BP Deepwater Horizon Case Proceeds After Tax Court Reviews IRS Handling of Whistleblower’s Claim

Eli Noff, Esq., Partner
Mary F. Lundstedt, Esq., Associate

A recent IRS whistleblower case clarifies when the Tax Court is authorized to review the IRS Whistleblower Office (WBO)’s actions or inactions when it receives a whistleblower’s complaint. In Lacey v. Commissioner,1 taxpayer submitted a whistleblower claim alleging that oil company BP improperly deducted approximately $12.9 billion when it falsely claimed that money was spent in clean-up efforts surrounding the notorious BP Deepwater Horizon oil spill-when it was actually spent on insidious cover-up efforts. The court clarified that it has jurisdiction to review, for abuse of discretion, the WBO’s rejection of the taxpayer’s claim. As such, the case will proceed since the court ultimately denied the IRS motion for summary judgment and ordered the parties to recommend a schedule for additional proceedings.


Taxpayer was a former BP employee. At times, taxpayer maintained senior level positions, and he worked and interacted with the company’s “decision makers.” Once taxpayer no longer worked at BP, he wrote a book exposing BP’s responsibility for a notorious environmental disaster.

In 2015, taxpayer filed a Form 211, Application for Award for Original Information, with a narrative alleging that:

BP was responsible for an environmental disaster, that it misled the public about the size of the disaster, and that it incurred costs purportedly to clean up the environmental damage, but that it actually made its expenditures as part of a cover up to avoid massive “fines”.2

Ultimately, this first submission resulted in taxpayer’s claim that BP improperly claimed a deduction for the money that was actually spent as part of their cover up attempt. However, the submission lacked sources for the information provided. The submission also lacked any suggestion that taxpayer gained its information via his former BP employment. Additionally, the submission didn’t clarify what the deduction was, and it failed to cite any Internal Revenue Code (IRC) provisions, regulations or other authority.

As such, the analyst in the WBO recommended a rejection of the claim as speculative and/or lacking specific or credible information. The rejection was sent to taxpayer in a letter dated November 4, 2015. Its express terms provided that it was a final rejection under IRC §7623(a) – the IRC section providing for discretionary awards which the Tax Court may not review.

Shortly after receipt of the rejection, taxpayer’s attorney requested clarification from the WBO regarding the rejection letter, reminded the WBO that the amount in disputed exceeded $12 billion, and requested confirmation from the WBO that taxpayer’s claim was still under review. Significantly, the attorney providednoadditional information to the WBO. Oddly, though, in January 2016 letter, the WBO responded to the attorney’s letter indicating that the initial rejection remained-despite the attorney’s additional information provided in the letter (again, there wasnonew information provided).

So, in March of 2016, taxpayer’s attorney sent the WBO a new Form 211, which did provide additional information. Among other things, this second submission detailed taxpayer’s employment at BP, listed sources that the taxpayer relied upon to substantiate the allegations, and provided an explanation as to the alleged illegal $12.9 billion deduction.

The WBO maintained its rejection in an April 2016 letter that used the exact language used in the earlier January 2016. Additionally, the April 2016 letter did not assign a new claim number to the second Form 211 submission-instead, it used the same number assigned to the original Form 211 submission. Finally, the IRS didn’t use any of the taxpayer’s information to begin any administrative or judicial proceedings against BP.

Subsequently, taxpayer petitioned the Tax Court for review of the WBO’s determination, asserting that the WBO:

did not review [taxpayer’s] second submission and that no WBO analyst made a recommendation to reject [taxpayer’s] claim as supplemented by his second submission.3

The IRS filed motion for summary judgment, asserting that the WBO’s rejection of the claim was not an abuse of discretion. Taxpayer’s response to the motion included his contention that the WBO did not properly process the second submission of the Form 211 and requested that the case be remanded to the WBO with instructions to process it.

Applicable Law and Analysis

The court began by considering the two types of whistleblower awards. First, the court noted that underIRC §7623(a), the IRS hasdiscretionaryauthority to issue an award to whistleblowers from the proceeds collected as a result of the information provided about third parties who are evading tax. Second, IRC §7623(b), provides for amandatoryaward, if, based on information from the whistleblower, the IRSproceedswith an action andcollects. Such award will be “at least 15 percent but not more than 30 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action.”4

The court emphasized that the plain wording of IRC §7623(b) is clear that a mandatory award depends upon (1) the IRS initiation of an administrative or judicial action based on the information provided, and (2) that the proceeds collected resulted from such action.

The court then clarified that the dispute in this case involves the question as to whether the Tax Court has jurisdiction to “review the WBO’s actions or inactions that forestalled further proceedings.”5

Regarding the first Form 211 submission, the court noted that the WBO is responsible for reviewing a submission and determining whether it meets a minimum standard requiring “specific and credible information.” The court considered that the regulations helpfully list certain criteria for a claim that may be eligible for an award. Focusing on the criteria providing that the claim doesn’t provide speculative information, the court noted the Internal Revenue Manual provides that:

Claims are considered purely speculative in nature if the claim lacks any basis or support for the allegations. If the allegations are based on or supported by information, including public information, then the claim is not purely speculative in nature. If the submission does not contain a specific or credible tax issue, or is purely speculative in nature, then no further review is required.6

Next, the court stated that, according to Regs. §301.7623-1(c)(4), if the claim is rejected by the WBO after the initial evaluation, the whistleblower is able to perfect and resubmit it. As such, the court considered that after the WBO’s rejection of taxpayer’s claim, the taxpayer was entitled to make the second Form 211 submission and the WBO was obligated to review it.

The court then explained that its jurisdiction to review WBO determinations is found in IRC §7623(b)(4), which provides that:

Any determination regarding an award under paragraph (1), (2), or (3) 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).

Interestingly, in a footnote of the opinion, the court notes that the WBO’s April 2016 rejection letter qualifies for Tax Court review, because a “rejection is a (negative) ‘determination regarding an award.”7As such, the court stated that:

Having been given jurisdiction over “[a]ny determination regarding an award”, sec. 7623(b)(4), and having been charged with the review of the WBO’s exercise of its discretion, we do have authority to review its abuse of discretion in a decision to reject a claim for failure to meet threshold requirements without referring it to an IRS operating division.8

Having established that the court had jurisdiction here, it further clarified that it reviews a WBO determination only on the grounds stated per the “Chenery Doctrine.”9Furthermore, the court indicated that recently it held that remand in a whistleblower case under IRC §7623(b) may, in fact, be appropriate.10

The court proceeded to determine whether there was an abuse of discretion as to the second Form 211 submission.11Here, the court noted that it was unable to determine “what consideration, if any, the WBO gave to [taxpayer’s] second submission.” The court lacked the completed administrative record, and the IRS hadn’t provided staff memoranda or other evidence or recommendations regarding the rejection.

Importantly, the court highlighted the fact that the mistake in the January 2016 letter (wherein the WBO claimed to review additional information-even though no additional information was provided) is proof that the WBO sent the January 2016 letter without giving the actual attention to taxpayer’s correspondence. Accordingly, the court did not think that the IRS showed “no genuine dispute” regarding whether the WBO considered the face of the claim.

Thus, finding no actual attention was given to taxpayer’s submission by the WBO, the court denied the IRS’s motion for summary judgment.

Similarly, the court maintained that the WBO’s rejection failed to explain itself in any substantive way; however, it found that remanding the case for the WBO to provide a reviewable decision would be premature at this point. The court stated that:

To hold, on the partial record before us, that a genuine dispute exists as to whether the WBO failed to consider the claim does not resolve that dispute. The complete administrative record might shed the necessary light, and it remains to be seen whether it does so.12

Ultimately the court denied both the IRS’s motion for summary judgement and the taxpayer’s remand request and instead ordered the parties to recommend a schedule for additional proceedings.


This case helps clarify when the Tax Court may review the WBO’s determinations-and this case also shows that the WBO is going to need to be able to demonstrate that it paid actual attention to a claim. Boiler plate language without substantive reasoning in a rejection is likely to create considerable doubt that actual attention was given to a claim.

If you have a whistleblower claim you would like to discuss, contact Frost Law today at (410) 497-5947.

1153 T.C. No. 8 (Nov. 25, 2019).

2Id. at 5.

3Id. at 17.

4IRC §7623(b)(1). Under the regulations, “collected proceeds . . . include: tax, penalties, interest, additions to tax, and additional amounts collected because of the information provided; amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided.” Reg. §301.7623-2(d)(1).

5Lacey,153 T.C. No. 8, 23.

6Id.at 25,citingIRM pt. (Jan. 11, 2018).

7Id.at 28, footnote 19. Note that the court was careful to point out that its jurisdiction does not extend to reviewing the IRS’s determinations of alleged tax liability.Idat 29.

8Id.at 33-34. The court was clear that its review is not “preempted” just because of a lack of an “action” or “proceeds” at this time.Id.at 38.

9Id.at 31,citing SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 196 (1947).

10Id.,citing Whistleblower 769-16W v. Commissioner, 152 T.C. 10 (Apr. 11, 2019).

11The court did not need to determine this with regard to the first Form 211 submission, since taxpayer conceded that his first submission was properly rejected.Id.at 40.

12Id.at 44.

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