Opinion
12264-21W
09-09-2024
SUZANNE JEAN MCCRORY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Courtney D. Jones Judge
In this whistleblower action, petitioner Suzanne Jean McCrory seeks review of a Final Award Decision under Section 7623(a) (Decision Letter). This matter is before the Court on respondent's Motion for Summary Judgment (Motion) (Doc. 52), filed July 1, 2024. Petitioner filed a Response on July 24, 2024.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulatory 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. All monetary amounts are rounded to the nearest dollar.
Respondent seeks summary judgment on the ground that the proceeds in dispute do not meet the $2 million statutory threshold under section 7623(b)(5), precluding any further review in this Court. Ms. McCrory responds that she "neither support[s] nor oppose[s]" the Motion, but she "seek[s] to have the facts and law fully and fairly applied to [her] claims." For the reasons set forth below, we will grant respondent's Motion.
Background
The following background is drawn from the parties' pleadings, the Motion papers, and accompanying declarations and exhibits. See Rule 121(c). This background is stated solely for the purpose of resolving the present Motion and not as findings of fact in this case. See Whistleblower 972-17W v. Commissioner, T.C. Memo. 2023-152, at *2 (citing Whistleblower 769-16W v. Commissioner, 152 T.C. 172, 173 (2019)).
In 2015, Ms. McCrory submitted 21 Forms 211, Application for Award for Original Information (whistleblower claims), to the Internal Revenue Service (IRS) Whistleblower Office (WBO). The 21 claims were submitted under a single cover letter, dated January 27, 2015.
Ms. McCrory based each of the 21 claims on "a hunch" and publicly available information about settlement awards that may have been received by the target taxpayers, but not reported to the IRS. The WBO assigned consecutive claim numbers to each of the 21 Forms 211, ranging from 2015-008388 to 2015-008408.
In the Motion, respondent stated that "[t]he Whistleblower Office processed petitioner's submission as one claim[.]"
Ultimately, only two of the claims resulted in proceeds. With respect to claim number 2015-008397, the IRS examined the target's return and determined that adjustments were appropriate. The examining agent determined $613,867 in adjustments for taxable interest, plus certain deductions related to itemization, resulting in total adjustments of $106,207. These adjustments resulted in a tax deficiency, plus penalty and interest, of $100,124. After additional adjustments related to interest, the total amount collected from the target was approximately $99,873.
With respect to claim number 2015-008408, the taxpayer was selected for examination based upon information provided by Ms. McCrory. Initially, the examiner determined an income adjustment of $150,000, offset by certain adjustments to deductions, resulting in a total adjustment of approximately $97,762. These adjustments resulted in a deficiency of $25,084, plus penalties and interest, for a total of $31,614. But after the matter was referred to the IRS Independent Office of Appeals, the income adjustment was decreased by $70,000, resulting in a total adjustment of $16,162 after adjustments to deductions. And penalties were conceded. These adjustments and concessions resulted in a tax deficiency and interest of $3,223.
The remaining claims resulted in no adjustments or collected proceeds. Claim numbers 2015-008392, 2015-008394, and 2015-008400 were surveyed, but the allegations were rejected because the settlements were not taxable. Examinations of claim numbers 2015-008393 and 2015-008398 resulted in no adjustments. As to the remaining claim numbers, the IRS took no action based on Ms. McCrory's information because the allegations were not specific, were not credible, or were speculative, or because the classifier could not identify the target.
On March 31, 2021, the WBO issued the Decision Letter. Ms. McCrory timely filed the Petition to commence this case. In the Answer, respondent affirmatively alleged that Ms. McCrory's "claims did not satisfy the proceeds in dispute threshold in I.R.C. § 7623(b)(5) required for the Whistleblower Office's determination to be subject to judicial review under section 7623(b)(4)." Ms. McCrory filed a Reply, but she did not allege that the monetary threshold of section 7623(b)(5)(B) has been satisfied, nor did she do so in the Response to the Motion.
The WBO drafted the Decision Letter on March 9, 2021; the draft is contained in the administrative file. However, the parties agree that the Decision Letter in this case-which is identical to the draft letter-was issued on March 31, 2021.
Discussion
I. Summary Judgment Standard in Whistleblower Cases
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. See Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. See Rule 121; Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). However, the nonmoving party may not rest upon mere allegations or denials in pleadings, but instead must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Sundstrand Corp., 98 T.C. at 520.
We have recognized in other whistleblower cases that the usual standard for summary judgment "is not generally apt" when reviewing whistleblower award determinations because, in such a case, there is no trial on the merits. Van Bemmelen v. Commissioner, 155 T.C. 64, 78-79 (2020). In such cases, where we review agency action under the Administrative Procedure Act, we generally "confine ourselves to the administrative record to decide whether there has been an abuse of discretion." Id. at 78.
Our Rules recognize this distinction, clarifying that in cases in which judicial review is based solely on the administrative record, Rule 121(a)(2) does not apply, and the parties must provide "statement[s] of facts with references to the administrative record." Rule 121(j). In this context, summary judgment serves as a mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record, or whether the WBO's determination was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Van Bemmelen, 155 T.C. at 72 (quoting Kasper v. Commissioner, 150 T.C. 8, 21 (2018)). In conducting this analysis, we do not substitute our judgment for that of the agency, but instead confine ourselves to ensuring that its determination was "within the bounds of reasoned decisionmaking." Id. (quoting Dep't of Com. v. New York, 139 S.Ct. 2551, 2569 (2019)). With respect to factual matters, this includes accepting the agency's determinations as long as they are not clearly erroneous. See Kasper, 150 T.C. at 23 (citing Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff'g T.C. Memo. 2004-13).
The Commissioner argues that, in determining whether the monetary threshold of section 7623(b)(5)(B) is met, we should apply the ordinary summary judgment standard rather than the standard we articulated in Van Bemmelen. But because the outcome here would be the same under either standard, we need not address the Commissioner's argument.
II. Applicable Law
Section 7623 provides for awards to individuals-often referred to as whistleblowers-who submit information to the Government about third parties who have underpaid their taxes or otherwise violated the internal revenue laws. Section 7623(a) authorizes discretionary payments in certain circumstances, while section 7623(b) provides for nondiscretionary (i.e., mandatory) awards.
This Court reviews mandatory award determinations made under section 7623(b), but only if the two conditions of section 7623(b)(5) are met. See § 7623(b)(4); see also McCrory v. Commissioner, T.C. Memo. 2024-61, at *6-7. First, the IRS must "proceed[] with any administrative or judicial action" against a target taxpayer. See § 7623(b)(1); see also Li v. Commissioner, 22 F.4th 1014, 1016 (D.C. Cir. 2022), cert. denied, 143 S.Ct. 372 (2022). Second, the monetary thresholds of section 7623(b)(5) must be met. See Smith v. Commissioner, 148 T.C. 449, 461 (2017) (explaining that the $200,000 gross income threshold applies to individuals and the $2 million proceeds-in-dispute threshold applies to all taxpayers).
For purposes of section 7623-including the monetary threshold of section 7623(b)(5)(B)-"proceeds" include:
(1) penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and
(2) any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate, including-
(A) criminal fines and civil forfeitures, and
(B) violations of reporting requirements.See § 7623(c). Treasury Regulation § 301.7623-2(e)(2)(i) considers the amount in dispute as "the greater of the maximum total of tax, penalties, interest, additions to tax, and additional amounts that resulted from the action(s) with which the IRS proceeded based on the information provided, or the maximum total of such amounts that were stated in formal positions taken by the IRS in the action(s)." See also Smith, 148 T.C. at 461-62.
Finally, as we observed in Lippolis, "[a]n affirmative defense is an 'assertion of facts and arguments that, if true, will defeat the * * * [cause of action], even if all the allegations in the complaint are true.'" Lippolis v. Commissioner, 143 T.C. 393, 398 (2014) (quoting Affirmative Defense, Black's Law Dictionary (9th ed. 2009)). The Commissioner bears the burden of proof with respect to any defense raised in the Answer. See Rule 142(a)(1); Lippolis, 143 T.C. at 400.
III. The Proceeds in Dispute
The record in this case clearly shows that the proceeds in dispute do not meet the $2 million threshold for a mandatory award under section 7623(b). Of the 21 claims that Ms. McCrory filed, the IRS commenced an audit against only 2 of the named targets. Ultimately, the claims resulted in a combined income adjustment of less than $700,000, resulting in less than $125,000 in total adjustments after certain itemizations. These adjustments resulted in a combined deficiency (plus penalties and interest, where applicable) of just over $100,000. These numbers fall far short of the $2 million threshold. See McCrory, T.C. Memo. 2024-61, at *7-8.
With respect to the remaining claims, the IRS took no action or placed no proceeds in dispute. Thus, these claims cannot contribute to the "proceeds in dispute" computation. Id. at *8.
In short, the proceeds in dispute in this case did not meet the threshold under section 7623(b)(5)(B), and the Commissioner is entitled to summary judgment as a matter of law. In view of this conclusion, we can go no further because section 7623(b)(5) makes clear that application of section 7623(b) is conditioned on the satisfaction of the statutory thresholds. See also McCrory, T.C. Memo. 2024-61, at *8-9. When one of those thresholds is not met, the rest of section 7623(b) does not "apply," see § 7623(b)(5), and there is no award that we might review, see § 7623(b)(4).
Conclusion
For the reasons discussed above, we will grant respondent's Motion. We have considered all arguments made by the parties and, to the extent they are not addressed herein, we deem them to be moot, irrelevant, or without merit.
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Summary Judgment (Doc. 52), filed July 1, 2024, is granted. It is further
ORDERED AND DECIDED that the IRS's Final Award Decision Under Section 7623(a) dated March 31, 2021, is sustained in that it is subject to no further review by this Court