Tax Appeal: A Proposal to Make the United States Tax Court More Judicial

Abstract

Accountability is a critically important protection for any justice system; its absence provides an opportunity for shortcuts that may undermine procedural fairness or even change case outcomes. Yet, the United States Tax Court, which is an Article I court, is not subject to Administrative Office of U.S. Courts or the U.S. Judicial Conference - institutions that serve and oversee the federal judiciary. In addition, because the Tax Court is not an administrative agency, it is not covered by the Administrative Procedure Act or the Freedom of Information Act.

The principal source of oversight of Tax Court actions is appellate review. Although the appeals process allows for correction of errors in individual cases, it is a poor vehicle for systemic oversight. Notably, it contains no mechanism for oversight of actions taken outside of the official record of a case. Moreover, appellate review is not available in about half of the cases on the Tax Court's docket. In those cases, the Tax Court's decision on what procedures to adopt and how to apply them is final.

Given this lack of accountability, it may not be surprising that the Tax Court has adopted opaque processes in a number of contexts in which transparency is the norm among courts. It has kept various case files, factfinding reports, and even opinions confidential. It also releases only limited aggregate statistics, and changed a procedural rule to eliminate transparency in certain large cases. Moreover, until it was criticized by the United States Supreme Court in Ballard v. Commissioner, 544 U.S. 40 (2005), the Tax Court adopted and amended its Rules of Practice and Procedure without input from the public. An investigation after Ballard was decided revealed several cases with substantial amounts at stake in which the Tax Court's official opinion not only differed significantly from the trial judge's findings, it held for the other party.

The Tax Court should be subject to the same systemic oversight that our system demands of Article III courts and the Court of Federal Claims. Making the Tax Court subject to the Administrative Office of U.S. Courts and, with respect to its rulemaking, to the U.S. Judicial Conference, would increase the Tax Court's accountability significantly. It would also increase trust in the court. In addition, adoption of this proposal would occasion minimal increased cost to the federal government because it would utilize established bodies that already provide services and oversight to other courts.

Keywords: Transparency, accountability, federal courts, Tax Court, Article I courts, rulemaking, Special Trial Judges, Administrative Office of U.S. Courts, Rules Enabling Act

JEL Classification: K34, K40, K41