Hickman: What Is The Tax Court? Congress Speaks.

Following up on my previous posts (links below):  TaxProf Blog op-ed, What Is The Tax Court? Congress Speaks (or Attempts To, Arguably Unsuccessfully), by Kristin Hickman (Minnesota):

In the latest round in the Kuretski brouhaha, the new omnibus appropriations bill passed by Congress and signed by President Obama last week adds the following text to the Internal Revenue Code:

The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.

What does this amendment mean, and why does it matter—or not?

Exactly what the amendment really accomplishes is unclear.  The amendment arguably speaks to two ongoing conversations about the Tax Court.  One is constitutional, concerning separation of powers principles.  The second is statutory, addressing the interplay of the Internal Revenue Code and the Administrative Procedure Act.  In the end, however, the amendment offers little to resolve either one.

As Daniel Hemel and others have observed, the amendment ostensibly was intended to remove uncertainty caused by the D.C. Circuit’s decision in Kuretski v. Commissioner, 755 F.3d 929 (2014).  Kuretski called upon the D.C. Circuit to consider the constitutionality of IRC § 7443(f), which authorizes the President to remove Tax Court judges for cause (i.e., “inefficiency, neglect of duty, or malfeasance in office”), thus arguably violating separation of powers principles by permitting interbranch removals of persons exercising Article III judicial power.  The D.C. Circuit rejected that claim and held instead that the Tax Court does not exercise “the judicial Power of the United States” under Article III of the Constitution, but rather employs executive power through adjudication procedures, such that § 7443(f) does not authorize interbranch removals at all.  Part of what made the Kuretski court’s holding so interesting was its seeming contradiction with the Supreme Court’s decision in Freytag v. Commissioner, 501 U.S. 868 (1991), that the Tax Court is a “Court of Law” exercising judicial power for purposes of the Appointments Clause of Article II, § 2. 

Academics have had a lot of fun debating the Kuretski decision and the constitutional characterization of the Tax Court.  The courts have always struggled a bit with how to characterize governmental entities that do not fit neatly into on or another of the three traditional branches of government recognized by the Constitution, and Kuretski certainly contributed to the muddle.  Several cases are pending before the Tax Court that could lead to other circuits considering the constitutionality of § 7443(f), so it is at least theoretically possible that we might at some point see a circuit split over Tax Court’s characterization.  Still, the remedy du jour for similar removal power violations has been merely to strike the offending language from the statute without invalidating the actions of the governmental entity in question—see, e.g., Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010); Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, 684 F.3d 1332 (D.C. Cir. 2012).  Consequently, it is difficult to imagine that declaring § 7443(f) unconstitutional would have any practical impact on the Tax Court or its operation.

Regardless, last week’s congressional amendment does little to resolve any aspect of the constitutional question.  Admittedly, the Kuretski court did compare the Tax Court to the Court of Appeals for the Armed Forces, which the Supreme Court in Edmond v. United States, 520 U.S. 651 (1997), described as an “Executive Branch entity” and its judges as “Executive officers.” Last week’s amendment obviously rejects that characterization.  But that portion of the Kuretski opinion did not seem critical to the court’s conclusion regarding the proper characterization of the Tax Court, and Congress’s labeling of the Tax Court as “independent” of the executive branch does nothing to resolve whether the Tax Court exercises executive versus judicial power for constitutional purposes.  Strict formalists may recoil, but the courts have frequently allowed officials of one branch to exercise powers arguably assigned by a vesting clause to another branch.  Hence, for decades, non-Article III tribunals—including but by no means limited to the Tax Court—have used adjudication procedures to resolve legal issues, and agencies labeled as “independent” of the executive branch have performed executive functions.  The courts, rather than Congress, have the final say as to whether the Tax Court exercises executive versus judicial power under the Constitution for the purpose of determining whether § 7443(f) sanctions interbranch removals.

Beyond the constitutional characterization of the Tax Court, the Kuretski court’s rhetoric nodded toward an interesting question regarding the Tax Court and the Administrative Procedure Act (APA).  Specifically, notwithstanding its extensive discussion of the Tax Court’s powers, the Kuretski court said that, “while we have no need to reach the issue here, Congress, in establishing [the Tax Court] as a ‘court’ rather than an ‘agency,’ perhaps also exempted [it] from statutes that apply solely to executive ‘agencies.’”  The APA first imposes a variety of procedural requirements upon agencies, and then makes agencies’ actions reviewable by “reviewing courts” employing statutorily-established standards of review.  5 U.S.C. § 706.  The Administrative Procedure Act, in turn, defines an agencies as “each authority of the Government of the United States, whether or not it is within or subject to review by another agency,” but then expressly excludes “courts of the United States.”  5 U.S.C. § 551.  As documented by Stephanie Hoffer and Christopher Walker, whether and to what extent the Tax Court is bound by the judicial review provisions of the Administrative Procedure Act is presently the subject of some disagreement among the circuits. 

Yet, notwithstanding that last week’s amendment to the Internal Revenue Code specifies that the Tax Court is not an agency, the amendment really does not touch the existing agreement.  Although the Tax Court was statutorily labeled an agency at the time the APA was adopted, and it might be theoretically possible even now to argue that the Tax Court could be labeled an agency, rather than a court of the United States, for APA purposes, few people are seriously raising that particular argument.  Rather, the disagreement over the relationship between the Tax Court and the APA turns on whether all courts of the United States are reviewing courts under the APA, and also whether specific provisions of the Internal Revenue Code governing Tax Court review of particular IRS actions override the APA’s judicial review provisions.  Hoffer and Walker put forth the case for characterizing the Tax Court as not only a court of the United States but also a reviewing court for APA purposes.  Leandra Lederman has suggested in response that, even if the Tax Court is a court of the United States exempt from APA procedural requirements, the doctrinal case for considering the Tax Court a reviewing court bound by the APA’s judicial review provisions is much less clear. 

Perhaps Congress had other goals in amending the Internal Revenue Code to label the Tax Court as not an agency and as independent of the executive branch.  The amendment may serve some symbolic function.  But nothing, really, has changed.  Internal Revenue Code § 7443(f) remains intact.  Whether the APA’s judicial review provisions govern the Tax Court remains in dispute and unresolved.  And the Tax Court continues its work without skipping a beat.

Prior TaxProf Blog posts:

• Tax Extenders Bill Puts Tax Court In Constitutional Limbo (Dec. 18, 2015)
• TaxProf Blog op-ed: On The PATH To A More Judicial Tax Court, by Leandra Lederman (Indiana)