                           153 T.C. No. 8



                  UNITED STATES TAX COURT



           RICHARD E. LACEY, II, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 9761-16W.                        Filed November 25, 2019.



       P filed a whistleblower claim with the Whistleblower Office
(“WBO”) of the Internal Revenue Service (“IRS”). The claim
contained a one-page narrative that alleged that amounts spent by the
target taxpayer, purportedly to remediate an environmental disaster,
were in fact spent not to remediate environmental damage but rather
to cover it up and to avoid massive fines under an environmental
statute. P argued that the remediation expenses were therefore a
“deduction that should properly be disallowed”. A WBO analyst
reviewed P’s claim and recommended that it be rejected. Without
transmitting the claim to an operating division of the IRS, the WBO
rejected P’s claim “because the information provided was speculative
and/or did not provide specific or credible information regarding tax
underpayments or violations of internal revenue laws”. P resubmitted
the claim and provided additional information to support it, including
a 21-page “brief” that gave additional information about the alleged
deduction, citations of sources of the information, and a legal
explanation of why the expenses should be treated as nondeductible.
                                        -2-

      The WBO again summarily rejected the claim without referring it to
      an operating division of the IRS or otherwise considering or
      addressing its merits.

             Held: The Court has jurisdiction to review, for abuse of
      discretion, the WBO’s decision to “reject” a claim for failing to meet
      certain threshold requirements.

             Held, further, a genuine dispute of material fact about whether
      the WBO considered P’s resubmitted claim precludes summary
      judgment on the question whether the WBO abused its discretion in
      rejecting that claim.

             Held, further, in the presence of that genuine dispute and in the
      absence of a complete administrative record, we will deny P’s request
      for a remand.


      Richard E. Lacey, II, for himself.

      Amanda L. Myers, for respondent.



                                     OPINION


      GUSTAFSON, Judge: In this whistleblower action, petitioner Richard E.

Lacey, II seeks review pursuant to section 7623(b)(4)1 of the determination by the

Whistleblower Office (“WBO”) of the Internal Revenue Service (“IRS”) to reject a

      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
referred to herein as “the Code”), and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                                       -3-

claim for an award. The issues before the Court are whether the WBO abused its

discretion in rejecting Mr. Lacey’s claim and whether the Court should remand

this case to the WBO. Respondent, the Commissioner of the IRS, has moved for

summary judgment under Rule 121, contending that there are no disputed issues of

material fact and that the WBO did not abuse its discretion by rejecting

Mr. Lacey’s claim for an award under section 7623. Mr. Lacey filed a response in

which he opposed the Commissioner’s motion and asked that we remand this case

to the WBO and order it to analyze, process, and take action on his claim. We will

deny the Commissioner’s motion and will deny Mr. Lacey’s request to remand this

case to the WBO for further consideration.

                                   Background

      The parties have not yet submitted a complete administrative record in this

case. The following facts are based on the parties’ pleadings and other pertinent

materials in the record.

      According to Mr. Lacey, he was formerly employed at BP in various

positions, some of which were at senior levels, and he had worked and interacted

with many of BP’s decision makers. After Mr. Lacey stopped working at BP, he

wrote a book to expose BP’s cost cutting that BP later admitted was the cause of

an environmental disaster.
                                        -4-

The first submission

      On May 11, 2015, Mr. Lacey filed his first Form 211, “Application for

Award for Original Information”, to which he attached a one-page narrative. We

refer to these collectively as his “first submission”.2 Mr. Lacey’s first submission

identified him as a “Former Employee” of BP (without dates of employment or

other elaboration), stated that the tax year was 2010, and stated that the “Dollar

Amount” was $12.89 billion. The attached narrative read in its entirety as follows:

      On April 20, 2010 there was an explosion at the Deepwater Horizon
      oil drilling platform operated by BP in the Gulf of Mexico. Within
      days of the explosion BP sent remotely operated vehicles with
      cameras to the ocean floor to observe crude oil blowing out into the
      Gulf. The cameras revealed that the blown well was releasing
      between 65,000 and 110,000 barrels of crude oil per day into the Gulf
      which would be subject to per-barrel fines of up to $4,300 per barrel.
      BP feared it could take up to 100 days to drill a relief well to stop the
      flow of crude oil. BP was facing a maximum fine of $47 billion.

      The BP CEO has admitted the motive in writing stating that BP faced
      a “corporate crisis that threatened the very existence of the company”
      when it made the decision to lie to Congress about the size of the spill

      2
        Mr. Lacey refers to his first and second submissions as distinct claims, and
he faults the WBO for not denominating them as separate claims. However, as we
show below, the regulations allow a whistleblower whose claim has been
“reject[ed]” to “perfect and resubmit the claim”, 26 C.F.R. sec. 301.7623-1(c)(4),
Proced. & Admin. Regs.; and the Commissioner has not contended here that the
WBO was entitled to ignore Mr. Lacey’s second submission nor that Mr. Lacey is
precluded from relying on it. Thus, the issue is not whether the WBO
characterized the second submission as a distinct claim but whether it failed
properly to consider that submission.
                                         -5-

      and engage in a cover up. Two years later, the company was
      adjudicated guilty of the felony of lying to Congress about the
      amount of crude oil that was being discharged from the blown well.

      In its failed attempt to get away with that crime, BP engaged in a
      cover up which involved pumping toxic chemicals down to the
      wellhead to break up the oil into tiny droplets that would be absorbed
      by the environment and would effectively disappear. In addition to
      making most of the crude oil disappear to avoid the per-barrel fines,
      the cover up involved allowing the 1,000 barrels per day BP claimed
      was leaking to float to shore where BP made a show of cleaning it up.

      Had BP not engaged in the crime and cover up, it could have allowed
      all the crude oil to surface 40 miles out at sea where it could have
      recovered it from the ocean surface for a tiny fraction of the amount it
      spent on the cover up. Therefore, at a minimum, the amount of
      money BP spent on the 1.9 million gallons of toxic chemicals it used
      in the failed cover up along with the cost of transporting and injecting
      those chemicals and the money it spent cleaning the 1,000 barrels per
      day from the beaches and compensating the businesses that lost
      money as a result should be denied.

      It would be my pleasure to work with the IRS to calculate the precise
      amount of the deduction that should properly be disallowed.

That is, Mr. Lacey’s first submission alleged that BP was responsible for an

environmental disaster, that it misled the public about the size of the disaster, and

that it incurred costs purportedly to clean up the environmental damage, but that it

actually made its expenditures as part of a cover up to avoid massive “fines”.

      Mr. Lacey’s first submission did not cite or suggest sources for his

information. It did not suggest that he had any inside information as a result of his
                                        -6-

former employment at BP. It suggested that the result of his information should be

that “the deduction * * * should * * * be disallowed”; but it did not state what “the

deduction” was nor substantiate the fact of any specific deduction’s having been

reported. It gave no explanation for how the “Dollar Amount” of $12.89 billion

was derived. The first submission did not cite any Code provision, regulation, or

other legal authority.

The WBO’s consideration of Mr. Lacey’s first submission

      Personnel in the WBO considered Mr. Lacey’s claim.3 In an internal email

dated August 24, 2015, Kimberlee H. Loren, a whistleblower analyst, made the

following recommendation:

      Reject 2015-011861. Basis for rejection: The claim has been
      rejected because the information provided was speculative and/or did
      not provide specific or credible information regarding tax
      underpayments or violations of internal revenue laws.

An undated award recommendation memorandum from Lisa Skeen to the director

of the WBO summarized Mr. Lacey’s allegations and recommended:

      Reject the Claim: Allegations are not specific, credible, or are
      speculative - No tax issue stated or identified


      3
       The documents that demonstrate this consideration by the WBO are
authenticated by the declaration of Cindy L. Wilde, the lead tax examining
technician within the WBO’s Initial Claim Evaluation Team, as “documents from
respondent’s administrative file”.
                                       -7-

The “Summary Recommendation” of that memorandum stated:

      Recommendation for rejection by classification. Approval to issue
      the rejection letter authorized under the Director’s Memorandum
      dated July 15, 2015.[4] Whistleblower’s allegations do describe
      amount owed by taxpayer to be greater than $2,000,000, but the claim
      lacks specific/credible information, is purely speculative in nature, or
      does not allege a tax issue and should be rejected under 301.7623-
      3(b)(3) (No Preliminary Rejection Letter).

The “Basis for the Recommendation” of that memorandum stated:

      The WB has not provided any specific information of what costs were
      incurred or deducted by the taxpayer. The fact that the taxpayer may
      have chosen a method that the WB does not agree with and/or a more
      expensive method does not make the cost of that method non-
      deductible and the WB has not identified the tax issue that would
      deny a deduction for the costs associated with the method chosen by
      the taxpayer.

November 2015 rejection of the first submission

      The WBO sent Mr. Lacey a letter dated November 4, 2015, that stated as

follows:

                 FINAL DECISION UNDER SECTION 7623(a)

      The Whistleblower Office has considered your Form 211, Application
      for Award for Original information, dated April 23, 2015.




      4
       The Commissioner did not submit with his motion a copy of this
“Director’s Memorandum dated July 15, 2015”. We cannot tell whether the
memorandum was specific to Mr. Lacey’s claim or was applicable to claims
generally.
                                          -8-

      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 determination to reject your
      claim for an award.

      The claim has been rejected because the information provided was
      speculative and/or did not provide specific or credible information
      regarding tax underpayments or violations of internal revenue laws.
      This letter does not contain a determination regarding an award under
      section 7623(b).

      If you have any questions in regard to this letter, please feel free to
      contact the Whistleblower Office at * * * [telephone number].

Thus, by its express terms, the letter: (1) was a “final decision [i.e., a rejection]

under section 7623(a)” (emphasis added), which provides for discretionary awards

that are not reviewable by this Court, see Whistleblower 22716-13W v.

Commissioner, 146 T.C. 84, 88 (2016); (2) “does not contain a determination[5]

regarding an award under section 7623(b)” (emphasis added); and (3) reflects “a


      5
        The regulations seem to use the word “determination” to refer to a decision
granting an award, 26 C.F.R. sec. 301.7623-3(c)(6), Proced. & Admin. Regs., but
a “rejection” is also a “determination”, id. subpara. (7); and a “denial” is also a
“determination”, id. subpara. (8). Consequently, when the WBO’s November
2015 letter stated that it “does not contain a determination regarding an award
under section 7623(b)”, it presumably means that it does not contain a
determination granting an award. In any event, under the statute we have
jurisdiction to review “[a]ny determination regarding an award”, sec. 7623(b)(4),
and for this purpose a “rejection” is one such “determination”, see Cooper v.
Commissioner, 135 T.C. 70, 75-76 (2010). We find the statement in the
November 2015 letter to be confusing, and evidently Mr. Lacey did, too.
                                        -9-

final determination to reject your claim for an award” (emphasis added),

presumably under section 7623(b).

Correspondence about the first submission and rejection

      On December 11, 2015, Mr. Lacey’s newly retained counsel wrote a letter to

the WBO to inform it of his representation of Mr. Lacey and to request

clarification of the November 4, 2015, letter. Mr. Lacey’s counsel did not provide

any additional information in that letter; rather, he merely reminded the WBO that

Mr. Lacey’s Form 211 alleged an amount in dispute exceeding $12 billion and

asked the WBO to confirm that Mr. Lacey’s claim was still under review.

      By letter dated January 22, 2016, the WBO informed Mr. Lacey that--

      We considered the additional information you provided and
      determined your claim still does not meet our criteria for an award.
      Our determination[6] remains the same despite the information
      contained in your latest letter.

That is, the January 2016 letter referred to “additional information”, whereas

Mr. Lacey had not yet provided any.

The second submission

      On March 10, 2016, Mr. Lacey’s counsel sent the WBO a cover letter, a 21-

page “Brief in Support of Form 211”, and a new Form 211 (which we refer to

      6
      We infer that the “determination” referred to in the January 2016 letter was
the WBO’s rejection of Mr. Lacey’s claim. See supra note 5.
                                       - 10 -

collectively as the “second submission”). Mr. Lacey’s brief gave additional

information not included with his first submission, as follows.

      Employment at BP. Mr. Lacey’s brief states that Mr. Lacey was employed

at BP “in various capacities * * *, ultimately becoming the Senior Financial

Analyst in the BP Credit Department.” The brief does not explain whether or how

that work gave him information or insight into the 2010 incident that is the subject

of his claim. He worked at BP “from 1987 through 1996”; that is, his employment

at BP ended 14 years before the 2010 incident. However, “[d]uring those years he

developed a network of contacts within the oil industry”. Eight years before the

2010 incident, using his “intimate knowledge of the BP corporate culture”,

Mr. Lacey “authored the book, Involuntary Separation, Corporate Downsizing

Gone Fatally Wrong (* * * Copyright 2002), in an effort to expose the

short-sighted cost cutting which BP has since admitted was the primary cause of

the Deepwater Horizon Disaster and associated Oil Spill in the Gulf of Mexico.”
                                        - 11 -

      Sources.7 Mr. Lacey’s brief lists seven sources (“Available on Request”)

that he evidently relied on to substantiate his allegations:

      •      “BP Spill Response Plan”;

      •      “Factual Allocution, Exhibit ‘A’, Guilty Plea Agreement”;

      •      “BP Annual Report 2010”;

      •      “National Commission on the BP Deepwater Horizon Oil Spill and
             Offshore Drilling, Staff Working Paper No. 4”;

      •      a letter from a congressman to the Coast Guard (with an internet
             citation);




      7
       It appears that all of these are publicly available sources. However, the
now-current Internal Revenue Manual (“IRM”) provisions for the operating
divisions evaluating whistleblower claims (i.e., not for the WBO itself) identify as
an “Unacceptable Reason[] for Rejection or Denial” of a claim the fact that “[t]he
information provided by the whistleblower is publicly available information, the
whistleblower has no firsthand knowledge of the issue.” IRM pt. 25.2.1.3.3(3)
(Jan. 11, 2018). The IRM explains:

      This is not a determination which can be made at the classification
      level. Classification must still consider the information and compare
      it to the return to determine if a potential tax issue exists. Congress
      authorized payment on information obtained from various public
      sources in IRC § 7623. Claims submitted with publicly available
      information must still be considered, regardless of the
      whistleblower’s firsthand knowledge of the situation.

Id. In the 2015 IRM, we find neither an equivalent provision nor any
contradictory provision.
                                       - 12 -

      •     a Coast Guard and Environmental Protection Agency “Directive on
            Waste Management, June 29, 2010”; and

      •     a “CNN iReport” from June 11, 2010.

      “Expert witnesses”. Mr. Lacey’s brief identifies two persons--Bob

Grantham, “Spokesman for Ship Owner TMT”, and Paul Horsman, “Greenpeace

Marine Biologist and Oil Spill Expert”. For each the brief gives a short quotation.

The brief identifies them as “Expert Witnesses” but does not state whether they

had actually been retained as such by Mr. Lacey.

      Explanation of deduction. Mr. Lacey’s brief begins with a “Preliminary

Statement of Whistleblower” that includes this summary explanation of his

contentions about BP’s alleged illegal deduction:

      The $12.9 billion deducted as “ordinary and necessary” clean-up
      expense was in reality spent on an elaborate scheme to make most of
      the oil seemingly disappear--by hiding it in the water column. This
      was achieved by the unprecedented pumping of dispersant chemicals
      into the flow of oil at the wellhead on the ocean floor to prevent it
      from surfacing. At the same time, BP deployed huge numbers of
      clean-up workers and vessels to project the illusion of a massive
      clean-up effort. This “shock and awe” tour de force was designed to
      divert attention, allowing the company to more easily mislead the
      public and the government about the size of the Spill. This in turn
      allowed BP to evade the bulk of the per-barrel fines which the
      company projected could reach $43 billion. When a former BP Vice
      President executed a letter to Congress claiming the well was leaking
      5,000 barrels per day, though he knew the true figure was closer to
      100,000 barrels per day, he was secure in the knowledge that the
      company would not contradict his assertion and that a plan was being
                                        - 13 -

       carried out to make the excess 95,000 barrels per day disappear.
       Until the Plea Agreement was signed in November 2012, no BP
       employee ever betrayed the lie. Lying to Congress is a criminal act
       and a public-policy exception which disqualifies all expenses
       incurred to both commit and cover up the crime. Likewise,
       expenditures having their origin in an environmental law violation
       and incurred to prevent the imposition of a fine that was designed to
       be punitive, meet the definition of a fine or penalty under Section
       162(f) and are not deductible.

       Legal citations. On a “Citations Page”, Mr. Lacey’s brief cites three cases,

one Code section, and an IRS technical advice memorandum in support of his

contention that BP should not be permitted to deduct its expenditures to

purportedly clean up the damage and to evade fines under the environmental

statute.

       The brief cites section 162 as follows:

       26 U.S. Code § 162 - Trade or business expenses: Because Section
       162 (f) states that no deduction shall be allowed under subsection (a)
       for any fine or similar penalty paid to a government for the violation
       of any law, [it] follows that no deduction should be allowed for funds
       spent to evade those fines or cover up those crimes.

The brief cites an IRS technical advice memorandum as follows:

       IRS Technical Advice Memorandum 200629030 (07/21/06): The
       government used the origin of the claim doctrine to conclude that
       expenditures having their origin in an environmental law violation
       and incurred to prevent the imposition of a fine that was designed to
       be punitive met the definition of a fine or penalty under
       Section 162(f).
                                        - 14 -

The brief cites three court opinions--Tank Truck Rentals, Inc. v. Commissioner,

356 U.S. 30 (1958),8 which is cited in Tech. Adv. Mem. 200629030 (July 21,

2006), above; Commissioner v. Tellier, 383 U.S. 687 (1966), which Mr. Lacey

distinguishes;9 and Jerry Rossman Corp. v. Commissioner, 175 F.2d 711, 713

(2d Cir. 1949), rev’g and remanding 10 T.C. 468 (1948).10


      8
        Business expenses are deductible only if “ordinary and necessary”,
sec. 162(a); and in Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30 (1958),
the Supreme Court held that an expense is not “necessary” if “allowance of the
deduction would frustrate sharply defined national or state policies proscribing
particular types of conduct”, id. at 33, that “the frustration of state policy is most
complete and direct when the expenditure for which deduction is sought is itself
prohibited by statute”, id. at 35, and that disallowance is also called for where “the
expenditure is not itself an illegal act, but rather the payment of a penalty imposed
by the State because of such an act”, id. Mr. Lacey’s brief comments as follows
on Tank Truck Rentals, Inc.: “The standard here is easily met since the expense
itself was an illegal act and it rendered impossible the income generating activity
in which BP is engaged, namely, the extraction of hydrocarbons.”
      9
        Commissioner v. Tellier, 383 U.S. 687 (1966), held that the deduction of
legal expenses claimed by a securities dealer in his unsuccessful defense of
criminal prosecution was not to be disallowed as violating public policy.
Mr. Lacey’s brief distinguishes Commissioner v. Tellier as follows: “Unlike
Tellier, who committed securities fraud in the pursuit of his business of
underwriting securities, BP was not in the business of lying to Congress or of
evading Clean Water Act fines. As such, funds expended to cover up those crimes
are public policy exceptions which must be denied.”
      10
       Mr. Lacey’s brief comments as follows on Jerry Rossman Corp. v.
Commissioner, 175 F.2d 711, 713 (2d Cir. 1949), rev’g and remanding 10 T.C.
468 (1948): “The ‘severity and immediacy of the frustration resulting from the
allowance of the deduction’ here is extreme. BP is deducting an activity that
                                                                     (continued...)
                                       - 15 -

      Conclusion. Mr. Lacey’s brief concluded:

      It follows that the IRS should disallow the $12.9 billion portion of
      BP’s “Spill Response Deduction” classified as “Clean-up Expense,”
      apply the appropriate tax rate, recover the deficiency (approximately
      $3.7 billion) and make the award required by the Act to the
      Whistleblower.

The WBO’s consideration of Mr. Lacey’s second submission

      We cannot tell the nature and extent of any consideration that WBO

personnel gave to Mr. Lacey’s second submission. The Commissioner did not




      10
        (...continued)
deprives the government of $4,300 for each barrel of oil the activity conceals.”
Jerry Rossman Corp. involved a taxpayer whose “prices were fixed upon a ‘cost
plus’ basis by regulations pomulgated [sic] under the Emergency Price Control
Act of 1942”, id. at 711, but who inadvertently charged excessive prices to its 200
customers (who in turn unwittingly passed along the excess to the ultimate
consumers). The taxpayer discovered the error, reported it to the Office of Price
Administration, reached an agreement with the Office that it would pay the gross
overcharge to the United States, and then on its return claimed for that payment a
deduction that the IRS disputed. Id. at 711-712. The Court of Appeals for the
Second Circuit concluded that the payment was not a “penalty”, id., but addressed
the question whether it might be deductible even if it was a penalty. Under the
then-applicable authorities, the Court of Appeals observed that “some [penalties]
are deductible and some are not” and that a deduction for payment of a penalty
should be disallowed where “the allowance of the deduction would frustrate the
sharply defined policies”. Id. at 713 (quoting Commissioner v. Heininger, 320
U.S. 467, 474 (1943)). The court held the payment deductible even if it was a
“penalty”. Mr. Lacey’s brief does not explain how this analysis would apply to
amounts not paid to the Government and deducted after the enactment of
section 162(f) (enacted in 1969, 20 years after Jerry Rossman Corp.).
                                        - 16 -

submit with his motion any internal emails or memoranda by WBO personnel that

were generated after the second submission.

April 2016 rejection after the second submission

      By letter dated April 6, 2016, the WBO responded as follows to the second

submission:

      We considered the additional information you provided and
      determined your claim still does not meet our criteria for an award.
      Our determination remains the same despite the information
      contained in your latest letter.

      Please keep in mind the confidentiality of the informants’ claims
      process and understand that we cannot disclose the facts surrounding
      an examination, i.e. taxes collected and audit examination.

      Although the information you submitted did not qualify for an award,
      thank you for your interest in the administration of the internal
      revenue laws.

      If you have any further questions in regards to this letter please feel
      free to contact the Initial Evaluation Claims at * * * [telephone
      number].

The letter repeated verbatim the January 2016 letter, quoted in part above, that the

WBO had sent to Mr. Lacey after his counsel’s inquiry. In the April 2016 letter,

the WBO did not assign a new claim number to Mr. Lacey’s second submission

but, rather, used the number assigned to the first submission. See supra note 2.
                                        - 17 -

      The IRS did not initiate any administrative or judicial proceedings against

BP nor collect any “proceeds” from BP on the basis of Mr. Lacey’s information.

Mr. Lacey’s petition

      On April 26, 2016, Mr. Lacey petitioned this Court for review of the WBO’s

determination. The petition challenged the WBO’s determination that the

information Mr. Lacey had provided in the first submission was “speculative

and/or did not provide specific or credible information”. With regard to the

January 22, 2016, letter, the petition stated: “I disagree that IRS considered

additional information because none was provided.”

      The petition also challenged the conclusion in the Commissioner’s

April 2016 rejection that the information provided in the second submission still

did not meet the criteria for an award. The petition asserts that the WBO did not

review Mr. Lacey’s second submission and that no WBO analyst made a

recommendation to reject Mr. Lacey’s claim as supplemented by his second

submission.

The Commissioner’s motion

      The Commissioner filed a motion for summary judgment in which he

contends that the WBO did not abuse its discretion in rejecting Mr. Lacey’s claim

for an award under section 7623. We construe the motion as making two
                                        - 18 -

alternative contentions, although the Commissioner does not explicitly articulate

them as such.11

        First, the Commissioner points to the undisputed facts that the IRS did not

proceed with any administrative or judicial action nor collect any proceeds on the

basis of Mr. Lacey’s information. Since no award could be possible under those

facts, the Commissioner contends that he is entitled to summary judgment in this

case.

        Second, the Commissioner’s motion explains that Mr. Lacey’s claim was

properly rejected “because the claim lacked specific or credible information, was

purely speculative in nature, and did not allege a tax issue.” The Commissioner

further explained the basis for immediate rejection of Mr. Lacey’s claim:

        [Petitioner] has not provided any specific information of what costs
        were incurred and deducted by the taxpayer. The fact that the
        taxpayer may have chosen a method that the [petitioner] does not

        11
        The Commissioner’s reply memorandum characterizes his argument thus:
“[T]he undisputed material facts demonstrate that the Whistleblower Office did
not abuse its discretion in rejecting petitioner’s claim for award. Specifically, the
administrative claim file evinced that respondent did not proceed based on
petitioner’s information, no administrative or judicial action was taken, and there
were no collected proceeds.” (Emphasis added.) Arguably, this reflects reliance
on a single contention--i.e., that the absence of collected proceeds and of
administrative or judicial action requires the conclusion that there was no abuse of
discretion by the WBO. However, the Commissioner’s motion does argue that the
WBO rightly concluded that Mr. Lacey’s claim “lacked specific or credible
information”, so we address here that contention as well.
                                       - 19 -

      agree with and/or a more expensive method does not make the cost of
      that method non-deductible and the [petitioner] has not identified the
      tax issue that would deny a deduction for the costs associated with the
      method chosen by the taxpayer.

For that reason, the Commissioner argues he is entitled to summary judgment.

      Mr. Lacey’s response to the motion argues that the WBO abused its

discretion in rejecting his claim after his second submission. He asserts that the

Commissioner rejected the second submission without issuing an award

recommendation memorandum or a separate claim number and that the WBO was

required by section 7623(b) to analyze the second submission because the amount

of the deduction in dispute, $12.9 billion, had a tax effect that exceeded $2

million. Mr. Lacey contends that the WBO was required to use his information to

pursue BP, which had violated internal revenue laws. He argues that the second

submission alleged a credible Federal tax issue--i.e., that it was improper for BP to

deduct the purported cleanup expenses because section 162(f), which provides that

no deduction shall be allowed under subsection (a) for any fine or similar penalty

paid to a Government for the violation of any law, should extend to disallow

expenditures incurred to evade such nondeductible fines or penalties. Mr. Lacey

also argued that he had provided the WBO with sufficient information from which

to proceed with an administrative or judicial action.
                                      - 20 -

      Mr. Lacey argues that the WBO failed to properly process the second

submission and requests that the Court deny the Commissioner’s motion and

remand the case to the WBO with instructions to process his second submission.

                                   Discussion

I.    Summary judgment standard

      The purpose of summary judgment is to expedite litigation and avoid

unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

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. Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965

(7th Cir. 1994). In deciding whether to grant summary judgment, we draw factual

inferences in the light most favorable to the nonmoving party. Sundstrand Corp.

v. Commissioner, 98 T.C. at 520.

      As we explain in part II.C below, we held in Kasper v. Commissioner,

150 T.C. 8 (2018), that we review the WBO’s decisions not de novo but rather for

abuse of discretion. For the reasons explained below in part III.B.2, we conclude
                                        - 21 -

that material facts about the WBO’s exercise of its discretion are in dispute,

requiring denial of the Commissioner’s motion.12

II.   General principles concerning whistleblower awards

      A.     Awards under section 7623

             1.    Criteria for award entitlement

      Section 7623 provides for awards to those individuals (i.e., whistleblowers)

who provide information to the Government about third parties who are

underpaying their taxes. Specifically, section 7623(a) provides that the Secretary

is authorized to make payments for the detection of underpayments of tax or for

detecting and bringing to trial and punishment persons who are guilty of violating

the internal revenue laws. As amended in 2018,13 section 7623(b)(1) provides:


      12
        The U.S. Court of Appeals for the D.C. Circuit, to which an appeal in this
case would presumably lie, see sec. 7482(b)(1), has observed that “the question
whether * * * [an agency] acted in an arbitrary and capricious manner is a legal
one which the district court [or, as here, the Tax Court] can resolve on the agency
record--regardless of whether it is presented in the context of a motion for
judgment on the pleadings or in a motion for summary judgment”, Univ. Med. Ctr.
of S. Nev. v. Shalala, 173 F.3d 438, 440 n.3 (D.C. Cir. 1999). However, here we
lack the complete administrative record, so we decide only, on the parties’
submissions supporting and opposing the Commissioner’s motion, whether there
is a genuine dispute of material fact as to the WBO’s consideration and rejection
of Mr. Lacey’s claim.
      13
       The Bipartisan Budget Act of 2018, Pub. L. No. 115-123, sec. 41108,
132 Stat. at 158-159, amended some of the terminology in section 7623, and the
                                                                    (continued...)
                                        - 22 -

      If the Secretary proceeds with any administrative or judicial action
      * * * based on information brought to the Secretary’s attention by an
      individual, such individual shall * * * receive as an award at least 15
      percent but not more than 30 percent of the proceeds collected as a
      result of the action (including any related actions) or from any
      settlement in response to such action * * * .

      Under the plain words of section 7623(b)(1), a whistleblower award

depends upon (1) the initiation of an “administrative or judicial action” based on

the whistleblower’s information and (2) the “proceeds collected as a result of the

action”; both are necessary prerequisites for an award. See Cooper v.

Commissioner (“Cooper II”), 136 T.C. 597, 601 (2011).

      In this case it is undisputed that the IRS did not use Mr. Lacey’s information

to initiate administrative or judicial action (indeed, Mr. Lacey’s main point is that

the IRS failed to do so); and it therefore follows that no proceeds could have been

collected as a result of his information and that therefore no award could be

payable to him--at least not yet. The IRS contends that this proposition ends the

matter in this case. However, the dispute involves the question whether we have




      13
        (...continued)
effective date of the amendments is uncertain. See Whistleblower 23711-15W v.
Commissioner, T.C. Memo. 2018-34, at *15 n.6. None of the amendments has any
effect on the issues we decide here, and in this opinion we quote the statute as
amended.
                                        - 23 -

jurisdiction to review the WBO’s actions or inactions that forestalled further

proceedings.

               2.   Initial evaluation by the WBO

      It is the WBO that initially evaluates whistleblower claims and information,

see sec. 7623(b)(2) and (3), and in doing so it acts pursuant to regulations, see 26

C.F.R. secs. 301.7623-1 to -4, Proced. & Admin. Regs. The pertinent regulations

provide that, in order to be eligible for an award--

      a whistleblower must submit to the IRS specific and credible
      information that the whistleblower believes will lead to collected
      proceeds from one or more persons whom the whistleblower believes
      have failed to comply with the internal revenue laws. In general, a
      whistleblower’s submission should identify the person(s) believed to
      have failed to comply with the internal revenue laws and should
      provide substantive information, including all available
      documentation, that supports the whistleblower’s allegations. * * *
      Submissions that provide speculative information or that do not
      provide specific and credible information regarding tax
      underpayments or violations of internal revenue laws do not provide a
      basis for an award. * * * [26 C.F.R. sec. 301.7623-1(c)(1).]

That is, in the first instance, the WBO decides, on the basis of the face of the

whistleblower’s submission itself, whether that submission meets a minimum

standard:

      If a whistleblower files a claim for award that * * * does not contain
      specific and credible information as described in paragraph (c)(1) of
      this section, * * * the Whistleblower Office may reject the claim or
      notify the whistleblower of the deficiencies and provide the
                                        - 24 -

      whistleblower an opportunity to perfect the claim for award. * * * If
      the Whistleblower Office rejects a claim, then the Whistleblower
      Office will provide notice of the rejection to the whistleblower
      pursuant to the rules of § 301.7623-3(b)(3) or (c)(7). If the
      Whistleblower Office rejects a claim for the reasons described in this
      paragraph, then the whistleblower may perfect and resubmit the
      claim. [Id. para. (c)(4).]

In sum, the text of the foregoing regulation, 26 C.F.R. sec. 301.7623-1(c)(1)

and (4), includes the following criteria for a claim that may be eligible for an

award:

      •      “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”.

We are not aware of any regulation or other authority defining “speculative”

expressly for purposes of the WBO’s initial analysis; but the current Internal
                                         - 25 -

Revenue Manual (“IRM”) provisions applicable to the operating divisions to

which (as we explain below) the WBO may refer a claim, state:

      Claims are considered purely speculative in nature if the claim lacks
      any basis or support for the allegations. If the allegations are based
      on or supported by information, including public information, then
      the claim is not purely speculative in nature. If the submission does
      not contain a specific or credible tax issue, or is purely speculative in
      nature, then no further review is required. [IRM pt. 25.2.1.3.2(5)
      (Jan. 11, 2018).14]

It is the job of the WBO to initially evaluate a claim against those criteria.

             3.     Rejection of deficient claim15

      If, in its initial evaluation, the WBO determines that a claim is deficient,

then under the regulations it can “reject” the claim outright, in which case “the


      14
        The IRM does not carry the force of law and is not binding on the IRS, but
we can use it to show the Commissioner’s interpretation and application of the
Code and regulations to guide our own evaluation. Rhone-Poulenc Surfactants &
Specialties, L.P. v.Commissioner, 114 T.C. 533, 543 n.16 (2000).
      15
        The WBO has other options that it did not employ here: It can “notify the
whistleblower of the deficiencies and provide the whistleblower an opportunity to
perfect the claim for award”, within a “time period specified” by the WBO,
26 C.F.R. sec. 301.7623-1(c)(4), or it can issue a “preliminary rejection letter”,
after which “the whistleblower has 30 days * * * to submit comments to the
Whistleblower Office (this period may be extended at the sole discretion of the
Whistleblower Office)”, 26 C.F.R. sec. 301.7623-3(c)(7). Thus, the Internal
Revenue Manual states that if a claim does not “contain all the required
information * * *, the Whistleblower Office may reject the claim or the
Whistleblower Office may correspond with the whistleblower for the missing
information.” IRM pt. 25.2.2.4(1)(b) (Aug. 7, 2015). The 2018 IRM is to the
same effect. See IRM pt. 25.2.1.2(2)(b) (Jan. 11, 2018).
                                       - 26 -

whistleblower may perfect and resubmit the claim” (without any stated deadline).

26 C.F.R. sec. 301.7623-1(c)(4).16 If the WBO does not “reject” the claim in the

threshold but later determines not to grant any award, that determination is

referred to as a “denial” under 26 C.F.R. section 301.7623-3(c)(8) (rather than as a

“rejection” under paragraph (c)(7), which, as quoted above, refers to action based

on “the face of the claim”). Consequently, after the WBO rejected Mr. Lacey’s

claim (as first submitted) in its November 2015 rejection letter, Mr. Lacey was

entitled to perfect his claim and make his second submission, and the WBO was

obligated to consider it and purported to do so.

             4.    Further consideration of claims not “rejected”

      If the WBO determines that the whistleblower’s claim does “contain

specific and credible information” and otherwise meets the minimum criteria, then

the WBO will refer the claim to an operating division of the IRS.17 It is the


      16
        Likewise, the Internal Revenue Manual states: “If the Whistleblower
Office rejects a claim * * * [because it does not “contain all the required
information”], then the whistleblower may perfect and resubmit the claim”. IRM
pt. 25.2.2.4(1)(b) (Aug. 7, 2015). The 2018 IRM is to the same effect. See IRM
pt. 25.2.1.2(2)(b). The Commissioner has not contended here that the time,
manner, or procedural posture of Mr. Lacey’s second submission entitled the
WBO to ignore it or now precludes Mr. Lacey from relying on it.
      17
        See Whistleblower 21276-13W v. Commissioner, 144 T.C. 290, 299
(2015); McCrory v. Commissioner, T.C. Memo. 2018-12, at *3; IRM pt.
                                                                (continued...)
                                        - 27 -

operating division (not the WBO) that makes the decision whether and how the

IRS will use the information to examine the target taxpayer.18 If the operating

division proceeds with an audit that results in collection of proceeds attributable to




      17
         (...continued)
25.2.2.4(3) (Aug. 7, 2015) (“The claim file will be forwarded to the appropriate
Operating Division for classification”); IRM pt. 25.2.1.2(4) (Jan. 11, 2018) (to the
same effect); see also IRS Publication 5251, “The Whistleblower Claim Process”,
at 2 (“If the Whistleblower Office determines the claim has merit, the allegations
are forwarded to the appropriate IRS operating division(s) for further
development”).
      18
          The process to be followed by the operating division is set out in detail in
the Internal Revenue Manual, and the differences between the 2015 IRM and the
2018 IRM are insignificant for purposes of this discussion. The initial work of the
operating division is done by “Classifiers” who “[d]etermine whether the
allegations meet threshold tolerances. Classifiers should follow the guidance for
“Materiality/Significance of the Issue” found in IRM 4.1.5.3, Planning and Special
Programs - Classification and Case Building.” IRM pt. 25.2.1.3.2(3) (Jan. 11,
2018). The Classifiers also “[d]etermine whether the information meets the
operating division’s criteria for selecting for field exam or referring to the subject
matter expert (SME)” and “[d]etermine whether the information should be
forwarded for further investigation.” IRM pt. 25.2.1.3.2(8) and (9) (Jan. 11,
2018); cf. IRM pt. 25.2.2.4(3) (Aug. 7, 2015). They may refer the claim to an
SME, who “will evaluate the Form 211 and accompanying information to
determine whether it may materially contribute to the identification, development
or resolution of taxpayer liability or collection issues.” IRM pt. 25.2.2.4.4(1)
(Aug. 7, 2015); see also IRM pt. 25.2.1.4.1(1) (Jan. 11, 2018) (to the same effect).
If this initial process by the operating division results in a decision to examine the
target taxpayer, then the case is worked by examination personnel. “The examiner
cannot be the same person as the SME or the individual who classified the Form
211.” IRM pt. 25.2.1.5(1) (Jan. 11, 2018); see also IRM pt. 25.2.2.4.4(1) (Aug. 7,
2015) (to the same effect).
                                        - 28 -

the whistleblower’s information, then an award may result pursuant to 26 C.F.R.

section 301.7623-4.

      B.     Tax Court jurisdiction

      Section 7623(b)(4) provides for Tax Court jurisdiction with respect to

determinations of the WBO regarding whistleblower award claims:

            (4) Appeal of award determination.--Any determination
      regarding an award under paragraph (1), (2), or (3) may, within 30
      days of such determination, be appealed to the Tax Court (and the
      Tax Court shall have jurisdiction with respect to such matter).
      [Emphasis added.]

Thus, the statute confers “jurisdiction with respect to such matter”--i.e., with

respect to “[a]ny determination regarding an award”. See Cooper v.

Commissioner, 135 T.C. 70 (2010).19

      However, section 7623(b) does not convert the Tax Court into an overseer

of the IRS’s audit and collection activity. Rather, the statute confers upon the Tax

Court jurisdiction with respect to “[a]ny determination regarding an award under

paragraph (1), (2), or (3)”. Sec. 7623(b)(4) (emphasis added). Section 7623 refers

      19
        Thus, the WBO’s April 2016 rejection letter to Mr. Lacey is, in the
wording of our jurisdictional grant (section 7623(b)(4)), a “determination
regarding an award under paragraph (1)” of section7623(b). That paragraph
describes the conditions under which an “individual shall * * * receive * * * an
award” (emphasis added); but a denial or rejection is a (negative) “determination
regarding an award”, so the Tax Court has jurisdiction where, pursuant to the
WBO’s determination, the individual does not receive an award.
                                        - 29 -

to various acts by “the Secretary”20 (a broad term meaning “the Secretary of the

Treasury or his delegate”, sec. 7701(a)(11)(B)); but the statute’s description of our

jurisdiction refers to paragraphs (1), (2), and (3) of section 7623(b), and in those

paragraphs the only “determination[s]” referred to are those by “the Whistleblower

Office”,21 i.e., not acts by the Secretary’s delegates within the IRS who conduct

examination and collection activity. As we explained in Cohen v. Commissioner,

139 T.C. 299, 302 (2012) (citing Cooper II, 36 T.C. at 600), aff’d per curiam, 550

F. App’x 10 (D.C. Cir. 2014):

      Our jurisdiction under section 7623(b) does not contemplate that we
      review the Commissioner’s determinations of the alleged tax liability
      to which the claim pertains. * * * Nor does section 7623 confer
      authority to direct the Commissioner to commence an administrative
      or judicial action.



      20
        See sec. 7623(a) (“The Secretary * * * is authorized to pay” discretionary
awards not reviewed by the Tax Court); sec. 7623(b)(1) (“If the Secretary
proceeds with any administrative or judicial action”; “information brought to the
Secretary’s attention”; “whether such proceeds are available to the Secretary”
(emphasis added)); sec. 7623(b)(2)(A) (“whether such proceeds are available to
the Secretary” (emphasis added)); sec. 7623(b)(6)(C) (“information submitted to
the Secretary” (emphasis added)).
      21
        See sec. 7623(b)(1) (“The determination of the amount of such award by
the Whistleblower Office” (emphasis added)); sec. 7623(b)(2)(A) (“which the
Whistleblower Office determines to be based principally on disclosures”; “the
Whistleblower Office may award such sums * * * (determined without regard
* * *)” (emphasis added)); sec. 7623(b)(3) (“If the Whistleblower Office
determines that the claim” (emphasis added)).
                                          - 30 -

The Court of Appeals for the D.C. Circuit affirmed in Cohen and elsewhere22 our

holdings that we do not review the IRS’s decision whether to audit a target in

response to a whistleblower’s claim and that we have no authority to require the

IRS to explain a decision not to audit.

      C.     Standard and Scope of Review

      We review the WBO’s actions by applying an abuse-of-discretion standard.

Kasper v. Commissioner, 150 T.C. at 21-23. That is, we do not substitute our

judgment for the reasonable judgment of the WBO; rather, we overrule only a

decision that constituted an abuse of discretion. Abuse of discretion exists when a

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

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006).

      In ascertaining whether the Secretary abused his discretion, we generally

confine our review to the administrative record. Kasper v. Commissioner, 150

T.C. at 20. “The administrative record comprises all information contained in the

      22
        See Meidinger v. Commissioner, 559 F. App’x 5 (D.C. Cir. 2014);
Simmons v. Commissioner, 523 F. App’x 728, 729 (D.C. Cir. 2013) (“the Tax
Court lacks the authority to order the Secretary to conduct audits”); Krug v.
Commissioner, 120 A.F.T.R.2d 2017-6480 (D.C. Cir. 2017) (“The Commissioner
has discretion whether to initiate an action against a taxpayer; the courts cannot
compel the Commissioner to initiate such action or to accept appellant’s
[whistleblower] claim”).
                                         - 31 -

administrative claim file that is relevant to the award determination and not

protected by * * * privileges.” 26 C.F.R. sec. 301.7623-3(e)(1). The Supreme

Court has held that “a reviewing court, in dealing with a determination or

judgment which an administrative agency alone is authorized to make, must judge

the propriety of such action solely by the grounds invoked by the agency.” SEC v.

Chenery Corp. (Chenery II), 332 U.S. 194, 196 (1947). Consequently, we held in

Kasper v. Commissioner, 150 T.C. at 23-24:

      Under the Chenery doctrine we can uphold the WBO’s determination
      only on the grounds it actually relied on when making its
      determination. * * * This means that the WBO must clearly set forth
      the grounds on which it made its determination, so that we don’t have
      to guess. See * * * [Chenery II, 332 U.S. at 196]. We cannot uphold
      the WBO’s determination “simply because findings might have been
      made and considerations might be disclosed which might justify his
      ultimate conclusion.” Antioco [v. Commissioner, T.C. Memo.
      2013-35], at *25 (citing * * * [SEC v. Chenery Corp., 318 U.S. 80,
      93-94 (1943)]).

Thus, the Tax Court reviews a WBO determination by reference to the grounds

that it states, not by reference to post hoc rationalizations.

      We have recently held that remand can be appropriate in a whistleblower

case under section 7623(b). See Whistleblower 769-16W v. Commissioner,

152 T.C. ___ (Apr. 11, 2019).
                                        - 32 -

III.   Analysis

       We construe the Commissioner’s motion for summary judgment to assert

that he is entitled to prevail on two contentions: (1) that a determination

“rejecting” a claim must always be sustained because there has been no

administrative or judicial action and no collection of tax proceeds and (2) that Mr.

Lacey’s claim was properly “rejected” because it did not meet the threshold

requirements for an award under section 7623(b). A third issue is the

appropriateness of the remand that Mr. Lacey has requested. We now analyze

those three issues.

       A.    Whether the Tax Court has jurisdiction to review “rejection” of a
             claim notwithstanding the absence of “action” and “proceeds”

       In some whistleblower cases, the outcome-determinative issue is whether,

making use of the whistleblower’s information, the IRS “proceeds with any

administrative or judicial action” against a target taxpayer and collects “proceeds”

as a result. Sec. 7623(b)(1). No award can be granted in the absence of either

such an “action” or such “proceeds” (or both), and some cases therefore are

resolved on that basis. See, e.g., Whistleblower 14106-10W v. Commissioner,

137 T.C. 183, 189 (2011); Cooper II, 136 T.C. at 600; McCrory v. Commissioner,

T.C. Memo. 2018-12; Perales v. Commissioner, T.C. Memo. 2017-90.
                                       - 33 -

      Congress has not conferred on the Tax Court authority to direct the IRS to

commence or continue an audit, see supra part II.B (citing Cohen v.

Commissioner, 139 T.C. at 302, nor authority to direct collection. Consequently, a

case in which the whistleblower asks us to order an audit or to order collection

will fail. The Commissioner seems to attempt to present this case as if it were

such a case. But it is not.

      Mr. Lacey does not challenge a decision by IRS examination personnel

declining to audit BP’s returns on the basis of his information (since no such

decision was ever made), nor does he challenge a decision by IRS collection

personnel declining to attempt to collect from BP tax liability arising from his

information (since no such decision was ever made). He does not ask us to review

any act by those examination and collection personnel or to give any direction to

those examination and collection personnel. Rather, Mr. Lacey challenges action

by the WBO--i.e., its declining to refer his claim for substantive consideration but

instead “rejecting” it on the grounds that it failed to meet minimum standards for

consideration. We address below, in part III.B, the validity of the WBO’s

“rejection” determination; but the point relevant here is this: Having been given

jurisdiction over “[a]ny determination regarding an award”, sec. 7623(b)(4), and

having been charged with the review of the WBO’s exercise of its discretion, we
                                        - 34 -

do have authority to review its abuse of discretion in a decision to reject a claim

for failure to meet threshold requirements without referring it to an IRS operating

division.

      The Commissioner’s reading of our Opinions in Cohen and Cooper II would

evidently enable the WBO to immunize itself from such review, but that reading is

untenable, as the Court would have jurisdiction to do nothing but grant summary

judgment in favor of the IRS when reviewing rejections by the WBO--which is no

kind of review at all. See Urda op. p. 51. The WBO’s procedures and the

standard and scope of our review have been clarified since these cases were

decided,23 but we affirm the validity of their holding that we cannot order

“administrative or judicial action” by the IRS--a holding founded on the

observation in Cooper II, 136 T.C. at 600-601, that “Congress has charged the

Secretary [i.e., “the Secretary of the Treasury or his delegate”,

sec. 7701(a)(11)(B)] with the responsibility of seeking tax revenue in every

      23
        Our Opinions in Cooper v. Commissioner (“Cooper II”), 136 T.C. 597
(2011), and Cohen v. Commissioner, 139 T.C. 299 (2012), aff’d per curiam, 550
F. App’x 10 (D.C. Cir. 2014), were issued before the 2012 proposal, see 26 C.F.R.
secs. 301.7623-1 to -4; 77 Fed. Reg. 74798 (Dec. 18, 2012), and the 2014
adoption, see T.D. 9687, 2014-36 I.R.B. 468 (Sept. 2, 2014), of the regulations in
26 C.F.R. secs. 301.7623-1 to -4; and they were decided years before our decision
in Kasper v. Commissioner, 150 T.C. 8 (2018) (holding that we review the WBO’s
decisions for abuse of discretion on the basis of the administrative record), see
Urda op. p. 50.
                                        - 35 -

possible situation. Secs. 7601 and 7602.” The IRS and not the Tax Court decides

whether and how to audit a taxpayer’s return, and section 7623(b)(4) confers on

the Tax Court jurisdiction not to supervise audits but to review the acts of the

WBO. Clearly it is not the WBO but rather an IRS “Operating Division” that

makes the “determination not to proceed with an action”. 26 C.F.R. sec.

301.7623-4(d)(2)(ii); see supra note 18. The Tax Court does not review such audit

decisions.

      Under section 7623(b)(4), however, the Tax Court does review for abuse of

discretion “[a]ny determination regarding an award under paragraph (1), (2),

or (3)” by the WBO, whether a threshold decision to “reject” a claim without

substantive consideration or an ultimate determination to make an award. Though

it is clear we do not review decisions whether to audit or collect, neither we nor

the Court of Appeals for the D.C. Circuit has heretofore addressed the question

whether we can review the WBO’s threshold determination to “reject” a claim on

its face. In Cohen, which arose before the proposal and adoption of the

regulations, see supra note 23, the WBO had sent a letter “inform[ing] petitioner

he was not eligible for an award because no proceeds were collected”, and in

characterizing the dispute, we stated that “[p]etitioner disagrees with respondent’s

decision not to act on his information”. Cohen v. Commissioner, 139 T.C. at 301,
                                        - 36 -

302. That “decision not to act on * * * [the whistleblower’s] information” is what

we do not review, as we held in Cohen; and the regulations proposed and issued

after Cohen make it clear that such a decision to act on the information (i.e., a

decision whether to conduct an audit) is now made by an operating division of the

IRS. See, e.g., 26 C.F.R. sec. 301.7623-4(d)(2)(ii).

      What we address in this case is instead the preceding decision, which the

post-Cohen regulations assign to the WBO and which was not explicitly addressed

in Cohen--i.e., the decision whether to summarily “reject” a claim because, on its

face, the claim fails to meet minimum threshold criteria. See supra part II.A.2

and 3. If the Tax Court were not able to review a WBO determination to “reject” a

claim, then even a wholesale failure of the WBO to perform its congressionally

mandated function would be utterly unreviewable. Hypothetically, if the WBO

were to reject reflexively by return mail all whistleblower claims--a clear abuse of

its discretion--it could thereafter defend every case with the irrefutable contentions

that no administrative or judicial action had been commenced or continued and

that no proceeds had been collected on the basis of the whistleblower’s

information. Of necessity, those contentions would always be factually true, but

such reflexive rejection by the WBO would be arbitrary--and, if arbitrary, then an

abuse of discretion that we must reverse. See Kasper v. Commissioner, 150 T.C.
                                       - 37 -

at 21-23. One of the WBO’s options is indeed to “reject” a claim without

substantive consideration of its information and allegations beyond the face of the

claim; and we review such a rejection by looking for an abuse of discretion and

not by substituting our own judgment for that of the WBO; but the WBO’s

exercise of its discretion in rejecting a claim must conform with the pertinent

regulatory criteria.

      It seems that the Commissioner would have us decide this case without

reviewing the WBO’s determination but, rather, by simply consulting the fact that

“administrative action” and “proceeds” are lacking here (as they will always be

lacking at the threshold, where this case stalled). The WBO’s determination (the

April 2016 rejection letter) said nothing about the presence or absence of

“administrative action” or “proceeds” but only of failure to “meet our criteria for

an award” (because “the information provided was speculative and/or did not

provide specific or credible information regarding tax underpayments or violations

of internal revenue laws”). Under Chenery II, 332 U.S. at 196, those grounds only

(and not “administrative action” or “proceeds”) are “the grounds invoked by the

agency”, and those are the grounds that we must consider as we review the WBO’s

determination. See Kasper v. Commissioner, 150 T.C. at 23-24.
                                        - 38 -

      The Tax Court’s review of a WBO determination to “reject” a claim is not

preempted by the absence of “action” and “proceeds”, which will always be absent

in the instance of the WBO’s “rejection” of a claim in the threshold.

      B.     Whether the WBO’s rejection of Mr. Lacey’s claim reflects an
             abuse of discretion

      Mr. Lacey contends that the WBO abused its discretion in rejecting his

claim, but the Commissioner’s motion apparently undertakes to show the contrary

under the Rule 121 standard that there is no genuine dispute of material fact.

Although the WBO’s November 2015 rejection of his first submission is arguably

moot in light of the April 2016 rejection of his second submission, and although

neither party focuses on the propriety of the November 2015 rejection standing

alone, that November 15 rejection is effectively incorporated by reference into the

April 2016 rejection, so we address it first.

             1.     The first submission and the November 2015 rejection

      As we observed above, Mr. Lacey’s May 2015 one-page submission in

support of a $12.89 billion “disallowance” did not cite or suggest sources, did not

suggest that he had any inside information, and did not identify “the deduction” he

described nor substantiate BP’s reporting any deduction. Its “Dollar Amount” of

$12.89 billion was unexplained. It did not cite any legal authority.
                                        - 39 -

      At least two members of the WBO staff considered Mr. Lacey’s first

submission and wrote recommendations that his claim be rejected. Their

recommendations were followed, and the WBO’s November 2015 letter

economically stated: “The claim has been rejected because the information

provided was speculative and/or did not provide specific or credible information

regarding tax underpayments or violations of internal revenue laws.”

      Mr. Lacey does not contend that his first submission was adequate but

rather explains that he expected to supplement his information after the IRS began

considering his claim. In effect, he acknowledges that his first submission was,

taken alone, properly rejected, so we need not evaluate any further the

November 2015 rejection per se.

      However, we note an imprecision in the letter, resulting from its use of

“and/or”--i.e., it held that the claim “was speculative and/or did not provide

specific or credible information”. (Emphasis added.) Admittedly, these two

alternatives overlap, but the use of “and/or” allows the writer to avoid specifying.

Was there one reason the claim was rejected? If so, which one? Or were there

two reasons? If we look at the staff recommendations that preceded the decision,

but see Chenery II, 332 U.S. at 196, they give no help, since one says “and/or” and

the other says “or”. It is unclear how we should review the WBO’s multiple-
                                        - 40 -

choice letter from November 2015, but we are relieved of that task by subsequent

events--Mr. Lacey’s concession that his first submission was properly rejected and

the second submission and the operative rejection in April 2016.

             2.    The second submission and the April 2016 rejection

      The second submission was quite different from the first. Its 21-page brief:

      •      explained Mr. Lacey’s alleged experience and expertise in the
             relevant industry and at BP itself;

      •      listed sources of information and proposed ostensibly knowledgeable
             “expert witnesses”;

      •      explained Mr. Lacey’s reckoning of the $12.89 billion of “cover-up”
             expenses; and

      •      cited legal authorities in support of his theory of disallowing the
             deduction.

Without deciding whether the second submission “contain[ed] all the required

information”, IRM pt. 25.2.2.4(1)(b) (Aug. 7, 2015); see also IRM pt.

25.2.1.2(2)(b) (Jan. 11, 2018), we can safely say that its contents greatly exceeded

those of the first submission.

      However, we cannot tell what consideration, if any, the WBO gave to

Mr. Lacey’s second submission. The complete administrative record is not before

us. The Commissioner has presented no staff memoranda or other evidence of
                                        - 41 -

recommendations like those that preceded the November 2015 rejection. The

WBO’s response was simply to state, in its April 2016 letter:

      We considered the additional information you provided and
      determined your claim still does not meet our criteria for an award.
      Our determination remains the same despite the information
      contained in your latest letter.

Other than this most summary statement, there is no explanation for the WBO’s

April 2016 rejection of Mr. Lacey’s claim.

      On the one hand, the letter does say that the WBO “considered the

additional information you provided”. But this is the same boilerplate assertion

that the WBO made to Mr. Lacey in January 2016 after his counsel sent an inquiry

that provided no “additional information”. In fact, the WBO sent the entire

identical letter in April 2016 (after the second submission) that it had sent in

January 2016 (before the second submission). The mistake in the January 2016

letter (asserting that the WBO had reviewed something that in fact it had never

received) makes clear that the WBO sent that January 2016 letter without having

given any actual attention to the correspondence to which it responded; and the

April 2016 letter’s verbatim repetition of the same representations suggests that

the WBO may simply have been issuing form letters to Mr. Lacey despite his
                                         - 42 -

having submitted additional information responsive to the WBO’s previous

criticism of his first submission.

      By asserting that “[o]ur determination remains the same”, the WBO’s

April 2016 rejection letter incorporates the previous decision reflected in its

November 2015 rejection letter--i.e., that “the information provided was

speculative and/or did not provide specific or credible information regarding tax

underpayments or violations of internal revenue laws.” (Emphasis added.) If this

characterization is true about the second submission, it must be true for reasons

very different from those that made it true about the first submission. Again,

without deciding whether the second submission “contain[ed] all the required

information”, the second submission contained much more specific allegations

about expenses that BP incurred, about the expenditures’ purpose of covering up

environmental crimes and evading environmental fines, and about the tax effect of

deducting the expenses; and the brief states, with citation of authorities, a non-

frivolous legal basis (not deciding at present whether it is a correct basis) for

disallowing such deductions. We do not think that the Commissioner has shown

that there is no genuine dispute as to whether the WBO actually considered even

the face of the claim, and its purported rejection letter of April 2016 does not state

the grounds for the rejection in a manner sufficient to enable us to review it.
                                        - 43 -

Given the current posture of the case (in which, to decide the Commissioner’s

motion for summary judgment under Rule 121, we draw all reasonable inferences

in favor of Mr. Lacey), we assume that the WBO issued the form letter without

actual attention to his submission. We will therefore deny the Commissioner’s

motion for summary judgment.

IV.   Remand

      When we review the WBO’s determination in a whistleblower claim case,

we must “decide whether the agency’s decision was ‘based on an erroneous view

of the law or a clearly erroneous assessment of the facts.’”24 As we have shown,

on the record before us we cannot yet do so, because the WBO’s decision does not

explain itself. And explain it must. As we have noted, the Supreme Court in

Chenery II, 332 U.S. at 196, requires us to “judge the propriety of such action

solely by the grounds invoked by the agency”, see supra part II.C, and this in turn

requires the agency to state those grounds.25


      24
       Kasper v. Commissioner, 150 T.C. at 23 (quoting Fargo v. Commissioner,
447 F.3d 706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13).
      25
        When the Court of Appeals affirmed Cohen per curiam, it held that “[t]he
Tax Court cannot compel the IRS to provide an explanation for its decision”,
Cohen v. Commissioner, 550 F. App’x at 11, which, in context, referred to the
decision not to “proceed with an administrative or judicial action”, id. (quoting
Cooper II, 136 T.C. at 600). But as to determinations that we do have jurisdiction
                                                                        (continued...)
                                        - 44 -

      However, at this point it would be premature to remand this case to require

the WBO to articulate a decision that we can review. To hold, on the partial

record before us, that a genuine dispute exists as to whether the WBO failed to

consider the claim does not resolve that dispute. The complete administrative

record might shed the necessary light, and it remains to be seen whether it does so.

      We will deny the Commissioner’s motion for summary judgment, will deny

Mr. Lacey’s request to remand, and will order the parties to recommend a schedule

for further proceedings in this case.

      To that end,


                                                 An appropriate order will be issued.

      Reviewed by the Court.

      GALE, LAUBER, ASHFORD, URDA, COPELAND, and JONES, JJ.,
agree with this opinion of the Court.

      PARIS, J., did not participate in the consideration of this opinion.




      25
        (...continued)
to review, some explanation of the WBO’s decision is of course necessary. See
AT&T Wireless Servs., Inc. v. FCC, 270 F.3d 959, 968 (D.C. Cir. 2001) (“Basic
principles of administrative law require the agency to ‘examine the relevant data
and articulate a satisfactory explanation for its action’” (emphasis added) (quoting
U.S. Telecom Ass’n v. FCC, 227 F.3d 450, 461 (D.C. Cir. 2000))).
                                        - 45 -

      THORNTON, J., concurring: The opinion of the Court holds that we may

review for abuse of discretion a decision by the IRS Whistleblower Office to reject

a claim for failing to meet certain threshold conditions. This holding is consistent

with this Court’s jurisdictional grant in section 7623(b)(4) as well as the

“presumption favoring judicial review of administrative action”. Block v. Cmty.

Nutrition Inst., 467 U.S. 340, 349 (1984); see Sackett v. EPA, 566 U.S. 120

(2012); Stovic v. R.R. Ret. Bd., 826 F.3d 500, 505-506 (D.C. Cir. 2016). In the

course of our review, however, we cannot compel the IRS to commence an audit

or to provide an explanation of its decision not to commence an audit. See Cohen

v. Commissioner, 550 F. App’x 10, 11 (D.C. Cir. 2014), aff’g 139 T.C. 299

(2012). Accordingly, insofar as a decision to reject a whistleblower claim

implicates a decision that the IRS will not commence an audit, our review of such

a rejection is necessarily quite circumscribed.

      The materials available to the Court in support of respondent’s motion for

summary judgment appear to show that, although petitioner’s revised and

resubmitted claim was received by the IRS in Ogden, Utah, on March 31, 2016, it

was not received by the Whistleblower Office until April 5, 2016. The

Whistleblower Office denied the resubmitted claim on April 6, 2016, on the exact

same grounds as petitioner’s earlier, less detailed claim. On these facts the Court
                                        - 46 -

will deny respondent’s motion for summary judgment on the ground that there is a

genuine dispute of material fact as to whether the Whistleblower Office issued its

rejection letter without actual attention to the whistleblower’s submission. See op.

Ct. pp. 42-43. Whether the Whistleblower Office actually abused its discretion in

rejecting the claim is a question that remains open for another day, once the

complete administrative record is before the Court. On that understanding, I

concur with the opinion of the Court.

    GALE, MARVEL, MORRISON, KERRIGAN, LAUBER, URDA, and
COPELAND, JJ., agree with this concurring opinion.
                                           -47-

      URDA, J., concurring: The opinion of the Court today recognizes the

distinction between the requirements for a whistleblower to recover a mandatory

award under section 7623(b)(1) and the authority granted to this Court to review

determinations regarding such awards under section 7623(b)(4). Although we

have not articulated this point before, see Cooper v. Commissioner, 136 T.C. 597

(2011); Cohen v. Commissioner, 139 T.C. 299 (2012), aff’d, 550 F. App’x 10

(D.C. Cir. 2014), the Court’s conclusion is sound. I concur.

I.    The Plain Text of Section 7623(b) Supports the Court’s Reading.

      Congress provided this Court with jurisdiction over “[a]ny determination

regarding an award under paragraph (1), (2), or (3)”. Sec. 7623(b)(4). Both the

Court and the dissent agree that a rejection of a claim at the threshold counts as

such a determination and that we have jurisdiction to review a rejection. See op.

Ct. pp. 33-37; dissenting op. pp. 60-61.

      There the Court and the dissent part ways, with the dissent arguing that our

review is limited to the determination of award amounts. The dissent notes that a

whistleblower cannot qualify for an award unless the IRS institutes an

administrative or judicial action and collects proceeds. The dissent then concludes

that we have no choice but to grant summary judgment to respondent here because

there was no action and there were no proceeds. See dissenting op. pp. 58-59.
                                        -48-

With due respect, the dissent is incorrectly conflating the requirements for a

whistleblower to obtain an award under section 7623(b)(1) with our review under

subsection (b)(4).

      We start with the text of the two provisions, as we must. See, e.g., Jimenez

v. Quarterman, 555 U.S. 113, 118 (2009); Klein v. Commissioner, 149 T.C. 341,

351 (2017). The dissent is correct that paragraph (1) requires an administrative or

judicial action and the collection of proceeds for a whistleblower to qualify for an

award. But Congress did not impose similar limitations on our review. To the

contrary, paragraph (4) speaks in broad terms, tasking us with the review of “[a]ny

determination regarding an award under paragraph (1), (2), or (3)”. “Read

naturally, the word ‘any’ has an expansive meaning, that is, ‘one or some

indiscriminately of whatever kind.’” United States v. Gonzales, 520 U.S. 1, 5

(1997) (quoting Webster’s Third New International Dictionary 97 (1976)). In

ordinary usage, “regarding” means “[i]n reference to”, “with respect to”, or

“concerning”. The American Heritage Dictionary 1469 (4th ed. 2006). Our

authority to review any determination with respect to an award strikes me as

sweeping up considerably more than just award amount determinations.

      Relying on the canon of consistency, the dissent argues that the use of the

word “determination” in both paragraphs (1) and (4) signals that our review is
                                         -49-

limited to award amount determinations. The canon of consistency, however,

“readily yields” to context. Util. Air Regulatory Grp. v. EPA, 573 U.S. 302, 320

(2014) (quoting Envtl. Def. v. Duke Energy Corp., 549 U.S. 561, 574 (2007)).

Paragraph (1) provides that the “determination of the amount of such award by the

Whistleblower Office shall depend upon the extent to which the individual

substantially contributed to such action”, while paragraph (4) allows a

whistleblower to appeal “[a]ny determination regarding an award under paragraph

(1), (2), or (3)”. The word “determination” is being used in a conspicuously

different context in each paragraph. The dissent offers no persuasive reason for

importing the specific type of determination described in paragraph (1) to limit the

general reference in paragraph (4) to “[a]ny determination” when Congress, which

drafted both provisions contemporaneously, chose not to do so.

      Had Congress intended to limit our review to award amount determinations,

there are several ways it could have done so, e.g., “any determination regarding

the amount of an award under paragraph (1), (2), or (3)” or “any determination of

an amount under paragraph (1), (2), or (3)”. But Congress did not use such a

narrow term. And we may not rewrite the statute to add it. Puerto Rico v.

Franklin Cal. Tax-Free Tr., 579 U.S. ___, ___, 136 S. Ct. 1938, 1949 (2016)

(“[O]ur constitutional structure does not permit this Court to ‘rewrite the statute
                                        -50-

that Congress has enacted.’” (quoting Dodd v. United States, 545 U.S. 353, 359

(2005))).

II.   The Court’s Conclusion Is Consistent With Relevant Principles of
      Administrative Law.

      The dissent also suggests that the Court’s review of the rejection of Mr.

Lacey’s claim would be improper and would inevitably run afoul of Vt. Yankee

Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 524 (1978). I

do not agree.

      We have previously held that we review a determination regarding an award

for abuse of discretion. Kasper v. Commissioner (Kasper II), 150 T.C. 8, 21-23

(2018). Under the normal principles governing such review, we examine whether

the determination--the Whistleblower Office’s (WBO) rejection of a claim for an

award in Mr. Lacey’s case--was reasonable (and reasonably explained). See

Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463

U.S. 29, 48-49 (1983). The absence of an action or collected proceeds does not

necessarily answer whether the IRS’ rejection of Mr. Lacey’s claim at the

threshold--as lacking merit on its face, without the need for any further

investigation--was reasonable or reasonably explained.
                                         -51-

       If, after the parties submit the full administrative record, we were to decide

that the WBO abused its discretion in rejecting Mr. Lacey’s claim for an award,

we would presumably remand the case for further consideration or to allow the

WBO to more fully articulate its rationale. See, e.g., Whistleblower 769-16W v.

Commissioner, 152 T.C. ___, ___ (slip op. at 12) (Apr. 11, 2019) (holding in light

of Kasper II that the Tax Court may in appropriate circumstances remand a

whistleblower case to the WBO for further consideration). Although our authority

in this regard is no doubt narrowly circumscribed (in no small part because we

cannot order the Secretary to initiate a proceeding per Vt. Yankee Nuclear Power

Corp.), it is not nonexistent. This interpretation also avoids the strange result that,

in the context of a rejection (a species of determination created by the IRS itself),

we would have jurisdiction to do nothing but grant summary judgment in favor of

the Commissioner.

III.   The Court of Appeals’ Decision in Cohen Is Not Contrary.

       The Court of Appeals for the D.C. Circuit’s opinion in Cohen v.

Commissioner, 550 F. App’x 10, does not require a different result. Under the

doctrine established in Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d,

445 F.2d 985 (10th Cir. 1971), we generally “follow a Court of Appeals decision

which is squarely in point where appeal from our decision lies to that Court of
                                        -52-

Appeals and to that court alone.” This doctrine applies only where the position of

a Court of Appeals signals inevitable reversal upon appeal and does not apply

where the precedent contains distinguishable facts or law. See, e.g., Tigers Eye

Trading, LLC v. Commissioner, 138 T.C. 67, 75 (2012), aff’d in part, rev’d in part

on other grounds and remanded sub nom. Logan Tr. v. Commissioner, 616 F.

App’x 426 (D.C. Cir. 2015).

      We are not bound to follow the D.C. Circuit’s decision here. As an initial

matter, the legal landscape surveyed in Cohen was markedly different from

today’s terrain. The “rejection” category of determination was not instituted until

after the D.C. Circuit issued its decision, and that court thus had no occasion to

address the issue here, i.e., the scope of our review of such a determination. See

sec. 301.7623-3, Proced. & Admin. Regs. (effective Aug. 12, 2014). Moreover,

the D.C. Circuit’s per curiam unpublished opinion offers no analysis of this issue

that would allow us to conclude that inevitable reversal faces the opinion of the
                                        -53-

Court.1 In these circumstances the Golsen doctrine does not oblige us to follow

Cohen.

      GALE, GUSTAFSON, LAUBER, ASHFORD, and COPELAND, JJ., agree
with this concurring opinion.

      JONES, J., joins only in part I of this concurring opinion.




      1
       This Court also has questioned the applicability of the Golsen doctrine to
unpublished opinions because of their nonprecedential nature. See Bennett Land
Co. v. Commissioner, 70 T.C. 904, 907 n.3 (1978); Ruegsegger v. Commissioner,
68 T.C. 463, 466-467 (1977).
                                       - 54 -

      BUCH, J., dissenting: Mr. Lacey made a series of submissions to the

Commissioner suggesting that his former employer underpaid its taxes. The

Commissioner did not follow up on any of those submissions by opening or

expanding an examination. Without an examination’s having been opened or

expanded on the basis of the information provided, it follows (and nobody

disputes) that no proceeds were collected as a result of whatever information

might have been provided by Mr. Lacey.

      If the Commissioner initiates an administrative or judicial proceeding as a

result of information provided by a whistleblower, and if that action results in

proceeds’ being collected, then the whistleblower is entitled to an award.

Sec. 7623(b)(1). And if the whistleblower is dissatisfied with the amount of that

award, he can petition our Court to review whether the Commissioner abused his

discretion in determining the amount of the award. Sec. 7623(b)(4).

      It is undisputed that the Commissioner did not initiate an administrative or

judicial proceeding. It is undisputed that the Commissioner did not collect any

proceeds. Because there was no action and there were no proceeds, it follows that

there can be no award. The Commissioner is entitled to summary judgment.

      The opinion of the Court would put this Court in the position of reviewing

the Commissioner’s decisions as to which claims to reject and which to pursue.
                                        - 55 -

But in drafting section 7623 Congress made clear that the scope of our review

over whistleblower determinations is limited to the amount of an award allocated

to a whistleblower. And both our caselaw and the caselaw of the Court of Appeals

for the D.C. Circuit, the court to which this case is appealable, have followed the

statutory limit on the scope of our review.

      Because the opinion of the Court would have us inquire into the

Commissioner’s decision making as to which whistleblower claims to investigate

and which to ignore, I dissent.

The opinion of the Court is inconsistent with the statute.

      Nondiscretionary awards to whistleblowers are governed by section

7623(b). And our review of such awards is governed by section 7623(b)(4), which

sets forth the scope of review. On its surface, that scope appears to be rather

broad. That provision grants us power to review “[a]ny determination regarding

an award under paragraph (1), (2), or (3)”. Sec. 7623(b)(4). If we follow those

cross-references, it is clear that the scope of our review is the amount of the award.

      Determinations regarding awards are made under section 7623(b)(1),1 which

provides in full:


      1
       Sec. 7623(b)(2) and (3) serves only to reduce or eliminate the amount of an
award that might otherwise be granted under para. (1).
                                         - 56 -

      If the Secretary proceeds with any administrative or judicial action
      described in subsection (a) based on information brought to the
      Secretary’s attention by an individual, such individual shall, subject
      to paragraph (2), receive as an award at least 15 percent but not more
      than 30 percent of the proceeds collected as a result of the action
      (including any related actions) or from any settlement in response to
      such action (determined without regard to whether such proceeds are
      available to the Secretary). The determination of the amount of such
      award by the Whistleblower Office shall depend upon the extent to
      which the individual substantially contributed to such action.

The only determination referenced in section 7623(b)(1) is the determination of

the amount of the award. By using “determination” in paragraph (4), Congress

explicitly signaled to its prior use of “determination” in paragraph (1), which is a

determination regarding the amount of an award. This reading rests on the

well-established rule of statutory interpretation that the same word used in the

same statute generally has the same meaning. IBP, Inc. v. Alvarez, 546 U.S. 21,

34 (2005); Fla. Country Clubs, Inc. v. Commissioner, 122 T.C. 73, 87 (2004),

aff’d, 404 F.3d 1291 (11th Cir. 2005).

      A second textual clue reinforces this distinction between the

Commissioner’s unfettered discretion whether to proceed with an action and the

reviewable determination of the amount of an award. The text of the statute makes

clear that it is the Secretary who decides whether to initiate an administrative or

judicial proceeding (“If the Secretary proceeds”), but it is the Whistleblower
                                        - 57 -

Office that determines the amount of the award. When Congress uses two

different words, we presume that the difference was intentional and that a different

meaning was intended. Henson v. Santander Consumer USA Inc., 582 U.S. ___,

___, 137 S. Ct. 1718, 1723 (2017).

      The opinion of the Court takes its own odd twist on this distinction in the

wording. The opinion of the Court tries to distinguish a situation where the

Whistleblower Office decides not to forward a case on for examination from one

where an IRS operating division decides not to pursue a case. The opinion of the

Court states that Mr. Lacey does not challenge “a decision by IRS examination

personnel” or “a decision by IRS collection personnel” or ask this Court to review

actions by IRS examination or collection personnel. See op. Ct. p. 33. “Rather,

Mr. Lacey challenges action by the * * * [Whistleblower Office]”. See id.

Because existing caselaw makes clear that we cannot compel an IRS operating

division to initiate an administrative or judicial proceeding, the opinion of the

Court appears to hinge our ability to review whether the Secretary should proceed

with an action on the question of to whom the Secretary has delegated the

responsibility to make that decision.

      But the Whistleblower Office does not exist outside the IRS or the purview

of the Secretary. The Whistleblower Office, like the rest of the IRS, is under the
                                        - 58 -

Secretary of the Treasury, and a reference to the Secretary is a reference to the

Secretary of the Treasury or his delegate. Sec. 7701(a)(11)(B). We do not oversee

the Secretary’s decisions regarding which cases to pursue, regardless of whether

that decision is delegated to an operating division or the Whistleblower Office.

The “formulation of procedures was basically to be left within the discretion of the

agencies to which Congress had confided the responsibility for substantive

judgments.” Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435

U.S. 519, 524 (1978). This Court does not get to decide how the IRS exercises its

discretion to begin or not begin an audit of a taxpayer against whom a whistle has

been blown.

      The opinion of the Court erroneously claims that the Whistleblower Office

does not determine whether the Commissioner will proceed with an action and that

we may review the Whistleblower Office’s decision-making process in deciding

whether to forward matters for further consideration. The opinion of the Court

states: “Clearly it is not the WBO but rather an IRS ‘Operating Division’ that

makes the ‘determination not to proceed with an action’.” See op. Ct. p. 35

(quoting section 301.7623-4(d)(2)(ii), Proced. & Admin. Regs.). But the act

creating the Whistleblower Office explicitly provides that the Whistleblower

Office may determine whether to proceed with an action. It specifically allows the
                                         - 59 -

Whistleblower Office to refer material to another division or analyze the

information itself: The Whistleblower Office “shall analyze information received

* * * and either investigate the matter itself or assign it to the appropriate Internal

Revenue Service office”. Tax Relief and Health Care Act of 2006, Pub. L. No.

109-432, sec. 406(b)(1)(B), 120 Stat. at 2960.

      We are authorized by section 7623(b)(4) to review the determination of the

amount of an award. Nothing in the statute authorizes us to review the decision

whether to proceed with an action, regardless of whether that decision is made in

the Whistleblower Office or in an operating division.

The opinion of the Court is inconsistent with the regulations.

      The regulations under section 7623 reinforce this plain reading of the statute

and confirm that the Secretary’s decision not to pursue a claim, for whatever

reason, is not a determination regarding an award that is subject to our review.

      The regulations explain the process for handling a whistleblower claim.

Once the Whistleblower Office recommends payment of an award to a

whistleblower, it issues a preliminary award recommendation, which is sent to the

whistleblower. Sec. 301.7623-3(b)(1), (c)(1), Proced. & Admin. Regs. The

whistleblower may respond to the preliminary recommendation. Id. para. (c)(3).

Eventually, a determination letter is sent to a whistleblower after the
                                         - 60 -

Whistleblower Office has finalized the “amount of the award under section

7623(b)(1), (2), or (3)”. Id. subpara. (6).

      The regulations distinguish an award determination from a rejection. A

preliminary award is made for claims “other than * * * rejections or denials”. Id.

subpara. (1). The regulations define “rejection” as “a determination that relates

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

pertains to the whistleblower.” Id. subpara. (7). If the Whistleblower Office

rejects a claim on its face, the rules governing a determination letter do not apply.

Id. The rejection of a claim on its face is thus outside the scope of our review.

      A rejection being outside the scope of our review does not mean there is

nothing for us to consider. If the Whistleblower Office denies an award on the

basis of not having initiated an administrative or judicial proceeding, that is

tantamount to a determination of an award of zero. From that determination, we

can consider whether a whistleblower is entitled to an award. We can, for

example, consider whether, contrary to his stated rejection, the Commissioner in

fact initiated an administrative or judicial proceeding. If, on the basis of our

review of the administrative record, the Whistleblower Office denied an award on

the basis of an erroneous claim of not having initiated a proceeding, we could
                                        - 61 -

remand the matter for determination of what, if any, proceeds might have been

collected and what, if any, award is to be granted.

The opinion of the Court is inconsistent with existing caselaw.

      Our caselaw both expressly and implicitly limits our review to the

Whistleblower Office’s determination of the amount of an award. We have

previously reviewed denials from the Whistleblower Office, but we have limited

our review to determining whether an action occurred, whether proceeds were

collected, or the amount of those proceeds. We have previously refused to

consider questions regarding whether the Commissioner should have pursued a

whistleblower referral.

      In Cooper v. Commissioner, 136 T.C. 597, 600-601 (2011), we rejected the

idea that section 7623(b)(4) gave us jurisdiction to review the Secretary’s choice

to pursue, or not to pursue, an action against a taxpayer.2 The whistleblower had

asked us to direct the Commissioner to investigate a taxpayer. Id. at 600. We

declined, stating that “we have jurisdiction only with respect to the

Commissioner’s award determination.” Id. “[W]histleblower awards are

preconditioned on the Secretary’s proceeding with an administrative or judicial

      2
       We noted that “Congress has charged the Secretary with the responsibility
of seeking tax revenue in every possible situation. Secs. 7601 and 7602.” Cooper
v. Commissioner, 136 T.C. 597, 600-601 (2011).
                                        - 62 -

action. * * * If the Secretary does not proceed, there can be no whistleblower

award.” Id. at 601.

      And in Cohen v. Commissioner, 139 T.C. 299, 301-302 (2012), aff’d, 550

F. App’x 10 (D.C. Cir. 2014), we made clear that our review begins after the

Commissioner commences an action and collects proceeds. In Cohen the

whistleblower had filed a petition asking this Court to order the Commissioner to

reopen a claim denied by the Whistleblower Office. We echoed our reasoning

from Cooper, stating we have power only to review an award determination. Id.

at 302. We were clear and explicit on the limits to the scope of our review:

“Section 7623(b) does not provide any relief before whistleblower information

leads to an administrative or judicial action and the collection of proceeds.” Id.

at 304. Cohen was affirmed by the Court of Appeals for the D.C. Circuit, the court

to which this case is appealable.

      In McCrory v. Commissioner, T.C. Memo. 2018-12, we faced an issue

nearly identical to the one presented by Mr. Lacey. In McCrory, we denied a

whistleblower’s motion to remand the Commissioner’s rejection of the

whistleblower’s claims. We explained: “Granting * * * [the whistleblower’s]

remand motion would be akin to directing the IRS to commence an administrative
                                        - 63 -

proceeding against taxpayers it chose not to pursue. Having no authority to do so,

we will grant summary judgment”. Id. at *9.

      The opinion of the Court is contrary to our caselaw already addressing this

issue. We have consistently, until today, held that section 7623(b)(4) allows us to

review an award determination. We have, until today, consistently granted

summary judgment for the Commissioner when a whistleblower appeals a

determination not to proceed with an administrative or judicial proceeding.

Following existing precedent requires that we grant summary judgment in favor of

the Commissioner.

Chenery does not require that we deny summary judgment.

      The opinion of the Court suggests that, because the Whistleblower Office’s

rejection did not refer to a lack of administrative action or collection of proceeds

as the reason for rejection, we may not consider those factors in our review. See

op. Ct. pp. 30-31 (citing SEC v. Chenery Corp., 322 U.S. 194, 196 (1947)). The

opinion of the Court suggests we are barred from considering those issues. See

op. Ct. p. 37.

      The opinion of the Court misses two fatal flaws in its position. First, by

rejecting Mr. Lacey’s claim at the outset, the Whistleblower Office made clear that

no action was taken on the claim. If there was no action, there can be no proceeds
                                        - 64 -

as a result of the action. See sec. 7623(b)(1). The Commissioner is not required to

articulate every factor in his decision, and we must “uphold a decision of less than

ideal clarity if the agency’s path may reasonably be discerned.” Bowman Transp.,

Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974). Second, we have

long held in other contexts that we do not remand cases where the outcome on

remand is clear. Zapara v. Commissioner, 126 T.C. 215, 225 (2006),

supplementing 124 T.C. 233 (2005). It would be a meaningless exercise for the

Court to remand this case only for the Whistleblower Office to add to its rejection

letter a line stating that the claim is denied because no administrative or judicial

proceeding was initiated and no proceeds were collected, especially when these

facts are already known by the Court and the parties.

      The Commissioner did not take any action on the basis of the information

Mr. Lacey provided. No proceeds were collected on the basis of the information

Mr. Lacey provided. These facts require that we grant summary judgment in favor

of the Commissioner. The opinion of the Court would instead have us interpose

ourselves into the Commissioner’s decisions over which claims to pursue. That is

not within the scope of our review, and for that reason, I dissent.

      FOLEY, NEGA, and PUGH, JJ., agree with this dissent.
