This article examines the decision in Tom Prescott v. Commissioner of Internal Revenue, T.C. Memo. 2025-121 (2025), focusing on the technical requirements for establishing a mandatory whistleblower award under Internal Revenue Code (I.R.C.) section 7623(b) and the corresponding Treasury Regulations. The case hinges on whether the information provided by the petitioner "substantially contributed" to the resulting administrative action and collection of proceeds, especially in the context of multiple independent whistleblower claims.

Factual Background of the Claim

The petitioner, Tom Prescott, filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office (WBO) in April 2013. His claim targeted Target A, a foreign financial institution, and numerous U.S. citizens (Targets B through V) who allegedly held undisclosed accounts with Target A. Prescott claimed he initially provided this information to the Department of Justice (DOJ) Tax Division on January 31, 2013.

Critically, the IRS Criminal Investigation division (CI) had commenced its investigation of Target A much earlier, in October 2010, based on information supplied by taxpayers participating in the Offshore Voluntary Disclosure Initiative (OVDI) program. CI formalized a Subject Criminal Investigation of Target A on December 15, 2010. By the time Prescott submitted his claim in April 2013, the investigation team had already uncovered substantial documentation through the execution of a search warrant against an entity associated with Target A in March 2011. This documentation provided CI with a sufficient basis to trigger foreign treaty requests for information regarding U.S. account holders of Target A.

The investigation concluded when DOJ secured a criminal conviction against the associated entity in December 2014, followed shortly thereafter by Target A entering into a Deferred Prosecution Agreement (DPA), resulting in a substantial payment to the U.S. Government.

Petitioner’s Request for Relief and Subsequent Arguments

The WBO initially recommended denial of Prescott’s claim in December 2016, stating that the IRS had identified the issues prior to receipt of his information and that his information did not substantially contribute to the actions taken. The petitioner timely challenged the resulting Final Determination, seeking review pursuant to I.R.C. section 7623(b)(4).

Upon initial review, the Tax Court remanded the case to the WBO in March 2024 because the WBO had not applied the multiple whistleblower rule set forth in Treasury Regulation § 301.7623-4(c)(4).

Following remand and the WBO’s supplemental determination affirming the denial, the petitioner opposed the Commissioner’s Motion for Summary Judgment. Prescott primarily argued that the WBO abused its discretion because it could not make a proper award determination without input from the DOJ, specifically attorney Ellen Quattrucci. He contended that Ms. Quattrucci’s willingness to meet with him in January 2013 indicated his information "would in fact be of assistance to the ongoing investigation", and speculated that the information may have been used by DOJ as "leverage" in settlement negotiations or to support requests for search warrants, thereby assisting the recovery against Target A.

Jurisdictional Basis and Judicial Standard of Review

The Tax Court determined it had jurisdiction to review the WBO’s denial under section 7623(b)(4), as the IRS had proceeded with administrative action against the target and collected proceeds. This jurisdiction is based on precedent established by the D.C. Circuit Court of Appeals (the appeal venue for this case), including Lissack v. Commissioner, 125 F.4th 245 (D.C. Cir. 2025), and Shands v. Commissioner, 111 F.4th 1, 9 (D.C. Cir. 2024).

Because the court is reviewing agency action, the standard is governed by the Administrative Procedure Act, whereby the court confines itself to the administrative record to decide whether the WBO’s determination constituted an abuse of discretion. Summary judgment in this context tests whether the WBO’s determinations are supported by the record or are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" (Van Bemmelen v. Commissioner, 155 T.C. 64, 72 (2020), quoting Kasper v. Commissioner, 150 T.C. 8, 21 (2018)). The court does not substitute its own judgment but ensures the determination was "within the bounds of reasoned decisionmaking" (Van Bemmelen, 155 T.C. at 72, quoting Dep’t of Com. v. New York, 139 S. Ct. 2551, 2569 (2019)). Factual findings by the WBO are accepted unless they are clearly erroneous (Kasper, 150 T.C. at 23, citing Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006)).

Statutory and Regulatory Framework

Section 7623(b)(1) mandates an award of 15% to 30% of collected proceeds only if the IRS "proceeds with any administrative or judicial action . . . based on information brought to the Secretary’s attention".

The key interpretive regulation is Treasury Regulation § 301.7623-2(b). The IRS "proceeds based on" a whistleblower’s information when that information "substantially contributes" to an action against the identified person. A substantial contribution occurs only if the IRS "initiates a new action, expands the scope of an ongoing action, or continues to pursue an ongoing action, that the IRS would not have initiated, expanded the scope of, or continued to pursue, but for the information provided". Importantly, merely analyzing information or investigating a matter that was already raised does not meet this standard (Lissack v. Commissioner, 125 F.4th at 256–60 (2025); Treas. Reg. § 301.7623-2(b)(1)).

For cases involving multiple claimants, Treasury Regulation § 301.7623-4(c)(4) requires the WBO to evaluate the contribution of each individual. The WBO must determine whether the information submitted by one whistleblower would have been obtained as a result of information previously submitted by another. If multiple submissions are found to be independent contributors, the award amount is based on the extent to which each whistleblower contributed, though the aggregate award cannot exceed the maximum percentage.

Application of Law to the Facts

The court determined that the WBO did not abuse its discretion in concluding Prescott failed to "substantially contribute" to the collection of proceeds from Target A.

Lack of Substantial Contribution: The investigation of Target A was already formalized and major evidence-gathering steps, including the search warrant (March 2011) and the decision to initiate foreign tax treaty requests, were already underway or completed before Prescott supplied his information in 2013.
Agency Determinations: The administrative record contains multiple determinations affirming this finding. CI Special Agents confirmed that Prescott’s claim information was "not utilized in any way in their investigation" and that they relied on tax treaty records derived from other sources, giving him "no credit" for contributions.
Multiple Whistleblower Findings: When applying Treasury Regulation § 301.7623-4(c)(4) on remand, the WBO analyst determined that two other whistleblowers (WB–1 and WB–2) were responsible for 100% of the proceeds collected. WB–1 and WB–2’s information and actions led directly to the critical 2011 search warrant, which enabled the tax treaty requests and ultimately the criminal conviction of the associated entity and the ensuing DPA with Target A. Prescott’s information "was already known" and did not contribute to the search warrant, the treaty requests, or the associated entity’s criminal conviction.
Rejection of Petitioner’s Speculation: The court rejected Prescott’s argument that DOJ’s meeting with him proved his information was valuable. The WBO reasoned that during a criminal investigation, DOJ is expected to meet with all credible sources and sort out the information later, meaning the meeting itself does not establish that the information "substantially contributed" to the recovery (Treas. Reg. § 301.7623-2(b)(1)).
DOJ Input: The WBO repeatedly sought input from DOJ regarding Prescott’s contribution but DOJ declined, citing Federal Rules of Criminal Procedure Rule 6(e) (grand jury secrecy) and various privileges. The WBO did not abuse its discretion by failing to obtain information DOJ was unable to supply. Furthermore, CI officers were present during all DOJ meetings and received all information Prescott provided, allowing CI to assess whether it was duplicative.

Conclusion

The Tax Court concluded that the WBO convincingly explained why WB–1 and WB–2 were responsible for 100% of the collected proceeds from Target A. Because Prescott’s information did not initiate or expand the ongoing investigation, nor did it cause the IRS to pursue action that it otherwise would not have pursued, it failed to meet the regulatory standard of "substantially contributing" to the action (Treas. Reg. § 301.7623-2(b)(1)).

The petitioner’s contentions were based on speculation regarding undefined assistance to the DOJ, and the court found no evidence in the administrative record suggesting the WBO’s factual findings were clearly erroneous (Kasper, 150 T.C. at 23). Accordingly, the Tax Court found the WBO’s denial was "within the bounds of reasoned decisionmaking" and granted the Commissioner’s Motion for Summary Judgment.

Prepared with assistance from NotebookLM.