Appellate Venue in Tax Court cases – Taking Care in Applying Golsen in non-deficiency cases

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For many years the Tax Court or its predecessor, the Board of Tax Appeals, did not look to the Circuit where venue for an appeal of the Tax Court’s decision would lie in deciding the outcome of a case before it.  Unlike a District Court with a specific circuit to which it felt bound by Circuit Court authority in the circuit in which they sat, the Tax Court focused on reaching the correct outcome of the case unfettered by the controlling precedent that applied in the circuit to which an appeal of the case would lie.  The Tax Court’s failure to recognize the controlling authority of the circuit which had venue for the appeal caused taxpayers or the government to appeal in order to obtain a favorable result in those situations where the Tax Court’s view of the law differed from circuit precedent.

In 1970, a year after becoming an Article I Court, the Tax Court changed its practice and announced in Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d on other issues, 445 F.2d 985 (10th Cir. 1971), that it would follow the precedent of the Circuit Court to which the appeal of the Tax Court case would lie.  Most cases do not involve a split of authority among the circuits and the Golsen rule does not have significant meaning in the outcome of the case.  Occasionally however, a major split develops among the circuits and the application of the Golsen rule becomes critical to the outcome of the case.  Of course, a predicate to the application of the Golsen rule is the determination of appellate venue.  In some of the newer areas of Tax Court jurisdiction, and perhaps some that are not so new, that question is now up in the air.

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The Tax Court has traditionally served as the location for litigating whether a taxpayer owes the tax proposed by the IRS in a notice of deficiency.  IRC 7482, the controlling statute for appellate venue in Tax Court cases, was built with the traditional role of the Tax Court in mind.  In recent decades Congress has demonstrated its confidence in the Tax Court by making it the court for several proceedings beyond the straight forward determination of taxes based on a notice of deficiency including – collection due process, innocent spouse, employment status, exempt status and whistleblower awards.  The appellate venue for these less traditional cases is not described in IRC 7482 leaving the flush language of IRC 7482(b)(1) as the likely controlling direction from Congress.  The flush language provides “If for any reason no subparagraph of the preceding sentence applies, then such decisions may be reviewed by the Court of Appeals for the District of Columbia.”

Then law student James Bamberg seems to have been the first to notice what no one else had seen.  In 2008 he wrote the winning article for the Tannenwald Competition entitled “A Different Point of Venue: The Plainer Meaning of Section 7482(b)(1).” In the article, he identified the disconnect between the appellate venue statute and the newly created areas of Tax Court jurisdiction.  He wrote:

Congress intentionally designated the types of Tax Court proceedings that are to be appealed in the regional circuit courts by enumerating them. Correspondingly, it chose not to include proceedings that rise from “newer” areas of Tax Court subject matter jurisdiction. Seven of these more recent jurisdictional grants, not specifically listed, are: (1) in 1976, the right to review disclosure actions; (2) in 1988, the right to review Service denials of reasonable administrative costs; (3) in 1996, the right to review Service denials of requests for interest abatement; (4) in 1997, the right to review worker classification disputes; (5) in 1998, the right to hear appeals of Service determinations in “collection due process” proceedings; (6) in 1998, the right to review Service denials of relief from joint and several liability for income taxes; and (7) in 2006, the right to review Service awards to whistleblowers. Consequently, because Congress chose not to list these seven jurisdictional grants within section 7482(b)(1), the Tax Court decisions that spring from these jurisdictions fall squarely in the D.C. Circuit Court for review.

After the publication of this article, which points out that the D.C. Circuit essentially became the National Court of Tax Appeals for the cases not enumerated in section 7482, some practitioners, the Tax Court and the government eventually began to take notice.  We wrote about the Byers case, in which the taxpayer is currently arguing, inter alia, that the D.C. Circuit is the court where appellate venue lies in CDP cases.

The Tax Court wrote about the venue issue in Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12 (2011) in which it said “Any appeal of this case would likely lie with the Court of Appeals for the D.C. Circuit.  See Sec. 7482(b)(1)(flush language).”

The Department of Justice Appellate Section filed Commissioner’s Motion to Transfer Appeal to the United States Court of Appeals for the District of Columbia Circuit” on December 27, 2012, in the whistleblower case Cohen v. Commissioner, 139 T.C. No. 12 (2012). Mr. Cohen, who lived in New Jersey at the time of filing his Tax Court petition, lost in the Tax Court and filed an appeal in the Third Circuit.  The Department of Justice quoted the language of IRC 7482(b)(1) in its motion and then stated “Cohen’s appeal does not fit within any of the six subparagraphs listed in Section 7482(b)(1).  Accordingly, venue lies in the United States Court of Appeals for the District of Columbia Circuit under the flush language at the end of Section 7482(b)(1).”  In a footnote the motion notes that Section 7482(b)(2) permits a Tax Court decision to be reviewed by any Circuit Court upon stipulation of the parties.  The motion further noted that when appeal is taken to the wrong Circuit Court that court “may transfer the appeal to the proper court in lieu of dismissing the appeal.”

While it is not clear yet that the D.C. Circuit agrees with the Bamberg interpretation of appellate venue and, if it does, whether it agrees with respect to all seven of the case types identified by Mr. Bamberg, the implications here are significant for the application of the Golsen rule and for the creation of a de facto National Court of Tax Appeals for many of the cases which the Tax Court decides.  The Byers case deserves close observation since where your Tax Court case heads on appeal can have an important role in the outcome of the case at the Tax Court.  The D.C. Circuit may soon take on a much more prominent role in the federal tax area.

This issue is addressed in one of the legislative proposals Les wrote about last week. Now Carlton Smith has written a letter to Congress on this issue discussing the legislative proposal and particularly the impact it will have in the Collection Due Process issue where Circuit Court authority exists outside of the D.C. Circuit for limiting the record before the Tax Court.  Such a limitation hurts low income taxpayers who frequently start these cases unrepresented.  We will post more on that letter shortly.

***update – Carlton Smith’s letter can be found here***

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