Opinion
16466-22W
10-26-2023
JOHN D. SMITH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND ORDER OF DISMISSAL FOR LACK OF JURISDICTION
Travis A. Greaves Judge
Petitioner seeks review of a final decision of the IRS Whistleblower Office (WBO), rejecting his claim for an award under section 7623(b). On August 30, 2023, respondent filed a Motion to Dismiss for Lack of Jurisdiction in which he contends that the Tax Court lacks subject matter jurisdiction over this case because the WBO rejected petitioner's claims at the threshold. See Li v. Commissioner, 22 F.4th 1014, 1018 (D.C. Cir. 2022). We agree and will dismiss this case for lack of jurisdiction.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., (Code) in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following facts are derived from the parties' pleadings and motion papers, including the exhibits attached thereto. On March 1, 2021, petitioner filed with the WBO a claim for an award on Form 211, Application for Award for Original Information. This claim related to petitioner's mother's alleged omission of assets, valued at $22 million, on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return related to his father's estate. Petitioner supported his claim with various documents regarding his mother's spending after the death of his father, alleging that her spending did not align with the value of assets listed on Form 706.
On May 10, 2021, the WBO acknowledged receipt of petitioner's claim and sent the claim to "classifiers" in the Criminal Investigations operating division and Estate & Gift Tax operating division. The role of a classifier is to "determine whether the information should be forwarded for further review. Those claims not forwarded for further review can be rejected or denied based on [the classifier's] rationale for not forwarding the claim." Internal Revenue Manual (IRM) 25.2.1.3.1(1) (explaining the "roles and responsibility of classification").
Petitioner's claim was first reviewed by a classifier in the Criminal Investigations operating division, who recommended denying the claim on the basis that petitioner did not provide substantiation. Petitioner's claim was resubmitted to the Criminal Investigations operating division. Once again, a classifier recommended denying petitioner's claim because petitioner failed to substantiate his claim. Finally, petitioner's claim was sent to a classifier in the Estate & Gift Tax operating division. This classifier again recommended denying petitioner's claim on the grounds that petitioner failed to substantiate his claim and his allegations relied on an incorrect interpretation of the Code. In each instance the classifier recommended that petitioner's claim be rejected. These recommendations were set forth in the Award Recommendation Memorandum, dated October 7, 2021. In the memorandum, the classifier recommended a rejection of the claims because petitioner had "not provided any substantiation to support" his claim and petitioner relied on an incorrect interpretation of the tax law.
Respondent did not specify which classifier drafted the memorandum. From the content of the memorandum, it appears as though it was drafted by the Estate & Gift Tax classifier.
The WBO agreed with the Award Recommendation Memorandum, and petitioner's claim was not forwarded to an IRS examination team for further review. The WBO communicated to petitioner that it had rejected his claim by letter, dated April 29, 2022. The letter explained that his claim was rejected because "the IRS didn't take any action on the information you provided."
This letter was issued prior to the United States Court of Appeals for the District of Columbia Circuit's decision in Li and advised petitioner that he could appeal the rejection to this Court. Because the parties cannot confer jurisdiction on this Court by agreement, such representation does not change our analysis. See Li v. Commissioner, 22 F.4th at 1017.
On May 25, 2022, petitioner petitioned this Court for review of the IRS's decision. On August 30, 2023, respondent filed a Motion to Dismiss for Lack of Jurisdiction on the ground that the WBO did not make a determination reviewable by this Court. On October 12, 2023, petitioner filed a Response to Motion to Dismiss for Lack of Jurisdiction.
Discussion
The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. See Judge v. Commissioner, 88 T.C. 1175, 1180-81 (1987); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). We are without authority to enlarge upon that statutory grant. See Phillips Petroleum Co. & Affiliated Subs. v. Commissioner, 92 T.C. 885, 888 (1989). We nevertheless have jurisdiction to decide whether we have jurisdiction. See McCrory v. Commissioner, 156 T.C. 90, 93 (2021).
Section 7623(b)(4) defines our jurisdiction in whistleblower award cases. See Shands v. Commissioner, No. 13499-16W, 160 T.C., slip op. at 7 (Mar. 8, 2023). It provides that "[a]ny determination regarding an award under paragraph (1), (2), or (3) [of subsection (b)] 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)." By its terms, the statute gives us jurisdiction only over "determination[s]" made under section 7623(b), which authorizes the IRS to make nondiscretionary awards.
Absent stipulation to the contrary, whistleblower award cases are appealable to the D.C. Circuit. See § 7482(b)(1) (flush language); Kasper v. Commissioner, 150 T.C. 8, 11 n.1 (2018). Therefore, we will follow controlling precedent of the D.C. Circuit on any issue in this case. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971). In Li v. Commissioner, 22 F.4th 1014, the D.C. Circuit delineated this Court's jurisdiction to review cases (like this one) where the IRS issues a threshold rejection of a whistleblower's claim. In Li, the WBO rejected a whistleblower's claim on the ground that the information she submitted was "vague and speculative." Id. at 1017. The WBO did not forward the claim to an IRS examination team for further review, and no action was taken against the target taxpayer. Id. The D.C. Circuit held that the Tax Court lacked jurisdiction in these circumstances because the IRS had made no "award determination" within the meaning of section 7623(b). Id. As the court explained, "an award determination by the IRS [under section 7623(b)] arises only when the IRS 'proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by [the whistleblower].'" Id. (quoting § 7623(b)(1)). Because "there was no proceeding . . ., the Tax Court had no jurisdiction to review the WBO's threshold rejection of [the claimant's] Form 211." Id.
This case is identical in all relevant aspects to Li. The IRS classifiers recommended that petitioner's claim be rejected because his allegations were speculative in that petitioner had "not provided any substantiation to support" his claim. Further, the classifier determined that petitioner's claim was based on a misreading of the Code. Accepting the classifiers' recommendations, the WBO decided not to forward petitioner's claim to an IRS examination team. No action was taken against any target on the basis of the information that petitioner submitted. Therefore, the IRS did not "proceed[] with any administrative or judicial action." See id.; see also Raffaelli v. Commissioner, T.C. Memo. 2023-79, at *4 (holding that the Court lacked jurisdiction where the WBO rejected a taxpayer's claim for lack of substantiation and did not forward the claim to an IRS examiner). The D.C. Circuit's decision in Li dictates that we grant respondent's Motion to Dismiss for Lack of Jurisdiction.
Upon due consideration, it is therefore, ORDERED that Christopher DeCosta's Motion to Withdraw, filed October 5, 2023, and amended on October 25, 2023, is granted and Christopher DeCosta is withdrawn as counsel for petitioner in this case. It is further
ORDERED that respondent's Motion for Continuance, filed August 30, 2023, is denied as moot. It is further
ORDERED that respondent's Motion to Dismiss for Lack of Jurisdiction, filed August 30, 2023, is granted and this case is dismissed for lack of jurisdiction.