Paul L. Caron

Wednesday, December 23, 2015

Lederman:  On The PATH To A More Judicial Tax Court

Ledderman (2016)Following up on Friday's post, Tax Extenders Bill Puts Tax Court In Constitutional Limbo:  TaxProf Blog op-ed:  On the PATH to a More Judicial Tax Court, by Leandra Lederman (Indiana-Bloomington):

The recently enacted Protecting Americans from Tax Hikes (PATH) Act of 2015 includes a subtitle containing several sections addressing the U.S. Tax Court. This post focuses primarily on Congress’s “clarification” of what the Tax Court is not, but it also briefly addresses some changes the new law makes to Tax Court administration.

Since 1969, when Congress enacted Internal Revenue Code (Code) section 7441, making the Tax Court an Article I court, the Tax Court has faced issues resulting from its lack of a clear place in the federal government structure. The clarifying amendment in the PATH Act adds a third sentence at the end of section 7441 (highlighted in bold below), which makes the provision read as follows:

There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court. The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.

The new language apparently was prompted by Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), cert. denied, 135 S. Ct. 2309 (2015). In Kuretski, the taxpayers argued that Code section 7443(f), which allows the President to remove Tax Court judges from office for certain bad behavior, infringes upon the constitutional separation of powers because it would constitute interbranch removal. The Court of Appeals for the D.C. Circuit resolved the constitutional threat to the Tax Court by holding that “the Tax Court exercises its authority as part of the Executive Branch,” id. at 943, and therefore presidential removal of a Tax Court judge would not constitute interbranch removal. (Although the Senate Report accompanying S. 903 states that the D.C. Circuit “held in Kuretski v. Commissioner that the Tax Court . . . is an independent Executive Branch agency,” Kuretski did not hold that the Tax Court is an agency.)

The Senate Report provides the following explanation for the statutory amendment:

The Committee is concerned that statements in Kuretski v. Commissioner may lead the public to question the independence of the Tax Court, especially in relation to the Department of Treasury or the Internal Revenue Service. The Committee wishes to remove any uncertainty caused by Kuretski v. Commissioner, and to ensure that there is no appearance of institutional bias.

Yet, the amendment doesn’t purport to resolve the puzzling question of where in the constitutional structure the Tax Court actually fits. As I have written previously, there is authority locating the Tax Court in each of the three branches, and, in theory, the Tax Court could be located in no branch at all.

Prof. Bryan Camp has argued that the new language doesn’t change anything. Prof. Brant Hellwig has pointed out that the statutory language doesn’t actually say that the Tax Court is located outside the executive branch. Regardless, because the amended language does not purport to resolve the branch issue, it seems designed not so much to accomplish something affirmative but rather to avoid something negative.

The amendment could have the effect of making it harder for taxpayers or others to mount an argument that laws applicable to federal agencies apply to the Tax Court. However, if the legislative history expresses Congress’s true concern, any barrier to applying agency law to the Tax Court may just be a side effect. Congress’s stated concern is that the Tax Court might not appear independent of the Treasury Department or the IRS.

Until 1969, the Tax Court was an independent agency in the executive branch, and until 1974, the Tax Court was located in the same building as the IRS. Some have accused the Tax Court of being biased in favor of the IRS. The statutory amendment may serve to broadcast the Tax Court’s independence from the agency that appears before it in every case.

The perception of independence from the IRS may be particularly important in the current political climate. The controversy over the IRS’s allegedly politically motivated delays in processing Tea Party and other organizations’ applications for a determination of tax-exempt status under Code section 501(c)(4) is still fresh in the minds of many. In the same title of the PATH Act that features the amended Tax Court provisions, subtitle A is termed “Internal Revenue Service Reforms.” That subtitle features a section amending the off-Code Ten Deadly Sins to include a provision titled “Termination of Employment of Internal Revenue Service Employees for Taking Official Actions for Political Purposes.” The two sections immediately preceding that amendment in the PATH Act relate to Code section 501(c)(4).

The amendment to section 7441 thus seems focused on protecting the Tax Court’s perceived independence. The Senate Report mentions the perceived independence of the Tax Court in the need for legislative action on both the clarifying amendment and with respect to a section providing for a special fund where Tax Court fees will be deposited and available for the Tax Court to use to offset administrative costs, “as other Article I courts and all Article III courts do.”

Other provisions of the PATH Act also make the Tax Court more like other federal courts. For example, the Act expressly authorizes the Tax Court to hold annual judicial conferences. In addition, in an awkwardly worded provision very similar to the language of 38 U.S.C. § 7287, which is applicable to the Court of Appeals for Veterans Claims and mentioned in the Senate Report, Congress allows the Tax Court to “exercise, for purposes of management, administration, and expenditure of funds of the Court,” the authorities applicable to Article III courts.

The Senate Report’s only explanation of this provision is that it “amends the Code to provide the Tax Court with the same general management, administrative, and expenditure authorities that are available to Article III courts and the Court of Appeals for Veterans Claims.” The extension of similar powers to the Court of Appeals for Veterans Claims occurred in 2001, but there appears to be little law interpreting that provision, and it remains to be seen how the Tax Court will use its new and seemingly broad authority.

The PATH Act also contains a provision, new Code section 7466, that the Senate Report explains as follows:

The provision authorizes the Tax Court to prescribe procedures for the filing of complaints with respect to the conduct of any judge or special trial judge of the Tax Court and for the investigation and resolution of such complaints. In investigating and taking action with respect to such a complaint, the provision authorizes the Tax Court to exercise the powers granted to a judicial council under Title 28.

The Senate Report explains that the reason for this provision is “[t]o ensure the integrity of the Tax Court as well as the public’s perception of integrity of the Tax Court.” The applicable sections of Title 28 relate to review by the U.S. Judicial Conference.

This is an important change for the Tax Court; a footnote on page 304 of the Senate Report on the Tax Reform Act of 1969 stated in connection with the enactment of Code section 7441 that “the Committee amendments do not place the Tax Court under the supervision of the Judicial Conference or the Director of the Administrative Office of the Article III courts or give them any power or control of the Tax Court.” The “clarifying” sentence in the PATH Act is a step in the direction of making the Tax Court more judicial but it does not seem to make the Tax Court subject to the Administrative Office. Nothing in the Act amends the statutes relating to the Administrative Office. The relevant provisions in the PATH Act thus seem to focus on enhancing the Tax Court’s perceived independence while stopping short of making the institution as transparent as Article III courts.

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