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Whistleblower’s Case Remanded to Determine Collected Proceeds

MAY 1, 2020

Birkenfeld, Bradley v. Commissioner

DATED MAY 1, 2020
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Birkenfeld, Bradley v. Commissioner

BRADLEY BIRKENFELD,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

ORDER

This case was assigned to the undersigned on December 3, 2019. Petitioner initiated this action under section 7623(b)(4) seeking review of a notice of determination issued by the Internal Revenue Service's (IRS) Whistleblower Office (the Whistleblower Office) regarding the amount of collected proceeds in a final award determination.1 Pending before the Court are: (1) respondent's motion for remand, filed July 6, 2018; (2) petitioner's motion for partial summary judgment, filed July 13, 2018; (3) respondent's motion to stay proceedings, filed October 24, 2019; and (4) petitioner's motion to compel responses to interrogatories, filed January 30, 2020.

Background

On April 6, 2017, the Whistleblower Office issued a final determination letter granting petitioner a $2,229,553 award under section 7623(b) on the basis of Title 26 proceeds that the IRS had collected as a result of information that petitioner had provided about 47 taxpayers who were account holders at a foreign global bank (the 47 taxpayers).

Petitioner timely petitioned this Court for review of the Whistleblower Office's April 6, 2017, award determination. The petition asserts that respondent undercounted the proceeds collected as a result of petitioner's information. In particular, the petition asserts that respondent erred in failing to count amounts collected from the 47 taxpayers "through provisions of Titles 18 or 31, or from any related actions or settlements."

I. Respondent's Motion for Remand

In respondent's motion for remand, filed July 6, 2018, respondent asks that this case be remanded to the Whistleblower Office to analyze whether any non-Title 26 proceeds were collected from any of the 47 taxpayers and to issue a new determination. Respondent states: "It is unknown but likely that one or more of these investigations [into the 47 taxpayers] also resulted in the collection of non-Title 26 proceeds such as civil penalties collected pursuant to 31 U.S.C. § 5321(a)(5)(FBAR penalties)." Respondent asserts that the Whistleblower Office did not consider non-Title 26 proceeds for purposes of petitioner's award determination because at the time of that determination respondent interpreted "proceeds" under section 7623 as being limited to proceeds collected under Title 26, notwithstanding a decision of this Court to the contrary. See Whistleblower 21276-13W v. Commissioner, 147 T.C. 121 (2016), supplementing 144 T.C. 290 (2015). After the Whistleblower Office issued its determination, Congress enacted new section 7623(c), essentially codifying this Court's holding in Whistleblower 21276-13W v. Commissioner, 147 T.C. 121. See Bipartisan Budget Act of 2018 (2018 Budget Act), Pub. L. No. 115-123, sec. 41108(a), 132 Stat. at 158.

In petitioner's response to respondent's motion for remand, petitioner states that he "is not opposed to Respondent's Motion to Remand if the remand will lead to the development of a complete administrative record, and if limitations are put in place to prevent the remand from leading to further unnecessary delay."

II. Petitioner's Motion for Partial Summary Judgment

In petitioner's motion for partial summary judgment, filed July 13, 2018, petitioner requests judgment that he is entitled to "immediate payment" of the $2,229,553 award that the Whistleblower Office determined based only on the Title 26 collected proceeds.

In objection to petitioner's motion for partial summary judgment, respondent asserts that the Whistleblower Office's determination, as well as the administrative record, is incomplete because the Whistleblower Office did not take into account the definition of "proceeds" as retrospectively clarified by the amendments to section 7623. Respondent also asserts that this Court lacks authority to direct the Whistleblower Office to make the payment that petitioner requests.

III. Respondent's Motion to Stay Proceedings

In respondent's motion to stay proceedings, filed October 24, 2019, respondent requests this Court to stay all proceedings in this case, including discovery, pending this Court's ruling on respondent's pending motion for remand, filed July 6, 2018.

In petitioner's response to respondent's motion to stay proceedings, petitioner objects to the granting of this motion, asserting that respondent's request for a remand to the Whistleblower Office is "unpersuasive and completely unnecessary" because "all that remains is the issuance of a new determination letter."

In respondent's reply to petitioner's response to respondent's motion to stay proceedings, respondent maintains that the additional analysis that petitioner has requested must be done by the Whistleblower Office upon remand.

IV. Petitioner's Motion to Compel Responses to Interrogatories

In petitioner's motion to compel responses to interrogatories, filed January 30, 2020, petitioner requests the Court to order respondent to provide certain requested information, including the amount of non-Title 26 proceeds collected with respect to each of the 47 taxpayers.

In respondent's objection to petitioner's motion to compel responses to interrogatories, respondent asserts that the information sought by petitioner "is not information that the Whistleblower Office gathered or reviewed in order to make the determination that is at issue in this case. As such, the information is not readily obtainable and would require an additional burden to ascertain."

Analysis

Section 7623(b) provides awards for whistleblowers who bring to the IRS' attention information that results in the collection of "proceeds". Award amounts may vary within a statutorily prescribed range (at least 15% but not more than 30% of proceeds collected). "The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action." Sec. 7623(b)(1). Any whistleblower award determination under section 7623(b) may, within 30 days of the determination, "be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter)." Sec. 7623(b)(4).

A recent amendment to section 7623 makes clear that "proceeds" includes not only "amounts provided under the internal revenue laws" (i.e., under Title 26), but also "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." Sec. 7623(c). These 2018 Budget Act amendments apply to "information provided before, on, or after the date of the enactment of this Act with respect to which a final determination for an award has not been made before such date of enactment." 2018 Budget Act sec. 41108(d), 132 Stat. at 158-159. This Court recently held that "the 2018 amendments apply to whistleblower claims for which the WBO's [Whistleblower Office's] determinations properly remain subject to further proceedings if commenced." Lewis v. Commissioner, 154 T.C. __, __ (slip op. at 16)(Apr. 8, 2020).

When the Whistleblower Office issued its final determination to petitioner, the 2018 Budget Act amendments had not yet been enacted. The parties agree that the Whistleblower Office's determination is deficient in failing to consider whether non-Title 26 proceeds were collected as a result of petitioner's information regarding the 47 taxpayers. Respondent has moved to remand this case to the Whistleblower Office to analyze whether any non-Title 26 proceeds were collected from any of the 47 taxpayers and to issue a new determination. Petitioner's position about respondent's motion for remand seems to have evolved over time. In petitioner's initial response to respondent's motion for remand, petitioner stated that he "is not opposed to Respondent's Motion to Remand if the remand will lead to the development of a complete administrative record, and if limitations are put in place to prevent the remand from leading to further unnecessary delay." In more recent filings with the Court, however, petitioner opposes remand as "completely unnecessary." Petitioner seems to suggest that instead of remanding this case to the Whistleblower Office this Court should decide the question, not passed on by the Whistleblower Office, as to how much of an award, if any, petitioner might be entitled to as a result of non-Title 26 proceeds collected as a result of the information he provided.

Remanding this case to the Whistleblower Office is in the interest of sound judicial administration and consistent with the statutory distribution of authority. Under section 7623(b)(1) it is the statutory province of the Whistleblower Office in the first instance to make the "determination of the amount" of any whistleblower award. Our review of the Whistleblower Office's determination is limited in scope to the administrative record. Kasper v. Commissioner, 150 T.C. 8, 20 (2018). The standard of review is for abuse of discretion. Id. at 22. In reviewing a whistleblower award determination for abuse of discretion we do not substitute our judgment for the Whistleblower Office's but rather decide "whether the agency's decision was 'based on an erroneous view of the law or a clearly erroneous assessment of the facts.'" Id. at 23 (quoting Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff'g T.C. Memo. 2004-13).

In appropriate circumstances this Court may remand a case to the Whistleblower Office for further consideration. Whistleblower 769-16W v. Commissioner, 152 T.C. 172 (2019). As stated by the Supreme Court in Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985):

If the record before the agency does not support the agency action, if the agency has not considered all relevant factors, or if the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it, the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation. * * *

See also Camp v. Pitts, 411 U.S. 138, 143 (1973)(stating that the validity of the agency determination "must, therefore, stand or fall on the propriety of that" determination, and if it "is not sustainable on the administrative record", then the matter must be remanded for "further consideration.").

The Court of Appeals for the District of Columbia, to which any appeal of this case would ordinarily lie, see sec. 7482(b)(1)(flush language), has indicated that granting an agency's motion to remand may be appropriate in various circumstances, including where the motion is made in response to "intervening events outside of the agency's control, for example, a new legal decision or the passage of new legislation." Util. Solid Waste Activities Grp. v. EPA, 901 F.3d 414, 436 (D.C. Cir. 2018). The court went on to state: "In deciding a motion to remand, we consider whether remand would unduly prejudice the non-moving party. Additionally, if the agency's request appears to be frivolous or made in bad faith, it is appropriate to deny remand." Id. [Citations omitted.]

These considerations support the granting of respondent's motion to remand. As noted, respondent's motion for remand is made in response to the intervening passage of legislation amending section 7623. Nothing in the record suggests that respondent's motion for remand is frivolous or made in bad faith. Nor do we believe that remand will unduly prejudice petitioner. To ensure against unnecessary delay and preserve petitioner's right to receive judicial review of the ultimate administrative determination, the Court will retain jurisdiction and monitor progress on remand, as petitioner has requested. See Whistleblower 769-16W v. Commissioner, 152 T.C. at 180.

In petitioner's motion for partial summary judgment, petitioner requests an adjudication that he is entitled to "immediate payment" of the $2,229,553 award that the Whistleblower Office determined based solely on the Title 26 collected proceeds. The relevant regulations provide:

Payment of an award will be made as promptly as the circumstances permit, but not until there has been a final determination of tax with respect to the action(s), as defined in paragraph (d)(2) of this section, the Whistleblower Office has determined the award, and all appeals of the Whistleblower Office's determination are final or the whistleblower has executed an award consent form agreeing to the amount of the award and waiving the whistleblower's right to appeal the determination.

Sec. 301.7623-4(d)(1), Proced. & Admin. Regs. (emphasis added).

Petitioner's appeal of the Whistleblower Office's determination is ongoing in this proceeding. Petitioner has failed to show that he is entitled as a matter of law to immediate payment of the $2,229,553 award based solely on the Title 26 collected proceeds.

In Kasper v. Commissioner, 150 T.C. at 21, we stated that we will allow the administrative record to be supplemented in a whistleblower case pursuant to certain recognized exceptions to the record rule. Pending before the Court is petitioner's motion to compel responses to interrogatories, seeking information, including the amount of non-Title 26 proceeds collected, as pertains to each of the 47 taxpayers. Petitioner's request for discovery appears cumulative of the record supplementation that we contemplate will occur upon remand. As we stated in Whistleblower 769-16W v. Commissioner, 152 T.C. at 181-182: "There is no reason to order the requested discovery at the same time that the case is being remanded for reconsideration and to supplement the administrative record." Accordingly, we will hold petitioner's motion to compel responses to interrogatories in abeyance until after supplementation of the administrative record is complete. See id.

For the reasons stated above, it is

ORDERED: That respondent's motion for remand, filed July 6, 2018, is granted in that this case is remanded to respondent's Whistleblower Office for additional investigation and a supplemental determination. It is further

ORDERED: That on or before, June 2, 2020, the parties shall file a joint status report in which they shall propose a mutually agreed-upon timetable for any future administrative proceedings. It is further

ORDERED: That petitioner's motion for partial summary judgment, filed July 13, 2018, is denied. It is further

ORDERED: That respondent's motion to stay proceedings, filed October 24, 2019, is denied without prejudice. It is further

ORDERED: That petitioner's motion to compel responses to interrogatories, filed January 30, 2020, is hereby held in abeyance until after any supplementation of the administrative record is complete and the Whistleblower Office has issued a supplemental determination.

(Signed) Michael B. Thornton
Judge

Dated: Washington, D.C.
May 1, 2020

FOOTNOTES

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times. All dollar amounts have been rounded to the nearest dollar.

END FOOTNOTES

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