MICHAEL LISSACK, APPELLANT v. COMMISSIONER OF INTERNAL REVENUE, APPELLEE
No. 21-1268
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 2022 Decided May 26, 2023
On Appeal from a Decision of the United States Tax Court
Brian C. Wille and Usman Mohammad were on the brief for amicus curiae Whistleblower 1109-13W in support of appellant.
Dean Zerbe and Stephen M. Kohn were on the brief for amicus curiae National Whistleblower Center in support of appellant.
Julie Ciamporcero Avetta, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief was Bruce R. Ellisen, Attorney.
Opinion for the Court filed by Circuit Judge PILLARD.
PILLARD, Circuit Judge:
Lissack submitted information to the IRS that he thought showed that a condominium development group evaded taxes through its treatment of golf-club-membership deposits. The IRS deemed the information Lissack submitted sufficiently specific and credible to warrant opening an examination, but later concluded that the membership deposits were correctly reported. Through its own further investigation, however, the IRS discovered an unrelated problem: The same development
We hold that the Tax Court had jurisdiction and that the challenged provisions of the rule are consistent with the tax whistleblower statute. Because the IRS Whistleblower Office‘s denial of an award to Lissack rests on a reasonable application of a valid rule to the facts reflected in the administrative record, we affirm.
BACKGROUND
A.
The Internal Revenue Service (IRS or Service) has authority under
Under the mandatory-award provision, a whistleblower “shall . . . receive” an award if the IRS “proceeds with any administrative or judicial action described in subsection (a)“—i.e., detecting underpayments or detecting and bringing evaders to judgment—“based on information brought to the Secretary‘s attention by” the whistleblower.
B.
Lissack challenges three parts of a Treasury Department regulation we refer to as the Whistleblower Definitions Rule: (1) the definition of “administrative action,” (2) one of the examples illustrating what counts as the Service “proceed[ing]” with an administrative action “based on” whistleblower information, and (3) the definition of “related action.”
Recall that an award is mandatory under the statute if the IRS “proceeds with any administrative or judicial action” that is “based on” the whistleblower‘s information.
In defining how the Service “proceeds” with an action “based on” whistleblower information,
The regulatory definitions of “administrative action” and “proceeds based on” work together. These provisions allow the IRS to consider investigations into tax issues unrelated to the whistleblower submission as separate administrative actions. The upshot is that a whistleblower whose information may have “substantially contributed” to a fruitless action against a person is not entitled to share proceeds from a distinct action against that same person that did not draw on the whistleblower‘s information. As the agency explained in the preamble to the final regulations, “the tax administration process is a long and multi-faceted one that may extend over the course of many years and may involve multiple substantial contributions from different sources.” Awards for Information Relating to Detecting Underpayments of Tax or Violations of the Internal Revenue Laws, 79 Fed. Reg. 47,246, 47,262/3 (Aug. 12, 2014) (codified at
The Whistleblower Definitions Rule includes some examples illustrating rule applications. The challenged Example Two to the definition of “proceeds based on” describes cases in which the IRS‘s investigation of a whistleblower submission uncovers “additional facts that are unrelated to the activities described in the information provided by the whistleblower,” leading the Service to examine issues other than those the whistleblower identified.
The Whistleblower Definitions Rule also interprets the statutory term “related actions.”
C.
In 2009, Michael Lissack filed with the IRS Whistleblower Office an Application for Award for Original Information (Form 211). He submitted almost 200 pages of material identifying a condominium development group and showing why he thought it had underpaid its taxes on golf club memberships. Lissack contended that, after making membership deposits nonrefundable in 2008, the development group should have reported the retained deposits to the IRS as gross income.
Lissack‘s information led to an IRS examination into the development group. A senior tax analyst in the Whistleblower Office determined that Lissack‘s submission identified a tax issue and referred it to the IRS Large Business and International Division. A revenue agent in that division opened an investigation into Lissack‘s information and sent progress reports to the Whistleblower Office. In a 2011 report, the revenue agent explained that, before receiving Lissack‘s submission, the IRS had not planned to investigate the development group, but the information Lissack provided “was sufficient to warrant beginning of examination.” Lissack v. Comm‘r, 157 T.C. 63, 66 (2021). In other words, the revenue agent acknowledged that Lissack‘s submission was the reason the IRS opened an examination. The following month, the revenue agent reported that he had fully researched the membership-deposit tax issue and concluded that the development group reported the deposits correctly. The agent further reported that, during his investigation, he discovered a
In 2017, the Whistleblower Office denied Lissack‘s claim for an award. In the final determination letter, the Whistleblower Office informed Lissack that his claim was denied “because the IRS took no action on the issues you raised.” J.A. 16. “After receipt of your information,” the letter explained, “the IRS initiated an examination” of the development group, “and the IRS reviewed the information you provided as part of that examination. However, that review did not result in the assessment of additional tax, penalties, interest or additional amounts with respect to the issues you raised.” J.A. 16. Finally, the letter informed Lissack that the IRS did assess additional taxes against the taxpayer, “but the information you provided was not relevant to those issues.” J.A. 16.
Lissack petitioned the Tax Court to review the Whistleblower Office‘s adverse decision on his application for an award. The IRS moved for summary judgment based on the relevant portion of the administrative record and a declaration from the Whistleblower Office analyst assigned to Lissack‘s claim. Lissack filed a cross-motion for partial summary judgment, arguing the Service misapplied its own rule and
In the decision now under review, the Tax Court granted summary judgment in full in favor of the IRS. In a carefully reasoned opinion, the Tax Court held that, although the IRS “did initiate an action” based on the information Lissack provided regarding membership deposits, he “is not eligible for a whistleblower award” because “the IRS did not collect any proceeds ‘as a result of th[is] action‘” or any “related action.” Lissack, 157 T.C. at 69-70 (alteration in original) (quoting
In granting summary judgment, the Tax Court had “no difficulty concluding that the regulation passes muster” under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Lissack, 157 T.C. at 74. The court noted that the statute “does not describe or define an ‘administrative or judicial action‘” so, as relevant here, “leaves ample scope to the Secretary to define the term” to refer to “‘all or a portion of’ an IRS civil or criminal proceeding.” Id. at 72 (quoting
The Tax Court also rejected Lissack‘s remaining two arguments. First, the court held that the investigation into the bad debt was not a “related action,” under the IRS‘s definition of that term, to the action on the membership-deposit issue Lissack identified. Id. at 76 (citing
Lissack moved to vacate or revise the summary judgment decision, and for reconsideration, but the Tax Court denied reconsideration. This appeal of the Tax Court decisions followed.
The IRS argues that the Tax Court lacked jurisdiction over Lissack‘s appeal, and in any event reached the correct result. Lissack counters that the Tax Court correctly exercised jurisdiction but erred in granting summary judgment to the IRS because the Whistleblower Definitions Rule conflicts with the statute, a genuine factual dispute remains over whether the revenue agent relied on Lissack‘s submission, and the administrative record was incomplete without the entire examination file. We hold that the Tax Court had jurisdiction, the Rule is consistent with the statute, and the Tax Court correctly decided summary judgment on a sufficient administrative record that Lissack never sought to supplement.
A. The Tax Court had jurisdiction.
“Any determination regarding an award under” subsection
By its plain terms, subsection (b)(4)‘s jurisdictional grant applies to “[a]ny determination regarding an award.”
The Service challenges the Tax Court‘s jurisdiction based on Li v. Commissioner, 22 F.4th 1014. We held in Li that a threshold rejection of a Form 211 (i.e., an application for a mandatory award) was not a reviewable “award determination under subsection (b)(1)-(3).” Id. at 1016; see id. at 1017-18. The Whistleblower Office had concluded that Li‘s Form 211 provided only “vague and speculative information it could not corroborate, even after examining supplemental material Li herself did not provide,” so the Office did not even forward Li‘s submission to an IRS examiner. Id. at 1017. We referred to the text of
The Service contends that our logic in Li—looking to when the IRS “proceeds with” an action per
The fact that the IRS conducted an examination here suffices to distinguish Lissack‘s case from Li. Li never claimed that the IRS proceeded with any administrative or judicial action against the target taxpayer based on her submission. Li, 22 F.4th at 1017 n.2. Here, by contrast, there is no dispute that the Whistleblower Office referred Lissack‘s submission to the IRS, and an IRS revenue agent initiated an examination of the membership-deposits issue that Lissack identified. That referral and examination count as the IRS “proceed[ing] with” an “administrative action” that was “based on” the information Lissack brought to the Secretary‘s attention.
In sum, contrary to the Service‘s position, 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. An “unusually high degree of clarity” is required to treat statutory requirements as jurisdictional, Myers, 928 F.3d at 1035, and, as just explained,
Consistent with the plain terms and structure of the statute and our decision in Li, the Tax Court had jurisdiction over Lissack‘s appeal.
B. The challenged regulations are consistent with the tax whistleblower statute.
Lissack challenges three provisions of the Whistleblower Definitions Rule. As a general matter, we review the decisions of the Tax Court “in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury.”
1.
Lissack argues that, under the plain language of the statute, he is entitled to a whistleblower award because the IRS would not have opened an examination into the condominium group‘s tax problems but for his submission. He challenges the regulatory provisions that control the IRS‘s determinations whether any proceeds were “collected as a result of” an IRS “administrative action” to which a whistleblower “substantially contributed.”
We hold that the IRS definition of “administrative action” and Example Two are permissible interpretations of
“We begin, as in any case of statutory interpretation, with the language of the statute.” CSX Transp., Inc. v. Ala. Dep‘t of Revenue, 562 U.S. 277, 283 (2011). Subsection (b) of
The statute does not further define “administrative action,” so we look to the ordinary meaning of the phrase. See CSX Transp., Inc., 562 U.S. at 284. “Administrative” describes “administration,” meaning “[t]he executive branch of a government.” WEBSTER‘S II DICTIONARY 11 (3d ed. 2005). “Action” is “[a]n act or deed.”
Two other phrases from
The IRS‘s reading of “proceeds based on” gains support from the statutory requirement that the whistleblower information have “substantially contributed” to a recovery.
Lissack also rests on what he claims is relevant past practice of the IRS of treating an examination as a single administrative action. He says that when Congress amended the statute in 2006 to add mandatory whistleblower awards, it intended to incorporate the IRS‘s then-existing practice. Pointing to a committee staff summary of the 2006 amendments, Lissack contends it shows the IRS had no prior practice of identifying distinct administrative actions within a larger examination. Lissack‘s past-practice argument misses the mark. Before 2006, whistleblower awards were entirely at the discretion of the IRS, § 1209, 110 Stat. at 1473, so the statute did not specify how the Service might parse the roles of whistleblower submissions in its proceedings. We are unpersuaded that the Service‘s practice under the discretionary regime informs wholly new requirements under mandatory-award provisions of the 2006 Act.
In sum, Lissack “fails to show that the language of [
We turn, therefore, to the second step of our Chevron analysis, deferring to the agency‘s interpretation “as long as it
Lissack defends his but-for approach, arguing that he provided “valuable information” by informing the IRS that the development group taxpayers “are the type of taxpayers to misstate their tax liability generally, and debt in particular.” Appellant‘s Br. 10. But there is “no statutory requirement that [the IRS] follow such an approach.” Clean Air Project, 891 F.3d at 1051. Rather, there is ample reason to doubt that Congress meant to entitle whistleblowers to substantial awards just for raising plausible but meritless concerns about taxpayers who, on investigation by the IRS, turn out to be noncompliant in some other, unrelated way. Such a regime likely would encourage whistleblowers to flyspeck major taxpayers, identifying any plausible underpayment in the hope of triggering an examination yielding some other, major adjustment. The IRS approach, in contrast, calibrates mandatory awards to the fruits of the particular IRS actions that the whistleblower‘s information substantially assists.
2.
Lissack also argues that the IRS‘s definition of “related action,”
Under the mandatory-award provision, the IRS must pay whistleblowers awards amounting to 15 to 30 percent “of the proceeds collected as a result of the action (including any related actions).”
In Lissack‘s view, the plain meaning of the statutory reference to “related actions” also includes actions that are against the same taxpayer but involve taxpayer activities different from those identified in the whistleblower‘s submission. Lissack invokes ordinary meanings of “related” as “belonging to the same family, group, or type; connected,” Appellant‘s Br. 35 (quoting an unidentified edition of the Oxford English Dictionary), and he asserts that the IRS investigation of the condominium development group‘s bad debt was necessarily “related” to the membership-deposits problem his submission identified. But even if we accept his definition of “related,” that definition does not compel Lissack‘s reading of the statute. An action could be “connected” to the original action if it involved the same facts, as the IRS contends, or if it involved the same taxpayer, as Lissack contends. Lissack‘s dictionary definition of “related” does not foreclose the IRS‘s interpretation.
Lissack further argues that Congress would have chosen a narrower term than “related” had it intended the IRS‘s reading. Because “Congress never limited related actions to actions relating to another taxpayer, which it easily could have,” Lissack says, the IRS should not be able to include that limitation in its definition.
Lissack also seeks support in the treatment of “related actions” under the False Claims Act, but that analogy is unhelpful. “Actions are ‘related‘” under the False Claims Act “if they assert the ‘same material elements of fraud’ as an earlier suit, even if the allegations ‘incorporate somewhat different details.‘” United States ex rel. Heath v. AT & T, Inc., 791 F.3d 112, 116 (D.C. Cir. 2015) (quoting United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217 (D.C. Cir. 2003)). The Tax Court held the False Claims Act definition “has no application to a tax case such as this,” and that its definition was in any event unmet here, where “the IRS did not just pursue ‘a different legal theory’ for the membership deposits issue,” but proceeded on “an entirely unrelated issue—the bad debt deduction—that was governed by different law and different facts.” Lissack, 157 T.C. at 77. We agree that, even if the False Claims Act standard applied, Lissack‘s submission about the membership-deposits issue did not relate to the bad-debt issue in a way that would meet that standard.
Lissack has not established that the statute forecloses the Rule defining “related action,” and he does not contend that the definition is unreasonable or otherwise contrary to the APA.
C. The Tax Court had no obligation to conduct a trial de novo.
In challenging the Tax Court‘s affirmance of the Whistleblower Office determination denying him an award under
The parties agree that we review legal rulings of the Tax Court de novo, including rulings on motions for summary judgment, Byers, 740 F.3d at 675, but they dispute the correct standard of review in the Tax Court. Lissack argues that the Tax Court should review determinations of the Whistleblower Office “as it reviews cases under the Tax Court‘s original deficiency jurisdiction,” Appellant‘s Br. 40—by “trial de novo,” Ax v. Comm‘r, 146 T.C. 153, 161 (2016)—instead of confining its review to the administrative record. Lissack critiques the Tax Court‘s decision in Kasper v. Commissioner, 150 T.C. 8 (2018), which held that the Tax Court reviews whistleblower award decisions under APA section 706(2)(A) based on the administrative record. Id. at 14-15, 20-22. Two amici join Lissack to argue that de novo factfinding by the Tax Court would better serve Congress‘s intent to establish meaningful review of Whistleblower Office decisions.
The IRS defends the standard of review established in Kasper. It also argues that we have no occasion here to reach the issue “because the denial of Lissack‘s claim was correct under any standard of review.” IRS Br. 45. We agree that the Tax Court‘s decision is correct under any standard of review, so we have no occasion to pass on the merits of Kasper.
Lissack‘s appeal is comprised of legal questions, including (1) the validity of the Whistleblower Definitions Rule, (2) whether material disputes of fact preclude summary judgment, and (3) the adequacy of the record before the Tax Court.
First, in resolving Lissack‘s legal challenges to the IRS‘s interpretations of relevant statutory terms, the Tax Court and this court have each conducted de novo review to identify
Second, the propriety of summary judgment is likewise a legal question considered de novo. Lissack asserts that the Tax Court should not have granted summary judgment because key record facts are disputed, but he fails to show that to be the case. A factual dispute is “material,” precluding summary judgment, only “if its resolution ‘might affect the outcome of the suit.‘” Trudel v. SunTrust Bank, 924 F.3d 1281, 1285 (D.C. Cir. 2019) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The IRS agrees with Lissack‘s factual assertion that it would not have opened any examination of the condominium group if not for Lissack‘s Form 211. The problem for Lissack is that the but-for causal link he emphasizes is legally insufficient to support his claim.
We, like the Tax Court, recognize that the IRS would have made no tax adjustment on the bad debt if it had not opened an examination on Lissack‘s submission regarding the taxpayer‘s treatment of membership deposits. Cognizant of that fact, our de novo review of the summary judgment yields the same conclusion as the Tax Court‘s: Under the statute and Rule, the adjustment was not “a result of” the “administrative action” regarding membership deposits that the IRS undertook “based on” Lissack‘s information, or to which his information “substantially contributed.”
Lissack insists that discovery would have established that the revenue agent relied on his submission, but the facts he says
Third, Lissack argues that the record before the Tax Court was inadequate. Amici agree. They contend that the statute contemplates trial de novo in the Tax Court. They argue the text, context, and drafting history of the statute so require. Lissack and amici point out that confining judicial review to the administrative record is anomalous here because the Whistleblower Office makes the records of its award determinations without adjudicatory procedures, public comment, or other opportunity for stakeholders—including the whistleblower—to be heard. Amicus Whistleblower 11099-13W also contends that judicial deference to the Whistleblower Office is inappropriate because the Office‘s determinations involve no “technically complex issue within an agency‘s unique expertise,” only the kind of matter “that courts are called upon to resolve every day.” Amicus Whistleblower 11099-13W Br. 10-11.
Lissack counters that he should not have had to do so, because he moved only for partial summary judgment on his legal challenge to the Whistleblower Definitions Rule, anticipating that “resolution of that issue would dictate whether [he] needed to get into a long discovery fight.”
As the Tax Court acknowledged, some whistleblower claims may require discovery and judicial factfinding. But even had he not forfeited the point, Lissack has not shown that he was deprived of any material evidence. Again, on Lissack‘s own account, the factual point he sought to bolster was but-for causation. But “[h]ow the revenue agent discovered” the intercompany bad-debt issue, Appellant‘s Br. 49, was both undisputed in his favor, and immaterial. Lissack does not
In sum, the Tax Court correctly concluded that “the record provides more than enough evidence to confirm that petitioner is not eligible for a mandatory award,” and ruled in favor of the IRS as a matter of law. Lissack, 157 T.C. at 78. The Tax Court credited information in the administrative record showing that “none of the adjustments had anything to do with the membership deposits issue,” including the revenue agent‘s report that Lissack “had not ‘provided any information for the adjusted issues,‘” and the Whistleblower Office analyst‘s confirmation that Lissack “had made no allegations and submitted no facts related to [the development group‘s] intercompany debt (or any other adjustment).” Id. at 66. Lissack failed to challenge before the Tax Court its reliance on the administrative record or object to the scope of that record, and even now he does not identify information he would have sought that could have created a material factual dispute precluding summary judgment.
* * *
For the foregoing reasons, we affirm the judgment of the Tax Court.
So ordered.