Peter Kuretski v. Commissioner of IRS

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 26, 2013 Decided June 20, 2014

No. 13-1090

PETER KURETSKI AND KATHLEEN KURETSKI,

APPELLANTS

v.

COMMISSIONER OF INTERNAL REVENUE SERVICE,

APPELLEE

On Appeal from the Decision and

Order of the United States Tax Court

Tuan N. Samahon argued the cause for appellants. With

him on the briefs were Carlton M. Smith, Frank Agostino, and

John P.L. Miscione.

Bethany B. Hauser, Attorney, U.S. Department of Justice,

argued the cause for appellee. With her on the brief was Teresa

E. McLaughlin, Attorney.

Before: SRINIVASAN, Circuit Judge, and EDWARDS and

SENTELLE, Senior Circuit Judges.

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Opinion for the Court filed by Circuit Judge SRINIVASAN.

SRINIVASAN, Circuit Judge: Peter and Kathleen Kuretski

owed more than $22,000 in federal income taxes for the 2007

tax year. They paid none. The Internal Revenue Service

assessed the unpaid amount plus penalties and interest, and then

attempted to collect from the Kuretskis by means of a levy on

the couple’s home. The Kuretskis unsuccessfully challenged the

proposed levy in the Tax Court.

The Kuretskis now contend that the Tax Court judge may

have been biased in favor of the IRS in a manner that infringes

the constitutional separation of powers. They point to 26

U.S.C. § 7443(f), which enables the President to remove Tax

Court judges on grounds of “inefficiency, neglect of duty, or

malfeasance in office.” According to the Kuretskis, Tax Court

judges exercise the judicial power of the United States under

Article III of the Constitution, and it violates the constitutional

separation of powers to subject any person clothed with Article

III authority to “interbranch” removal at the hands of the

President. The Kuretskis thus ask us to strike down 26 U.S.C.

§ 7443(f), vacate the Tax Court’s decision, and remand their

case for re-decision by a Tax Court judge free from the threat of

presidential removal and hence free from alleged bias in favor

of the Executive Branch.

To our knowledge, this is the first case in any court of

appeals to present the question of whether 26 U.S.C. § 7443(f)

infringes the constitutional separation of powers. We answer

that question in the negative. Even if the prospect of

“interbanch” removal of a Tax Court judge would raise a

constitutional concern in theory, there is no cause for concern in

fact: the Tax Court, in our view, exercises Executive authority

as part of the Executive Branch. Presidential removal of a Tax

Court judge thus would constitute an intra—not inter—branch

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removal. We also reject the Kuretskis’ remaining challenges to

the Tax Court’s disposition of their case.

I.

A.

When the Internal Revenue Service determines that a

taxpayer owes more to the federal government than the taxpayer

has paid, the IRS may make an assessment recording the

taxpayer’s outstanding liability. See 26 U.S.C. § 6201; United

States v. Fior D’Italia, Inc., 536 U.S. 238, 243 (2002). An

assessment is “essentially a bookkeeping notation” made when

the IRS “establishes an account against the taxpayer on the tax

rolls.” Laing v. United States, 423 U.S. 161, 170 n.13 (1976).

Upon issuance of an assessment, the federal government

acquires a lien on all property belonging to the delinquent

taxpayer. See 26 U.S.C. §§ 6321, 6322. “‘A federal tax lien,

however, is not self-executing,’ and the IRS must take

‘affirmative action to enforce collection of the unpaid taxes.’”

EC Term of Years Trust v. United States, 550 U.S. 429, 430-31

(2007) (alteration and ellipsis omitted) (quoting United States v.

Nat’l Bank of Commerce, 472 U.S. 713, 720 (1985)). One of the

IRS’s “principal tools” for collecting unpaid taxes is a “levy,” a

“legally sanctioned seizure and sale of property.” Id. at 431

(internal quotation marks omitted).

Until 1921, taxpayers had no pre-assessment opportunity to

dispute the amount they owed the Treasury. Nor could they

challenge a levy before its imposition. A taxpayer’s only

recourse was to pay the disputed amount and then bring a refund

suit against the tax collector or the United States. See Flora v.

United States, 362 U.S. 145, 151-52 (1960); Burns, Stix

Friedman & Co. v. Comm’r, 57 T.C. 392, 394 n.7 (1971).

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The Revenue Act of 1921 for the first time required giving

taxpayers pre-assessment notice of a deficiency. The 1921 Act

also provided that “[o]pportunity for hearing shall be granted”

before assessment of the tax. Revenue Act of 1921, ch. 136,

§ 250(d), 42 Stat. 227, 266. But it was not until 1924 that

Congress created a tribunal separate from the Bureau of Internal

Revenue (as the IRS was then known) to hear taxpayers’ pre-

assessment appeals. See Harold Dubroff, The United States Tax

Court: An Historical Analysis, 40 Alb. L. Rev. 7, 64-66 (1975);

see also John Kelley Co. v. Comm’r, 326 U.S. 521, 527-28

(1946).

The Revenue Act of 1924 established the “Board of Tax

Appeals” as “an independent agency in the executive branch of

the Government.” Revenue Act of 1924, ch. 234, § 900(a), (k),

43 Stat. 253, 336, 338. The Act provided for the President to

appoint members of the Board to ten-year terms with the advice

and consent of the Senate. Id. § 900(b), 43 Stat. at 336-37. The

Act also stated that “[a]ny member of the Board may be

removed by the President for inefficiency, neglect of duty, or

malfeasance in office, but for no other reason.” Id. at 337. In

1926, Congress extended the term of Board members to twelve

years and amended the removal provision to guarantee “notice

and opportunity for a public hearing” before the President could

remove a Board member for cause. Revenue Act of 1926, ch.

27, § 1000, 44 Stat. 9, 105-06. The 1926 Act also made the

Board’s decisions directly reviewable by the circuit courts of

appeals. Id. § 1001(a), 44 Stat. at 109-10.

In 1942, Congress changed the name of the Board to “The

Tax Court of the United States” and declared that the court’s

members “shall be known” as “judges.” See Revenue Act of

1942, ch. 619, § 504(a), 56 Stat. 798, 957. But the 1942 Act

otherwise left intact the provisions governing the former Board

of Tax Appeals.

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More than a quarter of a century later, Congress enacted a

series of additional changes to the statutes governing the Tax

Court. See Tax Reform Act of 1969, Pub. L. No. 91-172,

§§ 951-962, 83 Stat. 487, 730-36. The 1969 Act amended the

statute addressing the status of the court to read:

There is hereby established, under article I of the

Constitution of the United States, a court of record to

be known as the United States Tax Court. The

members of the Tax Court shall be the chief judge and

the judges of the Tax Court.

Id. § 951, 83 Stat. at 730 (codified at 26 U.S.C. § 7441). The

1969 Act extended the term of Tax Court judges from twelve

years to fifteen years. See Pub. L. No. 91-172, § 952, 83 Stat. at

730. Congress did not, however, alter the provision allowing for

presidential removal of Tax Court judges. The removal statute

remains in place today, and states:

Judges of the Tax Court may be removed by the

President, after notice and opportunity for public

hearing, for inefficiency, neglect of duty, or

malfeasance in office, but for no other cause.

26 U.S.C. § 7443(f). It appears that no President has ever

sought to remove a member of the Tax Court or the Board of

Tax Appeals. See Deborah A. Geier, The Tax Court, Article III,

and the Proposal Advanced by the Federal Courts Study

Committee: A Study in Applied Constitutional Theory, 76

Cornell L. Rev. 985, 994 n.54 (1991).

After the 1969 Act, the Tax Court continued to provide a

pre-assessment forum for taxpayers to challenge the IRS’s

deficiency determinations. Upon making an assessment,

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however, the IRS could levy on a delinquent taxpayer’s property

without any additional opportunity for a hearing. See United

States v. Nat’l Bank of Commerce, 472 U.S. 713, 720 (1985);

United States v. Rodgers, 461 U.S. 677, 682-83 (1983). That

changed in 1998, when Congress established the “collection due

process” hearing procedure “to temper ‘any harshness’” caused

by the IRS’s ability to levy on a taxpayer’s property before the

taxpayer could challenge the collection action. Byers v.

Comm’r, 740 F.3d 668, 671 (D.C. Cir. 2014) (quoting Olsen v.

United States, 414 F.3d 144, 150 (1st Cir. 2005)); Internal

Revenue Service Restructuring and Reform Act of 1998, Pub. L.

No. 105-206, § 3401(b), 112 Stat. 685, 747-48 (codified as

amended at 26 U.S.C. § 6330).

Under the 1998 Act, the IRS must give thirty days’ notice

before levying on any property to collect unpaid taxes. 26

U.S.C. § 6330(a). During those thirty days, the taxpayer may

request a collection-due-process hearing before the IRS Office

of Appeals, at which the taxpayer may raise “any relevant issue

relating to the unpaid tax or the proposed levy.” Id.

§ 6330(b)(1), (c)(2). If dissatisfied with the result of a

collection-due-process hearing, the taxpayer may appeal to the

Tax Court. See id. § 6330(d)(1). The Tax Court’s decisions in

collection-due-process cases are subject to review in this Court.

Byers, 740 F.3d at 675-77.

B.

On April 15, 2008, Peter and Kathleen Kuretski of Staten

Island, N.Y., filed a joint federal income tax return for 2007 on

which they reported a tax liability of $24,991 and claimed a

withholding credit of $2856. The Kuretskis did not include any

payment of the liability reported on their return. Because the

Kuretskis did not dispute the amount they owed, the IRS

assessed the balance shown on the return along with penalties

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and interest. In October 2008, the IRS notified the Kuretskis

that they owed $23,601.50 to the United States Treasury, and the

IRS told the Kuretskis that it intended to levy on their property

thirty days later unless they paid the amount due.

The Kuretskis, through their counsel, filed timely requests

for a collection-due-process hearing on the ground that “a levy

would create a burden and hardship” for the couple. The

Kuretskis submitted an “offer in compromise,” proposing to pay

$1000 in five monthly installments of $200 to settle their

outstanding tax liabilities, and they also asked for an abatement

of penalties. See 26 C.F.R. § 301.7122-1 (procedure for

compromises); see also id. § 301.6651-1(c) (procedure for

abatement of penalties based on reasonable cause for failure to

pay).

In a letter to the Kuretskis’ attorney dated April 14, 2010, an

IRS settlement officer rejected the Kuretskis’ offer in

compromise. The letter explained that the Kuretskis’ equity in

their home rendered the offer “unacceptable as an alternative for

collection.” The settlement officer later told the Kuretskis’

attorney that the IRS might be willing to accept a full-payment

installment agreement under which the Kuretskis would pay

$250 a month for the next nine years.

On June 8, 2010, the Kuretskis’ attorney advised the IRS

that her clients continued to seek a partial-payment agreement

instead of the full-payment installment plan. On June 28, the

Kuretskis and their attorney met with the settlement officer, but

did not then (or later) accept the full-payment installment offer.

On July 7, 2010, the settlement officer closed the Kuretskis’

case file. An IRS appeals team manager approved the

settlement officer’s decision the next day, and the IRS sent a

notice of determination to the Kuretskis on July 20 informing

them that their requests for a compromise and an abatement of

8

penalties had been rejected. The Kuretskis appealed to the Tax

Court. See 26 U.S.C. § 6330(d)(1) (right to Tax Court review of

IRS’s collection-due-process determination).

C.

On September 12, 2011, the Kuretskis’ case was tried

before the Tax Court. As is relevant here, the Kuretskis,

represented by new counsel, argued that the IRS settlement

officer abused her discretion by closing their case file and

issuing a notice of determination even though the parties were

on the verge of reaching agreement on an alternate schedule for

installment payments. The IRS settlement officer, however,

testified that she had no recollection of any discussions on an

alternate schedule, and that she had concluded by early July

2010 that she could no longer keep open the $250-a-month offer

that had been on the table since April of that year. The Tax

Court found that the “weight of the evidence” supported the

settlement officer’s account. Mem. Findings of Fact & Op. at

10. According to the Tax Court, the settlement officer had

maintained a “firm stance” on the $250 figure through several

months of negotiations, and an IRS officer “is not obligated to

negotiate indefinitely.” Id. at 11.

The Kuretskis also alleged that they should avoid any

liability for late-payment penalties because they had reasonable

cause for their failure to pay. See 26 U.S.C. § 6651(a)(2). The

Tax Court rejected that argument. The Tax Court noted that the

Kuretskis bore the burden of proof on this issue and concluded

that the Kuretskis had failed to carry their burden. The Tax

Court did find for the Kuretskis on one issue, overturning an

assessed penalty of $972 for underpayment of estimated tax

under 26 U.S.C. § 6654.

One month after the Tax Court’s decision, the Kuretskis

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filed a motion for reconsideration and a motion to vacate the

decision. The Kuretskis argued for the first time that the statute

allowing for presidential removal of Tax Court judges, 26

U.S.C. § 7443(f), violates Article III of the Constitution. The

Kuretskis asked the Tax Court to find § 7443(f) unconstitutional,

and then to decide the case again “free of ‘the improper threat of

interbranch removal.’” Order at 1-2 (Mar. 4, 2013) (quoting

Kuretskis’ argument).

On March 4, 2013, the Tax Court denied both motions. The

court declined to address the Kuretskis’ Article III argument,

concluding that they had failed to explain why they waited to

raise the argument until after the court’s initial decision. The

Kuretskis appealed to this Court, and the parties stipulated that

the D.C. Circuit is the proper venue for review. See 26 U.S.C.

§ 7482(b)(2) (Tax Court decisions may be reviewed by any

federal court of appeals designated by the IRS and the taxpayer

“by stipulation in writing”).

II.

The Kuretskis challenge the Tax Court’s decision on both

constitutional and nonconstitutional grounds. As to the latter,

the Kuretskis argue that the Tax Court committed clear error in

finding them liable for late-payment penalties under 26 U.S.C.

§ 6651(a)(2). We first take up that challenge before addressing

the constitutional claims.

Under § 6651(a)(2), taxpayers who fail to pay their income

taxes on time are liable for an additional 0.5% of the amount due

for each additional month of nonpayment, up to a maximum of

25%. A taxpayer may gain relief from liability for late payment

by showing “that such failure is due to reasonable cause and not

due to willful neglect.” 26 U.S.C. § 6651(a)(2). The taxpayer

“must make an affirmative showing of all facts alleged as a

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reasonable cause for his failure to . . . pay such tax on time in the

form of a written statement containing a declaration that it is

made under penalties of perjury.” 26 C.F.R. § 301.6651-1(c)(1)

(emphasis added). The written statement “should be filed with

the district director or the director of the service center with

whom the [taxpayer’s] return is required to be filed.” Id.

The Kuretskis contend that they “clearly had reasonable

cause” for their failure to pay their taxes on time, thus entitling

them to penalty relief under § 6651(a)(2). Pet’rs’ Br. 49. The

Kuretskis, however, have never submitted a written statement

under penalty of perjury explaining why they had reasonable

cause for their nonpayment. They raise no challenge to the

validity of the regulation requiring a written statement under

penalty of perjury as a prerequisite for penalty abatement. Cf.

Mayo Found. for Med. Educ. & Research v. United States, 131

S. Ct. 704, 712-16 (2011) (Chevron deference to IRS

regulations). The regulation was adopted after notice and

comment, see 36 Fed. Reg. 13,594, 13,596 (July 22, 1971), and

the Kuretskis do not dispute its applicability to the penalty

abatement issue in their case. See Pet’rs’ Br. 50-51 (citing 26

C.F.R. § 301.6651-1(c)(1)). We see no basis for excusing their

failure to comply with a regulation they concede to be

applicable. See, e.g., Desabato v. United States, 538 F. Supp. 2d

422, 426 n.6 (D. Mass. 2008) (“Failure to submit such a written

statement to the IRS precludes a plaintiff from making a

‘reasonable cause’ showing for the first time in federal court.”);

Brown v. United States, 43 Fed. Cl. 463, 467 (1999) (taxpayer

liable for late-payment penalty where he failed to submit the

written statement required under 26 C.F.R. § 301.6651-1(c)(1)).

We therefore find no error in the Tax Court’s holding that the

Kuretskis owe late-payment penalties under 26 U.S.C.

§ 6651(a)(2). And because the Kuretskis’ failure to comply with

the regulation affords a sufficient basis for upholding the

imposition of late-payment penalties under § 6651(a)(2), we

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need not consider the Kuretskis’ remaining arguments

concerning the application of that provision against them.

III.

The Kuretskis’ principal contention on appeal is that the

prospect of presidential removal of Tax Court judges under 26

U.S.C. § 7443(f) violates the constitutional separation of

powers. The IRS, for its part, initially advances three reasons

for declining to reach the merits of the Kuretskis’ separation-of-

powers argument. We first consider (and reject) those asserted

reasons before turning to the merits.

A.

The IRS’s first asserted basis for declining to reach the

Kuretskis’ separation-of-powers argument is that they forfeited

the claim by failing to raise it until their motion for

reconsideration. The general rule in Tax Court cases is “not to

consider an argument raised for the first time in a motion for

reconsideration.” Cerand & Co. v. Comm’r, 254 F.3d 258, 260

(D.C. Cir. 2001). But the Supreme Court has recognized an

exception to the general rule: an appellate court may exercise

its discretion to hear “a constitutional challenge that is neither

frivolous nor disingenuous” if the “alleged defect . . . goes to the

validity of the Tax Court proceeding that is the basis for th[e]

litigation.” Freytag v. Comm’r, 501 U.S. 868, 879 (1991). In

that situation, the “disruption to sound appellate process entailed

by entertaining objections not raised below” may be outweighed

by “‘the strong interest of the federal judiciary in maintaining

the constitutional plan of separation of powers.’” Id. (quoting

Glidden Co. v. Zdanok, 370 U.S. 530, 536 (1962) (plurality

opinion)).

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Just as the Supreme Court in Freytag elected to consider a

belated constitutional challenge to the validity of a Tax Court

proceeding, id., we do so here. In Freytag, as here, the

petitioners raised a nonfrivolous constitutional challenge to the

validity of a Tax Court proceeding after the Tax Court’s initial

decision, and the petitioners’ claim implicated the federal

judiciary’s strong interest in maintaining the separation of

powers. The IRS, apparently attempting to suggest that the

Kuretskis’ separation-of-powers claim is “frivolous,”

characterizes the Kuretskis’ argument as “of a type that has been

repeatedly rejected.” Resp’t Br. 40 (citing Nash Miami Motors,

Inc. v. Comm’r, 358 F.2d 636 (5th Cir. 1966); Burns, Stix

Friedman & Co., 57 T.C. 392; and Parker v. Comm’r, 724 F.2d

469 (5th Cir. 1984)). None of the decisions on which the IRS

relies, however, considered the removal power argument raised

by the Kuretskis. Nor does this case involve “sandbagging”

concerns of the sort that the Supreme Court noted in Stern v.

Marshall, 131 S. Ct. 2594, 2608 (2011), in declining to consider

an argument that the bankruptcy court lacked statutory authority

to resolve the respondent’s defamation claim. In Stern, a timely

objection to the bankruptcy court’s statutory authority could

have led to the consideration of the claim in federal district

court. See 28 U.S.C. § 157(b)(5). Here, by contrast, in light of

the Tax Court’s exclusive jurisdiction over collection due

process appeals, there is no other forum in which the Kuretskis’

appeal could have been considered. See 26 U.S.C. § 6330(d)(1).

Second, the IRS argues that the Kuretskis waived any pre-

payment challenge to the constitutionality of the Tax Court

proceedings by seeking relief in the Tax Court in the first place.

Although Article III confers on litigants a “personal right” to

“have claims decided before judges who are free from potential

domination by other branches of government,” that right is

“subject to waiver, just as are other personal constitutional rights

that dictate the procedures by which civil and criminal matters

13

must be tried.” Commodity Futures Trading Comm’n v. Schor,

478 U.S. 833, 848-49 (1986) (internal quotation marks omitted).

But aside from any “personal right” that they assert, the

Kuretskis’ arguments also implicate a separate interest protected

by Article III: “‘the role of the independent judiciary within the

constitutional scheme of tripartite government.’” Id. at 848

(quoting Thomas v. Union Carbide Agric. Prods. Co., 473 U.S.

568, 583 (1985)). And when such a “structural principle is

implicated in a given case, . . . notions of consent and waiver

cannot be dispositive because the limitations serve institutional

interests that the parties cannot be expected to protect.” Id. at

850-51. In Schor, the Supreme Court thus found that the

respondent’s decision to seek relief in the CFTC rather than in

federal court amounted to a waiver of his claim under Article III

of a “personal right” to “an impartial and independent federal

adjudication,” 473 U.S. at 848, but that he did not (and could

not) thereby waive his “structural” claim, id. at 850-51.

The IRS errs in resting its waiver argument on McElrath v.

United States, 102 U.S. 426 (1880). In McElrath, a retired

Marine Corps officer sued the government in the Court of

Claims for back pay, and the government asserted a

counterclaim on the ground that the officer had received more

than he was entitled to be paid. Id. at 435-36, 440-41. After the

Court of Claims rendered judgment in favor of the government

on its counterclaim, the officer argued in the Supreme Court that

the entry of judgment without a jury trial violated the Seventh

Amendment. Id. at 439-40. The Supreme Court affirmed,

observing that “if [a litigant] avails himself of the privilege of

suing the government in the special court organized for that

purpose . . . , he must do so subject to the conditions annexed by

the government to the exercise of the privilege.” Id. at 440. As

the Court later explained in Schor, however, the “right to trial by

jury in civil cases”—at issue in McElrath—is one of the

“personal constitutional rights” that is “subject to waiver.”

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Schor, 478 U.S. at 848-49. Because the Kuretskis raise a

structural claim in addition to any “personal” claim akin to the

one asserted in McElrath, they did not waive their structural

challenge to the Tax Court proceedings by seeking relief in that

court. See, e.g., Waldman v. Stone, 698 F.3d 910, 918 (6th Cir.

2012).

Finally, the IRS asserts that the Kuretskis lack Article III

standing to challenge the presidential removal of Tax Court

judges. To establish Article III standing, the Kuretskis must

show (i) that they have suffered an “injury in fact,” (ii) that the

injury is “fairly traceable to the challenged action” of the IRS,

and (iii) that it is “likely . . . that the injury will be redressed by

a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S.

555, 560-61 (1992) (alteration, ellipsis, and internal quotation

marks omitted). The proposed levy on the Kuretskis’ home

undoubtedly qualifies as an “injury in fact” that is fairly

traceable to the IRS, but the IRS argues that the Kuretskis fail to

meet the redressability requirement. This Court, however, could

grant the Kuretskis adequate redress by striking down 26 U.S.C.

§ 7443(f) and then remanding the case to the Tax Court for a

new trial before a judge no longer subject to the threat of

presidential removal. We granted comparable relief in

Intercollegiate Broadcasting System, Inc. v. Copyright Royalty

Board, 684 F.3d 1332, 1340 (D.C. Cir. 2012). After holding

that a statutory provision limiting the ability of the Librarian of

Congress to remove judges from the Copyright Royalty Board

was unconstitutional, we remanded the case to the Board so that

the appellants’ claims could be heard by a constitutionally valid

tribunal. Id. at 1340-42. Although Intercollegiate Broadcasting

System involved a challenge to a statute restricting removal

while this case involves a challenge to a statute allowing for

removal, we see no reason why that distinction could make a

difference for redressability purposes. We thus conclude that

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the Kuretskis have standing to bring their separation-of-powers

claim, and we proceed to consider the merits of the issue.

B.

In support of their argument that presidential removal of

Tax Court judges violates the constitutional separation of

powers, the Kuretskis’ “primary position” is that the Tax Court

exercises “judicial power” under Article III of the Constitution.

In the alternative, the Kuretskis contend that the Tax Court is

part of the Legislative Branch. Either way, the Kuretskis argue,

presidential removal of Tax Court judges “leaves those judges

in an unconstitutional bind” because they “must fear removal

from an actor in another branch.” Pet’rs’ Br. 11, 33.

The Kuretskis’ challenge rests on the assumption that

“interbranch removal” is unconstitutional under Bowsher v.

Synar, 478 U.S. 714 (1986). “Nothing in Bowsher, however,

suggests that one Branch may never exercise removal power,

however limited, over members of another Branch.” Mistretta

v. United States, 488 U.S. 361, 411 n.35 (1989). We need not

explore the precise circumstances in which interbranch removal

may present a separation-of-powers concern because this case

does not involve the prospect of presidential removal of officers

in another branch. Rather, the Kuretskis have failed to persuade

us that Tax Court judges exercise their authority as part of any

branch other than the Executive. Consequently, if a President

were someday to exercise the authority under 26 U.S.C.

§ 7443(f) to remove a Tax Court judge for cause, the removal

would be entirely consistent with separation-of-powers

principles.

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1.

The Kuretskis’ principal submission is that Tax Court

judges exercise the judicial power of the United States under

Article III of the Constitution. We disagree.

Article III prescribes that the “judicial Power of the United

States” is “vested in one supreme Court, and in such inferior

Courts as the Congress may from time to time ordain and

establish.” U.S. Const. art. III, § 1. Judges of those courts “hold

their Offices during good Behaviour,” id., which means that they

are removable only via impeachment and conviction. See

United States ex rel. Toth v. Quarles, 350 U.S. 11, 16 (1955).

That arrangement aims “to give judges maximum freedom from

possible coercion or influence by the executive or legislative

branches of the Government.” Id.

“Article III could neither serve its purpose in the system of

checks and balances nor preserve the integrity of judicial

decisionmaking if the other branches of the Federal Government

could confer the Government’s ‘judicial Power’ on entities

outside Article III.” Stern, 131 S. Ct. at 2609. As a result,

“[w]hen a suit is made of ‘the stuff of the traditional actions at

common law tried by the courts at Westminster in 1789,’ and is

brought within the bounds of federal jurisdiction, the

responsibility for deciding that suit rests with Article III judges

in Article III courts.” Id. (citation omitted) (quoting N. Pipeline

Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 90 (1982)

(Rehnquist, J., concurring in the judgment)).

At the same time, the Supreme Court has recognized a

“category of cases involving ‘public rights’” that Congress can

constitutionally assign to non-Article III tribunals. Id. at 2610

(quoting Northern Pipeline, 458 U.S. at 67 (plurality opinion)).

The “public rights” category comprises disputes that “‘could be

17

conclusively determined by the Executive and Legislative

Branches’” without judicial intervention. Thomas v. Union

Carbide Agric. Prods. Co., 473 U.S. 568, 589 (1985) (quoting

Northern Pipeline, 458 U.S. at 68). The “public rights doctrine

reflects simply a pragmatic understanding that, when Congress

selects a quasi-judicial method of resolving matters” that could

be decided with no judicial review, “the danger of encroaching

on the judicial powers is reduced.” Id.

Although the precise contours of the “public rights”

doctrine are not fully formed, see Stern, 131 S. Ct. at 2610;

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 51 n.8 (1989),

it is “settled” that the category of public rights includes matters

of “internal revenue” and “taxation,” at least at the pre-

collection stage. Atlas Roofing Co. v. Occupational Safety &

Health Review Comm’n, 430 U.S. 442, 450-51 & nn.8-9 (1977)

(internal quotation marks omitted); see Crowell v. Benson, 285

U.S. 22, 50-51 (1932); Murray’s Lessee v. Hoboken Land &

Improvement Co., 59 U.S. 272, 284 (1856). Congress therefore

can constitutionally assign the adjudication of pre-collection tax

disputes to non-Article III tribunals. See Samuels, Kramer &

Co. v. Comm’r, 930 F.2d 975, 992 (2d Cir. 1991) (“The

relationship between the government and taxpayer plainly gives

rise to public rights and we have no doubt that the resolution of

such disputes can be relegated to a non-Article III forum.”),

abrogated on other grounds by Freytag, 501 U.S. at 892.

Congress undisputedly exercised that option when it

initially established the Tax Court as an Executive Branch

agency rather than an Article III tribunal. See Revenue Act of

1924 § 900(k), 43 Stat. at 338 (Board of Tax Appeals

established as independent executive agency); Revenue Act of

1942 § 504(a), 56 Stat. at 957 (Board renamed “The Tax Court

of the United States,” but status as independent executive

agency unchanged); see also 26 U.S.C. § 1100 (1946). The

18

Kuretskis believe that Congress shifted course in the 1969 Tax

Reform Act, when it adjusted the Tax Court’s formal title from

“Tax Court of the United States” to “United States Tax Court,”

and provided that the Tax Court was “established[] under article

I of the Constitution.” 26 U.S.C. § 7441. There is no indication,

however, that by prescribing that the Tax Court had been

established under Article I, Congress somehow converted what

had been an Executive Branch tribunal into an Article III court.

The legislative history in fact indicates a belief and intention

that the Tax Court is not an Article III body. See S. Rep. No.

91-552, at 304 n.2 (1969) (“limitations of Article III of the

Constitution, relating to life tenure and maintenance of

compensation,” do not apply to Tax Court judges). It would

seem clear, then, that the Tax Court is not a part of the Article

III Judicial Branch, and that its judges do not exercise the

“judicial Power of the United States” under Article III.

The Supreme Court’s decision in Freytag v. Commissioner,

however, adds a wrinkle to what would otherwise be a

straightforward analysis. The dispute in Freytag concerned a

statute allowing the Chief Judge of the Tax Court to appoint

“special trial judges” and assign certain cases to them. See 26

U.S.C. § 7443A. The petitioners in Freytag contended that the

provision for appointment of special trial judges violates the

Appointments Clause of Article II. That clause grants Congress

the power to “vest the Appointment of . . . inferior

Officers . . . in the President alone, in the Courts of Law, or in

the Heads of Departments.” U.S. Const. art. II, § 2, cl. 2. The

Freytag petitioners argued that “a special trial judge is an

‘inferior Officer’” and that “the Chief Judge of the Tax Court

does not fall within any of the Constitution’s three repositories

of the appointment power.” Freytag, 501 U.S. at 878 (alteration

omitted). The Supreme Court rejected that argument. Four

Justices would have held that the Tax Court is an executive

“Department” and the Chief Judge is its head. See id. at 920-22

19

(Scalia, J., concurring in part and concurring in the judgment).

A majority of five Justices instead held that the Tax Court is a

“Court of Law” (and, implicitly, that the Chief Judge of the Tax

Court can exercise the appointment power on behalf of the

court). See id. at 870, 892.

The Kuretskis rely substantially on the Freytag majority’s

holding that the Tax Court is a “Court of Law.” That holding,

however, does not call into question the constitutionality of the

President’s removal power over Tax Court judges under 26

U.S.C. § 7443(f). A tribunal may be considered a “Court of

Law” for purposes of the Appointments Clause notwithstanding

that its officers may be removed by the President. The Freytag

Court’s treatment of territorial courts confirms the point. The

Court indicated that territorial courts constitute “Courts of Law”

for purposes of the Appointments Clause, see Freytag, 501 U.S.

at 892, even though it was by then well settled that the President

may remove judges from territorial courts (including without

cause) if the governing statute allows it. See Shurtleff v. United

States, 189 U.S. 311, 316 (1903) (“judges of the territorial courts

may be removed by the President”); see also McAllister v.

United States, 141 U.S. 174, 179-91 (1891) (rejecting

constitutional challenge to President Cleveland’s suspension of

Alaska territorial judge).

To be sure, the Freytag Court observed that the Tax Court

“exercises a portion of the judicial power of the United States.”

Freytag, 501 U.S. at 891. That statement, if considered in

isolation, could be construed to suggest that Tax Court judges

exercise Article III powers. But the Freytag Court clarified that

“non-Article III tribunals . . . exercise the judicial power of the

United States,” such that “the judicial power of the United States

is not limited to the judicial power defined under Article III.”

Id. at 889 (citing Am. Ins. Co. v. Canter, 26 U.S. (1 Pet.) 511,

546 (1828)). The Court therefore used the phrase “judicial

20

power” in “an enlarged sense,” not in the particular sense

employed by Article III. See Murray’s Lessee, 59 U.S. at 280

(“judicial act” in “an enlarged sense” encompasses “all those

administrative duties the performance of which involves an

inquiry into the existence of facts and the application to them of

rules of law”); cf. City of Arlington v. FCC, 133 S. Ct. 1863,

1877-78 (2013) (Roberts, C.J., dissenting) (administrative

agencies exercise “judicial power” when they “adjudicat[e]

enforcement actions and impos[e] sanctions on those found to

have violated their rules”). As another court of appeals has

explained, a “central lesson from Freytag is that adjudication by

adversarial proceedings can exist outside the context of Article

III.” S.C. State Ports Auth. v. Fed. Mar. Comm’n, 243 F.3d 165,

171 (4th Cir. 2001), aff’d, 535 U.S. 743 (2002); see Freytag, 501

U.S. at 891 (Tax Court is “an adjudicative body”). The Freytag

Court, after all, repeatedly compared the Tax Court to the non-

Article III territorial courts. See id. at 889-90, 892.

The Kuretskis argue that the precedents allowing for

presidential removal of territorial judges have little bearing on

their separation-of-powers argument because “territorial courts

do not exercise the judicial power of the United States.” Pet’rs’

Br. 40-41. It is true that territorial courts do not exercise “the

judicial power of the United States” in the particular sense

addressed by Article III. See McAllister, 141 U.S. at 190. But

the Freytag Court suggests that territorial courts exercise

“judicial power” in the same overarching sense in which the Tax

Court exercises “judicial power,” such that the territorial courts

and the Tax Court are similarly situated for purposes of the

Appointments Clause. See Freytag, 501 U.S. at 889-90

(territorial court is “one of the ‘Courts of Law’” under

Appointments Clause). We see no reason why the territorial

courts and the Tax Court are not also similarly situated for

purposes of presidential removal. Accordingly, we conclude

that the Tax Court’s status as a “Court of Law”—and its

21

exercise of “judicial power”—for Appointments Clause

purposes under Freytag casts no doubt on the constitutionality

of the President’s authority to remove Tax Court judges.

2.

Even if the Tax Court does not exercise Article III judicial

power, the Kuretskis argue as a fallback position that the Tax

Court functions as part of the Article I Legislative Branch.

Understandably, the Kuretskis make no attempt to explain how

the Tax Court could conceivably be considered a legislative

body or conceivably be seen to possess legislative power.

Instead, the Kuretskis suggest that the Tax Court may fall within

the Legislative Branch because it constitutes “an Article I

legislative court.” We have no disagreement with the

characterization of the Tax Court as an “Article I legislative

court.” Congress, as explained, amended 26 U.S.C. § 7441 in

1969 to provide that the Tax Court is a “court of record”

established “under article I of the Constitution.” And the

Freytag Court understood that the “clear intent of Congress” in

the 1969 Act was “to transform the Tax Court into an Article I

legislative court.” Freytag, 501 U.S. at 888. But even if the

1969 Act transformed the Tax Court into an Article I legislative

court, it did not thereby transfer the Tax Court to the Legislative

Branch.

The Constitution itself “nowhere makes reference to

‘legislative courts’”; the “concept of a legislative court” instead

“derives from the opinion of Chief Justice Marshall in American

Insurance Co. v. Canter.” Glidden, 370 U.S. at 543-44 (citing

Canter, 26 U.S. (1 Pet.) 511). In Canter, Chief Justice Marshall

used the phrase “legislative Courts” to describe the territorial

courts of Florida, which at the time had yet to be admitted to the

Union as a state. “The jurisdiction with which [the Florida

territorial courts] are invested,” according to Chief Justice

22

Marshall, “is not a part of that judicial power which is defined

in the 3d article of the Constitution, but is conferred by

Congress, in the execution of those general powers which that

body possesses over the territories of the United States.”

Canter, 26 U.S. (1 Pet.) at 546; cf. U.S. Const. art. IV, § 3, cl. 2

(“Congress shall have Power to . . . make all needful Rules and

Regulations respecting the Territory . . . belonging to the United

States”). Later decisions describe tribunals such as the Court of

Customs Appeals and the superior courts of the District of

Columbia as “legislative courts”; those bodies, like the Florida

territorial courts, were created by Congress pursuant to non-

Article III powers. See Ex parte Bakelite Corp., 279 U.S. 438,

449-61 (1929); cf. U.S. Const art. I, § 8, cl. 1 (“Power To lay

and collect . . . Duties, Imposts and Excises”); id. art. I, § 8, cl.

17 (legislative power “over such District . . . as may . . . become

the Seat of the Government of the United States”).

A tribunal constitutes a “legislative court” if its power “is

not conferred by the third article of the Constitution, but by

Congress in the execution of other provisions of that

instrument.” Williams v. United States, 289 U.S. 553, 565-66

(1933). Congress’s authority to create the Tax Court stems from

two clauses in Article I, Section 8 of the Constitution: the

Taxing and Spending Clause and the Necessary and Proper

Clause. See U.S. Const. art. I, § 8, cl. 1 (“Congress shall have

Power To lay and collect Taxes . . . to pay the Debts and provide

for the common Defence and general Welfare”); id. art. I, § 8,

cl. 18 (authority “[t]o make all Laws which shall be necessary

and proper for carrying into Execution the foregoing Powers”).

The Tax Court itself has explained that it owes its existence to

Congress’s authority under those Clauses. See Burns, Stix

Friedman & Co., 57 T.C. at 394-95.

The Tax Court’s status as an “Article I legislative court,”

Freytag, 501 U.S. at 888, does not mean that its judges exercise

23

“legislative power” under Article I. Cf. Whitman v. Am.

Trucking Ass’ns, 531 U.S. 457, 472-73 (2001) (“legislative

power” consists of decisionmaking authority without any

“‘intelligible principle to which the person or body

authorized . . . is directed to conform’” (quoting J. W. Hampton,

Jr., & Co. v. United States, 276 U.S. 394, 409 (1928))). The

Tax Court is in the business of interpreting and applying the

internal revenue laws, see Freytag, 501 U.S. at 891, not in the

business of making those laws. And the Tax Court’s Article I

origins do not distinguish it from the mine run of Executive

Branch agencies whose officers may be removed by the

President. After all, every Executive Branch entity, from the

Postal Service to the Patent Office, is established pursuant to

Article I. See U.S. Const. art. I, § 8, cl. 7 (Postal Clause); id. art.

I, § 8, cl. 8 (Copyright and Patent Clause). The Tax Court no

more exercises Article I powers than do those agencies. The

Tax Court’s status as an “article I legislative court” therefore

presents no barrier to presidential removal of Tax Court judges.

See Mistretta, 488 U.S. at 411 n.35 (“the President may remove

a judge who serves on an Article I court”).

3.

We have explained that Tax Court judges do not exercise

the “judicial power of the United States” pursuant to Article III.

We have also explained that Congress’s establishment of the

Tax Court as an Article I legislative court did not transfer the

Tax Court to the Legislative Branch. It follows that the Tax

Court exercises its authority as part of the Executive Branch.

That conclusion is fully consistent with Freytag. The

Freytag majority rejected the argument that the Tax Court is an

executive “Department” for purposes of the Appointments

Clause. See Freytag, 501 U.S. at 888. But the majority also

made clear that an entity can be a part of the Executive Branch

24

without being an executive “Department.” See id. at 885 (“We

cannot accept the Commissioner’s assumption that every part of

the Executive Branch is a department, the head of which is

eligible to receive the appointment power.”); id. at 886 (“a

holding that every organ in the Executive Branch is a

department would multiply indefinitely the number of actors

eligible to appoint”). One of our sister circuits thus understands

Freytag to hold that “the Tax Court is a Court of Law despite

being part of the Executive Branch.” S.C. State Ports Auth., 243

F.3d at 171 (emphasis added).

The Freytag majority also observed that the Tax Court

“remains independent of the Executive . . . Branch[],” and in

that sense exercises something other than “executive” power.

501 U.S. at 891. We understand that statement to describe the

Tax Court’s functional independence rather than to speak to its

constitutional status. The Supreme Court has used similar

language to describe “quasilegislative” and “quasijudicial”

agencies such as the Federal Trade Commission, noting that

such agencies are “wholly disconnected from the executive

department” and that their members must “act in discharge of

their duties independently of executive control.” Humphrey’s

Ex’r v. United States, 295 U.S. 602, 629-30 (1935). While

“independent,” members of such agencies can be removed by

the President for cause. See Fed. Mar. Comm’n v. S.C. State

Ports Auth., 535 U.S. 743, 773 (2002) (Breyer, J., dissenting on

other grounds) (noting that “[c]onstitutionally speaking, an

‘independent’ agency belongs neither to the Legislative Branch

nor to the Judicial Branch of Government,” and “even

‘independent’ agencies[] are more appropriately considered to

be part of the Executive Branch”). And the Tax Court is hardly

the sole Executive-Branch “adjudicative body,” Freytag, 501

U.S. at 891, to sit in “independent” judgment of other executive

actors. See, e.g., 5 U.S.C. § 1204(a) (Merit Systems Protection

Board sits in judgment of other agencies); id. § 7105(g) (Federal

25

Labor Relations Authority); 10 U.S.C. § 867 (Court of Appeals

for the Armed Forces reviews decisions of other Defense

Department entities); 29 U.S.C. § 659(c) (Occupational Safety

and Health Review Commission sits in judgment of Secretary of

Labor); 39 C.F.R. § 3001.1 et seq. (Postal Regulatory

Commission sits in judgment of Postal Service). Congress may

afford the officers of those entities a measure of independence

from other executive actors, but they remain Executive-Branch

officers subject to presidential removal. Cf. City of Arlington,

133 S. Ct. at 1873 n.4 (“Agencies . . . conduct

adjudications . . . and have done so since the beginning of the

Republic. These activities take . . . ‘judicial’ form[], but they

are exercises of—indeed, under our constitutional structure they

must be exercises of—the ‘executive Power.’” (quoting U.S.

Const. art. II, § 1, cl. 1)).

In relevant respects, the constitutional status of the Tax

Court mirrors that of the Court of Appeals for the Armed Forces.

The statutes establishing the status of the two courts precisely

parallel one another. Each provides that the respective court is

a “court of record” “established under article I of the

Constitution.” 10 U.S.C. § 941 (Court of Appeals for the Armed

Forces); 26 U.S.C. § 7441 (Tax Court). In fact, when Congress

in 1969 enacted that language for the Tax Court, it specifically

sought to bring the Tax Court into alignment with the Court of

Appeals for the Armed Forces (then known as the Court of

Military Appeals). See S. Rep. No. 91-552, at 304 (“The bill

establishes the Tax Court as a court under Article I of the

Constitution,” and “[a]t the present time, the Court of Military

Appeals is the only other Article I court.”). In doing so, and in

departing from the prior language describing the Tax Court as

an executive “agency,” Congress aimed to emphasize the Tax

Court’s independence as a “court” reviewing the actions of the

IRS. See id. at 302 (observing that “it is anomalous to continue

to classify [the Tax Court] with quasi-judicial executive

26

agencies that have rulemaking and investigatory functions” as

opposed to a body having “only judicial duties,” and noting

“questions in the minds of some as to whether it is appropriate

for one executive agency to be sitting in judgment on the

determinations of another executive agency”). And while we

have no need to reach the issue here, Congress, in establishing

those entities as a “court” rather than an “agency,” perhaps also

exempted them from statutes that apply solely to executive

“agencies.” Cf. Megibow v. Clerk of the U.S. Tax Court, No. 04-

3321, 2004 U.S. Dist. LEXIS 17698, at *13-22 (S.D.N.Y. Aug.

31, 2004) (Tax Court is a “court of the United States” and not an

“agency” under the Administrative Procedure Act, 5 U.S.C.

§ 551(1)), aff’d, 432 F.3d 387 (2d Cir. 2005) (per curiam).

Congress did not, however, move the Tax Court outside the

Executive Branch altogether. Indeed, the Supreme Court has

recognized that the Court of Appeals for the Armed Forces is an

“Executive Branch entity” and that its judges are “Executive

officers.” Edmond v. United States, 520 U.S. 651, 664-65

(1997); see id. at 664 n.2 (finding it “clear that [the Court of

Appeals for the Armed Forces] is within the Executive

Branch”). Congress sought to—and did—achieve the same

status for the Tax Court.

IV.

The Kuretskis raise a separate constitutional challenge to

the IRS’s procedure for collection-due-process hearings. That

procedure, in the Kuretskis’ view, failed in their case to satisfy

the requirements of the Fifth Amendment’s Due Process Clause.

We are unpersuaded.

“An essential principle of due process is that a deprivation

of life, liberty, or property ‘be preceded by notice and

opportunity for hearing appropriate to the nature of the case.’”

27

Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542 (1985)

(quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S.

306, 313 (1950)). The Kuretskis acknowledge that they received

notice of the IRS’s proposed levy and a hearing before the IRS

settlement officer assigned to their case. The Kuretskis,

however, have a “sneaking suspicion” that the decision to deny

them a penalty abatement was “influenced” by the appeals team

manager who supervised the settlement officer. Pet’rs’ Br. 54.

They argue that they should have been afforded an opportunity

to comment on the settlement officer’s written report to her

appeals team manager or “some opportunity to interact” with the

manager before he made a final decision to deny their abatement

request. Id. at 56.

Assuming arguendo that the Due Process Clause generally

requires the IRS to afford a taxpayer some manner of hearing

before imposing a levy, see United States v. James Daniel Good

Real Prop., 510 U.S. 43, 60-61 (1993), there is no basis for

recognizing a constitutional entitlement for taxpayers to

comment on an IRS settlement officer’s report to her appeals

team manager or present their case directly to the appeals team

manager. The Kuretskis rely on Ballard v. Commissioner, 544

U.S. 40 (2005), which holds that the Tax Court must disclose the

reports of special trial judges who serve as factfinders in cases

in which Tax Court judges make the ultimate decision. But the

Court based its holding on its interpretation of the Tax Court

Rules, see id. at 46-47 & n.2, and “express[ed] no opinion” on

whether “the Due Process Clause requires disclosure of a trial

judge’s factfindings that have operative weight in a court’s final

decision,” id. at 64-65.

In Gottlieb v. Pena, 41 F.3d 730 (D.C. Cir. 1994), we

rejected a due process claim similar to the one advanced by the

Kuretskis. There, a Coast Guard lieutenant commander applied

to a Coast Guard board for correction of his military record, and

28

the board heard evidence before submitting a recommended

decision to the Secretary of Transportation. The Secretary was

the final decisionmaker, however, and the plaintiff had no

opportunity to examine the board’s initial decision or make a

submission to the Secretary in light of the board’s

recommendation. We held that the Coast Guard’s procedures

did not violate the Fifth Amendment Due Process Clause,

concluding that the lieutenant commander had no “entitle[ment]

to input or process past the first ‘tier’ and cannot force the

agency to open its essentially deliberative process.” Id. at 737

(citing Morgan v. United States, 298 U.S. 468, 481 (1936)); see

also Morgan, 298 U.S. at 481 (“[e]vidence may be taken by an

examiner” and “may be sifted and analyzed by competent

subordinates,” so long as “the officer who makes the

determinations . . . consider[s] and appraise[s] the evidence

which justifies them”).

In any event, regardless of the procedure in the collection-

due-process hearing, the Kuretskis subsequently had an

opportunity to challenge the IRS’s proposed levy in Tax Court,

and also to contest any underlying liability for which they lacked

a prior opportunity to raise a challenge. See 26 U.S.C.

§ 6330(c)(2), (d)(1). When a petitioner appeals the IRS’s

proposed levy action to the Tax Court, the levy action is

suspended while the appeal remains pending. Id. § 6330(e)(1).

Thus, the Tax Court proceeding itself allows an opportunity for

a pre-deprivation hearing. Because the Kuretskis make no claim

that the Tax Court proceedings fall short of the Fifth

Amendment Due Process Clause’s requirements, they cannot

prevail on their challenge under that Clause.

* * * * *

For the foregoing reasons, we affirm the decision of the Tax

Court.

So ordered.