Michael Lissack v. Cmsnr. IRS

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 2022 Decided May 26, 2023
No. 21-1268
MICHAEL LISSACK,
APPELLANT
v.
COMMISSIONER OF INTERNAL REVENUE,
APPELLEE
On Appeal from a Decision
of the United States Tax Court
Erica L. Brady-Gitlin argued the cause for appellant. With
her on the briefs were Gregory S. Lynam and Scott A. Knott.
Brian C. Wille and Usman Mohammad were on the brief
for amicus curiae Whistleblower 1109-13W in support of
appellant.
Dean Zerbe and Stephen M. Kohn were on the brief for
amicus curiae National Whistleblower Center in support of
appellant.
Julie Ciamporcero Avetta, Attorney, U.S. Department of
Justice, argued the cause for appellee. With her on the brief
was Bruce R. Ellisen, Attorney.
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Before: PILLARD and KATSAS, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge PILLARD.
PILLARD, Circuit Judge: Section 7623 of the Internal
Revenue Code authorizes the IRS to pay awards to
whistleblowers who identify underpayment of taxes or
violations of internal revenue law. The provision at issue here,
subsection 7623(b)(1), mandates awards for whistleblowers
who provide the IRS with information that makes a substantial
contribution to a tax adjustment. It calls for awards of between
15 and 30 percent of proceeds the IRS collects “as a result of”
an “administrative or judicial action” that is “based on
information” provided by a whistleblower. I.R.C.
§ 7623(b)(1). The IRS’s “determination of the amount of such
award” depends on the extent to which a whistleblower
“substantially contributed” to the administrative action. Id. A
Treasury regulation interpreting the statute allows the IRS to
treat investigations into unrelated tax issues of the same
taxpayers as separate “administrative action[s].” 26 C.F.R.
§ 301.7623-2(a)(2), (b)(2) (Example 2). Appellant Michael
Lissack claims the IRS owes him a whistleblower award under
subsection 7623(b)(1), and he argues that the Treasury
regulation on which the IRS relied to decide otherwise
contravenes the text of the statute.
Lissack submitted information to the IRS that he thought
showed that a condominium development group evaded taxes
through its treatment of golf-club-membership deposits. The
IRS deemed the information Lissack submitted sufficiently
specific and credible to warrant opening an examination, but
later concluded that the membership deposits were correctly
reported. Through its own further investigation, however, the
IRS discovered an unrelated problem: The same development
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group had taken an impermissible deduction on intercompany
bad debt. The IRS eventually ordered the development group
to pay a large adjustment relating to its treatment of that debt,
but it denied Lissack’s claim for a percentage of those
proceeds. When Lissack sought review of that decision, the
Tax Court granted summary judgment to the IRS. Lissack
appeals to us, and the IRS primarily argues that the Tax Court
lacked jurisdiction to review its award denial, even as it
defends its rule and its application to Lissack’s case.
We hold that the Tax Court had jurisdiction and that the
challenged provisions of the rule are consistent with the tax
whistleblower statute. Because the IRS Whistleblower
Office’s denial of an award to Lissack rests on a reasonable
application of a valid rule to the facts reflected in the
administrative record, we affirm.
BACKGROUND
A.
The Internal Revenue Service (IRS or Service) has
authority under Internal Revenue Code Section 7623 to pay
awards to whistleblowers who help the Service identify and
collect underpaid taxes. Congress first granted that authority
to the Secretary of the Treasury in 1867. Act of March 2, 1867,
Pub. L. No. 39-169, § 7, 14 Stat. 471, 473. Until 2006, any
such whistleblower award was at the discretion of the IRS. See
Taxpayer Bill of Rights 2, Pub. L. 104-168, § 1209, 110 Stat.
1452, 1473 (1996); Whistleblower 14106-10W v. Comm’r, 137
T.C. 183, 186 (2011). Under the discretionary regime, the
Service was not bound by the statute or regulations to pay any
whistleblowers and, when it chose to do so, the amount was
within its sole discretion; there was no provision for judicial
review.
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In 2006, Congress amended the tax whistleblower statute.
Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432,
§ 406, 120 Stat. 2922, 2958-60 (2006 Act). The amendment
added subsection (b) to make some whistleblower awards
mandatory, id.; I.R.C. § 7623(b), even as it retained in
subsection (a) the IRS’s longstanding authority to make
discretionary awards to people who help in “detecting
underpayments of tax,” or “detecting and bringing to trial and
punishment” persons who violate internal revenue laws, I.R.C.
§ 7623(a). The 2006 Act also created the IRS Whistleblower
Office, empowered it to determine award amounts, and
established a right to appeal any Whistleblower Office award
“determination” to the Tax Court. § 406, 120 Stat. at 2958-60;
I.R.C. § 7623(b)(4). This appeal turns on the meaning of the
mandatory-award provision (subsection (b)(1)) and the
judicial-review provision (subsection (b)(4)).
Under the mandatory-award provision, a whistleblower
“shall . . . receive” an award if the IRS “proceeds with any
administrative or judicial action described in subsection (a)”—
i.e., detecting underpayments or detecting and bringing evaders
to judgment—“based on information brought to the Secretary’s
attention by” the whistleblower. I.R.C. § 7623(b)(1). (For
convenience in this appeal, which involves only administrative
action against a taxpayer, we use the shorthand “administrative
action” rather than “administrative . . . action,” and “proceeds
based on,” rather than “proceeds . . . based on,” when quoting
subsection 7623(b)(1).) A mandatory award under subsection
(b)(1) must be 15 to 30 percent “of the proceeds collected as a
result of the action (including any related actions),” or from a
settlement. Id. Within that range, the amount of a mandatory
award “shall depend upon the extent to which the individual
substantially contributed to such action.” Id.
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The judicial-review provision states: “Any determination
regarding an award under paragraph [(b)](1) . . . may, within
30 days of such determination, be appealed to the Tax Court
(and the Tax Court shall have jurisdiction with respect to such
matter).” Id. § 7623(b)(4). We recently held that a reviewable
“determination regarding an award” within the meaning of that
section, id., does not include the Whistleblower Office’s
“threshold rejection” of a whistleblower’s submission “for
vague and speculative information” in advance of any referral
to the IRS for examination, Li v. Comm’r, 22 F.4th 1014, 1017
(D.C. Cir. 2022). In this appeal, the IRS argues that the Tax
Court lacked jurisdiction because, in its view, the logic of Li
means the letter denying Lissack’s claim also was not a
reviewable determination under subsection (b)(4).
B.
Lissack challenges three parts of a Treasury Department
regulation we refer to as the Whistleblower Definitions Rule:
(1) the definition of “administrative action,” (2) one of the
examples illustrating what counts as the Service
“proceed[ing]” with an administrative action “based on”
whistleblower information, and (3) the definition of “related
action.” 26 C.F.R. § 301.7623-2(a)(2), (b)(2) (Example 2),
(c)(1).
Recall that an award is mandatory under the statute if the
IRS “proceeds with any administrative or judicial action” that
is “based on” the whistleblower’s information. I.R.C.
§ 7623(b)(1). The Rule defines “administrative action” to
mean “all or a portion of an Internal Revenue Service (IRS)
civil or criminal proceeding against any person that may result
in collected proceeds, . . . including, for example, an
examination, a collection proceeding, a status determination
proceeding, or a criminal investigation.” 26 C.F.R.
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§ 301.7623-2(a)(2) (emphasis added). That definition allows
the IRS to divide examinations into discrete segments raising
distinct tax issues, and to treat each as a separate administrative
action.
In defining how the Service “proceeds” with an action
“based on” whistleblower information, I.R.C. § 7623(b)(1), the
Rule distinguishes IRS administrative actions subject to the
mandatory-award provision from those not triggering such
awards: The IRS “proceeds based on information provided by
a whistleblower when the information provided substantially
contributes to an action against a person identified by the
whistleblower.” 26 C.F.R. § 301.7623-2(b)(1). When the IRS
“initiates a new action, expands the scope of an ongoing action,
or continues to pursue an ongoing action, that the IRS would
not have initiated, expanded the scope of, or continued to
pursue, but for the information provided,” it “proceeds based
on” the whistleblower submission. Id.The regulatory definitions of “administrative action” and
“proceeds based on” work together. These provisions allow
the IRS to consider investigations into tax issues unrelated to
the whistleblower submission as separate administrative
actions. The upshot is that a whistleblower whose information
may have “substantially contributed” to a fruitless action
against a person is not entitled to share proceeds from a distinct
action against that same person that did not draw on the
whistleblower’s information. As the agency explained in the
preamble to the final regulations, “the tax administration
process is a long and multi-faceted one that may extend over
the course of many years and may involve multiple substantial
contributions from different sources.” Awards for Information
Relating to Detecting Underpayments of Tax or Violations of
the Internal Revenue Laws, 79 Fed. Reg. 47,246, 47,262/3
(Aug. 12, 2014) (codified at 26 C.F.R. pt. 301). In cases
7
involving multiple tax issues, treating each distinct tax issue as
a separate “administrative action” enables the IRS to calibrate
whether and to what extent a recovery was “based on” a
whistleblower’s tip “by reference to just the discrete and
relevant portion of the examination to which the information
provided relates.” Id. at 47,250/3.
The Whistleblower Definitions Rule includes some
examples illustrating rule applications. The challenged
Example Two to the definition of “proceeds based on”
describes cases in which the IRS’s investigation of a
whistleblower submission uncovers “additional facts that are
unrelated to the activities described in the information provided
by the whistleblower,” leading the Service to examine issues
other than those the whistleblower identified. 26 C.F.R.
§ 301.7623-2(b)(2) (Example 2). In those circumstances, the
Rule explains, “[t]he portions of the IRS’s examination . . .
relating to the additional facts obtained” through the Service’s
independent investigative measures “are not actions with
which the IRS proceeds based on the information provided by
the whistleblower because the information provided did not
substantially contribute to the action.” Id. (emphasis added).
The Whistleblower Definitions Rule also interprets the
statutory term “related actions.” I.R.C. § 7623(b)(1). Recall
that the mandatory-award provision of the tax whistleblower
statute states that a whistleblower shall receive a percentage of
“the proceeds collected as a result of the action (including any
related actions).” Id. (emphasis added). Under the
Whistleblower Definitions Rule, “the term related action
means an action against a person other than the person(s)
identified in the information provided and subject to the
original action(s),” so long as the action against the additional
person has a regulatorily specified nexus to the original action.
26 C.F.R. § 301.7623-2(c)(1). That definition does not treat
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action on a distinct issue as “related” to action on a
whistleblower’s information just because it involves the same
taxpayer, even if the IRS discovered the issue only because the
whistleblower led it to audit that taxpayer.
C.
In 2009, Michael Lissack filed with the IRS Whistleblower
Office an Application for Award for Original Information
(Form 211). He submitted almost 200 pages of material
identifying a condominium development group and showing
why he thought it had underpaid its taxes on golf club
memberships. Lissack contended that, after making
membership deposits nonrefundable in 2008, the development
group should have reported the retained deposits to the IRS as
gross income.
Lissack’s information led to an IRS examination into the
development group. A senior tax analyst in the Whistleblower
Office determined that Lissack’s submission identified a tax
issue and referred it to the IRS Large Business and
International Division. A revenue agent in that division opened
an investigation into Lissack’s information and sent progress
reports to the Whistleblower Office. In a 2011 report, the
revenue agent explained that, before receiving Lissack’s
submission, the IRS had not planned to investigate the
development group, but the information Lissack provided “was
sufficient to warrant beginning of examination.” Lissack v.
Comm’r, 157 T.C. 63, 66 (2021). In other words, the revenue
agent acknowledged that Lissack’s submission was the reason
the IRS opened an examination. The following month, the
revenue agent reported that he had fully researched the
membership-deposit tax issue and concluded that the
development group reported the deposits correctly. The agent
further reported that, during his investigation, he discovered a
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different tax issue that was “unrelated to the subject of the
whistleblower claims”: a $60 million deduction that the
development group took for “bad debt,” meaning a business
debt that the company characterized as worthless and deducted
from gross income. Id.; Topic No. 453, Bad Debt Deduction,
IRS, https://perma.cc/VN67-LGGF (last updated Apr. 27,
2023). In 2013, the revenue agent finished the examination and
ordered several tax adjustments, the largest of which was for
the $60 million bad-debt deduction. The agent reported that
Lissack did not “provide[] any information for the adjusted
issues.” Lissack, 157 T.C. at 66; see J.A. 59 (Declaration of
Whistleblower Office Analyst).
In 2017, the Whistleblower Office denied Lissack’s claim
for an award. In the final determination letter, the
Whistleblower Office informed Lissack that his claim was
denied “because the IRS took no action on the issues you
raised.” J.A. 16. “After receipt of your information,” the letter
explained, “the IRS initiated an examination” of the
development group, “and the IRS reviewed the information
you provided as part of that examination. However, that review
did not result in the assessment of additional tax, penalties,
interest or additional amounts with respect to the issues you
raised.” J.A. 16. Finally, the letter informed Lissack that the
IRS did assess additional taxes against the taxpayer, “but the
information you provided was not relevant to those issues.”
J.A. 16.
Lissack petitioned the Tax Court to review the
Whistleblower Office’s adverse decision on his application for
an award. The IRS moved for summary judgment based on the
relevant portion of the administrative record and a declaration
from the Whistleblower Office analyst assigned to Lissack’s
claim. Lissack filed a cross-motion for partial summary
judgment, arguing the Service misapplied its own rule and
10
challenging certain provisions of the Whistleblower
Definitions Rule as contrary to the statute. In his opposition to
the IRS’s summary judgment motion, Lissack argued that the
administrative record was incomplete because the IRS had
redacted too many documents in the administrative file.
In the decision now under review, the Tax Court granted
summary judgment in full in favor of the IRS. In a carefully
reasoned opinion, the Tax Court held that, although the IRS
“did initiate an action” based on the information Lissack
provided regarding membership deposits, he “is not eligible for
a whistleblower award” because “the IRS did not collect any
proceeds ‘as a result of th[is] action’” or any “related action.”
Lissack, 157 T.C. at 69-70 (alteration in original) (quoting
I.R.C. § 7623(b)(1)), 72, 76. The undisputed facts showed that
Lissack “supplied no information to the IRS about [the
development group’s] intercompany bad debt deduction,” so he
was not entitled to a percentage of the proceeds collected in
that action. Id. at 71.
In granting summary judgment, the Tax Court had “no
difficulty concluding that the regulation passes muster” under
Chevron, U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). Lissack, 157 T.C. at 74. The court
noted that the statute “does not describe or define an
‘administrative or judicial action’” so, as relevant here, “leaves
ample scope to the Secretary to define the term” to refer to “‘all
or a portion of’ an IRS civil or criminal proceeding.” Id. at 72
(quoting 26 C.F.R. § 301.7623-2(a)(2)). In other words, it saw
the statutory language as ambiguous as to whether an expanded
portion of an examination is a separate administrative action
and as to what kinds of whistleblower contributions require an
award. Given that ambiguity, the Tax Court held, the
Whistleblower Definitions Rule reasonably interprets the
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statutory terms “administrative action” and “proceeds based
on.” Id. at 75-76.
The Tax Court also rejected Lissack’s remaining two
arguments. First, the court held that the investigation into the
bad debt was not a “related action,” under the IRS’s definition
of that term, to the action on the membership-deposit issue
Lissack identified. Id. at 76 (citing 26 C.F.R. § 301.7623-
2(c)(1)). It was neither “against a person other than the
person(s)” Lissack’s information identified, nor were “[t]he
facts relating to” the bad-debt action “substantially the same”
as the membership-deposit facts Lissack provided. Id.(alteration in original) (quoting 26 C.F.R. § 301.7623-2(c)(1)).
Second, the court held that the administrative record sufficed,
providing “more than enough evidence to confirm that
petitioner is not eligible for a mandatory award.” Id. at 78. The
Tax Court noted that this is a “record rule” case in which
summary judgment ordinarily is decided based on an
administrative record that “comprises all information
contained in the administrative claim file that is relevant to the
award determination and not protected by one or more common
law or statutory privileges.” Id. at 77 (first quoting Van
Bemmelen v. Comm’r, 155 T.C. 64, 79 (2020); and then
quoting 26 C.F.R. § 301.7623-3(e)(1)). Although
whistleblowers may file motions to compel production of
documents and to supplement the record, the Tax Court noted,
Lissack “filed no motion of either sort.” Id. at 78.
Lissack moved to vacate or revise the summary judgment
decision, and for reconsideration, but the Tax Court denied
reconsideration. This appeal of the Tax Court decisions
followed.
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DISCUSSION
The IRS argues that the Tax Court lacked jurisdiction over
Lissack’s appeal, and in any event reached the correct result.
Lissack counters that the Tax Court correctly exercised
jurisdiction but erred in granting summary judgment to the IRS
because the Whistleblower Definitions Rule conflicts with the
statute, a genuine factual dispute remains over whether the
revenue agent relied on Lissack’s submission, and the
administrative record was incomplete without the entire
examination file. We hold that the Tax Court had jurisdiction,
the Rule is consistent with the statute, and the Tax Court
correctly decided summary judgment on a sufficient
administrative record that Lissack never sought to supplement.
A. The Tax Court had jurisdiction.
“Any determination regarding an award under” subsection
7623(b)(1), (2), or (3), may be appealed to the Tax Court,
which “shall have jurisdiction with respect to such matter.”
I.R.C. § 7623(b)(4). Our jurisdiction over the merits of
Lissack’s appeal, in turn, rests on the Tax Court having had
jurisdiction. Li, 22 F.4th at 1015. We consider the
jurisdictional question de novo, Myers v. Comm’r, 928 F.3d
1025, 1031 (D.C. Cir. 2019), and hold that the Tax Court had
jurisdiction over Lissack’s petition.
By its plain terms, subsection (b)(4)’s jurisdictional grant
applies to “[a]ny determination regarding an award.” I.R.C.
§ 7623(b)(4) (emphasis added). The Supreme Court has
“repeatedly explained” that “the word ‘any’ has an expansive
meaning.” Patel v. Garland, 142 S. Ct. 1614, 1622 (2022)
(quoting Babb v. Wilkie, 140 S. Ct. 1168, 1173 n.2 (2020)).
“Similarly, the use of ‘regarding’ ‘in a legal context generally
has a broadening effect, ensuring that the scope of a provision
covers not only its subject but also matters relating to that
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subject.’” Id. (quoting Lamar, Archer & Cofrin,
LLP v. Appling, 138 S. Ct. 1752, 1760 (2018)). Congress
thereby made generous provision for judicial review of
Whistleblower Office award decisions.
The Service challenges the Tax Court’s jurisdiction based
on Li v. Commissioner, 22 F.4th 1014. We held in Li that a
threshold rejection of a Form 211 (i.e., an application for a
mandatory award) was not a reviewable “award determination
under subsection (b)(1)-(3).” Id. at 1016; see id. at 1017-18.
The Whistleblower Office had concluded that Li’s Form 211
provided only “vague and speculative information it could not
corroborate, even after examining supplemental material Li
herself did not provide,” so the Office did not even forward Li’s
submission to an IRS examiner. Id. at 1017. We referred to
the text of subsection (b)(1) to reason that a “threshold rejection
of a Form 211 by nature means the IRS is not proceeding with
an action against the target taxpayer,” and that “[t]herefore,
there is no award determination, negative or otherwise, and no
jurisdiction for the Tax Court.” Id. We expressly reserved in
Li the question of jurisdiction in cases in which the
Whistleblower Office “wrongly denied a Form 211
application” but the IRS “nevertheless proceeded against a
target taxpayer based on the provided information.” Id. at 1017
n.2.
The Service contends that our logic in Li—looking to
when the IRS “proceeds with” an action per subsection (b)(1)
as describing a jurisdictional prerequisite—compels us to
likewise treat as jurisdictional a second requirement of
subsection (b)(1): that the IRS have “collected proceeds” based
on the whistleblower’s information. IRS Br. 25. Because, in
the Service’s view of the merits, the proceeds it collected were
not recovered in the administrative action it took in response to
Lissack’s submission, it asserts the Tax Court lacked
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jurisdiction under subsection (b)(4) as interpreted in Li. In
other words, as the IRS reads it, our decision in Li renders the
jurisdictional grant coextensive with the merits of a
whistleblower appeal. We disagree.
The fact that the IRS conducted an examination here
suffices to distinguish Lissack’s case from Li. Li never claimed
that the IRS proceeded with any administrative or judicial
action against the target taxpayer based on her submission. Li,
22 F.4th at 1017 n.2. Here, by contrast, there is no dispute that
the Whistleblower Office referred Lissack’s submission to the
IRS, and an IRS revenue agent initiated an examination of the
membership-deposits issue that Lissack identified. That
referral and examination count as the IRS “proceed[ing] with”
an “administrative action” that was “based on” the information
Lissack brought to the Secretary’s attention. I.R.C.
§ 7623(b)(1). And the “determination regarding an award” was
the Whistleblower Office letter to Lissack informing him that
the examination it initiated based on the information he
provided did not result in the collection of any proceeds, so he
was not entitled to an award.
In sum, contrary to the Service’s position, the statute does
not require a whistleblower to establish a meritorious claim to
an award before the Tax Court may exercise jurisdiction to
review the IRS’s determination on that claim. An “unusually
high degree of clarity” is required to treat statutory
requirements as jurisdictional, Myers, 928 F.3d at 1035, and, as
just explained, subsection (b)(4) does not clearly support the
Service’s reading. To hold otherwise would impute to
Congress an intent to authorize appeals by whistleblowers who
believe their awards are too low, but bar appeals by
whistleblowers like Lissack who receive no award at all. To
be sure, unless the IRS has made some adjustment, it is unclear
what relief a whistleblower could be seeking. But the
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Whistleblower Office in this case made substantial
adjustments. The merits dispute is whether Lissack’s
concededly nonfrivolous submission entitles him to share in the
IRS’s recovery from the taxpayer he identified. We need not
delineate the precise line between an unreviewable threshold
rejection and a reviewable determination to conclude that the
decision here was a “determination regarding an award” under
subsection (b)(4).
Consistent with the plain terms and structure of the statute
and our decision in Li, the Tax Court had jurisdiction over
Lissack’s appeal.
B. The challenged regulations are consistent with the
tax whistleblower statute.
Lissack challenges three provisions of the Whistleblower
Definitions Rule. As a general matter, we review the decisions
of the Tax Court “in the same manner and to the same extent
as decisions of the district courts in civil actions tried without
a jury.” I.R.C. § 7482(a)(1). The Tax Court treated the
relevant portion of the statute as ambiguous and upheld the IRS
interpretation as reasonable under Chevron. On appeal, both
parties likewise argue within the Chevron framework. The IRS
defends the Tax Court’s conclusion that the Whistleblower
Definitions Rule reasonably construes ambiguous statutory
text. And Lissack objects that subsection 7623(b)
unambiguously supports his competing construction. We
review the Tax Court’s legal rulings de novo. Byers v. Comm’r,
740 F.3d 668, 675 (D.C. Cir. 2014). At the first step of
Chevron, “we must . . . decide ‘whether Congress has directly
spoken to the precise question at issue.’” Nat’l Env’t Dev.
Ass’n’s Clean Air Project v. EPA, 891 F.3d 1041, 1047 (D.C.
Cir. 2018) (quoting Chevron, 467 U.S. at 842). If we can
discern it from the statute, we “must give effect to the
16
unambiguously expressed intent of Congress.” Chevron, 467
U.S. at 843. If the statute is “silent or ambiguous with respect
to the specific issue,” we do not simply impose our own
interpretation, “as would be necessary in the absence of an
administrative interpretation,” id., but move to the second step
and “determine whether [the IRS’s] interpretation is ‘based on
a permissible construction of the statute.’” Clean Air Project,
891 F.3d at 1047 (quoting Chevron, 467 U.S. at 843). We hold
that the Whistleblower Definitions Rule reasonably interprets
the statute’s mandatory-award provision.
1.
Lissack argues that, under the plain language of the statute,
he is entitled to a whistleblower award because the IRS would
not have opened an examination into the condominium group’s
tax problems but for his submission. He challenges the
regulatory provisions that control the IRS’s determinations
whether any proceeds were “collected as a result of” an IRS
“administrative action” to which a whistleblower
“substantially contributed.” I.R.C. § 7623(b)(1). First, he
challenges the provision of the Rule defining an
“administrative action” that the IRS treats as “based on” a
whistleblower submission under subsection (b)(1) to be “all or
a portion of” a proceeding that may yield collected proceeds.
26 C.F.R. § 301.7623-2(a)(2). Second, he challenges an
example (Example Two) that illustrates how, when the IRS
discovers “additional facts that are unrelated to the activities
described in the information provided by the whistleblower”
and accordingly expands the scope of the examination, the
investigation into those unrelated facts “are not actions with
which the IRS proceeds based on the information provided by
the whistleblower.” 26 C.F.R. § 301.7623-2(b)(2) (Example
2).
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Lissack’s challenge requires us to answer two questions:
First, whether the tax whistleblower statute requires the IRS to
consider the “whole action”—in this case, all its examination
activity—regarding one taxpayer as a single administrative
action, and, second, whether the statute mandates an award
whenever the whistleblower’s information was the but-for
cause to initiate an investigation of the taxpayer, even if the
ultimate basis for the IRS’s collection of proceeds found no
factual support in the information the whistleblower provided.
We hold that the IRS definition of “administrative action”
and Example Two are permissible interpretations of Section
7623. The tax whistleblower statute does not conclusively
answer whether examinations into distinct tax issues not
identified in a whistleblower’s submission can be separate
administrative actions. Nor does the statute unambiguously
require that a whistleblower receive a mandatory award where
the whistleblower’s information was unrelated to the tax issues
on which the IRS ultimately collected proceeds, even if that
information was the but-for cause of an examination.
“We begin, as in any case of statutory interpretation, with
the language of the statute.” CSX Transp., Inc. v. Ala. Dep’t of
Revenue, 562 U.S. 277, 283 (2011). Subsection (b) of Section
7623, the mandatory-award provision, requires the Secretary to
pay awards of 15 to 30 percent “of the proceeds collected as a
result of the action (including any related actions)” whenever
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.” I.R.C.
§ 7623(b)(1). The cross reference to subsection (a) tells us that
the “administrative action[s]” subject to mandatory
whistleblower awards are actions for “detecting
underpayments of tax” or “detecting and bringing to trial”
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persons who violate or “conniv[e]” to violate internal revenue
laws. Id. § 7623(a).
The statute does not further define “administrative action,”
so we look to the ordinary meaning of the phrase. See CSX
Transp., Inc., 562 U.S. at 284. “Administrative” describes
“administration,” meaning “[t]he executive branch of a
government.” WEBSTER’S II DICTIONARY 11 (3d ed. 2005).
“Action” is “[a]n act or deed.” Id. at 9; see also Action,
BLACK’S LAW DICTIONARY (11th ed. 2019) (“[t]he process of
doing something; conduct or behavior”). The phrase
“administrative action,” then, generally refers to acts of
executive agencies.
Two other phrases from subsection (b)(1) help inform the
scope of “administrative action” as the term is used here:
“based on” and “substantially contributed.” I.R.C.
§ 7623(b)(1). The IRS must pay an award only where it
“proceeds based on” information that a whistleblower
provides. Id. The statute does not define or explain what level
of causation “based on” implies. Lissack argues it is
necessarily met by but-for causation, requiring an award
whenever the whistleblower’s information appears within the
causal chain leading the IRS to recover proceeds from a
delinquent taxpayer. But the Whistleblower Definitions Rule
defines when the Service “proceeds based on” whistleblower
information as limited to cases in which “the information
provided substantially contributes to an action against a person
identified by the whistleblower.” 26 C.F.R. § 301.7623-
2(b)(1).
The IRS’s reading of “proceeds based on” gains support
from the statutory requirement that the whistleblower
information have “substantially contributed” to a recovery.
I.R.C. § 7623(b)(1). The statute says that the size of a
19
mandatory award within the stated range “shall depend upon
the extent to which the individual substantially contributed to
such action.” Id. In pegging the award amount to the degree
of substantiality of the whistleblower’s assistance, the statute
plainly means that all such awards depend on the whistleblower
having contributed in some substantial degree to the Service’s
ability to proceed.
Lissack also rests on what he claims is relevant past
practice of the IRS of treating an examination as a single
administrative action. He says that when Congress amended
the statute in 2006 to add mandatory whistleblower awards, it
intended to incorporate the IRS’s then-existing practice.
Pointing to a committee staff summary of the 2006
amendments, Lissack contends it shows the IRS had no prior
practice of identifying distinct administrative actions within a
larger examination. Lissack’s past-practice argument misses
the mark. Before 2006, whistleblower awards were entirely at
the discretion of the IRS, § 1209, 110 Stat. at 1473, so the
statute did not specify how the Service might parse the roles of
whistleblower submissions in its proceedings. We are
unpersuaded that the Service’s practice under the discretionary
regime informs wholly new requirements under mandatory-
award provisions of the 2006 Act.
In sum, Lissack “fails to show that the language of
[Section 7623 of the Internal Revenue Code] unambiguously
compels” his interpretation. Otsuka Pharm. Co. v. Price, 869
F.3d 987, 993 (D.C. Cir. 2017). The statute does not clearly
direct the IRS to treat an entire examination as a single
administrative action and to give an award to a whistleblower
whose submission was a but-for cause of the examination.
We turn, therefore, to the second step of our Chevron
analysis, deferring to the agency’s interpretation “as long as it
20
is consistent with the statutory terms and is reasonable.” Id.We hold that the Whistleblower Definitions Rule reasonably
interprets the tax whistleblower statute. The ordinary meaning
of “administrative action”—activities by executive agencies—
may in this context sensibly be limited to action on the discrete
tax issue or issues the whistleblower’s information identifies.
As already discussed, Congress required awards only where the
IRS “proceeds based on” the whistleblower information and
makes a recovery, with precise award amounts within the stated
range depending on the degree to which the information
“substantially contributed to” that recovery. The
Whistleblower Definitions Rule validly interprets the statute to
require awards only to whistleblowers who identify
underpayments and provide information that advances to some
substantial degree the IRS’s recovery of those underpayments.
Lissack defends his but-for approach, arguing that he
provided “valuable information” by informing the IRS that the
development group taxpayers “are the type of taxpayers to
misstate their tax liability generally, and debt in particular.”
Appellant’s Br. 10. But there is “no statutory requirement that
[the IRS] follow such an approach.” Clean Air Project, 891
F.3d at 1051. Rather, there is ample reason to doubt that
Congress meant to entitle whistleblowers to substantial awards
just for raising plausible but meritless concerns about taxpayers
who, on investigation by the IRS, turn out to be noncompliant
in some other, unrelated way. Such a regime likely would
encourage whistleblowers to flyspeck major taxpayers,
identifying any plausible underpayment in the hope of
triggering an examination yielding some other, major
adjustment. The IRS approach, in contrast, calibrates
mandatory awards to the fruits of the particular IRS actions that
the whistleblower’s information substantially assists.
21
Congress directed the IRS to reward whistleblowers based
on the extent of their substantial contributions to recovery of
unpaid taxes. The challenged provisions of the Whistleblower
Definitions Rule measure contributions according to the degree
to which the whistleblower’s specific facts aid the relevant
portion of an examination. Those provisions reasonably
interpret the tax whistleblower statute.
2.
Lissack also argues that the IRS’s definition of “related
action,” 26 C.F.R. § 301.7623-2(c), impermissibly narrows the
statute’s reach. Even if the “administrative action” definition
and Example Two are valid and the bad-debt investigation was
a separate action not based on his submission, Lissack contends
it should count as a “related action,” entitling him to a share of
its proceeds. He challenges the “related action” definition
under Chevron step one and makes no step two argument on
this point.
Under the mandatory-award provision, the IRS must pay
whistleblowers awards amounting to 15 to 30 percent “of the
proceeds collected as a result of the action (including any
related actions).” I.R.C. § 7623(b)(1) (emphasis added).
Section 7623 does not elaborate on the meaning of “related
actions.” The challenged rule defines a “related action” as “an
action against a person other than the person(s) identified in the
information provided and subject to the original action(s)”
where three conditions are met: (1) the action involves
“substantially the same” facts as the whistleblower submission,
(2) “[t]he IRS proceeds with the action against the other person
based on the specific facts described and documented” in the
submission, and (3) “the IRS can identify the unidentified
person using the information provided (without first having to
use the information provided to identify any other person or
22
having to independently obtain additional information).” 26
C.F.R. § 301.7623-2(c). The Rule’s “related action” definition
thus unites actions that involve “substantially the same” facts
so as to reward whistleblowers whose submissions enable the
IRS, without further investigation, to identify additional
noncompliant taxpayers. That approach is consistent with the
statute, which directs the IRS to grant awards according to the
substantiality of the whistleblower’s contribution. See I.R.C.
§ 7623(b)(1).
In Lissack’s view, the plain meaning of the statutory
reference to “related actions” also includes actions that are
against the same taxpayer but involve taxpayer activities
different from those identified in the whistleblower’s
submission. Lissack invokes ordinary meanings of “related”
as “belonging to the same family, group, or type; connected,”
Appellant’s Br. 35 (quoting an unidentified edition of the
Oxford English Dictionary), and he asserts that the IRS
investigation of the condominium development group’s bad
debt was necessarily “related” to the membership-deposits
problem his submission identified. But even if we accept his
definition of “related,” that definition does not compel
Lissack’s reading of the statute. An action could be
“connected” to the original action if it involved the same facts,
as the IRS contends, or if it involved the same taxpayer, as
Lissack contends. Lissack’s dictionary definition of “related”
does not foreclose the IRS’s interpretation.
Lissack further argues that Congress would have chosen a
narrower term than “related” had it intended the IRS’s reading.
Because “Congress never limited related actions to actions
relating to another taxpayer, which it easily could have,”
Lissack says, the IRS should not be able to include that
limitation in its definition. Id. at 36. But the mere possibility
23
that the statute could have been worded even more clearly does
not defeat the IRS’s reading.
Lissack also seeks support in the treatment of “related
actions” under the False Claims Act, but that analogy is
unhelpful. “Actions are ‘related’” under the False Claims Act
“if they assert the ‘same material elements of fraud’ as an
earlier suit, even if the allegations ‘incorporate somewhat
different details.’” United States ex rel. Heath v. AT & T, Inc.,
791 F.3d 112, 116 (D.C. Cir. 2015) (quoting United States ex
rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d
214, 217 (D.C. Cir. 2003)). The Tax Court held the False
Claims Act definition “has no application to a tax case such as
this,” and that its definition was in any event unmet here, where
“the IRS did not just pursue ‘a different legal theory’ for the
membership deposits issue,” but proceeded on “an entirely
unrelated issue—the bad debt deduction—that was governed
by different law and different facts.” Lissack, 157 T.C. at 77.
We agree that, even if the False Claims Act standard applied,
Lissack’s submission about the membership-deposits issue did
not relate to the bad-debt issue in a way that would meet that
standard.
Lissack has not established that the statute forecloses the
Rule defining “related action,” and he does not contend that the
definition is unreasonable or otherwise contrary to the APA.
C. The Tax Court had no obligation to conduct a
trial de novo.
In challenging the Tax Court’s affirmance of the
Whistleblower Office determination denying him an award
under I.R.C. § 7623(b)(1), Lissack argues that summary
judgment is foreclosed here by a genuine factual dispute over
whether the revenue agent relied on Lissack’s submission to
identify the bad-debt issue. He contends that the Tax Court
24
erroneously accepted an administrative record that was
incomplete because it did not include the entire examination
file.
The parties agree that we review legal rulings of the Tax
Court de novo, including rulings on motions for summary
judgment, Byers, 740 F.3d at 675, but they dispute the correct
standard of review in the Tax Court. Lissack argues that the
Tax Court should review determinations of the Whistleblower
Office “as it reviews cases under the Tax Court’s original
deficiency jurisdiction,” Appellant’s Br. 40—by “trial de
novo,” Ax v. Comm’r, 146 T.C. 153, 161 (2016)—instead of
confining its review to the administrative record. Lissack
critiques the Tax Court’s decision in Kasper v. Commissioner,
150 T.C. 8 (2018), which held that the Tax Court reviews
whistleblower award decisions under APA section 706(2)(A)
based on the administrative record. Id. at 14-15, 20-22. Two
amici join Lissack to argue that de novo factfinding by the Tax
Court would better serve Congress’s intent to establish
meaningful review of Whistleblower Office decisions.
The IRS defends the standard of review established in
Kasper. It also argues that we have no occasion here to reach
the issue “because the denial of Lissack’s claim was correct
under any standard of review.” IRS Br. 45. We agree that the
Tax Court’s decision is correct under any standard of review,
so we have no occasion to pass on the merits of Kasper.
Lissack’s appeal is comprised of legal questions, including
(1) the validity of the Whistleblower Definitions Rule, (2)
whether material disputes of fact preclude summary judgment,
and (3) the adequacy of the record before the Tax Court.
First, in resolving Lissack’s legal challenges to the IRS’s
interpretations of relevant statutory terms, the Tax Court and
this court have each conducted de novo review to identify
25
statutory ambiguity and analyze the Whistleblower Definitions
Rule under Chevron. See supra Discussion Parts A and B.
Second, the propriety of summary judgment is likewise a
legal question considered de novo. Lissack asserts that the Tax
Court should not have granted summary judgment because key
record facts are disputed, but he fails to show that to be the
case. A factual dispute is “material,” precluding summary
judgment, only “if its resolution ‘might affect the outcome of
the suit.’” Trudel v. SunTrust Bank, 924 F.3d 1281, 1285 (D.C.
Cir. 2019) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986)). The IRS agrees with Lissack’s factual
assertion that it would not have opened any examination of the
condominium group if not for Lissack’s Form 211. The
problem for Lissack is that the but-for causal link he
emphasizes is legally insufficient to support his claim.
We, like the Tax Court, recognize that the IRS would have
made no tax adjustment on the bad debt if it had not opened an
examination on Lissack’s submission regarding the taxpayer’s
treatment of membership deposits. Cognizant of that fact, our
de novo review of the summary judgment yields the same
conclusion as the Tax Court’s: Under the statute and Rule, the
adjustment was not “a result of” the “administrative action”
regarding membership deposits that the IRS undertook “based
on” Lissack’s information, or to which his information
“substantially contributed.” I.R.C. § 7623(b)(1). As we have
already explained, see supra Discussion Part B, administrative
actions on the membership-deposits issue and the bad-debt
issue are distinct and unrelated as a matter of law under the
valid Whistleblower Definitions Rule. 26 C.F.R. § 301.7623-
2(a)(2), (b)(1), (c)(1).
Lissack insists that discovery would have established that
the revenue agent relied on his submission, but the facts he says
26
he sought to uncover would establish nothing more than but-
for causation. In other words, he argues he needs discovery to
support an already-accepted factual premise: The examination
triggered by Lissack’s whistleblower submission led to the
IRS’s own investigation into the bad debt. He claims he should
have been afforded discovery regarding “how the Revenue
Agent discovered the other issues.” Appellant’s Br. 49. In
Lissack’s view, such information is material “to determine if
the issues are ‘related’ and how helpful the whistleblower’s
information was to the Revenue Agent.” Id. Had the
administrative record included the “entire taxpayer audit file,”
Lissack contends, he could have shown that the revenue agent’s
discovery of the intercompany bad-debt issue relied on the
membership-deposits information Lissack submitted. Id. at 54.
Again, for the reasons already discussed, see supra Discussion
Part B, none of those additional facts could support a judgment
in his favor.
Third, Lissack argues that the record before the Tax Court
was inadequate. Amici agree. They contend that the statute
contemplates trial de novo in the Tax Court. They argue the
text, context, and drafting history of the statute so require.
Lissack and amici point out that confining judicial review to
the administrative record is anomalous here because the
Whistleblower Office makes the records of its award
determinations without adjudicatory procedures, public
comment, or other opportunity for stakeholders—including the
whistleblower—to be heard. Amicus Whistleblower 11099-
13W also contends that judicial deference to the Whistleblower
Office is inappropriate because the Office’s determinations
involve no “technically complex issue within an agency’s
unique expertise,” only the kind of matter “that courts are
called upon to resolve every day.” Amicus Whistleblower
11099-13W Br. 10-11.
27
We need not here decide whether the Tax Court must
conduct a trial de novo on an appeal of a Whistleblower Office
determination, nor what standard of review applies to a
challenge to the scope of the record the IRS submitted to the
Tax Court, because Lissack made no request before the Tax
Court to expand the administrative record or create a new one.
If Lissack believed the record was inadequate, he should have
sought to compel production of documents to supplement the
record, but he concedes he failed to do so. Reply Br. 25-27.
Lissack counters that he should not have had to do so,
because he moved only for partial summary judgment on his
legal challenge to the Whistleblower Definitions Rule,
anticipating that “resolution of that issue would dictate whether
[he] needed to get into a long discovery fight.” Id. at 25. But,
as the Tax Court explained when rejecting his motion for
reconsideration, even after that court granted the IRS’s cross-
motion for summary judgment Lissack did not seek
supplementation of the administrative record, nor did he
“identif[y] any gaps in the administrative record” (nor, for that
matter, did he point to any information in his own
whistleblower submission) that “was relevant to the bad debt
deduction issue.” J.A. 369. In view of Lissack’s failure to
preserve the point, we affirm the Tax Court’s decision to base
its review on the portions of the administrative record the IRS
compiled and submitted as relevant.
As the Tax Court acknowledged, some whistleblower
claims may require discovery and judicial factfinding. But
even had he not forfeited the point, Lissack has not shown that
he was deprived of any material evidence. Again, on Lissack’s
own account, the factual point he sought to bolster was but-for
causation. But “[h]ow the revenue agent discovered” the
intercompany bad-debt issue, Appellant’s Br. 49, was both
undisputed in his favor, and immaterial. Lissack does not
28
assert that broader access to the IRS files would reveal that his
own submission to the IRS contained information on the
condominium group’s treatment of intercompany bad debt.
And, under the statute and Rule, that bad-debt issue remains
unrelated to the membership-deposits issue he identified. We
see no error in the Tax Court’s rulings on Lissack’s record-
inadequacy claims.
In sum, the Tax Court correctly concluded that “the record
provides more than enough evidence to confirm that petitioner
is not eligible for a mandatory award,” and ruled in favor of the
IRS as a matter of law. Lissack, 157 T.C. at 78. The Tax Court
credited information in the administrative record showing that
“none of the adjustments had anything to do with the
membership deposits issue,” including the revenue agent’s
report that Lissack “had not ‘provided any information for the
adjusted issues,’” and the Whistleblower Office analyst’s
confirmation that Lissack “had made no allegations and
submitted no facts related to [the development group’s]
intercompany debt (or any other adjustment).” Id. at 66.
Lissack failed to challenge before the Tax Court its reliance on
the administrative record or object to the scope of that record,
and even now he does not identify information he would have
sought that could have created a material factual dispute
precluding summary judgment.
* * *
For the foregoing reasons, we affirm the judgment of the
Tax Court.
So ordered.