Shands v. Comm'r of Internal Revenue

111 F.4th 1

Thomas SHANDS, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 23-1160

United States Court of Appeals, District of Columbia Circuit

Argued April 2, 2024

Decided July 16, 2024

Reissued August 7, 2024

On Appeal from the United States Tax Court

Stacy D. Blank argued the cause for appellant. With her on the briefs were Alexander Olama and Avery A. Holloman.

Julie Ciamporcero Avetta, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief was Bruce R. Ellisen, Attorney.

Before: Pillard, Walker and Pan, Circuit Judges.

Concurring opinion filed by Circuit Judge Pillard.

Pan, Circuit Judge:

The federal government launched a criminal investigation of a tax-evasion scheme in which Swiss bankers and a Swiss bank hid the assets of certain U.S. taxpayers in undisclosed, offshore accounts. Thomas Shands was a cooperator in the investigation. He received immunity from prosecution and a whistleblower award of over $8.5 million in exchange for his assistance. But Shands wanted more. He claimed that he was entitled to an additional award because the information he provided led to the government's collection of over $2.3 billion through an Internal Revenue Service ("IRS") program that encouraged voluntary disclosures of tax violations. The IRS denied Shands's claim, and the Tax Court dismissed his petition for review because it determined that it lacked jurisdiction under Li v. Commissioner, 22 F.4th 1014 (D.C. Cir. 2022). Because we agree that Shands failed to carry his burden to establish the Tax Court's jurisdiction, we affirm.

I.

A.

The IRS rewards individuals who provide information to the agency that results in the collection of tax proceeds. Such "whistleblowers" are entitled to awards of as much as 30 percent of the money collected if the IRS "proceeds" with an "administrative or judicial action" against a taxpayer based on the whistleblower's information. 26 U.S.C. § 7623(b)(1).¹ An award also must be granted if the whistleblower's information results in the collection of tax proceeds in a separate but "related" action against a person who was not identified by the whistleblower. Id.²

Whistleblowers who provide information to the IRS may request an award by filing a Form 211 with the Whistleblower Office. See 26 C.F.R. § 301.7623-1(c)(1)-(2). The Whistleblower Office then determines whether to reject, deny, or approve the whistleblower claim. The Office rejects a claim that is invalid for reasons "relate[d] solely to the whistleblower and the information on the face of the claim that pertains to the whistleblower." Id. § 301.7623-3(c)(7). For example, a claim is properly rejected if the Form 211 does not include required information (such as the whistleblower's name or date of birth); or if the whistleblower is ineligible for an award (perhaps because he obtained the information through federal employment). See id. § 301.7623-1(b)(2), (c)(2), (c)(4). Thus, a rejection typically occurs without any referral to an IRS operating division for investigation of the claim. By contrast, the Whistleblower Office will deny a claim due to an issue that "relates to or implicates [the] taxpayer information" that was provided by the whistleblower. Id. § 301.7623-3(c)(8). A denial usually occurs after the Form 211 is referred for investigation and may be appropriate because, for example, "the IRS either did not proceed based on the information provided by the whistleblower... or did not collect proceeds." Id. Finally, if the Whistleblower Office determines that an award is justified after examining the Form 211 and the results of any associated investigation, it will calculate and pay the award to the whistleblower. See id. § 301.7623-3(c)(1)-(6).

A whistleblower may appeal the IRS's "determination regarding [a whistleblower] award" to the Tax Court, which "shall have jurisdiction with respect to such matter." 26 U.S.C. § 7623(b)(4) ("Any determination regarding an award under [26 U.S.C. § 7623(b)(1), (2), or (3) — the Whistleblower Statute] may ... be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter)."). We interpreted that jurisdictional provision in Li v. Commissioner, 22 F.4th 1014 (D.C. Cir. 2022). There, we held that an appealable "determination regarding an award" does not include a threshold rejection of a whistleblower claim. Id. at 1017 (expressly abrogating Cooper v. Comm'r, 135 T.C. 70 (2010), and Lacey v. Comm'r, 153 T.C. 146 (2019)). We explained that "an award determination by the IRS arises only when the IRS 'proceeds with any administrative or judicial action ... based on information brought to the Secretary's attention by [the whistleblower].'" Id. (emphasis and final alteration in original) (quoting 26 U.S.C. § 7623(b)(1)). Thus, the Whistleblower Office's rejection of a claim on its face, without referring the information to an IRS operating division, does not constitute an "award determination" because such "[a] threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer." Id. at 1017. And absent an "award determination," there is no Tax Court jurisdiction under § 7623(b)(4). Id.

The parties also cite Lissack v. Commissioner, in which we explained that, so long as the IRS "proceed[ed] with an administrative action that was based on the information [the whistleblower] brought to the [IRS's] attention," the Tax Court had jurisdiction over the whistleblower's appeal of an award denial. 68 F.4th 1312, 1321 (D.C. Cir. 2023) (cleaned up). In Lissack, unlike in Li, the Whistleblower Office referred the whistleblower's submission to an operating division of the IRS, which initiated an examination of the issue Lissack identified. Id. The fact that the IRS did not collect any proceeds based on the whistleblower's information was a reason for his claim to fail on the merits — not for lack of jurisdiction. Id.

The Supreme Court subsequently vacated Lissack on other grounds. See Lissack v. Comm'r, ___ U.S. ___, 144 S.Ct. 2707, ___ L.Ed.2d ___ (July 2, 2024) (Mem.). It did so because Lissack upheld the regulations defining "administrative action" and "related action" under the Chevron framework. See 68 F.4th at 1322-26 (citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)). The Supreme Court remanded and instructed us to "further consider[]" the case "in light of Loper Bright Enterprises v. Raimondo, 603 U.S. ___, ___ S.Ct. ___, ___ L.Ed.2d ___, 2024 WL 3208078 (2024)," which overruled Chevron. Lissack, ___ U.S. ___, 144 S.Ct. 2707, ___ L.Ed.2d ___; see Loper Bright Enters., 603 U.S. at ___, ___ S.Ct. ___. We do not rely on our prior opinion in Lissack to resolve this appeal. As discussed infra, our reasoning turns on the text of the Whistleblower Statute, which requires that the IRS "proceed" with an action "against any taxpayer," as well as Li's interpretation of the statutory text. See Li, 22 F.4th at 1017 (quoting 26 U.S.C. § 7623(b)(1)); 26 U.S.C. § 7623(b)(5). Moreover, the remand proceeding in Lissack does not affect our resolution of this appeal because Shands does not question the validity or applicability of the regulations at issue in that case. See Al-Tamimi v. Adelson, 916 F.3d 1, 6 (D.C. Cir. 2019) (noting arguments not raised on appeal are forfeited).

B.

Thomas Shands asked a banker at UBS, Martin Lack, to open an account for him. Lack (purportedly unbeknownst to Shands) opened a Swiss bank account for Shands at Basler Kantonalbank ("BKB"). Shands did not disclose the account or its assets to the IRS, as required. See 31 C.F.R. § 103.24 (2010). When Shands eventually attempted to voluntarily disclose the account, he learned that he was already a subject of an IRS criminal investigation. In return for criminal immunity, Shands cooperated in the investigation of certain bankers for their use of offshore accounts to hide client assets from the IRS. Shands's cooperation included, among other things, recording telephone calls with Lack and meeting with Lack's colleague, Renzo Gadola, while using a concealed recording device. The government prosecuted Lack and Gadola, and expanded its criminal investigation to encompass BKB, other Swiss banking professionals, and a few U.S. accountholders.

In October 2010, early in his cooperation with the IRS, Shands submitted a Form 211 to claim a whistleblower award. He stated in the form that the relevant information "will become available as a result of my cooperation with the Department of Justice and IRS Criminal Investigation Division in ongoing investigations, including but not limited to cooperation against Martin Lack and Renzo [Gadola]," and that "[i]t is anticipated that such cooperation will result in the identification of U.S. persons who have maintained undeclared offshore financial accounts." J.A. 272. Based on that single Form 211, the IRS created separate claim numbers related to Lack, Gadola, BKB, a handful of other Swiss bankers, and a few of their individual U.S. clients. Shands collected more than $8.5 million in whistleblower awards based on nine claims.

As the Swiss banking investigation developed, the IRS launched the IRS Offshore Voluntary Disclosure Initiative in February 2011 ("OVDI"). The 2011 OVDI, building off a similar 2009 program, incentivized taxpayers to voluntarily disclose offshore accounts and pay past-due taxes, interest, and penalties arising from the previous non-disclosure of those accounts. See I.R.S. News Release IR-2011-14 (Feb. 8, 2011). In a typical OVDI case, a taxpayer could disclose offshore accounts for tax years 2003 to 2010; file corrected tax returns; and pay all taxes, interest, and penalties calculated under the OVDI's uniform penalty structure. Such voluntary disclosures usually would not lead the IRS to conduct an "examination," that is, a formal audit, see IRS, The Examination (Audit) Process...