Opposition Brief — Ballard v. Commissioner

[Supreme Gout 0 S—

~ FILED

OCT 6 ~ 2003

No. 03-184 LOFFICE OF mE CLERK |

Jn the Supreme Court of the Gnited States

CLAUDE M. BALLARD AND MARY B. BALLARD,

PETITIONERS

Vv.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

THEODORE B. OLSON

Solicitor General

Counsel of Record

EILEEN J. O'CONNOR

Assistant Attorney General

KENNETH L. GREENE

STEVEN W. PARKS

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTIONS PRESENTED

When a case is assigned to a Special Trial Judge of

the Tax Court, the Special Trial Judge is to make a

“report, including findings of fact and opinion, to the

Chief Judge, and the Chief Judge will [then] assign the

case to a Judge or Division of the Court.” Tax Ct. R.

183(b). The Judge to whom the case is thus assigned

“may adopt the Special Trial Judge’s report or may

modify it or may reject it in whole or in part * * * .”

Tax Ct. R. 183(c). The questions presented in this case

are:

1. Whether the Due Process Clause requires that

the “original” report of the Special Trial Judge be dis-

closed to the parties.

2. Whether 26 U.S.C. 7482(a), which authorizes ap-

pellate review of Tax Court decisions, requires that the

“original” report of the Special Trial Judge be disclosed

to the parties.

(I)

Cases:

TABLE OF CONTENTS

SEES EEE EERE EEE EEE EEE EERE EEE EEE ET EE EEE ESET ESTEE EEE EEE ESSE EES R SEES RESO ROBE EES

elaieeei tit tieeeehhhhhhhthhhhteLLELLLELLLLLLLLLLELLETet

SEER EEE E EEE EEE EE EEE EEE TEETER EEE EEE EEE EERE EEEEEEE SEER SEES EERE E SESE E SEER EEE R ESOS

TABLE OF AUTHORITIES

Bakelite Corp, Ex parte, 279 U.S. 458 (1929) ..cccccccccccccoooes

Ballard, In re, No. 00-14762-H (11ta Cir. Oct. 23,

2000)

FOERSTER EEE EEE EEE EEE FEET EERE HESS REESE EEE EEE EEO R EEE ES

C. Blake McDowell, Inc. v. Commissioner, 67 T.C.

ee

Checkosky v. SEC, 23 F.3d 452 (D.C. Cir. 1994) ..............

Colorado v. New Mexico, 467 U.S. 310 (1984) ..................

Cook, In re, 49 F.3d 263 (7th Cir. 1995) .....cccccccccccscceceeceeenen

Crowell

V. Benson, 285 U.S. 22 (1982) ..ccccccccccccccccecececeeeees

Estate of Varian v. Commissioner, 396 F 2d 753

(9th Cir.), cert. denied, 393 U.S. 962 (1968) ......cccccceoe.

Estate of Robert W. Lisle, In re, No. 00-60637

NO

Fayerweather v. Ritch, 195 U.S. 276 (1904) en

Freytag v. Commissioner.

904 F 2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868

(1991)

501 U.S. 868 (1991) aa

Goetz v. Corsson, 41 F.3d 800 (2d Cir. 1994), cert.

denied, 516 U.S. 821 (1995) ..

Halle v. Commissioner, 175 F.2d 500 (24 Cir.

1949),

cert. denied, 338 U.S. 949 (1950)

Heim v. Commissioner, 251 F 2d 44 (8th Cir.

1958)

(IIT)

10

IV

Cases—Continued: Page

Hilton v. Commissioner, 74 T.C. 305 (1980) 14

Investment Research Ass'ns & Sub. and Burton W.

and Naomi R. Kanter, In re, No. 00-3369 (7th Cir.

Dec. 15, 2000) 5

La Fargue v. Commissioner, 73 T.C. 40 (1979) ............... 14

Kanter v. Commissioner, 337 F 3d 833 (7th Cir.

2003) 5, 11, 15, 16

Kansas City So. Ry. v. Commissioner, 337 F 2d 833

(7th Cir. 2003) 14

Lisle v. Commissioner, 341 F 3d 364 (Sth Cir.

2003) 5, 15, 16

Morgan v. United States, 298 US. 468 (1936) ~................ 9

Murray's Lessee v. Hoboken Land & Improvement

Co., 59 U.S. (18 How.) 272 (1855) 12

Narver v. Commissioner, 75 T.C. 53 (1980) 14

NLRB v. Mackey Radio & Tel. Co., 304 US. 333

(1938) 10

Northern Pipeline Constr. Co. v. Marathon Pipe

Line Co., 458 U.S. 50 (1982) 12

Ocean Sands Holding Corp. v. Commissioner,

4) T.C.M. (CCH) 1 (1980) 14

Richard v. Commissioner, 69 T.C. 750 (1978) .................. 14

Rogers v. Lodge, 458 US. 613 (1982) 13

Rosenbaum v. Commissioner, 45 T.C.M. (CCH) 825

(1983) 11

Seaside Improvement Co. v. Commissioner, 105 F 2d

990 (2d Cir.), cert. denied, 308 U.S. 618 (1939) 10

Stone v. Commissioner, 865 F 2d 342 (D.C. Cir.

1989) .. 11

Tiffany Fine Arts, Inc. v. United States, 469 US.

310 (1985) 13

Towers v. Commissioner, 247 F 2d 233 (2d Cir.

1957), cert. denied, 355 U.S. 914 (1958) 10

Cases—Continued: Page

United States v. Crouch, 566 F.2d 1311 (5th Cir.

BOD eccercsenssesnssestsesemremmntnsnnennnnensnennenCRRERNRRRANTEENENEE ~

Universal Camera Corp. v. NLRB, 340 US. 474

GD cence _ sepruetieepenememmeeemesenen 10

Utica Mut. Ins. Co. v. Vincent, 375 F.2d !29

(2d Cir.), cert. denied, 389 U.S. 839 (1967) ... ..........cececereee 9

Constitution, statutes and rule:

U.S. Const.:

EEE 12

Art. III - eaeaencacaseaeeasaasemmmmmnmmasiemmnmneses 12

Internal Revenue Code (26 U.S.C.):

ee, 10

EE 7

EEE 7

LEE 7

OO 7

OS | 2,7

eee 7

§ 7443A(c) ————— 7,8

§ 7453 apenenspimuamanane 7

0 eee 13

§ 7460(b) meeteesiecamnnieniieamnats 10

a 7, 12

Revenue Act of 1928, ch. 852, § 601, 45 Stat. 791 .... ........ os 10

Tax Ct. R.:

Rule 183 7-8, 11,15

Rule 183(b) 2, 13, 15

Rule 183(c) 8

Miscellaneous:

A. Carter, A History of the English Courts (1944) ............ 12

9 W. Holdsworth, A History of English Law (7th ed.

1926) 12

In the Supreme Court of the United States

No. 03-184

CLAUDE M. BALLARD AND MARY B. BALLARD,

PETITIONERS

v.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-18a)

is reported at 321 F.3d 1037. The opinion of the Tax

Court (Pet. App. 19a-306a) is unofficially reported at 78

T.C.M. (CCH) 951.

JURISDICTION

The judgment of the court of appeals was entered on

February 13, 2003. The petition for rehearing was

denied on May 5, 2003. Pet. App. 307a. The petition for

a writ of certiorari was filed on August 4, 2003. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1). |

(1)

2

STATEMENT

1. Petitioner Claude Ballard was a senior vice-

president of Prudential Life Insurance Co. of America.

Acting with another vice-president of that company

named Robert Lisle and a tax attorney named Burton

Kanter, petitioner participated in a scheme in which

persons seeking to do business with Prudential paid

kickbacks for such business to Kanter. Kanter then

funneled more than $3 million of that money to peti-

tioner through a complex web of corporations, partner-

ships and trusts. Pet. App. 2a-4a. Petitioner received

these kickback payments through a number of devices

—such as deposits by Kanter into a corporation con-

trolled by petitioner, sham loans by Kanter to peti-

tioner, and sham consu!tant payments to members of

petitioner’s family. Jd. at 4a.

Petitioner failed to report the kickbacks he received

as income on his federal income tax returns. After

discovering the kickbacks, the Commissioner issued

notices of deficiency to petitioner, Kanter and Lisle for

the resulting income tax deficiencies and civil fraud

penalties. Pet. App. 5a.

2. Petitioner, Kanter and Lisle each sought review

of the Commissioner’s determinations in the Tax Court.

Pet. App. 19a. ,

After their cases were consolidated in the Tax Court,

the Chief Judge assigned them to be heard by Special

Trial Judge D. Irvin Couvillion pursuant to 26 U.S.C.

71443A(b)(4). After a lengthy trial, the Special Trial

Judge submitted a report on these consolidated cases to

the Chief Judge as required by Tax Court Rule 183(b).

The cases were then referred by the Chief Judge to Tax

Court Judge Howard A. Dawson fer decision. Pet. App.

5a-6a, 3lla. On December 15, 1999, the Tax Court

3

issued an opinion in the consolidated cases which states

that “[tJhe Court agrees with and adopts the opinion of

the Special Trial Judge, which is set forth below.” Jd. at

38a. This opinion of the Tax Court sustained the major

portion of the deficiencies and penalties determined by

the Commissioner.

3. Petitioner, along with Kanter and Lisle, there-

after filed a motion seeking access to “all reports, draft

opinions or similar documents, prepared and delivered

to the Court pursuant to Rule 183(b).” Pet. App. 6a. In

the alternative, they asked the Tax Court to make a

copy of such materials a part of the record in the case.

Ibid.; App., infra, la. The Tax Court denied this

motion, stating that (id. at 2a):

In reviewing the Special Trial Judge’s report, Judge

Dawson gave due regard to the fact that Special

Trial Judge Couvillion evaluated the credibility of

witnesses, as reflected in the Memorandum

Findings of Fact and Opinion (T.C. Memo. 1999-407),

and he treated the findings of fact recommended by

the Special Trial Judge as being presumptively

correct. * * * [T)he provisions of section

+m ae and Rule 183 were followed by the

urt.

The Tax Court emphasized that “Petitioners appear not

to appreciate the distinction between the special trial

judges’ authority to hear cases and prepare proposed

findings and opinions under [26 U.S.C. 7443A(b)(4)} and

their lack of authority actually to decide those cases,

which is reserved exclusively for judges of the Tax

Court.” App., infra, 3a (quoting Freytag v. Commis-

sioner, 501 U.S. 868, 874 (1991)). The Tax Court con-

cluded that, “{iJn any event such materials are confiden-

tial and not subject to production because they relate to

4

the internal deliberative processes of the Court. Cf.

Sec. 7460(b).” App., infra, 3a.

Petitioner then filed a second motion requesting that

the Special Trial Judge’s report be included in the

record under seal. That motion was also denied by the

Tax Court. Pet. App. 6a.

4. Petitioner then moved for reconsideration or for a

new trial. Pet. App. 6a-7a. Attached to this motion was

an affidavit of Randall G. Dick, counsel for Kanter. In

that affidavit. Dick stated that he had been informed by

two or three unnamed judges of the Tax Court that

Specia! Trial Judge Couvillion had recommended in his

“original” report that the kickback “payments made by

‘the [persons seeking to do business with Prudential]

were not taxable to the individual petitioners and that

the fraud penalty was not applicable.” Jd. at 7a, 309a.

The Tax Court denied that motion in an order signed

by Chief Judge Thomas B. Wells, Judge Dawson, and

Special Trial Judge Couvillion. The court stated that

“(t]he only official Memorandum Findings of Fact and

Opinion by the Court in these cases is T.C. Memo. 1999-

407, filed on December 15, 1999, by Special Trial Judge

Couvillion, reviewed and adopted by Judge Dawson,

and reviewed and approved by former Chief Judge

Cohen.” Pet. App. 314a-315a. The Tax Court stated

that the alleged statements purportedly made to Dick

were thus “irrelevant and immaterial.” Jd. at 314a.

The court further stated that (id. at 315a):

Judge Dawson states and Special Trial Judge

Couvillion agrees, that, after a meticulous and time-

consuming review of the complex recurd in these

cases, Judge Dawson adopted the findings of fact

and opinion of Special Trial Judge Couvillion, that

Judge Dawson presumed the findings of fact recom-

5

mended by Special Trial Judge Couvillion were cor-

rect, and that Judge Dawson gave due regard to the

circumstance that Special Trial Judge Couvillion

evaluated the credibility of witnesses.

5. Petitioner, along with Kanter and Lisle, then filed

petitions for mandamus in the Eleventh, Seventh, and

Fifth Circuits, respectively, in which they sought

orders directing Judge Dawson and the Tax Court to

provide them with a copy of the “original” report pre-

pared by Special Trial Judge Couvillion. In the alter-

native, they sought an order directing the Tax Court to

describe any changes made to the initial report sub-

mitted by Special Trial Judge Couvillion. The petitions

for writs of mandamus were denied. Jn re Ballard, No.

00-14762-H (lith Cir. Oct. 23, 2000); In re Investment

Research Associations & Sub. and Burton W. and

Naomi R. Kanter, No. 00-3369 (7th Cir. Dec. 15, 2000);

In re Estate of Robert W. Lisle, No. 00-60637 (5th Cir.

Sept. 18, 2000).

6. After the entry of final decisions, petitioner ap-

pealed to the Eleventh Circuit, Kanter appealed to the

Seventh Circuit, and Lisle appealed to the Fifth Circuit.

All three of these courts of appeals rejected the

assertion that the proceedings in the Tax Court denied

the taxpayers the due process of law. Pet. App. la-18a;

Kanter v. Commissioner, 337 F.3d 833 (7th Cir. 2003);

Lisle v. Commissioner, 341 F.3d 364 (5th Cir. 2003).

In the present case, the court of appeals emphasized

that the fact that the order of the Tax Court was signed

by the Special Trial Judge, as well as by the reviewing

judge and the chief judge, demonstrates “that the

report adopted by the Tax Court accurately reflected

[the Special Trial Judge’s] findings and opinion.” Pet.

App. 10a. Responding to the affidavit of the taxpayer’s

6

counsel, who asserted that the opinion underwent

changes prior to its final adoption by the Tax Court, the

court stated that (id. at 9a-10a):

Even assuming [this] affidavit to be true and afford-

ing Petitioners-Appellants all reasonable inferences,

the process utilized in this case does not give rise to

a due process concern. While the procedures used in

the Tax Court may be unique to that court, there is

nothing unusual about judges conferring with one

another about cases assigned to them. These con-

ferences are an essential part of the judicial process

when, by statute, more than one judge is charged

with the responsibility of deciding the case. And, as -

a result of such conferences, judges sometimes

change their original position or thoughts. Whether

Special Trial Judge Couvillion prepared drafts of his

report or subsequently changed his opinion entirely

is without import insofar as our analysis of the

alleged due process violation pertaining to the

application of Rule 183 is concerned. Despite the

invitation, this court will simply not interfere with

another court’s deliberative process.

ARGUMENT

The decision of the court of appeals is correct and

does not conflict with any decision of this Court or of

any other court of appeals. Further review is therefore

not warranted.

1. Petitioner asserts that his right to due process

was violated when he has not given a copy of the

“original” report of the special trial judge. Petitioner

claims that he has a due process right to examine the

“original” report (Pet. i, 7-27) because a special trial

judge assigned to hear a case is the “fact-finder” (Pet. 3,

7

7-9, 11, 20, 22, 24) whose findings are to be reviewed

under a “clearly erroneous” standard (Pet. 7, 9, 14, 17-

20). Petitioner further contends that the special trial

judge proposed findings that he owed no deficiencies

and that the Tax Court disagreed with those proposed

findings and persuaded the special trial judge to change

his mind through assertedly impermissible “ex parte”

communications with the Special Trial Judge (Pet. 7, 14,

20-23). Finally, petitioner asserts (Pet. 9, 23-24) that it

is necessary to include the “original” report of the Spe-

cial Trial Judge in the record so that the court of

appeals may review the decision of the Tax Court “in

the same manner and to the same extent as decisions of

the district courts” (26 U.S.C. 7482(a)). Each of these

contentions lack merit.

a. Sections 7443A(b)(1)-(3) and (c) of the Internal

Revenue Code permit the chief judge to assign particu-

lar types of cases—which are ordinarily small cases—

to be heard and decided by special trial judges. 26

U.S.C. 7483A(b)(1)-(3), (c). At the time relevant to this

case, Section 7443A(b)(4) of the Code (now subsection

(b)(5)) authorized the chief judge to assign “any other

proceeding” to special trial judges for hearing and

recommended decision only. 26 U.S.C. 7443A(b)(5).

Any decision in this latter category of cases must be

entered by a regular Tax Court judge. The present

case, involving the concealed kickback income received

by petitioner, was assigned to the special trial judge

only for hearing and recommended decision under this

statute. App.,infra,la. —

The Internal Revenue Code does not prescribe proce-

dures to be employed by the Tax Court in its use of

special trial judges. Instead, Congress has authorized

the Tax Court to adopt rules prescribing such proce-

dures. 26 U.S.C. 7443A(a), 7453. Rule 183 of the Tax

8

Court was adopted pursuant to this authority. That

Rule neither authorizes nor requires disclosure to the

parties of the reports and recommendations prepared

by special trial judges. Instead, in light of the require-

ment that cases that are assigned only for hearing by a

special trial judge must ultimately be decided by a

regular judge of the Tax Court (26 U.S.C. 7443A(c)),

Rule 183 notes that the reports prepared by the special

trial judge merely “recommend” findings and that the

judge to whom the chief judge assigns the case “may

adopt the Special Trial Judge’s report or may modify it

or may reject it in whole or in part, or may direct the

filing of additional briefs or may receive further evi-

dence or may direct oral argument, or may recommit

the report with instructions.” Tax Ct. R. 183(c).

A judge of the Tax Court to whom a case is ulti-

mately assigned may thus either (i) adopt or abandon

the special trial judge’s report in its entirety or (ii)

modify or otherwise use the special trial judge’s report

as a step in the fact-finding process. Under Tax Court

Rule 183, as well as under the deliberative processes of

courts generally, communications between the judges

(and special trial judges) to whom a case is assigned for

disposition are not produced or disclosed to the parties.

Pet. App. 2a-3a. See Goetz v. Crosson, 41 F.3d 800, 805

(2d Cir. 1994), cert. denied, 516 U.S. 821 (1995); United

States v. Crouch, 566 F.2d 1311, 1316 (5th Cir. 1978); Jn

re Cook, 49 F.3d 263, 265 (7th Cir. 1995); Fayerweather

v. Ritch, 195 U.S. 276, 306-07 (1904). As the court of

appeals emphasized in this case, “there is nothing

unusual about judges conferring with one another about

cases assigned to them.” Pet. App. 9a.

b. It has, moreover, long been settled that, in cases

in which due process requires a trial-type hearing, find-

ings may be made by an officer who has “heard” the

9

evidence in the sense of having reviewed and consid-

ered the evidence. Due process does not mandate that

the officer charged with making the findings and

decision also have personally observed the testimony in

the case. In Morgan v. United States, 298 U.S. 468

(1936), this Court explained that, while “(t]he one who

decides must hear,” this does not require personal

observation of the witnesses (id. at 481-482) (emphasis

added):

Evidence may be taken by an examiner. Evidence

thus taken may be sifted and analyzed by competent

subordinates. Argument may be oral or written.

The requirements are not technical. But there must

be a hearing in a substantial sense. And to give the

substance of a hearing, which is for the purpose of

making determinations upon evidence, the officer

who makes the determinations must consider and

appraise the evidence which justifies them.

In Morgan, the examiner who personally heard the

testimony declined to prepare a tentative report that

could then be subjected to argument and exceptions

before the Secretary to whom the authority to enter

the decision had been given by Congress. Jd. at 475-

476. In rejecting the contention that such a procedure

was required, this Court stated that, “while it would

have been good practice to have the examiner prepare a

report and submit it to the Secretary and the parties,

and to permit exceptions and arguments addressed to

the points thus presented * * * we cannot say that

that particular type of procedure was essential to the

validity of the hearing * * * .” Jd. at 478. Similarly, in

Utica Mutual Insurance Co. v. Vincent, 375 F.2d 129,

131 (2d Cir.), cert. denied, 389 U.S. 839 (1967), the court

rejected the contention that, “when there are issues of

10

credibility * * * no determination of fact may be made

unless the decider has either seen the witnesses himself

or has been furnished with a report as to credibility by

another.” The court stated that “[e]ven on issues where

due process requires a ‘trial type’ hearing, the due

process clause makes no such inexorable command.”

See NLRB v. Mackey Radio & Tele. Co., 304 U.S. 333,

350-351 (1938).

In the analogous circumstance in which a case that

has been tried by one judge of the Tax Court is then

reviewed by the full Tax Court, Congress has made

clear since the very origins of that court that the “origi-

nal” opinion of the judge who presided at trial is to be

excluded from the record.’ Revenue Act of 1928, ch.

852, § 601, 45 Stat. 791 (codified at 26 U.S.C. 7460(b)).

And, the courts of appeals have consistently rejected

the contention that these procedures contravene due

process. Estate of Varian v. Commissioner, 396 F.2d

753 (9th Cir.), cert. denied, 393 U.S. 962 (1968); Heim v.

Commissioner, 251 F.2d 44 (8th Cir. 1958). See Towers

v. Commissioner, 247 F.2d 233 (2d Cir. 1957), cert.

deneid, 355 U.S. 914 (1958); Halle v. Commissioner, 175

F.2d 500, 504 (2d Cir. 1949), cert. denied, 338 U.S. 949

(1950); Seaside Improvement Co. v. Commissioner, 105

F.2d 990, 992 (2d Cir.), cert. denied, 308 U.S. 618 (1939).

ce. Contrary to petitioner’s contention, a regular

judge of the Tax Court is not to limit his review of

recommended findings of a special trial judge through

! There is no merit to petitioner’s assertion (Pet. 16, 18 n.15)

that Universal Camera v. NLRB, 340 U.S. 474 (1951), supports his

contention that an “original” report of a special trial judge must be

included in the record. In Universal Camera, it was the governing

statute that required that an examiner’s report be included in the

record. Jd. at 493. In the present case, neither 26 U.S.C. 7443A

nor Rule 183 contains such a requirement.

1]

application of a “clearly erroneous” or other deferential

standard of review. The requirement of Rule 183 that

“due regard” be given to the proposed findings of the

special trial judge does not effectively transfer the

authority to make decisions in such cases from the

regular trial judges to the special trial judges.

Congress has not granted authority to the chief judge

of the Tax Court to allow special trial judges to decide

cases that must be assigned to regular judges for

decision. Regular judges are therefore not to defer to,

or apply a “clearly erroneous” standard in reviewing,

the proposed findings of special trial judges in such

cases. See, e.g., Colorado v. New Mexico, 467 U.S. 310,

317 (1984) (in reviewing exceptions to findings of a

special master, tle special master’s findings “deserve

respect and a tacit presumption of correctness” but “the

ultimate responsibility for deciding what are correct

findings of fact remains with us”); Kanter v.

Commissioner, 337 F.3d at 843-844.”

2 Prior to the adoption of the Tax Court’s current rules, one

court of appeals had held that the recommended findings of special

trial judges of the Tax Court should be reviewed by a judge of the

Tax Court under a clearly erroneous standard. Stone v. Commis-

sioner, 865 F.2d 342 (D.C. Cir. 1989), rev’g Rosenbaum v. Com-

missioner, 45 T.C.M. (CCH) 825 (1983). As the Fifth Circuit

pointed out in Freytag v. Commisisoner, 904 F.2d 1011 (1990),

aff'd, 501 U.S. 868 (1991), however, Stone was decided under the

prior rules of the Tax Court that provided that litigants were to be

furnished with copies of special trial judges’ proposed findings and

conclusions and then given an opportunity to take exception

thereto, with only the exceptions to be reviewed by a regular

judge of the Tax Court. 904 F.2d at 1015 n.8. By eliminating those

procedures, the Tax Court Rules now make it clear that review by

a regular judge of a special trial judge’s report is not an appellate

review but is an exercise of the regular trial judge’s original fact-

finding authority. /bid.

12

2. Petitioner also errs in asserting that Tax Court

Rule 183 violates his rights to due process because it

departs from “traditional practice” and common law

(Pet. 12-13). At common law, tax controversies were

resolved in a branch of the “court of exchequer” and

were not “judicial controversies * * * according to the

ordinary course of the common law or equity.”

Murray's Lessee v. Hoboken Land and Improvement

Co., 59 U.S. (18 How.) 272, 282 (1855). The Exchequer

was analogous to an administrative agency. 9 W.

Holdsworth, A History of English Law 239 (7th ed.

1926)); A. Carter, A History of the English Courts 51

(1944). Unlike litigation that must be assigned to an

Article III court for adjudication, tax cases may be

resolved in Article I legislative courts, for they are

“public rights” cases which “Congress may or may not

bring within the cognizance of the courts of the United

States, as it may deem proper.” Crowell v. Benson, 285

U.S. 22, 51 (1932), quoting Murray’s Lessee, 59 U.S. (18

How.) at 284; see Northern Pipeline Constr. Co. v.

Marathon Pipe Line Co., 458 U.S. 50, 68, 70 n.22 (1982);

Ex parte Bakelite Corp., 279 U.S. 438, 451 (1929).

There is thus no “traditional practice” or “common law”

requirement that Tax Court judges operate in a manner

precisely identical to Article III courts. Instead, “the

Chief Judge [may] assign any Tax Court proceeding,

regardless of complexity or amount, to a special trial

judge for hearing and the preparation of proposed

findings and written opinion.” Freytag v.

Commissioner, 501 U.S. at 877.

3. Petitioner claims, in the alternative (Pet. 24-25),

that an “original” report of a special trial judge must be

provided to the parties and included in the record in

order for a court of appeals properly to review a deci-

sion of the Tax Court. Under 26 U.S.C. 7482(a), the

13

courts of appeals are to review “decisions” of the Tax

Court “in the same manner and to the same extent” as

decisions of the district courts in civil actions tried

without a jury. The report of a special trial judge, how-

ever, is plainly not the “decision” of the Tax Court. 26

U.S.C. 7459; Tax Ct. R. 183(b). It is the decision of the

Tax Court, not the recommendation of the special trial

judge, that is the subject of the appellate jurisdiction of

the courts of appeals.

Moreover, as the court of appeals emphasized i in this

case, “[t)}he record reveals, and we accept as true, that

the underlying report adopted by the Tax Court is Spe-

cial Trial Judge Couvillion’s.” Pet. App. 10a (emphasis

added). The Tax Court made that same factual deter-

mination in rejecting the identical arguments raised by

petitioner in the proceedings below. App., infra, 2a; see

pages 4-5, supra. These factual determinations, “con-

curred in by two lower courts” (Rogers v. Lodge, 458

U.S. 613, 623 (1982)), do not warrant review by this

Court. Tiffany Fine Arts, Inc. v. United States, 469

U.S. 310, 317-318 n.5 (1985).”

3 Petitioner’s insistent claim that the opinion agreed to and

adopted by the Tax Court was not the opinion of the special trial

judge is refuted by the record. Even assuming that the special

trial judge had a view of petitioner’s case at the time he submitted

his “original” report that differed from the views that are reflected

in the opinion ultimately entered in the case, it does not follow that

the opinion adopted by the Tax Court was not, in fact, the opinion

of the special trial judge. To the contrary, the opinion of the Tax

Court (Pet. App. 33a) and an order signed by Special Trial Judge

Couvillion himself (id. at 7a) make clear that the opinion of the

court does accurately set forth the opinion reached by Special Trial

Judge Couvillion. It is, of course, possible that Judge Couvillion

may have revised his views of the case during the deliberative pro-

cess, but “there is nothing unusual about judges conferring with

one another about cases assigned to them * * * [ajnd, as a result

14

4. Petitioner asserts that the Tax Court routinely

makes changes to the “original” reports prepared by

special trial judges without telling the parties. Peti-

tioner claims (Pet. 9-10) that this is evidenced by the

absence of any indication in 765 cases decided since

1984 (when the Tax Court rules were changed to their

current form) that the “original” report had been

amended before its adoption by the Tax Court. During

the period from 1976 through 1984, however, when

parties were provided copies of reports of special trial

judges and afforded an opportunity to file exceptions

thereto (see note 2, supra), there were only six cases

(out of approximately 680 decisions) in which the Tax

Court did not adopt the opinion of the special trial

judge. And, in only one of those opinions did the re-

viewing judge of the Tax Court disagree with or

“reverse” the special trial judge. See Kansas City So.

Ry. v. Commissioner, 76 T.C. 1067 (1981); Narver v.

Commissioner, 75 T.C. 53 (1980); Hilton v. Commis-

sioner, 74 T.C. 305 (1980); La Fargue v. Commissioner,

73 T.C. 40 (1979); Richard v. Commissioner, 69 T.C. 750

(1978); C. Blake McDowell, Inc. v. Commissioner, 67

T.C. 1043 (1977). There is thus no factual basis for

petitioner’s unsupported assertion that when (as in the

present case) the Tax Court issues an opinion that

adopts the report of a special trial judge, it fails accu-

of such conferences, judges sometimes change their origina! posi-

tion or thoughts.” Jd. at 9a.

* In several other cases (14 out of approximately 680 cases

involving special trial judges that were decided between 1976 and

1984), the Tax Court adopted the opinion of the special trial judge

with modifications that were, in most instances, described as

“minor.” See Ocean Sands Holding Corp. v. Commissioner, 41

T.C.M. (CCH) 1, 2 (1980).

15

rately to set forth the view of the special trial judge in

the case.

Nor do the communications that occur among judges

with a collaborative responsibility represent prohibited

ex parte communications. As the Tax Court empha-

sized in this case, internal communications among

judges and special trial judges are part of the internal

deliberative process of the court. App., infra, 3a. As

the court of appeals correctly observed, “there is noth-

ing unusual about judges conferring with one another

about cases assigned to them * * * [ajnd, as a result of

such conferences, judges sometimes change their origi-

nal position or thoughts” (Pet. App. 9-10a). See

Checkosky v. SEC, 23 F.3d 452, 489-490 (D.C. Cir. 1994)

(“{iJn agencies as in courts, votes are not final until

decisions are final; and decisions do not become final

until they are released, accompanied by an explanation

of the reasons for the result”; “the exchange of draft

opinions can and does change votes”). This form of

collaborative judicial process, whether in the Tax Court

or in other courts in which a shared decisional process

occurs, does not violate due process.

5. The only appellate decisions that have addressed

the questions presented in this case are fully in accord

with the decision of the Eleventh Circuit in this case.

The Seventh Circuit in Kanter, supra, and the Fifth

Circuit in Lisle, supra, both rejected the assertion that

the special trial judge procedures of Rule 183 violate

the due process rights of taxpayers. In Kanter, the

court concluded that Tax Court Rule 183(b) does not

require disclosure of a special trial judge’s “original”

report and does not create a two-tier, appellate type

relationship between a special trial judge and regular

judge of the Tax Court. 337 F.3d at 843-844, 879-884.

The court further held that the Rule does not require a

16

regular judge to review recommendations of a special

trial judge under a clearly erroneous standard and does"

not prohibit collaboration between a special trial judge

and regular judge. /d. at 840-844, 877- 879.

In concluding that due process does not require that

a copy of the special trial judge’s “original” report be

provided to taxpayers, the Seventh Circuit in Kanter

noted and agreed with the reasoning adopted by the

Eleventh Circuit in this case. 337 F.3d at 843-844, 878-

879. The Fifth Circuit reached the same conclusion in

Lisle, 341 F.3d at 384. There is thus no conflict among

the circuits nor other reason to warrant certiorari in

this case.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

THEODORE B. OLSON

Solicitor General

EILEEN J. O'CONNOR

Assistant Attorney General

KENNETH L. GREENE

STEVEN W. PARKS

Attorneys

OCTOBER 2003

APPENDIX

UNITED STATES TAX COURT

Washington, D.C. 20217

Docket Nos. 43966-85,712-86, 45273-86, 1350-87,

31301-87, 33557-87, 3456-88, 30830-88, 32103-88,

27444-89, 16421-90, 25875-90, 26251-90, 20211-91,

20219-91, 21555-91, 21616-91, 23178-91, 24002-91,

1984,92, 16164-92, 19314-92, 23743-92, 26918-92,

7557-93, 22884-93, 25976-93, 25981-93

INVESTMENT RESEARCH ASSOCIATES LTD., AND

SUBSIDIARIES, ET AL, PETITIONERS

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

ORDER

On April 20, 2000, petitioners filed a document enti-

tled Motion for Access to Original Special Trial Judge

Report Prepared Under Rule 183(b) and a supporting

Memorandum of Points of Authorities. The motion

seeks access to “all reports, draft opinions or similar

documents prepared and delivered to the Court pur-

suant to Rule 183(b)”. If the motion is denied, petition-

ers request that the Court certify the issue for an

interlocutory appeal pursuant to Rule 193, Tax Court

Rules of Practice and Procedure. In the alternative,

petitioners have requested that “a copy of the re-

quested materials be made part of the record herein for

review by the Circuit Court of Appeals”.

(la)

2a

These consolidated cases were assigned by the Chief

Judge to be heard by Special Trial Judge Couvillion

pursuant to section 7443A(b)(4), Internal Revenue

Code, and Rule 183(a). They were heard in Chicago,

Illinois. After a lengthy trial, consisting of testimonial

and voluminous documentary evidence, and the_-filing of

briefs (totaling 4,768 pages with respect to 41 litigated

issues), Special Trial Judge Couvillion submitted his

report containing findings of fact and opinion pursuant

to Rule 183(b), which ultimately became the Memoran-

dum Findings of Fact and Opinion (T.C. Memo. 1999-

407) filed on December 15, 1999.

In accordance with Rule 183(c), the Chief Judge

referred the cases to Judge Dawson for review and, if

approved, for adoption. In reviewing the Special Trial

Judge’s report, Judge Dawson gave due regard to the

fact that Special Trial Judge Couvillion evaluated the

credibility of witnesses, as reflected in the Memoran-

dum Findings of Fact and Opinion (T.C. Memo. 1999-

407), and he treated the findings of fact recommended

by the Special T1.. Judge as being presumptively cor-

rect.

The report of the Special Trial Judge, as adopted by

Judge Dawson, was then submitted to and reviewed

and approved by the Chief Judge, who directed that it

be filed as the Court’s Memorandum Findings of Fact

and Opinion. Thus the provisions of section 7443A(b)(4)

and Rule 183 were followed by the Court. See Freytag

v. Commissioner, 501 U.S. 868, 871-875(1991), affg. 904

F.2d 1011, 1014-1015 (5th Cir. 1990); Erhard v. Com-

missioner, 46 F.3d 1470, 1475-1476 (9th Cir. 1995),

which involved identical procedures.

Contrary to petitioners’ assertion, the procedures

pertaining to United States magistrate judges under 28

3a

U.S.C., Sec. 636(b)(1) in hearing nonjury civil cases are

different from those governing special trial judges

under section 7443A(b)(4), I.R.C. and Rule 183. In par-

ticular, consent of the parties is not required in cases

heard by special trial judges; and there is no require-

ment under Rule 183 that the findings of fact and

opinion of a special trial judge be served on the parties

and made subject to objections before being assigned to

a judge for review and adoption. The Supreme Court

expressly stated in Freytag v. Commissioner, 501 U.S.

at 874:

Petitioners appear not to appreciate the distinction

between the special trial judges’ authority to hear

cases and prepare proposed findings and opinions

under subsection (b)(4) and their lack of authority

actually to decide those cases, which is reserved

exclusively for judges of the Tax Court.

Therefore, petitioners’ metion requesting access to

any internal Court documents, including any prelimi-

nary drafts of reports or opinions, documents, memo-

randums or notes by judges, special trial judges or

employees of the Court, will be denied. In any event

such materials are confidential and not subject to pro-

duction because they relate to the internal deliberative

processes of the Court. Cf. Sec. 7460(b); Estate of

Varian v. Commissioner, 396 F.2d 753, 754-755, n.2 (9th

Cir. 1968), affg. 47 T.C. 34 (1966); Heim v. Commis-

stoner, 251 F.2d 44, 48 (8th Cir. 1958), affg. 27 T.C. 270

(1956).

Petitioners next contend that the denial of their

motion for production of documents requires the Court

to certify the issue for the interlocutory appeal pur-

4a

suant to section 7482(a)(2), I.R.C., and Rule 193, Tax

Court Rules of Practice and Procedure.

Section 7482(a)(2) provides in pertinent part:

(a) Jurisdiction.—

(2) Interlocutory orders.—

(A) In general.—When any judge of the

Tax Court includes in an interlocutory order a

statement that a controlling question of law is

involved with respect to which there is a sub-

stantial ground for difference of opinion and

that an immediate appeal from that order may

materially advance the ultimate termination of

the litigation, the United States Court of Ap-

peals may, in its discretion, permit an appeal to

be taken from such order, if application is made

to it within 10 days after the entry of such

order.

* * *

In sum, certification of an order pursuant to section

7482(a)(2) is appropriate where the judge verifies that

the order: (1) Involves a controlling question of law,

(2) with respect to which there is a substantial ground

for difference of opinion, and (3) an immediate appeal

from that order may materially advance the ultimate

termination of the litigation. Failure to meet any one of

the three requirements is grounds for denial of certi-

fication. See General Signal Corp. v. Commissioner,

104 T.C. 248, 251 (1995), citing Kovens v. Commis-

sioner, 91 T.C. 74, 77 (1988).

As explained in Kovens v. Commissioner, supra at

78, the proper application of section 7482(a)(2) requires

5a

a balancing of the policies favoring interlocutory ap-

peals, i.e., avoidance of wasted trial and harm to liti-

gants, against the policies underlying the so-called final

judgment rule, i.e., avoidance of piecemeal litigation

and dilatory and harassing appeals. In Kovens, we

observed:

If the avoidance of wasted trial is taken as the sole

guide, a multitude of interlocutory opinions will

become appealable. This is contrary to the intent of

the draftsmen and proponents of 28 U.S.C. sec.

1292(b) (1958) and section 7482(a)(2), who were of

the view that interlocutory orders should be

granted only in exceptional cases. See 3 U.S. Code

Cong. & Admin. News, at 5255, 5259, 5260-5261

(1958). Such a desire to limit availability of this

process to exceptional cases reflects a strong policy

in favor of avoiding piecemeal review and its

attendant delay and waste of time. * * * [Id.]

Petitioners contend that these cases involve a con-

trolling question of law for which there is a substantial

ground for difference of opinion and that an immediate

appeal may materially advance the ultimate termina-

tion of the litigation. We disagree. We are not per-

suaded that there are substantial grounds for difference

of opinion on the points raised in petitioners’ motion.

Likewise, the issues presented and decided in Jnvest-

ment Research Associates, Ltd., and Subsidiaries, et al.

v. Commissioner, T.C. Memo. 1999-407, do not justify

certification for immediate appeal. Final decisions in

those cases have not yet been entered by this Court. In

our view an immediate appeal on the issues raised in

petitioners’ motion would not materially advance the

ultimate termination of the litigation in these cases, but

6a

rather prolong it, thus defeating the purpose of section

7482(a)(2).

Considering all of the circumstances, and balancing

the policies underlying section 7482(a)(2) against the

final judgment rule, these cases do not represent the

type of exceptional cases warranting an interlocutory

appeal. Consequently, we will deny petitioners’ request

for certification for an interlocutory appeal. -

Finally, for reasons previously stated, we will deny

petitioners’ request that copies of any of the requested

materials be made a part of the record in these cases for

review by the Circuit Court of Appeals. See Estate of

Varian v. Commissioner, supra.

Accordingly, after due consideration, it is ORDERED:

1. That petitioners’ Motion for Access to Original

Special Trial Judge Report Prepared Under Rule

183(b) is denied in all respects.

2. That petitioners’ request to certify this issue

for an interlocutory appeal pursuant to section

7482(a)(2), I.R.C., and Rule 193, is denied.

3. That petitioners’ request that a copy of the

requested materials be made a part of the record in

these cases for review by the Circuit Court of

Appeals is denied.

/s/) HOWARD A. DAWSON, JR.

HOWARD A. DAWSON, JR.

Judge

Dated: Washington, D.C.

April 26, 2000