Another Tax Court Case Arguing Against the President’s Power to Remove Tax Court Judges

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Carl Smith rings in the new year on PT and provides an update on post-Kuretski litigation. He also takes us through the winding path of appellate venue issues. Les

In Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), the D.C. Circuit ruled that the President’s power to remove a Tax Court judge under section 7443(f) did not violate the separation of powers.  The court reasoned that the Tax Court was an executive agency, so there was no impermissible difference in Branch between the person holding the removal power and the person potentially to be removed. In Kuretski, the Tax Court, in an unpublished order, had declined to rule on the constitutional issue — citing the lateness of the taxpayers’ raising the argument (in a motion to vacate) and the potential conflict of a judge who was under the power ruling on the validity of the power.  A petition for certiorari is pending in Kuretski.  But, that has not stopped another attorney from filing another motion in another Tax Court case raising the same constitutional issue — apparently to get a ruling out of the Tax Court and to create a Circuit split (on the reasonable assumption that the Supreme Court does not grant certiorari in Kuretski without a Circuit split).  The attorney is Joseph A. DiRuzzo, III of Fuerst Ittleman David & Joseph, PL in Miami.  The Tax Court case in which he filed the motion on December 19 is Elmes v. Commissioner, Docket no. 24872-14L  (the Elmes motion can be found here).

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I am one of the 10 counsel for the taxpayers in the Kuretski case, and I can say that none of us had any foreknowledge of, or participation in, the Elmes case filing.  However, after Mr. DiRuzzo filed his motion, he sent us a copy, and I have since spoken to him.

Mr. DiRuzzo’s motion has taken one reason cited by the Tax Court in Kuretski for avoiding ruling on the constitutional issue off the table.  The Elmes motion was filed only one day after the IRS filed its answer in the case.  Thus, the motion cannot be avoided on the ground it was filed too late.  The motion is styled “Motion to Disqualify & Motion to Declare 26 U.S.C. § 7443(f) Unconstitutional”.

But, Mr. DiRuzzo has picked an unusual case in which to make the constitutional motion.  Elmes is a Collection Due Process case in which there is no challenge to the underlying liability.  This brings up the issue of the Golsen rule in the Tax Court, under which the Tax Court follows the precedent, if any, of the Court of Appeals to which a case is appealable.  In prior blog posts Tax Court dodges CDP record ruling and Byers v Comm’r CDP Venue in Courts of Appeal May Be Upended, I noted the difference between the Tax Court and three different Circuits (the 1st, 8th, and 9th) over whether a taxpayer in a Tax Court CDP proceeding may create a de novo record or is limited to the administrative record created at Appeals.  The Tax Court holds that a de novo record can be created, while those three Circuits (the only ones to date to have considered the issue) have held that taxpayers are limited to the administrative record.  On the undiscussed assumption that all Tax Court CDP cases are appealable to the Circuit of residence under section 7482(b)(1)(A) (involving petitions for “redetermination of tax liability”), the Tax Court has held that, under Golsen, for petitioners living in the 1st, 8th, and 9th Circuits, the Tax Court must limit its proceedings to the administrative record, but not for petitioners living in the rest of the country.  In Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), the D.C. Circuit held that only it is the proper venue on appeal from the Tax Court for CDP cases that do not involve a challenge to the underlying liability.  The D.C. Circuit reasoned that it was the proper venue under the catchall flush language at the end of section 7482(b)(1) directing all appeals not covered by any subparagraphs to D.C. The D.C. Circuit found that the exception at subparagraph (A) does not apply because a CDP case that presents no challenge to underlying liability only involves collection issues, not any “redetermination of tax liability”.

The Tax Court has not directly addressed whether it will follow Byers for purposes of its Golsen analysis — particularly with regard to the record rule issue discussed in the prior paragraph.  If the Tax Court in Elmes adopt Byers‘ CDP venue holding, then the Tax Court would hold that, since the D.C. Circuit currently has no opinion addressing the record rule issue, Golsen allows the Tax Court to follow its own precedent countrywide — and would allow de novo Tax Court record creation for all petitioners throughout the U.S.  This would likely effectively render as moot the 1st, 8th, and 9th Circuit contrary rulings that taxpayers are limited to the administrative record.  Clearly, the government does not want to give up those hard-won Circuit court victories, as the IRS is still in Tax Court current cases urging the Tax Court to follow the three Circuit courts and not permit the taxpayer to supplement the administrative record in Tax Court CDP proceedings countrywide.

The Elmes motion, in effect, invites the Tax Court and the IRS to weigh in on the Byers venue issue.  It would be natural for the IRS to argue in Elmes that the Elmes case is not appealable to the 11th Circuit (where the taxpayer lives), but, following Byers, is appealable only to the D.C. Circuit, which Circuit has already ruled adversely on the constitutional issue in Kuretski.  But, if the IRS wins this argument, the IRS will have a hard time urging the Tax Court in future cases to ignore the Byers venue ruling when the issue in the case is expanding on the CDP administrative record.  Mr. DiRuzzo has put the IRS in a tough spot. Indeed, it is a double tough spot:  In response to Mr. DiRuzzo’s motion, does the IRS really want also to argue to the Tax Court judges that they are merely employees of an administrative agency and not real judges?  Notably, during the Freytag litigation concerning the appointment of Special Trial Judges, the IRS argued to the Tax Court and the 5th Circuit that the Tax Court was one of the “Courts of Law” — a position abandoned by the DOJ in the Second Circuit and the Supreme Court, where the government argued that the Tax Court was an executive agency.  See First Western Government Securities, Inc. v. Commissioner, 94 T.C. 549, 559-560 (1990), affd. sub nom. Samuels, Kramer & Co. v. Commissioner, 930 F.2d 975 (2d Cir. 1991); Freytag v. Commissioner, 501 U.S. 868, 888 n. 5 (1991) (noting the government’s shift in position).  And in response to the motion to vacate filed in Kuretski, the IRS declined to make any argument as to the constitutionality of section 7443(f) or whether the Tax Court was a court or an agency — contending only that the Kuretskis lacked standing to challenge the provision.  Perhaps the IRS did not wish to have to argue to the Tax Court the position ultimately adopted by the D.C. Circuit in the case that the Tax Court is an executive agency

Let’s imagine next what happens in Elmes, say, if the Tax Court adopts Byers and says it need not decide its own position on the removal power issue because it is compelled under Golsen to rule the removal power valid under the D.C. Circuit’s opinion in Kuretski.  Recall that it will be Mr. DiRuzzo arguing to the Tax Court that the 11th Circuit is the correct venue on appeal.  His client will not be precluded from filing a notice of appeal in the 11th Circuit.  The DOJ would then likely move to transfer the case to the D.C. Circuit, citing Byers.  But, the 11th Circuit is not bound by Byers.  The 11th Circuit may conclude that Byers is wrong about appellate venue, and then the 11th Circuit could move on to decide the constitutional question — possibly finding the removal power unconstitutional and thereby creating a Circuit split with the D.C. Circuit in Kuretski.

Let’s spin out one of many other possible outcomes:  Imagine the Tax Court does not agree with Byers or Kuretski and rules that since the 11th Circuit is the proper appellate venue, and, since the 11th Circuit has no precedent on section 7443(f), Golsen doesn’t dictate the Tax Court’s result in Elmes.  Then, imagine that the Tax Court proceeds to hold in Elmes that it exercises the judicial power and is not an executive agency, such that the removal power is unconstitutional.  I would expect the DOJ then to appeal the holding to the D.C. Circuit, which will be very annoyed that the Tax Court ignored both Byers and Kuretski.  The D.C. Circuit will not entertain any motion to transfer the case to the 11th Circuit and will summarily overrule the Tax Court based on its Kuretski opinion.

There are still more permutations as to how the Elmes case can come out on the constitutional issue.  For one, remember that Elmes is seeking an interlocutory ruling that is not instantly appealable — though the Tax Court has the power to authorize an interlocutory appeal under section 7482(a)(2).  What if the Tax Court does not authorize an interlocutory appeal, holds the removal power unconstitutional, and holds that the IRS did not abuse its discretion in upholding the proposed collection action underlying the case?  Will the DOJ appeal its constitutional loss to the D.C. Circuit while the taxpayer appeals his underlying loss to the 11th Circuit?  Will there be a rush to appeal and then motions filed to transfer both appeals to the other Circuit?

Next, what if the Tax Court in Elmes once again declines to issue a ruling on the constitutional issue, as it did in Kuretski — citing a conflict of any of its judges in ruling on the removal power issue?  Certainly, that would not preclude a court of appeals ruling on the issue if one of the parties appealed.  See the Kuretski D.C. Circuit opinion as an example of considering the important constitutional issue for the first time on appeal.  Accord the Supreme Court’s Freytag opinion (501 U.S. 868 (1991)), which is the basis for much of the 7443(f) fight.  It is not clear which court of appeals would rule here (the D.C. Circuit or the 11th Circuit), since both parties may at this point have sought a ruling from the Tax Court on the constitutional issue, and both parties may file notices of appeal complaining that the Tax Court did not rule..

While Elmes may be a good case to trigger a possible Tax Court ruling on the venue issue presented in Byers, as can be seen from the above, it is not the best litigating vehicle for creating a Circuit split on the removal power issue.  But, I am informed that there are lawyers who are counsel in simple deficiency cases who are considering making their own constitutional motions concerning section 7443(f).  If they do make timely motions in those deficiency cases, there will be no question but that those cases would have appellate venue in a Circuit of residence.  So, if certiorari is denied in Kuretski, I think you will see other attempts to create a Circuit split on this removal power issue that are far simpler and direct. Stay tuned.

Final observation:  To my surprise, pro se taxpayers have already started using the D.C. Circuit’s CDP venue holding in Byers themselves in cases involving other issues.  I am aware of two such cases, and there may be more.

First, on December 8, notices of appeal to the D.C. Circuit were filed in Onyango v. Commissioner, 142 T.C. No. 24 (6/24/14), D.C. Docket nos. 14-1280 & 14-1288.  Mr. Onyango lives in the 7th Circuit.  His case was blogged about by Keith here, and it involves whether Mr. Onyango may challenge the underlying liability when he did not bother to pick up his certified mail that contained a notice of deficiency (the Tax Court held “no”).  In Byers, the D.C. Circuit suggested in dicta that a CDP case involving the underlying liability should be brought in the Circuit of residence.  I expect the DOJ to move to transfer his case to the 7th Circuit, and we will see if the Byers dicta becomes a holding in Onyango.  Parenthetically, Mr. Onyango knows Mr. Byers, who has passed on to me a request for amicus assistance to Mr. Onyango from anyone who feels the Tax Court holding that he received a notice of deficiency is too restrictive.  Please contact me if you are interested — especially a Tax Clinic.

Second, there was an unpublished CDP order granting summary judgment in a Tax Court case named Greenberg v. Commissioner, Tax Court Docket No. 9023-13L.  See here for the order.  The Greenbergs live in California, yet on December 10, they appealed their Tax Court loss to the D.C. Circuit. (D.C. Circuit Docket no. 14-1278).  Their case involved solely the issue of whether the IRS should not have filed a notice of federal tax lien (or should have withdrawn it) around the time they entered into an installment agreement.  Under Byers, their case will clearly stay in D.C., as it involves no challenge to the underlying liability.

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 was Acting Director from January to June 2019.

Comments

  1. In this new year, Carl Smith has hit the ground running with his excellent post. Any news that the IRS is in a “double tough spot” grabs my attention.

    Initially, the D.C. Circuit’s Byers opinion on venue should apply to all CDP appeals. CDP cases never involve a “redetermination of tax liability.” Indeed, the IRS has already entered an assessment, and is seeking to collect on that assessment, because the petitioner’s time to seek a “redetermination” has expired.

    With regard to Golsen, the Tax Court should use Elmes to recognize Byers and thereby free us from the 1st, 8th and 9th Circuits’ record rule restrictions. Yes, that means the Tax Court must then follow Kuretski. But I’d rather trade the presidential removal issue for a record rule abandonment. Besides, as Carl points out, other avenues exist for us to reargue presidential removal.

    I give Mr. DiRuzzo much credit for creating the IRS’s double tough spot. And thank you, Carl, for alerting us to his work in Elmes.

    As for Mr. Onyango…let’s go all in. The Tax Court’s CDP opinion there is absurd. Essentially, it holds “you must pick up your U.S. Mail at all times in case the IRS ever determines to send you a notice of deficiency.” But that holding reads out of the CDP laws the tax liability challenge provision “if the person did not receive any statutory notice of deficiency.”

    • Carl Smith says

      JT,

      I agree with you that it would make more sense to treat all CDP cases alike to reduce confusion about which is the appropriate Circuit. That’s what both the DOJ, Mr. Byers, and I all argued to the D.C. Cir. I was disappointed to see the Circuit draw the distinction it did between different types of CDP cases.

      If you want to assist Mr. Onyango as an amicus, please contact me at csmith@yu.edu, and I will put you in touch (thourhg Mr. Byers). I would prefer the word “receive” to mean actual, not constructive, receipt, but I recognize that the courts may be uncomfortable with that definition. Clearly, though, Congress used “receive” to reach a different result from the mailing to the last known address language in 6212.

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