Opinion
7208-17W
07-25-2024
JEREMY BERENBLATT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland Judge.
Petitioner, Jeremy Berenblatt, brought this case under section 7623(b)(4) to contest the denial of his claim for award by the Whistleblower Office (WBO) of the Internal Revenue Service (IRS). Pending before the Court are Petitioner's Motion to Supplement the Record and Petitioner's Motion for In Camera Review, both filed on February 1, 2024. In support of each Motion, Mr. Berenblatt filed a Declaration of Scott Watnik, a Declaration of T. Scott Tufts, and a Declaration of Jeremy Berenblatt.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Background
We incorporate the background recited in our previous Opinion in this case. See Berenblatt v. Commissioner, No. 7208-17W, 160 T.C., slip op. at 3-6 (May 24, 2023).
Discussion
I. Standard for Supplementing the Record
In Van Bemmelen v. Commissioner, 155 T.C. 64, 73 (2020), we explained that an administrative record may be supplemented in one of two ways: either by (1) including evidence that should have been properly a part of the administrative record but was excluded by the agency, or (2) adding extrarecord evidence that was not initially before the agency but that the moving party believes should nonetheless be included in the administrative record.
As to the first form of supplementation, the agency is presumed to have properly designated the administrative record. Id. at 74. The moving party must overcome this strong presumption of regularity by putting forth concrete evidence that the documents he seeks to add to the record were actually before the agency decisionmakers and considered by them, directly or indirectly. Id. at 74-75 (quoting Cape Hatteras Access Pres. All. v. U.S. Dep't of Interior, 667 F.Supp.2d 111, 114 (D.D.C. 2009)).
The second form of supplementation is the exception, not the rule. Id. at 76 (quoting Theodore Roosevelt Conservation P'ship v. Salazar, 616 F.3d 497, 514 (D.C. Cir. 2010)). The U.S. Court of Appeals for the D.C. Circuit has identified three circumstances in which extrarecord evidence may be consulted:
In deciding whistleblower cases, we generally follow the precedent of the D.C. Circuit, to which an appeal of our decision in such cases would lie (absent a contrary stipulation by the parties). See I.R.C. § 7482(b) (flush language); Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
(1) if the agency "deliberately or negligently excluded documents [from consideration] that may have been adverse to its decision," (2) if background information was needed "to determine whether the agency considered all the relevant factors," or (3) if the "agency failed to explain administrative action so as to frustrate judicial review."City of Dania Beach v. FAA, 628 F.3d 581, 590 (D.C. Cir. 2010) (quoting Am. Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008)); see also James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996).
II. Standard for Discovery
In our previous Opinion in this case, we held that whistleblowers may be granted limited discovery if they make a significant showing that there is material in the IRS's possession indicative of bad faith on the IRS's part in connection with the case or of an incomplete administrative record compiled by the IRS. Berenblatt, 160 T.C., slip op. at 14. For these purposes, a record is incomplete if it excludes material actually considered directly or indirectly by the WBO. Id. at 17. Also, without deciding the legal validity of the IRS's regulatory definition of the administrative record for a whistleblower claim, see Treas. Reg. § 301.7623-3(e), we will deem any material listed in that regulation as per se part of the administrative record. See Berenblatt, 160 T.C., slip op. at 17; Phillips Petroleum Co. & Affiliated Subs. v. Commissioner, 104 T.C. 256, 301 (1995) ("A taxpayer has the right to rely upon Government regulations and their published illustrations."). The record also may be incomplete if one of the exceptions for supplementing the record with extrarecord evidence applies (although we have not yet decided this question). Berenblatt, 160 T.C., slip op. at 17-18.
III. Mr. Berenblatt's Motion to Supplement the Record
Mr. Berenblatt has moved to supplement the administrative record (as designated by Respondent) with the following documents: (1) five pages of handwritten notes taken by SA Mazzella during the September 24, 2007, interview of Mr. Berenblatt by the IRS's Criminal Investigation Division (CID); (2) two pages of handwritten notes, dated September 19, 2007, taken by an IRS agent regarding the IRS's initial contact with Mr. Berenblatt to schedule the interview; (3) several emails between Elizabeth Mourges, Respondent's counsel in this case, and (respectively) SA Mazzella and SA Chandler in May 2019 regarding Mr. Berenblatt's discovery requests; (4) an email from Ms. Mourges to herself, dated May 16, 2019, summarizing a voicemail received from RA Mason regarding Mr. Berenblatt's discovery requests; (5) excerpts from the transcript of a hearing held by this Court on February 21, 2018, regarding Mr. Berenblatt's Motion to Proceed Anonymously in this case; (6) four documents attached as Exhibits to Mr. Berenblatt's Opposition to Respondent's previous Motion for Summary Judgment, filed April 9, 2019, and August 29, 2018, respectively; and (7) various pieces of correspondence and transactional documents drafted in 2000 to facilitate Mr. Berenblatt's prospective SOS shelter transaction with Taxpayers F, H, and U. Mr. Berenblatt does not specifically correlate any of these proposed supplementary documents with this Court's standard for supplementing the administrative record in a whistleblower case. See Van Bemmelen, 155 T.C. at 73.
Identifying information about the subjects of Mr. Berenblatt's whistleblower claims is being redacted in accordance with Rule 345(b) and this Court's protective Order of August 7, 2017. The pseudonyms for the target taxpayers are taken from the reference list of redacted information submitted by Mr. Berenblatt on February 2, 2024, at docket index No. 179.
However, while there is no evidence that the WBO directly or indirectly considered any of these above-listed documents in making its determination on Mr. Berenblatt's claim for award, it would seem that the notes taken by SA Mazzella during the September 2007 interview are per se part of the administrative record. See Treas. Reg. § 301.7623-3(e)(2)(ii) ("The administrative claim file will include . . . [c]opies of all debriefing notes and recorded interviews held with the whistleblower . . . ."). Moreover, the following documents would seem to constitute "background information . . . needed 'to determine whether the agency considered all the relevant factors,'" City of Dania Beach, 628 F.3d at 590: the handwritten notes dated September 19, 2007; the emails between Ms. Mourges and SA Mazzella and SA Chandler, respectively; Ms. Mourges's summary of RA Mason's voicemail; and the correspondence and transactional documents for Mr. Berenblatt's prospective SOS shelter transaction.
On the other hand, the transcript of the hearing held by this Court on February 21, 2018, would not seem to be information that would have been available to the WBO in making its determination. Likewise, Respondent may have objections to including the four documents that Mr. Berenblatt attached to his Opposition to Respondent's previous Motion for Summary Judgment. Due to these concerns, we will order a response from Respondent to Mr. Berenblatt's Motion to Supplement the Record before we rule on it.
We also note that the transcript largely rehashes information in the Form 211 memoranda.
IV. Mr. Berenblatt's Motion for In Camera Review
Mr. Berenblatt has also moved the Court to review in camera a subset of the 800 boxes of documents presented to the Southern District of New York grand jury that indicted Taxpayer P and others for tax evasion. The purpose of the in camera review would be to determine the validity of Respondent's objections, under section 6103 and Federal Rule of Criminal Procedure (FRCP) 6(e), to producing the grand jury materials for Mr. Berenblatt's inspection.
Mr. Berenblatt suggests that the appropriate standard for granting a party's request for in camera review of documents purportedly protected by section 6103 and/or FRCP 6(e) is the standard laid down by the Supreme Court for in camera review of documents purportedly protected by attorney-client privilege:
Before engaging in in camera review to determine the applicability of the crime-fraud exception, the judge should require a showing of a factual basis adequate to support a good faith belief by a reasonable person that in camera review of the materials may reveal evidence to establish that the crime-fraud exception applies.
Once that showing is made, the decision whether to engage in in camera review rests in the sound discretion of the district court. The court should make that decision in light of the facts and circumstances of the particular case, including, among other things, the volume of materials the district court has been asked to review, the relative importance to the case of the alleged privileged information, and the likelihood that the evidence produced through in camera review, together with other available evidence then before the court, will establish that the crime-fraud exception does apply.Zolin, 491 U.S. at 572 (internal quotation marks and citations omitted).
According to the crime-fraud exception to attorney-client privilege, the privilege does not extend to attorney-client communications made for the purpose of getting advice for the contemplated future commission of a crime or fraud. United States v. Zolin, 491 U.S. 554, 563 (1989).
Mr. Berenblatt argues at length that there are facts in this case adequate to support a good-faith, reasonable belief that the grand jury materials include documents that, in the context of this case, are not protected by either section 6103 or FRCP 6(e). However, he does not explicitly address a question that is highly important to our decision whether to exercise discretion to review in camera the grand jury materials (a question that was not at issue in Zolin): whether the grand jury materials are discoverable under our discovery standard for whistleblower cases. To repeat, whistleblowers may be granted limited discovery if they make a significant showing that there is material in the IRS's possession indicative of bad faith on the IRS's part in connection with the case or of an incomplete administrative record compiled by the IRS. Berenblatt, 160 T.C., slip op. at 14.
Respondent will be allowed to weigh in on whether the WBO either directly or indirectly considered the grand jury materials in making its determination on Mr. Berenblatt's award claim; and if it did not, why it was not bad faith for the WBO to ignore the grand jury materials.
In addition, we would appreciate Respondent's position on whether the City of Dania Beach factors are applicable in obtaining discovery in a whistleblower case. In other words, whether it is Respondent's position that whistleblowers may obtain discovery of extrarecord documents (the grand jury documents here) upon a significant showing that (1) the agency deliberately or negligently excluded documents from consideration that may have been adverse to its decision, (2) the current record is so deficient that more background information is needed to determine whether the agency considered all the relevant factors, or (3) the agency failed to explain administrative action so as to frustrate judicial review. See City of Dania Beach, 628 F.3d at 590.
As to the first City of Dania Beach factor: Given that the WBO was on notice of the existence of the grand jury materials, we would appreciate Respondent's position on why the WBO was not negligent in refraining from combing through 800 boxes of materials related to the investigations at issue in this case. As for the second City of Dania Beach factor: We request Respondent's position as to why the administrative record is sufficient without the grand jury materials, such that more background information is not needed to determine whether the WBO considered all relevant factors in its determination on Mr. Berenblatt's claim. And as for the third City of Dania Beach factor: We request Respondent's position on whether the WBO's explanation of its determination is adequate to explain the WBO's grounds for its denial of Mr. Berenblatt's claim for award, such that judicial review is not frustrated by an inadequate record.
Finally, we note that on July 9, 2024, Petitioner filed a Motion for Pretrial Conference. That Motion will be addressed in a separate Order.
To reflect the foregoing, it is
ORDERED that by September 23, 2024, Respondent shall file a response to Petitioner's Motion to Supplement the Record, filed February 1, 2024. It is further
ORDERED that that by September 23, 2024, Respondent shall file a response to Petitioner's Motion for In Camera Review, filed February 1, 2024.