Remand an IRS Whistleblower Case - Right Move or Just Delaying a Decision?

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Definitions:

Q. What is Remand?

A. When the Court sends the case back to the IRS for additional findings of fact and a new determination.

Tax Court Case: Whistleblower 769-16W v. Commissioner, 152 T.C. No. 10 (April 11, 2019)

The U.S. Tax Court recently held that under certain circumstances a remand back to the IRS’ Whistleblower Office is appropriate.  The Court also held that the certain circumstances occur when:

  1. the IRS has identified substantial and legitimate concerns that support a remand;

  1. resources and time will be saved; and

  2. remand will not unduly prejudice the petitioner.

Facts:

On or about July 12, 2010, the Petitioner filed a Form 211 with the IRS’ Whistleblower Office.  Petitioner identified multiple taxpayers involved in a tax avoidance scheme.  In response, the IRS assigned multiple claim numbers.   The Petitioner also filed additional Form 211s and identified four additional taxpayers that participated in the same abusive tax scheme.

On March 3, 2011, a Whistleblower Office analyst referred petitioner’s information to the IRS Large Business and International (LB&I) Division.  On November 10, 2011, Whistleblower Office Analyst and three LB&I personnel interviewed petitioner regarding the whistleblower submissions.  LB&I concluded that when petitioner submitted the initial Form 211 and supplemental Forms 211 the IRS was already aware of the tax-avoidance scheme and that the primary taxpayer and related taxpayers were already under examination.

The petitioner began working with a congressional committee responsible for investigations and provided it with information that was previously provided in petitioner’s Form 211s.

On July 30, 2012, IRS’ LB&I division completed the Form 11369 and concluded that the information provided by Petitioner was dated or unsubstantiated.

In 2014, the congressional committee issued a report detailing tax avoidance scheme.  Petitioner then filed additional Form 211s identifying additional taxpayers and including a copy of the congressional committee report.  The additional submissions and information were not forwarded to the IRS operating divisions (LB&I) because LB&I already decided not to pursue the information the petitioner provided in his original and supplemental submissions.

On December 9, 2015, IRS issued its final determination letter denying petitioner’s claim.  Petitioner timely filed his Petition with the Court.  Respondent filed his Answer and moved for summary judgment.  In Response, Petitioner stated, “the Whistleblower Office had failed to access or review documents necessary for an adequate investigation and that there were genuine disputes of fact as to whether petitioner had brought certain information to the IRS’ attention.”  IRS then withdrew its Motion for Summary Judgment and filed a Motion for Remand.

In IRS’ Motion for Remand, IRS acknowledged that the administrative record is incomplete because the Whistleblower Office failed to consider the congressional committee report and whether IRS may have proceeded on the basis of information brought by Petitioner as part of the congressional committee report.

Rationale for granting Remand

The Court begins the discussion on Remand by examining its procedures for IRS collection due process (CDP) (I.R.C. § 6330) cases.  In CDP cases the Court has remanded these cases to the IRS in the following circumstances:

  1. the Appeals officer did not develop the record sufficiently for the Court to properly review it;

  2. the IRS failed to comply with the statutory mandate to permit the taxpayer to make an audio recording of his CDP hearing;

  3. there had been a change in the taxpayer’s circumstances;

  4. the Appeals officer abused his discretion; and

  5. there was an intervening change in the law.

The Court also noted that it retains jurisdiction of the remanded cases.

The Court then compared proceedings under I.R.C. § 6015 (innocent spouse relief) with CDP cases; and noted that the Court typically does not remand these cases because the text of the statute (I.R.C. § 6015) differs from CDP cases in that I.R.C. § 6015 provides language that permits the Court to conduct a de novo hearing.  The Court contrasted this language with I.R.C. § 6330 (CDP case) and noted that in CDP cases the Court could only review the IRS’ determination.  The Court noted that in I.R.C. § 6015 cases there is an incompatibility of remand with de novo review, but that since Kasper v. Commissioner, 150 T.C. No. 2 (January 9, 2018), decided that in whistleblower cases the Court has an abuse of discretion standard and not de novo review; that incompatibility in whistleblower cases and remand under certain circumstances would be proper.  

In determining what the special circumstances are, the Court quoted the Court of Appeal for the District of Columbia’s case, Util. Solid Waste Activities Grp. v. EPA, 901 F.3d 414, 436 (D.C. Cir. 2018), which stated the circumstances are as follows:

1.                  the agency intends to take further action with respect to the original agency decision on review:

2.                  Incorrect or incomplete record acknowledged by the parties;

3.                  if the agency’s motion is made in response to “intervening events outside of the agency’s control, for example, a new legal decision or the passage of new legislation; and

4.                  even if there are no intervening events, the agency may request a remand (without confessing error) in order to reconsider its previous position.

Juxtaposed with the reasons for granting a remand, the Court must also consider whether the remand would unjustly prejudice the non-moving party.

In this case, the Court reached the conclusion that a remand is necessary because even if the Petitioner can prove that the IRS failures were so “egregious to constitute an abuse of discretion,” the remedy would be to remand to the Whistleblower Office for reconsideration.  The Court also states that remand will allow the Whistleblower Office to correct its own potential mistakes rather than wasting the parties’ and the Court’s resources. 

The Court when addressing the Petitioner’s arguments about unjust delay, reached the conclusion that allowing the IRS Whistleblower Office to cure any defects in the administrative process will allow the Court to facilitate a more focused judicial review.  The Court also believes that remand will cure the Petitioner’s request to compel additional discovery requests because the remand will require the IRS to answer the issues raised by the additional discovery requests.

Conclusion

The Court appears to reach the conclusion that the Court will just keep sending the case back to the IRS for reconsideration via a Remand when the IRS fails to adequately support its findings, or ultimately abuses its discretion. The key question here is: how many times will Congress, and the Court allow the IRS to keep getting the determination wrong?  At some point, reason suggests that the Court will have to make a real determination on whether the IRS erred in their determination and order an appropriate remedy to redress the wrong, or the Court’s review under I.R.C. § 7623(b)(4) will be meaningless.