Tax Court Holds President’s Removal Power Constitutional, Part II

Here is part 2 of a two part post by frequent guest blogger Carl Smith on last week’s important decision on the location of the Tax Court within our constitutional framework.  Keith 

This is part two of a post on the Tax Court’s recent opinion in Battat v. Commissioner, 148 T.C. No. 2 (Feb. 2, 2017), where the Tax Court disagreed with the D.C. Circuit’s reasoning in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), cert. denied, 135 S. Ct. 2309 (2015), but came to the same result.  In this part of the post, I explain the reactions of Congress to the Kuretski D.C. Circuit opinion and the reaction of Florida attorney Joe DiRuzzo, who decided to raise the Kuretski Presidential removal power issue in a number of his pending Tax Court cases, including Battat. Then, I set out in detail the Tax Court’s reasoning in Battat.

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The D.C. Circuit’s opinion in Kuretski was issued in June 2014.  On November 26, 2014, the Kuretskis filed a petition for certiorari, arguing that the D.C. Circuit had misapplied the Supreme Court’s holding in Freytag v. Commissioner, 501 U.S. 868 (1991).

Florida tax attorney Joseph A. DiRuzzo, III and other lawyers at the firm at which he works, Fuerst Ittleman David & Joseph, PL, read the Kuretski cert. petition and thought the constitutional argument in it had merit.  On their own (not with my prodding), they decided to borrow the argument from the cert. petition and include it as an argument in some Tax Court cases that their firm had pending at the pretrial stage.  There were motions on other issues already pending in some of those cases.  The cases were both deficiency and Collection Due Process cases.  The taxpayers lived in a number of Circuits around the country.  Joe did not count on the Supreme Court granting cert. in Kuretski without a Circuit split.  (He was right.)  The lawyers hoped that the Tax Court would issue a ruling disagreeing with the D.C. Circuit and that courts of appeals outside D.C. would also disagree with the D.C. Circuit – leading to a grant of cert. in one of these cases.

The first case in which Joe and his firm raised the Kuretski removal power issue was a Collection Due Process case named Elmes v. Commissioner, Tax Court Docket No. 24872-14L, where, on December 19, 2014, Joe and his firm filed a “Motion to Disqualify & Motion to Declare 26 U.S.C. § 7443(f) Unconstitutional”.  The motions in Elmes prayed that “this Court . . . declare 26 U.S.C. § 7443(f) unconstitutional and disqualify all the judges of the Tax Court until such time as § 7443(f)’s constitutional infirmity is cured”.

Over the next few weeks, Joe and his firm filed similar motions in about a dozen other cases.  By filing each motion pretrial, they hoped to avoid getting a ruling that the motion was filed too late in the case for the Tax Court to have to address it – the kind of ruling Judge Wherry had issued to the Kuretskis in an unpublished order.

On May 18, 2015, the Supreme Court denied cert. in Kuretski.

On September 1, 2015, the Chief Judge assigned the Battat case to Judge Colvin.

The Tax Court was annoyed enough with the D.C. Circuit’s calling the Tax Court still an Executive Branch entity that, before any judge ruled on any of Joe’s firm’s motions, the Tax Court asked for, and obtained from Congress (in December 2015), an amendment to section 7441 that added the following sentence (which the legislative history said was to clarify the status of the Tax Court in light of Kuretski):  “The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”

Battat and Thompson Rulings 

More than two years after Joe and his firm began filing these section 7443(f) motions, the Tax Court ruled on two of them on February 2, 2017, in Battat and Thompson v. Commissioner, 148 T.C. No. 3.

Thompson is a deficiency-jurisdiction opinion by Judge Wherry that primarily addresses a motion that Joe and his firm filed concerning the constitutionality of the penalty at section 6662A under the Eighth Amendment’s Excessive Fines Clause.  In the opinion, Judge Wherry denies the section 6662A motion and also denies the section 7443(f) motion.  For the latter ruling, he merely cites to the court’s simultaneous opinion in Battat.  Thus, Battat is currently the only Tax Court opinion that gives reasoning for the rulings on the section 7443(f) motions.

The Thompsons resided in California when they filed their Tax Court petition, so an appeal of their case would go to the Ninth Circuit.  The Battats, whose case is also a deficiency case, resided in Florida when they filed their petition, so an appeal of their case would go to the Eleventh Circuit.  Thompson involves income tax deficiencies and penalties for the tax years 2003-2007 of nearly $400,000, in aggregate.  Battat involves income tax deficiencies and penalties for 2008 exceeding $2 million, in aggregate.  So, there is enough at stake in the cases to justify the costs of appeals.  Hereafter, I will ignore Thompson (which may be the subject of someone else’s post on the section 6662A issue).

Battat is an oddly-written 45-page opinion.  Since there are no facts in dispute, the opinion is divided into the usual Background and Discussion sections.  However, in the Background section, Judge Colvin gives a running commentary on the significance of the recited background and takes issue frequently with the Kuretski opinion on a number of points.  One might normally expect these disagreements to be raised in the Discussion section.  With apologies to Judge Colvin, I will summarize the Battat case in an order that makes more sense to me for a summary.

The Discussion section of Battat begins with Judge Colvin observing that all Tax Court judges are potentially affected by the ruling in the case.  There is a judicial rule of necessity that provides that when all possible judges have a conflict (such as in cases deciding their salary issues), since it is necessary that some judge decide the case, any judge may decide the case.  Therefore, Judge Colvin rules that he may decide the case.  Interestingly, the opinion does not discuss a suggestion by the taxpayers that a district court judge (who would have no conflict) be assigned over to the Tax Court to decide the Battat motion.

In the Discussion part of his opinion, Judge Colvin then notes that the Tax Court is one of those “public rights” courts where all litigation involves suits between citizens and the sovereign. The Supreme Court has held that, since, at common law, such suits need not have been heard by regular court judges, it is acceptable for Congress to assign public rights cases to special tribunals, either to Article I courts or Executive agenciesNorthern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S.50, 67-70 (1982) (involving bankruptcy courts).  Thus, the Tax Court is constitutional.

In the Background section of the opinion, Judge Colvin laid out much of the history of the Tax Court and its judges.  There, Judge Colvin interpreted Freytag v. Commissioner, 501 U.S. 868 (1991), to hold that the Tax Court is not a part of the Executive Branch.  This reading is contrary to the reading of the D.C. Circuit in Kuretski, which held that the Tax Court is still in the Executive Branch, notwithstanding the 1969 amendment to section 7441.  Judge Colvin wrote:

[I]n the 1969 Act Congress deleted the designation of the Tax Court as an “independent agency in the Executive Branch of the Government”. The only amendment needed if Congress had intended to establish the Tax Court as an Article I court located in the executive branch would have been deletion of the words “as an independent agency”. If only those words had been deleted, section 7441 would have said the Tax Court “shall be continued * * * in the Executive Branch of the Government”. But that is not what Congress did. Congress also deleted from section 7441 the words “in the Executive Branch of the Government”. That additional change would have been superfluous if Congress had intended for the Tax Court to remain within the executive branch.

Slip op. at 10.

Judge Colvin also buttressed his holding that the Tax Court was not in the Executive Branch by citing the 2015 amendment to section 7441 and a number of amendments to the Internal Revenue Code since 2006 that align the Tax Court’s functioning more closely with that of Article III courts.

Judge Colvin took issue with the D.C. Circuit in Kuretski’s comparing the Tax Court, for location purposes, to the Article I Court of Appeals for the Armed Forces:

10 U.S.C. sec. 946 (2012) requires judges of the Court of Appeals for the Armed Forces to meet annually with the Judge Advocates General and two members of the public appointed by the Secretary of Defense to “survey the operation” of the military justice system. Edmond [v. United States], 520 U.S. [651] at 664 n.2 [(1997)]. This contrasts with the Tax Court, which “exercises judicial power to the exclusion of any other function”, Freytag v. Commissioner, 501 U.S. at 891, and which has no statutory mandate to survey the operation of the IRS or any of its offices. These statutory differences led the Supreme Court to conclude that the Tax Court is independent of the executive branch and the Court of Military Appeals for the Armed Forces is within the executive branch.

Slip op. at 17 (footnote omitted).

Judge Colvin also took issue with Kuretski’s comparing the Tax Court to other Executive Branch agencies:

[I]ndependent executive branch agencies perform substantial nonadjudicatory functions, e.g., rulemaking, while the Tax Court “exercises judicial power to the exclusion of any other function.” Freytag v. Commissioner, 501 U.S. at 891.

In considering the relationship between independent executive branch agencies and other executive branch agencies, the Court of Appeals in Kuretski v. Commissioner, 755 F.3d at 944, said that Congress may allow independent executive branch agencies “a measure of independence from other executive actors”. Presumably, “a measure of independence” means less than total independence. If the Tax Court were in the executive branch, the relevant “other executive actor” would be the IRS. Surely any taxpayer would find it repugnant if the Tax Court, which by congressional design is the Federal court which decides the most taxpayer disputes with the IRS, has only some nebulous “measure of independence” from the IRS.

Slip op. at 30-31 (footnote omitted).

One gets the impression that the Tax Court was more concerned to issue an opinion declaring its independence from the Executive Branch than worrying about the specific removal power at issue in the case.  But, interestingly, Judge Colvin refuses to hold in which other Branch the Tax Court might be located.  It is unnecessary to his analysis, since all he felt he needed to discuss was case law, like Bowsher v. Synar, 478 U.S. 714 (1986), holding that interbranch removal powers were problematic under the separation of powers.  Once the Tax Court is not located in the Executive Branch, an interbranch removal power is at issue in the case, not the less problematic intrabranch removal power that Kuretski addressed.

Judge Colvin noted that the Supreme Court has held that not all interbranch removal powers are unconstitutional under Bowsher.  Judge Colvin highlighted the opinion in Mistretta v. United States, 488 U.S. 361 (1989).  Mistretta involved the seven-member U.S. Sentencing Commission – the commission that drafts the sentencing guidelines.  Congress placed the Sentencing Commission in Article III and peopled it with at least three Article III judges, the Attorney General, and others appointed by the President.  The President held for cause removal power over its members similar to that in section 7443(f), which meant that he could remove an Article III judge from the Article III Sentencing Commission.  This posed the potential interbranch Bowsher violation.  But, the Supreme Court held there was no violation of the separation of powers because the activities of the Sentencing Commission were not core functions of the Judicial Branch, but rather Executive functions.  Removing a judge from the Commission would not interfere with the judge’s core judicial functions.

In Battat, Judge Colvin extended Mistretta’s teaching as follows:

Presidential authority to remove Tax Court Judges for cause does not violate separation of powers principles. We so conclude because, even though Congress has assigned to the Tax Court a portion of the judicial power of the United States, Freytag v. Commissioner, 501 U.S. at 890, the portion of that power assigned to the Tax Court includes only public law disputes and does not include matters which are reserved by the Constitution to Article III courts.

Slip op. at 43.

Like the D.C. Circuit, the Tax Court in Battat did not discuss at all the fact that Article III judges of the Federal Circuit are permitted to remove for cause Article I Court of Federal Claims judges.  I continue to wonder how two similar Article I courts can have different removal actors in different Branches.

Observations 

I agree heartily with what Judge Colvin says in Battat right up to the point of his discussion of Misretta, but I think his holding extending Mistretta, with all due respect, is not defensible.  Indeed, note that he cites no other court opinion (or even a law review article) to support his holding that removing a Tax Court judge for what is his core function (not a side administrative function, as in Mistretta) is permissible.  I don’t think it logically follows that because the removal power only affects public rights court cases, there is no problem.  That seems to reintroduce the idea (rejected in Freytag) that the Tax Court doesn’t exercise the “real” Judicial Power of the United States, which is held only by Article III judges.  Query:  Under Judge Colvin’s theory, could Congress constitutionally pass a law that says that Article III judges can decide public rights cases, such as tax refund cases, and that the President is free to remove them from those cases for cause?  That would certainly bother me greatly, but would seem allowed under Judge Colvin’s theory.  However, maybe he is right.  Further litigation in the courts of appeals, and possibly, eventually, the Supreme Court, will give the answer.

Note:  The day after the Battat opinion, Judge Jacobs denied similar section 7443(f) motions made by Joe DiRuzzo and his firm in three other of their cases, Elmes v. Commissioner, Docket No. 22003-11; Lewis Teffau v. Commissioner, Docket No. 27904-10; and Linda Teffau v. Commissioner, Docket No. 27905-10.  The Elmes case docket in this note is not the Elmes CDP case docket mentioned above.  Elmes lives in the Eleventh Circuit.  The Teffaus live in the Fourth Circuit.  These cases appear to involve the U.S. taxation of people apparently claiming to be residents of the U.S.V.I., possibly similar to the issues litigated by the firm in the case of Cooper v. Commissioner, T,C, Memo. 2015-72.

Tax Court Holds President’s Removal Power Constitutional, Part I

We welcome back frequent guest blogger, Carl Smith.  When Carl, Frank Agostino, and my Villanova colleague, Tuan Samahon, began making the removal argument in the Kuretski case, I confess I thought it was “Much Ado about Nothing.”  That was before the guilty plea of a Tax Court judge for actions I never expected and before we elected a Chief Executive who likes to take on judges and has a TV show inspired reputation for firing people.  If you want more background on Kuretski, I recommend the recent article published by Tax Court scholar and Washington and Lee Dean, Brant Hellwig, in which Les says Brant basically throws up his hands saying any home is troublesome. 

In communicating with Carl about this case, he told me that the situation reminded him of a famous line from a Broadway musical.  He was reluctant to use the line because he was not sure about being misunderstood if he brought up Nathan Detroit in Guys and Dolls running the “Oldest Established Permanent Floating Crap Game in New York”.  After Judge Colvin in Battat held that the Tax Court isn’t in the Executive Branch, but says he won’t say where it is, Carl allowed me to include the query in the introduction of whether the Tax Court is now running the “Oldest Established Permanent Floating Court in the United States”.  For those of you who are fans of Guys and Dolls or just fans of the Tax Court, here is the latest on where the Tax Court fits into the federal judiciary.  Keith  

In Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), cert. denied, 135 S. Ct. 2309 (2015), the D.C. Circuit held that the Tax Court is an Executive Branch entity, so there is no separation of powers problem in the fact that, under section 7443(f), the President – the head of the Executive Branch – can remove a Tax Court judge on the grounds of “inefficiency, neglect of duty, or malfeasance in office”.  Deciding to face the issue for the first time, last week in Battat v. Commissioner, 148 T.C. No. 2 (Feb. 2, 2017), the Tax Court disagreed with the D.C. Circuit’s reasoning, but came to the same result.  The Tax Court held that it does not reside in the Executive Branch (though the Tax Court wouldn’t say where it did reside).  However, the Tax Court held that, while its judges exercise a portion of the judicial power of the United States; Freytag v. Commissioner, 501 U.S. 868, 890-891 (1991); its judges exercise no portion of the judicial power reserved to Article III judges.  Thus, Presidential removal authority cannot interfere with the Article III judicial power, regardless of the Tax Court’s placement in the Branches of Government.

This Tax Court holding in Battat and similar holdings in other cases brought by the same attorney, Joe DiRuzzo, including Thompson v. Commissioner, 148 T.C. No. 3 (also decided on Feb. 2, 2017), are destined to be appealed to several Circuit courts of appeals other than the D.C. Circuit.  Joe is seeking a split among the Circuits that only the Supreme Court can resolve.

In part one of this two-part post, I provide the taxpayers’ argument and what the D.C. Circuit held in Kuretski.  In the second part of the post, I set out in detail (and comment on) the Tax Court’s reasoning in Battat.

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Warning:  This is a biased post, since I was one of three principal attorneys who brought the constitutional argument initially in Kuretski – the other two attorneys being Professor Tuan Samahon of Villanova (who developed the taxpayers’ argument from a comment of Justice Scalia’s in his Freytag concurrence) and Frank Agostino.  But, I will try to be fair to all sides.  Indeed, even though I disagree with parts of the Battat opinion, I commend Judge Colvin (its author) for doing an excellent and exceedingly fair job of summarizing the Tax Court’s history and the pertinent separation of powers case law.  He presents far more information than was in the D.C. Circuit’s Kuretski opinion or was in the parties’ briefs in Battat.  Indeed, he even, unbidden, went back and read the briefing in Kuretski to determine what in fact had been argued in Kuretski.

There have been, to date, 32 posts on PT that mentioned one aspect or another of the Kuretski case – which must be a record.  However, I won’t refer you back to any, but I will here provide a condensed version of the Kuretski case, both at the Tax Court and the D.C. Circuit. This is necessary to understand how the reasoning in the Battat opinion significantly differs from that of the D.C. Circuit’s opinion in Kuretski.

Separation of Powers Theory

There are at least half a dozen highly-relevant Supreme Court opinions on the separation of powers doctrine, and the Kuretski and Battat opinions discuss them.  However, for this post, I will just point to Bowsher v. Synar, 478 U.S. 714 (1986) (authored by Chief Justice Berger) and Freytag.

The Framers envisioned a government in which three powers – the Legislative Power, the Executive Power, and the Judicial Power – each balanced the other.  As Judge Colvin notes in Battat, the Framers generally spoke about “Powers”, not using the more modern references to three “Branches” of government.  This distinction is important, since Congress sometimes creates entities that hold one or more powers, but which are placed in a Branch that one would not expect.  That’s permissible.  What’s not permissible is for actors holding one power to have control over actors holding another power.  That can upset the separation of the powers.  The powers must stay separated to function properly.

In Bowsher v. Synar, a mid-1980s balanced budget law gave to a Congressional employee, the Comptroller General, certain additional powers to cut expenditures that the Court held were Executive Powers.  Congress, which holds the Legislative Power, had long possessed statutory authority to remove the Comptroller General for cause, including for inefficiency, neglect of duty, and malfeasance in office – the same grounds specified for removal of Tax Court judges in section 7443(f).  The Court held this arrangement unconstitutional as a violation of the separation of powers, since, it observed, a person who is subject to a removal power is likely to act subservient to the actor who has the power to remove him or her.  It is a subtle pressure, one that can upset the balance of the powers.  In Bowsher, Congress (holding the Legislative Power) had removal power over a person in its Branch, but who held a portion of the Executive Power.  In response to the argument that the for-cause limitations were a sufficient check on Congress abusing its power, the Court wrote:  “[T]he dissent’s assessment of the statute fails to recognize the breadth of the grounds for removal. The statute permits removal for ‘inefficiency,’ ‘neglect of duty,’ or ‘malfeasance.’ These terms are very broad and, as interpreted by Congress, could sustain removal of a Comptroller General for any number of actual or perceived transgressions of the legislative will.” 478 U.S. at 729.

In Freytag, the issue was whether Tax Court Special Trial Judges needed to be appointed under the Constitution’s Appointments Clause.  The Supreme Court held that they did, which next raised the question of whether their appointment was consistent with the limitations of the Appointments Clause because Tax Court STJs are appointed by the Chief Judge of the Tax Court.  The Appointments Clause permits Congress to delegate power to appoint such “inferior Officers” only to the President, the “Heads of [Executive] Departments”, or “the Courts of Law”.  Thus, the statutory appointment power would only be valid if the Tax Court Chief Judge was either the head of an Executive Department or acted for one of the Courts of Law.

As originally created, the Board of Tax Appeals was made an “independent agency” in the Executive Branch.  In 1969, however, Congress amended what is now section 7441 to instead provide:  “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.”  Using a largely functional analysis, in Freytag, the Supreme Court held that the Tax Court performs judicial functions to the exclusion of any Legislative or Executive functions, even though the Tax Court is not an Article III court where judges have life tenure.  The Supreme Court rejected the government’s argument that the Tax Court was an Executive Department, but instead found that the Tax Court was one of the Courts of Law.  It wrote:

The Tax Court exercises judicial, rather than executive, legislative, or administrative, power. It was established by Congress to interpret and apply the Internal Revenue Code in disputes between taxpayers and the Government. By resolving these disputes, the court exercises a portion of the judicial power of the United States. . . .

The Tax Court remains independent of the Executive and Legislative Branches. . . .

The Tax Court’s exclusively judicial role distinguishes it from other non-Article III tribunals that perform multiple functions . . . .

501 U.S. 890-892.

In a concurring opinion, Justice Scalia held that the appointment of Special Trial Judges was valid, but only because the Tax Court was still, after 1969, an Executive Department.  He scoffed at the idea that any non-Article III actor could hold any portion of the Judicial Power.  In attacking the majority opinion, he wrote:

When the Tax Court was statutorily denominated an “Article I Court” in 1969, its judges did not magically acquire the judicial power. They still lack life tenure; their salaries may still be diminished; they are still removable by the President for “inefficiency, neglect of duty, or malfeasance in office.” 26 U.S.C. § 7443(f).   (In Bowsher v. Synar, supra, at 729, we held that these latter terms are “very broad” and “could sustain removal . . . for any number of actual or perceived transgressions.”) How anyone with these characteristics can exercise judicial power “independent . . . [of] the Executive Branch” is a complete mystery. It seems to me entirely obvious that the Tax Court, like the Internal Revenue Service, the FCC, and the NLRB, exercises executive power.

501 U.S. at 912 (emphasis in original; some citations omitted).

Kuretski in the Tax Court                                  

Professor Tuan Samahon of Villanova, who is a separation of powers scholar (not a tax professor), noticed Justice Scalia’s comment that the Freytag majority’s holding seemed incompatible with the Presidential removal power over Tax Court judges, and, in 2012, mentioned this issue to me.  Frank Agostino had just lost a Collection Due Process case before Judge Wherry, Kuretski v. Commissioner, T.C. Memo. 2012-262.  Frank was about to file a motion for reconsideration on certain other issues.  I persuaded him to add to that motion a motion to vacate the decision on the ground that the Tax Court was impermissibly and unconstitutionally biased against taxpayers because the judges operated under a removal power subtly pressuring them to rule for the IRS, the President’s instrument.  We moved for the Tax Court to declare the power unconstitutional and inoperative.  We argued that the Tax Court was likely in the Judicial or Legislative Branch, but even if it was in the Executive Branch, since the President held the Executive Power, and the Tax Court held a portion of the Judicial Power, just as in Bowsher (where the Congress and Comptroller General were in the same Branch), the removal power violated Bowsher and could not be rescued by its for cause limitations.

In an unpublished order, Judge Wherry denied both motions.  He thought the motion for reconsideration was just a rehash of arguments that he had already rejected.  With respect to the removal power argument in the motion to vacate, he held that it was raised too late in the case for him to consider it, and, since the argument was that he was biased, he questioned whether he should be the person issuing a ruling on the issue.  That is why Battat is the first opinion of the Tax Court that actually addresses the removal power argument.

Kuretski in the D.C. Circuit

The Kuretskis appealed to the D.C. Circuit.  There, the D.C. Circuit also made quick work of their arguments not involving the removal power.  But, as to the removal power, the court held that it could exercise its discretion to hear separation of powers arguments at any point in a case (as was done in Freytag).  It also held that the taxpayers’ proposed remedy – striking the removal power – was a permissible cure for the problem, if there was a problem.  But, the D.C. Circuit found no constitutional problem.  It did so in a curious way:

First, as noted by Judge Colvin in footnote 29 of Battat, the D.C. Circuit mischaracterized the Kuretskis’ primary argument as being that the Tax Court exercises a portion of the Judicial Power under Article III.  Writes Judge Colvin:  “It is not apparent to us that the taxpayers in that case made that obviously incorrect argument. In fact, in their answering brief at p. 11 the Kuretskis state that they ‘do not challenge the Tax Court Judges’ non-Article III status.’”

Next, the D.C. Circuit rejected the argument that the Tax Court Judges are in the Article III Judicial Branch, observing that Tax Court judges don’t possess life tenure, so can’t be.

Third, the D.C. Circuit rejected an alternative argument made by the Kuretskis that the Tax Court was part of the Legislative Branch.  The D.C. Circuit also correctly observed that the Tax Court does no legislating.  As to the fact that section 7441 purports to establish the Tax Court as a court of record “under Article I,” the D.C. Circuit felt that this was just a statement that the Tax Court was established pursuant to Congress’ Article I powers to lay and collect taxes and make necessary and proper laws for carrying into execution the taxing power.  The D.C. Circuit did not think this meant that the Tax Court was established in the Legislative Branch.

So, by process of elimination, the Tax Court was still an Executive Branch entity (though the Circuit court carefully never called the Tax Court an “agency” anymore).

The D.C. Circuit wrote:  “We need not explore the precise circumstances in which interbranch removal may present a separation-of-powers concern because this case does not involve the prospect of presidential removal of officers in another branch. Rather, the Kuretskis have failed to persuade us that Tax Court judges exercise their authority as part of any branch other than the Executive.”  755 F.3d at 939.

The D.C. Circuit noted that the Supreme Court has stated that Congress may give non-Article III tribunals jurisdiction to hear “public rights” cases – i.e., cases involving disputes between the citizen and sovereign, which did not exist at common law.  The D.C. Circuit saw no problem with the Tax Court sitting in review of other Executive agencies, noting that other Executive agencies do so – like the Merit Systems Protection Board and the Federal Labor Relations Authority.

The D.C. Circuit observed that the Tax Court was like another Article I court, the Court of Appeals for the Armed Forces, which the Supreme Court had held to be in the Executive Branch in Edmond v. United States, 520 U.S. 651 (1997).  The D.C. Circuit failed to discuss the Court of Federal Claims, which, the Kuretskis pointed out, was an Article I court whose judges are removable, for similar causes, by judges of the Article III Court of Appeals for the Federal Circuit, under 28 U.S.C. § 176(a).  The Kuretskis couldn’t see how the Court of Federal Claims should have judicial actors holding a judicial removal power, while the Tax Court should have an Executive actor holding a judicial removal power.  Both can’t be constitutional.

The D.C. Circuit admitted that the Supreme Court’s opinion in Freytag “adds a wrinkle to what would otherwise be a straightforward analysis”; 755 F.3d at 940; but the D.C. Circuit thought the majority opinion in Freytag could be harmonized with the D.C. Circuit’s holding that the Tax Court was still in the Executive Branch:

The Freytag majority rejected the argument that the Tax Court is an executive “Department” for purposes of the Appointments Clause.  But, the majority also made clear that an entity can be a part of the Executive Branch without being an executive “Department.” See id.at 885 (“We cannot accept the Commissioner’s assumption that every part of the Executive Branch is a department, the head of which is eligible to receive the appointment power.”) . . . .

The Freytag majority also observed that the Tax Court “remains independent of the Executive . . . Branch[],” and in that sense exercises something other than “executive” power. 501 U.S. at 891. We understand that statement to describe the Tax Court’s functional independence rather than to speak to its constitutional status. The Supreme Court has used similar language to describe “quasilegislative” and “quasijudicial” agencies such as the Federal Trade Commission, noting that such agencies are “wholly disconnected from the executive department” and that their members must “act in discharge of their duties independently of executive control.”

755 F.3d at 943 (some citations omitted).

A number of independent observers who read the D.C. Circuit’s opinion, however, felt that it essentially adopted the reasoning of Justice Scalia’s Freytag concurrence concerning the location of the Tax Court, not the Freytag majority opinion.

Moreover, the D.C. Circuit wholly failed to discuss the Kuretskis’ further argument that, even if the Tax Court is located in the Executive Branch, Bowsher v. Synar indicates that intrabranch removal powers can be unconstitutional when actors holding one power hold removal power over actors holding a different constitutional power – the situation that would be presented with the President holding the Executive Power and the Tax Court holding a portion of the Judicial Power while being in the Executive Branch.

In the second part of this post, I will explain both Congress’ and Joe DiRuzzo’s responses to the D.C. Circuit’s Kuretski opinion and the Tax Court’s new opinion in Battat, which disagrees with much of the reasoning of the D.C. Circuit in Kuretski.

What is the Meaning of the Affordable Care Act Executive Order

In today’s guest post we welcome back Christine Speidel. Ms. Speidel is an attorney with the Vermont Low Income Taxpayer Clinic and the Office of the Health Care Advocate, both at Vermont Legal Aid. She has a particular interest in health care reform as it affects low-income taxpayers. Christine is the author of the 2016 update of the Affordable Care Act chapter of “Effectively Representing Your Client before the IRS.”  Keith

The 2017 tax filing season is underway, and tax professionals are wondering what effect President Trump’s recent executive orders will have on their clients. At the top of the list is the January 20 order regarding the Affordable Care Act (ACA).

The most frequent and persistent question about the order is whether taxpayers can ignore the shared responsibility provision on their 2016 tax returns. Preparers have also asked whether taxpayers still have to reconcile advance payments of the Premium Tax Credit for 2016.

As others have explained (e.g. Timothy Jost, Nicholas Bagley), the executive order changes nothing right now for taxpayers or health insurance consumers. It does not change taxpayers’ obligations on 2016 tax returns.

It is understandable that people reading the order could misunderstand its effects. The order contains very broad language. It directs federal executive departments and agencies (including HHS, Labor, and the Treasury) to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications” within “the maximum extent permitted by law.” (Sec. 2.) The limiting clause is easy to skim over, but it is crucial.

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The federal Administrative Procedure Act (APA) also limits the executive branch’s ability to quickly change federal regulations implementing the ACA. Indeed, the executive order recognizes that revision of existing regulations promulgated through notice-and-comment rulemaking must comply with the APA. (Sec. 5).

APA-compliant changes in federal rules cannot happen overnight. In implementing the laws passed by Congress, the executive branch may resolve ambiguities and fill in statutory gaps. However, when an agency changes its interpretation of a statute, for the new interpretation to have the force of law the agency must “display awareness that it is changing position and show that there are good reasons for the new policy.” Encino Motorcars v. Navarro, Slip op. at 9 (internal quotation marks omitted). It is easier to change federal agency interpretations that do not have the force of law (see Perez v. Mortgage Bankers), but the deference to be afforded those interpretations is a matter of hot debate and may ultimately depend on the future composition of the Supreme Court.

Some changes in ACA implementation could happen relatively quickly, but to date no concrete changes have been announced by the relevant federal agencies. Current federal law and regulations provide for flexibility and discretion in certain areas. The Department of Health and Human Services (HHS), for example, has discretion to define hardship criteria for exemption from the individual shared responsibly provision. 45 C.F.R. § 155.605(d). HHS could broaden the hardship circumstances it recognizes, within the bounds of the current regulation. HHS has recognized additional hardships several times in the last few years, most recently last August. Also, anecdotal reports indicate that HHS’s view of applications claiming a non-listed hardship circumstance was more favorable in 2016 than it was in 2014. Case by case review is more consistent with the statutory and regulatory language than HHS’s initial, more limited approach. Expanded hardship exemptions can only go so far, though. A hardship exemption that effectively eliminates the penalty would conflict with Section 5000A.

There will certainly be legal debate over how far the Administration can go without a change in the law. The executive branch enjoys broad enforcement discretion, but that discretion is limited by the Constitution’s requirement that the President “take care that the Laws be faithfully executed.” (Art. II Sec. 3) Jonathan Adler’s essay discussing the limits of enforcement discretion is worth reading for those interested in this issue.

The Trump Administration may seek to rely on the Obama Administration’s delayed implementation of several ACA provisions (including the individual and employer mandates) as precedent allowing them to “waive, defer, grant exemptions from, or delay the implementation” of ACA provisions. Even if the Obama Administration’s implementation delays were lawful (which is debatable), it does not logically follow that a new Administration can “defer” or “delay” implementation of a provision three years after its actual implementation. This argument simply does not make sense for the individual shared responsibly provision or for premium tax credits. Not all provisions of the ACA have been fully implemented (such as the Cadillac Tax), and this argument may be more successful in those areas.

Given all the uncertainty, what can tax advisors and preparers do to help their clients?

First, no one should advise or assist a taxpayer to file a false tax return in the hopes that the law will not be enforced or will be changed at some future date. Even preparers who are not subject to Circular 230 face potential criminal charges under Section 7206(2) if they assist in the filing of a false tax return. Unhappy clients can be reminded that Congress passes the laws, and presidential executive orders do not change laws or regulations.

Taxpayers can file an extension if they prefer to wait and see whether Congressional or agency developments will affect their 2016 tax obligations.

Taxpayers who might qualify for a hardship exemption under the language of HHS’s regulation should be encouraged to apply. This is consistent with existing practice by consumer advocates. The regulatory language is broader than the specific hardship circumstances listed in guidance and on the healthcare.gov website. If an application is filed with HHS, a hardship exemption can be listed as “pending” on Form 8965.

The bottom line is that there are changes to come, but so far nothing has changed for tax year 2016 returns.

 

 

Transferee Liability and the Application of Federal versus State Law

We welcome back guest blogger Marilyn Ames.  Marilyn has retired from the Office of Chief Counsel, IRS to the 49th state where she enjoys shoveling snow and other outdoor activities.  She also works with me on the collection chapters of the Saltzman and Book treatise, IRS Practice and Procedure.  Today, she writes about a recent case in which the IRS asserted transferee liability.  Based on the number of transferee cases I am seeing, I believe that the IRS has stepped up activity in this area over the past couple of years.  For those of you interested in transferee liability, Marilyn wrote an earlier post on the subject that you may also want to view.  Keith

In an opinion issued on December 16, 2016, the Seventh Circuit Court of Appeals played Grinch in Eriem Surgical, Inc. v. United States and gifted the Internal Revenue Service and the taxpayer with an opinion calculated to make both unhappy.  The opinion can be found here and at 843 F3d 1160.

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Eriem Surgical purchased the inventory of Micrins Surgical, Inc. when it went out of business in 2009 without paying its taxes.  Eriem also took over Micrins’ office space, hired its employees, used its website and telephone number, and continued Micrins’ business of selling surgical instruments.  Eriem also used the name “Micrins” as a trademark, and Bernard Teiz, the former president of Micrins, continued to play a leading role in Eriem’s business. All of this raised the suspicions of the Internal Revenue Service, although Mr. Teitz attempted to quell those suspicions by having his wife hold the 40% interest in Eriem that he formerly held in Micrins.  But this was not enough, and the Internal Revenue Service concluded that Micrins had simply morphed into Eriem, and levied on Eriem’s bank account and receivables.  Eriem then filed a wrong levy suit under 26 USC §7426(a)(1). The district court applied Illinois state law to determine that Eriem was a successor to Micrins, and as such, was liable for Micrins taxes.  Although Eriem appealed, the United States used this as an opportunity to make an argument that the courts have rejected up to this time.

The courts have long held that whether a third party is liable under some doctrine of transferee liability is dependent on state law. However, for the past few years, the Internal Revenue Service has taken the position that federal common law should govern whether a third party is the alter ego of the taxpayer, arguing that the application of state law leads to different results depending on the law of the applicable state and, consequently, to disparate treatment of taxpayers in essentially the same position. In staking out this position, the IRS has relied in part on United States v. Kimbell Foods, Inc., 440 US 715 (1979) and Drye v. United States, 528 US 49 (1999). The Service’s argument can be found in Chief Counsel Notice 2012-002 (Dec. 2, 2011), which can be located here.  The essence of the Service’s position is that state law should not control in an alter ego dispute, as the question is not one of property rights, but is an issue of the identity of the taxpayer. Since the IRS is ultimately interested in reaching property, not just engaging in identification of the taxpayer, this seems to some extent to be a distinction without a difference – at least without a difference that would matter to the third party/taxpayer.

On appeal, the Seventh Circuit confronted the question of whether state or federal law governed with respect to corporate successorship, and held that since the Internal Revenue Code does not say anything about this issue, “it seems best to apply state law.”  The court held that Kimbell Foods is not dispositive, as the Supreme Court has failed to cite it in later cases for the proposition that federal law controls, and that Drye expressly states that “in tax cases state law determines the taxpayer’s rights in property that the IRS seeks to reach.” Although it is not clear from the opinion if the United States argued that this was really just a case of identity, it’s doubtful that the court would have bought the argument, given that this case was really about the IRS cleaning out Eriem’s bank account.  The Seventh Circuit affirmed the district court’s application of Illinois law, thus ensuring that Mr. Teitz and Eriem were also unhappy with the result.

In an interesting sideshow to the federal/state law question, the Seventh Circuit also rejected Eriem’s argument that the 40% change in ownership had “dispositive significance.” Although Illinois law holds that a complete change of ownership prevents a finding of successorship, the Seventh Circuit affirmed the district court’s conclusion that Mrs. Teitz was serving as a proxy for her husband, and so the purported change in ownership was irrelevant.

Whether the IRS and the Department of Justice will continue to argue that there is a federal common law that should determine when a third party is an alter ego for purposes of tax collection remains to be seen, since it has not been popular with the courts.  In most cases, it doesn’t seem to make a difference to the end result, and may simply be a cut-and-paste argument the government is making to bolster its position.

Tilden v. Comm’r: Seventh Circuit Reverses Tax Court’s Untimely Mailing Ruling

Frequent guest blogger Carl Smith provides a detailed analysis of Friday’s 7th Circuit opinion in the Tilden case.  The opinion discusses two issues: 1) whether the time to file a petition in Tax Court in a deficiency case is jurisdictional and 2) the proper application of the timely mailing regulations.  Carl analyzes both issues in the case.  Keith

I have blogged on this case four times before here, here, here and here.  In my last post, I said I was grabbing a bowl of popcorn to watch how the Seventh Circuit ruled in the appeal of Tilden v. Commissioner, T.C. Memo. 2015-188. In an opinion issued on January 13, the Seventh Circuit again changed course – abandoning the argument two judges on the panel had raised sua sponte at oral argument – that the time period to file a Tax Court deficiency petition might no longer be jurisdictional under current non-tax Supreme Court case law on jurisdiction.  Instead, the court (following decades of Tax Court and Circuit court precedent) continued to hold that the time period to file a deficiency petition is a jurisdictional requirement.

However, the Seventh Circuit reversed the Tax Court’s holding that the envelope containing the petition was not entitled to the benefit of the timely-mailing-is-timely-filing rules of the regulations under section 7502.  In the case, the Tax Court had held that USPS tracking data showed the envelope placed in the mail beyond the last date to file.  The Seventh Circuit criticized the usage of tracking data as evidence of the date of mailing.  Rather, the Circuit court held that the petition had been timely filed under the private postmark provision of the regulations, not a different provision of the regulations on which the Tax Court had relied.

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Tilden Facts

Tilden is a deficiency case.  The envelope containing the petition bore a private postage label from stamps.com, dated the 90th day.  Apparently, the envelope was placed in the mail by an employee of counsel for the taxpayer, and that employee also affixed to the envelope a Form 3800 certified mail receipt (the white form), on which the employee also handwrote the date that was the 90th day.  The Form 3800 did not bear a stamp from a USPS employee.  Nor did the USPS ever affix a postmark to the envelope.

The envelope arrived at the Tax Court from the USPS.  The USPS had handled the envelope as certified mail.  That meant that the USPS internally tracked the envelope under its “Tracking” service.  Plugging the 20-digit number from the Form 3800 into the USPS website yielded Tracking data showing that the envelope was first recorded in the USPS system on the 92nd day.  The envelope arrived at the Tax Court on the 98th day.

In Tilden, the IRS moved to dismiss the case based on the ground that the USPS Tracking data showed the petition was mailed on the 92nd day.

In his objection, the taxpayer disagreed, arguing that this was a situation covered by Reg. 301.7502-1(c)(1)(iii)(B)(1).  That regulation states:

(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–

(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.

The taxpayer argued that the stamps.com mailing label, combined with the Form 3800, was a “postmark” not made by the USPS that legibly showed a date that was the 90th day and that the 8-day period between the 90th day and receipt by the Tax Court was when mail of such class would “ordinarily be received”.  Thus, under the regulation, the petition was timely filed.

In responding to the objection, the IRS changed position and now argued that the taxpayer had the wrong portion of the regulation, and that the relevant portion of the regulation was actually Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(2) Document or payment received late.–If a document or payment described in paragraph (c)(1)(iii)(B)(1) is received after the time when a document or payment so mailed and so postmarked by the U.S. Postal Service would ordinarily be received, the document or payment is treated as having been received at the time when a document or payment so mailed and so postmarked would ordinarily be received if the person who is required to file the document or make the payment establishes–

(i) That it was actually deposited in the U.S. mail before the last collection of mail from the place of deposit that was postmarked (except for the metered mail) by the U.S. Postal Service on or before the last date, or the last day of the period, prescribed for filing the document or making the payment;

(ii) That the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and

(iii) The cause of the delay.

The IRS argued that the petition had arrived beyond the time it would “ordinarily be received”, triggering the taxpayer’s obligation to prove the three conditions of the relevant portion of the regulation – none of which had been proved.

Tilden Tax Court Ruling 

In his opinion, Judge Armen held that both parties had relied on the wrong portions of the regulation.  He believed the relevant portions of the regulation were found at:

(1) Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded, and whether the envelope was mailed in accordance with this paragraph (c)(1)(iii)(B) will be determined solely by applying the rule of paragraph (c)(1)(iii)(A) of this section; and

(2) Reg. 301.7502-1(c)(1)(iii)(A), which provides:

If the postmark does not bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment, the document or payment is considered not to be timely filed or paid, regardless of when the document or payment is deposited in the mail.

Judge Armen admitted that no postmark from the USPS actually appeared on the envelope, but he cited his opinion in Boultbee v. Commissioner, T.C. Memo. 2011-11.  In Boultbee, a deficiency petition was mailed from Canada, but bore no timely postmark from the USPS (only a timely postmark from the Canadian mail service).  Still, the USPS Tracking information showed that the envelope entered the USPS mail stream before the end of the filing period.  The judge held that such tracking information could serve as a postmark of the USPS, making the petition timely mailed.

Relying on Boultbee, he held in Tilden that the envelope was deemed to bear a USPS postmark as of the tracking information date.  Then, relying on the portion of the regulation dealing with a situation where there is both a USPS postmark and a private postmark, he said the USPS postmark (the tracking information date) governed, so the petition was untimely.

Tilden Motion for Reconsideration 

In a motion for reconsideration filed by the taxpayer, the taxpayer, among other things, argued for applying the common law mailbox rule.  The taxpayer reported that the IRS told him that the IRS objected to the granting of the motion for reconsideration.

But, when the IRS actually filed a response to the motion, the IRS changed position again and now did not object to the granting of the motion.  The IRS noted that section 7502 has been held to supersede the common law mailbox rule in most Circuits (with one exception not relevant to this case).  And, in any case, the common law mailbox rule couldn’t apply here where there was actual delivery – and delivery was on a date after the due date.  You still needed section 7502 to make the late envelope timely.

But, the IRS now took the position that the envelope had been received at the limit of, but still within, the time in which the envelope would be expected to “ordinarily be received” if mailed on the 90th day from Utah, where the taxpayer’s attorney’s office was.  In part, the IRS concession was based on the delay to be expected because (as many people forget), since the 2001 anthrax in the mail scare, all mail to the Tax Court gets irradiated.  Thus, the IRS conceded that the taxpayer’s petition was timely under the portion of the regulation on which the taxpayer relied, Reg. 301.7502-1(c)(1)(iii)(B)(1).  The IRS, without mentioning Boultbee, simply told the court that the court had relied on the wrong provisions of the regulation, since there was no actual USPS postmark in this case, just tracking data.

Somewhat incensed that neither party responded to Boultbee — the lynchpin of his prior ruling in Tilden —  Judge Armen denied the motion for reconsideration, telling the parties the truism that the court’s jurisdiction may not be conferred by mere concession by the parties.

Seventh Circuit Oral Argument

At the oral argument in the Seventh Circuit, two judges on the panel, sua sponte, raised a different issue:  Whether the time period in section 6213(a) to file a deficiency petition is still a jurisdictional requirement in light of non-tax Supreme Court case law since 2004 that generally excludes compliance with filing periods from jurisdictional status, unless (1) there is a “clear statement” that Congress wants the particular time period to be jurisdictional or (2) for decades, the Supreme Court in prior rulings has held the particular time period jurisdictional (stare decisis).  Anyone listening to the oral argument (posted on the Seventh Circuit’s website) would tell you that the court was leaning toward holding the time period not jurisdictional and that the IRS had now waived any complaint in the case that the time period (now a mere statute of limitations) had been violated.

But, unbidden, after the oral argument, the parties filed supplemental briefs on this question, with the parties taking opposite views on whether the deficiency filing period is jurisdictional.

Seventh Circuit Holding

Apparently, the panel had second thoughts about what it raised sua sponte.  Instead, it held that the time period in section 6213(a)’s first sentence was a jurisdictional requirement.  After acknowledging that case law cited to it from prior Circuit opinions, including itself, had not discussed the applicability of the current Supreme Court case law on jurisdiction to the Tax Court deficiency filing period, the Seventh Circuit, found three reasons to support its holding:

First, the court implicitly looked to the “clear statement” exception, finding a “magic word” (Slip op. at 5):  There was a reference to “jurisdiction” in a later sentence in section 6213(a) limiting the Tax Court’s power to issue injunctions against premature assessment or collection of the deficiency to when “a timely petition . . . has been filed”.  The Seventh Circuit wrote:  “Tilden does not want either an injunction or a refund; he has yet to pay the assessed deficiencies. But it would be very hard to read §6213(a) as a whole to distinguish these remedies from others, such as ordering the Commissioner to redetermine the deficiency (sic).” Id.  (Comment:  What does the injunctive provision have to do with the first sentence?  Where is the “clear statement” that the first sentence filing period is jurisdictional?  Moreover, “timely” in the injunctive jurisdiction sentence obviously includes filings deemed timely by other Code provisions such as section 7502, 7508 (combat zone extensions), and 7508A (disaster area extensions), so “timely” doesn’t show Congress wanting the 90-day period in the first sentence of section 6213(a) to be rigidly applied.)

Second, the court noted the pre-2004 longstanding holdings of the Tax Court and many Circuits that the time period was jurisdictional (i.e., stare decisis).  “We think that it would be imprudent to reject that body of precedent, which (given John R. Sand & Gravel) places the Tax Court and the Court of Federal Claims, two Article I tribunals, on an equal footing.”  (Slip op. at 6)  In John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008), the Supreme Court had held that, purely on a stare decisis basis, it would not follow its current rules on what is jurisdictional because for over 100 years (in multiple opinions), the Court had held the 6-year time period to file a Court of Federal Claims petition under the Tucker Act (28 U.S.C. section 2501) is jurisdictional.  (Comment:  But, in Henderson v. Shinseki, 562 U.S. 428 (2011), the Supreme Court held that the filing period in the Article I Court of Appeals for Veterans Claims is not jurisdictional.  And, for tax cases, the relevant comparable time period to file a refund suit in the Court of Federal Claims is not 28 U.S.C. section 2501, but I.R.C. section 6532(a); Detroit Trust Co. v. United States, 131 Ct. Cl. 223 (1955); on which the Supreme Court has never made a jurisdictional ruling.  Moreover, the stare decisis exception to the current Supreme Court case law is to a long line of Supreme Court precedents on the particular time period, not to precedents of lower courts, on which the Seventh Circuit was relying.)

Third, the Seventh Circuit accepted the conclusion of the Tax Court that the section 6213(a) time period was jurisdictional in the Tax Court’s recent opinion in Guralnik v. Commissioner, 146 T.C. No. 15 (June 2, 2016), which held that the CDP petition filing period under section 6330(d)(1) is jurisdictional in part because of the Tax Court’s reliance on its precedents that all filing periods in the Tax Court are jurisdictional.  (Comment:  This is pretty circular.  Is this even a separate reason, or just a restatement of the previous stare decisis ground?)

As to the section 7502 issues, the Seventh Circuit said the Tax Court had relied on the wrong provisions of the regulation.  The right provision was the one relied on by the taxpayer and, eventually, the IRS – the rules for private postmarks where there is no USPS postmark.  The Seventh Circuit did not consider tracking data to be a USPS postmark, writing, as well:

“For what it may be worth, we also doubt the Tax Court’s belief that the date an envelope enters the Postal Service’s tracking system is a sure indicator of the date the envelope was placed in the mail. The Postal Service does not say that it enters an item into its tracking system as soon as that item is received . . . .” (Slip op. at 7)

The Seventh Circuit acknowledged that parties are not allowed to collude to give a court jurisdiction that it doesn’t otherwise have, but the appellate court held that there was no apparent collusion in this case, and the Tax Court was bound to accept the IRS’ factual concession (after the motion for reconsideration) that the envelope had been placed timely in the mails (a factual concession that had no evidentiary support, by the way).  (Comment:  This holding is going to shock a lot of Tax Court judges.)

Finally, the Seventh Circuit excoriated the lawyers who failed to put a proper postmark on the envelope:  “Stoel Rives was taking an unnecessary risk with Tilden’s money (and its own, in the malpractice claim sure to follow if we had agreed with the Tax Court) by waiting until the last day and then not getting an official postmark or using a delivery service.”  (Slip op. at 8)

Additional Observations             

The Seventh Circuit’s ruling in Tilden certainly doesn’t help the argument that Keith and I are pursuing in the Circuit courts that the time periods in which to file CDP and innocent spouse petitions in the Tax Court are not jurisdictional.  However, a stare decisis argument is harder as to those two filing periods:  There is only one published opinion of a Circuit court holding that the CDP filing period is jurisdictional (and it did not mention the recent Supreme Court case law on jurisdiction) and there are no opinions of any Circuit courts on whether the innocent spouse filing period is jurisdictional.  Keith and I are not giving up.

Without citing Boultbee, the Seventh Circuit casts doubt on Boutlbee’s reliance on USPS tracking data – at least for purposes of finding the Tax Court lacked jurisdiction.  This alone is a major event.

As pointed out in my prior posts, there are a number of cases in the Tax Court where the proceedings have been stayed pending the Seventh Circuit’s ruling in Tilden.  We can expect some of them to generate opinions soon, including possibly a Tax Court court conference opinion discussing whether or not the Tax Court now agrees with the Seventh Circuit as to which regulation provisions govern and how relevant USPS tracking information is.  Ironically, one of the cases awaiting this ruling is factually identical to Tilden and apparently involves the same law firm making the same postmark mistake (though that case would be appealable to the Eighth Circuit).

Finally, a National Office attorney informed me last month that there is a “reverse Tilden case” pending in the Tax Court – i.e., one where the postmark is untimely (not sure if it is USPS or not), but the tracking data shows the envelope in the USPS mail stream before the end of the filing period.  There’s always something . . . .

Tax Exceptionalism Lives? QinetiQ v. CIR

We welcome back guest blogger Bryan Camp who is the George H. Mahon Professor of Law at Texas Tech.  Professor Camp teaches both tax and administrative law which is why I sought him out for this guest post.  The decision here is important.  The lead attorney for the taxpayer, Jerry Kafka, is one of the best if not the best tax litigators in the country.  Though his client lost this case the arguments made here were not frivolous.  What could have been a game changer had the taxpayer won leaves us in the same posture we were in before the case was brought but with more light shone into the corners of tax and the APA.  Keith

Keith emailed me last week and asked if I would care to blog about a recent 4th Cir. opinion affirming a Tax Court decision that upheld a proposed deficiency in the taxes of QinetiQ US Holdings (Q).  (for previous PT posts on QinetiQ see here, here and here).It seems that Q took a big §83(h) deduction.  On audit, the Service disallowed the deduction and sent Q a Notice of Deficiency (NOD).  In court, Q argued that the NOD violated the Administrative Procedure Act (APA) because the NOD gave no explanation for the disallowance and, oh, by the way, the §83 deduction was proper.  The Tax Court rejected both arguments.  The 4th Cir. affirmed.

Maybe the §83 issue is interesting.  If so, I’m sure the Surly Subgroup will blog it.  To me, however, what makes this 4th Cir. opinion worthy of a shout out is its discussion about the relationship of the Administrative Procedure Act (APA) to tax procedure.  Ever since the Supremes decided Mayo Foundation in 2011, it seems everybody and their little dogs have been declaring that something called “tax exceptionalism” is dead.  The Fourth Circuit’s opinion gives a more nuanced take, one that is worth blogging about for three reasons.  First, it represents a new front on the “tax exceptionalism” debate.  Second, the Circuit’s opinion makes a critically important point about the relationship of the APA to tax procedure.  Third the opinion could affect court review of other types of IRS determinations, such as CDP determinations.

I will consider each of these points in turn.

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  1. A New Front on Tax Exceptionalism Debate

QinectiQ represents a new front in the ongoing debate over the proper relationship of the APA to tax practice and procedure.  Up to now, the debate has been chiefly about tax regulations and tax guidance.  That’s the Mayo case and other cases where taxpayers have sought to challenge the procedure by which Treasury and the IRS have issued regulatory and similar guidance.  This case involves the proper application of the APA to a very different type of agency action: an agency determination.  The APA has some general standards that courts are supposed to use in reviewing agency determinations in particular cases, also known as “agency adjudications.”

Professor Steve Johnson at Florida State has written extensively and lucidly about the tax exceptionalism debate.  In this short Florida Bar Review article from 2014 he encouraged tax practitioners to consider challenging NOD’s under an APA standard.  Apparently the lawyers for Q read his article!

The APA is found at 5 U.S.C. Subchapter II.   Section 706 says that courts should review agency adjudications to be sure they were not made arbitrarily.  To do that, the court needs to see what the agency’s rationale was for its decision.  So over time the Supreme Court has developed the requirement that “an agency provide reasoned explanation for its action.” FCC v. Fox Television, 556 U.S. 502, 515 (2009).

In QinectiQ, the taxpayer argued that the NOD failed the APA §706 standard.  The NOD said only that Q had additional taxable income of “$177,777,501” because Q had “not established that [it was] entitled” to a deduction “under the provisions of [26 U.S.C. §83].” The NOD gave zero explanation for why the Service was disallowing the deduction.  The failure to articulate a rational explanation for its disallowance decision meant that a review court had no way to police the NOD for arbitrariness.

In a short unpublished order, the Tax Court refused to apply the APA standard and held that the NOD was instead subject to the standard provided for in §7522(a). The taxpayer’s argument to the Fourth Circuit was essentially that §7522 and the APA standards were cumulative, not exclusive.

The Fourth Circuit affirmed the Tax Court.  It believed the taxpayer’s attempt to apply the APA standard “fails to consider the unique system of judicial review provided by the Internal Revenue Code for adjudication of the merits of a Notice of Deficiency.” (p. 9 of slip opinion).

The Fourth Circuit thought two features of tax administration made the APA standard inapplicable.  First, “because the Code’s provisions for de novo review in the tax court permit consideration of new evidence and new issues not presented at the agency level, those provisions are incompatible with the limited judicial review of final agency actions allowed under the APA.” (p. 10-11 of slip opinion).  Second, the Tax Code’s provisions for judicial review of NOD’s pre-dated the APA.  “Congress did not intend for the APA ‘to duplicate the previously established special statutory procedures relating to specific agencies.’” (p. 12 of slip opinion, quoting Bowen v. Massachusetts, 487 U.S. 879, 903 (1988)).

The Fourth Circuit’s consideration of these two features of tax administration is the more nuanced understanding that I think is worth commenting on.

  1. The Proper Relationship of the APA to Tax Administration

The nuance is this: the APA is not sui generis.  That is, the APA was enacted on top of existing agency practices and procedures.  One simply cannot pretend that the APA was enacted in a vacuum!  That’s the point I try to make about tax regulations in my article “A History of Tax Regulation Prior the Administrative Procedure Act,” 63 Duke L. J. 1673 (2014)

The APA was enacted on the basis of a massive, massive, study of federal agencies and their operations undertaken by the Attorney General’s Committee on Administrative Law (“the Committee”).  The Committee’s Final Report is generally believed to be the most important influence on the text and application of the APA.

The Final Report grew out of a detailed study of then-existing agencies, a study contained in 27 Monographs written by staff, each running hundreds of pages.  (Monograph 22 focused on the tax administration).  At its inception, the Committee “had initially hoped to be able to suggest uniform rules for agency practice” (quote from Grisinger Law in Action: The Attorney General’s Committee on Administrative Procedure, 20 J. of Policy History 379 (2008)).  In light of the information produced in the 27 monographs, however, the Final Report backed away considerably from that aspiration and instead prescribed a general framework for balancing the goals of agency efficiency and autonomy with the goals of agency transparency and protection of individuals from arbitrary agency actions. That is why the resulting APA was widely understood as standing for the proposition that “procedural uniformity was not well suited to the administrative process.” (Grisinger at 402; one sees the same theme in almost all the contemporary commentaries and reviews of the Final Report).  That is, the APA provided generalized standards for controlling administrative actions rather than detailed prescriptions. This conventional view is elegantly summed up by Professors Hickman and Pierce: “the Administrative Procedure Act is to administrative law what the Constitution is to constitutional law.” Kristin E. Hickman, Richard J. Pierce, Jr., Federal Administrative Law:  Cases and Materials, (Foundation Press, 2010) at 19.

What this means is that while the APA does apply to all agencies, including the IRS, it does not apply in the exact same way to all agencies.  Every agency is “exceptional” in that every agency faces a different set of operational demands and requirements and organic statutory provisions.  All of those variables must be reconciled to the general language of the APA and it should not surprise anyone that different reconciliations lead to different applications of the APA principles to different agencies.   That is why the Supreme Court, in Bowen, said “When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend that general grant of jurisdiction to duplicate the previously established special statutory procedures relating to specific agencies.” 847 U.S. 879 at 903.

Put another way, the debate is not “whether” the APA applies, it’s “how” the APA applies.  It is not so much whether the NOD review procedure “comply with” the APA as it is whether the procedures are “consistent with” the APA.  Does the APA displace or otherwise affect otherwise applicable rules that govern what goes into the NOD and how the Tax Court reviews it?

That is what the Fourth Circuit recognizes in QinetiQ.  The Tax Code’s specific statutory review structure makes the APA review standard inapplicable, for both historical and operational reasons.  The historical reason is what I said above: the specific statutory structure for court review of NOD’s pre-dates the APA and the APA was not written to displace prior law.  The operational reason is that taxpayers have the burden to prove entitlement for deductions and have every opportunity to do so in a de novo Tax Court review.  That de novo nature of review is what makes the current practice acceptable.  For example, if the IRS rejects a claimed deduction, tax law does not put the burden on the IRS to prove up the rejection.  The burden remains on the taxpayer to prove up the entitlement, only now in front of the Tax Court (or district court if the taxpayer chooses to pay the deficiency and then go for a refund).  It is the Tax Court’s job to determine or re-determine the taxpayer’s proper tax liability.  That’s why it can either increase the proposed deficiency (§6214(a)) or actually order a refund (§6512(b)).

The Tax Court has recognized these points as well.  It has a nice discussion of this kind of “tax exceptionalism” in Ax v. CIR, 146 T.C. No. 10 (2016) (which Les has previously blogged here and which Professors Stephanie Hoffer and Chris Walker give some very thoughtful comments here). In Ax, the taxpayer objected to the Service raising a new issue before the Tax Court, even though the Service acknowledged it bore the burden of proof.  Like the taxpayer in QinetiQ, the taxpayer in Ax argued that because “the Supreme Court rejected the concept of ‘tax exceptionalism,’ the Administrative Procedure Act and [case law] bar Respondent from raising new grounds to support his final agency action beyond those grounds originally stated in the notice of final agency action” (e.g. the NOD).  The Tax Court’s rejection of that position is worth reading.

III.  The Door Is Still Open: Implications of QinetiQ on Other IRS “NODs”

Have you ever noticed how you need an NOD to get Tax Court review?  I don’t just mean the “Notice of Deficiency.”  I also mean the “Notice of Determination” from a CDP hearing.  That’s a ticket to the Tax Court, too.  But, sorry, a “Determination Letter” is not a ticket.  Likewise, if a taxpayer petitions for “stand alone” spousal relief per §6105(f), the eventual “Notice of Determination” issued by IRS or Appeals is the ticket for Tax Court review (of course, §6105(e) also permits a taxpayer to seek judicial review in cases where the Service has not acted within 6 months of the initial request for spousal relief).

The point is that the Tax Court reviews agency decisions other than deficiency determinations.   QinectiQ deals with only ONE kind of IRS determination (although by far the most frequent).  The inimitable Steve Johnson gives an excellent and in-depth treatment of the variety of ways that the APA §706 might be applicable to a variety of IRS determinations in his Duke L. Rev. article “Reasoned Explanation and IRS Adjudication,” 63 Duke L. J. 1771.

The Fourth Circuit’s rationale for not applying the ABA §706 standard of review in QinectiQ actually suggests the ABA standard may be applicable to court review of some of these other IRS determinations.  One sees this in the opinion’s discussion of Fisher v. Commissioner, 45 F.3d 396 (10th Cir. 1995).  In Fisher, the 10th Circuit held an NOD invalid because the NOD implicitly denied, without explanation, a taxpayer’s request for penalty abatement.  Since the Service has the discretion to grant or deny such requests, the 10th Circuit thought that the failure to explain why the Service was exercising its discretion to deny the relief violated “an elementary principal of administrative law that an administrative agency must provide reasons for its decisions.”  45 F.3d at 397.  Unexplained exercise of discretion is per se arbitrary, says Fisher.

The Fourth Circuit could have just disagreed with Fisher.  The IRS issued a well-reasoned AOD that explained why Fisher was wrong.  AOD-1996-08, 1996 WL 390087.  But the Fourth Circuit instead chose to distinguish Fisher, saying in footnote 6: “we do not read Fisher…as requiring a reasoned explanation in all Notices of Deficiency.”  Hmmmm.  Does that suggest that in situations where the Service is exercising discretion—like refusing to grant a request for spousal relief, or refusing to accept a collection alternative offered in a CDP hearing—that one of those decisions would be subject to the APA §706 standard, even when the Tax Code has very detailed special statutory procedures?  After all, both the CDP provisions and spousal relief provisions were added by Congress after the APA.

Let’s look at CDP procedures.  Currently the Tax Court’s approach to CDP review is both (a) abuse of discretion and (b) de novo.  That’s not quite square with how the APA contemplates the relationship of a reviewing court to agency decisions.  Here’s how the Court explained it in a recent CDP case, Drilling v. Commissioner, T.C. Memo 2016-103:

the standard of review employed by the Tax Court is abuse of discretion, except with respect to the existence or amount of the underlying tax liability, for which the standard of review is de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). The evidentiary scope of review employed by the Tax Court is de novo. Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev’d, 439 F.3d 455, 459-462 (8th Cir. 2006). That means that the Court’s review is not confined to evidence in the administrative record. See Speltz v. Commissioner, 124 T.C. 165, 177 (2005) (citing Robinette v. Commissioner, 123 T.C. at 94-104), aff’d, 454 F.3d 782 (8th Cir. 2006). If the Court remands a case to the Appeals Office, the further hearing is a supplement to the original hearing, not a new hearing, Kelby v. Commissioner, 130 T.C. 79, 86 (2008), but the position of the Appeals Office that the Court reviews is the position taken in the supplemental determination, id.

Notice that this means if the taxpayer wants to present new information, the Tax Court has the option of hearing that new evidence itself or sending the case to the Appeals Office for a “supplemental” hearing.  See e.g. Drake v. Commissioner, T.C. Memo 2006–151, aff’d 511 F.3d 65 (1st Cir. 2007) (“The resulting section 6330 hearing on remand provides the parties with the opportunity to complete the initial section 6330 hearing while preserving the taxpayer’s right to receive judicial review of the ultimate administrative determination.”)

The Tax Court’s practice of allowing new information is IMHO a perfectly reasonable procedure and it reflects the ongoing nature of both CDP and 6015(f) determinations.  Each of those determinations can be affected by facts that change at any time.  But it is arguably NOT the procedure contemplated by the APA.  Notably, the APA contemplates that the record, once made, is unalterable.  And the danger of allowing an open record is that the Tax Court becomes mired “with tax enforcement details that Congress intended to leave with the IRS.” Robinette v. Commissioner, 439 F.3d 455, 459 (8th Cir. 2006) aff’ing in part 123 TC 85.

Both the CDP and the spousal relief review provisions were added by Congress long after the APA’s enactment.  Perhaps the flip side of pre-existing administrative schemes not being displaced by the APA is that post-APA statutory provisions do not exclude application of APA §706 but incorporate that standard (unless of course Congress says the provisions are to be exclusive).  Of course, the operational reasons for concluding that the §706 standard has been trumped by the specific CDP provisions may remain.

Those of us who study this stuff are not in agreement.  For Les’ take, see here; for Stephanie Hoffer and Chris Walker’s take, see here.  As Keith points out, the CDP procedures have astonishingly large gaps in them.  But IMHO the APA does not mandate a uniform set of rules for the Tax Court to deal with those gaps.  Like the U.S. Constitution, the APA simply provides the touchstone by which to measure any rules or procedures that the Tax Court or IRS come up with in implementing CDP.   Claiming that a procedure violates §706 is like claiming one process or another violates “due process.”  You first have to figure out what process is “due” before you can find a violation.

In sum, I believe the Fourth Circuit’s opinion in QinetiQ leaves open the door to argue that for non-deficiency determinations, APA §706 has greater applicability than for standard Tax Court review of deficiency notices.  Personally, I think that (1) the specificity of the both the CDP and innocent spouse provisions, and (2) the specific relationship that the Tax Court has in supervising so many aspects of tax administration still trump the general provisions in the APA.  But those two reasons for treating current procedure as may not be as applicable to other types of determinations, such as §6672 decisions, or penalty abatement decisions, or other “discretionary” decisions that are not clearly covered by specific Tax Code provisions.

 

Limerick in Celebration of Helvering’s Birthday – January 10th

By Farley P. Katz

There once was a guy named Helvering

Who cared about one little thing

That thing was the tax

And here are the facts

It works but it feels like a sting

 

 

A special thanks to Rachael Rubenstein of Strasburger (and former PT guest poster) for sharing the above limerick authored by her co-worker Farley P. Katz, who has been celebrating the birthday of former Commissioner of Internal Revenue Guy T. Helvering for decades in unique ways.

Storm at SEC Over Appointments Clause Violations Concerning Its ALJs and Possible Implications at to Circular 230 ALJs, Part IV

Frequent guest blogger Carl Smith brings us up to date with what has been happening in the litigation concerning administrative law judges (ALJs) and whether their selection meets the requirements of the Appointments Clause of the Constitution.  Although tax practitioners do not routinely encounter ALJs in their practice and probably hope never to encounter them because such encounters usually occur in disciplinary proceedings, these decisions do have meaning in the tax area and deserve attention.  Keith

In three prior posts beginning in September 2015, which can be found here, here, and here, I have reported on challenges brought under the Constitution’s Appointments Clause to SEC ALJs.  This is to report that on December 27, in a case named Bandimere v. SEC, a divided panel of the Tenth Circuit held that SEC ALJs are inferior officers who need to be (but are not currently) appointed under the Constitution’s Appointments Clause.  This creates a direct Circuit split with the D.C. Circuit, which held last August that SEC ALJs are not inferior officers needing appointment.  Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283-89 (D.C. Cir. 2016).  Thus, the issue of which, if any, of the nearly 2,000 federal government ALJs need to be appointed under the Appointments Clause appears headed to the Supreme Court.

The IRS uses ALJs to hold hearings on Circular 230 violations.  Anyone representing a person in such a Circular 230 proceeding should probably forthwith do some discovery to get into the record how, if at all, those ALJs were appointed or hired.  The resolution of the issue for SEC ALJs may dictate a similar resolution for IRS ALJs, though, in my second post, I explained why there might be some differences.

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Dodd-Frank created the system of having SEC ALJs decide many SEC sanctions cases in the first instance, rather than having the SEC sue in the district courts to impose sanctions.  If an SEC ALJ’s ruling is appealed to the full SEC, the full SEC reviews the ALJ de novo, though giving some deference to the ALJ on factual findings.   Review of the SEC’s rulings can be had directly in the Circuit courts of appeals.

In my first two posts, I reported that in the summer of 2015, two district courts held the ALJs to be inferior officers of the United States who need to be appointed under the Appointments Clause.  The SEC concedes that its judges were not so appointed.

Much of the time between my first two posts and my third post was taken up by Circuit court opinions holding that district courts in these and in other collateral proceedings lacked jurisdiction to decide the constitutional issue.  Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016); Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016); Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015). (Hill was issued two days after my last post.)

But, in August of 2016 (also after my last post), the D.C. Circuit, in a case on direct review of an SEC order affirming the sanctions imposed by an SEC ALJ, held that under the Supreme Court’s “significant authority” standard used in Freytag v. Commissioner, 501 U.S. 868 (1991), SEC ALJs were not inferior officers because they could not render final decisions in their cases.  Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283-89 (D.C. Cir. 2016).  In Freytag, the Supreme Court held that Tax Court Special Trial Judges (STJs) were inferior officers exercising significant authority on behalf of the United States because of the many judge-like powers they possessed, including their wide discretion to issue rulings.

The Freytag opinion was admittedly less than clear in whether, to be an inferior officer, a person needed the ability to render final decisions binding the government.  In 2000, a divided panel of the D.C. Circuit in Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), had held that FDIC ALJs did not need to be appointed – based on the panel’s interpretation of Freytag to require final decision-making authority in a person to render that person an officer of the United States.

In an opinion issued by a divided panel of the Tenth Circuit on December 27, in Bandimere v. SEC, the Tenth Circuit rejected Landry’s holding and held that Freytag did not require that inferior officers need the power to render final decisions.  Rather, the Bandimere majority said that, in Freytag, the Supreme Court discussed the finality of STJ rulings under what is now section 7443A(b)(7) only in response to a government concession – and not as part of the Supreme Court’s actual holding in the case.  (I agree.)  Thus, while having the ability to enter final, binding orders was one factor that could lead to a finding that a person was an officer, it was not a “but for” requirement, according to Bandimere.  And, in any event, even though the SEC had the authority to do de novo review, Bandimere pointed out that in about 90% of cases either there was no SEC review of the ALJ or the SEC review resulted in upholding the ALJ verbatim, so it is really the ALJ who effectively binds the government in the vast majority of SEC cases.  Further, even the de novo review of the ALJ that the SEC gives is one in which the SEC in fact gives deferential review of facts found by the ALJ.  This is similar to the deferential review on factual issues of STJs by Tax Court judges.

The dissenting judge in Bandimere worried that the ruling of the majority would lead to all ALJs in the federal government needing to be appointed.  This particularly would affect the Social Security Administration, where over 1,500 such ALJs are located.  (The SEC only has 5 ALJs at present.)  I am not so sure other ALJs lack proper appointment under the Appointments Clause.  5 USC § 3105 authorizes agencies to appoint ALJs.  Systems of hiring or appointment may vary by agency.  Moreover, I don’t think the result worried about by the dissent would surprise the Supreme Court.  Even Justice Scalia, in his Freytag concurrence (joined by three other Justices), noted:  “Today, the Federal Government has a corps of administrative law judges numbering more than 1,000, whose principal statutory function is the conduct of adjudication under the Administrative Procedure Act (APA), see 5 U.S.C. §§ 554, 3105. They are all executive officers.”  Freytag, 501 U.S. at 910 (emphasis in original).

Observations

While the holding of Bandimere primarily impacts, for tax practitioners, only the IRS ALJs who try Circular 230 violations, the Tax Court’s ruling in Tucker v. Commissioner, 135 T.C. 114 (2010), affd. 676 F.3d 1129 (D.C. Cir. 2012) (in which I represented the taxpayer), is now called somewhat into question.  In Tucker, the Tax Court refused to hold that the IRS Settlement Officers and their Appeals Team Managers who hold CDP hearings and render determinations therein were individuals needing to be appointed under the Appointments Clause.  The Tax Court’s reasoning, in part, was that these IRS employees do not render final rulings, but Landry v. FDIC held that the ability to enter final orders was a necessary requirement for a person to be an inferior officer.  See 135 T.C. at 162-165.  “Since we find persuasive the reasoning of the Court of Appeals for the District of Columbia Circuit in its determination that ALJs for the FDIC do not exercise ‘significant authority’, we hold that the lesser position of CDP ‘appeals officer’ (‘or employee’) within the Office of Appeals likewise does not exercise ‘significant authority’”.  Id. at 165.

In the D.C. Circuit’s affirmance of the Tucker opinion, however, the D.C. Circuit disagreed with the Tax Court and held that such Appeals personnel did have final authority, just that the authority was on issues (1) not of constitutional significance (collection) or (2) where their discretion was too circumscribed by IRS Counsel’s potential involvement (liability determinations).  “[W]e conclude that the lack of discretion is determinative, offsetting the effective finality of Appeals employees’ decisions within the executive branch.”  676 F.3d at 1134.

The Supreme Court denied cert. in Tucker, and no taxpayer has again made the same argument that I made therein.  But, the intrepid pro se taxpayer Ronald Byers has a CDP case in the Tax Court (not the same one that he took to the D.C. Circuit), in which he tells me that he plans to raise the same Appointments Clause argument that I raised in Tucker with respect to CDP Appeals Office personnel.  He will appeal this case to the Eight Circuit (where he lives).  He may try to create a Circuit split.  He may get the Tax Court to address the effect of Bandimere on his argument, as well.