This Article is adapted from a lecture delivered on May 31, 1990, before the Claims Court Section of the Federal Circuit Judicial Conference

Ginsberg, Martin D.

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The Catholic University of America Columbus School of Law

Catholic University Law Review Volume 40 Issue 3 Spring 1991 Article 10 1991 The Federal Courts Study Committee on Claims Court Tax Jurisdiction Martin D. Ginsberg Follow this and additional works at: https://scholarship.law.edu/lawreview Recommended Citation Martin D. Ginsberg, The Federal Courts Study Committee on Claims Court Tax Jurisdiction, 40 Cath. U. L. Rev. 631 (1991). Available at: https://scholarship.law.edu/lawreview/vol40/iss3/10 This Comments is brought to you for free and open access by CUA Law Scholarship Repository. It has been accepted for inclusion in Catholic University Law Review by an authorized editor of CUA Law Scholarship Repository. For more information, please contact edinger@law.edu. COMMENTARIESTHE FEDERAL COURTS STUDY COMMITTEEON CLAIMS COURT TAX JURISDICTIONMartin D. Ginsburg*The April 2, 1990, report of the Federal Courts Study Committee' (Com-mittee) announced:Congress should rationalize the structure of federal tax adjudica-tion by (1) creating an Article III appellate division of the UnitedStates Tax Court with exclusive jurisdiction over appeals in federalincome, estate, and gift tax cases and (2) restricting initial tax liti-gation to the trial division of the Tax Court (staffed by the currentarticle I judges).2* Professor of Law, Georgetown University Law Center. This Article is adapted from alecture delivered on May 31, 1990, before the Claims Court Section of the Federal CircuitJudicial Conference. Footnotes were added where the Law Review editors and staff deemedthem essential. Copyright © 1991 Martin D. Ginsburg.1. Congress created the Federal Courts Study Committee in 1988 to "make a completestudy of the courts of the United States and of the several States and transmit a report to thePresident, the Chief Justice of the United States, the Congress, the Judicial Conference of theUnited States, the Conference of Chief Justices, and the State Justice Institute." FederalCourts Study Act, Pub. L. No. 100-702, § 105, 102 Stat. 4642, 4645 (1988). Congress directedthe Committee to:(1) examine problems and issues currently facing the courts of the United States;(2) develop a long-range plan for the future of the Federal judiciary, includingas-.sm- involvinw=-(A) alternative methods of dispute resolution;(B) the structure and administration of the Federal court system;(C) methods of resolving intracircuit and intercircuit conflicts in the courts ofappeals; and(D) the types of disputes resolved by the Federal courts; ....Id at § 102(b), 102 Stat. at 4644. Chief Justice Rehnquist appointed the Committee partici-pants, who were "members of the federal executive, legislative and judicial branches and repre-sentatives from state governments, universities and private practice." JUDICIAL CONFERENCEOF THE UNITED STATES, REPORT OF THE FEDERAL COURTS STUDY COMMITrEE 31 (Apr. 2,1990) [hereinafter FEDERAL COURTS REPORT].2. FEDERAL COURTS REPORT, supra note 1, at 69. Under the proposed adjudicationstructure, the Trial Division of the United States Tax Court would have exclusive jurisdictionover all tax litigation not reserved for the federal district courts. Id. at 69-7 1. Claimants in thetrial division would have an appeal as of right to the Appellate Division of the United StatesCatholic University Law ReviewFederal district courts would "retain jurisdiction over criminal tax cases,enforcement actions to fix jeopardy assessments, and actions to enforce fed-eral tax liens," according to the Committee's proposed adjudication struc-ture. As the proposal currently stands, appeals from district courtdeterminations would be taken of right to the twelve regional courts of ap-peals. The United States Supreme Court would retain discretionary review,the familiar certiorari procedure, over both those regional courts of appealsand over the new article III appellate division of the United States TaxCourt, which one might call the United States Court of Tax Appeals.4The Claims Court and the Federal Circuit would no longer play in thegame. Indeed, the Committee urges the retirement of the Claims Court andthe Federal Circuit from tax matters even if district court jurisdiction is notcircumscribed: "Should Congress elect not to adopt this recommendation infull, we recommend that it establish the Article III appellate division in theTax Court, with exclusive appellate tax jurisdiction, but provide taxpayerstwo fora for initial tax litigation: the Tax Court and the federal districtcourt."5Under current law, when disputing with her government, the taxpayermay elect not to pay the asserted deficiency, and by that refusal gains accessto the United States Tax Court.6 Alternatively, if she pays up front, claims arefund, and does not promptly get it, she has a choice. She can sue theUnited States in her home district court, claiming a jury if she wishes, or inthe Claims Court.7 The Committee gently terms this system of tax adjudica-tion "a crazy quilt,"' and threw in "irrational" 9 as well. Lawyers, Mr.Buchwald would remind us, have an addiction to steamy rhetoric.A strong endorsement of continued tax jurisdiction in the Claims Courtwas tendered to the Committee on January 31, 1990.10 In it, the proposal todivest the Claims Court of tax refund jurisdiction was condemned, surelymore in sorrow than in anger, as "shortsighted and unsound."11 The dispas-Tax Court. IM United States Supreme Court review of appellate division decisions wouldremain discretionary. Id.3. Id. at 70.4. Id.5. Id.6. 26 U.S.C. § 6213 (1988).7. 28 U.S.C. § 1346 (1988).8. FEDERAL COURTS REPORT, supra note 1, at 21.9. Id. at 69.10. Statement of Chief Judge Loren A. Smith, United States Claims Court, Before theFederal Courts Study Committee (Jan. 31, 1990) [hereinafter Smith Statement].11. Id at 1, 6.[Vol. 40:631Commentarysionate author of the piece was United States Claims Court Chief JudgeLoren A. Smith.As one would expect, Chief Judge Smith wrote with both style and convic-tion, and perhaps with a touch of humor as well, in pointing out various taxissues in which the United States Supreme Court agreed with the ClaimsCourt and disagreed with other tribunals. 2 Chief Judge Smith selected adisproportionate number of cases in which the Federal Circuit had reversedthe Claims Court, only to be reversed in turn by the high court. 13 One won-ders with some delight if Chief Judge Smith looks toward a world in whichthe Claims Court retains, while the Federal Circuit loses, jurisdiction overtax cases.Chief Judge Smith is not blind to the forum shopping concern.' 4 Never-theless, he deftly stakes out a rather different position and among otherthings argues that, in the current system of tax adjudication, the ClaimsCourt checks and balances the other first instance fora, the Tax Court andthe district courts, while the Federal Circuit provides a nationwide view-point additional to, and at times opposite to, the precedent of the variousregional circuits. 5 In his testimony, Chief Judge Smith finds what I wouldcall "systemic advantage" in this adjudicatory structure and rather forth-rightly states the case for Claims Court and district court tax refund jurisdic-tion as well, I think, as it can be propounded.Sadly, I find myself siding with the Committee's majority. In the Com-mittee, there were five dissenting members on this issue 6 whose opinion wasthoughtful but, to me, in the end not persuasive. Simply put, I cannot shakethe conviction that the present system of tax adjudication is crazy. Cur-rently, the taxpayer who elects the Claims Court has thereby elected theFederal Circuit as her appellate tribunal, dispossessing her home court ofappeals. 7 This is a marvelous piece of business because if a taxpayer getsthe Federal Circuit to agree with her on a tax issue, then anybody who canafford it and has the same issue will pay attention. The initial winner is thePied Piper who pipes the tune, and hoards of similarly situated folk willfollow her to the Federal Circuit. Of course, if she loses that first case, thenno taxpayer will thereafter take the issue to the Federal Circuit.12. Id. at 4-6 (citing United States v. Goodyear Tire & Rubber Co., 493 U.S. 132 (1989);United States v. American Bar Endowment, 477 U.S. 105 (1986); Commissioner v. SouthwestExploration Co., 350 U.S. 308 (1956); United States v. Anderson, Clayton & Co., 350 U.S. 55(1955); Lober v. United States, 346 U.S. 335 (1953)).13. I. at 5-6.14. Id at 2-3.15. Id.16. FEDERAL COURTS REPORT, supra note 1, at 71-72.17. 28 U.S.C. § 1295(a)(3) (1988).1991]Catholic University Law ReviewThe present system in the Tax Court is not terrifically sane either. Undera 1970 rule adopted by the Tax Court, the so-called Golsen Rule,'" the TaxCourt follows a decision of the regional court of appeals to which the tax-payer's appeal will lie, provided that there is an appellate decision and it isviewed as being squarely on point.' 9 In other words, under the Golsen Rulea taxpayer's tax law is the same in the Tax Court as it would be in thedistrict court. It is, on the other hand, potentially different than the tax lawin the Claims Court and the Federal Circuit.Inevitably, in the Tax Court the tax law proves to be different for differenttaxpayers. All tax lawyers treasure marvelous examples of this. A favoriteis embodied in the Tax Court petitions of Donald W. Fausner2° and RobertA. Hitt.2 ' Both cases were decided by the Tax Court on the same day.Donald and Robert were commercial airline pilots. They both began thetaxable year resident in the same Hudson Valley, New York, community.Both were obliged to cart heavy bags stuffed with flight manuals and whathave you from home to airport. Because commutation expenses are not de-ductible, Donald and Robert, clever fellows, alleged the need to use theirpersonal automobiles, not to transport themselves, but to transport theirheavy bags. They claimed the deduction for that.22There was one small difference between these two gentlemen. Donaldstayed put, but in late September foolish Robert moved to Florida. The Sec-ond Circuit earlier had held in favor of the encumbered pilots; 23 the FifthCircuit, in which Florida then fell, had not spoken on the matter. Under theGolsen Rule, the Tax Court held for Donald, the New Yorker, following theSecond Circuit. 24 Facing no Fifth Circuit precedent, the Tax Court on thesame day held against Robert, the brand new Floridian.25Ultimately, the Supreme Court did take and resolve, not too badly as ithappens, what came to be called the burdensome bag controversy. 26 Realis-tically, however, practitioners cannot expect, and surely, as rational men andwomen, practitioners ought not hope, that the Supreme Court will take too18. Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd, 445 F.2d 985 (10th Cir.), cert.denied, 404 U.S. 940 (1971).19. Id. at 757.20. Fausner v. Commissioner, 55 T.C. 620 (1971).21. Hitt v. Commissioner, 55 T.C. 628 (1971).22. Fausner, 55 T.C. at 625-26; Hitt, 55 T.C. at 630.23. Sullivan v. Commissioner, 368 F.2d 1007 (2d Cir. 1966), cert. denied, 396 U.S. 827(1969).24. Fausner, 55 T.C. at 626.25. Hitt, 55 T.C. at 633.26. Fausner v. Commissioner, 413 U.S. 838 (1973).[Vol. 40:631Commentarymany tax cases. It is, history teaches, not a job the high court performssuperbly.All nontax lawyers are regularly subjected to the tax lawyer's lament con-cerning the Supreme Court, and are by now justly sick of it. Nontax law-yers, if they are not Supreme Court Justices, will be delighted to learn thatnearly two decades ago in his Oliver Wendell Holmes Lecture on the fourthamendment, Professor Anthony Amsterdam delivered in a single swipe theultimate putdown of both tax lawyers and the Supreme Court:Over the years, when I have heard tax lawyers complain that theSupreme Court should be relieved of jurisdiction over tax cases be-cause the Court has never understood the tax laws, I have espe-cially relished my standing as a fourth amendment buff. It isseldom given to mortal man to feel superior to a tax lawyer. Withwhat gratifying condescension, then-how like Captain Ahab'sghost hearing trout fisherman prattle of the big one that gotaway-have I listened to the tax lawyers' criticisms of the SupremeCourt!27That pleasant digression to the side, surely it ought to be clear that the pres-ent system of tax adjudication does promote uncertainty, incoherence, and,comparing the position of wealthy and less wealthy taxpayers, perceptibleunfairness as well.Is there then nothing but the parochial to be said in defense of the currentsystem and in opposition to the Committee's proposal for an exclusive articleI Tax Court and an exclusive article III Court of Tax Appeals division? TheAmerican Bar Association's Tax Section, one of the many opponents of theCommittee's proposal,28 summarized its objections in a rather interestingway: "[O]ne can hardly think of a judicial structure better designed to pro-duce taxpayer distrust and doubts of fairness than one that centers exclusivecontrol over civil tax disputes throughout the nation in a single court of 27tax specialists before whom the government appears in every case." 29This fear of taxpayer distrust and doubts really is the crux of the concern.It is not the argument heard often a decade ago, and more than occasionallystill, that we must not deprive tax litigants or the tax law of the leaveninginfluence of generalist judges. Generalist judges live in mortal fear of taxcases, and rightly so. In truth, experienced tax lawyers-a class that in-cludes full time tax judges--are the ultimate generalists in today's complexspecialized legal world. It is not the argument, with all deference to Chief27. Amsterdam, Perspectives on the Fourth Amendment, 58 MINN. L. REv. 349, 349-50(1974).28. ABA SECTION ON TAxATIoN, REPORT TO THE HOUSE OF DELEGATES (Feb. 1990).29. Id at 9.1991]Catholic University Law ReviewJudge Smith and his neatly crafted submission, that the checks and balancesof one court versus another is healthy for the tax system. Rather, as theAmerican Bar Association's Tax Section contends, it is the fear that a singletax adjudicatory structure, staffed by a handful of trial judges and appellatejudges, may fall captive to the government, or be so perceived, and therebydo great and perhaps irredeemable injury to whatever faith in this tax systemtaxpayers still retain. The notion is akin to but ultimately distinguishablefrom the often voiced concern: who will serve as the tax judges if and whenthese jurists wield the awesome power of exclusivity?As you will have gathered, I am one of the minority. I fear the smallminority, of tax lawyers who agree with the Committee's tax adjudicationproposal. Who will serve as the judges of the new appellate tribunal doesconcern me. But if the appointees are fair, experienced, expert tax lawyers,in short order their panel decisions will dispel the taxpayer distrust anddoubts of fairness that so concern the American Bar Association's TaxSection.The United States Tax Court, currently our nation's only specialist federaltax tribunal, has functioned well. In no sense has it been a captive of thegovernment that appears before it in every case. We have no legitimate basisto fear that a specialist appellate tax tribunal, populated by judges of articleIII stature, will do one bit worse.Regardless of the merits of the Committee's tax recommendations, it doesnot seem likely that change will occur near term. Too many have lined up inopposition. Neither a Court of Tax Appeals, nor the withdrawal of substan-tive tax disputes from the jurisdiction of the federal district courts, appearsto be on the horizon.What about the ultimate compromise, initial tax jurisdiction in the TaxCourt and the district courts, appellate jurisdiction in the twelve regionalcourts of appeals, but no more tax disputes in the Claims Court or the Fed-eral Circuit? The chances of that are somewhat better, if only because thereare fewer people who will argue about it. In the end, however, I suspect thistailored change will not occur either.As Chief Judge Smith pointed out in his presentation to the Committeelast January, while the number of Claims Court tax disputes is not largerelative to the number of tax disputes in the Tax Court, the dollar volume ofClaims Court tax cases is significant indeed.30 There is a general view, bothin the government and in the tax bar, that the Claims Court today handlestax cases with professionalism and with dispatch, and affords both sides a30. See Smith Statement, supra note 10, at 2 and text accompanying note 10.[Vol. 40:6311991] Commentary 637fair shake. Relative to the Committee's proposal, in the final reckoning thatis the perception that will carry the day.

The Federal Courts Study Committee on Claims Court Tax Jurisdiction

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The Federal Courts Study Committee on Claims Court Tax Jurisdiction

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