Or, a Bad Day in Ogden Gets Worse

Judge David Gustafson continues today’s tear, with the Ogden Sunseteers still down range.

John Worthington, 2020 T. C. Memo. 141, filed 10/8/20, blows on some multi-county law enforcers who grab tons of cash by way of fines, and bestow this largesse upon themselves. “The entity or operation (“the Target”) as to which Mr. Worthington sent information is the product of ‘interlocal agreements’ in which the ‘component entities’ are county law enforcement agencies in a State. Mr. Worthington has been involved in a controversy with the target and those agencies about whether, in what sense, and to what extent the target is a ‘legal entity’. 2020 T. 141, at p. 4.

Honest John has a court decision that he says holds this arrangement is not a legal entity. OS initial evaluater says may meet Section 7623(b) criteria. That’s discretionary award. But it’s not IRS’ function to determine any entity’s legal status in a State court proceeding. So the evaluater tries to get the file bucked to CI, but a senior evaluater overrules her. All the State court decision does, says senior, is toss Honest John because he’s sued a non-existent party. But the whole decision isn’t in the AR.

However, Honest John wants Judge Gustafson to order IRS to “really” review his information. But that means order an audit, and that Tax Court cannot do. And whether Honest John’s information crosses the $2 million threshold of Section 7623(b)(5)(B) isn’t jurisdictional.

“That is, where the WBO denies or rejects a whistleblower claim, we have jurisdiction to review its final determination whether or not the amount in dispute turns out to be $2 million. Consistent with that holding, the WBO issued to Mr. Worthington a determination that explicitly states: ‘This letter is a final determination for purposes of filing a petition with the United States Tax Court.’ We have jurisdiction to review that determination, and the Commissioner does not contend otherwise. Moreover, in a case like this one, where there has been no collection action, the WBO’s analyzing the claim under section 7623(a) as opposed to section 7623(b) makes no practical difference, and we perceive no harm to Mr. Worthington as a result of the label used by the WBO.”2020 T. C. Memo, 141, at p. 20.

Honest John doesn’t get summary J, but neither does IRS.

The initial evaluater wanted to send the file to CI, but was overruled. However, the senior who overruled did some research, and told the evaluater to do some more research.

“Such research seems to be inconsistent with what the regulations provide concerning a threshold rejection, and this ‘research’ by both SB/SE and the WBO tends toward characterizing the subsequent action as a denial. However, if the determination was a denial, not an action based solely on the claim, then the information generated in the research should have been included in the administrative record. Evidently it was not. The court opinion that Ms. [senior] quotes in her email seems to be missing from that record (except for the excerpt that she quotes). So it is difficult to characterize the process set out in the administrative record as leading to either rejection or denial.” 2020 T. C. Memo. 141, at p. 24. (Name omitted).

In Ogdenese, “rejection” means tossed out of hand; “denial” means “we looked at the stuff but it yielded nothing.”

Judge Gustafson man-‘splains.”…what we review is the actual determination reflected in the WBO’s letter. When we look to the final determination letter sent to Mr. Worthington, we see an apparent self-contradiction. It states: ‘The claim has been rejected because the IRS decided not to pursue the information you provided.’ (Emphasis added.) ‘[D]ecid[ing] not to pursue the information’ would seem, under the regulations, to indicate a denial; but the letter says the claim is being rejected.” 2020 T. C. Memo. 141, at p. 25. (Footnote omitted).

IRS’ summary J “…motion asks us to hold that ‘the Whistleblower Office did not abuse its discretion in rejecting petitioner’s claim for award’ and also asserts that “the Whistleblower Office did not abuse its discretion in denying petitioner’s claim for award”. (Emphasis added.) This inconsistency recurs throughout the motion.” 2020 T. C. Memo. 141, at p. 25.

When IRS’ motion speaks of rejection, the bounce letter uses the “not specific, credible or speculative” rejection language. But when it speaks of denial, it says no proceeding started nor funds collected.

“But the motion then seems to veer in order to state: “Therefore, the Whistleblower Office rejected petitioner’s claim”. (Emphasis added.) In the next sentence, however, the motion rights itself and states: ‘Because the undisputed material facts demonstrate the Whistleblower Office did not abuse its discretion in denying petitioner’s claim for award, this Court should grant respondent’s motion.’ (Emphasis added.) We cannot grant the Commissioner’s motion, because we cannot discern in it–nor in the WBO’s final determination–a coherent ruling consistent with the regulations and supported by the administrative record.” 2020 T. C. Memo. 141, at p. 27.

But the problem isn’t just IRS being “colloquial.”

“The problem, we stress, is not simply that of a poorly drafted determination. If the final determination made a ‘rejection’ that it explained poorly but that the administrative record justified, then we might be able to sustain the rejection. Or if the final determination made a ‘denial’ that it explained poorly but that the administrative record justified, then we might be able to sustain the denial. But in this instance we cannot tell what the WBO actually determined, and this unclarity in the final determination letter corresponds to a lack of clarity that arose in the preceding administrative process and that recurred thereafter in the Commissioner’s motion. We will therefore deny the motion and will order the parties to show cause why the case should not be remanded to the WBO for further consideration.” 141 T. C. Memo. 141, at pp. 27-28. (Emphasis by the Court).

Taishoff says Honest John has a valid point about excessive fines and selective enforcement being used to fund local law enforcement without appropriate legislative or judicial oversight, although WBO is not the place to go for redress. But as this is a non-political blog, I’ll say no more; at least not here. I have made my views clear elsewhere.