                              T.C. Memo. 2018-134



                        UNITED STATES TAX COURT



                WILLIAM MARK SCOTT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7809-17W.                        Filed August 22, 2018.


      William Mark Scott, pro se.

      Philip Edward Blondin and Kevin G. Gillin, for respondent.



                          MEMORANDUM OPINION


      JACOBS, Judge: This case is before the Court on respondent’s motion for

summary judgment filed April 16, 2018, pursuant to Rule 121.1 Petitioner filed his

response in opposition to motion for summary judgment on May 7, 2018. For the


      1
       Unless otherwise noted, all Rule references are to the Tax Court Rules of
Practice and Procedure, and all section references are to the Internal Revenue
Code of 1986, as amended.
                                         -2-

[*2] reasons discussed infra, we conclude that there is no dispute as to a material

fact and thus this case is ripe for summary adjudication.

                                     Background

      Petitioner is the former Director of the Internal Revenue Service (IRS)

Office of Tax Exempt Bonds (Tax Exempt Bonds). He worked for more than 19

years at the IRS and the IRS Office of Chief Counsel; he has more than 30 years’

experience in the area of tax-exempt municipal bonds. On October 23, 2013, the

IRS Whistleblower Office (Whistleblower Office) received a Form 211,

Application for Award for Original Information, with an attached narrative and

exhibits, from petitioner. The Form 211 alleges that certain tax-exempt bonds

issued by a U.S. city for purposes of furthering the construction of a hazardous

waste disposal facility did not qualify for tax-exempt treatment, in that the facility

financed by the bonds did not meet the “qualified hazardous waste facilities”

requirement of section 142(a)(10) or the “solid waste disposal facilities”

requirement of section 142(a)(6).2 Consequently, petitioner asserts that (1) the

bonds should be reclassified as “taxable private activity bonds” and the interest

      2
        Sec. 142 governs exempt facility bonds. Sec. 142(a)(6) provides: “For
purposes of this part, the term ‘exempt facility bond’ means any bond issued as
part of an issue 95 percent or more of the net proceeds of which are to be used to
provide * * * solid waste disposal facilities”. Sec. 142(a)(10) applies this rule to
“qualified hazardous waste facilities”.
                                        -3-

[*3] received with respect to the bonds is not excludible under section 1033 and

(2) no deduction is allowable on the financing of the bonds which accrues during

the period beginning on the date the facility is not used for tax-exempt purposes

and ending on the date such facility is so used under section 150(b)(4).4

      Petitioner’s claims were assigned two claim numbers: (1) the question as to

the tax-exempt status of the bonds was assigned claim No. 2014-000380 and

(2) the question as to the interest expense deductibility was assigned claim No.

2014-000381. On November 18, 2013, petitioner’s Form 211 was forwarded for

review to a subject matter expert in the IRS Tax Exempt and Government Entities

Division. On November 25, 2013, the Form 211 was further forwarded to a tax-

exempt bond subject matter expert for additional review and recommendation.



      3
        Sec. 103(a) provides that “[e]xcept as provided in subsection (b), gross
income does not include interest on any State or local bond.” Sec. 103(b) provides
that subsec. (a) does not apply to (1) private activity bonds which are not qualified
bonds (within the meaning of sec. 141), (2) arbitrage bonds (defined in sec. 148),
and (3) bonds which are not in registered form (as governed by sec. 149). The IRS
is empowered to collect proceeds from taxpayers, including the beneficial owner
of the above-mentioned bonds, should it be determined that the bond issuances do
not qualify as tax exempt.
      4
       Sec. 150(b)(4) denies a deduction for interest expense paid in the case of
any facility with respect to which financing is provided from the proceeds of any
private activity bond which, when issued, purported to be a tax-exempt facility
bond described in sec. 142(a), with certain exceptions, if such facility is not used
for a purpose for which a tax-exempt bond could be issued.
                                        -4-

[*4] Subsequently, the Form 211 was forwarded to the field for examination with

respect to the tax-exempt bond issue identified by petitioner.

      On September 23, 2016, the Whistleblower Office received a Form 11369,

Confidential Evaluation Report on Claim for Reward, dated August 22, 2016, with

respect to the tax-exempt status of the bonds (claim No. 2014-000380). The Form

11369 stated that the IRS opened an examination of the bond issuances and that

the examination focused on whether the facility financed by the tax-exempt bonds

qualified as a solid waste facility under section 142. Continuing, the Form 11369

stated:

      During the course of the examination, it was initially determined that
      a potential issue existed as to whether the facility met the
      requirements of section 142(a) of the Code. An initial adverse
      proposal was issued to the issuer and subsequently rebutted with
      several cites [i.e., legal citations] that backed their position. * * *
      Accordingly, it was decided by management to close the case as a No
      Change. The tax-exempt status of the bonds was preserved.

      No Change letters were issued to the Issuer on 8/22/16 and the
      examination was closed.[5]

      Following an initial review of the August 22, 2016, Form 11369, the

Whistleblower Office Analyst assigned to the case, Joel Calandreli, requested


      5
       Petitioner objects to the admission of the above-quoted portion of the Form
11369 on the grounds of hearsay. We admit it as a record kept in the course of a
regularly conducted activity of an organization. See Fed. R. Evid. 803(6).
                                         -5-

[*5] additional information from the Tax Exempt Bonds’ agents with respect to

claim No. 2014-000381 regarding the deductibility of interest expense pursuant to

section 150(b). On or before September 26, 2016, the Whistleblower Office

received a second Form 11369, stating:

      The claim was associated with claim 2014-000380 and was
      dependent on the outcome of the examination of that claim. The
      examination of claim 2014-000380 resulted in a No Change to the
      status of the bond issues in question, which negates the violation in
      claim 2014-000381. Therefore, no examination of * * * [name of the
      bond issuer] is warranted.[6]

      On October 12, 2016, Analyst Calandreli reviewed the two Forms 11369

and prepared an award recommendation memorandum with respect to claim No.

2014-000381, stating that petitioner was not entitled to an award because the

bonds in question could retain their tax-exempt status.

      Analyst Calandreli also began preparing an award recommendation

memorandum with respect to claim No. 2014-000380. However, he determined

that certain requested information from the IRS Office of Chief Counsel was

missing.




      6
       Petitioner also objects to the admission of this quoted portion of the Form
11369. We admit it as a record kept in the course of a regularly conducted activity
of an organization. See Federal Rule of Evidence 803(6).
                                        -6-

[*6] On or about November 1, 2016, Analyst Calandreli received the information

he had requested. He then reconfirmed, via the IRS Integrated Data Retrieval

System database, that the examination with respect to claim No. 2014-000380

resulted in no changes or adjustments to any party’s tax liability, and he completed

the award recommendation memorandum. The memorandum stated that while

petitioner’s information was used as a part of an examination, the examination

ultimately was closed without change following receipt of advice from the IRS

Office of Chief Counsel that the facility financed by the bonds qualified as a solid

waste disposal facility.

      On or about November 1, 2016, the Whistleblower Office issued a

preliminary denial letter with respect to claim Nos. 2014-000380 and 2014-

000381. Petitioner did not submit any comments, and on March 1, 2017, the

Whistleblower Office issued petitioner a final denial for claim Nos. 2014-000380

and 2014-000381. The final denial states:

      The claim (2014-000380) has been recommended for denial because
      the information you provided was reviewed as part of an examination,
      but the examination resulted in no change.

      The claim (2014-000381) has been recommended for denial because
      the IRS took no action based on the information you provided.
      Common reasons for declining to act on information include statute
      of limitations issues, limited resources, or a conclusion that there are
      no material issues.
                                         -7-

[*7]                                 Discussion

       Summary judgment serves to “expedite litigation and avoid unnecessary and

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

Either party may move for summary judgment upon all or any part of the legal

issues in controversy, but we may grant summary judgment only if there is no

genuine dispute as to any material fact. Rule 121(a) and (b); Naftel v.

Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of

showing that there is no genuine dispute of material fact, and the Court views all

factual materials and inferences in the light most favorable to the nonmoving

party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). Rule 121(d)

provides that where the moving party properly makes and supports a motion for

summary judgment, “an adverse party may not rest upon the mere allegations or

denials of such party’s pleading” but rather must set forth specific facts, by

affidavits or otherwise, “showing that there is a genuine dispute for trial.”

       A whistleblower award under section 7623(b) generally depends on two

prerequisites: (1) the Commissioner’s commencing an administrative or judicial

action and (2) the collection of proceeds. Cohen v. Commissioner, 139 T.C. 299,

302 (2012), aff’d, 550 F. App’x 10 (D.C. Cir. 2014); Cooper v. Commissioner,

136 T.C. 597, 600 (2011). We have held that we may not order the Commissioner
                                        -8-

[*8] to commence an administrative or judicial action. See Cohen v.

Commissioner, 139 T.C. at 302; Cooper v. Commissioner, 136 T.C. at 600-601.

      In his motion for summary judgment, and supported by the declaration of

Analyst Calandreli, respondent detailed all of the actions taken by the

Whistleblower Office and the Tax Exempt Bonds agents. Respondent stated that

the IRS examined the bond issuances reported by petitioner but took no action and

collected no proceeds.

      Petitioner contends that respondent, in fact, commenced an administrative

action and collected proceeds related to the bond issuances. In the declaration

attached to his response in opposition to respondent’s motion for summary

judgment, petitioner states that he “obtained specific information and records

regarding two separate attempts by TEB [Tax Exempt Bonds] to disguise the

collection of proceeds on examinations initiated through submissions of Forms

211. The information and records collected relate specifically to Whistleblower

Office Claim No. 2015-005991 and Claim No. 2015-006729.” Petitioner asserts

that the IRS issued no-change letters to the governmental issuer of the bonds, but

the Tax Exempt Bonds division subsequently took administrative actions “so as to

collect millions in tax dollars from the beneficial owners of the bonds.” Petitioner

further asserts that in connection with these two claim numbers: “I have been
                                         -9-

[*9] informed that TEB had failed to report these administrative actions and

collections on the Forms 11369 sent to the IRS Whistleblower Office”.

Continuing, he states: “I have been informed that the IRS Whistleblower Office

had been working on denial letters based upon TEB’s erroneous Forms 11369

prior to receiving the results of my independent research.” Petitioner further

states: “I have been told that the treatment of whistleblowers by TEB has been

subject to active consideration of a possible review by the Treasury Inspector

General for Tax Administration.”

      In his response in opposition to respondent’s motion for summary judgment,

petitioner posits: “[b]ased on recent history, TEB would not have reported

administrative actions against the beneficial owners of the bonds on the Forms

11369 relied upon by the IRS Whistleblower Office to prepare the denial letters in

this instance.” Petitioner asserts that the administrative file does not preclude the

possibility of administrative actions against the beneficial owners of the bonds or

other possible collections. Consequently, petitioner argues:

      Given that respondent failed to complete the administrative file, and
      petitioner is legally unable to force either the governmental issuer or
      the conduit borrower to execute an affidavit or declaration, or to
      produce records prior to the date set for trial, respondent’s request for
      summary judgment is premature. W.L Gore & Assoc. v.
      Commissioner, T.C. Memo. 1995-96; Rule 121(e).
                                        - 10 -

[*10] Respondent’s motion for summary judgment should be denied as
      reasonable doubts as to material facts exist that are not included
      within the administrative file, including whether TEB took actions to
      collect directly from the beneficial owners of the bonds or other
      actual taxpayers.

      Petitioner’s statements are not compelling. First, we note that petitioner has

no personal knowledge of the IRS actions upon which he reports. He states that

he has been informed of the IRS’ alleged malfeasance in other situations and

presents what he has been told as true in this situation. Rule 121(d) provides that

“[s]upporting and opposing affidavits or declarations shall be made on personal

knowledge, shall set forth such facts as would be admissible in evidence, and shall

show affirmatively that the affiant or declarant is competent to testify to the

matters stated therein.” Our Rule 121 is modeled in large part after rule 56 of the

Federal Rules of Civil Procedure. Shiosaki v. Commissioner, 61 T.C. 861, 862

(1974). Consequently, “‘sheer hearsay’ * * * ‘counts for nothing’” on summary

judgment. Greer v. Paulson, 505 F.3d 1306, 1315 (D.C. Cir. 2007) (quoting

Gleklen v. Democratic Cong. Campaign Comm., Inc., 199 F.3d 1365, 1369 (D.C.

Cir. 2000)).

      This is not the end of our analysis. Even though petitioner’s evidence

would not be admissible at trial, summary judgment evidence need not be in a

form that would be admissible at trial, so long as it is capable of being converted
                                        - 11 -

[*11] into admissible evidence. Gleklen, 199 F.3d at 1369. But beyond the

hearsay issue, petitioner’s statements also suffer from relevancy problems. Even if

petitioner can establish that there was malfeasance in the other cases, i.e., Claim

No. 2015-005991 and Claim No. 2015-006729, petitioner has presented no

evidence, admissible or otherwise, that such occurrences in fact occurred in his

case. Petitioner’s argument is missing a vital step; petitioner asserts malfeasance

in another case, then a gap of uncertainty, then his conclusion that malfeasance

exists in this case.

       Petitioner appeals to Rule 121(e), citing the difficulty in acquiring factual

information in this case. Rule 121(e) provides the rule for instances when

affidavits or declarations are unavailable:

       If it appears from the affidavits or declarations of a party opposing the
       motion that such party cannot for reasons stated present by affidavit
       or declaration facts essential to justify such party’s opposition, then
       the Court may deny the motion or may order a continuance to permit
       affidavits or declarations to be obtained or other steps to be taken or
       may make such other order as is just. If it appears from the affidavits
       or declarations of a party opposing the motion that such party’s only
       legally available method of contravening the facts set forth in the
       supporting affidavits or declarations of the moving party is through
       cross-examination of such affiants or declarants or the testimony of
       third parties from whom affidavits or declarations cannot be secured,
       then such a showing may be deemed sufficient to establish that the
       facts set forth in such supporting affidavits or declarations are
       genuinely disputed.
                                        - 12 -

[*12] In his response to respondent’s motion for summary judgment, petitioner

asserts that the administrative file is incomplete but that he has no means to

acquire further documents and he is unable to force the governmental issuer or the

conduit borrower of the bonds to execute an affidavit or declaration or produce

records.

      In Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 188-189

(2011), we stated:

      Rule 121(e) is modeled in large part after former rule 56(f) of the
      Federal Rules of Civil Procedure (redesignated rule 56(d) in 2009
      with nonsubstantive changes). In Keebler Co. v. Murray Bakery
      Prods., 866 F.2d 1386 (Fed. Cir. 1989), applying former rule 56(f),
      the court held that the plaintiff could not avoid summary judgment by
      requesting discovery. The court characterized the plaintiff’s
      opposition as saying, in effect: “we have no factual basis for opposing
      summary judgment, but, if you stay proceedings, we might find
      something.” Id. at 1389. The court observed: “If all one had to do to
      obtain a grant of a Rule 56(f) motion were to allege possession by
      movant of ‘certain information’ and ‘other evidence’, every summary
      judgment decision would have to be delayed while the non-movant
      goes fishing in the movant’s files.” Id. * * *

      To conclude, we hold that there is no genuine issue as to any material fact

and we may render a decision as a matter of law. As previously discussed, the IRS

opened an examination of the bond issuances but ultimately concluded that they

were valid and issued a no-change letter. Respondent, via sworn affidavit, states

that no proceeds were collected and petitioner presented no evidence that any such
                                       - 13 -

[*13] proceeds were collected in this matter. Consequently, we will grant

respondent’s motion for summary judgment, filed April 16, 2018.

      In the light of the foregoing,


                                                An appropriate order and decision

                                       will be entered.
