Whistleblower Group Pushes for De Novo Standard of Review

MICHAEL LISSACK,
Petitioner-Appellant
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

ON APPEALS FROM THE DECISION OF THE
UNITED STATES TAX COURT

BRIEF OF AMICUS CURIAE
NATIONAL WHISTLEBLOWER CENTER

Dean Zerbe
Zerbe, Miller, Fingeret,
Frank & Jadav LLP
1455 Pennsylvania Ave. NW
Suite 300
Washington, D.C. 20004
Tel: 713-350-3519
dzerbe@zmflaw.com

Stephen M. Kohn
Kohn, Kohn, and Colapinto, LLP
1710 N Street NW
Washington, D.C. 20036
Tel: 202-342-6980
sk@kkc.com

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Table of Contents

Table of Authorities

Statement of Interest of Amicus Curiae

Consent of the Parties

Corporate Disclosure Statement

Rule 29(a)(2) Statement

Summary of the Argument

Argument

Conclusion

Table of Authorities

Cases

Agyeman v. INS, 296 F.3d 871 (9th Cir. 2002)

Beck v. Prupis, 529 U.S. 494 (2000)

Bostock v. Clayton Cnty., Ga., 140 S.Ct. 1731 (2001) 

Castigliola v. Comm'r, T.C. Memo. 2017-62 (2017)

Church of Scientology of Cal. v. IRS, 108 S.Ct. 271 (1987) 

Cooper v. Comm'r, 135 T.C. 70 (2010)

Doe v. Chao, 540 U.S. 614 (2004)

EEOC v. Waffle House, 534 U.S. 279 (2002) 

English v. Gen. Elec., 496 U.S. 72 (1990)

Estate of Lassiter v. Comm'r, T.C. Memo. 2000-324 (2000)

Fowler v. Commissioner, T.C. Memo. 2004-163 (2004)

Gates v. Commissioner, 135 T.C. 1 (2010)

Haddle v. Garrison, 525 U.S. 121 (1998)

Huffman v. Office of Pers. Mgmt., 263 F.3d 1341 (2001) 

Jones v. Comm'r, 97 T.C. 7 (1991)

Kan. Gas & Elec.Co. v. Brock, 780 F.2d 1505 (10^th Cir. 1985) 

Kasper v. Comm'r, 150 T.C. No. 2 (2018) 

K Mart Corp. v. Cartier, 486 U.S. 281 (1988)

Mann v. Heckler & Koch Defense, 630 F.3d 338 (4^th Cir. 2010)

Marshall v. Marshall, 547 U.S. 293 (2006)

Matuszak v. Comm'r, 862 F.3d 192 (2d Cir. 2017)

Milner v. Dept. of Navy, 562 U.S. 562 (2011) 

Murphy v. Comm'r, 125 T.C. 301 (2005) 

Myers v. Comm'r, 928 F.3d 1025 (D.C.C. 2019)

Nauflett v. Comm'r, 892 F.3d 649 (4th Cir. 2018)

Perez–Lastor v. INS, 208 F.3d 773 (9th Cir. 2000) 

Perrin v. United States, 444 U.S. 37 (1979)

Robinette v. Comm'r, 439 F.3d 455 (8^th Cir. 2006) 

Rubel v. Comm'r, 856 F.3d 301 (3d Cir. 2017)

Russello v. United States, 464 U.S. 16 (1983)

Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145 (2013)

Skrizowski v. Commissioner, T.C. Memo. 2004–229 (2004)

Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4^th Cir. 2009) 

Taylor v. Comm'r, T.C. Memo. 2017-132 (2017)

United States v. Enmons, 410 U.S. 396, 405 (1973)

United States v. Wong Kim Bo, 472 F.2d 720 (5th Cir. 1972)

Van Bemmelen v. Comm'r, 155 T.C. 4 (2020) 

Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000)

Whistleblower 11332-13W v. Comm'r, 142 T.C. 396 (2014)

Whistleblower 21276-13W v. Comm'r, 144 T.C. 290 (2015)

Whistleblower 21276-13W v. Comm'r, 147 T.C. 121 (2016)

Woodral v. Commissioner, 112 T.C. 19 (1999)

Filings

Opening Br. for Resp't, Kasper v. Comm'r, No. 22242–11W (T.C.)

Pet'r's Opening Brief, Lissack v. Comm'r, No. 21-1268 (D.C.C.)

Statutes

26 U.S.C. § 7623 

Other Authorities

151 Cong. Rec. S. 9472 

Allen Kennedy, News Analysis: Critics Question Whistleblower Proposal in Senate ETI Bill, Tax Notes, July 12, 2004

Anthony Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts (2012)

Dean Zerbe, A Legislative History of the Modern Tax Whistleblower Program, Tax Notes, Oct. 26, 2020 

Dennis Ventry, Jr., Whistleblowers and Qui Tam for Tax, Tax Lawyer, Vol. 61, No. 2, 357 (2007)

Kenneth W. Gideon, ABA Tax Section Suggests Modifications to Highway Bill, Tax Notes, June 13, 2005

Norman Singer, 2A Sutherland Statutory Construction § 48:3 (7th ed.)

Press Release, United States Senate Committee on Finance, Grassley: Report Shows IRS Could Better Use Whistleblowers to Catch Tax Cheats (June 9, 2006) 

Report of Treasury Inspector General for Tax Administration, The Informants' Rewards Program Needs More Centralized Management Oversight, No. 2006-30-092 (June 2006) 

S. Rep. No. 31-502 (2007)

S. Rep. No. 110-1 (2007)

Safe, Accountable, Flexible, Efficient Transportation Equity Act: Legacy for Users, H.R.3, 109th Cong. § 5508 (2005) 

Senate Finance Committee Staff Summarizes Revenue Offsets for SAFETEA Bill, Tax Notes, May 10, 2005

Tax Analysts, Grassley Amendment No. 3133 Passes Senate, Tax Notes, May 11, 2004 

Tax Analysts, Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users (P.L. 109-59), Tax Notes, August 10, 2005

Tax Analysts, U.S. Senate Finance Committee Sums Up JOBS Act Amendments, Tax Notes, May 13, 2004

Tax Shelter and Tax Haven Reform Act of 2005, S. 1565, 109th Cong. § 206 (2005) 

Terri Gutierrez, IRS Informants Reward Program: Is it Fair?, Tax Notes, Aug, 23, 1999 

The Jumpstart Our Business Strength Act, S. 1637, 108th Cong. § 488 (2004)

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STATEMENT OF INTEREST OF AMICUS CURIAE

The National Whistleblower Center (the “NWC”) respectfully submits this memorandum of law as amicus curiae. Amicus asks the Court to accept this brief and urges the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) to rule in favor of Petitioner and reverse the U.S. Tax Court's (“Tax Court”) ruling, particularly regarding a de novo standard of review being proper for cases brought to review under Internal Revenue Code (IRC) § 7623(b) (“Section 7623(b)”).¹

The NWC was founded in 1988 and has long been recognized as a leading voice for whistleblowers by policymakers in Washington, D.C. The NWC and associated attorneys regularly work with tax whistleblowers who have filed submissions with the Internal Revenue Service (the “IRS”) under Section 7623(b). The NWC has also served as amicus curiae in several cases.²

Counsel for amicus are particularly well suited to provide this Court necessary insight into the legislative intent and historical backdrop behind the statute at issue. Dean Zerbe and Stephen M. Kohn are widely recognized as two of the nation's leading whistleblower attorneys, with both having represented some of the most successful tax whistleblowers in the program's history, including Bradley Birkenfeld, who obtained the largest whistleblower award in the history of the IRS Whistleblower Program. Dean Zerbe and Stephen Kohn have both successfully litigated influential tax whistleblower cases in this Court, including the seminal case of Whistleblower 21276-13W v. Commissioner, which clarified the definition of “collected proceeds,” and was later codified by Congress.³

Particularly of note for this specific issue is Dean Zerbe's unique insight on the legislative history and intent behind the drafting of Section 7623(b)(1). From 2001 to 2008, Dean Zerbe served as Senior Counsel and Tax Counsel for Chairman of the Senate Finance Committee, and author of the statute, Senator Charles E. Grassley (hereinafter referred to as “Chairman Grassley”). As counsel, Dean Zerbe was instrumental in the drafting of the 2006 statute that ultimately established the IRS Whistleblower Office, awards program, and appeals option for tax whistleblowers.

Amicus believes that this brief brings to this Court's attention issues that have not been completely briefed, or discussed, before the D.C. Circuit, especially as to the importance of the specific language used in the statute and Congress's clear intent when it enacted the law. Amicus will review the historical context and intent behind the statute as it was drafted.

It is certainly not an overstatement to say that the future success of the IRS Whistleblower Program is in the hands of this Court. To allow the IRS to have full discretion over the decision-making process for rewarding these whistleblowers without appropriate judicial review would result in an inevitable chilling effect on the IRS Whistleblower Program. To do so would return the program to the failures of the previous discretionary program with its arbitrary and capricious standard of review, exactly what Congress intended to prevent with the 2006 amendments. A failure to act by the Court would bring harm to those whistleblowers who have bravely stepped forward with critical details of tax evasion and would create a disincentive for future informants to come forward with beneficial information.

CONSENT OF THE PARTIES

All parties to this appeal have consented to the National Whistleblower Center's filing an amicus brief in this case.

CORPORATE DISCLOSURE STATEMENT

The National Whistleblower Center (“NWC”) is a non-profit tax-exempt educational and charitable publicly supported non-partisan organization. The NWC has no shareholders, is not publicly owned, and has no parent company.

RULE 29(a)(2) STATEMENT

SUMMARY OF THE ARGUMENT

In determining the appropriate standard of review for claims brought under Section 7623(b)(1), the question before this Court is straightforward under the fixed-meaning canon of statutory construction, which states that words “must be given the meaning they had when the text was adopted.”⁴ A review of the statute through its legislative history and relevant context leaves no doubt that the meaning of the words in the statute's text when adopted by Congress meant to provide for de novo review for 7623(b)(1) claims.⁵ Unfortunately, the legislative history has not been adequately considered, particularly in the lower court's case, Kasper v. Commissioner.⁶

This will be the first opportunity for this Court to fully examine the legislative history of the whistleblower provision from its beginnings in 2004. As explained below, the legislative history of Section 7623(b) and its relevant context show that, from its first introduction in 2004, the statute was intended and understood to provide for “independent review,” meaning de novo review. Further changes in the statute from 2004 to 2006 also underscore that Congress intended for de novo review. Through enacted legislation, Congress sought to “strengthen” the IRS Whistleblower Program and address “perceived problems” related to the then-existent, and failing, tax whistleblower award program. This was done in a variety of ways, including transferring jurisdiction of tax whistleblower cases from the U.S. Court of Federal Claims, which utilized an arbitrary and capricious review standard, to the Tax Court, with its long history and tradition of de novo review, further supporting a finding of de novo review.

ARGUMENT

1. The Legislative History of Section 7623(b) and Relevant Context Supports De Novo Review

a. The 2004 Amendment Creating Section 7623(b) had a Primary Goal of Creating “Greater Certainty” and Allowing for an “Independent Review”

As with historians who believe the story of America starts with the Mayflower, the IRS has historically taken the position that the legislative history of the modern IRS whistleblower provision starts on September 19, 2006.⁷ The lower court in Kasper unfortunately follows the IRS to Plymouth Rock, stating the legislative history of Section 7623(b) “. . . sheds no light on this darkness.”⁸ The courts have found statements regarding original bill iterations particularly relevant for the understanding of a statute, particularly when the language initially used was substantially carried forward into the final provision that became law.⁹

The reality is that the legislative history of Section 7623(b) starts in May 2004, when Chairman Grassley introduced Section 488 of the Jumpstart Our Business Strength (JOBS) Act, effectively creating Section 7623(b).¹⁰ The provision proposed by Chairman Grassley would have created a mandatory award ranging between 15 and 30 percent, provided for Tax Court review after transferring jurisdiction from the Court of Federal Claims, and created a Whistleblower Office within the IRS.¹¹ In short, in all of its key elements, the 2004 amendment creating Section 7623(b) was the same as what was ultimately signed into law in 2006.¹²

The Senate Finance Committee released a description of all the amendments adopted by the Senate in S. 1637, the Jumpstart Our Business Strength (JOBS) Act on May 13, 2004.¹³ Regarding the creation of Section 7623(b), the summary stated:

The proposal provides greater certainty and independent review for whistleblowers who are seeking a cash award for providing assistance to the IRS.¹⁴

The lower court has long interpreted “independent review” to mean de novo review.¹⁵ As important, the lower court has long understood and interpreted “arbitrary and capricious” to not mean independent review.¹⁶ Further, “greater certainty” is fairly read as speaking to de novo review given that whistleblowers were already subject to the arbitrary and capricious review standard by the Court of Federal Claims.¹⁷

b. The 2005 Amendment and Subsequent Response

The 2004 amendment creating Section 7623(b) passed the Senate, but was later dropped in the House-Senate conference.¹⁸ However, Chairman Grassley revived the amendment creating Section 7623(b) in 2005.¹⁹ The language used in the 2005 amendment was essentially the same as the language in the 2004 amendment.²⁰ The Senate Finance Committee released a public memorandum describing the provisions, including the whistleblower provision, and again stated: “This provision provides greater certainty and independent review for whistleblowers who are seeking a cash award for providing assistance to the IRS.”²¹ Again, the 2005 amendment passed the Senate, but the whistleblower provisions were dropped in conference.²²

Senator Carl Levin also proposed legislation in 2005 that followed the language in Chairman Grassley's Section 7623(b) in most ways, except in one key aspect. Senator Levin's bill specifically gave the IRS full discretion in administering awards to whistleblowers.²³ Senator Levin's bill stated that the determination of any whistleblower award was to “be determined at the sole discretion of the Whistleblower Office.”²⁴

Senator Levin's comments on the 2004 and 2005 Section 7623(b) provisions put forward by Chairman Grassley and the Senate Finance Committee allowing for Tax Court review can be fairly read that Senator Levin interpreted Chairman Grassley's Section 7623(b) language as providing for de novo review, as he complains about “the fact-specific analysis” and the time and expenses involved. Just as Senator Levin's statement presumes de novo review, informed commentators at the time discussed at length that the judicial review of whistleblower awards should be done by U.S. federal district courts given their experience with qui tam actions, experience that the Tax Court did not possess.²⁵

c. The 2006 Statute Further Supports De Novo Review

In the end, there were only minor changes made to the Section 7623(b) amendment from its first introduction in 2004 and 2005, to the final passage in December 2006. A close read of the statutory language first introduced, and finally passed in 2006, support a finding of de novo review.

i. Different Words, Different Meanings

The lower court has correctly viewed as axiomatic for statutory construction that different language used in the same statute must have different meanings, and has applied this canon of statutory construction specifically to Section 7623(b), saying that when “Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”²⁶ The decision in Kasper failed to analyze and consider that Congress acted intentionally and purposely in the use of the words “shall,” “determination,” “may,” and “sole discretion.” Those words have a direct impact on the standard of review that should be applied.

Although the lower court in the recent case of Van Bemmelen v. Commissioner recognized that the “sole discretion” language signaled the standard of review, or the lack of a review, the Tax Court has never addressed the fact that there are marked differences in the use of “may” as discretionary language in Section 7623(b)(2) and (3), as well as the words “shall” and “determination” as mandatory award language in Section 7623(b)(1) and (3), and the resulting impact on judicial review.²⁷ The lower court's decision in Kasper leads to a result that treats the mandatory language in Section 7623(b)(1), and the discretionary language in Section 7623(b)(2) and (3), as all subject to the same arbitrary and capricious standard of review.

Congress was careful in its choice of these words, which are materially different, as they relate to actions by the IRS Whistleblower Office. While all Section 7263(b) cases are subject to de novo review in terms of the lower court determining the facts and law, the word choices signal the proper standards of review for the determination by the IRS. They are as follows: de novo for Section 7623(b)(1) awards, de novo for determinations of whether the anti-abuse provisions are triggered for Section 7623(b)(2) and (3), arbitrary and capricious for payment determinations for the anti-abuse provisions of Section 7623(b)(2) and (3), and no review for electing to bring in the whistleblower or whistleblower's counsel to assist — within the IRS' “sole discretion.”

d. The Context Surrounding Section 7623(b) Supports De Novo Review

The courts have long recognized that context can be key in correctly interpreting a statute with the use of the canons of presumption against ineffectiveness and the whole-text canon. First, the presumption against ineffectiveness “. . . ensures that a text's manifest purpose is furthered, not hindered.”²⁸ “This canon follows inevitably from the facts that (1) interpretation always depends on context, (2) context always includes evident purpose, and (3) evident purpose always includes effectiveness.”²⁹ In a similar vein, the whole-text  canon “. . . calls on the judicial interpreter to consider the entire text, in view of its structure and of the physical and logical relation of its many parts.”³⁰

In that light, what is the context of Section 7623(b), and what was the problem that Congress was seeking to address? The lower court has stated in a number of cases, including Whistleblower 11332-13W v. Commissioner, that Congress enacted the statute in 2006 to address “perceived problems” with the awards program.³¹ Amicus curiae has written extensively on the history and context surrounding the statute, and the Tax Court has recognized that part of the context of Section 7623(b), and fixing the perceived problems, was judicial review — particularly by providing the Tax Court jurisdiction.³²

As noted earlier, prior to 2004, the Senate Finance Committee had been reviewing and conducting oversight of the problems of the whistleblower program. In discussions with informed practitioners, particularly lawyers with experience in the False Claims Act, academics, and briefings by the IRS, it was clear to Committee investigators that the program, including judicial review by the Court of Federal Claims, was in shambles.³³

The state of play for the IRS Whistleblower Program and judicial review of whistleblower decisions in early 2000 is particularly well-reflected in a detailed review of the program and incentives provided by Terri Gutierrez, an accounting professor who in 1999 put forward a thoughtful analysis in Tax Notes.³⁴ Particularly concerning was Professor Gutierrez's finding that the IRS “does not seem to follow its own guidelines. . . .”³⁵ More important, Professor Gutierrez conducted a survey of every case brought by whistleblowers to the Court of Federal Claims, previously known as the U.S. Court of Claims, seeking to obtain an award from 1941 to 1998.³⁶ There were 19 cases in total, and as Professor Gutierrez notes, the IRS won every single case — the court finding that in each instance, the IRS had not abused its discretion.³⁷

Professor Gutierrez also found that the IRS failed to follow its own whistleblower award guidelines, while noting how difficult it was for whistleblowers to make a case. According to Professor Gutierrez, “courts are reluctant to override administrative authority where Congress has given duties to department heads that require them to exercise judgment and discretion unless there is evidence that the decisions are clearly wrong.”³⁸

Then came the release of the TIGTA report on June 9, 2006.³⁹ The report, titled “The Informants' Rewards Program Needs More Centralized Management Oversight,” was created at the request of Chairman Grassley.⁴⁰ The TIGTA report made it clear that the chances of an erroneous decision as to a whistleblower award were extremely high while providing a generally devastating indictment as to the IRS Whistleblower Program in whole, with Chairman Grassley commenting on its release:

TIGTA's report makes clear that the IRS and Treasury still are far short in having a professional, effective office to benefit from whistleblowers. For example, in 76 percent of the claims rejected, TIGTA was unable to determine the rationale for the reviewer's decision to reject the claim. This has to stop.⁴¹

The Joint Committee on Taxation Bluebook description of Section 7623(b) specifically cites to the TIGTA report and the need for IRS guidance related to Section 7623(b) to address the recommendations in the report.⁴² The lower court has also repeatedly recognized the TIGTA report as a key factor in the passage of Section 7623(b) and has cited to the findings of TIGTA. For example, in one of the first Tax Court cases addressing Section 7623(b), Cooper v. Commissioner, the lower court cites to the TIGTA report, stating: “The discretionary whistleblower awards have been arbitrary and inconsistent, however, because of a lack of standardized procedures and limited managerial oversight.”⁴³

Thus, it is well established that the “perceived problems” Chairman Grassley and Congress sought to address with Section 7623(b) were fourfold. One, basic management and administration of the IRS Whistleblower Program had been arbitrary and woefully inadequate; two, whistleblowers were not incentivized to come forward and were ignored when they did come forward; three, the denials of awards, as well as the award percentages, were haphazard, inconsistent, and not properly documented; and four, compounding all these problems, whistleblowers had no place to turn for relief given they were provided no independent review by the Court of Federal Claims. In short, the decisions by the IRS were inherently arbitrary and coupled with a wholly inadequate judicial review by the Court of Federal Claims based on an arbitrary and capricious standard of review.

Also, critical to note regarding statutory interpretation is that this Court has directly rejected a “magic words” test in a case considering the precise statutory provision at issue here. In Myers v. Commissioner, the D.C. Circuit cited to the Supreme Court in its analysis of Section 7623(b), stating “. . . we are not saying the Congress must 'incant magic words in order to speak clearly.'”⁴⁴ In Myers, the D.C. Circuit engaged in a review of the legislative intent and context of the legislation to assist in its determination in favor of the whistleblower finding that the filing period for Section 7623(b)(4) is subject to equitable tolling.⁴⁵ It should be noted that this Court's opinion in favor of the whistleblower was decided in 2019, after the lower court's ruling in Kasper.⁴⁶

This Court should reject the embracing of a requirement for “magic words” and instead look to the context and legislative history of Section 7623(b), which supports a finding of de novo review for mandatory awards under Section 7623(b).

CONCLUSION

It is clear through the legislative history of Section 7623(b) and its context that the legislation's words were understood to establish a de novo review.⁴⁷ The lower court's decision in Kasper fails to recognize that Section 7623(b), as a whole, was enacted to strengthen all elements of the IRS Whistleblower Program, including judicial review. The statutory history, fixed meaning, venue of challenge, as well as the historic and current execution of the IRS Whistleblower Statute alongside the judicial review provided by the U.S. Court of Federal Claims, leans heavily in favor of de novo review. To the extent that Section 7623(b)(1) is ambiguous, the above argues that the statute should be construed in favor of whistleblowers, allowing for a thorough independent judicial review process that takes all facts and circumstances surrounding the disputed claim into consideration.

Respectfully submitted,

Dean Zerbe
Zerbe, Miller, Fingeret, Frank & Jadav LLP
1455 Pennsylvania Ave. NW
Suite 300
Washington, D.C. 20004
Tel: 713-350-3519
E-Mail: dzerbe@zmflaw.com

Stephen M. Kohn
Kohn, Kohn, and Colapinto, LLP
1710 N Street NW,
Washington, D.C. 20036
Tel: 202-342-6980
E-Mail: sk@kkc.com

Counsel for amicus curiae

On Brief:

Matthew Beddingfield
Senior Associate
Zerbe, Miller, Fingeret, Frank & Jadav, LLP

Ben Falstein
Litigation Fellow
National Whistleblower Center