Following up on my previous posts (links below): TaxProf Blog op-ed, The Tax Court and the Administrative State: Congress Responds to the D.C. Circuit’s Decision in Kuretski, by Stephanie Hoffer (Ohio State) & Christopher J. Walker (Ohio State):
Congress recently passed its annual “tax extender” legislation: the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Although the bulk of the PATH Act extends a variety of tax breaks, as Daniel Hemel notes over at the University of Chicago Law School Faculty Blog the last few pages of the more-than-two-hundred-page bill attempt to clarify the position of the United States Tax Court within the modern administrative state.
In particular, the PATH Act amends the Internal Revenue Code to clarify that “[t]he Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.” The Senate Report on the PATH Act makes clear that the legislation responds to the D.C. Circuit’s 2014 decision in Kuretski v. Commissioner. As we previously observed here, Kuretski in essence held that “the Tax Court is not an Article III (judicial branch) court but a court established under Article I (legislative branch) that actually exercises Article II (executive branch) powers.”
The PATH Act was thus an early Christmas gift for tax and administrative law scholars, and we now puzzle over its effects on the Tax Court. Hemel, in his blog post, rightly focuses on the constitutional implications. Leandra Lederman, in a terrific write-up on the TaxProf Blog, assesses Congress's political motivations for making the Tax Court more judicial, and Kristin Hickman aptly notes that the new law does little to resolve either separation of powers or APA questions raised by the Court’s uncertain status. We turn our attention here to consider in more detail the statutory implications and, in particular, how the PATH Act may affect whether the Tax Court is subject to the Freedom of Information Act (FOIA) and the Administrative Procedure Act (APA). Like Hickman, we conclude that the PATH Act probably doesn’t change much on the statutory front—though its attempt to clarify may have just made things more confusing.
The Tax Court’s longstanding identity crisis, coupled with its relative lack of internal transparency, has made FOIA an issue of perennial interest to unsuccessful Tax Court petitioners. FOIA, which requires the federal government to make certain records public upon request, applies to “each agency.” 5 U.S.C. § 552(a). For this purpose, “agency” is defined by cross-reference to the APA to include “any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency.” 5 U.S.C. § 552(f). FOIA further incorporates the APA’s carve out that “agency” does not include “the courts of the United States.” 5 U.S.C. § 551(1)(B). Under this statutory definition, the Tax Court’s location among the branches of government and its status as a court of the United States are critical in determining whether it is subject to FOIA.
For a time, the Supreme Court’s holding in Freytag—that the Tax Court is a court of law that “exercises a portion of the judicial power of the United States”—settled the FOIA issue. As a court rather than an agency, the Tax Court is not subject to FOIA. Recently, however, Kurestski’s declaration that “the Tax Court exercises its authority as part of the Executive Branch” may have reopened the FOIA door. Although Kuretski acknowledged the Freytag holding that the Tax Court exercises the judicial power, its narrow reading of the case implied that the Tax Court might be a “court” for some purposes but not others.
Indeed, when holding that it is not housed in the Legislative Branch, Judge Srinivasan, writing for the Kuretski Court, explained that “the Tax Court’s Article I origins do not distinguish it from the mine run of Executive Branch agencies.” He then compared the Tax Court to other Executive Branch adjudicative bodies such as the Federal Labor Relations Authority, the Occupational Health and Safety Review Commission, and the Postal Regulatory Commission. While Kuretski did not directly impugn the Tax Court’s status as a court of the United States, the decision makes it easier to imagine how the Tax Court might shapeshift depending on the constitutional or statutory context. As Kristin Hickman has noted, “the Tax Court surely can bear varying labels” for varying constitutional and statutory purposes. Although a logical and textual stretch, a petitioner could argue that the Tax Court should be subject to FOIA on the theory that the Tax Court is a court for constitutional purposes but an agency for statutory purposes.
Indeed, as Carlton Smith mentioned at the ABA Tax Section’s mid-year meeting this year, one such suit has already been filed. The complaint in Byers v. United States Tax Court cites Kuretski for the proposition that “[a]s part of the Executive Branch, the United States Tax Court is a federal ‘agency’ under the Freedom of Information Act.” By clarifying through statute that “[t]he Tax Court is not an agency of, and shall be independent of, the executive branch of the Government,” the PATH Act arguably forecloses this argument—with the only plausible counterargument being that the Tax Court is not a court but an independent agency for FOIA purposes. Such an argument seems strained with Freytag on the books. For instance, the Southern District of New York in Megibow v. Clerk of U.S. Tax Court (affirmed 432 F.3d 387 (2nd Cir. 2005)) relied on Freytag to hold that Article I tribunals “clearly qualify as ‘courts’ in the ordinary sense of that word, and any contention that they really constitute executive agencies of the sort to which FOIA applies would be baseless.”
Whether the Tax Court is a court of the United States is important not only for FOIA but also for the APA. As we have written previously here, the APA establishes the default rules applicable to federal agency action and to judicial review of that action. For purposes of the APA, “agency” does not include “the courts of the United States.” 5 U.S.C. § 701(b)(1). If the Tax Court is a court of the United States for purposes of the APA, it is not subject to the provisions governing agencies and, as we have argued at length elsewhere, it is instead a reviewing court subject to the APA’s judicial review provisions.
The PATH Act, in its response to Kuretski, simultaneously clarified and muddied the waters on this question. In Kuretski, the D.C. Circuit noted that “while we have no need to reach the issue here, Congress, in establishing those entities as a ‘court’ rather than an ‘agency,’ perhaps also exempted them from statutes that apply solely to executive ‘agencies.’” The court then cited Megibow’s holding that the Tax Court was not an agency for purposes of FOIA. Perhaps by clarifying that the Tax Court is independent from the Executive Branch, Congress hoped not only to create an appearance of impartiality but also to solidify Kuretski’s speculation that it intended to exempt the Tax Court from statutes “that apply solely to executive ‘agencies.’”
Congress’s clarification, however, may not provide much clarity. The PATH Act creates Internal Revenue Code § 7470 to grant the Tax Court access to management, administrative, and expenditure provisions that are available to a “court of the United States.” To define the term, the PATH Act cross-references 28 U.S.C. § 451, which provides:
The term “court of the United States” includes the Supreme Court of the United States, courts of appeals, district courts constituted by chapter 5 of this title, including the Court of International Trade and any court created by Act of Congress the judges of which are entitled to hold office during good behavior.
The Tax Court is not a court of the United States under this statutory definition. If it were, there would be no need to add § 7470 to the Internal Revenue Code. And while Title 28 is separate and distinct from the APA and FOIA, it is possible that Congress’s reference to a specific definition of “court of the United States” may create some doubt as to the Tax Court’s “court” status more generally. This may be particularly true since the cross-referenced definition is provided in conjunction with legislation that makes the Tax Court more judicial while not explicitly placing it within the Judicial Branch under Article III of the U.S. Constitution.
From our perspective, the best reading of the various statutory frameworks confirms that the Tax Court is a “court” for FOIA and APA purposes, despite the potential confusion introduced by the PATH Act. APA and FOIA are different statutes, enacted at different times and for different purposes, with express definitions of “agency” and “court.” There is no evidence Congress intended to disrupt those statutory frameworks by passing the PATH Act. It is not problematic to find that the Tax Court is a court for regulatory and disclosure purposes while not finding it to be a court under Article III or elsewhere. Indeed, that a congressionally created entity may be considered one thing for one constitutional or statutory provision and something else for another seems to be a key takeaway from the Supreme Court’s decision last Term in Department of Transportation v. Ass’n of American Railroads. To once again channel Professor Hickman’s initial commentary on Kuretski: “After all; if the Affordable Care Act penalty can be a tax for constitutional purposes and yet not a tax under § 7421(a) of the Internal Revenue Code (see NFIB v. Sebelius), then the Tax Court surely can bear varying labels for different purposes as well.”
At the end of the day, it is not entirely clear what effect the PATH Act will have on the constitutional and statutory home of the United States Tax Court. One thing, though, is certain. Like the Tax Reform Act of 1969, the PATH Act does not pen the final chapter.
Prior TaxProf Blog posts: