Li v. Commissioner of Internal Revenue

• Decision Date: 11 January 2022
• Docket Number: No. 20-1245,20-1245
• Citation: 22 F.4th 1014
• Parties: Mandy Mobley LI, Appellant v. COMMISSIONER OF INTERNAL REVENUE, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

22 F.4th 1014

Mandy Mobley LI, Appellant

v.COMMISSIONER OF INTERNAL REVENUE, Appellee

No. 20-1245

United States Court of Appeals, District of Columbia Circuit.

Argued November 5, 2021

Decided January 11, 2022

Mandy Mobley Li, pro se, argued the cause and filed the briefs for appellant.

Matthew S. Johnshoy, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the briefs was Bruce R. Ellisen, Attorney.

Robert Manhas, appointed by the court, argued the cause as amicus curiae to assist the court by addressing this court's jurisdiction. With him on the brief was Robert M. Loeb, appointed by the court.

Before: Henderson and Millett, Circuit Judges, and Sentelle, Senior Circuit Judge.

Sentelle, Senior Circuit Judge:

Appellant Mandy Mobley Li appeals the United States Tax Court's final decision awarding summary judgment to the IRS Commissioner in her whistleblower case. Specifically, the Tax Court held that the IRS Whistleblower Office ("WBO") did not abuse its discretion in rejecting Li's request for a whistleblower award, since Li provided only vague and speculative information as to purported tax violations. For the reasons explained below, we dismiss this appeal for lack of subject matter jurisdiction and remand to the Tax Court with instructions to do the same.¹

I. Background

On December 12, 2018, Li filed a Form 211 with the WBO alleging four tax violations by a third party (the "target taxpayer"). A Form 211 is an application to receive a monetary whistleblower award for supplying the IRS with actionable tax violation information, pursuant to 26 U.S.C. § 7623(b). A WBO classifier reviewed Li's Form 211, as well as the target taxpayer's 2016 and 2017 tax returns, and concluded that Li's allegations were "speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws," making Li ineligible for an award. Therefore, the WBO did not forward Li's form to an IRS examiner for any potential action against the target taxpayer. The WBO communicated its decision by letter to Li on February 8, 2019 and informed her that she could appeal to the United States Tax Court if she thought the WBO had erred. Li did so by petition on March 13, 2019. Neither party identified a jurisdictional issue with the Tax Court's review of the case. The Commissioner subsequently filed a motion for summary judgment, which the Tax Court granted. The Tax Court found that the WBO adequately performed its evaluative function in reviewing Li's application and did not abuse its discretion by rejecting it for an award. Li then filed a motion for reconsideration. After the Tax Court denied the motion, Li appealed to this Court.

II. Analysis

Statutory law gives exclusive jurisdiction over Tax Court decisions to the United States Courts of Appeals, which are required to review Tax Court decisions in the same manner as any district court decision. 26 U.S.C. § 7482(a)(1). However, this Court's jurisdiction is predicated upon the Tax Court having had jurisdiction over the case. Bender v. Williamsport Area Sch. Dist ., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). If the Tax Court lacks jurisdiction, this Court has "jurisdiction on appeal, not of the merits but merely for the purpose of correcting the error of the lower court in entertaining the suit." Id. (quoting United States v. Corrick , 298 U.S. 435, 440, 56 S.Ct. 829, 80 L.Ed. 1263 (1936) ). For the reasons set forth below, such is the case presently. The Tax Court lacked jurisdiction to hear Li's appeal from the WBO, leaving this Court with jurisdiction only to cure the defect. Even though the parties did not raise the issue, "federal courts have an independent obligation to ensure that they do not exceed the scope of their jurisdiction, and therefore they must raise and decide jurisdictional questions that the parties either overlook or elect not to press." Henderson ex rel. Henderson v. Shinseki , 562 U.S. 428, 434, 131 S.Ct. 1197, 179 L.Ed.2d 159 (2011).

a. The Whistleblower Statute

There are three relevant provisions of the whistleblower statute, 26 U.S.C. § 7623. The first, subsection (a), authorizes the IRS to grant monetary awards to persons helping to "detect[ ] underpayments of tax, or ... detect[ ] and bring[ ] to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same ...." § 7623(a). The second, subsection (b)(1), requires the IRS to give awards to whistleblowers "[i]f 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 ...." § 7623(b)(1). This provision only applies if certain monetary conditions are met ((b)(5)). The remainder of that portion of the statute provides the parameters for such awards, including a floor and ceiling award amount ((b)(1)), a reduction in award amount for information based on public data ((b)(2)), and a reduction or denial of award amount in which the whistleblower participated in the tax violations ((b)(3)).

The third relevant segment, subsection (b)(4), gives the Tax Court exclusive jurisdiction over an appeal of "[a]ny determination regarding an award under paragraph (1), (2), or (3) ...."

When a whistleblower makes a Form 211 filing, the WBO follows several steps. First, it reviews the Form, and any related information, to determine whether the provided information may lead to the discovery of a tax violation. If the information is too vague or speculative, the WBO issues a rejection. Rogers v. Comm'r , No. 17985-19W, 2021 WL 3284613, at *5 (T.C. Aug. 2, 2021). "[A] rejection is appropriate when a whistleblower's claim fails to comply with the threshold requirements as to who may submit a claim or what information the claim must include." Id. ; see also 26 C.F.R. § 301.7623-3(c)(7) (defining "rejection"). If the whistleblower's information signals a potential tax violation, the IRS may initiate a proceeding against the target taxpayer. If the proceeding then yields payments to the IRS, the whistleblower receives an award, subject to 26 U.S.C. § 7623(b)(1)-(3). Any appeal of an award determination under subsections (b)(1)-(3) is then directed to the Tax Court. § 7623(b)(4).

As we noted earlier, we have the continuing duty to examine our jurisdiction, regardless of whether the parties raise the issue. The jurisdictional issue in this case asks whether § 7623(b)(4) gives the Tax Court jurisdiction over the threshold first step, the initial rejection of a whistleblower award before the WBO makes an award determination under subsections (b)(1)-(3). This issue is not one of first impression for the court below. In Cooper v. Comm'r , the Tax Court held that an initial rejection of a whistleblower award is in fact an award determination under subsection (b)(4), rejecting the argument that "there can be a determination for jurisdictional purposes only if the Whistleblower Office undertakes an administrative or judicial action and thereafter ‘determines’ to make an award." 135 T.C. 70, 75 (2010). Instead, the Tax Court held that it had jurisdiction even over threshold rejections of whistleblower awards, interpreting the statute to "expressly permit[ ] an individual to seek judicial review in this Court of the amount or denial of an award determination ." Id. (emphasis added).

This position was echoed in the Tax Court's decision in Lacey v. Comm'r , 153 T.C. 146 (2019), where the Tax Court found jurisdiction on the grounds that "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." Lacey , 153 T.C. at 163 n.19 (emphasis in original) (citing in accompanying text Cooper , 135 T.C. 70 ); see also id. at 150 n.5 (citing Cooper , 135 T.C. at 75–76 ).

In the case at bar, the Tax Court relied on its precedent in Cooper and Lacey to find jurisdiction over Li's WBO appeal. Neither party identified a problem with the Tax Court's jurisdiction. However, as we noted above, we have the continuing duty to examine our own jurisdiction.

b. Lack of Jurisdiction under 26 U.S.C. § 7623(b)(4)

After review, we conclude that Cooper and Lacey were wrongly decided. The Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests.

Subsection (b)(4) of § 7623 gives the Tax Court exclusive jurisdiction over only a "determination regarding an award" under subsections (b)(1)-(3). The Cooper and Lacey Courts held that a threshold rejection of a whistleblower award request constituted such an award determination because the rejection of an award was a so-called "negative" award determination. Lacey , 153 T.C. at 163 n.19 (citing in accompanying text Cooper , 135 T.C. 70 ); see also id . at 150 n.5 ("[A] ‘rejection’ is also a ‘determination’ ...."). We disagree. A threshold rejection of a whistleblower's Form 211 for vague and speculative information is not a negative award determination, as there is no determination as to an award under subsections (b)(1)-(3) whatsoever. Per subsection (b)(1), an award determination by the IRS arises only when the IRS "proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by [the whistleblower] ...." 26 U.S.C. § 7623(b)(1) (emphasis added). A threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer. See Cline v. Comm'r , 119 T.C.M. (CCH) 1199, 2020 WL 1249454, at *5 (T.C. 2020). Therefore, there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.²

In this case, the WBO rejected Li's Form 211 for providing vague and speculative information it could not...