Tax Notes logo

D.C. Circuit Narrows Tax Court Whistleblower Award Jurisdiction

Posted on Jan. 24, 2022

In Li v. Commissioner, No. 20-1245 (D.C. Cir. 2021) the court holds that the Tax Court lacks jurisdiction to hear appeal of threshold rejection of whistleblower award requests.  The case arrived in the circuit court after the Tax Court held the IRS did not abuse its discretion in rejecting the award request.  In deciding the Li case the D.C. Circuit also found that two prior precedential Tax Court cases, Cooper v. Commissioner, 135 T.C. 70 (2010) and Lacey v. Commissioner, 153 T.C. 146 (2019), were wrongly decided.  As we have discussed here, all appeals of whistleblower cases from the Tax Court go to the D.C. Circuit because of the language in IRC 7482.  Therefore, the decision in the Li case binds the Tax Court in its consideration of future whistleblower cases unless the Supreme Court takes up the issue.  Having knocked out two precedential Tax Court opinions in one blow, the Li case will create at least one more when the Tax Court takes up the issue again.

An interesting side note in this case before moving on to the jurisdictional issue involves the D.C. Circuit’s appointment of an amicus to argue the issue of jurisdiction before it.  Neither Ms. Li, the IRS nor the Tax Court raised any jurisdictional concerns and the court felt the need to have legal argument from a lawyer on the jurisdictional point, as the Supreme Court had done in a case involving jurisdiction, Sebelius v. Auburn Regional Medical Center, where it appointed John Manning, my dean at Harvard Law School, to brief the jurisdictional issue.

Robert Manhas and Robert Loeb filed an amicus brief in Li concluding that the Tax Court lacked jurisdiction to hear the case at the time of the filing of the Tax Court petition.  After the amicus brief was filed making the argument that the courts lacked jurisdiction, the DOJ (but not the taxpayer) filed a “final reply brief” (i.e., in addition to the DOJ prior reply brief) in which the DOJ changed position and agreed with the amicus that the Tax Court, and therefore, the D.C. Circuit, lacked jurisdiction.  No one briefed the argument that the Tax Court actually had jurisdiction.  So, once again, a pro se taxpayer effectively lost on an issue without representation.

The taxpayer had submitted a Form 211, and the reviewer in the IRS Whistleblower Office (WBO) decided that the information on the target taxpayer was too vague and speculative to forward the Form 211 for further action. The WBO issued a determination letter telling the whistleblower that she could contest the decision by petitioning the Tax Court. She did, pro se. After she lost in the Tax Court, she appealed pro se.

Neither the IRS nor Ms. Li nor the Tax Court identified a possible jurisdictional issue.  The Tax Court decision found that:

the WBO adequately performed its evaluative function in reviewing Li’s application and did not abuse its discretion by rejecting it for an award.

The D.C. Circuit, sua sponte, wondered whether the Tax Court lacked jurisdiction and so appointed an amicus to argue that jurisdiction was lacking. In the published ruling, the D.C. Circuit overturns Tax Court precedent that holds that pretty much any reason (even a preliminary ruling) for turning down an award can be the subject of a Tax Court suit. The D.C. Circuit finds that it only has jurisdiction to rule on the whistleblower decision if the Tax Court had jurisdiction. Since it determines the Tax Court lacked jurisdiction, it only has jurisdiction to cure the defect caused by the incorrect exercise of jurisdiction. It writes:

After review, we conclude that Cooper and Lacey were wrongly decided. The Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests.

Subsection (b)(4) of § 7623 gives the Tax Court exclusive jurisdiction over only a “determination regarding an award” under subsections (b)(1)(3). The Cooper and Lacey Courts held that a threshold rejection of a whistleblower award request constituted such an award determination because the rejection of an award was a so-called “negative” award determination. Lacey, 153 T.C. 163 n.19 (citing in accompanying text Cooper, 135 T.C. 70); see also id. at 150 n.5 (“[A] ‘rejection’ is also a ‘determination’. . . .”). We disagree. A threshold rejection of a whistleblower’s Form 211 for vague and speculative information is not a negative award determination, as there is no determination as to an award under subsections (b)(1)(3) whatsoever. Per subsection (b)(1), an award determination by the IRS 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]. . . .” 26 U.S.C. § 7623(b)(1) (emphasis added). A threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer. See Cline v. Comm’r, 119 T.C.M. (CCH) 1199, 2020 WL 1249454, at *5 (T.C. 2020). Therefore, there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.2

In this case, the WBO rejected Li’s Form 211 for providing vague and speculative information it could not corroborate, even after examining supplemental material Li herself did not provide. The WBO did not forward Li’s Form 211 to an IRS examiner for further action, and the IRS did not take any action against the target taxpayer. There was no proceeding and thus no “award determination” by the IRS for Li’s whistleblower information. Therefore, the Tax Court had no jurisdiction to review the WBO’s threshold rejection of Li’s Form 211.

This Court regrets that Li was informed otherwise by letter to her from the WBO. However, “no action of the parties can confer subject-matter jurisdiction upon a federal court.” Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).

Finally, the parties have called our attention to our decision in Myers v. Comm’r which contains the statement that “’written notice informing a claimant that the IRS has considered information that he submitted and has decided whether the information qualifies the claimant for an award’ suffices to constitute a ‘determination’ for the purpose of § 7623(b)(4).” 928 F.3d 1025, 1032 (D.C. Cir. 2019). Upon review, we conclude that this statement is not a holding concerning the issue in the present case. This statement was responding to petitioner’s argument that the WBO denial letter in his case did not contain enough information to qualify as a “determination” under the statute. Id. We subsequently declined to “craft requirements out of whole cloth” regarding what information a WBO denial letter must contain. Id. at 1033. By contrast, the question in this case asks whether § 7623(b)(4) confers jurisdiction only when there is both an IRS action based on whistleblower information and proceeds collected from that action. As this issue was not squarely before us in Myers, the above statement from Myers does not bind our decision today.

The Li decision will undoubtedly cause attorneys in the whistleblower bar to take notice and this may be a case in which a petition for certiorari is filed since the issue is important to the determination of the Tax Court’s jurisdiction and no possibility of a circuit split exists.

The Myers case referred to in the final quoted paragraph is still pending in the Tax Court after a trip to the D.C. Circuit.  If I recall the facts there, Myers may be in a similar situation to Li (though the parties are, I think, in discovery about whether the IRS actually used the information and conducted an audit of the taxpayer).  Will the IRS now move to dismiss the Myers case for lack of jurisdiction?  Remember that jurisdictional issues can be raised at any time.  The D.C. Circuit opinion in Myers created the conflict in the circuits on the jurisdictional issue recently argued in Boechler before the Supreme Court.  If Myers is dismissed belatedly for lack of jurisdiction, does that cause the opinion of the D.C. Circuit in that case to be vacated, canceling it as precedent?  The continuing precedential validity of Myers regarding the interpretation at issue in Boechler, though, will no doubt be decided by the Boechler case, as it is unlikely that, after Boechler, the D.C. Circuit will differ in future whistleblower rulings from the ruling of the Supreme Court in CDP cases.

Copy RID