Lacey v. Comm'r, 153 T.C. No. 8

• Decision Date: 25 November 2019
• Docket Number: Docket No. 9761-16W.,153 T.C. No. 8
• Parties: RICHARD E. LACEY, II, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

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

153 T.C. No. 8

Docket No. 9761-16W.

UNITED STATES TAX COURT

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. 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 aclaim 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. 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 spilland 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 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

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.

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...