Van Bemmelen v. Comm'r

Decision Date27 August 2020
Docket NumberDocket No. 19787-18W.,155 T.C. No. 4
PartiesMICHAEL VAN BEMMELEN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
CourtU.S. Tax Court

In 2018 P submitted to the WBO of the IRS, pursuant to I.R.C. sec. 7623(b)(1), a Form 211, Application for Award for Original Information, making allegations against T. P's Form 211 referenced an earlier 2012 submission relating to T and several other taxpayers. P's claim was forwarded to a classifier in the WBO and then assigned for review to a classifier in the IRS LB&I. On the basis of the latter's recommendation, in 2018 the WBO rejected P's claim for an award because "the information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws." After P petitioned this Court, R moved for summary judgment under Rule 121 and submitted a certified administrative record, not including the 2012 submission. P moved to supplement the administrative record with two items: (1) the 2012 submission, and (2) a document reflecting a presentation that P made to IRS Criminal Investigation Division agents in 2019 (2019 document).

Held: In order to overcome the presumption that R has properly designated the administrative record, P must make a substantial showing with clear evidence.

Held, further, because P has made a substantial showing with clear evidence that his 2012 submission is properly included in the administrative record, P's motion to supplement the record will be granted insofar as it relates to the 2012 submission.

Held, further, because P has not demonstrated that the 2019 document meets any exception for consulting extrarecord evidence, see City of Dania Beach v. FAA, 628 F.3d 581, 590 (D.C. Cir. 2010), P's motion to supplement the record will be denied insofar as it relates to the 2019 document.

Held, further, because the law provides that, in analyzing information received from an individual, the WBO "in its sole discretion, may ask for additional assistance from such individual or any legal representative", Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, sec. 406(b)(1)(C), 120 Stat. at 2960, and the statute provides no meaningful standard against which to judge the WBO's exercise of that discretion, the WBO's exercise of discretion in not asking for additional assistance from P or his attorney is immune from judicial review.

Held, further, the WBO Director did not improperly redelegate his authority to analyze P's information.

Held, further, because the WBO's rejection of P's claim is supported by the administrative record, as completed, and was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, R's motion for summary judgment will be granted. Michael Van Bemmelen, pro se.

Nicole M. Connelly, for respondent.

OPINION

THORNTON, Judge: Petitioner initiated this action under section 7623(b)(4) seeking review of a determination by the Internal Revenue Service (IRS) Whistleblower Office (WBO) rejecting his claim for an award.1 Pending before the Court are (1) respondent's motion for summary judgment, filed July 12, 2019, (2) petitioner's motion to supplement the record, filed March 2, 2020, and (3) petitioner's first supplement to motion to supplement the record, filed March 2, 2020. As discussed below, we will grant in part and deny in part petitioner's motion to supplement the record, as supplemented, and we will grant respondent's motion for summary judgment.

Background

The following facts are drawn from the pleadings and motion papers, including two declarations and the exhibits attached thereto, and the administrative record as certified by respondent and as completed in this proceeding.

On March 12, 2018, Linda J. Stengle, Esq., submitted to the WBO on petitioner's behalf a Form 211, Application for Award for Original Information. Ms. Stengle's cover letter states:

This office represents Dr. Michael Van Bemmelen [petitioner] in his whistleblower reward claim for a most egregious tax evasion scheme perpetrated by * * * [the named target taxpayer]. Through this letter, I am hoping to obtain the correct claim number for this potential corporate defendant and/or verify that the appropriate form has been received by the Service. An executed 211 form is enclosed should this not be the case.
Dr. Van Bemmelen uncovered this complicated tax evasion scheme and first reported details of the scheme to the Service prior to 2012. Since then, Dr. Van Bemmelen supplemented his original report with more details to the Service, including details about other potential taxpayer defendants. Over time, Dr. Van Bemmelen supplemented his original report with more details to the service, including details about other potential taxpayer defendants. Over time, Dr. Van Bemmelen submitted additional Forms 211 to ensure that his rights to a potential whistleblower award for this potential taxpayer defendant are protected.
After first reporting the misconduct to the IRS prior to and again in 2012 as well as 2016, Dr. Van Bemmelen also reported the scheme to * * * [various U.S. and State attorneys general].
We also include Dr. Van Bemmelen's original reports from his 2016 submission with the form 211 with information about what has been reported to other government agencies about the potential taxpayer defendants after they were first reported to the IRS.

Enclosed with Ms. Stengle's March 12, 2018, letter is a Form 211, signed by petitioner on March 5, 2018, alleging income tax violations by the target taxpayer, a global insurance company (target). In response to the directive "Name and title and contact information of IRS employees to whom violation was first reported, if known" petitioner's Form 211 states: "Written claims submitted to IRS WO, October 2012. Verbal reports of violations to IRS beginning in 2004." On the Form 211, the boxes for "New submission" or "Supplemental submission" are both left unchecked. In response to the associated directive "If a supplemental submission, list previously assigned claim number(s)" petitioner's Form 211 states: "See attached history of claims."

Also enclosed with Ms. Stengle's March 12, 2018, letter is an undated 11-page document captioned "FORM 211 NARRATIVE". This document asserts that in his capacity as a financial adviser for international investment banks, petitioner had obtained information indicating that the target was a "co- conspirator" in a complicated tax-evasion scheme involving investments in portfolios of life insurance policies. This document alleges that the target engaged in "money laundering" by providing funds and facilitating bank loans to a third-party "phantom tax exempt company, purportedly located in the U.S. Virgin Islands" which engaged in nonexempt arbitrage activity involving life insurance portfolios. According to this document, the third-party company and its affiliates improperly took advantage of U.S. Virgin Islands tax incentives for exempt activities and evaded hundreds of millions of dollars of taxes. The document also alleges that the target had borrowed funds which were used, through the mechanism of intercompany loans among certain of the target's affiliates, to purchase life insurance settlement policies on the secondary market and pay the premiums on the purchased policies. The document alleges that the target violated section 264(a) by deducting the interest incurred for financing secondary-market life insurance investments, thereby evading an estimated $858,082,500 of Federal taxes from 2001 through the third quarter of 2015.

Also enclosed with Ms. Stengle's March 12, 2018, letter to the WBO is an unsigned copy of a letter to the WBO dated March 1, 2016, "Re: New Claim". This earlier letter, much like Ms. Stengle's March 12, 2018, letter, indicates that she represented petitioner in his efforts to obtain IRS whistleblower awards on the basis of his claim of tax evasion by the target. This letter, consistent with the "FORM 211 NARRATIVE" previously described, states that petitioner estimates the target's unpaid Federal tax to be "approximately $858,082,500". The letter goes on to state that details of this purported misconduct appear in "the attached Form 211 and Form 211 Narrative." The copy of the March 1, 2016, letter enclosed with Ms. Stengle's March 12, 2018, letter does not include any attached Form 211 or "Form 211 Narrative" apart from the Form 211 signed by petitioner on March 5, 2018, and the undated "FORM 211 NARRATIVE" previously described.

On March 21, 2018, the WBO received petitioner's Form 211 dated March 5, 2018. It was assigned claim No. 2018-006801. By letter dated April 3, 2018, addressed to petitioner c/o Ms. Stengle's law firm, the WBO acknowledged receiving this claim. By a separate letter to Ms. Stengle, also dated April 3, 2018, the WBO advised her that because she had failed to submit a valid Form 2848, Power of Attorney and Declaration of Representative, the WBO was required to communicate directly with petitioner about this claim.

Petitioner's claim was forwarded to a classifier in the WBO.2 On April 12, 2018, this classifier prepared a classification checklist memorandum, indicating petitioner's claim as arising under "IRC 7623(a)/(b)" and noting "[a]lleged amount in dispute is greater than $2,000,000".3 This memorandum indicates that the classifier: "Researched ICE [Initial Claim Evaluation] claims since WB [whistleblower] referenced prior claims. No claims located."4 The WBO classifier recommended that the claim be referred to the Large Business & International Division (LB&I) of the IRS for classification. On April 13, 2018, petitioner's claim was referred to LB&I for classification.

By cover letter dated May 1, 2018, Ms. Stengle transmitted to the WBO a Form 2848 dated April 13, 2018, authorizing her to represent petitioner withregard to "Forms 211/Claim Number 2018-006801". In a letter dated May 25, 2018, referencing claim ...

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