In a 2020 unpublished order in Li v. Commissioner, Docket No. 5070-19W, the Tax Court held, on summary judgment, that the IRS whistleblower office (WBO) did not abuse its discretion in denying Ms. Li an award because she provided only vague and speculative information. She had alleged that the target taxpayer had filed false claims of rental income, dependent children, alimony paid, and mortgage interest paid for its 2016 and 2017 tax years. A classifier in the WBO reviewed the target’s tax returns, found nothing amiss, and had denied Ms. Li’s claim in a final notice of determination. So, Ms. Li brought suit in the Tax Court under IRC 7623(b)(4).
The DC Circuit reversed the summary judgment decision, at 22 F.4th 1014 (D.C. Cir. 2022), because the circuit court determined that the Tax Court did not even have jurisdiction to hear the case. I discussed the DC Circuit’s decision here. The circuit court decision rests on the fact that the IRS never proceeded with an audit of the target taxpayer. The Tax Court had thought it had jurisdiction of any final rejection of an award, no matter how early in the processes of the WBO.
Carl Smith has been following this case and has kept me abreast regarding what is happening in Li and in the Tax Court more generally, since a large number of WBO cases in the Tax Court involve threshold rejections like Li.
On June 16, 2022, the Supreme Court received a pro se cert petition filed by Ms. Li, but the Court mysteriously did not promptly set up an electronic docket for the case.
Ms. Li is a lawyer currently working at Stanford Law School, so her cert petition is much more lawyerly than most pro se petitions. In the petition Ms. Li argues that the Tax Court has jurisdiction to review threshold rejections of whistleblower awards under IRC 7623(b)(4), and that even if that statute doesn’t apply, the Administrative Procedure Act requires judicial review of threshold rejections by some court. Here’s from the cert. petition:
[T]he D.C. Circuit held that the Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests. Li v. Comm’r, 22 F.4th 1014, 1017 (D.C. Cir. 2022). But the fact that the Tax Court is precluded from hearing this instant appeal does not remove the statutory obligation to provide some form of judicial review of the WO final decision. If threshold rejections of whistleblower award requests are not reviewable by the Tax Court, then another court must have the judicial review authority. Take away judicial review entirely, and threshold rejections of whistleblower award requests are immune from judicial review.
The cert petition argues that there is a Circuit split, though, of course, only the D.C. Circuit can hear whistleblower award cases under IRC 7623(b)(4) and 7482(b)(1) (flush language).
On the understanding that the circuit court’s Li opinion had become final when the time to file a cert petition appeared to pass without such a filing, in July 2022, the Tax Court issued a number of orders in pending whistleblower award cases dismissing them for lack of jurisdiction because they involved threshold rejections of awards, similar to Li.
On August 30, 2022, the Supreme Court belatedly created a docket for the Li cert petition. The Tax Court became aware of the cert petition within a day or two after the Supreme Court had created the docket.
Concluding that the cert petition in Li was timely, the Tax Court decided to undo all the orders of dismissal it issued in July in Li and similar cases. One of the orders where the Tax Court vacated a prior dismissal, Essex v. Commissioner, can be found here. The other orders can be found on DAWSON.
There may be more to come, but as of the close of business on September 6, over three business days, the Tax Court has vacated 40 dismissal orders in whistleblower cases, including Li. I think it’s safe to assume that the Court is also holding onto any currently pending motions to dismiss these cases while it waits to determine if the Supreme Court will accept the case and then, if it does, how it will rule. This affects a substantial portion of the Tax Court’s whistleblower docket. According to p. 19 of the Tax Court’s most recent FYE Budget Justification report, only 63 WB cases were filed in the Tax Court in FYE 2021.
The Tax Court did not vacate recent dismissal orders in late-filed CDP cases when Boechler filed its cert petition. Indeed, only after cert was granted did the Tax Court prospectively stop issuing orders in cases involving late-filed CDP petitions, pending the ruling by the Supreme Court on the merits. As we have discussed in prior posts, after May 6, 2022, the Tax Court has also suspended the issuing of dismissals in cases involving late-filed deficiency proceedings pending the outcome of its decision in Hallmark, though the court has not vacated any earlier-issued dismissals of late-filed deficiency cases for lack of jurisdiction. The Tax Court’s decision to vacate whistleblower dismissal orders merely at the time that the Li cert petition was filed may reflect an evolution of the Court’s views on undoing prior dismissal orders after what it had done in the CDP and deficiency cases. It may, on the other hand, merely reflect a recognition that the number of jurisdictional dismissals in whistleblower case would only be a tiny fraction of the number of prior dismissals in CDP and deficiency cases. For whatever reason, it’s a nice practice from the petitioners’ perspective.
The combination of the two groups of cases the Court is now suspending (i.e., Li-type and Hallmark-type cases) means that at some point the Court will have quite a few cases to work through in the future. Still, this is a practice that protects petitioners and keeps them from having to file needless appeals or to lose their case while an issue of the Court’s jurisdiction is at play.