Opinion
4489-19W
07-13-2023
EVA MITICH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER OF DISMISSAL FOR LACK OF JURISDICTION
James S. Halpern Judge
Petitioner brought this case pursuant to section 7623(b)(4), appealing respondent's determination not to make an award to her for information that she provided and that would lead to the recovery of unpaid taxes and other amounts (a so-called whistleblower award). Respondent has moved (1) for summary judgment in his favor (Motion for Summary Judgment) and (2) that we dismiss this case for lack of jurisdiction (Motion to Dismiss). In the Motion to Dismiss, respondent contends that the Internal Revenue Service (IRS) Whistleblower Office (WBO) "did not proceed with any administrative or judicial action based on petitioner's claim." See § 7623(b)(1). Therefore, respondent argues, the Court lacks jurisdiction to review his determination not to make any award and is required under Li v. Commissioner, 22 F.4th 1014 (D.C. Cir. 2022), to dismiss this case. Petitioner claims (1) that the Motion to Dismiss is premature and not ripe for adjudication and (2) that she has offered substantial evidence in support of her contention that respondent's actions were arbitrary and an abuse of discretion. She argues that the Motion to Dismiss should be denied until there is a hearing on her contentions and respondent has produced documents she has requested. We agree with respondent that we lack jurisdiction. Because we grant that motion, we will deny as moot the Motion for Summary Judgment.
All section references are to the Internal Revenue Code of 1986, as amended.
Background
We draw the following facts from the pleadings and respondent's motion papers, including the Declaration of Keith Dehart and accompanying exhibits submitted by respondent in support of the Motion for Summary Judgment and also relied on by him in support of the Motion to Dismiss. Mr. DeHart is an Internal Revenue Service (IRS) employee employed since February 2018 as a Frontline Manager overseeing the IRS's Whistleblower Office's (WBO's) Initial Claims Evaluation (ICE) unit. He declares that he has personal knowledge of this matter based on his review of the administrative claim file established for petitioner's claim.
Petitioner filed a Form 211, Application for Award for Original Information, in November 2018. The essence of petitioner's claim is that the taxpayer to whom her whistleblower claim relates is that her landlord (target) failed to pay income tax on rents he has collected, owing an estimated $875,000 of taxes.
On receipt of petitioner's Form 211, someone in the WBO ICE assigned the form a claim number and forwarded it to a classifier in the IRS Small Business/Self-Employed (SBSE) Unit (SBSE Classifier). A classifier is an employee of an IRS operating division whose role is' "to determine if the information on the Form 211 warrants further review."
On February 1, 2019, SBSE Classifier, Trina Philipps, reviewed the Form 211. After reviewing it, she prepared a "classification worksheet" on which, in a section entitled "Classification Section", she recommended that petitioner's claim be rejected because the "[a]llegations are not specific, credible, or are speculative," and because the "[a]llegations are purely speculative in nature." She sets forth the following as the "Basis for the Recommendation:"
• Per research of returns for 2015-2017, TP filed returns and reported rental income on Schedule E.
• The Rental property the WB [petitioner] stated is being reported on Schedule E.
• Speculative: Rejecting claim as speculative after reviewing the taxpayers [sic] returns.
On February 6, 2019, Cindy Bracken, a Tax Examining Technician in the WBO drafted an Award Recommendation Memorandum (ARM) justifying rejection of petitioner's application for an award. The ARM reproduces exactly the "Classification Section" in Ms. Phillips classification worksheet. On that same date, Ms. Bracken generated and mailed to petitioner a letter captioned "FINAL DECISION UNDER SECTION 7623(a)" rejecting petitioner's application for a whistleblower award. The letter states: "The claim has been rejected because the information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws."
The WBO did not forward the Form 211 to any IRS examiner for possible action.
Sometime after the commencement of this case in the Tax Court, petitioner requested from respondent portions of target's federal income tax returns. By letter dated March 6, 2020, Respondent refused the request.
Discussion
As is true in general of courts of law, the Tax Court is a court of limited jurisdiction; it may exercise jurisdiction only to the extent authorized by Congress. See § 7442; e.g., McCrory v. Commissioner, 156 T.C. 90, 93 (2021). "We are without authority to enlarge that statutory grant." McCrory, 90 T.C. at 93. "We nevertheless have jurisdiction to determine whether we have jurisdiction." Id.
Section 7623(b)(4) defines our jurisdiction in whistleblower award cases. 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, appeal of whistleblower award cases lies to the U.S. Court of Appeals for the D.C. Circuit. See § 7482(b)(1) (penultimate sentence); Kasper v. Commissioner, 150 T.C. 8, 28 n.1 (2018). 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 has issued 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.
The D.C. Circuit had 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.
The present case appears to be on all fours with Li. IRS classifiers recommended that petitioner's claims be rejected because her ""[a]llegations are not specific, credible, or are speculative," and because the "[a]llegations are purely speculative in nature." The WBO did not forward petitioner's information to an IRS examination team, and no action was taken against the target on the basis of the information that petitioner had submitted. Because the IRS did not "proceed[] with any administrative or judicial action," the D.C. Circuit's decision in Li would seem to dictate that we grant the Motion to Dismiss.
Petitioner argues to the contrary. She claims that dismissal is premature because respondent has denied her documents she requested from him concerning the target taxpayer that she believes would show that the target underreported his/her income for numerous years (viz., Schedules E, Supplemental Income and Loss, attached to the target's 2012-2018 Forms 1040, U.S. Individual Income Tax Return).
We answer that argument by explaining that the standard of our review for WBO award determinations is abuse of discretion and our scope of review is limited to the administrative record (the so-called record rule). See Berenblatt v. Commissioner, 160 T.C. slip op. at 14 (May 24, 2023). Ordinarily, the record is comprised of those documents that were before the administrative decisionmaker: "neither more or less information than the agency (here, the WBO) had when it made its determination." See id. (slip op. at 14-15). And while we have authority to review WBO determinations, we are not "an overseer of the IRS's audit and collection activity." Lacey v. Commissioner, 153 T.C. 146, 163 (2019). We cannot "direct the IRS to commence or continue an audit." Id. at 166. Nor can we "require the IRS to explain a decision not to audit." Id. at 164.
Moreover, discovery is limited in whistleblower cases. Discovery is available only "if . . . [the whistleblower] makes 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 an incomplete administrative record is compiled by the IRS." Berenblatt, 160 T.C. at (slip op. at 14).
Petitioner argues, first, that dismissal is premature because respondent has denied her requests for portions of target's tax returns. Because of that refusal, we assume she is contemplating formal discovery and a motion to compel document production. Petitioner, however, has made no such motion, nor, as one of only two grounds for discovery, has she shown that the administrative record compiled by respondent is incomplete.
Neither has she has shown that there is material in respondent's hands indicative of bad faith. She claims that she has tendered an opinion "by an experienced real estate expert, Mr. Glen Brush" that, based on his investigation of the target's real estate holdings, the "fair market value of those . . . holdings is over $6,000,000 and annually should be producing at least $600,000 in . . . income." On the basis of Mr. Brush's opinion, petitioner concludes, that the WBO examiner's decision (likely, SBSE Classifier, Trina Philipps' recommendation) "is in all probability erroneous and arbitrary and an abuse of discretion for which Petitioner is entitled to an hearing on the merits." A record entry, docket entry No. 50, November 28, 2022, is captioned in part "Declaration of Glen Brush", but contains no declaration by Mr. Brush but only the first page of a declaration by petitioner and a second page of what may have been Mr. Brush's declaration and stating "properties is over $600,000 as of the current date, 11/15/22, and annually should produce over $600,000 in gross income. Executed in Escondido California on November 18, 2022." Following is Mr. Brush's signature.
"[B]ad faith" is defined in Black's Law Dictionary as "Dishonesty of belief or purpose." Black's Law Dictionary (9th ed. 2009). Neither Mr. Brush's opinion, if he has one, or anything else petitioner avers is indicative of the IRS's bad faith. To start with, the WBO determined that target had reported rental income. Nothing in the record indicates that target underreported his income. Petitioner's suppositions that target underreported his income and that the WBO examiner's recommendations were erroneous, arbitrary, and an abuse of discretion are pure conjecture, and the record contains nothing indicative of bad faith. We would deny petitioner discovery on that ground.
Having addressed, and rejected any grounds for discovery, there is no need to delay acting on the Motion to Dismiss. Respondent having made a convincing case, we will grant the motion.
On the premises stated, it is ORDERED that the Motion for Summary Judgment is denied as moot. It is further ORDERED that the Motion to Dismiss is granted and this case dismissed for lack of jurisdiction.