The United States Tax Court (in case citations, T.C.) is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides (in part) that the Congress has the power to "constitute Tribunals inferior to the supreme Court".U.S. Constitution., article I, section 8, cl. 9. The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which formal tax assessments are made by the Internal Revenue Service.See .
Though taxpayers may choose to litigate tax matters in a variety of legal settings, outside of bankruptcy, the Tax Court is the only forum in which taxpayers may do so without having first paid the disputed tax in full. Parties who contest the imposition of a tax may also bring an action in any United States District Court, or in the United States Court of Federal Claims; however, these venues require that the tax first be paid and that the party then file suit to recover the contested amount paid (the "full payment rule" of Flora v. United States).357 U.S. 63 (1958), affirmed on rehearing, 362 U.S. 145 (1960).
History
The first incarnation of the Tax Court was the "U.S. Board of Tax Appeals", established by Congress in the Revenue Act of 1924Richard A. Levine, Theodore D. Peyser & David A. Weintraub, Tax Court Litigation, Tax Management Portfolio, Volume 630, Bloomberg BNA (4th ed. 2012).Revenue Act of 1924, sec. 900, Ch. 234, 43 Stat. 253, 336 et seq. (June 2, 1924). (also known as the Mellon tax bill) in order to address the increasing complexity of tax-related litigation. Those serving on the Board were simply designated as "members." The members of the Board were empowered to select, on a biennial basis, one of their members as "chairman."Revenue Act of 1924, sec. 900(d), Ch. 234, 43 Stat. 253, 337 (June 2, 1924). In July 1924, President Calvin Coolidge announced the appointment of the first twelve appointees, of which seven were appointed from private life and five from the Bureau of Internal Revenue."Newly Appointed Tax Board To Be Organized At Once", The Baltimore Sun (July 4, 1924), p. 6. Additional members were appointed in the fall, and the Board when fully constituted originally had 16 members, with Charles D. Hamel serving as the first Chairman.Reports of the United States Board of Tax Appeals, Volume 1, p. 3 (Government Printing Office, 1926) The Board was initially established as an "independent agency in the executive branch of the government."Revenue Act of 1924, sec. 900(k), Ch. 234, 43 Stat. 253, 338 (June 2, 1924). It was housed in the Internal Revenue Service Building in the Federal Triangle.U.S. Tax Court Building, U.S. General Services Administration, accessed September 13, 2009. The first session of the Board of Tax Appeals spanned July 16, 1924 to May 31, 1925.Reports of the United States Board of Tax Appeals, Volume 1, p. 1 (Government Printing Office, 1926)
In 1929, the United States Supreme Court ruled that the Board of Tax Appeals was not a "court," but was instead "an executive or administrative board, upon the decision of which the parties are given an opportunity to base a petition for review to the courts after the administrative inquiry of the Board has been had and decided."Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929), at .
In 1942, Congress passed the Revenue Act of 1942, renaming the Board as the "Tax Court of the United States".Revenue Act of 1942, sec. 504(a), Pub. L. 753, Ch. 619, 56 Stat. 798, 957 (October 21, 1942). With this change, the Members became Judges and the Chairman became the Presiding Judge. By 1956, overcrowding and the desire to separate judicial and executive powers led to initial attempts to relocate the court. In 1962, Secretary of the Treasury Douglas Dillon appealed to the General Services Administration (GSA) to incorporate funds for the design of a new building in its upcoming budget. The GSA allocated $450,000, and commissioned renowned architect Victor A. Lundy, who produced a design that was approved in 1966. However, funding constraints brought on by the Vietnam War delayed the start of construction until 1972.
The Tax Court was again renamed to its current formal designation in the Tax Reform Act of 1969, changing it from an historically administrative court to a full judicial court. The completed United States Tax Court Building was dedicated on November 22, 1974, the fiftieth anniversary of the Revenue Act that created the court.
In 1991, the U.S. Supreme Court in Freytag v. Commissioner stated that the current United States Tax Court is an "Article I legislative court" that "exercises a portion of the judicial power of the United States." The Court explained the Tax Court "exercises judicial power to the exclusion of any other function" and that it "exercises its judicial power in much the same way as the federal district courts exercise theirs."Id. at 891. This "exclusively judicial role distinguishes it from other non-Article III tribunals that perform multiple functions."Id. at 892. Thus, Freytag concluded that the Tax Court exercises "judicial, rather than executive, legislative, or administrative, power."Id. at 890–91. The Tax Court "remains independent of the Executive and Legislative Branches" in the sense that its decisions are not subject to appellate review by Congress, the President, or for that matter, Article III district courts. The President, however, may remove Tax Court judges, after notice and opportunity for public hearing, for "inefficiency," "neglect of duty," or "malfeasance in office."See .
Justice Scalia penned a separate concurrence for four justices in Freytag. These justices dissented as to the Court majority's rationale; they would have characterized the Tax Court's power as "executive" rather than "judicial."501 U.S. 868, 912 (1991), at https://scholar.google.com/scholar_case?case=1508365253681917692&q=Freytag+commissioner&hl=en&as_sdt=3,44. (Scalia, J., concurring in part and concurring in the judgment). Scalia said that to him "it seem[ed]... entirely obvious that the Tax Court, like the Internal Revenue Service, the FCC, and the NLRB, exercises executive power."Id. Notwithstanding Scalia's sharp dissents in landmark separation-of-powers cases such as Mistretta v. United States488 U.S. 361, 427 (1989) (Scalia, J., dissenting) (stating that the Court "fails to recognize that this case is not about commingling, but about the creation of a new Branch altogether, a sort of junior varsity Congress."). and Morrison v. Olson,487 U.S. 654, 697 (1988) (Scalia, J., dissenting) ("Frequently an issue of this sort will come before the Court clad, so to speak, in sheep's clothing: the potential of the asserted principle to effect important change in the equilibrium of power is not immediately evident, and must be discerned by a careful and perceptive analysis. But this wolf comes as a wolf."). Scalia apparently "describe[d] Freytag as the single worst opinion of his incumbency" on the U.S. Supreme Court.Peter L. Strauss, Free Enterprise Fund v. Public Company Accounting Oversight Board, 62 Vand. L. Rev. En Banc 51, 57 (2009) (reporting hearing this comment firsthand).
Although the 2008 U.S. government directory of executive and legislative appointed officers ("the Plum Book") categorized the Tax Court as part of the legislative branch,United States Policy and Supporting Positions, page 2. Committee on Homeland Security and Government Affairs, United States Senate, 110th Congress, 2d Session (November 12, 2008). Available: http://www.gpoaccess.gov/plumbook/2008/index.html. the 2012 revised version removed the Tax Court and listed it under neither the legislative nor the executive branches.United States Policy and Supporting Positions. Committee on Oversight and Government Reform, United States House, 112th Congress, 2d Session (December 1, 2012). Available: http://www.gpo.gov/fdsys/pkg/GPO-PLUMBOOK-2012/content-detail.html.
In 1995, Maurice B. Foley became the first African American to serve as a judge on the court; and in 2014, Tamara W. Ashford became the first African-American woman to serve as a judge on the court.
Under an amendment to the Internal Revenue Code of 1986 enacted in late 2015, the U.S. Tax Court "is not an agency of, and shall be independent of, the executive branch of the Government."Section 441, Protecting Americans from Tax Hikes Act of 2015, Division Q of the Consolidated Appropriations Act, 2016 (December 18, 2015) (text added at the end of section 7441 of the Internal Revenue Code of 1986). However, section 7443(f) of the Code still provides that a Tax Court judge may be removed by the President "for inefficiency, neglect of duty, or malfeasance in office"..
Jurisdiction of the Tax Court
The Tax Court provides a judicial forum in which affected persons can dispute tax deficiencies determined by the Commissioner of Internal Revenue prior to payment of the disputed amounts. The jurisdiction of the Tax Court includes, but is not limited to the authority to hear:
tax disputes concerning notices of deficiency notices of transferee liability certain types of declaratory judgment readjustment and adjustment of partnership items review of the failure to abate interest administrative costs worker classification relief from joint and several liability on a joint return review of certain collection actions
Congress amended the Internal Revenue Code, now codified in Internal Revenue Code section 7482, providing that decisions of the Tax Court may be reviewed by the applicable geographical United States Court of Appeals other than the Court of Appeals for the Federal Circuit.See . (See Article I and Article III tribunals).
"Small Tax Cases" are conducted under Internal Revenue Code section 7463, and generally involve amounts in controversy of $50,000 or less for any one tax year.See . The "Small Tax Case" procedure is available "at the option of the taxpayer." These cases are neither appealable nor precedential.See , which states: "A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case."
At times there have been efforts in Congress and the Tax Bar to create a single national Court of Appeals for tax cases (or make Tax Court decisions appealable to a single existing Court of Appeals), to maintain uniformity in the application of the nation's tax laws (the very reason underlying the creation of the Tax Court and the grant of national jurisdiction to the Tax Court), but efforts to avoid "hometown results" or inconsistent results due to a lack of expertise have failed.
An important reason for the movements to create a single national Court of Appeals for tax cases is that the United States Tax Court does not have exclusive jurisdiction over tax cases. In addition to the Tax Court, federal tax matters can be heard and decided in three other courts: U.S. District Courts, the Court of Federal Claims, and the Bankruptcy Court.See with regard to the first two courts; with regard to the latter. In the first two instances, the taxpayer bringing the claim generally must have first paid the deficiency determined by the IRS.See . For the Bankruptcy Court, the tax matter must arise as an issue in a bankruptcy proceeding.See Steve R. Johnson, "The Phoenix and the Perils of the Second Best: Why Heightened Appellate Deference to Tax Court Decisions is Undesirable," 77 Oregon Law Review, 235, 239–242 (Spring 1998) for a review of federal court jurisdiction including, especially, as to the Bankruptcy Court. Bankruptcy Court appeals are initially to the U.S. District Court. Appeals beyond the U.S. District Courts and the Court of Federal Claims follow the same path as those from the U.S. Tax Court as described above.