Opinion
4792-19W
02-02-2024
WHISTLEBLOWER 4792-19W, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph H. Gale, Judge.
The Petition in this case seeks review of the determination of the Internal Revenue Service (IRS) Whistleblower Office (WBO) to deny petitioner's application for a whistleblower award under section 7623(b). Pending before the Court is petitioner's Motion to Take Deposition Pursuant to Rule 74(c)(3), which is supported by a memorandum, declaration of petitioner's counsel, and exhibits (collectively, the Motion) and seeks an order compelling the depositions of five IRS employees. Respondent has filed a Response setting forth his objections to petitioner's Motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.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.
Although petitioner's Motion is styled as if it were made under Rule 74(c)(3), which relates to depositions of a party opponent without that party's consent, the notices of deposition (copies of which are attached as an exhibit to the Motion) cite Rule 74(c)(2), which relates to depositions of nonparties without the consent of the opposing party. Among the reasons that the distinction between Rule 74(c)(2) and (3) is significant is that a deposition of a nonparty under Rule 74(c)(2) generally may be used during a Tax Court trial or other proceeding only for impeachment of the deponent as a witness, whereas a deposition of a party opponent under Rule 74(c)(3) may be used for any purpose. See Rules 74(f), 81(i). Furthermore, because the Commissioner speaks only through formal policy pronouncements, informal statements of his employees do not bind him and are not properly treated as his statements as a party to a case before the Tax Court. See Sidell v. Commissioner, 225 F.3d 103, 111 (1st Cir. 2000); see also Murphy v. Commissioner, No. 22-9001, 2022 WL 3910506, at *2 n.2 (10th Cir. Aug. 31, 2022) (citing Sidell v. Commissioner, 225 F.3d at 111), cert. denied, 143 S.Ct. 1096 (2023). We will therefore treat petitioner's Motion as seeking to compel nonparty depositions under Rule 74(c)(2), as indicated in the notices of deposition, and we will recharacterize it accordingly.
Respondent concurrently filed a Motion to Dismiss for Lack of Jurisdiction, with supporting exhibits, which we struck from the record because it had been partially redacted in a manner inconsistent with Rule 345(b) and our Order dated February 18, 2020, as amended. Although respondent has not, to date, renewed his Motion to Dismiss, his Response also raises a jurisdictional objection. In view of our obligation to assure ourselves of our jurisdiction, see, e.g., Whistleblower 21276-13W v. Commissioner, 155 T.C. 21, 26 (2020), we discuss respondent's jurisdictional objection infra Part II.A.
In view of developments in the applicable law during the pendency of the Motion, we will direct the parties to supplement their submissions as further set forth herein. See Rule 50(b)(3).
I. Background
Petitioner submitted to the WBO a Form 211, Application for Award for Original Information (which he later corrected and supplemented), alleging that a specified Taxpayer had violated the internal revenue laws in relation to Tax Issue. Petitioner's claim was forwarded to Kyunghee Piraino, a whistleblower subject matter expert in IRS Division. Ms. Piraino in turn forwarded the claim to a territory manager for assignment to IRS examination Team A, which at the time was responsible for examining Taxpayer with respect to its 2010 and 2011 taxable years. Team A thereafter completed its work and was replaced by Team B, which was to carry out an examination concerning Taxpayer's 2012 and 2013 taxable years.
Capitalized terms not otherwise defined herein have the meanings given in petitioner's First Supplemental Reference List of Redacted Information filed under seal on November 28, 2022.
The Motion sets forth in detail, citing relevant portions of the administrative record and correspondence with respondent's counsel, why petitioner believes IRS employees assigned to or supporting Team B-including Sy-Miau Vines (team manager), Kevin Parker (Examiner), Andres Espinosa (Economist), Alfredo Arocha (Examiner), and Anthony DeGrazia (Examiner)-either had access to petitioner's claim information or may have been exposed to it through their involvement in Team B's work relating to Tax Issue.
According to a WBO Award Recommendation Memorandum (ARM) that summarizes the results of the IRS's examination of Taxpayer, Team B was instructed to return petitioner's claim information early in the examination process due to concerns that the information may have been tainted (i.e., that it included privileged information that could not be used against Taxpayer). The ARM also states that unidentified Team B personnel who had access to petitioner's claim information were removed from the team and replaced.
Other materials in the administrative record document certain steps that Ms. Piraino and Ms. Vines took in connection with the taint review and the closure of petitioner's claim, including the submission of Form 11369, Confidential Evaluation Report on Claim for Award, to the WBO. Upon receiving the Form 11369, Felipe Castellanoz, a WBO Senior Tax Analyst, requested additional information concerning the extent to which petitioner's claim had been provided to the examination teams and submitted for taint review, whether Ms. Piraino had requested the return of petitioner's claim information, the timing and extent of the transfer of petitioner's claim information to Team B, and the anticipated resolution of the examination concerning Taxpayer's 2012 and 2013 taxable years. The WBO thereafter seems to have requested additional information, prompting Ms. Vines to seek further input from Mr. Arocha and Mr. DeGrazia in relation to an "Initial Risk Analysis" concerning an aspect of Tax Issue.
The WBO eventually issued a final determination letter stating that petitioner's claim was "denied because the IRS took no action based on the information that you provided" and advising that petitioner could seek review of that determination by filing a petition with the Tax Court within 30 days from the date of the letter. Petitioner timely did so. The Petition alleges, inter alia, that respondent's examination of Tax Issue relied on the information petitioner provided and resulted in the collection of substantial proceeds.
After engaging in informal discovery efforts to ascertain the extent to which petitioner's information may have contributed to the IRS's examination of Taxpayer, see Rule 70(a)(1), petitioner served on respondent's counsel notices of deposition pursuant to Rule 74(c)(2) of Ms. Piraino, Ms. Vines, Mr. Espinosa, Mr. Arocha, and Mr. DeGrazia. Respondent objected to the notices of deposition on the grounds that (1) the Court lacks jurisdiction over this case, (2) the Court's review of the WBO's determination is confined to the administrative record, and (3) the testimony that petitioner seeks would require disclosure of taxpayer information that is not authorized under section 6103.
Petitioner then filed the pending Motion seeking an order compelling the depositions. Petitioner contends therein that (1) respondent's jurisdictional position is without merit, (2) the depositions are necessary to "complete" the administrative record by filling "gaps" concerning the extent to which the IRS's collection of additional proceeds from Taxpayer may have been attributable to the information petitioner provided, and (3) section 6103 does not prohibit the disclosure of the information petitioner seeks to obtain through the depositions. The Motion further contends that there is no dispute between the parties that petitioner's claim information was forwarded to IRS examination personnel (while acknowledging respondent's position that any personnel who had access to the information were removed from the examination), and that the IRS's examination of Taxpayer resulted in the recovery of proceeds.
In his Response to petitioner's Motion, respondent maintains each of his previous objections and further objects that the information sought by petitioner is not discoverable because it is not relevant to the issues in this case. The Response does not dispute that petitioner's claim information was forwarded to IRS examination personnel or that the IRS recovered proceeds from Taxpayer.
II. Discussion
A. Jurisdiction
The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. See § 7442; Naftel v. Commissioner, 85 T.C. 527, 529 (1985). "We nevertheless have jurisdiction to determine whether we have jurisdiction." McCrory v. Commissioner, 156 T.C. 90, 93 (2021). Petitioner, as the party invoking our jurisdiction in this case, bears the burden of showing that we have jurisdiction. See David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 270 (2000), aff'd, 22 Fed.Appx. 837 (9th Cir. 2001). Our decisions in whistleblower cases are appealable to the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), § 7482(b)(1) (flush text), and we thus follow the precedent of that circuit to the extent it resolves the issues before us, Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
Section 7623(a) authorizes the Secretary of the Treasury, or his or her delegate, to pay discretionary awards out of collected proceeds to whistleblowers who have provided information in connection with the detection of underpayments of tax or violations of the internal revenue laws. See also § 7701(a)(11) and (12). In addition, section 7623(b) mandates payment of awards to whistleblowers "[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" and certain other requirements are met. See § 7623(b)(1), (5).
If a claim for a whistleblower award does not on its face meet minimum criteria established by regulation, then the WBO may make a threshold rejection of the claim. See Rogers v. Commissioner, 157 T.C. 20, 28-29 (2021); Van Bemmelen v. Commissioner, 155 T.C. 64, 80-81 (2020); Treas. Reg. §§ 301.7623-1(c)(1), (4), 301.7623-3(c)(7). Claims that survive the WBO's threshold review may eventually result in an award if the IRS proceeds with an action that results in the collection of proceeds. See Li v. Commissioner, 22 F.4th 1014, 1016 (D.C. Cir. 2022). But if the WBO ultimately determines not to grant an award with respect to such a claim, then it may be denied. See Rogers, 157 T.C. at 30.
Under section 7623(b)(4), "[a]ny determination regarding an award under paragraph (1), (2), or (3) [i.e., a mandatory award under section 7623(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)." However, the D.C. Circuit held in Li v. Commissioner, 22 F.4th at 1017, that the Tax Court generally lacks jurisdiction under section 7623(b)(4) to review a threshold rejection of a claim for a whistleblower award. The D.C. Circuit reasoned that "[a] threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer" and consequently "there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court." Id. (emphasis omitted).
The D.C. Circuit has since explained that Li does not "render[] the jurisdictional grant [in section 7623(b)(4)] coextensive with the merits of a whistleblower appeal" because "the 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." See Lissack v. Commissioner, 68 F.4th 1312, 1321 (D.C. Cir. 2023), aff'g 157 T.C. 63 (2021), petition for cert. filed, No. 23-413 (Oct. 19, 2023). In Lissack, unlike in Li, there was "no dispute that the [WBO] referred Lissack's submission to the IRS, and an IRS revenue agent initiated an examination" of the issue identified in the submission, resulting in "substantial adjustments." See id. Under those circumstances, the court held that "[t]he fact that the IRS conducted an examination . . . suffice[d] to distinguish Lissack's case from Li" and that the Tax Court accordingly had jurisdiction to review the WBO's determination. See id.
We reached a similar conclusion in Whistleblower 972-17W, 159 T.C. 1, 7-10 (2022). There, much like in Lissack, the IRS had both proceeded with an action against the target taxpayers and collected proceeds from them. See id. at 7. Although the WBO acknowledged that the IRS had reviewed the whistleblower's information in relation to an ongoing investigation or examination of the target taxpayers, it denied the whistleblower's claim for an award on the ground that the whistleblower's information did not ultimately contribute to the recovery of any proceeds. See id. at 3. On those facts, we distinguished Li and held that we have jurisdiction to review a determination that a whistleblower "was not entitled to an award even though the Government had proceeded with actions against the target taxpayers and collected proceeds." See id. at 9. We explained that if we were to read Li to mean that "all the elements of section 7623(b)(1)-including the requirement that any action be in fact 'based on the whistleblower's information'-are jurisdictional," then we would have to make "a full determination of the merits before we would know whether we had jurisdiction to begin with." Id. That, in turn, "would raise complicated questions regarding the scope and standard of our review." Id. at 9-10.
Respondent's jurisdictional objection predates the D.C. Circuit's decision in Lissack and fails to address Whistleblower 972-17W (even though we issued our opinion in that case over a month before respondent filed his Response). As a consequence, his objection improperly conflates the question of our jurisdiction with the merits of petitioner's claim. Respondent does not dispute that in this case petitioner's claim information was forwarded for consideration by IRS examination personnel in relation to an ongoing or planned examination or that the IRS ultimately collected proceeds from Taxpayer. He disputes only whether he took any "action on petitioner's claim"-i.e., whether any action against Taxpayer was "based on" petitioner's information within the meaning of section 7623(b) and the regulations interpreting that provision. We need not resolve that issue to decide whether we have jurisdiction here. See Whistleblower 972-17W, 159 T.C. at 7-10; see also Lissack v. Commissioner, 68 F.4th at 1321; McCrory v. Commissioner, T.C. Memo. 2023-98, at *6.
Accordingly, the record presently before the Court is sufficient to establish that we have jurisdiction to review the WBO's determination. We will direct the parties to supplement their submissions to address whether they believe our jurisdiction remains in any doubt.
B. Discovery Issues
We will also direct the parties to supplement their submissions to address more fully whether the relief sought in petitioner's Motion-i.e., an order compelling discovery depositions under Rule 74(c)-is appropriate under the circumstances before us here.
The taking of discovery depositions without the consent of all parties to a case is
an extraordinary method of discovery and may be used only if a party, a nonparty witness, or an expert witness can give testimony or possesses documents, electronically stored information, or things which are discoverable within the meaning of Rule 70(b) and if the testimony, documents, electronically stored information, or things practicably cannot be obtained through informal consultation or communication (Rule 70(a)(1)), interrogatories (Rule 71), a request for production of documents, electronically stored information, or things (Rule 72), or by a deposition taken with consent of the parties (Rule 74(b)).
Rule 74(c)(1)(B). Under Rule 70(b)(1), "any matter not privileged that is relevant to the subject matter involved in the pending case" is discoverable. "The standard of relevancy in a discovery action is liberal." Whistleblower One 10683-13W v. Commissioner, 145 T.C. 204, 206 (2015).
Petitioner's Motion relies primarily on our holdings in Whistleblower One 10683-13W and Whistleblower 11099-13W v. Commissioner, 147 T.C. 110 (2016). In Whistleblower One 10683-13W, 145 T.C. 204, we granted a whistleblower's motions to compel production of documents and responses to interrogatories. In that case we interpreted the Commissioner's lack of a direct response to the whistleblower's motions as an implicit concession that the administrative record was incomplete. See id. at 207. Moreover, we declined to decide whether the Commissioner was correct that the scope of our review in whistleblower cases should be limited to the administrative record, and if so, precisely what materials must be included therein. See id. at 206-07 & n.2. And we made clear that the case involved neither a request for information that was not before the WBO when it made its decision nor a scenario where the WBO itself would need to develop additional evidence. See id. at 207. In Whistleblower 11099-13W, 147 T.C. 110, we granted a motion to compel the production of documents that the whistleblower contended were necessary to establish whether his information contributed to the recovery of proceeds from the target taxpayer. We noted that the motion at issue was related to a prior discovery dispute that we had resolved by relying, in part, on our reasoning in Whistleblower One 10683-13W. See Whistleblower 11099-13W, 147 T.C. at 111 n.2.
Petitioner also notes that following the release of our opinion in Whistleblower 11099-13W, 147 T.C. 110, we issued an unpublished order in that case granting motions to compel discovery depositions under Rule 74(c)(2) of 10 current or former IRS employees who had been involved in the examination of the target taxpayer. See Order, Whistleblower 11099-13W, No. 11099-13W (T.C. July 28, 2016). In granting those motions we expressly stated that the scope of our review in whistleblower cases was, at that time, "an open question of law." Id. at 9-10.
We emphasize that orders "shall not be treated as precedent" except for limited purposes not relevant here. See Rule 50(f).
We thereafter held that the scope of our review in whistleblower cases is limited to the administrative record. Kasper v. Commissioner, 150 T.C. 8, 20 (2018). Petitioner's Motion acknowledges our holding in Kasper but urges that it is not an obstacle to the discovery petitioner seeks. Specifically, petitioner notes that we had previously permitted discovery in that case, see id. at 13, and that our opinion recognized (in petitioner's words) a "litany of exceptions" to the general rule limiting our review to the administrative record, see id. at 20-21.
The Motion does not, however, address our subsequent opinion in Van Bemmelen, 155 T.C. 64, where we further explored the implications of our holding in Kasper. In that case we highlighted the distinction between a party's request to complete the administrative record with materials that were before the relevant decisionmaker and should have been included in the record, and a request to supplement the record with extra-record evidence that was not before the decisionmaker. Id. at 72-78. With respect to completion of the record, we observed that "[a]bsent a substantial showing made with clear evidence to the contrary, an agency is presumed to have properly designated the administrative record." Id. at 74 (citing Oceana, Inc. v. Ross, 920 F.3d 855, 865 (D.C. Cir. 2019)). We further explained that a court's consideration of extra-record materials "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)). In that regard, we recognized that the D.C. Circuit had "recently identified" a narrower set of circumstances that may warrant supplementation of the administrative record than we had previously described in Kasper. Id. at 76 & n.7.
Following petitioner's filing of the Motion now before us, we additionally clarified that because the scope of our review is generally limited to the administrative record, discovery is usually not available in whistleblower cases. See Berenblatt v. Commissioner, No. 7208-17W, 160 T.C., slip op. at 13-15 (May 24, 2023). We nevertheless held that "we may allow limited discovery" directed to completion of the administrative record where "a whistleblower makes a significant showing," evaluated in the light of the presumption of regularity applicable to the IRS's designation of the record, "that the IRS has failed to include materials that the WBO considered, directly or indirectly, in reaching its decision." See id. at 17. We emphasized that a complete administrative record in a whistleblower case must include all materials set forth in Treasury Regulation § 301.7623-3(e), see id. at 15-17, and "'all the information [the WBO] considered directly or indirectly' in reaching its decision," id. at 17 (alteration in original) (quoting Van Bemmelen, 155 T.C. at 74).
We did not have occasion in Berenblatt to address the extent to which discovery may be available where a whistleblower alleges bad faith on the IRS's part or seeks to discover extra-record evidence. See id. at 15, 18. Although petitioner's Motion purports to seek discovery in order to "complete" the administrative record, the evidence that petitioner wishes to develop-namely, the testimony of respondent's employees-is not material that the WBO could have considered in making its determination. It thus constitutes extra-record evidence. Because we have not yet decided whether and under what circumstances a party may be entitled to discovery of extra-record evidence in a whistleblower case, we will direct the parties to supplement their submissions to address that question. The parties' supplemental submissions should specifically explain how our opinions in Van Bemmelen and Berenblatt apply to the issues raised by petitioner's Motion. The parties should also address any other authorities pertinent to the proper application of the D.C. Circuit's precedent in this context.
C. Section 6103
The last significant issue raised by petitioner's Motion and respondent's Response thereto is the extent to which the confidentiality provisions of section 6103 pose any obstacle to our granting the relief petitioner seeks.
Our opinion in Whistleblower 972-17W, 159 T.C. 1, which we discussed supra Part II.A in relation to respondent's jurisdictional objection, also addressed the application of section 6103 in whistleblower cases. We held in that regard that where the circumstances establish our jurisdiction to review the WBO's determination, and "the correctness of the WBO's determination . . . turns on the details of the IRS action [against the target taxpayer]," disclosure of taxpayer returns and return information as part of the administrative record (and any appropriate supplement thereto) is not prohibited by section 6103. See id. at 23-24.
It thus appears that to whatever extent we might conclude that supplementation of the administrative record is appropriate, our holding in Whistleblower 972-17W would likely foreclose respondent's objection to the Motion on section 6103 grounds. We will accordingly direct the parties to supplement their submissions to state their views concerning the impact of Whistleblower 972-17W on respondent's section 6103 objection.
D. Filing of the Administrative Record
Finally, we note that the administrative record in this case has not, to date, been filed with the Court. After the Motion and Response were filed, we adopted amendments to our Rules, see Press Release, U.S. Tax Court (Mar. 20, 2023), https://ustaxcourt.gov/resources/press/03202023.pdf, which included new Rule 93, captioned "Identification and Certification of Administrative Record in Certain Actions." Rule 93 sets forth the procedure for filing and certifying the administrative record in cases where "review of the Commissioner's determination ordinarily would be based solely or partly on the administrative record."
Additionally, we explained in Whistleblower 972-17W, 159 T.C. at 27, that the Commissioner must disclose the unredacted administrative record except to the extent that (1) the Secretary determines that such disclosure would result in the identification of an informant or serious impairment of a tax investigation, or (2) the Commissioner wishes to propose targeted redactions under Rule 27(a) and (d) and Rule 103(a). We will accordingly direct the parties jointly (or respondent alone, as appropriate) to file under seal the complete, unredacted administrative record (or in the event of a joint filing, so much thereof as either party deems necessary to a complete disposition of this case), properly stipulated (or certified, as appropriate) in accordance with Rule 93(a).
If respondent wishes to propose targeted redactions as contemplated in Whistleblower 972-17W, 159 T.C. at 27, he may move the Court for additional time to do so.
The foregoing considered, it is
ORDERED that the Clerk of the Court shall recharacterize petitioner's Motion to Take Deposition Pursuant to Rule 74(c)(3), filed July 1, 2022, at Document No. 69, as petitioner's Motion to Take Deposition Pursuant to Rule 74(c)(2), and that all references to Rule 74(c)(3) in the titles of subsequently filed documents, at Document Nos. 70-73, 76, 84, and 92-95, shall be changed to Rule 74(c)(2). It is further
ORDERED that the parties jointly (or respondent, as appropriate) shall, on or before March 4, 2024, file under seal an unredacted copy of the administrative record in accordance with Rule 93(a). It is further
ORDERED that, notwithstanding the provisions of Rule 93(b), petitioner may seek leave to file a motion to complete or supplement the record within a reasonable time after the Court enters an order disposing of petitioner's Motion to Take Deposition Pursuant to Rule 74(c)(2), filed July 1, 2022. It is further
ORDERED that petitioner shall, on or before April 2, 2024, file with the Court a supplement to petitioner's Motion to Take Deposition Pursuant to Rule 74(c)(2), filed July 1, 2022, which shall address in detail (1) whether the Court's jurisdiction in this case remains in any doubt in view of Lissack v. Commissioner, 68 F.4th 1312 (D.C. Cir. 2023) and Whistleblower 972-17W v. Commissioner, 159 T.C. 1 (2022); (2) whether and on what grounds an order compelling depositions under Rule 74(c)(2) is appropriate in this case in view of Berenblatt v. Commissioner, No. 7208-17W, 160 T.C. (May 24, 2023), Van Bemmelen v. Commissioner, 155 T.C. 64 (2020), and any other authorities pertinent to the proper application in this context of the precedent of the U.S. Court of Appeals for the District of Columbia Circuit; and (3) whether Whistleblower 972-17W, 159 T.C. 1, forecloses the section 6103 objection raised in respondent's Response to Motion to Take Deposition Pursuant to Rule 74(c)(2), filed August 23, 2022. It is further ORDERED that respondent shall, on or before May 2, 2024, file a response to petitioner's supplement.