Petition for Writ of Certiorari — Michael Lissack, Petitioner v. Commissioner of Internal Revenue
Supreme Court briefOct 17, 2023
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TABLE OF APPENDICES
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
App-1
Appendix A
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 2022
Decided May 26, 2023
No. 21-1268
MICHAEL LISSACK,
APPELLANT
V.
COMMISSIONER OF INTERNAL REVENUE,
APPELLEE
On Appeal from a Decision of
the United States Tax Court
Erica L. Brady-Gitlin argued the cause for
appellant. With her on the briefs were Gregory S.
Lynam and Scott A. Knott.
Brian C. Wille and Usman Mohammad were on
the brief for amicus curiae Whistleblower 1109-13W
in support of appellant.
App-2
Dean Zerbe and Stephen M. Kohn were on the
brief for amicus curiae National Whistleblower Center
in support of appellant.
Julie Ciamporcero Avetta, Attorney, U.S.
Department of Justice, argued the cause for appellee.
With her on the brief was Bruce R. Ellisen, Attorney.
Before: PILLARD and KATSAS, Circuit
Judges, and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge
PILLARD.
PILLARD, Circuit Judge: Section 7623 of the
Internal Revenue Code authorizes the IRS to pay
awards to whistleblowers who identify underpayment
of taxes or violations of internal revenue law. The
provision at issue here, subsection 7623(b)(1),
mandates awards for whistleblowers who provide the
IRS with information that makes a substantial
contribution to a tax adjustment. It calls for awards of
between 15 and 30 percent of proceeds the IRS collects
“as a result of” an “administrative or judicial action”
that is “based on information” provided by a
whistleblower. I.R.C. § 7623(b)(1). The IRS’s
“determination of the amount of such award” depends
on the extent to which a whistleblower “substantially
contributed” to the administrative action. Id. A
Treasury regulation interpreting the statute allows
the IRS to treat investigations into unrelated tax
issues of the same taxpayers as separate
“administrative action[s].” 26 C.F.R. § 301.76232(a)(2), (b)(2) (Example 2). Appellant Michael Lissack
claims the IRS owes him a whistleblower award under
subsection 7623(b)(1), and he argues that the
App-3
Treasury regulation on which the IRS relied to decide
otherwise contravenes the text of the statute.
Lissack submitted information to the IRS that
he thought showed that a condominium development
group evaded taxes through its treatment of golf-clubmembership deposits. The IRS deemed the
information Lissack submitted sufficiently specific
and credible to warrant opening an examination, but
later concluded that the membership deposits were
correctly reported. Through its own further
investigation, however, the IRS discovered an
unrelated problem: The same development group had
taken an impermissible deduction on intercompany
bad debt. The IRS eventually ordered the
development group to pay a large adjustment relating
to its treatment of that debt, but it denied Lissack’s
claim for a percentage of those proceeds. When
Lissack sought review of that decision, the Tax Court
granted summary judgment to the IRS. Lissack
appeals to us, and the IRS primarily argues that the
Tax Court lacked jurisdiction to review its award
denial, even as it defends its rule and its application
to Lissack’s case.
We hold that the Tax Court had jurisdiction
and that the challenged provisions of the rule are
consistent with the tax whistleblower statute.
Because the IRS Whistleblower Office’s denial of an
award to Lissack rests on a reasonable application of
a valid rule to the facts reflected in the administrative
record, we affirm.
BACKGROUND
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A.
The Internal Revenue Service (IRS or Service)
has authority under Internal Revenue Code Section
7623 to pay awards to whistleblowers who help the
Service identify and collect underpaid taxes. Congress
first granted that authority to the Secretary of the
Treasury in 1867. Act of March 2, 1867, Pub. L. No.
39-169, § 7, 14 Stat. 471, 473. Until 2006, any such
whistleblower award was at the discretion of the IRS.
See Taxpayer Bill of Rights 2, Pub. L. 104-168, § 1209,
110 Stat. 1452, 1473 (1996); Whistleblower 14106-10W
v. Comm’r, 137 T.C. 183, 186 (2011). Under the
discretionary regime, the Service was not bound by
the statute or regulations to pay any whistleblowers
and, when it chose to do so, the amount was within its
sole discretion; there was no provision for judicial
review.
In 2006, Congress amended the tax
whistleblower statute. Tax Relief and Health Care Act
of 2006, Pub. L. No. 109-432, § 406, 120 Stat. 2922,
2958-60 (2006 Act). The amendment added subsection
(b) to make some whistleblower awards mandatory,
id.; I.R.C. § 7623(b), even as it retained in subsection
(a) the IRS’s longstanding authority to make
discretionary awards to people who help in “detecting
underpayments of tax,” or “detecting and bringing to
trial and punishment” persons who violate internal
revenue laws, I.R.C. § 7623(a). The 2006 Act also
created the IRS Whistleblower Office, empowered it to
determine award amounts, and established a right to
appeal
any
Whistleblower
Office
award
“determination” to the Tax Court. § 406, 120 Stat. at
2958-60; I.R.C. § 7623(b)(4). This appeal turns on the
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meaning of the mandatory-award provision
(subsection (b)(1)) and the judicial-review provision
(subsection (b)(4)).
Under the mandatory-award provision, a
whistleblower “shall . . . receive” an award if the IRS
“proceeds with any administrative or judicial action
described in subsection (a)”— i.e., detecting
underpayments or detecting and bringing evaders to
judgment—“based on information brought to the
Secretary’s attention by” the whistleblower. I.R.C. §
7623(b)(1). (For convenience in this appeal, which
involves only administrative action against a
taxpayer, we use the shorthand “administrative
action” rather than “administrative . . . action,” and
“proceeds based on,” rather than “proceeds . . . based
on,” when quoting subsection 7623(b)(1).) A
mandatory award under subsection (b)(1) must be 15
to 30 percent “of the proceeds collected as a result of
the action (including any related actions),” or from a
settlement. Id. Within that range, the amount of a
mandatory award “shall depend upon the extent to
which the individual substantially contributed to such
action.” Id.
The judicial-review provision states: “Any
determination regarding an award under paragraph
[(b)](1) . . . may, within 30 days of such determination,
be appealed to the Tax Court (and the Tax Court shall
have jurisdiction with respect to such matter).” Id. §
7623(b)(4). We recently held that a reviewable
“determination regarding an award” within the
meaning of that section, id., does not include the
Whistleblower Office’s “threshold rejection” of a
whistleblower’s submission “for vague and speculative
App-6
information” in advance of any referral to the IRS for
examination, Li v. Comm’r, 22 F.4th 1014, 1017 (D.C.
Cir. 2022). In this appeal, the IRS argues that the Tax
Court lacked jurisdiction because, in its view, the logic
of Li means the letter denying Lissack’s claim also was
not a reviewable determination under subsection
(b)(4).
B.
Lissack challenges three parts of a Treasury
Department regulation we refer to as the
Whistleblower Definitions Rule: (1) the definition of
“administrative action,” (2) one of the examples
illustrating what counts as the Service “proceed[ing]”
with an administrative action “based on”
whistleblower information, and (3) the definition of
“related action.” 26 C.F.R. § 301.7623-2(a)(2), (b)(2)
(Example 2), (c)(1).
Recall that an award is mandatory under the
statute if the IRS “proceeds with any administrative
or judicial action” that is “based on” the
whistleblower’s information. I.R.C. § 7623(b)(1). The
Rule defines “administrative action” to mean “all or a
portion of an Internal Revenue Service (IRS) civil or
criminal proceeding against any person that may
result in collected proceeds, . . . including, for example,
an examination, a collection proceeding, a status
determination
proceeding,
or
a
criminal
investigation.”
26
C.F.R. § 301.7623-2(a)(2)
(emphasis added). That definition allows the IRS to
divide examinations into discrete segments raising
distinct tax issues, and to treat each as a separate
administrative action.
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In defining how the Service “proceeds” with an
action “based on” whistleblower information, I.R.C. §
7623(b)(1), the Rule distinguishes IRS administrative
actions subject to the mandatory-award provision
from those not triggering such awards: The IRS
“proceeds based on information provided by a
whistleblower when the information provided
substantially contributes to an action against a person
identified by the whistleblower.” 26 C.F.R. § 301.76232(b)(1). When the IRS “initiates a new action, expands
the scope of an ongoing action, or continues to pursue
an ongoing action, that the IRS would not have
initiated, expanded the scope of, or continued to
pursue, but for the information provided,” it “proceeds
based on” the whistleblower submission. Id.
The regulatory definitions of “administrative
action” and “proceeds based on” work together. These
provisions allow the IRS to consider investigations
into tax issues unrelated to the whistleblower
submission as separate administrative actions. The
upshot is that a whistleblower whose information may
have “substantially contributed” to a fruitless action
against a person is not entitled to share proceeds from
a distinct action against that same person that did not
draw on the whistleblower’s information. As the
agency explained in the preamble to the final
regulations, “the tax administration process is a long
and multi-faceted one that may extend over the course
of many years and may involve multiple substantial
contributions from different sources.” Awards for
Information Relating to Detecting Underpayments of
Tax or Violations of the Internal Revenue Laws, 79
Fed. Reg. 47,246, 47,262/3 (Aug. 12, 2014) (codified
App-8
at 26 C.F.R. pt. 301). In cases involving multiple
tax issues, treating each distinct tax issue as a
separate “administrative action” enables the IRS to
calibrate whether and to what extent a recovery was
“based on” a whistleblower’s tip “by reference to just
the discrete and relevant portion of the examination
to which the information provided relates.” Id. at
47,250/3.
The Whistleblower Definitions Rule includes
some examples illustrating rule applications. The
challenged Example Two to the definition of “proceeds
based on” describes cases in which the IRS’s
investigation of a whistleblower submission uncovers
“additional facts that are unrelated to the activities
described in the information provided by the
whistleblower,” leading the Service to examine issues
other than those the whistleblower identified. 26
C.F.R. § 301.7623-2(b)(2) (Example 2). In those
circumstances, the Rule explains, “[t]he portions of the
IRS’s examination . . . relating to the additional facts
obtained” through the Service’s independent
investigative measures “are not actions with which
the IRS proceeds based on the information provided by
the whistleblower because the information provided
did not substantially contribute to the action.” Id.
(emphasis added).
The Whistleblower Definitions Rule also
interprets the statutory term “related actions.” I.R.C.
§ 7623(b)(1). Recall that the mandatory-award
provision of the tax whistleblower statute states that
a whistleblower shall receive a percentage of “the
proceeds collected as a result of the action (including
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any related actions).” Id. (emphasis added). Under the
Whistleblower Definitions Rule, “the term related
action means an action against a person other than
the person(s) identified in the information provided
and subject to the original action(s),” so long as the
action against the additional person has a regulatorily
specified nexus to the original action. 26 C.F.R. §
301.7623-2(c)(1).
That definition does not treat
action on a distinct issue as “related” to action on a
whistleblower’s information just because it involves
the same taxpayer, even if the IRS discovered the issue
only because the whistleblower led it to audit that
taxpayer.
C.
In 2009, Michael Lissack filed with the IRS
Whistleblower Office an Application for Award for
Original Information (Form 211). He submitted
almost 200 pages of material identifying a
condominium development group and showing why he
thought it had underpaid its taxes on golf club
memberships. Lissack contended that, after making
membership deposits nonrefundable in 2008, the
development group should have reported the retained
deposits to the IRS as gross income.
Lissack’s information led to an IRS
examination into the development group. A senior tax
analyst in the Whistleblower Office determined that
Lissack’s submission identified a tax issue and
referred it to the IRS Large Business and
International Division. A revenue agent in that
division opened an investigation into Lissack’s
information and sent progress reports to the
App-10
Whistleblower Office. In a 2011 report, the revenue
agent explained that, before receiving Lissack’s
submission, the IRS had not planned to investigate
the development group, but the information Lissack
provided “was sufficient to warrant beginning of
examination.” Lissack v. Comm’r, 157 T.C. 63, 66
(2021). In other words, the revenue agent
acknowledged that Lissack’s submission was the
reason the IRS opened an examination. The following
month, the revenue agent reported that he had fully
researched the membership-deposit tax issue and
concluded that the development group reported the
deposits correctly. The agent further reported that,
during his investigation, he discovered a different tax
issue that was “unrelated to the subject of the
whistleblower claims”: a $60 million deduction that
the development group took for “bad debt,” meaning a
business debt that the company characterized as
worthless and deducted from gross income. Id.; Topic
No.
453,
Bad
Debt
Deduction,
IRS,
https://perma.cc/VN67-LGGF (last updated Apr. 27,
2023). In 2013, the revenue agent finished the
examination and ordered several tax adjustments, the
largest of which was for the $60 million bad-debt
deduction. The agent reported that Lissack did not
“provide[] any information for the adjusted issues.”
Lissack, 157 T.C. at 66; see J.A. 59 (Declaration of
Whistleblower Office Analyst).
In 2017, the Whistleblower Office denied
Lissack’s claim for an award. In the final
determination letter, the Whistleblower Office
informed Lissack that his claim was denied “because
the IRS took no action on the issues you raised.” J.A.
App-11
16. “After receipt of your information,” the letter
explained, “the IRS initiated an examination” of the
development group, “and the IRS reviewed the
information you provided as part of that examination.
However, that review did not result in the assessment
of additional tax, penalties, interest or additional
amounts with respect to the issues you raised.” J.A.
16. Finally, the letter informed Lissack that the IRS
did assess additional taxes against the taxpayer, “but
the information you provided was not relevant to
those issues.” J.A. 16.
Lissack petitioned the Tax Court to review the
Whistleblower Office’s adverse decision on his
application for an award. The IRS moved for summary
judgment based on the relevant portion of the
administrative record and a declaration from the
Whistleblower Office analyst assigned to Lissack’s
claim. Lissack filed a cross-motion for partial
summary judgment, arguing the Service misapplied
its own rule and challenging certain provisions of the
Whistleblower Definitions Rule as contrary to the
statute. In his opposition to the IRS’s summary
judgment motion, Lissack argued that the
administrative record was incomplete because the IRS
had redacted too many documents in the
administrative file.
In the decision now under review, the Tax
Court granted summary judgment in full in favor of
the IRS. In a carefully reasoned opinion, the Tax
Court held that, although the IRS “did initiate an
action” based on the information Lissack provided
regarding membership deposits, he “is not eligible for
App-12
a whistleblower award” because “the IRS did not
collect any proceeds ‘as a result of th[is] action’” or any
“related action.” Lissack, 157 T.C. at 69-70
(alteration in original) (quoting I.R.C. § 7623(b)(1)),
72, 76. The undisputed facts showed that Lissack
“supplied no information to the IRS about [the
development group’s] intercompany bad debt
deduction,” so he was not entitled to a percentage of
the proceeds collected in that action. Id. at 71.
In granting summary judgment, the Tax Court
had “no difficulty concluding that the regulation
passes muster” under Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984).
Lissack, 157 T.C. at 74. The court noted that the
statute “does not describe or define an ‘administrative
or judicial action’” so, as relevant here, “leaves ample
scope to the Secretary to define the term” to refer to
“‘all or a portion of’ an IRS civil or criminal
proceeding.” Id. at 72 (quoting 26 C.F.R. § 301.76232(a)(2)). In other words, it saw the statutory language
as ambiguous as to whether an expanded portion of an
examination is a separate administrative action and
as to what kinds of whistleblower contributions
require an award. Given that ambiguity, the Tax
Court held, the Whistleblower Definitions Rule
reasonably
interprets
the statutory
terms
“administrative action” and “proceeds based on.” Id.
at 75-76.
The Tax Court also rejected Lissack’s
remaining two arguments. First, the court held that
the investigation into the bad debt was not a “related
action,” under the IRS’s definition of that term, to the
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action on the membership-deposit issue Lissack
identified. Id. at 76 (citing 26 C.F.R. § 301.76232(c)(1)). It was neither “against a person other than
the person(s)” Lissack’s information identified, nor
were “[t]he facts relating to” the bad-debt action
“substantially the same” as the membership-deposit
facts Lissack provided. Id. (alteration in original)
(quoting 26 C.F.R. § 301.7623-2(c)(1)). Second, the
court held that the administrative record sufficed,
providing “more than enough evidence to confirm that
petitioner is not eligible for a mandatory award.” Id. at
78. The Tax Court noted that this is a “record rule”
case in which summary judgment ordinarily is
decided based on an administrative record that
“comprises all information contained in the
administrative claim file that is relevant to the award
determination and not protected by one or more
common law or statutory privileges.” Id. at 77 (first
quoting Van Bemmelen v. Comm’r, 155 T.C. 64, 79
(2020); and then quoting 26 C.F.R. § 301.7623-3(e)(1)).
Although whistleblowers may file motions to compel
production of documents and to supplement the
record, the Tax Court noted, Lissack “filed no motion
of either sort.” Id. at 78.
Lissack moved to vacate or revise the summary
judgment decision, and for reconsideration, but the
Tax Court denied reconsideration. This appeal of the
Tax Court decisions followed.
DISCUSSION
The IRS argues that the Tax Court lacked
jurisdiction over Lissack’s appeal, and in any event
reached the correct result. Lissack counters that the
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Tax Court correctly exercised jurisdiction but erred in
granting summary judgment to the IRS because the
Whistleblower Definitions Rule conflicts with the
statute, a genuine factual dispute remains over
whether the revenue agent relied on Lissack’s
submission, and the administrative record was
incomplete without the entire examination file. We
hold that the Tax Court had jurisdiction, the Rule is
consistent with the statute, and the Tax Court
correctly decided summary judgment on a sufficient
administrative record that Lissack never sought to
supplement.
A.
The Tax Court had jurisdiction.
“Any determination regarding an award under”
subsection 7623(b)(1), (2), or (3), may be appealed to
the Tax Court, which “shall have jurisdiction with
respect to such matter.” I.R.C. § 7623(b)(4). Our
jurisdiction over the merits of Lissack’s appeal, in
turn, rests on the Tax Court having had jurisdiction.
Li, 22 F.4th at 1015. We consider the jurisdictional
question de novo, Myers v. Comm’r, 928 F.3d 1025,
1031 (D.C. Cir. 2019), and hold that the Tax Court had
jurisdiction over Lissack’s petition.
By its plain terms, subsection (b)(4)’s
jurisdictional grant applies to “[a]ny determination
regarding an award.” I.R.C. § 7623(b)(4) (emphasis
added). The Supreme Court has “repeatedly
explained” that “the word ‘any’ has an expansive
meaning.” Patel v. Garland, 142 S. Ct. 1614, 1622
(2022) (quoting Babb v. Wilkie, 140 S. Ct. 1168, 1173
n.2 (2020)). “Similarly, the use of ‘regarding’ ‘in a legal
context generally has a broadening effect, ensuring
App-15
that the scope of a provision covers not only its
subject but also matters relating to that subject.’”
Id.
(quoting Lamar, Archer & Cofrin, LLP v.
Appling, 138 S. Ct. 1752, 1760 (2018)). Congress
thereby made generous provision for judicial review of
Whistleblower Office award decisions.
The Service challenges the Tax Court’s
jurisdiction based on Li v. Commissioner, 22 F.4th
1014. We held in Li that a threshold rejection of a
Form 211 (i.e., an application for a mandatory award)
was not a reviewable “award determination under
subsection (b)(1)-(3).” Id. at 1016; see id. at 1017-18.
The Whistleblower Office had concluded that Li’s
Form 211 provided only “vague and speculative
information it could not corroborate, even after
examining supplemental material Li herself did not
provide,” so the Office did not even forward Li’s
submission to an IRS examiner. Id. at 1017. We
referred to the text of subsection (b)(1) to reason that a
“threshold rejection of a Form 211 by nature means the
IRS is not proceeding with an action against the target
taxpayer,” and that “[t]herefore, there is no award
determination, negative or otherwise, and no
jurisdiction for the Tax Court.” Id. We expressly
reserved in Li the question of jurisdiction in cases in
which the Whistleblower Office “wrongly denied a
Form 211 application” but the IRS “nevertheless
proceeded against a target taxpayer based on the
provided information.” Id. at 1017 n.2.
The Service contends that our logic in Li—
looking to when the IRS “proceeds with” an action per
subsection (b)(1) as describing a jurisdictional
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prerequisite—compels us to likewise treat as
jurisdictional a second requirement of subsection
(b)(1): that the IRS have “collected proceeds” based on
the whistleblower’s information. IRS Br. 25. Because,
in the Service’s view of the merits, the proceeds it
collected were not recovered in the administrative
action it took in response to Lissack’s submission, it
asserts the Tax Court lacked jurisdiction under
subsection (b)(4) as interpreted in Li. In other words,
as the IRS reads it, our decision in Li renders the
jurisdictional grant coextensive with the merits of a
whistleblower appeal. We disagree.
The fact that the IRS conducted an examination
here suffices to distinguish Lissack’s case from Li. Li
never claimed that the IRS proceeded with any
administrative or judicial action against the target
taxpayer based on her submission. Li, 22 F.4th at 1017
n.2. Here, by contrast, there is no dispute that the
Whistleblower Office referred Lissack’s submission to
the IRS, and an IRS revenue agent initiated an
examination of the membership-deposits issue that
Lissack identified. That referral and examination
count as the IRS “proceed[ing] with” an
“administrative action” that was “based on” the
information Lissack brought to the Secretary’s
attention. I.R.C. § 7623(b)(1). And the “determination
regarding an award” was the Whistleblower Office
letter to Lissack informing him that the examination
it initiated based on the information he provided did
not result in the collection of any proceeds, so he was
not entitled to an award.
In sum, contrary to the Service’s position, the
App-17
statute does not require a whistleblower to establish a
meritorious claim to an award before the Tax Court
may exercise jurisdiction to review the IRS’s
determination on that claim. An “unusually high
degree of clarity” is required to treat statutory
requirements as jurisdictional, Myers, 928 F.3d at
1035, and, as just explained, subsection (b)(4) does not
clearly support the Service’s reading. To hold
otherwise would impute to Congress an intent to
authorize appeals by whistleblowers who believe their
awards are too low, but bar appeals by whistleblowers
like Lissack who receive no award at all. To be sure,
unless the IRS has made some adjustment, it is
unclear what relief a whistleblower could be
seeking.
But the Whistleblower Office in this case
made substantial adjustments. The merits dispute is
whether Lissack’s concededly nonfrivolous submission
entitles him to share in the IRS’s recovery from the
taxpayer he identified. We need not delineate the
precise line between an unreviewable threshold
rejection and a reviewable determination to conclude
that the decision here was a “determination regarding
an award” under subsection (b)(4).
Consistent with the plain terms and structure
of the statute and our decision in Li, the Tax Court
had jurisdiction over Lissack’s appeal.
B.
The challenged regulations are consistent
with the tax whistleblower statute.
Lissack challenges three provisions of the
Whistleblower Definitions Rule. As a general matter,
we review the decisions of the Tax Court “in the same
manner and to the same extent as decisions of the
App-18
district courts in civil actions tried without a jury.”
I.R.C. § 7482(a)(1). The Tax Court treated the
relevant portion of the statute as ambiguous and
upheld the IRS interpretation as reasonable under
Chevron. On appeal, both parties likewise argue
within the Chevron framework. The IRS defends the
Tax Court’s conclusion that the Whistleblower
Definitions Rule reasonably construes ambiguous
statutory text. And Lissack objects that subsection
7623(b) unambiguously supports his competing
construction. We review the Tax Court’s legal rulings
de novo. Byers v. Comm’r, 740 F.3d 668, 675 (D.C. Cir.
2014). At the first step of Chevron, “we must . . . decide
‘whether Congress has directly spoken to the precise
question at issue.’” Nat’l Env’t Dev. Ass’n’s Clean Air
Project v. EPA, 891 F.3d 1041, 1047 (D.C. Cir. 2018)
(quoting Chevron, 467 U.S. at 842). If we can discern
it from the statute, we “must give effect to the
unambiguously expressed intent of Congress.”
Chevron, 467 U.S. at 843. If the statute is “silent or
ambiguous with respect to the specific issue,” we do
not simply impose our own interpretation, “as would
be necessary in the absence of an administrative
interpretation,” id., but move to the second step and
“determine whether [the IRS’s] interpretation is
‘based on a permissible construction of the statute.’”
Clean Air Project, 891 F.3d at 1047 (quoting Chevron,
467 U.S. at 843). We hold that the Whistleblower
Definitions Rule reasonably interprets the statute’s
mandatory-award provision.
1.
Lissack argues that, under the plain language of
App-19
the statute, he is entitled to a whistleblower award
because the IRS would not have opened an
examination into the condominium group’s tax
problems but for his submission. He challenges the
regulatory provisions that control the IRS’s
determinations whether any proceeds were “collected
as a result of” an IRS “administrative action” to which
a whistleblower “substantially contributed.” I.R.C. §
7623(b)(1). First, he challenges the provision of the
Rule defining an “administrative action” that the IRS
treats as “based on” a whistleblower submission under
subsection (b)(1) to be “all or a portion of” a proceeding
that may yield collected proceeds. 26 C.F.R. §
301.7623-2(a)(2). Second, he challenges an example
(Example Two) that illustrates how, when the IRS
discovers “additional facts that are unrelated to the
activities described in the information provided by the
whistleblower” and accordingly expands the scope of
the examination, the investigation into those
unrelated facts “are not actions with which the IRS
proceeds based on the information provided by the
whistleblower.”
26 C.F.R. § 301.7623-2(b)(2)
(Example 2).
Lissack’s challenge requires us to answer two
questions: First, whether the tax whistleblower
statute requires the IRS to consider the “whole
action”—in this case, all its examination activity—
regarding one taxpayer as a single administrative
action, and, second, whether the statute mandates an
award whenever the whistleblower’s information was
the but-for cause to initiate an investigation of the
taxpayer, even if the ultimate basis for the IRS’s
collection of proceeds found no factual support in the
information the whistleblower provided.
App-20
We hold that the IRS definition of
“administrative action” and Example Two are
permissible interpretations of Section 7623. The tax
whistleblower statute does not conclusively answer
whether examinations into distinct tax issues not
identified in a whistleblower’s submission can be
separate administrative actions. Nor does the statute
unambiguously require that a whistleblower receive a
mandatory award where the whistleblower’s
information was unrelated to the tax issues on which
the IRS ultimately collected proceeds, even if that
information was the but-for cause of an examination.
“We begin, as in any case of statutory
interpretation, with the language of the statute.” CSX
Transp., Inc. v. Ala. Dep’t of Revenue, 562 U.S. 277,
283 (2011). Subsection (b) of Section 7623, the
mandatory-award provision, requires the Secretary to
pay awards of 15 to 30 percent “of the proceeds
collected as a result of the action (including any
related actions)” whenever 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.” I.R.C. §
7623(b)(1). The cross reference to subsection (a) tells
us that the “administrative action[s]” subject to
mandatory whistleblower awards are actions for
“detecting underpayments of tax” or “detecting and
bringing to trial” persons who violate or “conniv[e]” to
violate internal revenue laws. Id. § 7623(a).
The statute does not further define
“administrative action,” so we look to the ordinary
meaning of the phrase. See CSX Transp., Inc., 562
App-21
U.S.
at
284.
“Administrative”
describes
“administration,” meaning “[t]he executive branch of
a government.” WEBSTER’S II DICTIONARY 11
(3d ed. 2005). “Action” is “[a]n act or deed.” Id. at 9;
see also Action, BLACK’S LAW DICTIONARY (11th
ed. 2019) (“[t]he process of doing something; conduct
or behavior”). The phrase “administrative action,”
then, generally refers to acts of executive agencies.
Two other phrases from subsection (b)(1) help
inform the scope of “administrative action” as the
term is used here: “based on” and “substantially
contributed.” I.R.C. § 7623(b)(1). The IRS must pay
an award only where it “proceeds based on”
information that a whistleblower provides. Id. The
statute does not define or explain what level of
causation “based on” implies. Lissack argues it is
necessarily met by but-for causation, requiring an
award whenever the whistleblower’s information
appears within the causal chain leading the IRS to
recover proceeds from a delinquent taxpayer. But the
Whistleblower Definitions Rule defines when the
Service
“proceeds
based
on”
whistleblower
information as limited to cases in which “the
information provided substantially contributes to an
action against a person identified by the
whistleblower.” 26 C.F.R. § 301.7623- 2(b)(1).
The IRS’s reading of “proceeds based on” gains
support from the statutory requirement that the
whistleblower information have “substantially
contributed” to a recovery. I.R.C. § 7623(b)(1). The
statute says that the size of a mandatory award
within the stated range “shall depend upon the extent
App-22
to which the individual substantially contributed to
such action.” Id. In pegging the award amount to the
degree of substantiality of the whistleblower’s
assistance, the statute plainly means that all such
awards depend on the whistleblower having
contributed in some substantial degree to the
Service’s ability to proceed.
Lissack also rests on what he claims is relevant
past practice of the IRS of treating an examination as
a single administrative action. He says that when
Congress amended the statute in 2006 to add
mandatory whistleblower awards, it intended to
incorporate the IRS’s then-existing practice. Pointing
to a committee staff summary of the 2006
amendments, Lissack contends it shows the IRS had
no prior practice of identifying distinct administrative
actions within a larger examination. Lissack’s pastpractice argument misses the mark. Before 2006,
whistleblower awards were entirely at the discretion
of the IRS, § 1209, 110 Stat. at 1473, so the statute did
not specify how the Service might parse the roles of
whistleblower submissions in its proceedings. We are
unpersuaded that the Service’s practice under the
discretionary
regime
informs
wholly
new
requirements under mandatory-award provisions of
the 2006 Act.
In sum, Lissack “fails to show that the language
of [Section 7623 of the Internal Revenue Code]
unambiguously compels” his interpretation. Otsuka
Pharm. Co. v. Price, 869 F.3d 987, 993 (D.C. Cir.
2017). The statute does not clearly direct the IRS to
treat an entire examination as a single administrative
App-23
action and to give an award to a whistleblower whose
submission was a but-for cause of the examination.
We turn, therefore, to the second step of our
Chevron analysis, deferring to the agency’s
interpretation “as long as it is consistent with the
statutory terms and is reasonable.” Id. We hold that
the Whistleblower Definitions Rule reasonably
interprets the tax whistleblower statute. The ordinary
meaning of “administrative action”—activities by
executive agencies— may in this context sensibly be
limited to action on the discrete tax issue or issues the
whistleblower’s information identifies. As already
discussed, Congress required awards only where the
IRS “proceeds based on” the whistleblower
information and makes a recovery, with precise award
amounts within the stated range depending on the
degree to which the information “substantially
contributed to” that recovery. The Whistleblower
Definitions Rule validly interprets the statute to
require awards only to whistleblowers who identify
underpayments and provide information that
advances to some substantial degree the IRS’s
recovery of those underpayments.
Lissack defends his but-for approach, arguing
that he provided “valuable information” by informing
the IRS that the development group taxpayers “are
the type of taxpayers to misstate their tax liability
generally, and debt in particular.” Appellant’s Br. 10.
But there is “no statutory requirement that [the IRS]
follow such an approach.” Clean Air Project, 891 F.3d
at 1051. Rather, there is ample reason to doubt that
Congress meant to entitle whistleblowers to
App-24
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. Such a regime likely
would encourage whistleblowers to flyspeck major
taxpayers, identifying any plausible underpayment in
the hope of triggering an examination yielding some
other, major adjustment. The IRS approach, in
contrast, calibrates mandatory awards to the fruits of
the particular IRS actions that the whistleblower’s
information substantially assists.
Congress directed the IRS to reward
whistleblowers based on the extent of their
substantial contributions to recovery of unpaid taxes.
The challenged provisions of the Whistleblower
Definitions Rule measure contributions according to
the degree to which the whistleblower’s specific facts
aid the relevant portion of an examination. Those
provisions reasonably interpret the tax whistleblower
statute.
2.
Lissack also argues that the IRS’s definition of
“related action,” 26 C.F.R. § 301.7623-2(c),
impermissibly narrows the statute’s reach. Even if the
“administrative action” definition and Example Two
are valid and the bad-debt investigation was a
separate action not based on his submission, Lissack
contends it should count as a “related action,” entitling
him to a share of its proceeds. He challenges the
“related action” definition under Chevron step one and
makes no step two argument on this point.
App-25
Under the mandatory-award provision, the IRS
must pay whistleblowers awards amounting to 15 to
30 percent “of the proceeds collected as a result of the
action (including any related actions).” I.R.C. §
7623(b)(1) (emphasis added). Section 7623 does not
elaborate on the meaning of “related actions.” The
challenged rule defines a “related action” as “an action
against a person other than the person(s) identified in
the information provided and subject to the original
action(s)” where three conditions are met: (1) the
action involves “substantially the same” facts as the
whistleblower submission, (2) “[t]he IRS proceeds with
the action against the other person based on the
specific facts described and documented” in the
submission, and (3) “the IRS can identify the
unidentified person using the information provided
(without first having to use the information provided
to identify any other person or having to
independently obtain additional information).” 26
C.F.R. § 301.7623-2(c). The Rule’s “related action”
definition thus unites actions that involve
“substantially the same” facts so as to reward
whistleblowers whose submissions enable the IRS,
without further investigation, to identify additional
noncompliant taxpayers. That approach is consistent
with the statute, which directs the IRS to grant
awards according to the substantiality of the
whistleblower’s contribution. See I.R.C. § 7623(b)(1).
In Lissack’s view, the plain meaning of the
statutory reference to “related actions” also includes
actions that are against the same taxpayer but involve
taxpayer activities different from those identified in
the whistleblower’s submission. Lissack invokes
App-26
ordinary meanings of “related” as “belonging to the
same family, group, or type; connected,” Appellant’s
Br. 35 (quoting an unidentified edition of the Oxford
English Dictionary), and he asserts that the IRS
investigation of the condominium development
group’s bad debt was necessarily “related” to the
membership-deposits
problem
his
submission
identified. But even if we accept his definition of
“related,” that definition does not compel Lissack’s
reading of the statute. An action could be “connected”
to the original action if it involved the same facts, as
the IRS contends, or if it involved the same taxpayer,
as Lissack contends. Lissack’s dictionary definition of
“related” does not foreclose the IRS’s interpretation.
Lissack further argues that Congress would
have chosen a narrower term than “related” had it
intended the IRS’s reading. Because “Congress never
limited related actions to actions relating to another
taxpayer, which it easily could have,” Lissack says,
the IRS should not be able to include that limitation
in its definition. Id. at 36. But the mere possibility
that the statute could have been worded even more
clearly does not defeat the IRS’s reading.
Lissack also seeks support in the treatment of
“related actions” under the False Claims Act, but that
analogy is unhelpful. “Actions are ‘related’” under the
False Claims Act “if they assert the ‘same material
elements of fraud’ as an earlier suit, even if the
allegations ‘incorporate somewhat different details.’”
United States ex rel. Heath v. AT & T, Inc., 791 F.3d
112, 116 (D.C. Cir. 2015) (quoting United States ex rel.
Hampton v. Columbia/HCA Healthcare Corp., 318
App-27
F.3d 214, 217 (D.C. Cir. 2003)). The Tax Court held
the False Claims Act definition “has no application to
a tax case such as this,” and that its definition was in
any event unmet here, where “the IRS did not just
pursue ‘a different legal theory’ for the membership
deposits issue,” but proceeded on “an entirely
unrelated issue—the bad debt deduction—that was
governed by different law and different facts.”
Lissack, 157 T.C. at 77. We agree that, even if the
False Claims Act standard applied, Lissack’s
submission about the membership-deposits issue did
not relate to the bad-debt issue in a way that would
meet that standard.
Lissack has not established that the statute
forecloses the Rule defining “related action,” and he
does not contend that the definition is unreasonable or
otherwise contrary to the APA.
C.
The Tax Court had no obligation to
conduct a trial de novo.
In challenging the Tax Court’s affirmance of the
Whistleblower Office determination denying him an
award under I.R.C. § 7623(b)(1), Lissack argues that
summary judgment is foreclosed here by a genuine
factual dispute over whether the revenue agent relied
on Lissack’s submission to identify the bad-debt
issue. He contends that the Tax Court erroneously
accepted an administrative record that was
incomplete because it did not include the entire
examination file.
The parties agree that we review legal rulings
of the Tax Court de novo, including rulings on motions
App-28
for summary judgment, Byers, 740 F.3d at 675, but
they dispute the correct standard of review in the Tax
Court. Lissack argues that the Tax Court should
review determinations of the Whistleblower Office “as
it reviews cases under the Tax Court’s original
deficiency jurisdiction,” Appellant’s Br. 40—by “trial
de novo,” Ax v. Comm’r, 146 T.C. 153, 161 (2016)—
instead of confining its review to the administrative
record. Lissack critiques the Tax Court’s decision in
Kasper v. Commissioner, 150 T.C. 8 (2018), which held
that the Tax Court reviews whistleblower award
decisions under APA section 706(2)(A) based on the
administrative record. Id. at 14-15, 20-22. Two amici
join Lissack to argue that de novo factfinding by the
Tax Court would better serve Congress’s intent to
establish meaningful review of Whistleblower Office
decisions.
The IRS defends the standard of review
established in Kasper. It also argues that we have no
occasion here to reach the issue “because the denial of
Lissack’s claim was correct under any standard of
review.” IRS Br. 45. We agree that the Tax Court’s
decision is correct under any standard of review, so we
have no occasion to pass on the merits of Kasper.
Lissack’s appeal is comprised of legal questions,
including (1) the validity of the Whistleblower
Definitions Rule, (2) whether material disputes of fact
preclude summary judgment, and (3) the adequacy of
the record before the Tax Court.
First, in resolving Lissack’s legal challenges to
the IRS’s interpretations of relevant statutory terms,
the Tax Court and this court have each conducted
App-29
de novo review to identify statutory ambiguity and
analyze the Whistleblower Definitions Rule under
Chevron. See supra Discussion Parts A and B.
Second, the propriety of summary judgment is
likewise a legal question considered de novo. Lissack
asserts that the Tax Court should not have granted
summary judgment because key record facts are
disputed, but he fails to show that to be the case. A
factual dispute is “material,” precluding summary
judgment, only “if its resolution ‘might affect the
outcome of the suit.’” Trudel v. SunTrust Bank, 924
F.3d 1281, 1285 (D.C. Cir. 2019) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The IRS
agrees with Lissack’s factual assertion that it would
not have opened any examination of the condominium
group if not for Lissack’s Form 211. The problem for
Lissack is that the but-for causal link he emphasizes
is legally insufficient to support his claim.
We, like the Tax Court, recognize that the IRS
would have made no tax adjustment on the bad debt if
it had not opened an examination on Lissack’s
submission regarding the taxpayer’s treatment of
membership deposits. Cognizant of that fact, our de
novo review of the summary judgment yields the same
conclusion as the Tax Court’s: Under the statute and
Rule, the adjustment was not “a result of” the
“administrative action” regarding membership
deposits that the IRS undertook “based on” Lissack’s
information,
or
to
which
his
information
“substantially contributed.” I.R.C. § 7623(b)(1). As we
have already explained, see supra Discussion Part B,
administrative actions on the membership-deposits
App-30
issue and the bad-debt issue are distinct and
unrelated as a matter of law under the valid
Whistleblower Definitions Rule. 26 C.F.R. § 301.76232(a)(2), (b)(1), (c)(1).
Lissack insists that discovery would have
established that the revenue agent relied on his
submission, but the facts he says he sought to uncover
would establish nothing more than but-for causation.
In other words, he argues he needs discovery to
support an already-accepted factual premise: The
examination triggered by Lissack’s whistleblower
submission led to the IRS’s own investigation into the
bad debt. He claims he should have been afforded
discovery regarding “how the Revenue Agent
discovered the other issues.” Appellant’s Br. 49. In
Lissack’s view, such information is material “to
determine if the issues are ‘related’ and how helpful
the whistleblower’s information was to the Revenue
Agent.” Id. Had the administrative record included
the “entire taxpayer audit file,” Lissack contends, he
could have shown that the revenue agent’s discovery of
the intercompany bad-debt issue relied on the
membership-deposits information Lissack submitted.
Id. at 54. Again, for the reasons already discussed, see
supra Discussion Part B, none of those additional facts
could support a judgment in his favor.
Third, Lissack argues that the record before the
Tax Court was inadequate. Amici agree. They
contend that the statute contemplates trial de novo in
the Tax Court. They argue the text, context, and
drafting history of the statute so require. Lissack and
amici point out that confining judicial review to the
App-31
administrative record is anomalous here because the
Whistleblower Office makes the records of its award
determinations without adjudicatory procedures,
public
comment, or other opportunity for
stakeholders—including the whistleblower—to be
heard. Amicus Whistleblower 11099- 13W also
contends that judicial deference to the Whistleblower
Office is inappropriate because the Office’s
determinations involve no “technically complex issue
within an agency’s unique expertise,” only the kind of
matter “that courts are called upon to resolve every
day.” Amicus Whistleblower 11099-13W Br. 10-11.
We need not here decide whether the Tax Court
must conduct a trial de novo on an appeal of a
Whistleblower Office determination, nor what
standard of review applies to a challenge to the scope
of the record the IRS submitted to the Tax Court,
because Lissack made no request before the Tax Court
to expand the administrative record or create a new
one. If Lissack believed the record was inadequate, he
should have sought to compel production of documents
to supplement the record, but he concedes he failed to
do so. Reply Br. 25-27.
Lissack counters that he should not have had to
do so, because he moved only for partial summary
judgment on his legal challenge to the Whistleblower
Definitions Rule, anticipating that “resolution of that
issue would dictate whether [he] needed to get into a
long discovery fight.” Id. at 25. But, as the Tax Court
explained
when
rejecting
his
motion
for
reconsideration, even after that court granted the
IRS’s cross-motion for summary judgment Lissack did
not seek supplementation of the administrative
App-32
record, nor did he “identif[y] any gaps in the
administrative record” (nor, for that matter, did he
point to any information in his own whistleblower
submission) that “was relevant to the bad debt
deduction issue.” J.A. 369. In view of Lissack’s failure
to preserve the point, we affirm the Tax Court’s
decision to base its review on the portions of the
administrative record the IRS compiled and
submitted as relevant.
As the Tax Court acknowledged, some
whistleblower claims may require discovery and
judicial factfinding. But even had he not forfeited the
point, Lissack has not shown that he was deprived of
any material evidence. Again, on Lissack’s own
account, the factual point he sought to bolster was butfor causation. But “[h]ow the revenue agent
discovered” the intercompany bad-debt issue,
Appellant’s Br. 49, was both undisputed in his favor,
and immaterial.
Lissack does not assert that
broader access to the IRS files would reveal that his
own submission to the IRS contained information on
the condominium group’s treatment of intercompany
bad debt. And, under the statute and Rule, that baddebt issue remains unrelated to the membershipdeposits issue he identified. We see no error in the Tax
Court’s rulings on Lissack’s record-inadequacy claims.
In sum, the Tax Court correctly concluded that
“the record provides more than enough evidence to
confirm that petitioner is not eligible for a mandatory
award,” and ruled in favor of the IRS as a matter of law.
Lissack, 157 T.C. at 78. The Tax Court credited
information in the administrative record showing that
App-33
“none of the adjustments had anything to do with the
membership deposits issue,” including the revenue
agent’s report that Lissack “had not ‘provided any
information for the adjusted issues,’” and the
Whistleblower Office analyst’s confirmation that
Lissack “had made no allegations and submitted no
facts related to [the development group’s]
intercompany debt (or any other adjustment).” Id. at
66. Lissack failed to challenge before the Tax Court its
reliance on the administrative record or object to the
scope of that record, and even now he does not identify
information he would have sought that could have
created a material factual dispute precluding
summary judgment.
*
*
*
For the foregoing reasons, we affirm the
judgment of the Tax Court.
So ordered.
App-34
Appendix B
United States Tax Court
Washington, DC 20217
Michael Lissack,
)
Petitioner
)
v.
) Docket No. 399-18W.
Commissioner of Internal )
Revenue,
)
Respondent
)
ORDER
On August 17, 2021, the Court issued its
Opinion in this case. See Lissack v. Commissioner, 157
T.C. __ (slip op.) (Aug. 17, 2021). The Court entered
decision the next day. On September 15, 2021,
petitioner filed a Motion for Reconsideration of
Findings or Opinion Pursuant to Rule 161 and a
Motion to Vacate or Revise Pursuant to Rule 162. We
will deny both Motions.
The decision to grant or deny a motion under
Rule 161 or Rule 162 lies within the Court’s discretion.
See Bedrosian v. Commissioner, 144 T.C. 152, 156
(2015) (Rule 161); Taylor v. Commissioner, T.C.
Memo. 2017-212 (Rule 162). Reconsideration is
intended to correct substantial errors of fact or law
and allow the introduction of newly discovered
evidence that the moving party could not have
introduced by the exercise of due diligence. See Estate
of Quick v. Commissioner, 110 T.C. 440, 441 (1998).
Reconsideration “is not the appropriate forum for
rehashing previously rejected legal arguments.”
Turner v. Commissioner, 138 T.C. 306, 307-308 (2012)
App-35
(quoting Estate of Quick, 110 T.C. at 441- 442); see also
Knudson v. Commissioner, 131 T.C. 185, 186 (2008).
In his Motions petitioner urges two grounds for
reconsideration. He first contends (as he previously
contended) that he is entitled to a mandatory
whistleblower award under the plain language of
I.R.C.
section
7623(b)(1).
Our
Opinion
comprehensively addressed and rejected this
argument. See Lissack, 157 T.C. at __ (slip op. at 823). We accordingly will deny petitioner’s Motions to
the extent he is “rehashing previously rejected legal
arguments.” See Estate of Quick, 110 T.C. at 442.
Petitioner contends that granting summary judgment
for respondent was premature because petitioner
might learn new facts through further discovery. Our
Opinion rejected this argument. Petitioner was in
possession of all information that he provided to the
IRS. If any of this information was relevant to the bad
debt deduction issue, we are confident that he would
have supplied it to the Court. As it was, “petitioner did
not supply any information about * * * [the] issue that
generated an adjustment. * * * No amount of discovery
will change this fact.” Lissack, 157 T.C. at __ (slip op.
at 25).
Petitioner asserts that “the Opinion did not
draw inferences in the light most favorable to
petitioner, nor did it even state the legal standard that
applies in summary judgment proceedings.” But as we
explained in the Opinion, “whistleblower award cases
are not reviewed under the typical summary
judgment standard * * * because whistleblower cases
are ‘record rule’ cases.” Lissack, 157 T.C. at __ (slip op.
at 24). Rather, we “confine ourselves to the
App-36
administrative record to decide whether there has
been an abuse of discretion.” Ibid. (quoting Van
Bemmelen v. Commissioner, 155 T.C. 64, 79 (2020)).
In certain, narrowly-defined circumstances, the
Court may direct supplementation of the
administrative record. See Van Bemmelen, 155 T.C. at
76 (noting three exceptions that may justify
supplementation) (quoting City of Dania Beach v.
FAA, 628 F.3d 581, 590 (D.C. Cir. 2010)). Petitioner
did not seek that remedy and has not identified any
gaps in the administrative record that is before us. As
we held in our Opinion, the administrative record
“provides more than enough evidence to confirm that
petitioner is not eligible for a mandatory award.”
Lissack, 157 T.C. at __ (slip op. at 25).
Upon due consideration, it is
ORDERED that petitioner’s Motion for
Reconsideration of Findings or Opinion Pursuant to
Rule 161, filed September 15, 2021, is denied. It is
further
ORDERED that petitioner’s Motion to Vacate
or Revise Pursuant to Rule 162, filed September 15,
2021, is denied.
(Signed) Albert G. Lauber
Judge
Served 09/20/21
App-37
Appendix C
United States Tax Court
Washington, DC 20217
Michael Lissack,
)
Petitioner
)
v.
) Docket No. 399-18W.
Commissioner of Internal )
Revenue,
)
Respondent
)
ORDER AND DECISION
Pursuant to the Court’s Opinion (157 T.C. No.
5) issued in the above-docketed case on August 17,
2021, it is
ORDERED that respondent’s Motion for
Summary Judgment, filed September 1, 2020, is
granted. It is further
ORDERED that petitioner’s Motion for Partial
Summary Judgment, filed October 5, 2020, is denied.
It is further
ORDERED AND DECIDED that respondent’s
determination that petitioner is not eligible for a
whistleblower award, set forth in the determination
letter issued to petitioner on December 7, 2017, is
sustained.
(Signed) Albert G. Lauber
Judge
Entered and Served 08/18/21
App-38
Appendix D
157 T.C. No. 5
UNITED STATES TAX COURT
MICHAEL LISSACK,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
Docket No. 399-18W.
Filed August 17, 2021.
P filed Form 211, Application for Award for
Original Information, claiming that T had failed to
report membership fees as gross income. R initiated
an examination on the basis of P’s claim. During the
examination R determined that T had properly
treated the membership fees as nontaxable deposits
but also discovered an unrelated issue--that T may
have claimed an erroneous deduction. R expanded the
scope of the examination to include the latter issue
and ultimately disallowed the deduction, yielding a
$60 million adjustment. R subsequently denied P’s
whistleblower claim on the ground that he had not
supplied any information about the erroneous
deduction.
A whistleblower is eligible for an award only if
R “proceeds with an[] administrative or judicial action
* * * based on information” supplied by the
whistleblower and collects proceeds “as a result of the
action.” I.R.C. sec. 7623(b)(1). The parties have filed
cross-motions for summary judgment addressed to
App-39
the question whether P is entitled to an award under
this standard.
Held: Although R proceeded with an
administrative action, P is not eligible for a
whistleblower award because R did not collect any
proceeds “as a result of the action.” See I.R.C. sec.
7623(b)(1). The examination of the erroneous
deduction issue constitutes a separate administrative
action that was not initiated on the basis of P’s claim.
See sec. 301.7623-2(a)(2), (b)(1) and (2), Example (2),
Proced. & Admin. Regs.
Held, further, the construction of I.R.C. sec.
7623(b)(1), as set forth in these regulations, is valid
under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837 (1984).
Scott A. Knott, Erica L. Brady-Gitlin, and Gregory S.
Lynam, for petitioner.
Paul Colleran and Tara P. Volungis, for respondent.
OPINION
LAUBER, Judge: In 2009 petitioner filed a
claim for a whistleblower award under section 7623. 1
He informed the Internal Revenue Service (IRS or
respondent) that a group of entities had failed to
include in gross income millions of dollars of
membership fees. The IRS Whistleblower Office
(Office) processed his claim and referred it to a
revenue agent, who initiated an examination. The
1 Unless otherwise indicated, all statutory references are to the
Internal Revenue Code in effect at all relevant times, and Rule
references are to the Tax Court Rules of Practice and Procedure
App-40
revenue agent determined that the entities had
properly treated the membership fees as nontaxable
deposits. But he separately discovered an unrelated
issue--that the entities had claimed an erroneous
deduction--and made a $60 million adjustment on
that account. The Office denied petitioner’s claim
because the adjustment was unrelated to the
information he had supplied.
Section
7623(b)(1)
provides
that
a
whistleblower is entitled to an award only if the IRS
proceeds “based on” the information he supplied and
collects proceeds “as a result of the action.” The
parties have filed cross-motions for summary
judgment as to whether petitioner is entitled to an
award under this standard. Concluding that
respondent has the better argument, we will grant his
motion for summary judgment and deny petitioner’s.
Background
The following facts are derived from the parties’
pleadings and motion papers, including a declaration
that attached the administrative record. Petitioner
resided in Massachusetts when he filed his petition.
We have jurisdiction under section 7623(b)(4).
Petitioner filed a Form 211, Application for
Award for Original Information, which the Office
received on February 6, 2009. Petitioner identified an
affiliated group of entities (Target) that developed
condominiums and offered golf and beach club
memberships to condominium residents. The
residents paid substantial upfront membership fees,
which Target treated as nontaxable deposits in the
year received. Petitioner alleged that, in November
App-41
2008, Target changed its refund policy such that
Target acquired “complete control over” the fees
received that year. Petitioner asserted that Target
was thus required to include the membership fees in
gross income.
The Office assigned nine claim numbers to
petitioner’s case, evidently corresponding to the
various entities comprising Target. The claim was
referred to Nora Beardsley, the Office’s senior tax
analyst. Ms. Beardsley reviewed petitioner’s claim
and determined that it appeared to identify a
discernible Federal tax issue. 2 See Internal Revenue
Manual (IRM) pt. 25.2.2.12(1)(e) (Dec. 30, 2008). She
accordingly forwarded the case to the IRS Large
Business & International Division (LB&I), which
examines “corporations and partnerships with assets
greater than $10 million.” See IRM pt. 1.1.24.1(2)
(Sept. 24, 2020).
A revenue agent (RA) in LB&I reviewed
petitioner’s allegations by researching Target and
analyzing the group’s tax returns and IRS account
transcripts. In July 2011 the RA initiated a Form
11369, Confidential Evaluation Report on Claim for
Award. The RA noted that “no audit or investigation
[had been] planned” by LB&I but that the
“[i]nformation submitted by the whistleblower was
sufficient to warrant beginning of examination.”
After examining the facts and relevant law the
RA concluded that Target “did not have unfettered
2 Ms. Beardsley initially informed petitioner that the Office was
rejecting his claim because he submitted it before Target’s tax
returns for 2008 were due. Ms. Beardsley subsequently
determined that this was not a valid reason for rejection and
reopened the case.
App-42
right and dominion over the deposits” and thus
“properly excluded the deposits from gross income in
the year received.” Finding that Target properly
“deferred the recognition of the deposits,” the RA
“propose[d] no adjustment related to the membership
deposits issue.”
The RA returned Form 11369 to the Office on
August 19, 2011. A few months later he prepared a
report for the Office, stating that “the whistleblower
claim was fully investigated” and “no change was
proposed.” But he indicated that he had identified
another issue, namely a deduction in excess of $60
million that Target had claimed “for intercompany
bad debt.” See sec. 166. He stated that the bad debt
issue would take some time to examine but that it was
“unrelated to the subject of the whistleblower claims.”
Ms. Beardsley decided to keep the case open until the
RA finished his further investigation.
In 2013 the RA completed his examination, and
the IRS issued Target notices of proposed adjustment.
The RA disallowed the $60 million bad debt deduction
and made a number of other (relatively minor)
adjustments, all for tax year 2009. These other
adjustments affected four entities within Target and
included such items as salaries and wages, taxes and
licenses, and partnership losses.
The RA forwarded to Ms. Beardsley the entire
case file, including the Forms 4549, Income Tax
Examination
Changes,
and
Forms
886-A,
Explanation of Items, that had been issued to Target.
These documents showed that none of the
adjustments had anything to do with the membership
deposits issue. When Ms. Beardsley asked the RA
whether the “whistleblower submission contribute[d]
App-43
to any of the adjusted issues,” he replied (with
emphasis) that petitioner had not “provided any
information for the adjusted issues.” Ms. Beardsley
reviewed petitioner’s submissions and confirmed that
he had made no allegations and submitted no facts
related to Target’s intercompany debt (or any other
adjustment).
Ms. Beardsley accordingly recommended that
the Office deny petitioner’s claim for award. She
explained that, although “there was an assessment
for additional taxes,” the information petitioner
supplied “was not relevant to those issues.” The Office
agreed with Ms. Beardsley’s recommendation and on
December 7, 2017, issued a final determination letter
denying petitioner’s claim. The letter stated that the
claim had been denied “because the IRS took no action
on the issues you raised. * * * The IRS did assess
additional tax, * * * but the information you provided
was not relevant to those issues.”
Petitioner timely petitioned this Court for
review of the Office’s determination. On September 1,
2020, respondent filed a motion for summary
judgment. Petitioner timely responded to that motion
and filed, on October 5, 2020, a cross-motion for
partial summary judgment.
Discussion
A.
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). Under Rule 121(b) we may
grant summary judgment when there is no genuine
App-44
dispute as to any material fact and a decision may be
rendered, as a matter of law. Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d
965 (7th Cir. 1994). However, this summary judgment
standard “is not generally apt” when reviewing
whistleblower award determinations because we
“confine ourselves to the administrative record to
decide whether there has been an abuse of discretion.”
Van Bemmelen v. Commissioner, 155 T.C. 64, 78
(2020). “In cases that are decided on the
administrative record * * *, this Court ordinarily
decides the issues raised by the parties by reviewing
the administrative record using a summary
adjudication procedure.” Rowen v. Commissioner, 156
T.C. ,
(slip op. at 9) (Mar. 30, 2021).
B.
Analysis
Section 7623(a) authorizes the payment of
sums necessary for “detecting underpayments of tax”
or “detecting and bringing to trial and punishment
persons guilty of violating the internal revenue laws
or conniving at the same.” Subsection (b)(1) provides
for nondiscretionary (i.e., mandatory) awards of at
least 15% and not more than 30% of the collected
proceeds if all stated requirements are met. Under
section 7623(b)(1), an award can be paid only if the
IRS “proceeds with an[] administrative or judicial
action * * * based on information brought to the
Secretary’s attention.” The whistleblower is entitled
to an award only if the IRS collects money “as a result
of the action.” 3 Sec. 7623(b)(1).
3 The original version of the statute contained a slightly different
clause, providing that whistleblowers would receive a percentage
App-45
In 2014 the Department of the Treasury
(Treasury) issued regulations interpreting section
7623(b). T.D. 9687, 2014-36 I.R.B. 486. These
regulations define key terms used in the statute and
supply examples showing how these definitions apply.
See sec. 301.7623-2, Proced. & Admin. Regs. These
regulations apply “to information submitted on or
after August 12, 2014, and to claims for award under
sections 7623(a) and 7623(b) that are open as of” that
date. Id. para. (f). Petitioner’s claim was “open” as of
August 12, 2014.
Among the terms defined by the regulations is
the verb phrase “proceeds based on.” Id. para. (b). The
IRS “proceeds based on” the whistleblower’s
information when his information “substantially
contributes to an [administrative or judicial] action
against a person identified by the whistleblower.” Id.
para. (b)(1). That is true when the IRS “initiates a new
action, expands the scope of an ongoing action, or
continues to pursue an ongoing action, that the IRS
would not have initiated, expanded the scope of, or
continued to pursue, but for the information
provided.” Ibid. On the other hand the IRS does not
“proceed based on” the whistleblower’s information
when it merely “analyzes the information provided or
investigates a matter raised by the information
provided.” Ibid.
The regulation illustrates these principles with
four Examples, one of which has particular relevance
here. See id. para. (b)(2), Example (2). This Example
of the collected proceeds “resulting from the action.” See 26
U.S.C. sec. 7623(b)(1) (2012). Because these clauses have the
same meaning, we will refer to the current version of the statute
for convenience.
App-46
posits a whistleblower who provides facts detailing
how a taxpayer underpaid tax in Year 1. The IRS
initiates an examination, investigates those facts,
then expands the examination to determine whether
the taxpayer, by engaging in the same activities, also
underpaid tax in Year 2. During the examination the
IRS obtains, through information document requests
(IDRs) and summonses, “additional facts that are
unrelated to the activities described in the
information provided by the whistleblower.” Ibid.
“Based on these additional facts,” the IRS further
expands the scope of the examination for Years 1 and
2. Ibid.
Example 2 concludes that the IRS “proceeds
based on” the whistleblower’s information by
initiating the Year 1 examination and expanding it to
include the same issue for Year 2. On the other hand,
Example 2 concludes:
The portions of the IRS’s examination
of the taxpayer in both Year 1 and Year
2 relating to the additional facts
obtained through the issuance of IDRs
and summonses are not actions with
which the IRS proceeds based on the
information
provided
by
the
whistleblower because the information
provided
did
not
substantially
contribute to the action. [Ibid.]
In short, the regulation concludes that the portion of
the examination that is unrelated to the facts and
issue identified by the whistleblower is a separate
“administrative action.” See id. para. (a)(2) (defining
“administrative action” as “all or a portion” of an IRS
examination).
App-47
On his Form 211 petitioner claimed that Target
received millions of dollars in membership fees during
2008 but did not include these amounts in gross
income on the theory that they were nontaxable
deposits. Petitioner contended that Target’s theory
was incorrect because of an asserted change in the
relevant facts--specifically, an alleged revision to
Target’s refund policy for membership fees. The IRS
initiated an examination, and respondent concedes
that it would not have initiated the examination “but
for the information provided.” See sec. 301.76232(b)(1), Proced. & Admin. Regs. The examination of
the membership deposits issue is thus an
“administrative action” that was initiated on the basis
of the information petitioner supplied. See ibid.
This “administrative action,” however, resulted
in no adjustments to income and no collected proceeds.
Indeed, the RA concluded that Target had “properly
excluded the deposits from gross income in the year
received.” Because the IRS did not collect any
proceeds “as a result of th[is] action,” see sec.
7623(b)(1), petitioner is not eligible for a
whistleblower award.
During the course of the examination the RA
discovered an entirely separate issue--a deduction
that Target reported for intercompany bad debt. The
RA was alerted to this issue, not by any information
in petitioner’s Form 211, but by the RA’s independent
review of Target’s tax returns. The RA expanded the
audit to include the bad debt issue on the basis of
“additional facts that are unrelated to the activities
described in the information provided by” petitioner.
Sec. 301.7623-2(b)(2), Example (2), Proced. & Admin.
Regs. This portion of the examination, therefore, was
App-48
“not [an] action[] with which the IRS proceed[ed]
based on the information provided by the
whistleblower.” Ibid. see Whistleblower One 1068313W v. Commissioner, 145 T.C. 204, 206 (2015)
(stating that collection must be “attributable in some
way to the information that * * * [the whistleblower]
provided”).
The administrative record shows that the Office
did not abuse its discretion in denying petitioner’s
claim for award. Ms. Beardsley reviewed his
allegations and forwarded his Form 211 to an RA in
LB&I. The RA performed an examination of
petitioner’s claim and ultimately “propose[d] no
adjustment related to the membership deposits issue.”
But he informed Ms. Beardsley that during the
examination he discovered “issues unrelated to the
whistleblower issue”--namely, that Target “took a
deduction for intercompany bad debt.” Ms. Beardsley
decided to keep the case open while the RA examined
the bad debt issue.
After completing his examination the RA sent
Ms. Beardsley copies of the Forms 4549 and 886-A
disallowing the $60 million bad debt deduction. These
documents made clear that the deficiency
determination did not arise from the membership
deposits issue. Ms. Beardsley nevertheless took the
extra step of asking the RA whether the
“whistleblower submission contribute[d] to” the bad
debt adjustment. The RA promptly responded,
emphasizing that petitioner had not “provided any
information for the adjusted issues.” Ms. Beardsley
again reviewed petitioner’s submissions and
confirmed that they contained no information related
to the intercompany bad debt. On the basis of this
App-49
record we have no difficulty concluding that the Office
did not abuse its discretion in denying petitioner’s
claim for an award.
C.
Petitioner’s Arguments
1.
Validity of the Regulation
Petitioner supplied no information to the IRS
about Target’s intercompany bad debt deduction. But
he urges that “Congress did not intend to limit awards
directly to the issues that the whistleblower provided
information on.” Recognizing the impediments that
the regulations impose to this argument, petitioner
contends that the regulations are to that extent
invalid.
In addressing petitioner’s challenge we apply
the familiar two-step test of Chevron, U.S.A., Inc. v.
Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). First
we ask “whether Congress has directly spoken to the
precise question at issue.” Id. at 842; see City of
Arlington v. FCC, 569 U.S. 290, 296 (2013). “If the
intent of Congress is clear, that is the end of the
matter; for the court, as well as the agency, must give
effect to the unambiguously expressed intent of
Congress.” Chevron, 467 U.S. at 842-843. “If the
statute is silent or ambiguous with respect to the
question at issue, step two of Chevron requires the
court to give deference to the agency’s construction, so
long as it is permissible and not ‘arbitrary, capricious,
or manifestly contrary to the statute.’” Whirlpool Fin.
Corp. & Consol. Subs. v. Commissioner, 154 T.C. 142,
175 (2020) (quoting Chevron, 467 U.S. at 844).
a.
Chevron Step One
App-50
Section 7623(b)(1) 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,” that individual will, subject to specified
conditions, receive an award of 15% to 30% of the
amount collected. Congress did not define the term
“administrative or judicial action.” And section
7623(b) does not otherwise demarcate the contours of
an “action” in a case such as this, where the IRS
examination expands to matters unrelated to the
issue identified by the whistleblower and to the facts
he supplied. Congress therefore did not speak directly
to the question at hand.
Petitioner contends that the statute is
unambiguous and that the challenged regulations are
inconsistent with Congress’ intent. He emphasizes
the word “any” in the statute’s opening clause, which
asks whether the Secretary has proceeded with “any
administrative or judicial action * * * based on
information brought to the Secretary’s attention by”
the whistleblower. According to petitioner, “the
statute does not require that the proceeds on which
the award is determined flow directly from the
whistleblower’s information.” If the IRS initiates
“any” action, he contends, then that action in its
entirety constitutes the “action” for purposes of
section 7623. Here, the IRS did initiate an action, viz.,
an examination of Target. And petitioner contends
that the IRS proceeded with this action “based on
information” he provided, viz., his identification of
Target as a possible audit candidate.
We disagree with petitioner’s submission that
the statute is unambiguous. Subsection (b)(1) refers to
App-51
any administrative or judicial action “described in
sub- section (a).” Sec. 7623(b)(1). But subsection (a)
does not describe or define an “administrative or
judicial action.” Subsection (a) does not even refer to
that term. It speaks only of paying an award “from the
proceeds of amounts collected by reason of the
information provided.” Sec. 7623(a) (flush language).
Subsection (b) thus refers to a description in
subsection (a) that does not exist. And whereas
subsection (b) initially refers to commencement of
“any * * * action,” it defines the allowable award by
reference to proceeds collected “as a result of the
action.” Sec. 7623(b)(1) (emphasis added). For both
reasons, the statute leaves ample scope to the
Secretary to define the term “administrative or
judicial action.” He did so in the regulations, which
define an “administrative action” to mean “all or a
portion of” an IRS civil or criminal proceeding. Sec.
301.7623-2(a)(2), Proced. & Admin. Regs.
The reference in subsection (a) to “amounts
collected by reason of the information provided” is also
ambiguous. Sec. 7623(a) (flush language) (emphasis
added). The phrase “by reason of” may plausibly be
interpreted to require a substantive contribution by
the whistleblower, i.e., the furnishing of factual
information that actually helps the IRS identify where
the bodies are buried. This interpretation is arguably
supported by the final sentence of subsection (b)(1),
which says that the amount of any award “shall
depend on the extent to which the * * * [whistleblower]
substantially contributed to such action.” On the
other hand, the “by reason of” requirement might be
deemed satisfied, as petitioner urges, if a
whistleblower provides no useful factual information
App-52
but only the name of an allegedly noncompliant
taxpayer. This is precisely the sort of statutory
ambiguity that may usefully be dispelled by
regulation.
Petitioner cites nothing in the statute’s
legislative history to support his interpretation.
Rather, he relies solely on a technical explanation
prepared by the staff of the Joint Committee on
Taxation (JCT). See Staff of J. Comm. on Taxation,
Technical Explanation of H.R. 6408, The “Tax Relief
and Health Care Act of 2006,” at 88 (J. Comm. Print
2006). Such technical explanations are generally
prepared by JCT staff members after a tax law has
been drafted. 4 These explanations are “not part of the
legislative history” and do not constitute “direct
evidence of legislative intent.”
Zinniel v.
Commissioner, 89 T.C. 357, 366-367 (1987); see United
States v. Woods, 571 U.S. 31, 48 (2013) (ruling that
JCT explanations are not “legitimate tool[s] of
statutory interpretation” (quoting Bruesewitz v. Wyeth
LLC, 562 U.S. 223, 242 (2011))).
In any event the JCT statement on which
petitioner relies falls far short of showing that
“Congress has directly spoken to the precise question
at issue.” Chevron, 467 U.S. at 842. Congress added
section 7623(b) to establish a mandatory award
program, as a supplement to the preexisting program
under which all awards were discretionary with the
IRS. See 26 U.S.C. sec. 7623 (2000). Before describing
the new law, the JCT staff noted that, under
preexisting IRS administrative guidelines for
4 This particular explanation was published two days after the
House passed the bill and the same day that the Senate passed
the bill.
App-53
discretionary awards, a whistleblower could receive a
small award (up to 1% of the amount recovered) if his
information “caused the investigation, but had no
direct relationship to the determination of tax
liabilities.” Technical Explanation, supra, at 88.
This statement does not help petitioner. The
JCT staff was reciting a preexisting IRS
administrative guideline; there is no evidence that
Congress intended to incorporate this guideline into
the text of the amended statute. Moreover, the
guideline addressed the section 7623(a) discretionary
program, under which the IRS might pay a 1% award
to a whistleblower who simply identified a
noncompliant taxpayer, without supplying any
substantive information about the tax violation.
There is no evidence that Congress or the IRS believed
that such “tip” awards should have any role to play
under section 7623(b), which authorizes mandatory
awards ranging from 15% to 30% of the collected
proceeds.
b.
Chevron Step Two
Under step two we must evaluate whether the
regulation is a “reasonable interpretation” of the
statute. Chevron, 467 U.S. at 844. We will give
deference to the agency’s construction unless it is
“arbitrary, capricious, or manifestly contrary to the
statute.” Ibid. “In other words we must sustain the
regulation so long as it represents a ‘reasonable
interpretation’ of the law Congress enacted.”
Oakbrook Land Holdings, LLC v. Commissioner, 154
T.C. 180, 196 (2020) (quoting Chevron, 467 U.S. at
844); see Feller v. Commissioner, 135 T.C. 497, 508
App-54
(2010) (concluding that the Secretary’s construction
need not be the only permissible one). We have no
difficulty concluding that the regulation passes
muster under this test.
The regulations issued in 2014 define what it
means for the Secretary to “proceed[] based on
information” provided by a whistleblower. Sec.
301.7623- 2(b)(1), Proced. & Admin. Regs. The
regulations also define “administrative action” as “all
or a portion of an * * * [IRS] civil or criminal
proceeding.” Id. para. (a)(2). This means that a multiissue examination may comprise more than one
administrative action. While not disputing the
validity of these definitions, petitioner insists that
Example 2 “adds new limiting rules” that are
“manifestly contrary to the plain language” of the
statute and the balance of the regulations. We
disagree.
Paragraph (b)(1) of the regulation supplies
general rules for evaluating when the IRS “proceeds
based on” or “does not proceed based on” information
submitted by the whistleblower. Paragraph (b)(2)
says that these principles “may be illustrated by the
following examples,” of which there are four. Example
2 illustrates a case where an administrative action
represents a portion of a larger IRS examination, a
situation explicitly contemplated by the definition of
“administrative action” in paragraph (a)(2).
By way of analogy, assume that two different
whistleblowers allege that a corporation underpaid its
tax. The first whistleblower claims that the
corporation failed to report gross income, and the IRS
initiates an examination. A year later the second
whistleblower asserts that the same corporation
App-55
claimed an improper deduction, and the IRS expands
its examination to include that issue.
In this hypothetical scenario the two portions of
the examination constitute separate “administrative
actions.” Sec. 301.7623-2(a)(2), Proced. & Admin.
Regs. The unreported income investigation is an
action with which the IRS proceeded on the basis of
the first whistleblower’s information. And the
deduction investigation is an action with which the
IRS proceeded on the basis of the second
whistleblower’s information. Example 2 clarifies that
a whistleblower will be rewarded only if the
information that he supplied results in an adjustment.
This is fully consistent with section 7623(b)(1), which
provides that a whistleblower is eligible for an award
only if the IRS collects proceeds “as a result of the
action” and only if the whistleblower “substantially
contributed to such action.” Cf. Cook v. Commissioner,
269 F.3d 854, 858 (7th Cir. 2001) (noting that
“examples set forth in regulations remain persuasive
authority so long as they do not conflict with the
regulations themselves”), aff’g 115 T.C. 15 (2000).
This hypothetical scenario is identical in
principle to the situation in this case, except that the
deduction action here was triggered, not by a second
whistleblower, but by the RA’s independent
investigation of unrelated entries on Target’s tax
returns. Paragraphs (a)(2) and (b)(1), coupled with
Example 2, work together to ensure that a
whistleblower is rewarded only for providing
information that substantially contributes to a
distinct
“administrative
action.”
Otherwise
whistleblowers would be incentivized to file
innumerable claims as mere fishing expeditions,
App-56
hoping that the IRS will find something wrong with
those taxpayers’ returns (related to the information
they supplied or not). There is no evidence that
Congress wished to encourage this sort of behavior.
In sum, we conclude that the regulatory
provisions at issue, taken together, are not “arbitrary,
capricious, or manifestly contrary to the statute.”
Chevron, 467 U.S. at 844. Treasury reasonably
determined that a multiple-issue IRS examination
could comprise more than one “administrative action.”
And it reasonably concluded that the IRS does not
“proceed based on” the whistleblower’s information
unless that information substantially contributes to
the “administrative action” that generates proceeds.
We accordingly reject petitioner’s challenge to the
regulation’s validity.
2.
“Related Action”
Petitioner next contends that, even if Example
2 is valid, he should nonetheless prevail because the
portion of the examination pertaining to the bad debt
issue constitutes a “related action.” Section 7623(b)(1)
provides that a whistle- blower is entitled to an award
if proceeds are “collected as a result of the action
(including any related actions).” A “related action” is
“an action against a person other than the person(s)
identified in the information provided and subject to
the original action(s).” Sec. 301.7623-2(c)(1), Proced.
& Admin. Regs. An action is not a “related action”
unless “[t]he facts relating to the underpayment of tax
* * * are substantially the same as the facts described
and documented in the [original] information
provided.” Id. para. (c)(1)(i).
App-57
The administrative action in which the RA
pursued the bad debt issue is not a “related action” for
two distinct reasons. First, that action was not “an
action against a person other than the person(s)
identified in the information provided.” Id. para.
(c)(1). The bad debt action, like the membership
deposits action, was against the same group of nine
entities to which we refer as Target. Second, the “[t]he
facts relating to” the bad debt action and the
membership deposits action were not “substantially
the same.” Id. para. (c)(1)(i). Petitioner’s reliance on
the “related action” clause is thus unavailing.
Petitioner largely ignores the text of this
regulation and instead hitches his wagon to the False
Claims Act, 31 U.S.C. secs. 3729-3733 (2006), which
he says served as a model for the drafters of section
7623(b). He argues that, under the False Claims Act,
“if an administrative action under a different legal
theory would be more efficient, the relator in the case
would still be able to collect an award for amounts
collected by the Government.” This assertion is
misplaced for at least two reasons. First, the False
Claims Act, which is found in title 31 of the U.S. Code,
has no application to a tax case such as this. Second,
the IRS did not pursue “a different legal theory” for
the membership deposits issue. Rather, it recovered
proceeds by examining an entirely unrelated issue-the bad debt deduction--that was governed by
different law and different facts.
3.
Disputes of Material Fact
Although petitioner argues that he is entitled
to summary judgment, he contends that disputes of
App-58
material fact prevent us from granting respondent’s
cross-motion. He asserts that the administrative
record is devoid of information concerning “how and
when” the RA identified the bad debt issue. In his
view further discovery is necessary “to show the full
story of the audit,” including whether petitioner’s
Form 211 somehow tipped the IRS off to the bad debt
deduction.
In Van Bemmelen, 155 T.C. at 79, we held that
whistleblower award cases are not reviewed under the
typical summary judgment standard. That is because
whistleblower cases are “record rule” cases. Ibid. In a
“record rule” case we “confine ourselves to the
administrative record to decide whether there has
been an abuse of discretion.” Id. at 78. Once the
Commissioner certifies the administrative record,
“summary judgment serves as a mechanism for
deciding, as a matter of law, whether the * * *
[Office’s] action is supported by the administrative
record and is not arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.”
Id. at 79.
In
whistleblower
award
cases
the
“administrative record comprises all in- formation
contained in the administrative claim file that is
relevant to the award determination and not
protected by one or more common law or statutory
privileges.” Sec. 301.7623-3(e)(1), Proced. & Admin.
Regs. If a whistleblower believes that the
administrative record is insufficient, then he is free to
file a motion to supplement the record. See Van
Bemmelen, 155 T.C. at 73; Kasper v. Commissioner,
150 T.C. 8, 20-21 (2018) (citing Esch v. Yeutter, 876
F.2d 976, 991 (D.C. Cir. 1989)) (noting exceptions that
App-59
may justify supplementation). Alternatively, the
whistleblower may file a motion to compel production
of documents. See Whistleblower One 10683-13W, 145
T.C. at 206-207. Petitioner has filed no motion of
either sort. Thus, for purposes of resolving the parties’
cross-motions for summary judgment, we are confined
to the administrative record that is before us.
The administrative record that is before us may
not contain exhaustive information about “how and
when” the RA identified the bad debt issue, e.g., which
line entries on which returns caught his attention, or
the date(s) on which he gleaned these insights. But
the record provides more than enough evidence to
confirm that petitioner is not eligible for a mandatory
award. The record contains all of petitioner’s
submissions to the Office: None of these submissions
includes
any
information
about
Target’s
intercompany debt, Target’s reporting of a bad debt
deduction, or the facts that would be relevant in
assessing the propriety of such a deduction. In
response to Ms. Beardsley’s specific question whether
the “whistleblower submission contribute[d] to any of
the adjusted issues,” the RA replied (with emphasis)
that petitioner had not “provided any information for
the adjusted issues.” Because petitioner did not
supply any information about the bad debt issue (or
about the other issue that generated an adjustment),
he is not entitled to an award under section 7623(b).
No amount of discovery will change this fact.
To implement the foregoing,
An appropriate order and decision
will be entered for respondent.
App-60
Appendix E
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
No. 21-1268
September Term, 2022
USTC-399-18W
Filed On: July 20, 2023
Michael Lissack,
Appellant
v.
Commissioner of Internal Revenue,
Appellee
BEFORE: Pillard and Katsas, Circuit Judges;
and Randolph, Senior Circuit Judge
ORDER
Upon consideration of appellant’s petition for
panel rehearing filed on July 7, 2023, it is
ORDERED that the petition be denied.
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
BY: /s/
Daniel J. Reidy
Deputy Clerk
App-61
Appendix F
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
No. 21-1268
September Term, 2022
USTC-399-18W
Filed On: July 20, 2023
Michael Lissack,
Appellant
v.
Commissioner of Internal Revenue,
Appellee
BEFORE: Srinivasan, Chief Judge; Henderson,
Millett, Pillard, Wilkins, Katsas, Rao,
Walker, Childs, Pan, and Garcia,
Circuit Judges; and Randolph, Senior
Circuit Judge
ORDER
Upon consideration of appellant’s petition for
rehearing en banc, and the absence of a request by
any member of the court for a vote, it is
ORDERED that the petition be denied.
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
BY: /s/
Daniel J. Reidy
Deputy Clerk
App-62
Appendix G
Internal Revenue Code of 1986 (26 U.S.C.)
§ 7623. Expenses of detection of underpayments
and fraud, etc. (2017)
(a) 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 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.
(b) Awards to whistleblowers.–
(1) 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
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. 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.
App-63
(2) Award in case of less substantial
contribution.–
(A) In general.– In the event the action
described in paragraph (1) is one which the
Whistleblower Office determines to be based
principally on disclosures of specific allegations
(other than information provided by the
individual described in paragraph (1)) resulting
from a judicial or administrative hearing, from
a governmental report, hearing, audit, or
investigation, or from the news media, the
Whistleblower Office may award such sums as
it considers appropriate, but in no case more
than 10 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,
taking into account the significance of the
individual’s information and the role of such
individual and any legal representative of such
individual in contributing to such action.
(B) Nonapplication of paragraph where
individual
is
original
source
of
information.–Subparagraph (A) shall not
apply if the information resulting in the
initiation of the action described in paragraph
(1) was originally provided by the individual
described in paragraph (1).
(3) Reduction in or denial of award.– If the
Whistleblower Office determines that the claim for an
award under paragraph (1) or (2) is brought by an
individual who planned and initiated the actions that
led to the underpayment of tax or actions described in
App-64
subsection (a)(2), then the Whistleblower Office may
appropriately reduce such award. If such individual is
convicted of criminal conduct arising from the role
described
in
the
preceding
sentence,
the
Whistleblower Office shall deny any award.
(4) Appeal of award determination.– Any
determination regarding an award under paragraph
(1), (2), or (3) may, within 30 days of such
determination, be appealed to the Tax Court (and the
Tax Court shall have jurisdiction with respect to such
matter).
(5) Application of this subsection.– This
subsection shall apply with respect to any action–
(A) against any taxpayer, but in the case of
any individual, only if such individual’s gross
income exceeds $200,000 for any taxable year
subject to such action, and
(B) if the tax, penalties, interest, additions
to tax, and additional amounts in dispute
exceed $2,000,000.
(6) Additional rules.–
(A) No contract necessary.– No contract
with the Internal Revenue Service is necessary
for any individual to receive an award under
this subsection.
(B) Representation.– Any individual
described in paragraph (1) or (2) may be
represented by counsel.
(C) Submission of information.– No
award may be made under this subsection
based on information submitted to the
Secretary unless such information is submitted
under penalty of perjury.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.