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June 01, 2017 At Court

Dealing with Tax Court Judges’ Conflicts of Interest: Battat v. Commissioner

By Kevin A. Diehl, Western Illinois University, Moline, IL

Battat v. Commissioner, 148 Tax Ct. 2 (2017), is a deficiency case in which the IRS determined a 2008 deficiency of more than $1.7 million, with additional amounts totaling $426,772. The petitioners attempted to disqualify Tax Court judges through a motion for recusal and, alternatively, a declaration that the President’s power in section 7443(f) to remove Tax Court judges (after notice and hearing for cause due to “inefficiency, neglect of duty, or malfeasance in office”) is unconstitutional.

The opinion in the case provides a good historical review of the development of the Tax Court from the original Board of Tax Appeals, established as an independent agency in the Executive Branch, to an Article I court. It discusses key cases and also provides an overview of the various statutory changes that have further aligned the Tax Court with Article III courts.

The Battat petitioners argued that Tax Court judges should be disqualified from ruling on an IRS matter because The Tax Court’s status as a part of the executive branch represents a conflict of interest. Otherwise, if the Tax Court is not part of the executive branch, they claimed that the President’s power to remove Tax Court judges under section 7443(f) should be considered unconstitutional as a violation of separation of powers. The petitioners additionally challenged section 7491, the burden of proof for tax cases; section 7430, the limits on litigation cost reimbursement; and Tax Court Rule 74(c), lack of jury trials, as limitations that set the Tax Court apart from the true judicial power. The only solution to this inherent unfairness, petitioners suggested, was for the Tax Court to cease to operate.

Rule of Necessity

Relying on the Rule of Necessity, the Tax Court found that it could in fact rule even in the face of accusations of conflicts of interest. The rule simply states that, where all judges are disqualified, none is disqualified.1

Tax Court’s Place in Three Branches

Over time, the Tax Court has clearly evolved: it is now more like other federal courts and less like executive agencies. The 1969 Tax Reform Act eliminated text making the Tax Court an independent agency in the executive branch, as confirmed by the 1971 Burns, Stix Friedmancase.2 In its 2014 Kuretskiopinion,3 the D.C. Circuit nonetheless avoided addressing the constitutionality of the President’s removal power for Tax Court judges by treating the Tax Court as part of the executive branch. In response, Congress amended section 7441 to add a clear statement of the Tax Court’s status: “[t]he Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”4

Separation of Powers

The Tax Court held that for-cause removal of Tax Court judges accords with the separation of powers doctrine even though the Tax Court’s judicial power does not extend as broadly as that of Article III courts. The powers assigned to the Tax Court do not include matters that are reserved constitutionally solely for Article III courts. In the 1891 McAllister case, the Supreme Court found that the President’s power to remove a non-Article III judge for Alaska was constitutional.5 The Battat opinion emphasizes the Supreme Court’s Freytag decision, which concluded that the Tax Court is an independent court that exercises the judicial power under the Constitution and is similar to the district courts, with its decisions appealable to U.S. courts of appeal and, ultimately, to the Supreme Court.6 The Tax Court accordingly determined that the petitioners had failed to satisfy the high burden of proof necessary to show that the section 7443(f) removal provision is unconstitutional.

Important Takeaways

  1. While Battat in many ways reminds readers of those frivolous litigation cases challenging the constitutionality of the federal income tax, it is worth reading to see the Tax Court’s elaboration of its views on Tax Court recusals.
  2. The President can hold Tax Court judges accountable through the statutory power to remove them for “inefficiency, neglect of duty, or malfeasance” under section 7443(f), at least until the Supreme Court says otherwise.
  3. It may be that the Supreme Court will ultimately need to weigh in on the question of the President’s power to remove Tax Court judges, given the split now between the Tax Court and the D.C. Circuit.
  4. Although the court found no unacceptable conflict of interest here, a litigator can pursue recusal for a Tax Court judge with a conflict of interest.

1 Evans v. Gore, 253 US 245 (1920).

2 Burns, Stix Friedman & Co., Inc. v. Commissioner, 57 T.C. 391 (1971).

3 Kuretski v Commissioner, 755 F.3d 929 (DC Cir. 2014).

4 Protecting Americans from Tax Hikes Act of 2015, sec. 441, Pub. L. 114-113 (PATH Act).

5 McAllister v. United States, 141 U.S. 174 (1891).

6 Freytag v. Commissioner, 501 U.S. 868, 890-92 (1991).