Holden, James P.

English

The Catholic University of America Columbus School of Law

Catholic University Law Review Volume 40 Issue 3 Spring 1991 Article 11 1991 The Federal Courts Study Committee Has Not Made the Cases for Its Proposed Overhaul of the Tax Litigation Process James P. Holden Follow this and additional works at: https://scholarship.law.edu/lawreview Recommended Citation James P. Holden, The Federal Courts Study Committee Has Not Made the Cases for Its Proposed Overhaul of the Tax Litigation Process, 40 Cath. U. L. Rev. 639 (1991). Available at: https://scholarship.law.edu/lawreview/vol40/iss3/11 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. THE FEDERAL COURTS STUDY COMMITTEEHAS NOT MADE THE CASE FOR ITSPROPOSED OVERHAUL OF THETAX LITIGATION PROCESSJames P. Holden *If I had been asked to evaluate the existing system for the litigation offederal tax issues, I would respond that it works well. I would argue that itefficiently disposes of a very large volume of cases, employs the skills of spe-cialized judges in resolving the great bulk of those cases, and blends into theprocess an important contribution by generalist article III judges. Further,it imposes no significant burden on the article III courts and enjoys the con-fidence and respect of taxpayers and their representatives. An objective ob-server might say, "Not bad, few other things seem to work so well today,"and he would be right.Nevertheless, the Federal Courts Study Committee' (Committee) appar-ently does not subscribe to the adage that the proof lies in the pudding. Thisfifteen-member panel that Congress created to study "problems" facing thefederal courts has identified the tax litigation system as one of thoseproblems.2 Essentially, it proposes, over a dissent in which five membersjoined, to extract all tax cases from the federal district courts, the UnitedStates courts of appeals, the United States Claims Court, and the UnitedStates Court of Appeals for the Federal Circuit.' It would allow only theUnited States Tax Court to hear tax cases and would restrict review to theproposed appellate division of the Tax Court.4 The Tax Court would be-come a judicial hermaphrodite, with both an article I trial division and anarticle III appellate division.5• Mr. Holden is a partner in the Washington, D.C., office of Steptoe & Johnson andformer Chair of the American Bar Association, Section on Taxation.1. See JUDICIAL CONFERENCE OF THE UNITED STATES, REPORT OF THE FEDERALCOURTS STUDY COMMITTEE 31-33 (Apr. 2, 1990) [hereinafter FEDERAL COURTS REPORT];Ginsburg, Commentary: The Federal Courts Study Committee on Claims Court Tax Jurisdic-tion, 40 CATH. U.L. REV. 631, 631 n.1 (1991). This Commentary is a reply to ProfessorGinsburg and to the FEDERAL COURTS REPORT.2. FEDERAL COURTS REPORT, supra note I, at 69.3. Id. at 70.4. Id.5. Id. at 70-71 & fig. 2.Catholic University Law ReviewThis proposal is all the more surprising because the Committee goes out ofits way to condemn, as a general proposition, the concept of specializedcourts. In the "Overview" portion of its report, the Committee cataloguesthe deficiencies of specialized courts: "the danger of tunnel vision, the dan-ger of 'capture'. . . [by] interest group[s]," 6 the risk of political imbalance,the need to resolve cases that cross lines of specialization, the prematuresuppression of the diverse views that arise from intercircuit conflicts, and,finally, the fact that "most American lawyers find the idea of specializedcourts repugnant." 7 This is an impressive list of concerns, but, in the end,the Committee majority disregards them when it comes to tax law.The Committee's first sentence in justification of its sweeping tax proposalstates: "The present system of federal tax adjudication is irrational, fostersconflict in the interpretation of the tax laws, can be unfair to some taxpayers,encourages forum shopping, and provides additional incentives for taxpayersto play the 'audit lottery.' "" To the uninformed this sounds strong, butwhen one considers these assertions on the merits, they fall well short oftheir intended mark.The charge of irrationality is an extravagant overstatement. Congress,acting within the scope of its authority, created the existing system for ap-propriate purposes.9 The system is not the unreasoned product of incompe-tence. The contention that the present tax litigation system "fostersconflict"" ° is also hyperbole. The existing tax litigation system produces nomore conflict than the federal court system generally, whether the subject islabor law, criminal law, civil rights law, or any other equally significantfield. " All such litigation generates intercircuit conflicts. But, as noted6. Id. at It.7. Id.8. Id. at 69.9. See generally H. DUBROFF, THE UNITED STATES TAX COURT: AN HISTORICALANALYSIS (1979).10. FEDERAL COURTS REPORT, supra note 1, at 69.11. See, e.g., Estreicher & Sexton, A Managerial Theory of the Supreme Court's Responsi-bilities: An Empirical Study, 59 N.Y.U. L. REV. 681, 810 (1984) ("Moreover, our study doesnot identify any significant number of conflicts in the tax area that are left unresolved by theCourt .. "); Special Project, An Empirical Study of Intercircuit Conflicts on Federal IncomeTax Issues, 9 VA. TAX REV. 125, 138-39 (1989) (study of 618 appellate court cases for 1983through 1987 identified only "thirty five explicit conflicts, sixteen implicit conflicts, and fiveside swipes .... The Supreme Court had the opportunity to hear thirty-eight of the casesinvolved in a conflict. It denied certiorari to twenty-six and granted certiorari to two that ithas not yet decided. The Court affirmed another six cases and reversed four.") (footnote omit-ted); Saltzman, Should There be a National Court of Tax Appeals?, 8 A.B.A. SEC. TAXNEWSL., No. 4, at 61, 77 (Summer 1989) ("There simply is no data to support the notion thatdiverse appellate decisions are a frequent problem in tax cases."); Memorandum from ActingDeputy Attorney General Edward S.G. Dennis, Jr. and Assistant Attorney General (Tax Divi-[Vol. 40:639Commentaryabove, the Committee generally welcomes the "diverse views" that arisefrom intercircuit conflicts. 12 This is not so, however, where the diverseviews relate to tax law.13Further, the Committee's allegation that the system is unfair to some tax-payers is suspect. Congress created the Tax Court to provide all taxpayerswith the opportunity for a preassessment judicial review of deficiencies as-serted by the Internal Revenue Service. 4 It is difficult to characterize thisaction as fundamentally unfair to any taxpayer, rich or poor. If the conten-tion is that all taxpayers should have equal judicial access regardless of theireconomic circumstances, the straightforward way to do that is to make thejurisdiction of the Tax Court and the article III courts fully concurrent. Incontrast, the Committee's proposal would deny all taxpayers the right tolitigate before a jury, the right to select a court in their district, and the rightto have their case decided by a generalist article III judge.' 5 It is difficult toaccept the proposition that the Committee's recommendations create greaterfairness.By listing "forum shopping" as a negative feature of the current system,the Committee's report simply adopts a pejorative term where a more neu-tral one, such as "choice of forum," would suffice.' 6 The report, however, issilent on this point. If the Committee favors change on this ground, itshould explain why choice of forum detracts from the effectiveness of theexisting system, or why denying taxpayers that choice would result in a bet-ter system. Finally, the report adds the questionable charge that the currentsystem "provides additional incentives for taxpayers to play the 'audit lot-tery.' ",v The audit lottery is a product of federal unwillingness to commitadequate resources to the audit of tax returns.'" It has little, if anything, tosion) Shirley D. Peterson to Attorney General Dick Thornburgh 7 (Oct. 16, 1989) (attached toABA SECTION OF TAXATION, REPORT TO THE HOUSE OF DELEGATES (Feb. 1990)) ("it ap-pears that unresolved intercircuit conflicts are rare and that their impact on tax administrationis de minimus").12. FEDERAL COURTS REPORT, supra note 1, at 11. The Committee stated that speciali-zation might create "the danger of premature suppression of diverse views (intercircuit con-flicts enable experimentation with competing solutions to the same problems-while at thesame time making law more complex and creating problems of compliance for institutions andindividuals that do business or conduct activity in more than one circuit)." Id13. Id at 70. The proposed tax adjudication structure "would increase the quality anduniformity of tax adjudication by shifting it from overworked judges sitting in a large number ofdiverse courts to a single court of highly trained specialist& " Id. (emphasis added).14. See H. DUBROFF, supra note 9, at 1-46.15. FEDERAL COURTS REPORT, supra note 1, at 70.16. Id at 69.17. Id.18. See Portuondo, Abusive Tax Shelters Legal Malpractice, and Revised Formal EthicsOpinion 346: Does Revised 346 Enable Third Party Investors to Recover from Tax Attorneys1991]Catholic University Law Reviewdo with the structure of the tax litigation system, a system that generallycomes into play only after an audit has produced proposed adjustments inliability.It is my impression, after thirty years of tax practice, that most tax law-yers would concede that the current tax litigation system is not tidy. Itmight even be considered ungainly. But we should not lightly discard sys-tems that work well on these grounds. If ungainly products should be dis-carded, the Internal Revenue Code itself would surely be at high risk. Taxlawyers have learned to live in an untidy and ungainly world and can endurea tax litigation system that reflects these characteristics. If housecleaning isin order, there are better places to start.As we might expect, Professor Ginsburg does not rely only on these slen-der reeds that the Committee has advanced to support its proposal. 9 But,he does appear to subscribe to the Committee's irrationality claim when heconfesses an inability to shake the conviction that the current system iscrazy. If by this he means "untidy," we do not disagree on characteriza-tion. We differ, however, on the consequences of that characterization.Professor Ginsburg's other objections are more substantive. I do not,however, find them persuasive. Take the cases of Donald W. Fausner2' andRobert A. Hitt22 and their burdensome bags. Professor Ginsburg objects tothe fact that, because each of them chose ultimately to reside in a differentcircuit, each winds up subject to the appellate court interpretation applicablewithin his circuit. 3 While that is true, it is hardly reason to overhaul thesystem. If Donald and Robert each had commenced his own burdensomebag litigation in the federal district court of his ultimate residence, the sameconclusion would likely have resulted. The fact that they instead com-menced their litigation in a single court of national jurisdiction does notmake the result unacceptably burdensome. Those who say otherwise seemto believe that one must view intercircuit conflicts in the tax law differentlyfrom intercircuit conflicts in other areas of the law. Why an early need forcertainty and uniformity overcomes the acknowledged benefits of diverseviews and the considered development of the tax law through the same ro-bust process that governs other federal litigation is not immediately appar-Who Violate its Standards?, 61 NOTRE DAME L. REV. 220, 223 n.30 (1986) (stating that" 'au-dit lottery' refers to the ability of a taxpayer to take undisclosed aggressive positions in hisreturn with little fear of an audit and less fear of the imposition of penalties because the IRSreviews relatively few tax returns and assesses even fewer deficiencies").19. Ginsburg, supra note 1, at 633-37.20. Id. at 633.21. Fausner v. Commissioner, 55 T.C. 620 (1971).22. Hitt v. Commissioner, 55 T.C. 628 (1971).23. Ginsburg, supra note 1, at 634.[Vol. 40:639Commentaryent. The proponents may be right, but they have yet to make their casepersuasively.Toward the end of his discussion, Professor Ginsburg focuses on a majorconcern relating to the Committee's proposal that all tax appeals be concen-trated in a new appellate division of the Tax Court.24 Professor Ginsburg'sconcern relates to the quality of decision-making to be expected from thatrelatively final tribunal. If taxpayers can take their appeals only to such acourt, a court in which the government appears as a party in every case,there are clear risks of "tunnel vision" and government orientation, risks ofthe kind that cause the Committee to reject generally the concept of special-ized courts.25 These risks could in turn produce taxpayer distrust and doubtas to fairness-an atmosphere in sharp contrast to the widespread taxpayeracceptance enjoyed by the current system.Where Professor Ginsburg and I differ is in our reaction to that risk. Heis content to rest on the conclusion that "if the [appellate judges] are fair,experienced, expert tax lawyers, in short order their panel decisions will dis-pel the taxpayer distrust and doubts of fairness that so concern the Ameri-can Bar Association's Tax Section."26 I would prefer that ProfessorGinsburg exhibit more skepticism here, as I have known him to do in othercontexts where substantially less has been at risk. His conclusion is a littlebit like telling me that if the weather is fair tomorrow, I can stop worryingabout bad weather tomorrow. I have no control over the weather. Accord-ingly, if bad weather will prejudice my activities, my worry about theweather is reality-based. Similarly, I have no control over the judicial selec-tion process and yet expect to be adversely impacted by anything less thanthe selection of the finest judges. Thus, my worry on this score is also real-ity-based. I know, however, that the higher the number of citizens who havean interest in a particular judicial selection, the more careful the selectionprocess is likely to be. For that reason, it is preferable to leave the tax appel-late jurisdiction in the existing courts of appeals.In short, it seems that those who advocate change in the existing systemhave the burden of establishing that it does not work, or at the minimumthat the proposed system will work significantly better. In this regard, theCommittee has failed. The inadequacies that the Committee ascribes to thepresent system are either inaccurate or insignificant. The more substantivepoint raised by Professor Ginsburg, regarding Donald and Robert, does notdistinguish tax law from other litigation areas. We are thus left with the24. Id. at 635-36.25. FEDERAL COURTS REPORT, supra note 1, at 11.26. Ginsburg, supra note 1, at 636.1991]Catholic University Law Reviewproposition that we should abandon a very effective litigation structure sim-ply because its architecture is not elegant. I have no problem in rejectingthat proposition.In addressing the Committee's alternative contention that the ClaimsCourt and the Federal Circuit should be excluded from this area of the law,however, the question remains: "Why?" Those who propose the changebear the burden of explaining why it will result in a better life for all. TheCommittee says nothing on this score, and the answer is not self-evident. Byexercising jurisdiction over tax trials, the Claims Court does not seem to becreating any problems for any other court, for any taxpayer, or for the gov-ernment, and neither the Committee nor Professor Ginsburg has identifiedany. With respect to the tax appellate jurisdiction of the Federal Circuit,Professor Ginsburg argues that a taxpayer victory in that court leads allother taxpayers to follow the piper to the same forum." While that may betrue, he does not state why the result is bad. If the government is aggrievedby the favorable taxpayer result, the government exercises a far more persua-sive voice than do taxpayers in seeking Supreme Court review (even wherethere is no intercircuit conflict) or in seeking legislative correction. Taxpay-ers of moderate means rarely experience difficulty in financing litigation thathas a high probability of success. Consequently, the advance payment re-quirement is unlikely to bar access to the court in the postulated situation ofa favorable Federal Circuit precedent.Nevertheless, if someone were to make the case successfully that the rela-tive finality of Federal Circuit decisions is intolerable, that problem could beabrogated without depriving the Claims Court of tax trial jurisdiction. Intax cases, appeals from the Claims Court could be routed to the taxpayer'scircuit of residence, as is the case with appeals from the Tax Court. I do notraise this point to advocate such a change, but simply to illustrate that ad-justments can be made to the present system without resort to the dramaticsurgery that the Committee proposed.In short, I submit that abandoning efforts to beautify the tax litigationsystem will better serve taxpayers, the federal government, and the tax pro-fession. The tax litigation system should be left alone to dispose of hugevolumes of tax controversies in its quick and efficient manner.27. Id. at 633.[Vol. 40:639

The Federal Courts Study Committee Has Not Made the Cases for Its Proposed Overhaul of the Tax Litigation Process

https://scholarship.law.edu/cgi/viewcontent.cgi?article=1778&amp;context=lawreview

The Federal Courts Study Committee Has Not Made the Cases for Its Proposed Overhaul of the Tax Litigation Process

Abstract

Similar works

Full text

Available Versions

The Catholic University of America Columbus School of Law