IRS Argues That Tax Court Is Located in the Executive Branch

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Carl Smith brings readers up to date on some of the consequences of last year’s Kuretski case. Les

In a prior post, I noted that the issue raised in Kuretski v. Commissioner, 755 F.3d 529 (D.C. Cir. 2014), was not going to go away, even if the Supreme Court declined to grant cert. in that case (as it did on May 18).  The issue in Kuretski was whether the President’s power to remove Tax Court judges for cause under section 7443(f) violated the Constitution’s separation-of-powers doctrine. In Kuretski, the D.C. Circuit held that there was no impermissible inter-branch removal power because the Tax Court was an agency or Article I court located in the Executive Branch with the President.

In order to try to create a Circuit split, lawyers from Fuesrt Ittleman David & Joseph, PL in Miami filed identical motions in seven Tax Court dockets over the last few months asking the Tax Court to declare section 7443(f) unconstitutional for the same reasons articulated by the taxpayers in Kuretski.  For a copy of one such motion, see here.  The motions also sought recusal of all Tax Court judges until the constitutional issue was clarified.  Although Kuretski began as a Tax Court case, the Tax Court decided not to rule on the constitutional issue there, holding that the taxpayers had raised the issue too late.  Accordingly, to date, the Tax Court has not yet stated its views on section 7443(f)’s constitutionality.  Notably, in the Tax Court in Kuretski, the IRS refused to discuss the constitutionality of section 7443(f), as well — instead arguing that the taxpayers raised the argument too late, lacked standing to raise the argument, had waived the argument by filing in the Tax Court, and were making an argument that the courts could not redress.

The IRS was under orders in three of the Fuerst Ittleman cases to file a response to the taxpayers’ motions by an extended due date of May 8.  On June 2, the IRS lodged responses, along with motions for leave to file out of time, which were granted.  This post reports what positions the IRS took in its identical responses. In a nutshell, the IRS has finally argued to the Tax Court that the Tax Court is an Article I court located within the Executive Branch — consistent with the conclusion of the D.C. Circuit in Kuretski (though carefully not ever calling the Tax Court an “agency” in its papers).

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I won’t use this post to rehash the pros and cons of the various arguments that the IRS made.  But, I did want to note a few things different from Kuretski.  In Kuretski, the D.C. Circuit rejected DOJ’s arguments that the taxpayers (1) raised the constitutional issue too late, (2) lacked standing to raise the argument, and (3) had waived the argument by filing in the Tax Court. Because they are deficiency cases, the Battat and  Meggs cases will be appealable to the Eleventh Circuit. The Elmes case will also be appealable to the Eleventh Circuit, unless, applying Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), the  Elmes case (a CDP case not involving underlying liability) is held to be appealable solely to the D.C. Circuit.  Although at least Battat and Meggs will go to a Circuit that has not yet ruled on the constitutional issue, the IRS has not made any of these procedural arguments against the Tax Court reaching the merits of the constitutional issue. This makes it far more likely that the Tax Court will reach the constitutional issue this time, as the D.C. Circuit did in Kuretski.

Indeed, the IRS in the current cases has taken the exact opposite position of one of its prior procedural arguments.  In Kuretski, the IRS and DOJ argued that if section 7443(f) was unconstitutional, then the entire Tax Court would have to go out of business. This argument was made as part of the claim that any constitutional problem was not judicially redressable.  In the three current cases, the IRS instead argues that the relief requested by the taxpayers — recusal of all Tax Court judges — is not the appropriate relief if section 7443(f) is unconstitutional, but rather severing that provision would be appropriate — the position taken by the D.C. Circuit in Kuretski in rejecting the argument that any constitutional violation was not judicially redressable.

Thus, even though the IRS didn’t need to (because at least two of these cases are going to a Circuit other than D.C.), the IRS has adopted every holding of the D.C. Circuit in Kuretski — whether the holding was for or against the government’s position there.

In its responses in Elmes, Battat, and Meggs, the IRS has finally argued that the Tax Court is an Article I court located within the Executive Branch — consistent with the conclusion of the D.C. Circuit in Kuretski.  The IRS responses making this argument are largely cut and pasted from the D.C. Circuit’s reasoning in Kuretski. However, the IRS is more careful than the D.C. Circuit never to call the Tax Court an “agency” in the Executive Branch (apparently realizing that such a label might sound insulting to the judges).

The IRS does address one additional argument:  In Kuretski, the D.C. Circuit opinion mysteriously did not address the argument (presented in the taxpayers’ opening brief) that, even if the Tax Court was located in the Executive Branch, there could be a separation of powers problem where an intra-branch removal power involved an actor holding one power (the executive power) who was able to remove an actor holding a different power (the judicial power).  The Kuretskis and Fuerst Ittleman noted that in Bowsher v. Synar, 478 U.S. 714 (1986), the Supreme Court found unconstitutional Congress’ removal power over the Comptroller General (an actor also within the Legislative Branch) because, by legislation, Congress had also conferred on him some executive powers. The argument is that the doctrine is one of separation of powers, not separation of branches. Sometimes, parts of one branch hold powers normally held by other branches. I am unpersuaded, though, that such cases can be distinguished — particularly on the grounds argued by the IRS.

The IRS, in its response in Elmes, did not take the bait offered by Fuerst Ittlemen to argue that the Tax Court should, under the CDP venue holding in Byers, hold that the Elmes case is appealable to the D.C. Circuit, so, under the Golsen rule, the Tax Court is required to follow  Kuretski in that case.  The Elmes response cites neither Byers nor Golsen.

This has prompted Fuerst Ittlemen to try to force the IRS and the Tax Court to take positions on the proper venue on appeal for the Elmes CDP case. On June 3, the taxpayer’s lawyers filed a motion “to establish appellate venue” in Elmes, asking the Tax Court to decide, before anything else, where the case will go on appeal for purposes of Golsen. In the motion, the taxpayer notes his contention that the case should be appealed to his Circuit of residence, the Eleventh, though, under the Byers opinion, appeal should go to the D.C. Circuit. The motion notes that it is normal for the Tax Court to state the place of appeal for purposes of Golsen’s application and that the Tax Court in Murphy v. Commissioner, 125 T.C. 301, 313 n.6 (2005), aff’d on other issues 469 F.3d 27 (1st Cir. 2006), and many later cases has held that under Golsen, CDP appeals all go to the Circuit of residence. To date, the Tax Court has studiously avoided addressing the argument, first made and accepted by the D.C. Circuit in Byers, that CDP cases that do not involve challenges to the underlying liability are not ones for “redetermination of tax liability” within the meaning of section 7482(b)(1)(A), so, by default, are appealable to the D.C. Circuit. The most recent instance of the Tax Court ignoring Byers for Golsen purposes occurred on June 9 in an order in Wolkenbrod v. Commissioner, Docket No. 23767-13L. Perhaps the Tax Court is hoping that Byers will be overruled by statute before the Tax Court has to address this issue. S. 903 (awaiting Senate floor action) contains a provision to amend section 7482(b)(1) to add a new subparagraph specifically directing all CDP appeals to the Circuit of residence, though only with a prospective effective date for petitions filed after the date of enactment. It is assumed that the Tax Court itself asked for this legislation, though I oppose it because, as I have blogged before, if Byers is accepted as correct, then the Tax Court, for people living countrywide, will not limit evidence at CDP trials in the Tax Court to the administrative record. The Elmes motion notes the effect of Byers on the record rule in CDP cases. Will the IRS argue for Byers governing venue on appeal for purposes of Elmes being bound by Kuretski, when the acceptance of such an argument will kill the IRS’ ability to limit to the administrative record CDP cases for residents of three Circuits?

We will keep readers posted of further important developments in these section 7443(f) cases.  Stay tuned.

Carlton Smith About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he will be Acting Director from January to June 2019.

Comments

  1. allen madison says:

    Does the newly enacted last sentence in section 7441 make this all moot?

    Section 7441 — “There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. . . . The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”

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