WHISTLEBLOWER 22716-13W, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22716-13W
UNITED STATES TAX COURT
Filed March 14, 2016
146 T.C. No. 6
P filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office with respect to TP1. By guilty plea, TP1 agreed to pay an FBAR civil penalty substantially in excess of $2,000,000 and a small amount of restitution, reflecting unpaid Federal income tax on income derived from Swiss bank accounts.
A whistleblower is eligible for a nondiscretionary award under
1. Held: The term “additional amounts” as used in
2. Held, further, FBAR civil penalties are not “additional amounts” within the meaning of
Ashley M. Bender and John T. Arthur, for respondent.
OPINION
LAUBER, Judge: This whistleblower award case is before the Court on a motion for summary judgment filed by the Internal Revenue Service (IRS or respondent). A whistleblower is eligible for a nondiscretionary award under section 7623(b) only “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.”
*Brief amicus curiae was filed by Dean Zerbe and Stephen M. Kohn as attorneys for the National Whistleblowers Center.
Background
Petitioner in 2010 filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office (Office).2 On the application he asserted that he was cooperating with the Department of Justice and the IRS Criminal Investigation Division in connection with the ongoing investigation of two Swiss bankers, Martin Lack and Renzo Gadola. Petitioner alleged that his cooperation with those
On August 23, 2011, petitioner filed with the Office a third claim for an award, which is the subject of the present controversy. Petitioner filed this claim after learning that Taxpayer 1 had agreed to pay a substantial penalty in conjunction with a guilty plea for filing a false tax return. Taxpayer 1 admitted that Gadola had helped him open Swiss bank accounts to conceal his income and assets from U.S. authorities. By the guilty plea, Taxpayer 1 agreed to pay an FBAR civil penalty substantially in excess of $2,000,000 and a small amount of restitution, reflecting unpaid Federal income tax on income derived from the Swiss bank accounts. Petitioner claimed entitlement to an award based upon the aggregate amount paid by Taxpayer 1, given petitioner‘s alleged involvement in Gadola‘s arrest, which allegedly led to Taxpayer 1‘s arrest.
During its review of the Taxpayer 1 claim, the Office informed petitioner that it had received a legal opinion from the IRS Office of Chief Counsel concluding that FBAR penalty payments, because they are made pursuant to Title 31 rather than Title 26 of the U.S. Code, are not “collected proceeds” eligible for a nondiscretionary award under section 7623(b)(1). See Scope of Awards Payable Under I.R.C. Section 7623, PMTA 2012-10. Viewing this as a de facto denial of his Taxpayer 1 claim, petitioner sought immediate review in this Court. We granted respondent‘s motion to dismiss that case for lack of jurisdiction, concluding that the Office had not made, as of the time petitioner filed that petition, a “determination regarding an award” sufficient to confer jurisdiction on this Court. See Whistleblower 22231-12W v. Commissioner, T.C. Memo. 2014-157.
On September 6, 2013, the Office issued petitioner a final determination letter informing him that his Taxpayer 1 claim had been denied. The letter stated two grounds for the denial: (1) the Government had obtained complete information about Taxpayer 1‘s offshore accounts directly from the Swiss bank, without any assistance from petitioner; and (2)
Petitioner timely petitioned this Court for review of this determination denying his award. Respondent filed an answer raising the section 7623(b)(5)(B) dol-lar threshold as an affirmative defense.3 On May 29, 2015, respondent moved for summary judgment on the basis of petitioner‘s alleged failure to satisfy section 7623(b)(5)(B). The Court has received thorough briefing from the parties on this subject, as well as a brief amicus curiae from the National Whistleblowers Center (NWC), to which both parties have responded.
Discussion
I. Standard of Review
The purpose of summary judgment is to expedite litigation and avoid unnecessary and expensive trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant summary judgment when there is no genuine dispute concerning any material fact and a decision may be rendered as a matter of law. Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). The parties agree on all questions of fact affecting the application of section 7623(b)(5)(B), and the proper interpretation of that provision presents a pure question of law. We conclude that the question
II. Governing Statutory Framework
A. The Whistleblower Statute
The IRS has long had authority to pay awards to persons, now called “whistleblowers,” who provide information leading to the recovery of unpaid taxes. The Code now provides for two types of whistleblower awards: discretionary and nondiscretionary. The former derive from legislation enacted in 1867, which authorized the Secretary “to pay such sums * * * as may in his judgment be deemed necessary for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws, or conniving at the same.” Act of Mar. 2, 1867, ch. 169, sec. 7, 14 Stat. at 473. This provision, reenacted without much change as section 7623(a), authorizes the IRS to pay such sums as it “deems necessary” and mandates that such payments “shall be paid from the proceeds of amounts collected.” The IRS’ determinations with respect to these discretionary awards are not subject to judicial review. See, e.g., DaCosta v. United States, 82 Fed. Cl. 549 (2008); Conner v. United States, 76 Fed. Cl. 86 (2007); Destefano v. United States, 52 Fed. Cl. 291 (2002); see also Lippolis v. Commissioner, 143 T.C. 393, 399 (2014); Whistleblower 11332-13W v. Commissioner, 142 T.C. 396, 400 (2014).
The second type of whistleblower award, set forth in section 7623(b), was introduced by the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, sec. 406, 120 Stat. at 2958-2960. Section 7623(b) provides for nondiscretionary (i.e., mandatory) awards if specified dollar thresholds and other requirements are met. Under section 7623(b)(5), a
(A) against any taxpayer, but in the case of any individual, only if such individual‘s gross income exceeds $200,000 for any taxable year subject to such action, and
(B) if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.
If these monetary thresholds are met and the Government recovers “collected proceeds” attributable to the whistleblower‘s information, the whistleblower will, subject to certain conditions, receive an award. This award will be “at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.”
B. FBAR Civil Penalties
Congress passed the Bank Secrecy Act (BSA),
While “the obligation to file an FBAR arises under Title 31, individual taxpayers subject to the FBAR reporting requirements are alerted to this requirement in the preparation of annual Federal income tax returns.” Staff of J. Comm.
The BSA requires covered persons to file the FBAR with the Department of the Treasury, but not to remit money or property. The FBAR form specifically in-structs filers: “Do NOT file with your Federal Tax Return.” As relevant here, the BSA imposes no pecuniary burden on covered persons, only the requirement that they file an FBAR.
A person who fails to file a required FBAR may be assessed a civil monetary penalty.
The FBAR civil penalty may be assessed “at any time before the end of the six-year period beginning on the date of the transaction with respect to which the penalty is assessed.”
Authority to enforce BSA requirements, including imposition of FBAR civil penalties, was initially delegated to the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury. FinCEN‘s overall mission is to collect and analyze information about financial transactions in order to combat money laundering, terrorist financing, and other financial crimes. See
The authority thus delegated to the Commissioner is broad, giving the IRS the power to assess and collect civil penalties for noncompliance with FBAR requirements, investigate possible violations, employ summons power, issue administrative rulings, and take “any other action reasonably necessary” to implement and enforce the FBAR regime.
III. Analysis
A. “Additional Amounts”
Section 7623(b)(5) makes a whistleblower eligible for a nondiscretionary award only if his claim satisfies two monetary
In deciding the proper interpretation of “additional amounts” as used in this section, the starting point is the language of the statute. Greyhound Corp. v. Mt. Hood Stages, Inc., 437 U.S. 322, 330 (1978). Where Congress uses a term of art that has acquired an established meaning over a long period, Congress presumably intends that meaning when it uses that term. See, e.g., Morissette v. United States, 342 U.S. 246, 263 (1952); cf. Direct Mktg. Ass‘n v. Brohl, 571 U.S. ___, ___, 135 S. Ct. 1124, 1129-1130 (2015) (applying this principle to define for tax purposes the terms “assessment,” “levy,” and “collection“); 1836 S St. Tenants Ass‘n, Inc. v. Estate of B. Battle, 965 A.2d 832, 839 (D.C. 2009) (“When a legislature borrows common law terms of art in writing legislation, ‘it presumably knows and adopts the cluster of ideas that were attached to [the] borrowed word[s].‘” (alteration in original) (quoting 1618 Twenty-First St. Tenants’ Ass‘n v. The Phillips Collection, 829 A.2d 201, 203 (D.C. 2003))). Where the same word or phrase appears multiple times within a
The term “additional amounts,” when used in a series that also includes the words “tax” and either “additions to tax” or “additions to the tax,” appears nearly 40 times in the Internal Revenue Code.7 Elsewhere in the U.S. Code, the term “additional amount” appears in a series of this sort only twice; in both instances, the provision in which it appears is captioned “Taxes.” See
“Additional amounts” and “additions to the tax” are terms of art in the Internal Revenue Code. Chapter 68 of the Code is captioned “Additions to the Tax, Additional Amounts, and Assessable Penalties.” Subchapter A of chapter 68 is captioned “Additions to the Tax and Additional Amounts.” This subchapter includes 13 sections, including the additions to tax for failure timely to file a return or timely pay tax, the accuracy-related penalty under section 6662, and the fraud penalty under section 6663. Section 6665, the last section in this subchapter, is captioned “Applicable Rules.” It states that, except as otherwise provided in Title 26, “the additions to the tax, additional amounts, and penalties provided by this chapter shall be * * * assessed, collected, and paid in the same manner as taxes” and that “any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter.”
Given this statutory structure, we have repeatedly held that the term “additional amounts” has a technical meaning in the Code, referring specifically to penalties set forth in
We disagreed. We noted that “[t]he term ‘additional amount’ appears in chapter 68 of the Internal Revenue Code of 1954, which relates to ‘Additions to the Tax, Additional Amounts, and Assessable Penalties.‘” 74 T.C. at 1102-1103. We concluded that the term “additional amounts” as used in chapter 68 means one of the civil penalties referred to in that chapter and “that the same meaning was intended in section 6214(a), especially since it refers to both additional amounts and additions to the tax.” Id. at 1103. Our review of the legislative history confirmed that the term “additional amounts” as used in section 6214(a) was “intended only to refer to claims for the civil penalties.” Ibid.
In Pen Coal Corp. v. Commissioner, 107 T.C. 249 (1996), we had to decide whether we had jurisdiction to redetermine a corporate taxpayer‘s liability for interest computed at the increased rate prescribed by section 6621(c). The taxpayer contended that section 6214(a) gave the Court jurisdiction on the theory that “such interest constitutes an ‘additional amount’ within the meaning of section 6214(a).” Id. at 255-256. Relying on our analysis in Bregin we rejected this argument, concluding: “Congress used the phrase ‘any additional amount, or any addition to the tax’ in section 6214(a) to ensure an understanding that this Court‘s jurisdiction encompasses items that are to be assessed, collected, and paid in the same manner as taxes, including the additions to tax and other additional amounts * * * described in chapter 68.” Id. at 258; cf. El v. Commissioner, 144 T.C. 140, 148 (2015) (holding that the “additional tax” imposed by section
In Williams v. Commissioner, 131 T.C. 54 (2008), we ruled that FBAR penalties do not constitute “additional amounts” for purposes of our deficiency or CDP jurisdiction. The taxpayer there sought redetermination of tax deficiencies for certain years and also asked us to “abate” FBAR penalties allegedly imposed for his failure to disclose Swiss bank accounts. Id. at 55. We held that we lacked jurisdiction over the FBAR penalties, noting that they “are authorized in Title 31 (‘Money and Finance‘) of the United States Code, not Title 26 (the Internal Revenue Code).” Id. at 56. The taxpayer “d[id] not point to any grant of jurisdiction to this Court that would extend to FBAR penalties,” and we found none. Id. at 57. We noted that the term “tax” is defined for purposes of our CDP jurisdiction “to include ‘additions to the tax, additional amounts, and penalties provided by’ chapter 68. Id. at 59 n.6 (quoting
As these cases show, we have consistently held that “additional amounts,” particularly when it appears in a series that also includes “tax” and “additions to tax,” is a term of art that refers exclusively to the civil penalties enumerated in chapter 68, subchapter A. “Additional amounts” appears in section 7623(b)(5)(B) in conjunction with “tax” and “additions to tax,” and we find no reason to give that term a different meaning in this section than it has elsewhere. In Williams, we ruled that an FBAR civil penalty is not an “additional amount” for purposes of our deficiency or CDP jurisdiction. Petitioner has supplied no textual basis, either in the language of the statute or the structure of the Code, for reaching a different conclusion with respect to the whistleblower provision at issue here.
FBAR civil penalties are not among the tax-related penalties enumerated in chapter 68, and they are not “assessed, collected, and paid in the same manner as taxes.”
B. Petitioner‘s Contentions
1. “Structural” Arguments
Petitioner and amicus curiae NWC argue that the term “additional amounts” as used in section 7623(b)(5)(B) means, in essence, “other sums of money.” But they point to no other Code section in which “additional amounts” has this broad and virtually limitless meaning. And they offer no convincing rebuttal to the canons of construction dictating that terms of art be given a consistent meaning in a statutory text and that a technical word or phrase is presumed to have the same meaning each place it appears. Rather than focus on the subparagraph at issue, petitioner and NWC emphasize language appearing elsewhere in the statute, urging that these broader meanings be imported into section 7623(b)(5)(B). But they provide no textual support for doing this, only vague appeals to the statute‘s “overall structure.”
Petitioner and NWC note that section 7623(a) authorizes the Secretary to pay such sums as he deems necessary, from the “proceeds of amounts collected,” to detect persons guilty of violating the tax laws “or conniving at the same.” FBAR civil penalties, they urge, are reasonably embraced within “proceeds of amounts collected” from persons “conniving at” such violations. Indeed, the record in this case indicates that
Petitioner next observes that section 7623(b)(1) computes nondiscretionary awards as a percentage of “the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action.” Congress’ use of the word “including” shows that the ensuing list (which notably omits the word “tax“) is not exhaustive. See
While this argument is not without force, we do not see how it affects the proper textual analysis of section 7623(b)(5)(B). Congress could have employed, but did not employ, the term “collected proceeds” when drafting the $2,000,000 monetary threshold. And it did not use the word “including.” Instead, Congress explicitly and unambiguously provided that a whistleblower is eligible for a nondiscretionary award only “if the tax, penalties, interest, additions to tax, and additional amounts in dispute” exceed $2,000,000.
“[W]hen the legislature uses certain language in one part of the statute and different language in another, the court assumes different meanings were intended.” Sosa v. Alvarez-Machain, 542 U.S. 692, 711 n.9 (2004) (quoting 2A N. Singer, Statutes and Statutory Construction, sec. 46:06, at 194 (6th rev. ed. 2000)). We have no occasion in this case to decide
As petitioner notes, courts may rely on a statute‘s structure as an aid to interpreting its specific terms. See generally Abramski v. United States, 573 U.S. 169, 134 S. Ct. 2259, 2267 (2014). But reliance on context and structure in statutory interpretation is a “subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.” Palmer v. Massachusetts, 308 U.S. 79, 83 (1939); Yari v. Commissioner, 143 T.C. 157, 165 n.5 (2014) (“[T]he process of divining the legislative intent underlying a statute‘s * * * structure, while subject to canons of construction and well-established methodologies, is hardly an exact science.“). In the absence of specific statutory language linking the potentially broader terms of subsections (a) and (b)(1) to the affirmative defense of subsection (b)(5)(B), we are not at liberty to give “additional amounts“--a term of art with a long-established meaning--a meaning that it has nowhere else in the Internal Revenue Code.9
2. Policy Arguments
Because FBAR civil penalties are “administered by the IRS, are reported alongside income tax returns, and have a tax-related purpose,” petitioner contends that “they are, in effect, ‘internal revenue laws,’ and should be treated as such when construing Section 7623‘s scope.” Given the IRS’ important role in FBAR administration, at least one court has
The failure to treat FBAR penalties as taxes, petitioner continues, could undercut the effectiveness of the whistleblower law. At a time when undisclosed offshore accounts constitute a major form of tax evasion, FBAR penalties, which can range as high as 50% of the offshore account balance annually, may often dwarf the income tax liabilities generated by the earnings from that account. If FBAR penalties do not count toward the $2,000,000 monetary threshold, whistleblowers will allegedly have little incentive to blow the whistle on these schemes, frustrating Congress’ intent in enacting this law.
Petitioner notes that the IRS and the Department of Justice have great discretion in negotiating settlements and plea agreements. If a case involving undisclosed offshore accounts also involves large potential income tax liabilities, the Government may elect to compromise the latter, effectively directing most of the proceeds into the FBAR penalty bucket. If FBAR proceeds do not count toward the $2,000,000 monetary threshold, petitioner fears that the Government could unilaterally make deserving whistleblowers ineligible for section 7623(b) awards by the manner in which it settles cases.10
Petitioner and NWC may well be right that the statute would offer stronger incentives to whistleblowers if FBAR civil penalties were treated like tax liabilities for purposes of determining eligibility for nondiscretionary awards under section 7623(b)(5)(B). And in that event the whistleblower law might more effectively advance the objectives that Congress envisioned for it. But if this is a gap in the statute, it is a gap that only Congress, and not this Court, can fill.
To reflect the foregoing,
An appropriate order and decision will be entered for respondent.