                                T.C. Memo. 2014-106



                         UNITED STATES TAX COURT



              WHISTLEBLOWER 10949-13W, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 10949-13W.                      Filed June 4, 2014.


      Sealed, for petitioner.

      Sealed, for respondent.



                           MEMORANDUM OPINION


      KROUPA, Judge: This case1 is before the Court on respondent’s motion to

dismiss for lack of jurisdiction. We must decide whether the Court has

jurisdiction to review respondent’s whistleblower claim award determinations



      1
      This Court previously granted the whistleblower’s motion to proceed
anonymously and sealed the record in this case.
                                        -2-

[*2] where the whistleblower provided information both before and after the

enactment of the Tax Relief and Health Care Act of 2006 (TRHCA)2, Pub. L. No.

109-432, div. A, sec. 406, 120 Stat. at 2958, effective December 20, 2006. We

hold that we do.3

                                    Background

      The following background is drawn from the petition and respondent’s

motion to dismiss for lack of subject matter jurisdiction and responses filed by

both parties. We note that the background is stated solely for purposes of ruling

on the pending motion to dismiss and is not a finding of facts.

      Petitioner is a whistleblower that reported a tax fraud scheme to the

Government. During the whistleblower’s employment, the whistleblower learned

of a tax structure involving the whistleblower’s employer and several related

entities and subsidiary companies (targets). When the whistleblower raised

concerns over the tax structure to the whistleblower’s employer, the

whistleblower’s employer used physical force and armed men to intimidate the


      2
       Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, div. A, sec.
406, 120 Stat. at 2958, codified at sec. 7623(b).
      3
        All section references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure, unless otherwise indicated. All amounts are rounded to the nearest
dollar.
                                        -3-

[*3] whistleblower and prevent disclosure. Additionally, the employer removed

almost all documents and records from the whistleblower’s office. The

whistleblower, however, kept comprehensive backups of all office records.

      In October 2006 the whistleblower met with Internal Revenue Service (IRS)

and Department of Justice (DOJ) representatives and provided them with

information about the targets’ failure to pay tax and other conduct. Subsequently,

the whistleblower again met with the DOJ representatives and discussed the

targets’ potential terrorist financing activity. A grand jury investigation was

convened on the basis of the whistleblower’s information.4

      The whistleblower continued to provide additional information regarding

the targets’ activities and was in regular contact with the IRS and the DOJ

representatives after December 20, 2006. The IRS and the DOJ representatives

repeatedly contacted the whistleblower seeking additional information and

analysis regarding the targets’ transactions. On each occasion, the whistleblower

provided the requested information and analysis. In 2007 the whistleblower

testified before a grand jury on the basis of information the whistleblower acquired




      4
       The whistleblower’s information was supplemented with information from
another whistleblower.
                                        -4-

[*4] after December 20, 2006.5 The whistleblower provided information to the

IRS and the DOJ representatives continually until July 2009.6 Notably, the

whistleblower’s assistance in this investigation jeopardized the safety of the

whistleblower and the whistleblower’s family. As discussed in detail in

Whistleblower 10949-13W v. Commissioner, T.C. Memo. 2014-94, the

whistleblower received a death threat from the targets.

      The whistleblower filed a Form 211, Application for Award for Original

Information in 2011 and submitted to the IRS Whistleblower Office

(Whistleblower Office) documentary evidence related to the targets’ actions that

the whistleblower had previously disclosed. Shortly thereafter, the Government

entered into a Non-Prosecution Agreement with one of the targets that led to the

Government recovering more than $30 million in taxes, penalties and interest.

The Whistleblower Office granted the whistleblower a discretionary award




      5
       The whistleblower’s testimony included the identity of documents, wire
transfers, disbursement authorizations, individuals and entities involved in the
transactions.
      6
        The whistleblower also compiled and turned over to the IRS specific
information regarding the targets’ conduct and documentary evidence on the
transactions and entities involved. In January 2008 the whistleblower sent the IRS
a detailed list of the entities involved in the tax evasion scheme. This information
was previously unknown to the IRS.
                                        -5-

[*5] determination under section 7623(a) and denied the whistleblower’s request

for an award under section 7623(b).

      The whistleblower timely filed the petition seeking review of respondent’s

award determination. Respondent filed a motion to dismiss for lack of jurisdiction

on the ground that respondent’s award determination is not subject to judicial

review. Respondent argues that this Court lacks jurisdiction to review

respondent’s award determination because he proceeded against the targets using

information the whistleblower provided before the effective date of section

7623(b),7 December 20, 2006.8 The whistleblower objected to the motion,

asserting that the whistleblower is entitled to judicial review of respondent’s

award determination because the whistleblower provided information both before

and after the effective date of section 7623(b). We agree with the whistleblower.

We leave for another day whether the whistleblower is entitled to a larger award.




      7
        As discussed infra, sec. 7623(b)(4) for the first time granted this Court
jurisdiction to hear a whistleblower’s petition for review of the Commissioner’s
award determination.
      8
       The amendments enacting sec. 7623(b) apply to information provided on or
after December 20, 2006.
                                             -6-

[*6]                                     Discussion

       We must decide whether the Court has jurisdiction to review respondent’s

whistleblower claim award determination where the claim is based on information

the whistleblower provided both before and after the enactment of TRHCA sec.

406, 120 Stat. at 2958.9 10

I. Overview of the Court’s Jurisdiction and the Whistleblower Program

       We begin with the Tax Court’s jurisdiction. The Tax Court is a court of

limited jurisdiction and may exercise jurisdiction only to the extent authorized by

Congress. Judge v. Commissioner, 88 T.C. 1175, 1180-1181 (1987); Naftel v.

Commissioner, 85 T.C. 527, 529 (1985). The Tax Court is without authority to

enlarge upon that statutory grant. See Phillips Petroleum Co. v. Commissioner, 92

T.C. 885, 888 (1989). We nevertheless have jurisdiction to determine whether we

have jurisdiction. Hambrick v. Commissioner, 118 T.C. 348 (2002); Pyo v.

Commissioner, 83 T.C. 626, 632 (1984); Kluger v. Commissioner, 83 T.C. 309,

314 (1984).




       9
           Codified, in part, at sec. 7623(b).
       10
        We decided this issue in Whistleblower 11332-13W v. Commissioner, 142
T.C. __ (June 4, 2014), also filed today.
                                         -7-

[*7] Our Rules are silent as to deciding a motion to dismiss for lack of subject

matter jurisdiction. Thus, we look to the Federal Rules of Civil Procedure. See

Rule (1)(b); Estate of Miller v. Commissioner, T.C. Memo. 1994-25. When

deciding a motion to dismiss based on lack of subject matter jurisdiction, a court

must construe the undisputed allegations of the complaint in a manner favorable to

the plaintiff. See Dacosta v. United States, 82 Fed. Cl. 549, 552 (2008). Where

jurisdiction turns on contested facts, allegations in the petition are generally taken

as true for purposes of deciding a motion to dismiss for lack of jurisdiction. See,

e.g., O’Brien v. Commissioner, 40 B.T.A. 280 (1939). The issue is whether the

claimant is entitled to offer evidence to support the claims, not whether the

claimant will ultimately prevail on the merits. See Scheuer v. Rhodes, 416 U.S.

232, 236 (1974); see also Reynolds v. Army and Air Force Exch. Serv., 846 F.2d

746, 747 (Fed. Cir. 1988). We turn now to an overview of our jurisdiction

regarding whistleblower claims.

      The Secretary has long had the discretion to pay awards to persons

providing information that aids in (1) detecting underpayments of tax and (2)

detecting and bringing to trial and punishment persons guilty of violating the

internal revenue laws. Sec. 7623(a). The discretionary whistleblower awards

have been arbitrary and inconsistent, however, because of a lack of standardized
                                        -8-

[*8] procedures and limited managerial oversight. See Treasury Inspector General

for Tax Administration Report 2006-30-092, The Informants’ Rewards Program

Needs More Centralized Management Oversight (June 2006). It took an average

of seven years for a discretionary award to be paid and an average of six months

for a claim to be rejected. Id. at 8-9. Moreover, most rejected claims did not

provide the rationale for the reviewer’s decision because of concerns about

disclosing confidential return information to the whistleblower. Id. at 7.

      Congress enacted TRHCA in 2006 to address perceived problems with the

discretionary award regime. TRHCA sec. 406(a), 120 Stat. at 2958, amended

section 7623 to require the Secretary to pay nondiscretionary whistleblower

awards under certain circumstances and to provide this Court with jurisdiction to

review such award determinations. A whistleblower is now entitled to a minimum

nondiscretionary award of 15% of the collected proceeds if the Commissioner

proceeds with administrative or judicial action using information provided in a

whistleblower claim.11 Sec. 7623(b)(1).


      11
         The award is reduced in certain circumstances. For example, the award is
reduced where the whistleblower planned or initiated the actions that led to the
underpayment of tax. Sec. 7623(b)(2) and (3). Furthermore, an award is available
only if the individual taxpayer had gross income exceeding $200,000 for any year
at issue and if the amount in dispute (including tax, penalties, additions to tax and
additional amounts) exceeds $2 million. TRHCA sec. 406(a)(1), 120 Stat. at 2958.
                                       -9-

[*9] TRHCA also directed the Secretary to issue guidance for the operation of a

Whistleblower Office administered by the IRS.12 TRHCA sec. 406(b)(1), 120 Stat.

at 2959. The Whistleblower Office is responsible for reviewing submitted

whistleblower claims or assigning them to the appropriate IRS office for review.

Id. sec. 406(b)(1)(B), 120 Stat. at 2960. The Whistleblower Office is authorized to

seek additional assistance from the whistleblower if necessary. Id. sec.

406(b)(1)(C), (2).

      The Commissioner released guidance to taxpayers on filing

nondiscretionary whistleblower award claims in early 2008. See Notice 2008-4,

2008-1 C.B. 253. Whistleblowers seeking an award must fully complete and

submit a Form 211. Id. sec. 3.02, 2008-1 C.B. at 254. The Whistleblower Office

will acknowledge receipt of the claim in writing. Id. sec. 3.05, 2008-1 C.B. at 255.

The Whistleblower Office will send correspondence to the whistleblower once a

determination regarding the claim has been made. Id. sec. 3.11, 2008-1 C.B. at

256. Whistleblower Office determinations regarding awards may be appealed to

this Court within 30 days from the issuance of the nondiscretionary award

determination. Id.; see also sec. 7623(b)(4). Awards will not be paid, however,

      12
        The 2006 legislation also requires the Secretary to provide an annual
report to Congress on whistleblower claims filed and awards issued under sec.
7623. TRHCA sec. 406(c), 120 Stat. at 2960.
                                        - 10 -

[*10] until there is a determination of the tax liability and the amounts owed are

collected. Notice 2008-4, sec. 3.08, 2008-1 C.B. at 255. The Commissioner also

issued procedural guidance on how whistleblower claims will be processed. See

Internal Revenue Manual (IRM) pt. 25.2.2 (Dec. 30, 2008).13 In general,

whistleblower claims will be denied where the information provided does not: (a)

identify a Federal tax issue upon which the IRS will act; (b) result in the detection

of an underpayment of tax; or (c) result in the collection of proceeds. See id. pt.

25.2.2.12(2) (June 18, 2010). The whistleblower will be notified by the

Whistleblower Office once an award decision has been made. See id. pt.

25.2.2.5(13) (Dec. 30, 2008).

II. Analysis

      We must now decide whether the Court has jurisdiction to review

respondent’s award determination. Respondent argues that this Court does not

have jurisdiction to review his award determination because the whistleblower

provided the information to the Whistleblower Office before the enactment of

section 7623(b). See Wolf v. Commissioner, T.C. Memo. 2007-133 (holding that

the Court lacked jurisdiction to review a determination regarding a whistleblower


      13
       Internal Revenue Manual pt. 25.2.2 (Dec. 30, 2008) was updated on June
18, 2010, to provide additional guidance for evaluating a whistleblower claim.
                                       - 11 -

[*11] award because the information was provided before December 20, 2006).

Thus, respondent argues that this Court lacks jurisdiction to review his award

determination because he proceeded against the targets using information the

whistleblower provided before December 20, 2006. The whistleblower argues that

this Court has jurisdiction to review respondent’s award determination because the

whistleblower alleged that respondent proceeded against the targets using

information the whistleblower provided both before and after December 20, 2006.

See sec. 7623(b).

      We hold that the whistleblower satisfied the whistleblower’s pleading

burden by alleging facts that respondent proceeded with an action against the

targets using information brought to respondent’s attention by the whistleblower

both before and after December 20, 2006. This is consistent with TRHCA’s intent

to provide whistleblowers with judicial review of award determinations. We now

turn to the governing law.

      A whistleblower who satisfies the requirements of section 7623(b) is

entitled to receive at least 15% but no more than 30% of the collected proceeds or

from a settlement with the taxpayer. Additionally, the Commissioner must
                                       - 12 -

[*12] proceed14 with an administrative or judicial action based on information

brought to the Commissioner’s attention by the whistleblower. See sec.

7623(b)(1). The IRM states that action by the IRS includes the modification of a

pending or planned examination or investigation as a result of information

provided by the whistleblower. IRM pt. 25.2.2 (June 18, 2010).

      Additionally, the Tax Court has exclusive jurisdiction over appeals of award

determinations where a whistleblower provided information both before and after

the effective date of TRHCA. See, e.g., Dacosta, 82 Fed. Cl. at 554 (determining

that the Tax Court had exclusive jurisdiction over the whistleblower’s claim). The

Court of Federal Claims’ decision in Dacosta is directly on point. In Dacosta the

court dismissed the case because the court found that the Tax Court had exclusive

jurisdiction over the whistleblower claim and the court could not transfer the case

to the Tax Court. Id. at 557 (referencing 28 U.S.C. sec. 1631). Nevertheless, the

Dacosta court’s analysis and rationale are persuasive. In Dacosta, as here, the

claimants provided the Commissioner with information both before and after the

enactment of TRHCA. Id. at 551. The Government moved to dismiss for lack of

      14
         The Commissioner’s proposed regulations explain that the term
“proceeds” includes when “the IRS initiates a new action that it would not have
initiated, expands the scope of an ongoing action that it would not have expanded,
or continues to pursue an ongoing action that it would not have continued but for
the information provided.” 77 Fed. Reg. 74800 (Dec. 18, 2012).
                                         - 13 -

[*13] subject matter jurisdiction and argued that the information submitted by the

claimants in 2007 was identical to the information submitted in 2003. Id. at 553.

The Government further argued that, even if the claimants provided new and

different information, the Commissioner did not proceed using the later

application and documents. Id. The court rejected the Government’s arguments

and determined that the claimants alleged sufficient facts to avail themselves of

section 7623(b)(1) for jurisdictional purposes. Id. at 554. The court concluded

that the claimants’ alleged facts, if proven at trial, would establish that the

Commissioner acted on information provided by the claimants after the

amendments to section 7623. Id.

      The parties dispute whether respondent proceeded against the targets using

the whistleblower’s post-December 20, 2006, information. The whistleblower’s

allegations are sufficient to establish jurisdiction. The whistleblower alleged that

the whistleblower provided the IRS and the DOJ with information from at least

October 2006 through July 2009. The post-December 2006 information was not

simply confirmatory details. Rather, the whistleblower provided the IRS and the

DOJ with the facts that formed the basis and gravamen of respondent’s action

against the targets. The whistleblower alleged that the whistleblower provided the
                                        - 14 -

[*14] IRS and the DOJ with the identity of documents, wire transfers,

disbursement authorizations, individuals and entities involved in the transactions.

      Taking the contested factual allegations in the petition as true, they establish

that from October 2006 through July 2009 the whistleblower was in constant

contact with the IRS and the DOJ and provided them with the basis of and details

on the targets’ tax avoidance scheme. Whether respondent used this information

to proceed against the targets is not a question for the present motion. The

whistleblower has alleged sufficient jurisdictional facts to avail the whistleblower

of section 7623(b)(1) for jurisdictional purposes and to overcome a motion to

dismiss for lack of jurisdiction. If the whistleblower’s alleged facts are proved at

trial, they would establish that respondent proceeded against the targets using

information the whistleblower provided after December 20, 2006. If these facts

are established, the whistleblower is entitled to judicial review of respondent’s

award determination.

      We hold, consistent with the rationale of Dacosta, that this Court has

jurisdiction to review an award determination where a whistleblower has alleged

that the whistleblower provided information both before and after the enactment of

section 7623(b).
                                       - 15 -

[*15] We have considered all remaining arguments the parties made and, to the

extent not addressed, we conclude they are irrelevant, moot or meritless.

      For the foregoing reasons, we shall deny respondent’s motion to dismiss.



                                                An appropriate order will be issued.
