Cooper v. Comm'r of Internal Revenue

• Citation: 135 T.C. No. 4,135 T.C. 70
• Decision Date: 08 July 2010
• Docket Number: Nos. 24178–09W,24179–09W.,s. 24178–09W
• Parties: William Prentice COOPER, III, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Tax Court

135 T.C. 70
135 T.C. No. 4

William Prentice COOPER, III, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 24178–09W

24179–09W.

United States Tax Court.

July 8, 2010.

[135 T.C. 70]

P filed two claims for a whistleblower award with R under sec. 7623(b)(4), I.R.C. R sent a letter to P denying the claims because an award determination could not be made under sec. 7623(b), I.R.C. P subsequently filed petitions in this Court seeking review of R's denial of the whistleblower claims.

R filed motions to dismiss these cases for lack of jurisdiction on the ground that no determination notice under sec. 7623(b), I.R.C ., was sent to P, to which P objected that the letter R sent was a valid determination notice.

Held: R's letter was a determination conferring jurisdiction on this Court. We shall therefore deny R's motions to dismiss for lack of jurisdiction.

Joseph G. Giannola and Robert J. Mauceri, for petitioner.

Holly H. Styles and Alex Shlivko, for respondent.

KROUPA, Judge:

[135 T.C. 71]

These cases are before the Court on respondent's motions to dismiss for lack of jurisdiction. We decide for the first time whether a letter sent by respondent to petitioner denying petitioner's whistleblower claims constitutes a “determination” within the meaning of section 7623(b)(4) ¹ that would confer on us jurisdiction to review denial of the claims. We find that the letter was a determination and that we therefore have jurisdiction.

Background

The following information is stated for purposes of resolving the pending motions. At the time of filing the petitions, petitioner resided in Nashville, Tennessee.

Petitioner, an attorney, submitted two Forms 211, Application for Award for Original Information, to the Internal Revenue Service (IRS) in 2008 concerning alleged violations of the Code. He alleged in the two claims that certain parties had failed to pay millions of dollars in estate and generation-skipping transfer tax.

Petitioner alleged in one claim that a trust having over $102 million in assets was improperly omitted from the gross estate of Dorothy Dillon Eweson (Ms. Eweson), resulting in a possible $75 million underpayment in Federal estate tax. He learned of the alleged omission by representing the widow of Ms. Eweson's grandson, who is also the guardian of a purported beneficiary of the trust. He also verified the information by examining the public records and the records of his client.

Petitioner alleged in the other claim that Ms. Eweson impermissibly modified two trusts as part of a scheme to avoid the generation-skipping transfer tax. The trusts at issue had a combined value of over $200 million at the time of Ms. Eweson's death in 2005. Petitioner learned of the alleged violation through his representation of the widow of Ms. Eweson's grandson. He also verified the information by examining the public records and the records of his client. Petitioner submitted additional information to support the allegation several months after filing the claim. He provided

[135 T.C. 72]

newly discovered filings from a New York Surrogate Court proceeding in which a corporate trustee challenged the trust modifications as designed primarily to evade taxation. Petitioner also provided a legal memorandum and draft legal documents from Ms. Eweson's attorneys that indicated the trusts were modified as part of a scheme to avoid the generation-skipping transfer tax.

Respondent's Whistleblower Office (Whistleblower Office) notified petitioner that it had received the whistleblower claims. The Office explained that petitioner's information would be used to determine whether to further investigate the alleged violations. The Whistleblower Office also told petitioner that he would be informed at the conclusion of the review and investigation whether petitioner's information met the criteria for paying an award.

The Whistleblower Office did not contact petitioner again until nine months later when the Office sent him a letter denying the claims (the letter). The letter stated that respondent had considered petitioner's whistleblower claims. It explained that “an award determination * * * [could not] be made under section 7623(b)” ² because petitioner “did not identify * * * federal tax issue[s] upon which the IRS will take action.” The letter further explained that an award was not warranted for either claim because petitioner's information did not “result in the detection of the underpayment of taxes.”

Petitioner filed two separate petitions in this Court in response to respondent's denial of the whistleblower claims. Respondent filed motions to dismiss for lack of jurisdiction in both proceedings on the ground that no determination notice had been issued to petitioner. Petitioner objected to the motions that the letter constituted a determination conferring this Court with jurisdiction under section 7623(b)(4) to review respondent's denial of the whistleblower claims.

Discussion

We decide for the first time whether respondent's letter denying petitioner's whistleblower claims constitutes a “determination” that gives this Court jurisdiction under section 7623(b)(4). We begin with the Tax Court's jurisdiction.

[135 T.C. 73]

The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. Judge v. Commissioner, 88 T.C. 1175, 1180–1181, 1987 WL 49322 (1987); Naftel v. Commissioner, 85 T.C. 527, 529, 1985 WL 15396 (1985). The Tax Court is without authority to enlarge upon that statutory grant. See Phillips Petroleum Co. v. Commissioner, 92 T.C. 885, 888, 1989 WL 43931 (1989). We nevertheless have jurisdiction to determine whether we have jurisdiction. Hambrick v. Commissioner, 118 T.C. 348, 2002 WL 655426 (2002); Pyo v. Commissioner, 83 T.C. 626, 632, 1984 WL 15623 (1984); Kluger v. Commissioner, 83 T.C. 309, 314, 1984 WL 15610 (1984). We turn now to an overview of our jurisdiction regarding whistleblower claims.

I. Overview of the Whistleblower Award Program

The Secretary has long had the discretion to pay awards to persons providing information that aids in (1) detecting underpayments of tax and (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws. Sec. 7623(a). The discretionary whistleblower awards have been arbitrary and inconsistent, however, because of a lack of standardized procedures and limited managerial oversight. See Treasury Inspector General for Tax Administration Rept.2006–30–092, The Informants' Rewards Program Needs More Centralized Management Oversight (June 2006). It took an average of 7v years for a discretionary award to be paid and an average of 6v months for a claim to be rejected. Id. at 8–9. Moreover, most rejected claims did not provide the rationale for the reviewer's decision because of concerns about disclosing confidential return information to the whistleblower. Id. at 7.

Congress enacted legislation in 2006 to address...