[00:00:00] Speaker 02:
Case number 21-1133, Patrick Kennedy, a balance versus commissioner of internal revenue.

[00:00:07] Speaker 02:
Mr. Scott, I mean, who's carrying on for the balance, Ms.

[00:00:10] Speaker 02:
Aveda for the appellee.

[00:00:12] Speaker 03:
Mr. Scott, good morning.

[00:00:14] Speaker 00:
Good morning, your honor.

[00:00:17] Speaker 00:
May it please the court.

[00:00:19] Speaker 00:
My name is Paul Scott.

[00:00:21] Speaker 00:
I'm with the law office, Paul Scott.

[00:00:23] Speaker 00:
My colleague, Lonnie Remick and I are representing

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the Anti-Fraud Coalition in this matter, formerly known as Taxpayers Against Fraud Education Fund.

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And first off, I'd just like to thank the court for allowing me to appear remotely and attend my niece's wedding.

[00:00:41] Speaker 03:
You're way out in California, aren't you?

[00:00:43] Speaker 00:
Yes.

[00:00:44] Speaker 00:
Well, actually, now I'm in Nevada, but I'm from San Francisco.

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Also just wanted to note that we're grateful to Mr. Kennedy for ceding his time and argument to us.

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And none of our comments here are intended in any fashion to undermine any of the arguments that Mr. Kennedy may be making as to jurisdiction, including the argument that enforcement is nondiscretionary here and could give guise to jurisdiction in this case.

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Our basic point is that the government has been focusing on the wrong parts of the Lee decision.

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Just to refresh the court, the court in Lee held the following about threshold rejections in particular, which was the issue before the court in Lee.

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The court held that a threshold rejection of whistleblowers form 211

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is not a negative award determination, as there is no determination as to an award under subsections B1 through 3 whatsoever.

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It also held a threshold rejection of Form 211 by nature, means the IRS is not proceeding with an action against the target taxpayer, leaving nothing for the tax court to decide.

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And notably, the court compared favorably a tax court decision, Cohen versus Commissioner,

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which observed that the propriety of non-enforcement decisions are beyond the purview of the tax court.

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So essentially what the court was dealing with in Lee and as Judge Pollard noted in her concurrence in Shand was an appeal of an effort to challenge a non-enforcement decision discretionary non-enforcement decision by the service and not an

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in that case pointing out that the whistleblower was arguing the IRS did not adequately consider the evidence and should have proceeded with the action.

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So the court's conclusion in Lee that the tax court did not have jurisdiction made sense.

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If a whistleblower's appeal is solely challenging a discretionary non-enforcement decision, well then they're not appealing an award determination.

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And this reasoning was sufficient by the

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the tax court lacked jurisdiction or the Whistler's appeal in Lee.

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But the government since Lee has repeatedly focused on an additional line from the decision that was frankly unnecessary to the holding.

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That line I'm sure is familiar to the court, an award determination, I'm quoting an award determination arises only when the IRS proceeds with any administrative or judicial action

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based on information brought to the secretary's attention by the whistleblower.

[00:03:45] Speaker 00:
Mr. Scott?

[00:03:47] Speaker 00:
Yes.

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In light of Lee and Shands, and I guess Lissac as well, what do you think are the merits of the following rule?

[00:04:03] Speaker 01:
The following rule.

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The following rule.

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I'm going to give you a rule and you can tell me whether you agree with it or disagree and you can tell me why.

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I think you'll disagree with it.

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But I would like to know why.

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So the rule would be this.

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There's tax court jurisdiction if a whistleblower's filing leads the IRS to at least contact a taxpayer.

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Your honor, the challenge I would have with that is that the IRS can frequently already be in contact with taxpayers.

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Corporations are very frequently constantly under audit.

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And so there can be any number of reasons why there would consistently already be a line of communication between the two.

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And so I would find that rule challenging.

[00:05:08] Speaker 01:
What a helpful amendment to the rule be causes the IRS to make contact that the IRS would not otherwise have made?

[00:05:23] Speaker 00:
Well,

[00:05:23] Speaker 00:
the context can continue, can be happening in either event.

[00:05:29] Speaker 00:
Um, it's really, uh, I mean, for jurisdictional purposes, um, that what you're, what you're asking about as a rule would really go to the merits of the case as to whether or not the IRS was, um, taking action based on the whistleblowers information.

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And our suggestion to the court is,

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on whether or not, and Lee specifically, the focus was on whether the threshold rejection represented an appeal regarding an award determination.

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And that should be the focus, not conflating the merits into the jurisdictional question.

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And I am somewhat sympathetic to that.

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I'm somewhat sympathetic to the desire to avoid a jurisdictional rule that overlaps too much with the merits inquiry.

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But on the other hand, I am a little concerned that you could have nothing more than

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IRS officials talking to other IRS officials all within the IRS building.

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I know it's not literally one building, but just imagine that it is.

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All these IRS officials talking to all these other IRS officials, that just doesn't strike me as an administrative proceeding.

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That strikes me as a bunch of government officials deciding whether to have an administrative proceeding.

[00:07:13] Speaker 00:
I appreciate that question, Your Honour, just as it sort of looks at this as a practical matter.

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And honestly, that's one of the motivations for why we jumped into this thing.

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Because when these cases are ongoing,

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That's precisely what can occur is you provide information to in an interview and then that interview, you know, may or may not make its way through to enforcement people in the field.

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And that's, that's something, you know, and therefore assist in or prompt an investigation into a particular issue.

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Internal Revenue Code 6103.

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So if it were possible for there to be sharing of information with whistleblowers prior to filing suit, then that problem could be avoided because they could just show them the administrative record and say here's what happened and whistleblowers would understand whether or not some action was

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their particular case.

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And they're very wary of the fact that errors are made.

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I mean, we cited a take to report that specifically comments on that fact.

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Anybody who's been in this business know that errors happen all the time.

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The IRS is severely understaffed.

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they're dealing with tens of thousands of these claims.

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Although I would note only 30 or something of them are in litigation, at least as of the time that we wrote our brief and as reported in 22.

[00:08:59] Speaker 04:
Mr. Scott, I know sometimes there's been a lot of discussion about what constitutes an action, but I'm wondering

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What about a rule where jurisdiction would turn on whether there has been some type of proceeds?

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Because the entire statutory provision is about a determination regarding an award.

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And there simply can't be an award unless the IRS has recovered some proceeds.

[00:09:33] Speaker 00:
Your Honour, that is a question that is at the heart of many whistleblower cases, is whether in fact there have been proceeds from the information provided by the whistleblower.

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The whistleblower will provide the information to the service, it sort of goes into an investigation into which the whistleblower has limited

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might see in a 10 K that there was a recovery that the company paid taxes to the IRS or you might have somebody as an insider has some other indication that there was recovery.

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But there's there's not certainty about that fact.

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And the IRS merely telling you is not reliable in many instances because they do make mistakes.

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It is a practical reality of these cases.

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And that's why, you know, the the exercise of

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provide the administrative record, you can actually check whether or not they did take action.

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You can confirm with more certainty whether they took action and or collected proceeds.

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And the parties are then just in a better position to move forward.

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And that's why we're trying to point out to the court that for purposes of judicial economy,

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that that is a more efficient process because if the question of whether or not they were successful in their case, either action was taken or proceeds were collected, then that's going to lead to litigation right at the onset about jurisdiction.

[00:11:08] Speaker 00:
Folks won't have complete information.

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The IRS has the administrative record.

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It's protected by 6103.

[00:11:15] Speaker 00:
and then so they won't be able to put on a full showing of evidence to establish it with certainty when they file their lawsuit in many instances and so the IRS will file a motion to dismiss and then the whistleblower will try and obtain discovery and there will be litigation over discovery all of which is a waste of time

[00:11:37] Speaker 00:
in those instances which are you know considerable in my personal experience and ensure with others where the you you've you filed a lawsuit that gave the administrative record you get some clarity as to what happened and people will just dismiss the cases they go away um but having to prove these things in the first instance is is something that is just going to foster litigation um and it's of course you know all of this

[00:12:06] Speaker 00:
to the admonition in Myers that the merits not be conflated with the jurisdictional question.

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It's contrary to the legislative history, which says you're supposed to appeal denials, be contrary to the IRS own reading of its regs, which said that denials should be appealable.

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And it would undermine the purpose of the statute, which was to foster whistleblowing, but giving folks an opportunity to challenge mistaken decisions by the IRS.

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And though there is

[00:12:35] Speaker 00:
I understand some concerns, I would assume about unnecessary litigation mean billions of dollars are being recovered under this program 6.6 billion was the count in the report that we referenced to the.

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court and it could be many billions more.

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It's an incredibly effective means of stopping fraud against the government and deterring people from tax fraud.

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I think just like a week or two back, 267 million was recovered against a taxpayer for defrauding the government and that was just one case alone.

[00:13:13] Speaker 00:
So having rules that basically constrain

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jurisdiction beyond what is the plain meaning of the statute.

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I mean, just following sort of Justice Scalia's admonition, just read the plain words of the statute.

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It's very broad.

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It's any determination regarding an award.

[00:13:33] Speaker 00:
I think the court should just go back to that simple reading of the statute, limit lead to the facts of that case.

[00:13:43] Speaker 03:
All right, Mr. Scott, you're way over your time.

[00:13:46] Speaker 03:
We'll give you a couple of minutes and reply.

[00:13:48] Speaker 00:
Thank you, Your Honor.

[00:13:51] Speaker 03:
Mr. Berta.

[00:14:01] Speaker 02:
Thank you.

[00:14:01] Speaker 02:
Your honors may please the court.

[00:14:02] Speaker 02:
Julie of that for the commissioner.

[00:14:04] Speaker 02:
Uh, I heard two potential readings of a rule proposed, and I'd like to address those.

[00:14:11] Speaker 02:
Uh, Judge Rao suggested that a workable rule would require a showing not only that an administrative or judicial action had been taken,

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against a taxpayer, but the proceeds had been recovered.

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This actually reflects the government's position advanced in LISAC.

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The court did not favor it in those circumstances because the requirement of proceeds as a jurisdictional prerequisite, I think, was viewed as a bridge too far.

[00:14:38] Speaker 04:
There were proceeds.

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So the court didn't have occasion to decide whether proceeds were a jurisdictional prerequisite.

[00:14:48] Speaker 02:
In LISAC, there were proceeds.

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I read the opinion as a holding rather than as dicta, but I appreciate that perspective as well.

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And I'm happy to align with that.

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Proceeds are a part of the same statute as the action.

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And reading them in conjunction is

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something that the government was very comfortable doing based as an exercise in statutory interpretation.

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These are two prongs of the same inquiry.

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And we're not distanced by any meaningful language in the statute that might decouple them.

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And we felt that if one was a jurisdictional prerequisite, the other reasonably could be as well.

[00:15:34] Speaker 01:
What is, what should we, how should we think of the status of LISAC?

[00:15:43] Speaker 02:
Uh, Leasak was, uh, vacated and remanded based on its application of Chevron, which is no longer good law since Luper Bright.

[00:15:53] Speaker 02:
Uh, it is pending in this court, um, for, um, further action, um, which we, we, we await, uh, we, we have not received any re-briefing order or any other request for information on that.

[00:16:09] Speaker 01:
I know, I know what it's,

[00:16:11] Speaker 01:
formal status is what I what I'm trying and I what I did not ask very artfully is.

[00:16:16] Speaker 01:
Should we treat our so should we consider ourselves unbound?

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Everything in Lisa or just by the part of Lisa that relied on Chevron.

[00:16:32] Speaker 02:
Authority in this court does say that when the Supreme Court vacates of judgment without addressing the merits of a holding in the panel opinion that that holding continues to have

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in the absence of contrary authority, which would indicate that the jurisdictional holding in LISAC is still good law.

[00:16:48] Speaker 02:
I think it can be harmonized with Lee and I think it can be harmonized with Shands, even though Shands specifically did not rely on LISAC.

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But if the necessary language in LISAC with regard to jurisdiction simply didn't draw a distinction between

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the administrative action and the recovery of proceeds but said, we don't need to decide that today because proceeds are here of record.

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We don't need to decide how we would have treated this had there been no proceeds recovered.

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In LISAC, you'll recall the question was whether proceeds collected during an audit were attributable to information provided by the whistleblower.

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And in LISAC, the record made clear that it was not.

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They were different.

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issues in different tax years.

[00:17:36] Speaker 01:
Going back though to the GVR and LSAC, I think the rule you read was from how en banc decisions interact with panel decisions or did I miss that?

[00:17:51] Speaker 02:
No, these are

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The opinion I cited was United States versus Attawani, 467 F 1340.

[00:17:59] Speaker 02:
And it was speaking specifically with respect to when the Supreme Court vacates a judgment of this court, not an en banc court.

[00:18:08] Speaker 02:
It refers back to a seminal case called Action Alliance of Senior Citizens of Greater Philadelphia versus Sullivan, 930 F 2nd, 77, also in this court.

[00:18:17] Speaker 02:
I think that the part of an opinion

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that comes back on a GVR that was not reversed is still the law of the circuit.

[00:18:28] Speaker 02:
And I think it is still binding.

[00:18:29] Speaker 01:
I guess that could work in this situation because the Supreme Court noted in the GVR that it was a GVR in light of Loper-Brite.

[00:18:38] Speaker 02:
Specifically with respect to the interpretation of the regulation and the application of Chevrolet.

[00:18:43] Speaker 01:
Do you think that there is any benefit to us holding this case and the companion case

[00:18:53] Speaker 01:
pending the panel's resolution of LSAC?

[00:18:57] Speaker 02:
That's happened already.

[00:18:59] Speaker 02:
These cases are date from 2021 and 22, because they were originally held in abeyance pending the original LSAC decision.

[00:19:07] Speaker 02:
I'm not sure what new LSAC would add to the outcomes here, because under any standard under which new LSAC would adhere to, the outcomes in these cases would be the same.

[00:19:19] Speaker 02:
here you do not have any administrative action, let alone any proceeds taken.

[00:19:25] Speaker 02:
And under LISAC as it stands, or under a broader read of LISAC, Mr. Kennedy in particular, and then we'll speak to the successor case in a moment, are disposed effectively under the rule in Lee, which is that administrative proceedings that do not cross the

[00:19:46] Speaker 02:
do not reach the level of an administrative or judicial action are categorically discretionary under heckler under the 11 circuits interpretation of heckler and whistleblower context in stone under this court's interpretation in Cohen and Simmons.

[00:20:05] Speaker 02:
And those cases say that

[00:20:07] Speaker 02:
there is no judicial review of non prosecution decisions.

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There's presumptively no judicial review and then the presumption can be rebutted but has not been here.

[00:20:18] Speaker 04:
So here the government's position is that there is jurisdiction over Mr. Kennedy's claims against taxpayer free.

[00:20:28] Speaker 04:
That's correct.

[00:20:29] Speaker 04:
But there were no proceeds in that.

[00:20:31] Speaker 04:
No proceeds were collected.

[00:20:33] Speaker 04:
Correct.

[00:20:34] Speaker 04:
That taxpayer.

[00:20:36] Speaker 04:
So how could there be a determination of an award when there are no proceeds?

[00:20:43] Speaker 02:
We read LSAC to draw the line between the two.

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And if that was a misconstruction of DICTA in LSAC, we are happy to amend our position.

[00:20:56] Speaker 02:
But that's where it came from.

[00:20:58] Speaker 04:
I'm just trying to read the text of the statute with Lee and Lee Sack and also the recent opinion in Shands.

[00:21:06] Speaker 04:
And I do wonder if the best way of reading all of those things together is to require that a whistleblower who's seeking jurisdiction has to show there were some proceeds or has to allege there was some recovery against a taxpayer.

[00:21:23] Speaker 02:
That would certainly limit the number of cases that make it through the jurisdictional keyhole.

[00:21:27] Speaker 02:
that would increase judicial economy.

[00:21:29] Speaker 02:
To some extent, it would not address Amicus's concern about decisions evading scrutiny that may have merit, but we submit that that is not an animating policy behind the statute.

[00:21:44] Speaker 02:
The IRS is not presumptively untrustworthy in the compilation of these administrative records, and the IRS has every motivation to pursue the collection of proceeds.

[00:21:53] Speaker 04:
So where would, if a whistleblower was trying to determine whether proceeds were collected, is that something that's readily available to find that information?

[00:22:04] Speaker 02:
The information that a whistleblower receives at the completion of the claim process will indicate to that whistleblower whether proceeds were collected as a result of that whistleblower's claim.

[00:22:18] Speaker 02:
Beyond that particular matching,

[00:22:22] Speaker 02:
it's a difficult question to answer because as Amicus noted, there are often enormous Fortune 500 taxpayers under continuing audit and there will be proceeds that are continuously collected on issues unrelated to the whistleblower's information or possibly even somewhat related to the whistleblower's information, but to which the whistleblower did not substantially contribute.

[00:22:43] Speaker 02:
And in those circumstances, we rely on the interplay between the whistleblower office and the operating division conducting the

[00:22:52] Speaker 02:
administrative or judicial action to report back and be clear and make an administrative record of what proceeds are based on the whistleblower's information.

[00:23:01] Speaker 04:
So I guess I take at least that to mean at least that if a whistleblower submits information and is aware that some proceeds were collected from that taxpayer, then they could have jurisdiction to show

[00:23:15] Speaker 04:
whether those proceeds were collected based on the whistleblower's information.

[00:23:20] Speaker 04:
And then there would be jurisdiction for a court to review that.

[00:23:25] Speaker 04:
We agree with that rating of Lisak.

[00:23:26] Speaker 02:
That sounds fair.

[00:23:28] Speaker 02:
And that portion of the opinion would survive the GVR as well.

[00:23:33] Speaker 02:
But as I noted before, would not require any further stay or abeyance of either this case or the one immediately to follow.

[00:23:41] Speaker 02:
Because in both of those cases,

[00:23:43] Speaker 02:
There was no action taken almost uniformly.

[00:23:46] Speaker 02:
As your honor notes, there was one exam of one taxpayer on the Kennedy whistleblower submission, but no proceeds were recovered there.

[00:24:01] Speaker 03:
Thank you.

[00:24:05] Speaker 03:
All right, Mr. Scott, why don't you take two minutes?

[00:24:10] Speaker 00:
Thank you, your honor.

[00:24:11] Speaker 00:
I just wanted to follow on the last discussion.

[00:24:16] Speaker 00:
The question was posed whether the whistleblower should at least have to allege that action was taken and proceeds were collected.

[00:24:25] Speaker 00:
And that is not, I think in general,

[00:24:30] Speaker 00:
something to which we would object, the problem arises when the whistleblower is obliged to establish it, to prove it before a jurisdiction of the court is established.

[00:24:43] Speaker 00:
And that's where the paucity of information held by the whistleblower puts them at a disadvantage where they would not be able to, in many instances, meet that standard.

[00:24:55] Speaker 00:
And it's part of the reason why you see the authority that

[00:24:58] Speaker 00:
we've said in our brief requiring that the court give credence to allegations of jurisdiction in order to and give the benefit of the doubt to whistleblowers in such cases in deciding whether it has jurisdiction.

[00:25:13] Speaker 00:
There are also circumstances, I might add,

[00:25:15] Speaker 00:
as the court had in the RSA, where it's not just a question of whether or not there's been a recovery in the case.

[00:25:23] Speaker 00:
The court can take jurisdiction to look at the question of whether or not the whistleblower office's award determination adequately explained their basis for declining to give an award.

[00:25:39] Speaker 00:
is beyond just whether or not the government pursued the case and whether there were collected proceeds.

[00:25:47] Speaker 00:
Again, we just encourage the court to avoid the morass of intertwining the merits with the jurisdictional question.

[00:25:56] Speaker 00:
There is a long history of avoiding that kind of combination, as the court noted in

[00:26:07] Speaker 00:
you know, sort of highly clear, there should be high clarity before the court does that.

[00:26:10] Speaker 00:
And that's not the case here.

[00:26:13] Speaker 03:
All right, thank you.