What is the Tax Court? Does it reside in the judicial branch? Might it qualify as an executive agency? Isn’t this issue resolved?
The issue of the proper locus of the Tax Court has rattled around for a few decades now. The most recent case making a serious effort to resolve the issue was Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), where the D.C. Circuit had held that the President’s power to remove Tax Court judges at section 7443(f) did not violate the separation of powers. Carl wrote a post when the Supreme Court declined cert. Bryan Camp wrote a post reacting to the initial legislation proposed after the decision in Kuretski. As Bryan pointed out the D.C. Circuit decided in Kuretski that the Tax Court “had to be “located” within the Executive branch.” Almost three decades ago, the Supreme Court in Freytag held that the Tax Court performs a judicial function.
While the uncertainty of the nature of the Tax Court within our constitutional system of three branches of government may leave academics uncomfortable, for most people life goes on and the Tax Court continues to adjudicate tax disputes between taxpayers and the IRS. It seemed the debate over the status of the Tax Court, which you can read about in more detail in the posts linked here, had fizzled; however, embers from the debate still glow.
read more...Kuretski was a Collection Due Process case where Frank Agostino was pro bono counsel. Kuretski is one of many interesting cases Frank has picked up at a New York calendar call over the years. Eventually, Tuan Samahon, my then colleague at Villanova Law School and constitutional law scholar, and Carl Smith entered appearances in the Tax Court case and argued that the President’s removal power over Tax Court judges at section 7433(f) violates the separation of powers and so should be stricken.
Even though the Kuretskis lived in Staten Island, an appeal of the Tax Court’s adverse decision on separation of powers issue was taken to the D.C. Circuit. At the time, section 7482(b)(1) provided no specific venue rule for CDP cases. This allowed an appeal in Kuretski to the D.C. Circuit under the default language at the end of that paragraph. Ultimately, the D.C. Circuit held that there was no interbranch removal power problem because the Tax Court (supposedly per Freytag) is an Executive Agency. As an executive agency, the President should have the constitutional power to remove Tax Court judges. While that decision satisfied constitutional muster in preserving the Presidential removal power of IRC 7433(f), the Tax Court judges may not have appreciated finding that they were an executive agency rather than a court. The Supreme Court in Freytag gave them a more comfortable landing place (but for the issue of separation of powers).
Two legislative developments happened as a result of Kuretski: First, Congress amended section 7441 (effective Dec. 18, 2015) to add the following sentence to section 7441: “The Tax Court is not an agency of, and shall be independent of the executive branch of the Government.” Second, Congress amended section 7482(b)(1) to add a new subparagraph (G) that directed appeals in all CDP cases to the Circuit of residence. This new venue rule applied to all Tax Court CDP petitions filed after Dec. 31, 2017. So, even though the statutory challenge in Kuretski may have seemed like one that only academics would follow, it had real consequences.
It seemed that the legislation and the Kuretski decision may have provided the end of the story, but it has not. Enter Florida attorney Joe DiRuzzo who had a number of Tax Court cases in which he wished to get rulings to overturn Kuretski.
He moved to recuse the judges in all Tax Court cases because of the constitutional issue. In Battat v. Commissioner, 148 T.C. 32 (one of Joe’s cases), the Tax Court issued an opinion holding that, despite the amendment to section 7441, there was no constitutional problem in the removal power. The case goes into the history of the Tax Court and the factors necessary for removal of a Tax Court judge from a case. For that reason alone, the decision provides an interesting read. You can find our prior posts on Battat here.
However, in Battat, the Tax Court also held that it was not an executive agency — disagreeing with the D.C. Circuit in Kuretski. The Tax Court refused to state in which branch of government it lay. The removal argument actually does not depend on whether the Tax Court is in any particular branch, since, in Freytag, the Supreme Court held that the Tax Court exercises a portion of the judicial power. The real problem is interpower removal, not interbranch removal.
Joe tried to appeal the holding of Battat to an appellate court, but the appellate court wouldn’t hear the case yet because the appeal was interlocutory. No final decision had been entered by the Tax Court in the case. Joe got similar rulings from the Tax Court in unpublished orders in several other cases of his, which he also tried to appeal to other Circuits. However, every Circuit refused to hear the issue on an interlocutory basis. One of the cases in which Joe tried an appeal was Crim (Tax Court docket no. 1638-15). This Crim case was a CDP case that the Tax Court had actually dismissed for lack of jurisdiction — a final ruling. Joe appealed this Crim ruling to the 9th Cir. It affirmed that the Tax Court lacked jurisdiction, so it declined to rule on the recusal issue. See this ruling in Crim here.
There was a second Crim Tax Court CDP case in which Joe had also made a recusal motion. The case was filed in the Tax Court in 2017 (Docket No. 16574-17L). So, Joe could appeal it to D.C., which he did. On April 21, 2022, in the D.C. Cir. Joe filed his opening brief and the joint appendix (copies attached here and here). Joe is making the removal power argument, asking for the D.C. Circuit to overrule its Kuretski holding.
Maybe no one cares or maybe this will lead to more interesting discussions about the Tax Court or other matters. As Carl mentioned in his post about the many people who made a difference leading up to the Boechler decision, it was Joe who took on the appeal of the Myers whistleblower case pro bono which created the conflict that was instrumental in persuading the Supreme Court to accept the Boechler case. Who knows where Joe’s appeal of Crim may lead?
Thanks for reopening this topic, Keith. It’s stunning to think about how long the structural questions about the U.S. Tax Court have existed without any real resolution.
I care a lot about this issue. As you know, I’ve written a lot on this topic, including a short piece precisely on the question of which branch the Tax Court is in: “When the Bough Breaks: The U.S. Tax Court’s Branch Difficulties,” 34 ABA Tax Section NewsQuarterly 10 (Winter 2015), https://ssrn.com/abstract=2558187. And back in 2008, I wrote a law review article about all the problems this confusion creates: “Tax Appeal: A Proposal to Make the U.S. Tax Court More Judicial,” 85 Wash. U. L. Rev. 1195 (2008), https://ssrn.com/abstract=1021357.
In case anyone is interested, I also covered some connected issues in “(Un)Appealing Deference to the Tax Court,” 63 Duke L.J. 1835 (2014), https://ssrn.com/abstract=2436033; “Restructuring the U.S. Tax Court: A Reply to Stephanie Hoffer & Christopher Walker’s The Death of Tax Court Exceptionalism,” 99 Minn. L. Rev. Headnotes 1 (2014), https://ssrn.com/abstract=2498520; and “Increasing Transparency in the U.S. Tax Court,” Law360 (Dec. 4, 2018), https://ssrn.com/abstract=3304121.
The DOJ obtained an extension of time to file its responsive brief in Crim (D.C. Docket No. 21-1260). That brief is now due June 22. It will be interesting to see where the DOJ tries to situate the Tax Court and how the DOJ responds to the argument that the problem here is not interbranch removal power, but interpower removal power. In Bowsher v. Synar, 478 U.S. 714 (1986), Congress had enacted a budget law that allowed its employee, the Comptroller General, to designate items to be stricken from spending. Congress had a removal power over the Comptroller General that was phrased similarly to section 7433(f) and which the Court thought was hardly a limit at all on removal. The Court held that, in his powers under the statute, the Comptroller General had been delegated Executive powers. The Court held that it was impermissible for Congress to hold a removal power over the Comptroller General (its own employee) because he now exercised a portion of the Executive Power. I don’t think the Tax Court or the D.C. Cir. have ever properly applied Bowsher to section 7433(f). The President exercises Executive Power, and Freytag says the Tax Court exercises a portion of the Judicial Power (wherever the Tax Court is located). That should be enough to hold that the President can’t remove a Tax Court judge essentially at will.
If the Tax Court is part of the judiciary, then it is notable that the judges do not serve lifetime appointments (but then again, neither do Magistrate Judges in the Federal district courts).
Oh, well, at least the Congress was spared the trouble of impeaching Diane Kroupa.
The U.S. Court of Appeals for the Fifth Circuit has bucked 88 years of precedent in holding that the Securities and Exchange Commission cannot use administrative law judges in securities fraud cases because it violates the Seventh Amendment right to a jury trial.