T.C. Memo. 2020-141



                  UNITED STATES TAX COURT



           JOHN WORTHINGTON, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 9026-19W.                         Filed October 8, 2020.



       P submitted to the Whistleblower Office (“WBO”) of the
Internal Revenue Service (“IRS”) a claim on Form 211, “Application
for Award for Original Information”, as later supplemented, alleging
that an entity or operation of law enforcement agencies of cooperating
counties (“T”) lacked status as a legal entity and therefore illegally
collected, from court awards, millions of dollars of “tax free illegal
monies”. A “classifier” in the IRS’s Small Business/Self-Employed
(“SB/SE”) Operating Division initially determined that P’s claim
“may meet [I.R.C. sec.] 7623(b) criteria” and proposed that the matter
be referred for “Criminal Investigation”. However, other WBO
personnel performed “research” about T, concluded that the
allegations in P’s claim “appear to be speculative”, and recommended
that the claim be returned to the classifier “for consideration of this
additional information and for additional research.” The SB/SE
classifier then determined that “the claim lacks specific/credible
information, is purely speculative in nature, or does not allege a tax
issue” and recommended “Reject the Claim”. The WBO issued a
                                        -2-

[*2] final determination letter that stated: “The claim has been rejected
     because the IRS decided not to pursue the information you provided.”

            P filed a petition in this Court. R moved for summary
      judgment under Tax Court Rule 121, arguing that “the Whistleblower
      Office did not abuse its discretion in rejecting petitioner’s claim for
      award” and also asserting that “the Whistleblower Office did not
      abuse its discretion in denying petitioner’s claim for award”.
      (Emphasis added.) P filed a cross-motion for summary judgment,
      asking the Court to “order strict compliance with the intent of
      congress and the IRS manual, to ‘require the whistleblower office to
      analyze whistleblower claims’ and analyze them under the proper IRS
      codes supported by form 211.”

            Held: P’s motion will be denied because the administrative
      record does not show that the WBO never analyzed his claim and
      because the Court cannot compel the WBO to act as P requests.

             Held, further, R’s motion will be denied because the WBO’s
      final determination letter is equivocal as to whether it constituted a
      threshold “rejection” based on the face of P’s claim or a substantive
      “denial” making a decision not to audit after performing research
      outside the claim.



      John Worthington, for himself.

      Nicholas R. Rosado, for respondent.
                                        -3-

[*3]                       MEMORANDUM OPINION


       GUSTAFSON, Judge: Petitioner John Worthington has appealed, pursuant

to section 7623(b)(4),1 the determination of the Whistleblower Office (“WBO”) of

the Internal Revenue Service (“IRS”) that denies him a whistleblower award.

Respondent, the Commissioner of the IRS, has filed a motion for summary

judgment under Rule 121, and Mr. Worthington has filed a cross-motion. We will

deny both motions.

                                   Background

Mr. Worthington’s Forms 211

       The WBO first received from Mr. Worthington a Form 211, “Application

for Award for Original Information” (along with attachments), dated

November 14, 2018, on which he erroneously named himself as the target

taxpayer. The WBO sent Mr. Worthington a “Preliminary Rejection Letter”, the

grounds of which were that “[t]he Form 211 lists the taxpayer and whistleblower

[as] the same individual”. Mr. Worthington then sent the WBO a second,

supplemental Form 211 (with attachments), dated December 10, 2018. We refer to


       1
        Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986 as in effect at all relevant times (codified in 26 U.S.C.),
and all Rule references are to the Tax Court Rules of Practice and Procedure.
                                        -4-

[*4] the two Forms 211 and their attachments collectively as Mr. Worthington’s

“claim”.

      The entity or operation (“the Target”) as to which Mr. Worthington sent

information is the product of “interlocal agreements” in which the “component

entities” are county law enforcement agencies in a State. Mr. Worthington has

been involved in a controversy with the target and those agencies about whether,

in what sense, and to what extent the target is a “legal entity”. In an attachment to

his claim, Mr. Worthington summarizes the situation as follows:

      [Target] prosecutors write legal briefs and appear in administrative
      hearings claiming they are * * * [Target] and request monies for * * *
      [Target]. The court awards monies to * * * [Target]. Those illegal
      monies are disbursed to the component entities and * * * [Target]
      policy Board. (Exhibit 3)

      [Target] prosecutors write legal briefs requesting fines, fees, and
      restitution for * * * [Target]. Three separate * * * State Courts
      collect monies from defendants for * * * [Target]. (Exhibit 4.)

      The three courts send checks made out to * * * [Target], which get
      cashed and placed in the * * * [Target] fund. (Exhibit 5a, 5b, 5c and
      5d).

      The * * * [Target] policy Board spends the tax free monies on * * *
      [Target] employees, they could not have hired otherwise. * * *
      [Target] also agrees to reimburse the component entities for expenses
      out of the tax free illegal monies. (Exhibit 6a and 6b)
                                        -5-

[*5] [Target] component entit[i]es are judicially estopped from claiming
     * * * [Target] was a legal entity, having argued in multiple cases that
     * * * [Target] was not a legal entity. (Exhibit 7a and 7b)

      The * * * State Supreme Court runs a JIS system [Judicial
      Information System] which keeps track of the monies illegally
      collected for * * * [Target]. (Exhibit 8)

      The * * * State Courts have ruled that * * * [Target] does not legally
      exist and is also under the * * * County Umbrella. (Exhibit 9)

      The * * * State Legislature spends illegally collected * * * [Target]
      monies pursuant to a statute.

                   *      *     *      *      *      *     *

      In closing, * * * [Target’s] component entities knew they could not
      use * * * [Target] as a legal entity, yet they chose to use * * *
      [Target] as a legal entity and collected millions of dollars in illegal
      revenue from the year 200[0] to the year 2018.

      Millions of untaxed revenue was obtained using the admitted
      “non-entity[”] * * * [Target]. The illegally collected monies should
      be returned or the component entities should pay taxes on the revenue
      collected and spent by the * * * [Target] policy board on employees
      they knew they could not have.

      Organized crime statutes were violated knowingly and the U.S. Tax
      codes that routinely apply to organized crime organizations should
      also apply to these government entities or a clear double standard of
      justice would be created.

      Upon receipt of petitioner’s supplemental Form 211, the WBO sent

Mr. Worthington an acknowledgment letter dated March 22, 2019, informing him

that the WBO assigned a claim number to his claim.
                                         -6-

[*6] The WBO’s first referral to SB/SE

      On that same date, the WBO sent Mr. Worthington’s claim to a “classifier”

in the IRS’s Small Business/Self-Employed (“SB/SE”) Operating Division. His

claim was assigned to SB/SE Classifier Marie Holt.

      Ms. Holt in SB/SE completed what the Commissioner calls a “Classification

Sheet” (though it does not bear that title). It was undated but reflected

“Classification Research” dated “4/12/2019”. A blank entitled “IRC 7623(a)/(b)”

stated: “Allegations may meet 7623(b) criteria”. The “Allegation Summary” on

that sheet stated: “Organized Crime, RICO Act”; the “Classification’s

Recommendation” stated: “Criminal Investigation”; and the “Basis for the

Recommendation” stated the following four bullet points:

      •      Unable to identify the TP’s EIN through IDRS research on
             Accurint and IDRS.

      •      Reviewed the documents provided with Form 211in paper and
             on the USB drive.

      •      WB states that * * * [Target] is not a legal entity and should
             not be collecting funds. Documents provided were copies of
             checks written to * * * [Target]. It is not a federal tax IRS
             issue to determine if the TP is a legal entity to represent in
             court proceedings. Review of the documents for a federal tax
             issue was unsuccessful. Classifier has not found a federal tax
             issue for to [sic] be addressed by the IRS.
                                         -7-

[*7] •      WB has identified Organized Crime and RICO Act.
            Allegations involve amounts greater than $1M and Title 18 and
            31 allegations. Send this claim to Criminal investigation to
            consider. [Emphasis added.]

The WBO’s reaction to SB/SE’s Classification Sheet

      On April 18, 2019, Tax Examining Technician Ashlee George emailed

Program Manager Steven Mitzel and informed him that Mr. Worthington’s claim

met the referral criteria for criminal investigation. Ms. George had evidently

received Ms. Holt’s “Classification Sheet”. (From context it appears that

Ms. George and Mr. Mitzel both worked in the WBO.)

      However, when the claim was then forwarded to Laura Meis, a senior tax

analyst with the WBO, she emailed Ms. George as follows:

      We are not going to forward this claim to CI as a referral at this time.

      Since the classifier could not identify the entity, it is uncertain that
      there is unreported income.

      [Target] is a multi-jurisdictional narcotics task force serving * * *
      Counties. Callers have the option of giving their name or remaining
      anonymous. This is a 24 hour line to report suspected narcotics
      activity, i.e. Marijuana growing, drug houses, and meth labs.

      This is also what I found on researching this claim regarding the
      * * * [Target] taxpayer and the WB * * * [the whistleblower, i.e.,
      Mr. Worthington].
                                         -8-

[*8] Ms. Meis’s email then includes, from a court opinion, a long excerpt that

begins “Worthington sued * * * [Target] complaining of a * * * violation” of a

State statute that appears to be analogous to the Federal Freedom of Information

Act, 5 U.S.C. sec. 552 (2018). The excerpt includes: “We hold that * * * [Target]

is not a separate legal entity subject to suit. Accordingly, the * * * court properly

dismissed Worthington’s complaint for failure to state a claim. Affirmed.” The

court opinion that Ms. Meis quoted appears not to be in the certified

administrative record (except for her quotation of the excerpt). Ms. Meis’s email

concluded by stating:

      From this information, the allegation[s] in the filed F211 appear to be
      speculative. I recommend you return it to the classifier for
      consideration of this additional information and for additional
      research.

The WBO’s second referral to SB/SE

      As Ms. Meis recommended, Mr. Worthington’s claim was returned to

SB/SE “for 2nd look”. Ms. Holt in SB/SE then prepared another Classification

Sheet that updated the previous sheet completed April 12, 2019. On this updated

sheet the blank entitled “IRC 7623(a)/(b)” stated: “Treat as a 7623(a) claim for

purposes of the rejection. The allegations may describe an amount greater than

$2 million, but the claim lacks specific/credible information, is purely speculative
                                        -9-

[*9] in nature, or does not allege a tax issue”. The “Classification’s

Recommendation” stated not “Criminal Investigation” (as on the prior sheet) but

rather:

      Reject the Claim: Allegations are not specific, credible, or are
      speculative - Allegations are purely speculative in nature.

The sheet restated the four bullet points that were on her previous Classification

Sheet, 

pp. 6-7, and then added:

      •      Researched TP on Google classifier is still unable to identify
             the TP’s EIN.

      •      Reviewed information from CI Analyst. The allegations appear
             speculative, it appears this entity is not an independent legal
             entity. After reviewing the form 211 attachments, additional
             information found by CI it appears that the TP is not a legal
             entity. Allegations are speculative we are not able to
             verify/validate the alleged violations of the RICO Act and
             Organized Crime. No specific and credible information about a
             federal tax issue or noncompliance. Rejecting claim for failing
             to include specific and credible information to support a
             potential tax violation/allegation, as well as documentation to
             support the claim.

Mr. Worthington’s claim was then transmitted back to the WBO.

The WBO’s reaction to SB/SE’s second Classification Sheet

      On May 9, 2019, after reviewing the second Classification Sheet completed

by Ms. Holt in SB/SE, Ms. George drafted what the Commissioner calls an

“Award Recommendation Memorandum”. That title does not appear on the
                                       - 10 -

[*10] memorandum, which is in fact the same updated “Classification Sheet” that

Ms. Holt in SB/SE prepared--with her entry for “IRC 7623(a)/(b)”, her “Allegation

Summary”, the “Classification’s Recommendation”, and her bullet points giving

the “Basis for the Recommendation”. On the header of that form Ms. George

added her name as sender and, as the recipient, added “Keith DeHart-Manager,

Initial Claim Evaluation”. In a formerly blank box for “Summary

Recommendation” she added: “Recommended for rejection by classification.

Approval to issue the rejection letter authorized under the Delegation Order, dated

July 14, 2016”.

Determination letter

      On May 9, 2019, the WBO mailed to Mr. Worthington a “Final Decision

Under Section 7623(a)” that stated as follows:

      The Whistleblower Office has considered your Form 211, Application
      for Award for Original Information, dated 12/10/2018. Internal
      Revenue Code section 7623 provides that an award may be paid only
      if the information provided results in the collection of tax, penalties,
      interest, additions to tax, or additional amounts. The Whistleblower
      Office has made a final decision to reject your claim for an award.

      The claim has been rejected because the IRS decided not to pursue
      the information you provided.

      This letter is a final determination for purposes of filing a petition
      with the United States Tax Court. If you disagree with this
      determination, you have 30 days from the date of this letter to file a
                                        - 11 -

[*11] petition with the Tax Court. Information about filing a petition can
      be found on the Tax Court’s website. * * *

Tax Court proceedings

      On June 3, 2019, Mr. Worthington filed his petition with this Court.

      On March 4, 2020, the Commissioner filed his motion for summary

judgment, along with a supporting declaration, and exhibits. (The Commissioner

also filed a certification of the administrative record and the documents in that

record.) The Commissioner’s motion asks us to hold that “the Whistleblower

Office did not abuse its discretion in rejecting petitioner’s claim for award” and

also asserts that “the Whistleblower Office did not abuse its discretion in denying

petitioner’s claim for award”. (Emphasis added.)

      Mr. Worthington filed a cross-motion that asserts the WBO abused its

discretion in two respects: (1) He states that “the final denial was based upon the

decision of the agency employee made prior to the supplemental information. * * *

In fact they admit on the record to deciding not to use the information, while using

a classification sheet that stated there was no supporting documentation.” (2) He

states that “the agency decision was improperly made pursuant to 7623(a) when it

should have been made pursuant to 7623(b).”
                                        - 12 -

[*12]                                Discussion

I.      Summary judgment standards

        Both parties have filed motions for “summary judgment”, and the

Commissioner’s motion explicitly invokes Rule 121 (the Tax Court’s analog to

Rule 56 of the Federal Rules of Civil Procedure). Generally speaking, under

Rule 121(b) the Court may grant summary judgment when “there is no genuine

dispute as to any material fact and * * * a decision may be rendered as a matter of

law.” Sundstrand Corp. v. Commissioner, 

, 520 (1992), aff’d, 

(7th Cir. 1994). The Commissioner’s motion recites this standard.

        However, we have recently observed that--

        this summary judgment standard is not generally apt where we must
        confine ourselves to the administrative record to decide whether there
        has been an abuse of discretion. * * * [I]n a “record rule”
        whistleblower case there will not be a trial on the merits. In such a
        case involving review of final agency action under the APA,
        summary judgment serves as a mechanism for deciding, as a matter of
        law, whether the agency action is supported by the administrative
        record and is not arbitrary, capricious, an abuse of discretion, or
        otherwise not in accordance with law. * * *

Van Bemmelen v. Commissioner, 155 T.C. __, __ (slip op. at 25-26) (Aug. 27,

2020). As we explain below, neither party’s motion for summary judgment is

supported by the administrative record.
                                        - 13 -

[*13] II.    Whistleblower principles

      A.     Threshold evaluation and rejection

      Section 7623(b) provides the circumstances in which the IRS shall give (in

the words of the title to subsection (b)) “Awards to Whistleblowers” and charges

the WBO with performing the initial evaluation of whistleblower claims to

determine whether they meet the minimum standards for an award. See 26 C.F.R.

sec. 301.7623-1(c)(4), Proced. & Admin. Regs. This initial evaluation occurs

before any further action on the information set forth in the claim. The threshold

criteria by which the WBO evaluates a claim’s potential eligibility for an award

include that the claim:

      •      “contain[s] specific * * * information”;

      •      “contain[s] * * * credible information”;

      •      provides “information that the whistleblower believes will lead
             to collected [tax] proceeds”;

      •      reports “fail[ure] to comply with the internal revenue laws”;

      •      “identif[ies] the person(s) believed to have failed to comply
             with the internal revenue laws”;

      •      “provide[s] substantive information, including all available
             documentation”; and

      •      does not “provide speculative information”.
                                        - 14 -

[*14] Lacey v. Commissioner, 

, 160 (2019) (quoting 26 C.F.R. sec.

301.7623-1(c)(1), (4)).

      If a claim fails to meet those criteria, then the WBO may summarily “reject”

the claim without further consideration. “A rejection is a determination that

relates solely to the whistleblower and the information on the face of the claim that

pertains to the whistleblower.” 26 C.F.R. sec. 301.7623-3(c)(7). Such a threshold

rejection by the WBO will necessarily preclude any subsequent administrative or

judicial action against any taxpayer and any subsequent collection of proceeds

from the taxpayer on the basis of the information provided. See Lacey v.

Commissioner, 

.

      B.     Substantive consideration and denial

      A “denial” is different from a “rejection”. “A denial is a determination that

relates to or implicates taxpayer information.” 26 C.F.R. sec. 301.7623-3(c)(8).

The WBO handles a denial of a claim similarly to a rejection, in that both

determinations result in the WBO’s providing written notice to the taxpayer

stating that it declines to make an award and giving the basis for its determination.

See

and (8). The WBO’s denial of a claim indicates that

“the IRS either did not proceed based on the information provided by the

whistleblower * * * or did not collect proceeds” as a result of proceeding against
                                        - 15 -

[*15] the taxpayer on the basis of the whistleblower’s information.

denial is a determination that is made after the WBO engages in some

substantive consideration of the claim. See Lacey v. Commissioner, 

.

      C.     Standard and scope of Tax Court review of whistleblower awards

      Section 7623(b)(4) provides that a “determination regarding an award” may

be “appealed to the Tax Court (and the Tax Court shall have jurisdiction with

respect to such matter).” As we held in Kasper v. Commissioner, 

,

21-23 (2018), in a whistleblower case our review is generally restricted to the

administrative record, and we review the WBO’s determinations not de novo but

rather for abuse of discretion. An abuse of discretion exists when a determination

is arbitrary, capricious, or without sound basis in fact or law. Murphy v.

Commissioner, 

, 320 (2005), aff’d, 

(1st Cir. 2006).

      D.     Review of stated grounds

      In Lacey v. Commissioner, 

, we held that when we review

for abuse of discretion the WBO’s summary rejection of a claim, we review the

WBO’s stated grounds that the claim failed to meet certain threshold requirements.

In that circumstance we do not sustain the rejection on the unstated grounds that

there has been no administrative or judicial action initiated by, nor proceeds
                                        - 16 -

[*16] collected by, the IRS as a result of the information that is the basis of the

whistleblower’s claim. That is, we review the determination that the WBO

actually made, as reflected in its determination letter, and not a hypothetical

determination that it did not actually make.

       E.    No power to order an audit

       The Tax Court does “not review the IRS’s decision whether to audit a target

in response to a whistleblower’s claim and * * * we have no authority to require

the IRS to explain a decision not to audit.”

       We now apply the foregoing principles to rule on the pending motions.

III.   Mr. Worthington’s motion

       Mr. Worthington makes two contentions that we address here.

       A.    Failure to analyze

       Mr. Worthington argues that the WBO failed wholesale to analyze his

“supplemental information”, by which he means his second Form 211 (and the

documents he sent with it). He therefore asks us to “order strict compliance with

the intent of congress and the IRS manual, to ‘require the whistleblower office to

analyze whistleblower claims’ and analyze them under the proper IRS codes

supported by form 211.” For two reasons we reject this argument.
                                         - 17 -

[*17]         1.     Lack of factual support

        The record before us does not support Mr. Worthington’s contention. His

motion asserts that--

        the agency did not analyze those claims once the supplemental
        information was provided. By not doing the analytical requirement
        and doing them under the wrong statute, the Agency violated the IRS
        codes and the intent of Congress in Public Law 109-432.

              The agency record shows the final denial was based upon the
        decision of the agency employee made prior to the supplemental
        information. * * * In fact they admit on the record to deciding not to
        use the information, while using a classification sheet that stated there
        was no supporting documentation.

That is, Mr. Worthington’s assertion that the WBO ignored his supplemental

information is simply an inference he makes from the Classification Sheet:

        [T]hat classification sheet stated “Allegations are not specific,
        credible, or are speculative. allegations are purely speculative in
        nature.” That classification sheet did not include any analysis of the
        supplemental information. In short, the agency record shows the
        agency used the previous classification prior to the supplemental
        information sheet to deny the claims and did not send the
        supplemental information for agency analysis as required by law and
        the Agency manuals.

Mr. Worthington thinks that because (in his view) the statements on the

classification sheets are so wrong in light of his submission, the WBO must have

ignored his submission. It is not so. The Classification Sheets and emails that we

quote above show that the personnel who composed them did learn about the
                                         - 18 -

[*18] Target from Mr. Worthington’s submissions. But they evidently concluded

that evidence was lacking to show key propositions about the Target’s

circumstance that would be necessary to any collection of tax proceeds. The

administrative record does not support his contention that the WBO failed to

consider his claim.

             2.       “Forcing an investigation”

      Aware of this Court’s holdings that we do not have power to order the IRS

to perform an audit, see Lacey v. Commissioner, 

,

Mr. Worthington insists that is not what he is attempting:

      This appeal is not about forcing an investigation, it is about forcing
      the analytical requirements of the statutes and the IRS manuals
      themselves, and under the right award threshold outlined in TRS [sic]
      26 7623(b) not TRS 26 7623(a).

But what Mr. Worthington asks is that we “order strict compliance with the intent

of congress and the IRS manual, to ‘require the whistleblower office to analyze

whistleblower claims’ and analyze them under the proper IRS codes supported by

form 211.” As against the Commissioner’s response that the WBO did analyze his

claim, he replies in effect that we should order the WBO to really analyze it, and

that we should oversee the WBO’s performance to assure its “strict compliance”.

Though he evidently knows not to say it in so many words, what Mr. Worthington
                                       - 19 -

[*19] is asking us to do is to order the IRS to examine the Target--and then to

supervise that audit. This we cannot do.

      B.     Mandatory vs. discretionary award

      Mr. Worthington also faults the WBO’s final determination for labeling his

claim not as a claim for a “mandatory” award under section 7623(b) but instead as

a claim for a discretionary award under section 7623(a). He contends:

“Moreover, the agency has also now admitted the agency decision was improperly

made pursuant to 7623(a) when it should have been made pursuant to 7623(b).”

      Section 7623(b) provides for certain awards that the whistleblower “shall

* * * receive” (i.e., so-called “mandatory” awards), and it applies only where “the

proceeds in dispute [in an action between the IRS and the target taxpayer, see

26 C.F.R. sec. 301.7623-2(e)] exceed $2,000,000.” Sec. 7623(b)(5)(B). For lesser

amounts “the Secretary * * * is authorized to pay such sums as he deems

necessary” (so-called “discretionary” awards) under section 7623(a).

Mr. Worthington asserts (and for purposes of this opinion we assume) that the

WBO construed his claim as discretionary under section 7623(a) because it

reckoned incorrectly that less than $2 million was in dispute in connection with

the claim. But this assertion has no effect on our ruling on either party’s motion.
                                        - 20 -

[*20] We have held that the $2 million “in dispute” provision of section

7623(b)(5)(B) “is not a jurisdictional requirement” but, rather, is an affirmative

defense upon which the Commissioner bears the burden of proof , see Lippolis v.

Commissioner, 

, 400 (2014), and which he has not pleaded here, see

That is, where the WBO denies or rejects a whistleblower claim, we

have jurisdiction to review its final determination whether or not the amount in

dispute turns out to be $2 million. Consistent with that holding, the WBO issued

to Mr. Worthington a determination that explicitly states: “This letter is a final

determination for purposes of filing a petition with the United States Tax Court.”

We have jurisdiction to review that determination, and the Commissioner does not

contend otherwise. Moreover, in a case like this one, where there has been no

collection action, the WBO’s analyzing the claim under section 7623(a) as

opposed to section 7623(b) makes no practical difference, and we perceive no

harm to Mr. Worthington as a result of the label used by the WBO.

      We will deny Mr. Worthington’s motion. The WBO did not fail to consider

his claim, and we cannot grant his request that we order the IRS to use his

information to examine the Target.
                                        - 21 -

[*21] IV.    The Commissioner’s motion

      We will deny the Commissioner’s motion because it is unclear whether the

WBO’s final determination is a rejection of the claim or a denial of the claim, and

the motion perpetuates that ambiguity. As we noted above, “rejection” and

“denial” are two distinct rulings. According to the regulations, a “rejection” is a

threshold ruling made on the basis of defects on the face of the claim itself,

26 C.F.R. sec. 301.7623-3(c)(7); and a “denial” indicates that “the IRS either did

not proceed based on the information provided by the whistleblower * * * or did

not collect proceeds” as a result of proceeding against the taxpayer on the basis of

the whistleblower’s information

final determination issued

by the WBO to Mr. Worthington fails to reflect this distinction.

      A.     Inconsistency in the administrative record

      The facts in the administrative record (set out in the “Background” above)

fail to make a sufficient distinction between insufficiency on the face of the claim

(which would warrant rejection of the claim) and a decision not to proceed with an

examination (which would warrant denial of the claim).

             1.    SB/SE’s action

      SB/SE personnel made the initial classification of Mr. Worthington’s claim

and recommended “rejection” on its face rather than “denial” on its merits. The
                                        - 22 -

[*22] Commissioner states in his motion that he “disagrees with the implication in

Lacey that only the IRS Operating Divisions can make a decision not to proceed

with an action. 

, slip. op. at *36.” But then, in order to assert that

the determination at issue here did involve an IRS operating division’s

(unreviewable) decision not to audit, the Commissioner argues that “SB/SE

Classifier Holt reviewed the claim and declined to refer the claim for examination

and instead decided that the IRS should not further investigate petitioner’s claim.”

Thus, he seems to follow the flaw he sees in Lacey in order to argue that if the

decision was made by SB/SE, then it must be an unreviewable audit decision on

the merits.

      Lacey did observe an essentially binary regime, suggested in the regulations

and borne out in the facts in Lacey, in which the WBO made the initial threshold

judgments about defects on the face of the claim and then an operating division

made the decision whether or not to audit. However, after the occurrence of the

facts on which our Opinion in Lacey was predicated, the claim evaluation function

of the WBO was realigned: The operation of this function is now shared by the

SB/SE Operating Division, which is an operating division of the IRS.

Specifically, the more recent Internal Revenue Manual pt. 1.1.26.1.3.5 (Jan. 11,

2018), states as follows for “Initial Claims Evaluation”:
                                         - 23 -

[*23]         (1) Effective July 10, 2016, * * * the Initial Claim Evaluation
        Team (ICE) [of the WBO], was realigned to Small
        Business/Self-Employed (SB/SE). ICE will continue to act as the
        primary receipt and control function responsible for performing
        whistleblower claim intake, monitoring, [and] award processing * * *.

             (2) The Whistleblower Office has strategy, policy,
        administration, oversight, review, and reporting responsibility for the
        IRS Whistleblower Program. * * *

              (3) SB/SE has operational responsibility for the ICE Unit.
        ***

We do not consider it improper for the IRS to reorganize itself to allocate the

initial classification function to SB/SE and to allocate some audit decisions to the

WBO. See Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432,

sec. 406(b)(1)(B), 120 Stat. at 2960 (providing that the WBO “shall analyze

information received from any individual * * * and either investigate the matter

itself or assign it to the appropriate Internal Revenue Service office”).

        If such an allocation of duties is permissible, then the issue is not which IRS

office made the determination but rather what the nature of that determination was.

The administrative record in this case does not show Ms. Holt as the decision-

maker. Her function was that of a classifier making the threshold evaluation of the

sufficiency of the claim on its face, and it was evidently Ms. Meis in the WBO

who overruled her initial recommendation of referral to the Criminal Investigation
                                         - 24 -

[*24] division and, in effect, told her to re-do her Classification Sheet and

recommend rejection on the grounds that the claim was speculative (consistent

with rejection). Ms. Holt did so, and SB/SE’s action was therefore consistent with

rejection (not denial) of the claim.

             2.     The WBO’s action

      However, Ms. Meis (the WBO official who gave Ms. Holt that instruction)

had herself done “research” outside the claim and urged Ms. Holt to do more

“research” herself. Such research seems to be inconsistent with what the

regulations provide concerning a threshold rejection, and this “research” by both

SB/SE and the WBO tends toward characterizing the subsequent action as a

denial. However, if the determination was a denial, not an action based solely on

the claim, then the information generated in the research should have been

included in the administrative record. Evidently it was not. The court opinion that

Ms. Meis quotes in her email seems to be missing from that record (except for the

excerpt that she quotes). So it is difficult to characterize the process set out in the

administrative record as leading to either rejection or denial.
                                         - 25 -

[*25]         3.    The WBO’s final determination

        Our review is made somewhat simpler, however, by the principle that, as we

stated above, 

pt. II.D, what we review is the actual determination

reflected in the WBO’s letter. When we look to the final determination letter sent

to Mr. Worthington, we see an apparent self-contradiction. It states: “The claim

has been rejected because the IRS decided not to pursue the information you

provided.” (Emphasis added.) “[D]ecid[ing] not to pursue the information” would

seem, under the regulations,2 to indicate a denial; but the letter says the claim is

being rejected. This inconsistency in the final determination letter likewise

appears in the Commissioner’s motion, which we now discuss.

        B.    Inconsistency in the motion

        The motion asks us to hold that “the Whistleblower Office did not abuse its

discretion in rejecting petitioner’s claim for award” and also asserts that “the

Whistleblower Office did not abuse its discretion in denying petitioner’s claim for

award”. (Emphasis added.) This inconsistency recurs throughout the motion.




        2
       See 26 C.F.R. sec. 301.7623-3(c)(8) (providing for “denial” where “the IRS
* * * did not proceed based on the information provided by the whistleblower”).
                                         - 26 -

[*26]         1.     Rejection in the motion

        On the one hand, the motion frequently repeats that the WBO “rejected”

Mr. Worthington’s claim. It asserts--consistent with a rejection--that various

personnel determined that the claim was “speculative”, that its “[a]llegations are

not specific, credible, or are speculative”, that it “fail[ed] to include specific and

credible information to support a potential tax violation, as well as * * * fail[ed] to

provide documentation to support the claim”.

        If “rejection” is the correct characterization, then we would need to decide

whether the WBO abused its discretion in making a threshold determination that

the claim was speculative or failed to allege a tax issue. But no coherent

determination of rejection was stated by the WBO in its final determination nor

defended by the Commissioner in his motion. The Commissioner has not made an

argument justifying a threshold rejection.

              2.     Denial in the motion

        On the other hand, the motion also makes assertions consistent with a denial

of the claim, stating for example:

               30. Respondent did not proceed with an administrative or
        judicial action against the purported taxpayer and did not collect any
        proceeds based on petitioner’s information. * * *
                                        - 27 -

[*27] To the same effect, the Commissioner’s reply seems to presuppose a denial

when it states: “[T]he SB/SE Operating Division * * * declined to commence an

audit.” Consistent with a denial, the motion also asserts:

      [T]he Whistleblower Office reviewed petitioner’s claim and sent the
      claim to the SB/SE Operating Division for investigation. * * * SB/SE
      Classifier Holt reviewed the claim and declined to refer the claim for
      examination and instead decided that the IRS should not further
      investigate petitioner’s claim. * * * SB/SE Classifier Holt conveyed
      the decision not to pursue petitioner’s claim to the Whistleblower
      Office. * * *

But the motion then seems to veer in order to state: “Therefore, the Whistleblower

Office rejected petitioner’s claim”. (Emphasis added.) In the next sentence,

however, the motion rights itself and states: “Because the undisputed material

facts demonstrate the Whistleblower Office did not abuse its discretion in denying

petitioner’s claim for award, this Court should grant respondent’s motion.”

(Emphasis added.) We cannot grant the Commissioner’s motion, because we

cannot discern in it--nor in the WBO’s final determination--a coherent ruling

consistent with the regulations and supported by the administrative record.

      The problem, we stress, is not simply that of a poorly drafted determination.

If the final determination made a “rejection” that it explained poorly but that the

administrative record justified, then we might be able to sustain the rejection. Or

if the final determination made a “denial” that it explained poorly but that the
                                        - 28 -

[*28] administrative record justified, then we might be able to sustain the denial.3

But in this instance we cannot tell what the WBO actually determined, and this

unclarity in the final determination letter corresponds to a lack of clarity that arose

in the preceding administrative process and that recurred thereafter in the

Commissioner’s motion. We will therefore deny the motion and will order the

parties to show cause why the case should not be remanded to the WBO for further

consideration.

      To reflect the foregoing,


                                                 An appropriate order will be

                                        issued.




      3
       Cf. Tourus Records, Inc. v. DEA, 

, 739 (D.C. Cir. 2001)
(“Although the notice by which the DEA denied Tourus’ application to proceed in
forma pauperis was insufficient to satisfy the requirements of the APA, the
internal memoranda upon which it was based are sufficient”). By selective
quotation and generous use of ellipses, we could edit the WBO’s final
determination letter to appear to state either a rejection or a denial and could then
excerpt sentences from the administrative record as a justification for the approach
we had chosen. But Tourus does not suggest this method, which would constitute
not a discernment of the WBO’s actual determination but rather a concoction of
our own.