Petition for Writ of Certiorari — Michael Lissack, Petitioner v. Commissioner of Internal Revenue

No. ____

In the

Supreme Court of the United States

MICHAEL LISSACK,

Petitioner,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia

PETITION FOR WRIT OF CERTIORARI

October 17, 2023

ERICA L. BRADY-GITLIN

Counsel of Record

GREGORY S. LYNAM

SCOTT A. KNOTT

THE FERRARO LAW FIRM

600 Brickell Ave, Suite 3800

Miami, FL 33131

(202) 775-1630

ebrady@ferrarolaw.com

Counsel for Petitioner

LEGAL PRINTERS LLC ! Washington, DC ! 202-747-2400 ! legalprinters.com

i

QUESTIONS PRESENTED

Section 7623 of Title 26 governs the Internal

Revenue Service’s (hereinafter the “IRS”) ability to

pay awards to whistleblowers. Prior to 2006, awards

under § 7623 were entirely discretionary and failed to

attract well placed whistleblowers due to the difficulty

in actually receiving an award. In order to attract well

placed whistleblowers, Congress amended § 7623 in

2006, requiring the IRS to pay awards where the IRS

proceeds with any administrative or judicial action

based on the whistleblower’s information, removing

the IRS’s discretion of whether to pay an award when

§ 7623(b) applies.

The statutory question underlying this petition

is whether the IRS is required to pay an award where

a whistleblower’s information causes the IRS to open

an audit of the taxpayer, but the IRS ultimately

makes an adjustment to an issue other than the issue

raised by the whistleblower. Under well-established

principles of statutory construction, the answer would

appear to be yes, as the IRS has proceeded in an

administrative action based on the whistleblower’s

information (the audit) and collected additional

proceeds from that administrative action. A panel of

the D.C. Circuit answered “no” under Chevron

because “the statute does not conclusively answer

whether examinations into distinct tax issues” can be

separate administrative actions.

The questions presented are:

1.

Whether, under a proper application of

Chevron, § 7623(b) requires the IRS to pay an award

where the only reason the IRS opened the audit of the

ii

taxpayer was the whistleblower’s information, but

assessed additional tax on a different issue.

2.

Whether the Court should overrule

Chevron or at least clarify that where Congress acts to

remove discretion from an agency, regulations

promulgated thereunder should not be deferred to.

iii

PARTIES TO THE PROCEEDING

Petitioner (appellant below) is Dr. Michael

Lissack.

Respondent

(appellee

below)

is

the

Commissioner of Internal Revenue.

National Whistleblower Center was amicus

curiae for appellant below.

Whistleblower 11099-13W was amicus curiae

for appellant below.

Michael A. Humphreys was movant-amicus

curiae for appellant below.

iv

STATEMENT OF RELATED PROCEEDINGS

The following proceedings are directly related

to this case within the meaning of Rule 14.1(b)(iii):

• Lissack v. Commissioner of Internal Revenue,

No. 21-1268 (D.C. Cir.), judgment entered on

May 26, 2023; Petition for Rehearing or

Rehearing en Banc, denied by orders dated July

20, 2023;

• Lissack v. Commissioner of Internal Revenue,

No. 399-18W (U.S. Tax Court), decision entered

on August 18, 2021; Motion to Reconsideration

of Findings or Opinion and Motion to Vacate or

Revise, denied by order dated September 20,

2021.

v

TABLE OF CONTENTS

QUESTIONS PRESENTED ........................................ i

PARTIES TO THE PROCEEDING .......................... iii

STATEMENT OF RELATED PROCEEDINGS ....... iv

TABLE OF CONTENTS ............................................. v

TABLE OF AUTHORITIES ..................................... vii

PETITION FOR WRIT OF CERTIORARI ................ 1

OPINIONS BELOW ................................................... 4

JURISDICTION.......................................................... 4

STATUTORY PROVISIONS INVOLVED ................. 5

STATEMENT OF THE CASE .................................... 5

A.

Legal Framework ............................................. 5

B.

Factual Background ......................................... 7

C.

Proceedings Below ........................................... 8

REASONS FOR GRANTING THE PETITION ....... 11

I.

The D.C. Circuit’s Decision Applying Chevron

Deference Is Wrong. ....................................... 14

A.

Congress Did Not Intend for the IRS to

have Discretion to Pay Awards.......................... 14

B.

If Chevron Tolerates the Result Below, the

Court Should Overrule It or Clarify Its Limits. 21

II.

This Case Is An Ideal Vehicle To Resolve

Exceptionally Important Issues. ................... 25

CONCLUSION.......................................................... 27

vi

APPENDIX

Appendix A: Opinion, U.S. Court of Appeals for the

District of Columbia Circuit, Lissack v.

Commissioner of Internal Revenue, No. 211268 (May 26, 2023) ................................. App-1

Appendix B: Order, U.S. Tax Court, Lissack v.

Commissioner of Internal Revenue, No. 3991W (September 20, 2021) ....................... App-34

Appendix C: Order And Decision, U.S. Tax Court,

Lissack v. Commissioner of Internal Revenue,

No. 399-18W (August 18, 2021) ............. App-37

Appendix D: Opinion, U.S. Tax Court, Lissack v.

Commissioner of Internal Revenue, No. 39918W (August 17, 2021); Decision entered

August 18, 2021...................................... App-38

Appendix D: Order, U.S. Court of Appeals for the

District of Columbia Circuit, Lissack v.

Commissioner of Internal Revenue, No. 211268 (July 20, 2023) ............................... App-60

Appendix E: Order, U.S. Court of Appeals for the

District of Columbia Circuit, Lissack v.

Commissioner of Internal Revenue, No. 211268 (July 20, 2023) ............................... App-61

Appendix F: Relevant Statutes, 26 U.S.C. § 7623(a)(b) ............................................................ App-62

vii

TABLE OF AUTHORITIES

Cases

Am. Hosp. Ass’n v. Becerra,

142 S. Ct. 1896 (2022) ....................................... 22

Chevron, U.S.A., Inc. v. NRDC, Inc.,

467 U.S. 837 (1984) ........................................... 14

Estate of Cowart v. Nicklos Drilling Co.,

505 U.S. 469 (1992) ........................................... 18

Gutierrez-Brizuela v. Lynch,

834 F.3d 1142 (10th Cir. 2016) ................... 24, 25

Jennings v. Rodriguez,

139 S. Ct. 2400 (2019) ....................................... 21

Kisor v. Wilkie,

138 S. Ct. 830 (2018) ................................... 14, 22

Lockhart v. United States,

136 S. Ct. 958 (2016) ......................................... 23

Merrill Lynch, Pierce, Fenner &Smith Inc. v. Dabit,

547 U.S. 71 (2006) ............................................... 7

Michigan v. EPA,

576 U.S. 743 (2015) ........................................... 23

Ramos v. Louisiana,

140 S. Ct. 1390 (2020) ........................................ 24

Sackett v. EPA,

143 S. Ct. 1322 (2023) ....................................... 22

Federal Statutes

viii

28 U.S.C. § 1254(1) ................................................... 5

I.R.C. § 7623(a) ................................................. 15, 16

I.R.C. § 7623(b)(1) .................... 2, 6, 11, 12, 15, 16, 17

I.R.C. § 7623(b)(2) ................................................... 21

I.R.C. § 7623(b)(2)(A) .............................................. 17

I.R.C. § 7623(b)(3) ....................................... 17, 20, 21

I.R.C. § 7623(b)(5) ................................................ 6, 20

Act of Mar. 2, 1867, ch. 169, § 7, 14 Stat. 471

(codified by ch. 11, § 3463, 35 Rev. Stat. 686

(1873-74)) .............................................................. 5

Act of Aug. 16, 1954, ch. 736, 68A Stat. 904 ............ 5

Tax Relief and Health Care Act of 2006,

Pub. L. No. 109-432, div. A, title IV, § 406(a)(1),

120 Stat. 2922, 2958-60 ................................... 1, 6

Regulations

Treas. Reg. § 301.7623-2 ........................................... 2

T.D. 9687, 79 FR

47, 266 (Aug. 12 2014) ......................................... 1

Other

Antonin Scalia & Bryan A. Garner, Reading Law:

The Interpretation of Legal Texts (2012). .......... 23

GW Columbian College of Arts & Sciences,

Regulatory Studies Center, Reg Stats,

https://regulatorystudies.columbian.gwu.edu/regstats (2023) ........................................................ 24

ix

IRS, The Tax Gap, www.irs.gov/newsroom/the-taxgap (Oct. 12, 2023). ............................................ 25

I.R.M 25.2.2, Exhibit 25.2.2-2, Award Calculation

Computation Guidelines

(06-18-2010) (superseded) ................................... 3

Staff of J. Comm. On Taxation, Technical

Explanation of H.R. 6408, “The Tax Relief And

Health Care Act Of 2006,” As Introduced In The

House On December 7, 2006, JCX-50-06

(2006) ....................................................... 3, 19, 20

Treasury Inspector General for Tax Administration,

The Informants’ Rewards Program Needs More

Centralized Management Oversight, Report No.

2006-30-092 (June 6 2006) (available at

http://www.tax-whistleblower.com/

resources/200630092fr.pdf) .............................. 5, 6

1

PETITION FOR WRIT OF CERTIORARI

Congress has long recognized that properly

incentivizing whistleblowers to come forward with

information regarding the violation of Federal law is

an efficient way to detect fraud. Since 1867, federal

law has authorized whistleblower awards to

informants for providing information to internal

revenue officials about violations of federal tax law. In

1954, Congress codified the Secretary’s ability to pay

awards as § 7623. 1 Section 7623 has been amended

several times, including, as most relevant here, in

2006 by the Tax Relief and Health Care Act of 2006,

Pub. L. No. 109-432, div. A, title IV, § 406(a)(1), 120

Stat. 2922, 2958-60 (the “2006 Act”). The 2006 Act

amended § 7623, creating an obligation that the IRS

pay awards to whistleblowers who meet certain

requirements. The 2006 Act did so by designating §

7623, as it existed before December 6, 2006, as

7623(a), which allows the IRS the discretion to pay

awards that do not meet the requirements of

subsection (b). Thus, removing discretion from the

IRS in circumstances described in § 7623(b)(5).

The 2006 Act also established additional

oversight of the programs through the creation of the

Whistleblower Office and by having judicial review

claims under § 7623(b).

In 2014, Treasury Regulations for § 7623 were

released in final form. T.D. 9687, 79 FR 47, 266 (Aug.

12 2014). The regulations attempt to apply definitions

to words other than their standard meaning and

All references to code sections are to the Internal Revenue Code,

unless otherwise stated.

1

2

differently than they were applied at the time the

2006 Act was enacted. See Treas. Reg. § 301.7623-2.

The application of the regulations ultimately returns

discretion back to the IRS for when to pay an award.

Doing so thwarts the will of Congress.

The language of § 7623(b) is clear and drafted

to fit the wide array of whistleblowers that come

forward to the IRS to provide information about all

kinds of taxpayers. Section 7623(b) provides that:

[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, such

individual shall, subject to paragraph

(2), receive as an award at least 15

percent but not more than 30 percent of

the proceeds collected as a result of the

action (including any related actions) …

I.R.C. § 7623(b)(1). This language is clear. Congress

intends for whistleblowers to be paid where the IRS

uses the whistleblower’s information to proceed with

an action that results in additional collections of tax

and other amounts.

Nevertheless, the regulations promulgated

under this section attempt to narrow the action taken

by the IRS to just the issues directly raised by the

whistleblower,

even

in

cases

where

the

whistleblower’s information caused the IRS to proceed

by opening an audit that without the whistleblower’s

information would not have been opened and the

amounts collected from that audit would not have

been collected.

3

The regulations combined with the IRS’s

inherent prosecutorial discretion results in cases

where the IRS denied a whistleblower’s claim for

award where the whistleblower’s information caused

the IRS to open the audit of a taxpayer, who was

previously unknown to the IRS, and the IRS has

assessed and collected taxes on an issue that can be

differentiated from the issue the whistleblower

provided information.

Curiously, before the 2006 Act was enacted, the

IRS regularly paid an award to whistleblowers that

identified a noncompliant taxpayer that the IRS

pursued, but assessed tax on an issue other than the

one brought forward by the whistleblower. See Staff of

J. Comm. On Taxation, Technical Explanation of H.R.

6408, “The Tax Relief And Health Care Act Of 2006,”

As Introduced In The House On December 7, 2006,

JCX-50-06 (2006); see also I.R.M 25.2.2, Exhibit

25.2.2-2, Award Calculation Computation Guidelines

(06-18-2010) (superseded). An outcome that is clearly

intended to continue under the statutory language of

§ 7623(b).

Additionally, the D.C. Circuit looked to the

second sentence of § 7623(b)(1) to find that Congress

intended the award only for substantial contributions,

but then failed to look at what Congress had

statutorily defined as a less than substantial

contribution in § 7623(b)(2).

Instead, the D.C. Circuit panel deferred to the

agency by purporting that the statutory language did

not conclusively answer the question, which it

perceived as an ambiguity that called for Chevron

deference. That is either a fundamental overreading

of Chevron or a powerful argument for its overruling.

4

Either way, this Court should grant review to impose

sensible limits on agency deference.

The decision below poses a threat to

Congressional efforts to alter agency programs. When

Congress enacts legislation specifically to remove

discretion from an agency, logic dictates that the

agency should not then be allowed to interpret the law

as it sees fit. Especially when that interpretation

serves to return much of the discretion Congress had

removed. Here, Congress attempted to make the IRS

whistleblower program more predictable by removing

discretion from the agency in certain cases. However,

through Chevron deference, statutory language and

Congressional intent were relegated to less important

than agency interpretation. Whether by clarifying

Chevron or overruling it, this Court should grant

review and reverse the clear agency overreach at issue

here.

OPINIONS BELOW

The D.C. Circuit’s opinion is reported at 68

F.4th 1312 and reproduced at App.1-33. The U.S. Tax

Court’s opinion is reported at 157 T.C. 63 and

reproduced at App.38-59. The D.C. Circuit’s order

denying Appellant’s Petition for Rehearing, dated

July 20, 2023, is reproduced at App.60. The D.C.

Circuit’s order denying Appellant’s Petition for

Rehearing En Banc, dated July 20, 2023, is

reproduced at App.61.

JURISDICTION

The D.C. Circuit issued its opinion on May 26,

2023. Petitioner filed a Petition for rehearing or

5

rehearing en banc on July 7, 2021, The D.C. Circuit

denied this petition on July 20, 2023. This Court has

jurisdiction under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Relevant provisions are reproduced at App.61.

STATEMENT OF THE CASE

A.

Legal Framework

Since 1867, federal law has authorized

whistleblower awards to informants for providing

information to internal revenue officials about

violations of federal tax law. See Act of Mar. 2, 1867,

ch. 169, § 7, 14 Stat. 471, 473 (codified by ch. 11, §

3463, 35 Rev. Stat. 686 (1873-74)). In 1954, Congress

codified the Secretary’s ability to pay awards as §

7623. Act of Aug. 16, 1954, ch. 736, 68A Stat. 904.

Section 7623 has been amended several times. At

issue here are 2006 amendments to § 7623 as part of

the 2006 Act.

The amendments in the 2006 Act were

prompted by a report issued by the Treasury Inspector

General for Tax Administration at the request of the

Senate Finance Committee. The report concluded that

the existing award program had significantly

contributed to the enforcement of the tax laws but that

the program would be more effective if procedures

were centralized and standardized with increased

oversight. See Treasury Inspector General for Tax

Administration, The Informants’ Rewards Program

Needs More Centralized Management Oversight,

Report No. 2006-30-092 (June 6 2006) (available at

6

http://www.taxwhistleblower.com/resources/200630092fr.pdf).

The amendments in the 2006 Act added the

provisions for mandatory awards as § 7623(b),

creating an obligation that the IRS pay awards to

whistleblowers who meet certain requirements, and

designated § 7623, as it existed before December 6,

2006, as 7623(a), which allows the IRS the discretion

to pay awards that do not meet the requirements of

subsection (b). Tax Relief and Health Care Act of 2006,

Pub. L. No. 109-432, div. A, title IV, § 406(a)(1), 120

Stat. 2922, 2958-60. Section 7623(b)(5) provides that

subsection (b) applies where the amount at issue is

greater than $2,000,000 and, in the case of an

individual, the individual has gross income in excess

of $200,000 for any taxable year subject to the action.

I.R.C. § 7623(b)(5). Thus, if these requirements are

met, and the IRS proceeds with the action based on

the whistleblower’s information, the IRS is required

to pay an award of between 15 and 30 percent of the

amount collected from the action taken due to the

whistleblower’s information, including, importantly,

any related actions or from any settlement in response

to the action. I.R.C. § 7623(b)(1).

The 2006 Act made the existing program more

robust by not only designating that certain

whistleblower claims would receive a mandatory

award under subsection (b), but also establishing

additional oversight of the programs through the

creation of the Whistleblower Office and by having

judicial review claims under § 7623(b). As Congress

retained the previously existing award program, the

history and the administration of that program should

be considered when interpreting § 7623(b).

7

Particularly the portion of subsection (b) that links to

§ 7623(a). See Merrill Lynch, Pierce, Fenner & Smith

Inc. v. Dabit, 547 U.S. 71, 85-86 (2006).

Section 7623 envisions granting awards to a

whistleblower whose information leads the IRS to

take administrative or judicial action that leads to the

recovery of collected proceeds. This dispute here

involves what actions taken by the IRS are attributed

to the whistleblower. Petitioner argues that

“administrative or judicial action as described in

subsection (a)” in § 7623(b)(1) is a clearly defined term

that relies on language that has been consistently

applied for decades and is intended to adjust to the

particular facts and circumstances of whistleblower’s

information and the taxpayers to which it relates.

B.

Factual Background

The most important fact in this case is agreed

to by all parties: without Petitioner’s assistance, the

IRS would not have collected a single dollar from the

taxpayers to whom Petitioner’s information related.

On February 6, 2009, the Whistleblower Office

received Petitioner’s Form 211, Application for Award

for Original Information. App.40. In his Form 211,

Petitioner identified an affiliated group of entities

(“Taxpayers”) who were believed to have

mischaracterized income as debt on their 2008 tax

returns. App.40-41.

The Whistleblower Office assigned nine claim

numbers to Petitioner’s case, corresponding to the

various entities comprising Taxpayers. App.41. The

claim was referred to Nora Beardsley, a

Whistleblower Office Senior Tax Analyst. App.41. Ms.

8

Beardsley reviewed Petitioner’s claim and forwarded

the case to the IRS Large Business & International

Division. App.41. A Revenue Agent, Mr. Patrick

Shanahan in that division, reviewed Petitioner’s

information by researching Taxpayers and analyzing

the group’s tax returns and IRS account transcripts.

App.41. An audit was opened for Taxpayers based on

Petitioner’s information. App.41.

Mr. Shanahan stated in his first Form 11369,

Confidential Evaluation Report on Claim for Award,

in July of 2011, that “no audit or investigation [had

been] planned” by the IRS but that the “[i]nformation

submitted by the whistleblower was sufficient to

warrant beginning of examination.” App.41.

In 2013, Mr. Shanahan completed the audits,

and the IRS issued notices of proposed adjustment to

Taxpayers. App.42. The proposed adjustments

included the disallowance of a $60 million bad debt

deduction and several other relatively minor

adjustments for 2009. App.42. There were no

adjustments for Petitioner’s debt issue. App.41-42.

Ms. Beardsley recommended that the

Whistleblower Office deny Petitioner’s claim for an

award because although “there was an assessment for

additional taxes,” the information Petitioner supplied

“was not relevant to those issues.” App.42-43. The

Whistleblower Office issued a final determination

letter on December 7, 2017, denying Petitioner’s

claim. App.43.

C.

Proceedings Below

Petitioner is a whistleblower that provided

information to the IRS on Form 211 in 2009. App.40.

9

The IRS used Dr. Lissack’s information to open an

audit of the taxpayers at issue. App.41. The IRS

ultimately collected additional taxes on a different

debt issue. App.42. On December 7, 2017, the IRS

denied Dr. Lissack’s claim for an award. App.43. On

January 8, 2018, Dr. Lissack timely filed suit alleging,

as relevant here, that he was due an award based on

the amounts collected from the audit started solely

because of the information he provided to the IRS

under § 7623(b). App.43. Respondent moved for

summary judgment, and Petitioner cross-moved for

partial summary judgment. App.43. The U.S. Tax

Court granted Respondent’s motion for summary

judgment in an opinion dated August 18, 2021.

App.37. In its opinion the U.S. Tax Court held that the

Petitioner is not entitled to an award because the IRS

did not collect proceeds in “the action” that was taken

based on Petitioner’s information because the IRS

collected proceeds on issues other than what

Petitioner described. App.49-53. To reach this

conclusion, the court disregarded statutory language.

App.51. The U.S. Tax Court then followed step two

under Chevron and relied on an example in the

regulations to fill the ambiguity left by disregarding

statutory language, and changed the action that the

IRS initially took based on Petitioner’s information.

App.53-56.

On August 18, 2021, the U.S. Tax Court entered

its decision in favor of Respondent. App.37. Petitioner

timely filed a Motion for Reconsideration and a Motion

to Vacate with the U.S. Tax Court on September 15,

2021. The U.S. Tax Court denied these motions on

September 20, 2021. App.37.

10

Petitioner timely filed his Notice of Appeal to

the D.C. Circuit on December 16, 2021. On May 26,

2023, a panel of the D.C. Circuit affirmed the decision

of the U.S. Tax Court. App.33. Writing for the

majority, Judge Pillard found Lissack “‘fails to show

that the language of [Section 7623 of the Internal

Revenue Code] unambiguously compels’ his

interpretation.” App.22. And then deferred to the

agency’s interpretation under Chevron as a

reasonable interpretation of the statute. App.23.

In its reasoning, the D.C. Circuit found that the

statute does not unambiguously require a

whistleblower to receive an award under these

circumstances. App.20. The D.C. Circuit stated that

the statute does not define “administrative action”

beyond the cross reference to subsection (a) and then

looked to the phrases “based on” and “substantially

contributed” in § 7623(b)(1). App.20-21. In doing so,

the D.C. Circuit conflated the mandate to pay an

award under § 7623(b) (found in the first sentence of

§ 7623(b)(1)) with the description of how the amount

of the award is determined (found in the second

sentence of § 7623(b)(1)). App.21-22. In doing so, the

D.C. Circuit failed to consider that Congress had

already provided that a less substantial contribution

in this context means a public disclosure bar as stated

in § 7623(b)(2).

The D.C. Circuit then turned to the second step

of its Chevron analysis, “deferring to the agency’s

interpretation as long as it is consistent with the

statutory terms and is reasonable.” App.23 (quotation

marks omitted). The D.C. Circuit held that the

regulations reasonably interpret § 7623. App.24. That

the meaning of “administrative action” “may in this

11

context sensibly be limited to action on the discrete

tax issue or issues the whistleblower’s information

identifies.” App.23. The D.C. Circuit justified this

approach writing that “there is ample reason to doubt

that Congress meant to entitle whistleblowers to

substantial awards just for raising plausible but

meritless concerns about taxpayers who, on

investigation by the IRS, turn out to be noncompliant

in some other, unrelated way.” App.23-24.

Petitioner filed a Petitioner for Rehearing or

Rehearing En Banc on July 7, 2023. The D.C. Circuit

denied the petitions on July 20, 2023. App.60 &

App.61.

REASONS FOR GRANTING THE PETITION

The decision below got an exceptionally

important issue exceptionally wrong. When Congress

removes discretion from an agency, Courts should not

presume that Congress implicitly delegated that same

agency authority to interpret the statute because that

agency cannot take back the same discretion Congress

had removed through agency action. The decision

below affirms the regulations that return the very

discretion that Congress sought to remove by

amending § 7623 with the 2006 Act.

Congress expressly removed the IRS’s

discretion to pay whistleblower awards where the

dollar limits of § 7623(b)(5) were met by requiring that

the IRS pay awards,

[i]f the Secretary proceeds with any

administrative

or

judicial

action

described in subsection (a) based on

information brought to the Secretary’s

12

attention by an individual, such

individual shall, subject to paragraph

(2), receive as an award at least 15

percent but not more than 30 percent of

the proceeds collected as a result of the

action…

I.R.C. § 7623(b)(1).

The mandate from Congress is clear. The IRS

shall pay an award when it proceeds with any

administrative or judicial action based on the

whistleblower’s information.

“Action” and “issue” are different. In this

context, allowing the IRS to use a whistleblower’s

information to identify a noncompliant taxpayer that

would otherwise not have been audited, and then

assess and collect on an issue on which the

whistleblower did not provide information in order to

avoid paying an award to the whistleblower violates

Congress’s clear mandate to pay awards to

whistleblowers where the IRS proceeds based on the

whistleblower’s information. In circumstances where

the whistleblower’s information causes an audit that

would not have occurred but for their information, the

“action” is the audit.

The IRS has prosecutorial discretion to pick

and choose which of the more than 160 million returns

it receives are audited. The IRS also has prosecutorial

discretion to determine on which issues additional tax

should ultimately be assessed. Thus, the IRS

continues to exercise discretion to decide if a

whistleblower should be paid if the D.C. Circuit’s

opinion is not reversed. Congress limited the IRS’s

discretion of when to pay an award with the 2006 Act.

By replacing issue with action, the regulations seek to

13

take the very discretion Congress removed back.

Doing so weakens the balance between the three

branches of government, placing the executive branch

as the first among supposed equals.

That the decision below reached that result by

applying Chevron only heightens the stakes and the

need for this Court’s review. While the doctrine may

have made sense in theory on the assumption that

faithful application of principles of statutory

interpretation would make step-one cases the rule and

step-two cases the exception; however, practical

application of Chevron has been the reverse. Lower

courts see ambiguity everywhere that statutory

language does not “unambiguously compel” a specific

reading and have abdicated the core judicial

responsibility of statutory interpretation to executivebranch agencies so long as the regulations are

reasonable.

The decision below is a case in point and an

ideal vehicle for this Court’s review. Flexibility in

statutory language or broad statutory language is not

ambiguity, especially when the statute must be able

to be applied in many different situations. If Chevron

really requires deference in these circumstances, then

Chevron can no longer be ignored, and must be

overruled so that lower courts stop abdicating their

duty to interpret statutes sensibly whenever they

confront any language that can be labeled an

ambiguity. But whether to clarify that agencies

should not be deferred to when Congress has

expressly removed discretion from the agency or to

reconsider Chevron more broadly, this Court should

not allow the extraordinary decision below to stand.

I.

14

The D.C. Circuit’s Decision Applying

Chevron Deference Is Wrong.

A.

Congress Did Not Intend for the IRS

to have Discretion to Pay Awards.

This Court emphasized in Chevron that, “[i]f a

court, employing traditional tools of statutory

construction, ascertains that Congress had an

intention on the precise question at issue, that

intention is the law and must be given effect.”

Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 843

n.9 (1984). Here, those tools—“text, structure, history,

and so forth,” Kisor v. Wilkie, 139 S. Ct. 2400, 2416

(2019)—unambiguously confirm that Congress

intended for whistleblowers to receive an award

where the IRS proceeds in an action based on their

information and the IRS collects proceeds from that

action.

Starting with the text, § 7623(b) envisions

granting awards to a whistleblower whose

information leads the IRS to take administrative or

judicial action that leads to the recovery of collected

proceeds. This dispute here involves what actions

taken by the IRS are attributed to the whistleblower.

Petitioner argues that “administrative or judicial

action” is clearly described in subsection (a) using

language that has been consistently applied for

decades and is intended to adjust to the particular

facts

and

circumstances

of

whistleblower’s

information and the taxpayers to which it relates.

Section 7623(b)(1) at the time of the

Whistleblower Office’s final decision letter read:

15

In general. If 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, such individual shall,

subject to paragraph (2), receive as an

award at least 15 percent but not more

than 30 percent of the proceeds collected

as a result of the action (including any

related actions) or from any settlement

in response to such action (determined

without regard to whether such proceeds

are available to the Secretary). The

determination of the amount of such

award by the Whistleblower Office shall

depend upon the extent to which the

individual substantially contributed to

such action.

I.R.C. § 7623(b)(1) (emphasis added).

Congress specifically referred to the language

in subsection (a) that describes both civil and criminal

tax enforcement actions to describe which actions by

the IRS were possible to form the basis of an award

under § 7623(b)(1). Section 7623(a) reads:

In general. The Secretary, under

regulations prescribed by the Secretary,

is authorized to pay such sums as he

deems necessary for—

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and

punishment persons guilty of violating

16

the internal revenue laws or conniving at

the same,

in cases where such expenses are not

otherwise provided for by law. Any

amount payable under the preceding

sentence shall be paid from the proceeds

of amounts collected by reason of the

information provided, and any amount

so collected shall be available for such

payments.

I.R.C. § 7623(a).

The language found in paragraphs (1) and (2) of

subsection (a) describes the administrative and

judicial actions that, when undertaken by the IRS,

could result in an award under §7623. Congress

avoided using terms such as audit or issue because it

needed one term that could adjust to the wide array of

facts and circumstances that would be presented by

all whistleblowers because whistleblowers provide

information on all sorts of taxpayers, and

underpayments of tax are detected, assessed, and

collected in a myriad of ways. The linked language

also differentiates a tax enforcement action against

the taxpayer at issue from an administrative or

judicial proceeding concerning the award or the initial

review of the information. Once the fact of the award

is determined by the mandate in the first sentence of

§ 7623(b)(1), the second sentence describes how the

amount of the award is to be determined within the

mandated range.

The second sentence of § 7623(b)(1) provides

that “[t]he determintion of the amount of such award

by the Whistleblower Office shall depend upon the

extent to which the individual substantially

17

contributed to such action.” I.R.C. § 7623(b)(1).

Congress has stated how the IRS is supposed to

determine awards where there is less substantial

contribution in § 7623(b)(2). Section 7623(b)(2)(A),

addresses the capping of awards where the allegations

being reported are “from a judicial or administrative

hearing, from a governmental report, hearing, audit,

or investigation, or from the news media.” I.R.C. §

7623(b)(2)(A). In cases of less substantial

contribution, as described by the statute, the award is

capped at 10 percent of the proceeds. I.R.C. §

7623(b)(2)(A). Congress also expressly allowed for the

reduction or denial of an award where the

whistleblower had planned or initiated the tax

underpayment. I.R.C. § 7623(b)(3).

Nevertheless, the D.C. Circuit read the two

sentences of § 7623(b)(1) as a single mandate,

importing substantially in to the mandate to pay an

award, but ignored Congress’s definition of what a less

substantial contribution is and how it should be

treated. Rather than look to the statutory language in

§ 7623(b)(2), the D.C. Circuit claimed ambiguity in the

statute and deferred to agency regulations.

Congress was equally clear that the action on

which the IRS proceeds is the action on which the IRS

must pay an award under § 7623(b)(1). Section

7623(b)(1) requires that awards paid shall be, subject

to certain conditions, “at least 15 percent but not more

than 30 percent of the collected proceeds (including

penalties, interest, additions to tax, and additional

amounts) resulting from the action (including any

related actions) or from any settlement in response to

such action.” I.R.C. § 7623(b)(1). The phrases “the

action” and “such action” used in this portion of §

18

7623(b)(1) reference the administrative or judicial

actions, as described in subsection (a), earlier in the

sentence. The structure of the sentence makes clear

that “the action” and “such action” are referring to the

administrative or judicial action at the beginning of

the sentence and should be applied as such. The same

or similar terms in a statute are generally interpreted

in the same way. See Estate of Cowart v. Nicklos

Drilling Co., 505 U.S. 469, 479 (1992).

The word “action” is rightly read to refer to the

same action throughout the subsection. For example,

if the IRS opens an audit based on a whistleblower’s

information, the whistleblower’s award is based on

the full amount collected from that audit because the

“action” that the IRS took based on the

whistleblower’s information was opening a previously

unplanned audit. Here, for example, Petitioner

brought the IRS information that Taxpayers

misreported income as debt. Respondent readily

admits that the only reason that audits were opened

for the Taxpayers was Petitioner’s information. Thus,

the audits are the administrative action described in

subsection (a)(1) that the Secretary proceeded with

based on information brought to the Secretary’s

attention by Petitioner. Under the plain language of

the statute, Petitioner is entitled to an award of at

least 15 percent but not more than 30 percent of the

collected proceeds collected from the audits.

The D.C. Circuit dismissed Petitioner’s

arguments regarding how the program functioned

before the 2006 Act. However, how the program

functioned at the time of the 2006 Act is indicative of

Congressional intent because the language used in the

2006 Act is where Congress sought to change the IRS

19

whistleblower program. Congress’s intent to build

upon the existing program is clear because Congress

left the existing language largely in place and added

subsection (b) rather than replace § 7623 entirely. For

example, Congress expressly included interest in the

list of proceeds specifically included in “collected

proceeds” in the 2006 Act. This change signaled that

Congress intended to include interest in the base

amount that awards, a change from how § 7623

functioned prior to the 2006 Act. However, nothing in

the language of § 7623(b)(1) suggests that Congress

intended to change how the IRS treats whistleblowers

who alert the IRS to a non-compliant taxpayer. In fact,

the broad language of § 7623(b)(1) that expressly

incorporates the existing program suggests the

opposite.

Congress

was

aware

that

when

a

whistleblower’s information caused an audit, the IRS

had been treating the entire audit as the action for

purposes of determining the award payable under the

pre-2006 Act program because this was included in

the Technical Explanation for the 2006 Act:

For information, although not specific,

that

nonetheless

caused

the

investigation and was of value in the

determination of tax liabilities, the

reward is not to exceed 10 percent of the

amount recovered. For information that

caused the investigation, but had no

direct relationship to the determination

of tax liabilities, the reward is not to

exceed one percent of the amount

recovered.

20

Staff of J. Comm. On Taxation, Technical

Explanation of H.R. 6408, “The Tax Relief And Health

Care Act Of 2006,” As Introduced In The House On

December 7, 2006, JCX-50-06 (2006).

The program as it existed in 2006 included

payments for identifying non-compliant taxpayers.

Had Congress intended to exclude whistleblowers who

caused the audit or examination but did not provide

information on the specific issues on which the IRS

ultimately collects, it could have easily either (1)

removed these claims from consideration by limiting

awards to issues the whistleblower raised or to the

issues directly related to the whistleblower’s

information; or (2) included these cases in § 7623(b)(2)

as a less than substantial contribution. Congress did

not do so. Instead, Congress referenced the existing

language and incorporated its existing rules, making

clear that it intended to keep much of the pre-2006 Act

whistleblower program in place following the 2006

Act, which added subsection (b) to section 7623.

Indeed, the broader statutory context makes

clear that Congress knew how to draft language that

restricts awards to whistleblowers because Congress

limited the application of § 7623(b). Congress limited

the application of § 7623(b) to awards where the

amount in dispute exceeds $2,000,000 and, in the case

of an individual taxpayer, the individual’s gross

income exceeds $200,000 for any year subject to such

action. I.R.C. § 7623(b)(5). Congress prohibited those

convicted of criminal conduct arising from their role in

planning and initiating the tax underpayment. I.R.C.

§ 7623(b)(3). Congress also provided two exceptions

for when the IRS could pay less than 15 percent of the

amounts collected from the action in § 7623(b)(2) and

21

(3). Section 7623(b)(2) caps the award at 10 percent of

amounts collected when the information is

determined to be based principally on disclosures of

specific allegations resulting from “from a judicial or

administrative hearing, from a governmental report,

hearing, audit, or investigation, or from the news

media” unless the whistleblower is the original source

of the information. I.R.C. § 7623(b)(2). The first

sentence of § 7623(b)(3) allows for the award

percentage to be reduced below 15 percent where the

whistleblower is found to have been responsible for

the planning or initiating of the tax underpayment.

I.R.C. § 7623(b)(3).

By interpreting § 7623 in a manner that would

allow the IRS to have full discretion over if awards are

paid to whistleblowers, the D.C. Circuit’s opinion

raises grave separation-of-powers concerns by

disregarding the express will of Congress to deprive

whistleblowers of amounts that Congress mandated

be paid. This Court’s precedent teaches that, “[w]hen

a serious doubt is raised about the constitutionality of

an act of Congress, it is a cardinal principle that this

Court will first ascertain whether a construction of the

statute is fairly possible by which the question may be

avoided.” Jennings v. Rodriguez, 138 S. Ct. 830, 842

(2018) (quotation marks omitted). Petitioner’s

interpretation of § 7623 does exactly that.

B.

If Chevron Tolerates the Result

Below, the Court Should Overrule It

or Clarify Its Limits.

As the foregoing demonstrates, a proper

application of Chevron leaves no doubt that the

decision below is plainly wrong. But if the decision

22

below is somehow consistent with Chevron, rather

than an overreading of Chevron, the Court should

overrule that decision or at least clarify its limits—in

particular, by explaining that the use of broad

language does not create ambiguity, especially when

Congress has expressly sought to remove discretion

from the agency. Given the problems with Chevron

recognized by members of this Court, it is

understandable that the Court has declined to

mention Chevron even in cases where it is directly at

issue. See, e.g., Sackett v. EPA, 143 S. Ct. 1322 (2023);

and Am. Hosp. Ass’n v. Becerra, 142 S. Ct. 1896 (2022).

But, as this case well illustrates, lower courts continue

to feel obligated to apply it because the Court has not

yet formally overruled it. Creating two separate

bodies of law. One for those fortunate enough to be

reviewed by this Court, where statutory language

controls. And a second one, where any whiff of

ambiguity leads to deference to agency rule making.

The decision below provides an opportunity to

clarify that deference is not appropriate where

Congress has removed agency discretion. This Court

has made clear that courts are supposed to exhaust

the statutory-construction toolkit before declaring an

ambiguity that causes the tie to go to the agency. See,

e.g., Kisor, 139 S. Ct. at 2415. Among the most obvious

and important tools are that mandatory words impose

a duty, and the rule of the last antecedent. Both of

which strongly indicate that the broad language used

for when an award is due is not ambiguous and

mandates that an award be paid where the conditions

are met, as they are here.

The use of the word “shall” is a clear indication

that the agency lacks the power to narrow the class of

23

persons Congress sought to reward because the IRS

should not be permitted to interpret the statute in a

way that returns the discretion Congress removed.

See Antonin Scalia & Bryan A. Garner, Reading Law:

The Interpretation of Legal Texts § 11, at p. 112 (2012).

That would seem to be particularly clear in a context

like this. This is confirmed by looking at the text of the

statute. The word “substantially” is only used once in

§ 7623(b)(1). It is only used in the second sentence

which discusses the determination of the amount of

such award being dependent on “the extent to which

the individual substantially contributed to such

action.” It is clear for the context of the statute that

substantially was not intended as a limiting

requirement for the payment of an award, but used to

determine where within the statutorily required

range the award should fall. Lockhart v. United

States, 136 S. Ct. 958, 963 (2016).

If Chevron really supports the result below,

then it is no longer sufficient for this Court to ignore

Chevron. Whatever theoretical benefits might have

been perceived with Chevron when it was decided,

decades of practice have exposed its many flaws. To

begin with, Chevron “wrests from Courts the ultimate

interpretative authority to ‘say what the law is’” and

places it in the executive’s hands. Michigan v. EPA,

576 U.S. 743, 761 (2015) (Thomas, J., concurring).

When a law is truly unambiguous, there is little need

for statutory construction. Statutory construction

concerns statutory text that the litigants have

interpreted differently and is therefore ambiguous.

Such a low bar for ambiguity would result in deference

to agency interpretation in virtually all litigation

where the government has engaged in some sort of

24

agency rule making. Thus, a doctrine that defers to

the executive at the first sign of ambiguity is nothing

short of an “abdication of the judicial duty.” GutierrezBrizuela v. Lynch, 834 F.3d 1142, 1152 (10th Cir.

2016) (Gorsuch, J., concurring).

Moreover, because the judiciary defers to the

executive branch’s interpretation under Chevron, the

doctrine also encourages the executive branch to

engage in agency rulemaking rather than to work

with Congress to enact new laws. In the years since

Chevron was decided only three years have had fewer

than 25 economically significant final rules published.

See GW Columbian College of Arts & Sciences,

Regulatory

Studies

Center,

Reg

Stats,

https://regulatorystudies.columbian.gwu.edu/regstats (2023). Those years were 1985, 1986, and 2017.

It is far easier to engage in agency rulemaking than it

is navigate the legislative process. See Ramos v.

Louisiana, 140 S. Ct. 1390, 1413 (2020) (Kavanaugh,

J., concurring in part) (“Both by design and as a

matter of fact, enacting new legislation is difficult.”).

Worse still, if the D.C. Circuit’s opinion is allowed to

stand, even after new legislation is passed, the

executive branch is then able to effectively repeal the

statute through agency rule making, which will then

be deferred to by the courts.

As bad as Chevron has been for the judiciary

and the Congress, the real loser has been the

citizenry. One would expect the rule to be that, when

there is doubt about how the law applies to the

citizenry, the tie would go to the citizenry. But

Chevron turns this on its head. Any time there is a

whiff of ambiguity, courts declare the government the

winner, effectively removing the citizenry’s ability to

25

challenge agency interpretation so long as it has gone

through the show engaging in notice and comment.

The difficulties for the citizenry take more subtle

forms as well. It is perhaps a tolerable fiction that the

citizenry can master the various provisions of the

United States Code. But “[u]nder Chevron the people

aren’t just charged with awareness of and the duty to

conform their conduct to the fairest reading of the law

that a detached magistrate can muster. Instead, they

are charged with an awareness of Chevron; required

to guess whether the statute will be declared

‘ambiguous’ (courts often disagree on what qualifies);

and required to guess (again) whether an agency’s

interpretation will be deemed ‘reasonable.’” GutierrezBrizuela, 834 F.3d at 1152 (Gorsuch, J., concurring).

In sum, the decision below vividly illustrates

that Chevron is overdue for either a reboot or an

overruling. Simply ignoring it will just lead to more

problematic results like the decision below.

II.

This Case Is An Ideal Vehicle To Resolve

Exceptionally Important Issues.

This case is profoundly important on multiple

levels. Section 7623(b) was enacted to incentivize

whistleblowers to bring information to the IRS so the

IRS could more effectively, efficiently, and fairly

administer internal revenue laws. The tax gap for

2014 – 2016 was estimated by the IRS to be $496

billion per year, a $58 billion per year increase from

the prior estimate. IRS, The Tax Gap,

www.irs.gov/newsroom/the-tax-gap (Oct. 12, 2023). Of

this total, $398 billion is from underreporting.

26

The 2006 Act could be a powerful tool to help

close the tax gap and incentivize those with

knowledge of tax noncompliance to come forward and

report what they know to the IRS. By mandating

awards, Congress wanted to ensure that those who

came forward were paid an award to compensate them

for the risk they undertook to come forward. The IRS

rather than embracing § 7623 as a tool to make tax

administration more efficient, enacted regulations

that returned its discretion and has looked for way to

avoid paying whistleblowers.

But the importance of this case is by no means

limited to whistleblowers or tax administration.

Courts and litigants alike have an undeniable interest

in whether agencies can avoid mandates from

Congress to act and the current state of Chevron,

which applies to countless statutes involving every

federal agency. Virtually every agency has a mandate

from Congress to act in some manner. Accordingly, if

agencies have carte blanche to use rulemaking to

avoid these mandates and get away with it under

Chevron, the threat to the separation of powers will

grow only more pronounced.

This case is an ideal vehicle to resolve these

issues. There is simply no substitute for granting

review either to stop the overreading of Chevron or to

start its overruling.

27

CONCLUSION

For the foregoing reasons, this Court should

grant the petition for certiorari.

Respectfully submitted,

October 17, 2023

ERICA L. BRADY-GITLIN

Counsel of Record

GREGORY S. LYNAM

SCOTT A. KNOTT

THE FERRARO LAW FIRM

600 Brickell Ave, Suite 3800

Miami, FL 33131

(202) 775-1630

ebrady@ferrarolaw.com

Counsel for Petitioner