you better shop around: the status and authority of ... - White & Case
YOU BETTER SHOP AROUND: THE STATUS AND AUTHORITY OF SPECIALTY TRIAL JUDGES IN FEDERAL TAX CASES By Kathleen Pakenham Kathleen Pakenham is Counsel, Tax Controversy Group, White & Case LLP, New York. She wishes to thank Tod Ottman for his valuable comments. The author also gratefully acknowledges Michael Saltzman, Todd Simmens, and James Larkin of White and Case LLP for their insightful comments. Pakenham believes that as attorneys become more specialized, so too does the judiciary. In every forum for resolution of tax disputes, practitioners are likely to encounter specialized judicial officers, she thinks. This article compares the status and authority of magistrate judges, Tax Court special trial judges, and Court of Federal Claims judges and analyzes their effect in tax cases. Copyright Kathleen Pakenham 2004. All rights reserved. Table of Contents U.S. Magistrate Judges .................. 1528 Tax Court Special Trial Judges ............. 1531 U.S. Court of Federal Claims Judges ........ 1533 Conclusion ........................... 1534 Tax cases present unique opportunities for that timehonored though much maligned tradition, forum shopping. In some instances a tax case may be brought in any of three very different forums: 1 the U.S. District Court, 2 1 Some taxpayers may also have a fourth forum available, the U.S. Bankruptcy Court. 11 U.S.C. section 505. Because of the unique circumstances leading to bankruptcy court jurisdiction, the authority of bankruptcy judges is not discussed in this report. 2 The U.S. District Court, established by Congress pursuant to Article III of the Constitution, has jurisdiction over ‘‘all civil actions arising under the Constitution, laws or treaties of the U.S.’’ 28 U.S.C. section 1331. Congress has provided that ‘‘[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue...’’ 28 U.S.C. section 1340. Suit may be brought in the district court only when the contested tax liability has already been paid and ‘‘a claim for refund or credit has been duly filed (Footnote 2 continued in next column.) the U.S. Tax Court, 3 and the Court of Federal Claims. 4 In evaluating these forums, practitioners usually focus on whether the tax must be paid before commencing suit (district court and Court of Federal Claims) or whether with the Secretary [of the Treasury or his delegate].’’ 26 U.S.C. section 7422(a); see also 26 U.S.C. section 7701(a)(11)(B) (defining ‘‘Secretary’’). Even if the case is properly commenced in the district court, the court may lose jurisdiction over the matter if ‘‘prior to the hearing of [the] suit’’ for refund, the Internal Revenue Service issues a statutory notice and the taxpayer files a suit for redetermination with the Tax Court. 26 U.S.C. section 7422(e). Both the taxpayer and the government have the right to jury trial in the district court. 28 U.S.C. sections 2402, 1346(a)(1). Appeals from final decisions of the district court are to the U.S. Court of Appeals, generally in the circuit where the petitioner resides. 28 U.S.C. section 1291. The court of appeals makes a de novo determination on issues of law. 3 The Tax Court, established pursuant to Article I, is the only court with jurisdiction to redetermine a deficiency proposed by the IRS before payment. The Tax Court’s jurisdiction is limited, however, to redetermination of income, gift, estate, and some excise taxes. 26 U.S.C. section 6213(a). A taxpayer may seek review in the Tax Court of a proposed deficiency within 90 days after the IRS issues a notice of deficiency. 26 U.S.C. section 6211(a)(1) (defining ‘‘deficiency’’). The Tax Court, in the sense that it determines the correct tax due, has limited refund jurisdiction. 26 U.S.C. section 6512(b)(1). Generally, appeals are to the U.S. Court of Appeals in the circuit of the legal residence of the petitioner. 26 U.S.C. section 7482(a)(1) (‘‘The U.S. Court of Appeals, shall have exclusive jurisdiction to review the decisions of the Tax Court....);see also 26 U.S.C. section 7482(b)(1) (venue). Reflecting its origins as an administrative agency, there is no right to a jury trial in the Tax Court. 4 The Court of Federal Claims, an Article I court, shares concurrent original jurisdiction with the district court over suits for refund. 28 U.S.C. section 1346(a)(1). While the district courts have original jurisdiction over suits under federal and state law, and have substantial criminal dockets, the jurisdiction of the claims court is limited to ‘‘claim[s] against the U.S. founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the U.S., or for liquidated or unliquidated damages in cases not sounding in tort.’’ 28 U.S.C. section 1491. Although the jurisdiction over refund suits is the same in the district courts and the Court of Federal Claims, neither the taxpayer nor the government has the right to trial by jury in the Court of Federal Claims. 28 U.S.C. section 2402. Appeals are to the Court of Appeals for the Federal Circuit. 28 U.S.C. section 1295(a)(3). TAX NOTES, June 21, 2004 1527 (C) Tax Analysts 2004. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.