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.

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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.

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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.

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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.

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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

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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.

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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

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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).

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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).

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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.

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(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).

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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,

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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.