We welcome back guest blogger, Ben Chanenson, who writes again on the location of the Tax Court within our system of government. As I mentioned when he wrote his first guest post in March, Ben has his hand in almost every blog post. He is my wonderful research assistant and has almost finished his first year at the University of Chicago Law School. Keith
As the great Yogi Berra once said, “it’s tough to make predictions, especially about the future.” Perhaps a qualifier should be added to this “Yogi-ism”: except on Procedurally Taxing. Eight years ago, Professor Bryan Camp predicted that the congressional amendment to 26 U.S.C § 7441 clarifying that the “Tax Court is not an agency of, and shall be independent of, the executive branch of the Government” would not change anything. This month, Professor Camp’s prediction was confirmed in Crim v. Comm’r of Internal Revenue, No. 21-1260 (D.C. Cir. May 2, 2023).
There were two issues in Crim. First, whether the “presidential power to remove Tax Court judges, 26 U.S.C. § 7443(f), violates the separation of powers.” Second, whether “assessment of Section 6700 penalties [are] time-barred by 26 U.S.C. § 6501(a) or by 28 U.S.C. § 2462.” Judge Rogers, writing for herself and Judge Wilkins, held that the answer to both questions is no. In his dissent, Judge Walker argued that the answers should have been no and yes, respectively.
Separation of Powers
Put simply, Crim argued that the President’s power to remove Tax Court judges constitutes impermissible interbranch removal because the Tax Court is not in the executive branch.
The Tax Court’s location has been a subject of debate and we have discussed the debate previously. On one side is the D.C. Circuit, which held in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014) that the Tax Court is an independent executive branch agency. On the other side are Congress and the Tax Court, who both believe that the Tax Court is not in the executive branch but decline to say what branch the court calls home. In Crim, the D.C. Circuit sided with the D.C. Circuit.
Of course, this result is unsurprising given that Kuretski is binding precedent in the D.C. Circuit. Like its sister circuits, the D.C. Circuit follows the law of the circuit doctrine and will not overturn its precedent outside of an en banc proceeding. See Davis v. Peerless Ins. Co., 255 F.2d 534, 536 (D.C. Cir. 1958) (“This division of the court is not free to overrule so recent a decision as that in the Barnard case, for only by action of the entire court, sitting en banc, will such a step be taken.”)
The majority’s analysis of the separation of powers issue is only two paragraphs and does not engage with the reasoning in Battat v. Commissioner, 148 T.C. 32 (2017). After rehashing Kuretski, Judge Rodgers writes:
In 2015, Congress amended Section 7441 to provide that “[t]he Tax Court is not an agency of[] and shall be independent of, the executive branch of the Government.” Consolidated Appropriations Act, Pub. L. No. 114-113, § 441, 129 Stat. 2242, 3126 (2015). Of course, the Supreme Court has cautioned that “congressional pronouncements are not dispositive” of the status of a “governmental entity for purposes of separation of powers analysis under the Constitution.” Dep’t of Transp. v. Ass’n of Am. R.R., 575 U.S. 43, 51 (2015). Here Congress sought only to “ensure that there is no appearance of institutional bias” when the Tax Court adjudicates disputes between the IRS and taxpayers. S. Rep. No. 114-14, at 10. Crim has not demonstrated that congressional action has undermined the separation of powers analysis adopted in Kuretski.
In his dissent, Judge Walker devotes four paragraphs to the issue and concludes that the Tax Court is in the executive branch. In order to change that reality, Judge Walker writes that Congress “must do more than simply tell the judiciary that the Tax Court is outside the executive branch.” Instead, Congress must “alter the court’s substantive features by amending, for instance, the powers it exercises and who controls it.” Finally, Judge Walker notes that he expresses “no opinion about whether tax judges’ removal protection is constitutional.”
Statute of Limitations
The majority “join[s] the Second, Fifth, and Eighth Circuits in holding that Section 6501(a) is inapplicable to assessment of Section 6700 penalties” and concludes that “the statute of limitations is triggered only when a ‘return [i]s filed.’” The majority explains that:
Section 6700 penalties are assessed against individuals who represent, with reason to know such representation is false, that there will be a tax benefit for participating in or purchasing an interest in an arrangement the individual assisted in organizing. 26 U.S.C. § 6700(a). The conduct penalizable “do[es] not pertain to any particular tax return or tax year.” Sage, 908 F.2d at 24. Instead liability turns on the promoter’s activities or gross income derived by the promoter, not on whether a promoter’s client decides to claim such benefit on a tax return. See id. Were Section 6501(a) applicable to Section 6700 penalties, the limitations period on assessment would begin to run in view of factors unrelated to the source and scope of penalty liability.
The dissent responds:
True, the limitations clock for tax assessments starts to run “after [a tax] return [is] filed,” and tax-shelter-promotion penalties may be levied even if no tax return is ever filed. 26 U.S.C. § 6501(a). But that proves only that in some tax-shelter-promotion penalty cases, the statute of limitations never starts running because no return ever triggers it. It does not prove that the statute of limitations does not apply at all. For example, a statute of limitations applies to fraud, but it is not triggered “until after . . . discover[y] . . . [of] the alleged deception.” Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946).
For the IRS’s theory to persuade, it would have to be true that no tax return could ever trigger the statute of limitations for assessments in a tax-shelter-promotion case. But that is not self-evident. Why couldn’t the statute of limitations be triggered by a return filed by a tax shelter’s client? Oral Arg. Tr. 9-10 (giving hypotheticals). Other statutes of limitations in the tax code are triggered when returns are filed by someone other than the penalized person. See, e.g., 26 U.S.C. § 6696 (setting out the statute of limitations for tax-preparer penalties).
Instead of determining that “no return can ever trigger § 6501(a)’s statute of limitations in a tax-shelter-promotion case,” Judge Walker “would let the Tax Court determine, on a case-by-case basis, whether a tax return has triggered the limitations clock.”
Conclusion
Ultimately, Crim v. Comm’r of Internal Revenue did not break any new ground. Nevertheless, the majority and dissent’s analysis of the separation of powers issue raises new questions. The majority concluded that “Congress sought only to ‘ensure that there is no appearance of institutional bias’ when the Tax Court adjudicates disputes between the IRS and taxpayers.” But was that really Congress’ objective? I doubt Congress thinks that the average taxpayer reads 26 U.S.C § 7441, but admittedly the average taxpayer probably also does not read about Kuretski.
Moreover, the dissent concluded that to change the Tax Court’s location, Congress has to “alter the court’s substantive features by amending, for instance, the powers it exercises and who controls it.” This seems like a daunting task. Would any substantive alternations be sufficient for the judiciary and consistent with Congress’ vision for the Tax Court?
Inspired by Professor Camp’s accurate prediction, I predict this will not be the end of the debate over the proper location of the Tax Court.