs

was Bruce R. Ellisen, Attorney.

Robert Manhas, appointed by the court, argued the cause

as amicus curiae to assist the court by addressing this court’s

jurisdiction. With him on the brief was Robert M. Loeb,

appointed by the court.

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Before: HENDERSON and MILLETT, Circuit Judges, and

SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

SENTELLE.

SENTELLE, Senior Circuit Judge: Appellant Mandy

Mobley Li appeals the United States Tax Court’s final decision

awarding summary judgment to the IRS Commissioner in her

whistleblower case. Specifically, the Tax Court held that the

IRS Whistleblower Office (“WBO”) did not abuse its

discretion in rejecting Li’s request for a whistleblower award,

since Li provided only vague and speculative information as to

purported tax violations. For the reasons explained below, we

dismiss this appeal for lack of subject matter jurisdiction and

remand to the Tax Court with instructions to do the same. 1

I. Background

On December 12, 2018, Li filed a Form 211 with the

WBO alleging four tax violations by a third party (the “target

taxpayer”). A Form 211 is an application to receive a monetary

whistleblower award for supplying the IRS with actionable tax

violation information, pursuant to 26 U.S.C. § 7623(b). A

WBO classifier reviewed Li’s Form 211, as well as the target

taxpayer’s 2016 and 2017 tax returns, and concluded that Li’s

allegations were “speculative and/or did not provide specific or

credible information regarding tax underpayments or

violations of internal revenue laws,” making Li ineligible for

an award. Therefore, the WBO did not forward Li’s form to an

1

The Court appointed Mr. Robert Manhas to assist in addressing the

Court’s jurisdiction to hear this appeal. The Court extends its

appreciation to Mr. Manhas for his excellent amicus brief on the

topic.

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IRS examiner for any potential action against the target

taxpayer. The WBO communicated its decision by letter to Li

on February 8, 2019 and informed her that she could appeal to

the United States Tax Court if she thought the WBO had erred.

Li did so by petition on March 13, 2019. Neither party

identified a jurisdictional issue with the Tax Court’s review of

the case. The Commissioner subsequently filed a motion for

summary judgment, which the Tax Court granted. The Tax

Court found that the WBO adequately performed its evaluative

function in reviewing Li’s application and did not abuse its

discretion by rejecting it for an award. Li then filed a motion

for reconsideration. After the Tax Court denied the motion, Li

appealed to this Court.

II. Analysis

Statutory law gives exclusive jurisdiction over Tax

Court decisions to the United States Courts of Appeals, which

are required to review Tax Court decisions in the same manner

as any district court decision. 26 U.S.C. § 7482(a)(1).

However, this Court’s jurisdiction is predicated upon the Tax

Court having had jurisdiction over the case. Bender v.

Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). If the

Tax Court lacks jurisdiction, this Court has “jurisdiction on

appeal, not of the merits but merely for the purpose of

correcting the error of the lower court in entertaining the suit.”

Id. (quoting United States v. Corrick, 298 U.S. 435, 440

(1936)). For the reasons set forth below, such is the case

presently. The Tax Court lacked jurisdiction to hear Li’s

appeal from the WBO, leaving this Court with jurisdiction only

to cure the defect. Even though the parties did not raise the

issue, “federal courts have an independent obligation to ensure

that they do not exceed the scope of their jurisdiction, and

therefore they must raise and decide jurisdictional questions

that the parties either overlook or elect not to press.”

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Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434

(2011).

a. The Whistleblower Statute

There are three relevant provisions of the whistleblower

statute, 26 U.S.C. § 7623. The first, subsection (a), authorizes

the IRS to grant monetary awards to persons helping to

“detect[] underpayments of tax, or . . . detect[] and bring[] to

trial and punishment persons guilty of violating the internal

revenue laws or conniving at the same . . . .” § 7623(a). The

second, subsection (b)(1), requires the IRS to give awards to

whistleblowers “[i]f the Secretary proceeds with any

administrative or judicial action described in subsection (a)

based on information brought to the Secretary’s attention by an

individual . . . .” § 7623(b)(1). This provision only applies if

certain monetary conditions are met ((b)(5)). The remainder of

that portion of the statute provides the parameters for such

awards, including a floor and ceiling award amount ((b)(1)), a

reduction in award amount for information based on public

data ((b)(2)), and a reduction or denial of award amount in

which the whistleblower participated in the tax violations

((b)(3)).

The third relevant segment, subsection (b)(4), gives the

Tax Court exclusive jurisdiction over an appeal of “[a]ny

determination regarding an award under paragraph (1), (2), or

(3) . . . .”

When a whistleblower makes a Form 211 filing, the

WBO follows several steps. First, it reviews the Form, and any

related information, to determine whether the provided

information may lead to the discovery of a tax violation. If the

information is too vague or speculative, the WBO issues a

rejection. Rogers v. Comm’r, No. 17985-19W, 2021 WL

5

3284613, at *5 (T.C. Aug. 2, 2021). “[A] rejection is

appropriate when a whistleblower’s claim fails to comply with

the threshold requirements as to who may submit a claim or

what information the claim must include.” Id.; see also 26

C.F.R. § 301.7623-3(c)(7) (defining “rejection”). If the

whistleblower’s information signals a potential tax violation,

the IRS may initiate a proceeding against the target taxpayer.

If the proceeding then yields payments to the IRS, the

whistleblower receives an award, subject to 26 U.S.C.

§ 7623(b)(1)-(3). Any appeal of an award determination under

subsections (b)(1)-(3) is then directed to the Tax Court.

§ 7623(b)(4).

As we noted earlier, we have the continuing duty to

examine our jurisdiction, regardless of whether the parties raise

the issue. The jurisdictional issue in this case asks whether

§ 7623(b)(4) gives the Tax Court jurisdiction over the

threshold first step, the initial rejection of a whistleblower

award before the WBO makes an award determination under

subsections (b)(1)-(3). This issue is not one of first impression

for the court below. In Cooper v. Comm’r, the Tax Court held

that an initial rejection of a whistleblower award is in fact an

award determination under subsection (b)(4), rejecting the

argument that “there can be a determination for jurisdictional

purposes only if the Whistleblower Office undertakes an

administrative or judicial action and thereafter ‘determines’ to

make an award.” 135 T.C. 70, 75 (2010). Instead, the Tax

Court held that it had jurisdiction even over threshold

rejections of whistleblower awards, interpreting the statute to

“expressly permit[] an individual to seek judicial review in this

Court of the amount or denial of an award determination.” Id.

(emphasis added).

This position was echoed in the Tax Court’s decision in

Lacey v. Comm’r, 153 T.C. 146 (2019), where the Tax Court

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found jurisdiction on the grounds that “a denial or rejection is

a (negative) ‘determination regarding an award’, so the Tax

Court has jurisdiction where, pursuant to the WBO’s

determination, the individual does not receive an award.”

Lacey, 153 T.C. at 163 n.19 (emphasis in original) (citing in

accompanying text Cooper, 135 T.C. 70); see also id. at 150

n.5 (citing Cooper, 135 T.C. at 75–76).

In the case at bar, the Tax Court relied on its precedent

in Cooper and Lacey to find jurisdiction over Li’s WBO

appeal. Neither party identified a problem with the Tax Court’s

jurisdiction. However, as we noted above, we have the

continuing duty to examine our own jurisdiction.

b. Lack of Jurisdiction under 26 U.S.C.

§ 7623(b)(4)

After review, we conclude that Cooper and Lacey were

wrongly decided. The Tax Court lacks jurisdiction to hear

appeals from threshold rejections of whistleblower award

requests.

Subsection (b)(4) of § 7623 gives the Tax Court

exclusive jurisdiction over only a “determination regarding an

award” under subsections (b)(1)-(3). The Cooper and Lacey

Courts held that a threshold rejection of a whistleblower award

request constituted such an award determination because the

rejection of an award was a so-called “negative” award

determination. Lacey, 153 T.C. 163 n.19 (citing in

accompanying text Cooper, 135 T.C. 70); see also id. at 150

n.5 (“[A] ‘rejection’ is also a ‘determination’ . . . .”). We

disagree. A threshold rejection of a whistleblower’s Form 211

for vague and speculative information is not a negative award

determination, as there is no determination as to an award

under subsections (b)(1)-(3) whatsoever. Per subsection (b)(1),

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an award determination by the IRS arises only when the IRS

“proceeds with any administrative or judicial action described

in subsection (a) based on information brought to the

Secretary’s attention by [the whistleblower] . . . .” 26 U.S.C.

§ 7623(b)(1) (emphasis added). A threshold rejection of a

Form 211 by nature means the IRS is not proceeding with an

action against the target taxpayer. See Cline v. Comm’r, 119

T.C.M. (CCH) 1199, 2020 WL 1249454, at *5 (T.C. 2020).

Therefore, there is no award determination, negative or

otherwise, and no jurisdiction for the Tax Court. 2

In this case, the WBO rejected Li’s Form 211 for

providing vague and speculative information it could not

corroborate, even after examining supplemental material Li

herself did not provide. The WBO did not forward Li’s Form

211 to an IRS examiner for further action, and the IRS did not

take any action against the target taxpayer. There was no

proceeding and thus no “award determination” by the IRS for

Li’s whistleblower information. Therefore, the Tax Court had

no jurisdiction to review the WBO’s threshold rejection of Li’s

Form 211.

This Court regrets that Li was informed otherwise by

letter to her from the WBO. However, “no action of the parties

can confer subject-matter jurisdiction upon a federal court.”

Insurance Corp. of Ireland v. Compagnie des Bauxites de

Guinee, 456 U.S. 694, 702 (1982).

2

Li does not argue on appeal that the IRS, in fact, did proceed against

the target taxpayer based on information in her Form 211

application. So we need not and do not decide whether the Tax Court

would have jurisdiction to hear a whistleblower’s claim in a case in

which the IRS wrongly denied a Form 211 application but

nevertheless proceeded against a target taxpayer based on the

provided information.

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Finally, the parties have called our attention to our

decision in Myers v. Comm’r which contains the statement that

“‘written notice informing a claimant that the IRS has

considered information that he submitted and has decided

whether the information qualifies the claimant for an award’

suffices to constitute a ‘determination’ for the purpose of

§ 7623(b)(4).” 928 F.3d 1025, 1032 (D.C. Cir. 2019). Upon

review, we conclude that this statement is not a holding

concerning the issue in the present case. This statement was

responding to petitioner’s argument that the WBO denial letter

in his case did not contain enough information to qualify as a

“determination” under the statute. Id. We subsequently

declined to “craft requirements out of whole cloth” regarding

what information a WBO denial letter must contain. Id. at

1033. By contrast, the question in this case asks whether

§ 7623(b)(4) confers jurisdiction only when there is both an

IRS action based on whistleblower information and proceeds

collected from that action. As this issue was not squarely

before us in Myers, the above statement from Myers does not

bind our decision today.

III. Conclusion

For the reasons set forth above, we dismiss this appeal

for lack of subject matter jurisdiction under 26 U.S.C.

§ 7623(b)(4). We remand to the Tax Court with instructions to

do the same.

So ordered.