It is always a pleasure to read a well-crafted opinion and I am writing this post to give a shout-out to Judge David Gustafson’s work in Palmolive Building Investors v. Commissioner, 149 T.C. No. 18, filed October 10, 2017. For the substance of the case, see Peter Reilly’s great post last week. He also links to other coverage in the blogosphere. What I want to point out, however, is how well this opinion is written and, more importantly, why.
I try to teach my students to think of law as a slow-moving conversation between the various sources of law: courts, legislatures, agencies. In particular, I encourage them to focus on trial court opinions when they seek to understand a particular area of law because trial courts are in conversation with the particular Court of Appeals that will review them. So trial courts tend to give very thorough explanations of their decisions when they believe the decision addresses an important point of law that will probably be the subject of Appellate review. True, their conversation with their supervising court is kind of one way in that trial courts are bound the decisions made by their supervising Courts of Appeals.
In performing its trial court function the Tax Court is unlike any other trial court in the United States because its decisions are potentially reviewable by every single one of the 12 geographic federal Courts of Appeals. In effect, it has 12 supervising courts. Brutal. 12 Bosses??
That brutal fact creates a problem. What should the Tax Court do when one Court of Appeals reverses the Tax Court on a legal issue and then the legal issue comes up again? This opinion by Judge Gustafson is a beautiful illustration of the Tax Court’s answer, an answer that may surprise you, even if you think you know the Golsen rule. To learn the one weird trick the Tax Court uses, I invite you to dive beneath the fold. Gee, I hope that click-bait works.
When the Tax Court first confronted this problem it got all bold and brassy. It decided that it would treat all Courts of Appeals decisions as merely persuasive and none as binding. Heck, it was THE TAX COURT! It was a NATIONAL court, unlike any other, responsible for ensuring the uniform application of the tax laws across the country! It had no Boss except SCOTUS! Judge Murdock explained the idea in Lawrence v. Commissioner, 27 T.C. 713, 716-17 (1957) but don’t let the absence of exclamation marks lull you into ignoring the boldness of the idea:
One of the difficult problems which confronted the Tax Court, soon after it was created in 1926 as the Board of Tax Appeals, was what to do when an issue came before it again after a Court of Appeals had reversed its prior decision on that point. Clearly, it must thoroughly reconsider the problem in the light of the reasoning of the reversing appellate court and, if convinced thereby, the obvious procedure is to follow the higher court. But if still of the opinion that its original result was right, a court of national jurisdiction to avoid confusion should follow its own honest beliefs until the Supreme Court decides the point. The Tax Court early concluded that it should decide all cases as it thought right.
This seemed backwards. Here was a trial court saying that it would follow a Court of Appeals opinion only “if convinced thereby.” Wow. In the staid world of tax law this was like raising a fist. Or taking a knee (errr...in the Colin Kaepernick sense, not in the Game of Thrones sense).
If there had been a twittisphere in the 1950’s it would have erupted. As it was there was plenty of criticism in academe and plenty of grumbling in law offices. But the issue did not really come back up until 13 years later in a 1970 case called Golsen v. Commissioner, 54 T.C. 742. By then the conversation between academics and practitioners had convinced the court to modify its position.
In Golsen Judge Raum wrote that “it is our best judgment that better judicial administration requires us to follow a Court of Appeals decision which is squarely in point where appeal from our decision lies to that Court of Appeals and to that court alone.” 54 T.C. at 757. But when an appeal would go to a different Court of Appeals, Judge Raum said the Tax Court would still follow the Lawrence approach and treat the contrary appellate opinion as merely advisory. In this way, the Tax Court still claimed to be able to exercise its responsibility as “the” national court:
[T]he practice we are adopting does not jeopardize the Federal interest in uniform application of the internal revenue laws which we emphasized in Lawrence. We shall remain able to foster uniformity by giving effect to our own views in cases appealable to courts whose views have not yet been expressed, and, even where the relevant Court of Appeals has already made its views known, by explaining why we agree or disagree with the precedent that we feel constrained to follow.
Here's the point about Golsen that many folks overlook. It was the Tax Court reversing its own policy. That is, no higher Court has told the Tax Court how it must address the brutal problem of 12 Bosses. Rather than grounded in some abstract theory of legal hierarchy, the rule is grounded in practicalities of tax administration. As Judge Raum explained: “we think that where the Court of Appeals to which appeal lies has already passed upon the issue before us, efficient and harmonious judicial administration calls for us to follow the decision of that court.” This leaves open the possibility that someday, perhaps, the Tax Court might decide that a Court of Appeals opinion was just so, so very wrong that it should not be followed even in cases appealable to that Circuit. That would give the Court of Appeals an opportunity to correct its error. I’m thinking here of the D.C. Circuit’s bizarre opinion in Murphy (for details see prior TaxProf blog coverage).
Coming back to the present, the Palmolive opinion illustrates both why the Tax Court must be a great conversationalist and how the Tax Court goes about it.
As to the why, the Palmolive decision is likely appealable to the Seventh Circuit. The issue in the opinion---whether the details of a donation of a conservation easement satisfied the “in perpetuity” requirements for the donation to generate a charitable donation deduction---had not been decided by the Seventh Circuit, but had been decided by the First Circuit in an earlier case. In that earlier case, the First Circuit had reversed the Tax Court’s judgment. If the Palmolive case had been appealable to the First Circuit, then the Tax Court would have likely followed the First Circuit---but only for reasons of “efficient and harmonious judicial administration” and not because it had to or thought the First Circuit opinion correct.
But because the opinion is appealable to the Seventh Circuit, and because taxpayers are looking to preserve a $33 million deduction, the Tax Court needs to write an opinion that carefully explains why it disagrees with the First Circuit. It needs to be an excellent conversationalist.
As to the how, three features of Judge Gustafson’s opinion illustrate how the Tax Court goes about being such an excellent conversationalist: accessibility, thoroughness, and unity.
The first feature is how the opinion is accessible. Sure, it’s 41 pages long but it is well structured with a table of contents and with topics laid out in logical order. Within each topic the writing is clear and direct, giving a wonderful mini-lesson on the tax consequences of donations of easements. It is written for a legal lay audience. While those who practice in this area do not need what this opinion provides, the potential audience of three appellate judges do. They will not be experts in tax law, much less in this specialize branch of tax law. This opinion illustrates marvelously why I tell my students to read trial court opinions. That accessibility helps the reader understand the context of the dispute in the case and how the Tax Court’s resolution fits in the broader puzzle of tax law.
Second, the opinion carefully attends to the details of the case that are important to the resolution. It deals honestly and in detail with both the taxpayer’s arguments and the First Circuit’s reasoning. It carefully recites the relevant facts and why it believes the facts it recites are relevant. What I found particularly useful was the Tax Court’s ability to find relevant legislative history when the First Circuit was unable to do so. That, of course, is not the end of the conversation. There may be additional legislative history to add but the point of this judicial opinion---as is the point of every judicial opinion---is to carry forward the conversation, not to try and have the last word. No judicial opinion is the “last word,” not even Supreme Court opinions. Certainly the authors of Dred Scott, Plessey opinion, or Pollack would agree.
Finally, the Tax Court is at its best when it speaks with one voice. Judge Gustafson is writing for all 15 of the participating Tax Court judges (Judge Lauber did not participate). So if this case is appealed to the Seventh Circuit, this unity of voice from the Tax Court helps make its opinion all the more powerful: 15 really smart folks are in solid agreement on this issue. This ability to speak “en banc” on a regular basis is what sets the Court apart from other federal trial courts, who are rarely able to even attempt en banc opinions.
Even if you know little about conservation easement donations, you can read this opinion and appreciate how the Tax Court can be an excellent conversationalist.