Krug v. U.S., 98-5130
| Decision Date | 17 February 1999 |
| Docket Number | No. 98-5130,98-5130 |
| Citation | 168 F.3d 1307 |
| Parties | -995, 99-1 USTC P 50,281 Gregory C. KRUG, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
Gregory C. Krug, pro se, of Costa Mesa, California.
Kenneth W. Rosenberg, Attorney, Tax Division, U.S. Department of Justice, of Washington, for defendant-appellee. With him on the brief were Loretta C. Argrett, Assistant Attorney General, Gary R. Allen, Attorney, and Jonathan S. Cohen, Attorney. Of counsel was Curtis C. Pett, Attorney.
Before PLAGER, RADER, and BRYSON, Circuit Judges.
In this case, Gregory C. Krug, appealing pro se, claims a right to have a reward from the United States for information he gave the Internal Revenue Service ("IRS") regarding third-party taxpayers, information that the Government admits led to a recovery of millions of dollars in unpaid taxes. The IRS declined to make him a reward, and he sued.
In its April 30, 1998 decision, the Court of Federal Claims granted the Government's motion for summary judgment. See Krug v. United States, 41 Fed. Cl. 96 (1998). The court concluded that Mr. Krug was not contractually entitled to a reward for providing the IRS with information about alleged underpayments of income and gift taxes by the third-party taxpayers. The court also determined that the IRS did not abuse its discretion in denying Mr. Krug a reward. Because we conclude that the Court of Federal Claims correctly read the law, we affirm.
We have jurisdiction to hear this appeal under 28 U.S.C. § 1295(a)(3) (1994). Whether the Court of Federal Claims properly granted summary judgment is a question of law over which we exercise plenary review. See Applegate v. United States, 25 F.3d 1579, 1581 (Fed.Cir.1994).
The crux of Mr. Krug's argument on appeal is that IRS Publication 733 in its current incarnation, and unlike its predecessors, creates an implied-in-fact contract obligating the Government to pay Mr. Krug for the information that he provided. Mr. Krug acknowledges that our precedents establish that 26 U.S.C. § 7623 and its implementing regulation, 26 C.F.R. § 301.7623-1(a), alone do not contractually bind the Government. See, e.g., Merrick v. United States, 846 F.2d 725, 726 (Fed.Cir.1988). The Merrick court characterized § 7623 and its accompanying regulation as "an indefinite reward offer that an informant may respond to by his conduct," as distinguished from an "enforceable contract [that] arises when the parties fix the reward amount." See id. at 726.
Mr. Krug further acknowledges that, prior to 1980, Publication 733, the publication issued by the IRS which describes the Government's policy regarding informant's rewards, did not alone or in conjunction with the statute and the regulation create an enforceable contract. He distinguishes his situation from every other informant's case on the grounds that he relied on the post-1980 version of Publication 733 when he submitted the information which led to the investigations which led to the Government's recovery of the unpaid taxes.
Prior to its revision in July 1980, IRS Publication 733 (rev.3-77) read in relevant part:
The District Director will determine whether a reward will be paid, and its amount. In making this decision, the information The Publication went on to explain that the reward will not exceed ten percent of the recovery, with a $50,000 cap. 1
you provided will be evaluated in relation to the facts developed by the resulting investigation.
After its revision in 1980, Publication 733 again begins with the first and second sentences quoted above. Then, however, the Publication states that: Thereafter, several paragraphs describe the formulae that will be applied to recoveries depending on the nature of the information supplied. 2
The trial judge considered that the opening two sentences, unchanged by the 1980 revision, continued the operative legal effect of the pre-1980 law. That is, 26 U.S.C. § 7623 and its implementing regulation, along with the explanatory Publication 733 in its current version, still does no more than Merrick described: it floats an indefinite reward offer that an informant may respond to by conduct, but a binding contract does not arise until the Government brings the offer to ground by a specific award.
Mr. Krug argues that by setting forth in the post-1980 version of Publication 733 the detailed formulae by which awards will be calculated, the IRS intended to take from itself the discretion to deny an award whenever an informant's factual situation falls within one of the formulae. 3 The difficulty with that argument, of course, is that the agency's conduct is directly contrary to such a supposed intent. Furthermore, if the agency intended such a significant change in the law, and in light of our precedents and the IRS's historical insistence that it had the discretion to deny a reward such a change would be significant, the appropriate place to announce it would have been through a change in the governing regulation, and not through an instructional publication. 4
We think the trial court is correct. The unchanged opening sentences of Publication 733 along with the more detailed explanation of the formulae for reward suggest that the revision was not intended to bring about a sea-change in the Government's practice, but rather to disclose (and guide) more fully the bases on which rewards would be made, with the hope of encouraging more persons to become informants. 5 Recasting the Merrick analysis may help make the point. In the more usual language of contract, it can be said that, in Publication 733 and pursuant to § 7623 and the regulation, the Government invites offers for a reward; the informant makes an offer by his conduct; and the Government accepts...
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