Section of Taxation Publications
  VOL. 58
NO. 2
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
 Deferential Review of Tax Court Decisions of Law: Promoting Expertise, Uniformity, and Impartiality
Andre L. Smith*

*Assistant Professor of Law, Florida International University; University of Maryland, B.S., 1992; Howard University, J.D., 2000; Georgetown University Law Center, LL.M., 2003. Valuable contributions to this paper were made by the Pennsylvania State University Dickinson School of Law, Stefan F. Tucker, Ellen Aprill, Bill Whitford, Shaleeta Washington, and Lina Husseini.


This Article continues the debate over whether the federal circuit courts of appeal should deferentially review U. S. Tax Court decisions of law. Some fault this country’s tax adjudication system for its nonuniformity. Others criticize it for promoting or allowing bias in favor of the government. Least mentioned is the system’s failure to utilize tax experts. All three of these concerns relate to the legitimacy of the tax adjudication system. This article seeks to prove that deferentially reviewing Tax Court decisions of law better addresses these concerns than either the present system, or an oft-proposed national court of tax appeals.

The People’s confidence in their government, and thus their willingness to be governed, depends partly on the logical construction of government institutions. The current tax adjudication system is largely accepted by legal practitioners and taxpayers in spite of the complexity and sometimes chaotic environment that is the field of tax law. The steadiness of yearly recourse to the Tax Court and district courts, coupled with calls for reforming the Service rather than the adjudication system, suggests that the People’s collective confidence in the current system is at least stable. Revolutionary changes to the structure of the adjudication system are hardly being proposed, much less considered. Yet flaws exist, and a crisis should not be the occasion for addressing them.

Consider a hypothetical case in the Tax Court involving a huge tax deficiency, the resolution of which hinges upon a choice between two competing, but equally reasonable, interpretations of tax law. Then, imagine that that presiding judge, appointed after a distinguished pre-judicial career in the field of tax law, dutifully examines the issue and sides with the interpretation that he believes best balances the taxpayer’s interest in protection from overzealous government against the government’s interest in efficient and effective tax administration. Next, assume that the decision is important enough to be certified by the chief judge of the Tax Court for review and is subsequently approved by a full panel of the foremost tax adjudication experts, the Tax Court’s court conference. This interpretation of pure tax law, even if endorsed unanimously by all 19 Tax Court judges, can be reversed by a reviewing court with absolutely no tax experience and with no requirement that the reviewers identify any flaw in the Tax Court’s reasoning. While this example is hypothetical, the structure of our tax adjudication system permits such folly. As Professor Shores stated, this is a matter of institutional choice.

Further consider that the same issue may be litigated by a different taxpayer in the Tax Court at a future date, the Tax Court follows its own precedent, and this time on appeal to a different circuit court, the Tax Court is affirmed. Now the legal system is in the position of treating two similarly situated taxpayers differently as to a matter of federal law. Unequal application of the law, though constitutional in this respect, nevertheless undermines the perceived legitimacy of the system.

Another threat to the legitimacy of our system is the perception that the Tax Court has a pro-government bias. A judge who would decide cases based on personal bias cannot be said to have utilized expertise in that case. To the extent there actually exists within the tax adjudication system these unscrupulous judges, the system is rendered illegitimate. And since this actual bias would be nearly impossible to discover, perceptions matter more than reality. Therefore, to the extent people believe there exist these unscrupulous judges, the system is perceived as illegitimate.

The foregoing was a quick attempt at showing how our tax adjudication system is flawed in three ways: (1) under-utilization of subject matter expertise, (2) nonuniformity, that is, splits in the circuits, and (3) the perception of bias. All three problems, albeit some more than others, are largely structural. To wit, there are three noteworthy options concerning the direction of our tax adjudication system: (1) retaining the current system where decisions of the Tax Court, Court of Federal Claims, and federal district courts are reviewed de novo by each circuit court; (2) establishing a national court of tax appeals with exclusive jurisdiction to review all tax cases wherever they may emanate; and (3) deferentially reviewing Tax Court decisions of law. As between these three systems, deferential review better promotes expert, uniform, and impartial decision making.

Nonuniformity and under-reliance on expert decision making are largely the products of an improper (perhaps illegal) standard of review. The accepted current standard of review, de novo (meaning anew) does not literally require the circuit courts to consider or perhaps even read the original Tax Court opinion. Of course, this is the same standard for appellate review of district court cases, and it is appropriate to assume that circuit court jurists read and consider the Tax Court’s opinion in any case involving an interpretation of tax law. This assumption is not sufficient. I believe appellate judges, for reasons of deference to expertise and promotion of uniformity, should not be permitted to prefer their own interpretation over that of the Tax Court unless they can articulate a fundamental flaw in the Tax Court reasoning, identify a deleterious effect to an area of nontax law, or perhaps articulate another important judicially legitimate concern. This deferential review lessens the chances for appellate reversals, which in turn (1) increases the likelihood that a final decision in a tax matter is rendered by an expert in the field and (2) lessens the unequal application of tax law.

Some believe that a national court of tax appeals, with exclusive national jurisdiction, is the solution to tax adjudication’s ills. In the last decade or so, Professor David F. Shores has been one of the more outspoken advocates for change in our system. For him, splits in the circuit courts are an untenable situation. A national court of tax appeals with exclusive national jurisdiction would eliminate this problem. Such a proposal, Shores admits, is unlikely to be adopted any time soon. In its stead, he proposes deferential review as a means of promoting uniformity by increasing the likelihood a Tax Court decision will become final and settled law throughout the country.

Professor Steve R. Johnson, on the other hand, believes deferential review would create more splits within and amongst the circuit courts than it would eliminate. He also thinks it impossible to maintain consistent application and adherence to a rule of deference. Professor Johnson is in favor of either establishing a national court of tax appeals to perfect uniformity, or else retaining our current system.

Shores’ view that deferential review is desirable is the better approach, though both he and Professor Johnson are slightly off the mark in their analysis. Their singular focus is on uniformity. Neither seriously considers how either proposal affects expert decision making or the perceptions of bias in our current system. Because they omit these factors from their calculus, it is understandable that they believe a national court of tax appeals is superior to our current system and deferential review. But after including the effect any change has on the perception of bias and the system’s reliance on expert decision making, deferential review clearly reflects a better choice than the current system or a national court of tax appeals.

There are three problems with a national court of tax appeals with exclusive, national jurisdiction. First, it would completely extinguish our current system’s utilization of the comparative advantages circuit court judges have with respect to reviewing nontax issues that touch upon many tax controversies, like the common law, operation of state law, and constitutional questions. Second, an appeals court for all federal taxation cases unduly suppresses the sometimes constructive debate between circuit courts, upon which the Supreme Court relies if and when it decides to hear a particular matter. Finally, a national court of tax appeals would exacerbate the existing perception of bias by depriving taxpayers of the option to have their tax controversy adjudicated entirely by generalist judges who many perceive to be impartial or pro-taxpayer. A better alternative is deferential review because it increases our system’s reliance on expert decision makers in matters of tax by increasing the authority of the Tax Court, but retains review by the circuit court judges distinguished for their expertise in reviewing important nontax questions and is less likely to bring an enforcement mentality 25 to the bench.

Calling for deferential review is easier than describing its precise applications. In speaking of deference jurisprudence, there is the concern that it may be entirely illusory to measure human disagreement. But nonetheless, in order for deferential review to deliver the gains just described, it must be applied and implemented in the manner most likely to produce those benefits.

Part II of this article describes our tax adjudication system, its development in terms of expertise, uniformity, and impartiality, and the flaws that remain. Part III shows how deferential review compares favorably to our current system and a national court of tax appeals. Part IV discusses possible sources of authority for deferential review and how it should be interpreted and applied. Part V concludes that deferential review is the best option for the future of tax adjudication.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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