The Tax Court in Brief – May 9th – May 13th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of May 9th, 2022, through May 13th, 2022

Lewis v. Commissioner, TC Memo. 2022-47| May 9, 2022 | Greaves, J. | Dkt. No. 10007-20W


Summary: Timothy J. Lewis submitted Form 211, Application for Award for Original Information, to the IRS’s Whistleblower Office (WBO) alleging underpayments in income tax by a closely held corporation. The WBO sent a letter to Lewis, stating that Lewis was entitled to a “mandatory” whistleblower award under 26 U.S.C. § 7623(b). The letter specified the total amount of the award and stated that, in accordance with law, the award would automatically be reduced by what is referred to as a sequestration reduction. Lewis appealed the final determination letter to the Tax Court and argued that it was inappropriate for the WBO to apply the sequestration reduction to the award. The Tax Court upheld the sequestration reduction. The WBO then issued Lewis a whistleblower award check, which included the applicable sequestration reduction. Lewis thereafter again petitioned the Tax Court, challenging the appropriateness of the sequestration reduction and arguing that the award check constitutes a section 7623(b)(4) “determination” that confers jurisdiction on the Tax Court. The IRS disagreed, contending that the Court lacks jurisdiction to adjudicate Lewis’s petition.

Key Issue:

  • Whether the Tax Court has jurisdiction to adjudicate Lewis’s challenge to the sequestration reduction applied to the whistleblower award check delivered to him?

Primary Holdings:

  • No. An award check can be an appealable determination in certain circumstances, but this is not one of those instances. The WBO issued petitioner the award check for the claims pursuant to the terms of the final determination letter, which the Tax Court upheld in the initial proceeding, and Lewis did not received a separate “final determination” that would provide the Tax Court with jurisdiction under section 7623(b)(4) to review the award check.

Key Points of Law:

  • Jurisdiction of the Tax Court. The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress, and the Court cannot enlarge that jurisdiction. See McCrory v. Commissioner, 156 T.C. 90, 93 (2021); Judge v. Commissioner, 88 T.C. 1175, 1180–81 (1987); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
  • Whistleblower Award. Section 7623(b)(1) authorizes the IRS to pay mandatory whistleblower awards if certain requirements are met. Section 7623(b)(4) provides that any determination regarding an award under section 7623(b)(1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court. Thus, the jurisdiction of the Tax Court is dependent upon a finding that a “determination” has been made by the IRS. McCrory, 156 T.C. at 94. For a determination to be appealable to the Tax Court it must at a minimum communicate a “final administrative decision” regarding the whistleblower’s claim in accordance with the IRS’s award determination procedures. at 97; cf. Li v. Commissioner, 22 F.4th 1014, 1017 (D.C. Cir. 2022) (“The Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests.”).
  • There may be instances, however, in which it is appropriate for the IRS to issue more than one final determination with respect to the same claim. See, e.g., Treas. Reg. § 301.7623-4(d)(2).

Insights: Section 7623(b)(1) authorizes the IRS to pay mandatory whistleblower awards if certain requirements are met. Once the IRS issues what the Tax Court considers a final determination letter with respect to the whistleblower effort, that determination may, within 30 days of such determination, be appealed to the Tax Court. If the Tax Court adjudicates a challenge to the IRS’s Whistleblower Office’s final determination letter, and if the WBO issues an award check in conformity with the Tax Court’s decision on the issue, the Tax Court likely lacks jurisdiction to adjudicate the same challenge based on the award check itself because the issuance of the check is not a separate determination that is appealable to the Tax Court.

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