# Amicus Curiae Brief — Ballard v. Commissioner

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0699%3A05

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2005
- **Citation:** 544 U.S. 40

## Text

3 OCT 6 © 2003
. No. 03-184
—_—_—_—_—— E CLERK
IN THE
Supreme Court of the United States

CLAUDE M. BALLARD and MARY B. BALLARD,

Petitioners,
v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

ON PETITION FOR A Writ OF CERTIORARI TO THE
Unitep STATES Court OF APPEALS FOR THE ELEVENTH Circuit
ees
BrieF OF JOSHUA S. KANTER, AS EXECUTOR OF THE ESTATE
or BurTON W. KANTER, AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

—————————————————————————————————— ss OIOMaSa>Ssa>*_—™—"

N. JeROLD COHEN RICHARD H. Pi_pes*
TERESA WYNN ROSEBOROUGH Professor of Law
MattHew J. Gries 40 Washington Square South
SUTHERLAND ASBILL & BRENNEN LLP Vanderbilt Hall, #322B
999 Peachtree Street N.E. New York, NY 10012
Atlanta, GA 30309 (212) 998-6377
(404) 853-8000

* Counsel of Record

RANDALL G. Dick
Law Orrice OF RANDALL G. Dick
744 Montgomery Street
Third Floor
San Francisco, CA 94111
(415) 288-9433

Counsel for Amicus Curiae

Bt

TABLE OF CONTENTS

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TABLE OF AUTHORITIES ..........ccsssssssssssssssssssseesesssssessen i
INTEREST OF AMICUS CURIAE .....cssscssssssssssssssseessssseeen
RITE La BRE! SIT < 2

REASONS FOR GRANTING OR HOLDING THE
FS SE ee lor neseresseresninnencctsaninniomammnannneunninnneentnaninnedisi 8

I. THE TAX COURT’S DECISIONMAKING
PROCESS VIOLATES ELEMENTAL PRINCIPLES OF

ES ee crncnemrvnenantcsseneninnsasacsantaaninnseniiisiibaasiniti 10
Il. FEDERAL STATUTES REQUIRE DISCLOSURE
OF THE TRIAL JUDGE’S FINDINGS. .............. cece 17
Ill. THE PETITION FOR WRIT OF CERTIORARI
SHOULD, IN THE ALTERNATIVE, BE HELD............... 19
Se Rciceectorsnitinnsnsinenccenvnesanegnineminnnmmnnsieniiiiid 19

CASES

Anderson v. City of Bessemer City, N.C., 470 U.S.
I Uaitiliniiitiediiaddistsicethsignsnepmineneesenniions 14

Cullen v. United States, 194 F.3d 401 (2d Cir. 1999) 14

Edward J. DeBartolo Corp. v. Florida Gulf Coast
Building & Construction Trades Council,

GR PR GI ONT ccccncccsoccesecoccosecsocsecseses 18
Freytag v. Commissioner, 501 U.S. 868

ESS 3, 4,8
Hill v. Beyer, 62 F.3d 474 (3d Cir. 1995) ......0...... 14

In re Hipp, Inc., 895 F.2d 1503 (5th Cir. 1990)... 14
Honda Motor Co. v. Oberg, 512 U.S. 415 (1994) 11

Estate of Kanter v. Commissioner, 337 F.3d 833

I Passim
Estate of Lisle v. Commissioner, 341 F.3d 364
a 1, 15,19

Mathews v. Eldridge, 424 U.S. 319 (1976)

Service v. Dulles, 354 U.S. 363 (1957) .....cccccccce0e. 17

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

United States v. Raddatz, 447 U.S. 667
ES SEES 10, 13, 14

Universal Camera Corp. v. NLRB, 340 U.S. 474

Ti scsiiecitevennennnanentecessoenaesencssesncensesmneaneneens 14
STATUTES
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DE UBC. 6 TOGA cecccccccccccssvsscsccsscccsevecescssscsscssseseses 3
26 U.S.C. § 7443A(D)(5).......cccccccccceceseeresetereeenees 3,6
BE UBL. 6 DODD cacccccvesccssccsccescvecesscsscrseccssssssesnsences 17
2B UBL. § PAGBED) cccrccccccccsecccecsccrsccccccsessesssssecsees 18
DE GRBE.. 6 FOB cccccscccccccscesssescrsesescsscsssesesvesesssseses 17
BE UBC. 6 FABRE cccccccccceccessccccsessccsssccsccscessnees 3,17

RETR eee a 17

iv

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SP an Op iiccriessiieniiiccpnicnniaciganimaimtinidens 12
RULES & REGULATIONS

United States Supreme Court Rule 37.6 ................. l
Seventh Circuit Operating Procedure No. 5.......... 19
PN ity Sees i Get iicterionidecnienctcinnenietnteninsnciniiicaniiaien 13
aS 8 ea ee 13
8 12
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Be lire SOI ee Annccineninceninceriniiiecsnssecianiieieniniaiies 5

MISCELLANEOUS

Cornish F. Hitchcock, Public Access to Special Trial
Judge Reports, 2001 Tax Notes Today 199-
— aR. FD, FE) acccccsecsacscccnecseszccnecscncncsnes 8

Gerald A. Kafka & Jonathan Z. Ackerman, Fact-
Finding in the Tax Court: Access to Special
Trial Judge Reports, 91 Tax Notes 639
DF) 8

Final Report of Attorney General’s Committee on
Administrative Procedure 51 (1941).......... 12

INTEREST OF AMICUS CURIAE

The petition for certiorari arises out of a single Tax
Court trial over five weeks involving three taxpayers,
including Burton W. Kanter.’ Kanter, the main witness
at trial, was one of the leading tax and estate lawyers in
the country and taught for nearly 15 years as an adjunct
at the University of Chicago Law School. Because the
three taxpayers resided in different circuits, their
appeals were taken to different Courts of Appeals. In
Kanter’s case, the Seventh Circuit sharply divided, 2-1,
over whether the Tax Court’s trial processes violated
due process and other federal law. Estate of Burton W.
Kanter v. Commissioner, 337 F.3d 833 (7th Cir. 2003).
Kanter has sought e banc review, and the Seventh
Circuit has required the government to answer Kanter’s
en banc petition. The Seventh Circuit’s rules suggest a
final determination on whether to grant the en banc
petition no later than November 3, 2003.

Kanter, Claude Ballard, and Robert Lisle were
found in the Tax Court to have engaged in concerted
action to commit tax fraud. With respect to Lisle, the
Fifth Circuit, per Judge Higginbotham, overturned the
fraud judgment for lack of sufficient evidence. Estate
of Robert W. Lisle v. Commissioner, 341 F.3d 364 (Sth
Cir. 2003). With respect to Ballard, the Eleventh
Circuit panel upheld the fraud judgment and rejected
Ballard’s constitutional challenges. With respect to
Kanter, the Seventh Circuit panel divided 2-1 on
precisely the same constitutional issues presented in

' Pursuant to Rule 37.6 of the Rules of this Court, amicus states
that no person other than amicus and its counsel have made a
monetary contribution to the preparation or submission of this
brief. All parties have consented to the filing of this brief.

to

Ballard.

Kanter has a direct and obvious interest in this
Court’s determination whether to grant certiorari in
Ballard. Resolution of these issues in Ballard could
materially affect subsequent judicial treatment of those
issues in Kanter. Kanter has a significant interest, in
the alternative, in this Court holding the petition in
Ballard for a short time pending the Seventh Circuit's
decision on whether to grant en banc review. Holding
Ballard for this period will afford this Court a complete
record and final judgment in all Courts of Appeals on
the substantial constitutional issue that has divided
lower court judges.

STATEMENT

1. The fundamental issue in this case is whether
the trial structure of the Tax Court violates due process
or other federal law. Amicus curiae seeks to highlight
one critical fact about the proceedings below. The Tax
Court employs trial judges but keeps secret their legally
binding and “presumptively correct” findings of fact.
Tax Court decisions are legally required to rely upon
these findings, but these findings are not, at any time,
made part of the public record of the case. Neither the
taxpayer, the government, nor the reviewing Court of
Appeals is given access to the tnal judge’s
“presumptively correct” findings of fact and credibility
judgments. Yet these findings form the basis, in part,
of the Tax Court’s decisions.

The Courts of Appeals are legally obligated to
ensure that Tax Court findings of fact are supported by
the evidence and not clearly erroneous. But the
appellate courts cannot adequately perform this
function because they do not have access to the findings

of the judge who presided at trial. This non-transparent
process of decisionmaking is challenged in the Ballard
and Kanter cases as violating the due process rights of
taxpayers and the statutory obligations of the Tax
Court. Those statutory obligations include that “all
reports of the Tax Court. . . shall be public records.”
26 U.S.C. § 7461(a).

In Kanter, the Seventh Circuit panel divided 2-1 on
both the constitutional and statutory issues. In an
extensive, 28-page dissent, Judge Cudahy concluded
that the Tax Court’s decision-making structure is
indeed unconstitutional. The Seventh Circuit opinions
focus considerably greater attention on these issues than
does the Eleventh Circuit in Ballard.

2. Tax Court Special Trial Judges (STJs) preside
over many complex and financially significant cases,
including those involving allegations of fraud. The Tax
Court consists of up to 19 regular Tax Court judges
presidentially appointed for 15-year terms and
removable only for cause. 26 U.S.C. § 7443. The Tax
Court also includes 10 STJs. An STJ is appointed at the
discretion of the Chief Judge; has no statutorily
mandated term of office; and serves at the pleasure of
the Tax Court. 26 U.S.C. § 7443A. The Chief Judge
can assign any case, “regardless of complexity or
amount,” to an STJ for trial and initial findings of fact,
credibility judgments, and proposed decision. Freytag
v. Commissioner, 501 U.S. 868, 877-80 (1991); 26
U.S.C. § 7443A(b)(5). An STJ exercises “significant
governmental authority” and hence is an inferior officer
of the United States who can be appointed (unlike a law
clerk, a mere employee) only in accord with Article II
of the Constitution. Freytag, 501 U.S. at 880-82. This

case addresses the implications of Freytag. Now that
STJs preside over numerous cases of great complexity
and large amount, the Tax Court’s treatment of the trial
judge’s findings and credibility judgments has become
all the more important.

3. The constitutional issues presented in this case
arise from a complex civil tax fraud case, which was
tried for nearly five weeks in the Tax Court before an
STJ. Credibility judgments were critical. Sixty
witnesses testified; the STJ asked questions of 40 of
those witnesses. In such a case, as Judge Cudahy
observed, “[t]he detailed interconnection of the
credibility of different witnesses on different factual
issues makes the accumulated impressions of the
presiding officer irreplaceable.” Kanter, 337 F.3d at
886. After working more than four years post-trial to
prepare a report, the STJ filed his report, including his
findings of fact and proposed opinion.

This Rule 183 report must be prepared by the STJ
and filed with the Chief Judge under the Tax Court’s
own rules. T.C. Rule 183(b). The Chief Judge then
assigns the case to a reviewing Tax Court judge. The
Rule 183 report has direct, operative legal effect.

Rule 183 requires that: “Due regard shall be given
to the circumstance that the Special Trial Judge had the
opportunity to evaluate the credibility of witnesses, and
the findings of fact recommended by the Special Trial
Judge shall be presumed to be correct.” T.C. Rule
183(c). The United States Court of Appeals for the
District of Columbia Circuit, in an opinion by Judge
Williams, has construed “due regard” to permit the Tax
Court to overturn a trial judge’s findings only if those
findings can be shown to be “clearly erroneous.” Stone

v. Commissioner, 865 F.2d 342 (D.C. Cir. 1989). The
Courts of Appeals must ensure that Tax Court
reviewing judges adhere to the limits on their review
power. 26 U.S.C. § 7482. Subject to the
“presumptively correct” and “due regard” constraints,
the reviewing judge can adopt, modify, or reject, in
whole or in part, the trial judge’s report. T.C. Rule
183(c). The reviewing judge has no first-hand
knowledge of the trial or the testimony. The reviewing
judge also need not (and in this case, did not) hear
argument or receive additional briefs. /d. There is no
dispute that the “due regard” standard binds the
reviewing judge and imposes a legal constraint on the
reviewing judge’s authority to overturn the trial judge’s
findings.

Before 1983, Tax Court rules required the routine
disclosure of the STJ’s report. See T.C. Rule 182(b), 60
T.C. 1149 (1973). But without any explanation, the
Tax Court then amended the rule to eliminate disclosure
of the trial judge’s legally required report. 81 T.C.
1070 (1983) (renumbering as Rule 183). Thus, the Tax
Court now adopts the position that, as a per se matter, it
will refuse to make the trial judge’s report part of the
record. As far as amicus is aware, the Tax Court is, as
Judge Cuhady observed, “unique among all the
institutions in the law” in claiming the power to refuse
to disclose the “presumptively correct” findings of fact
of a trial judge or hearing officer. Kanter, 337 F.3d at
874. The Tax Court prohibits the trial judge’s report
from being made available in any litigation context, at
any stage of the proceedings, to any actor outside the
Tax Court. Even in a civil tax fraud case where
credibility findings are critical, it is impossible for the

Courts of Appeals upon review to take the trial judge's
“presumptively correct” findings in the Rule 183 report
into account in any way.

4. The government, on behalf of the Tax Court,
defends the following process: after the trial judge files
the legally operative Rule 183 report, the reviewing
judge and the trial judge may discuss the findings of
fact and credibility judgments. If the reviewing judge
disagrees with the trial judge’s initial findings, the
reviewing judge can privately “persuade” the trial judge
(employed at the pleasure of the Tax Court) to jointly
sign a new opinion with modified or alternative
findings. This reversal of the “presumptively correct”
findings filed in the Rule 183 report is never reflected
in the record. The trial judge’s findings and Rule 183
report remain secret, even from the reviewing court.
Instead, the Tax Court issues a final decision that
always (as in this case) starts with the following
boilerplate: the Tax Court judge “agrees with and
adopts the opinion of the special trial judge.” Like
Judge Cudahy in the Seventh Circuit, amicus has been
unable to find a single case without exactly this
formulaic language in the nearly 900 Tax Court
decisions decided pursuant to 26 U.S.C. § 7443A(b)(5)
ur its predecessor since 1983. Kanter, 337 F.3d at 876.
This unbroken pattern explains why the government
acknowledges that reviewing judges do regularly
modify or reject findings of fact, but behind the scenes
in a way that leaves no trace in the public record.

The government concedes that this boilerplate
language does not mean that the reviewing Tax Court
judge has accepted the original STJ’s findings of fact
and credibility judgments in the Rule 183 report.

Instead, the reviewing judge “adopts the opinion” (not
the “report,” the legally specified term of art under Rule
183) of the trial judge after the findings of fact have
potentially been modified or even overturned. There is
no way for the reviewing Court of Appeals, the
taxpayer, or the government to know whether, in fact,
any such modifications have taken place in any specific
case. As Judge Cudahy concluded in the Seventh
Circuit, “I do not believe that the concealment of the
Tax Court’s revision process behind that [boilerplate]
verbal formula allows this court to conduct meaningful
appellate review.” Kanter, 337 F.3d at 888.

5. In this case, the trial judge’s Rule 183 report
was before the reviewing Tax Court judge for 15
months. According to uncontradicted, sworn
testimony, both the Chief Special Trial Judge and a Tax
Court judge, perhaps outraged by the secret reversal of
the trial judge’s credibility findings, came forward to
assert that the trial judge’s Rule 183 report findings had
been reversed outside the record.? Indeed, “those
sections containing findings related to the credibility of
witnesses and findings related to fraud were wholly
contrary to the findings made by [the trial judge] in his
report.”

6. The government’s position is that as long as the
trial and reviewing judges purportedly “agreed” at the

* Tax Court counsel filed an uncontradicted affidavit testifying to
these statements. Declaration of Randall G. Dick, App. at 1a.
Counsel did not raise these statements in his first two motions
seeking disclosure; only after these two motions were denied did
counsel believe his legal obligations to his client required
testifying to these statements.

> Id. 45.

end of the day to a second document ~ the final opinion
of the Tax Court - then the first document — the Rule
183 report — need not and cannot be disclosed. The
government asserts that Tax Court trial judges are the
equivalent of law clerks and the Rule 183 reports
tantamount to bench memos. This despite the fact that
the Rule 183 reports have legally operative effect and
include “presumptively correct” findings of fact and
critical credibility judgments.

Prior to this case, the Tax Court bar and the Courts
of Appeals had no way of knowing that the Tax Court
operated in the way that this litigation has revealed.
That revelation has produced considerable furor in the
Tax Court bar. Many commentators argue that the Tax
Court process violates due process.” In Kanter, Judge
Cudahy dissented at length to agree with that
conclusion. The Seventh Circuit is currently
considering whether to review that issue en banc.

REASONS FOR GRANTING OR HOLDING THE
PETITION

The constitutional question of whether STJ reports
must be disclosed is of exceptional practical and
national importance. Since this Court’s decision in
Freytag, STJs have come to be used more frequently in
some of the financially largest and most complex cases
before the Tax Court. In Freytag itself, the amount at
stake was $1.5 billion. 501 U.S. at 871 n.1. This case
involves one of the most complex cases before the Tax

* See Gerald A. Kafka & Jonathan Z. Ackerman, Fact-Finding in
the Tax Court: Access to Special Trial Judge Reports, 91 Tax
Notes 639, 642 (Apr. 23, 2001); Cornish F. Hitchcock, Public
Access to Special Trial Judge Reports, 2001 Tax Notes Today 199-
41 (Oct. 15, 2001).

Court. The trial took five weeks, the amount currently
at issue is at least $45 million, and witness credibility
was critical on the dispositive, complex issues of intent
and fraud. Since 1983, around 900 cases have been
tried to STJs employing the procedures used here.

Secret trial judge reports violate this Court’s
precedents on the constitutional role of factfinding,
credibility judgments, and appellate review in judicial
and administrative processes. In addition, Tax Court
secrecy of this sort violates the federal statutes
governing Tax Court proceedings and appellate review.
Only this Court’s review can bring uniformity and
transparency to a process of adjudication in the Tax
Court that offends core due process principles, involves
enormous financial and personal stakes, and affects
cases in every Court of Appeals. Resolution of the
issues presented here also has direct implications for the
role of hearing officers, administrative law judges, and
other finders of fact in administrative proceedings and
Article I courts. As Judge Cudahy recognized in the
Seventh Circuit, the constitutional issue raised here
affects “the whole administrative array of the federal
government;” if the decision below is not reversed, it
will lead agencies throughout the government to
conclude that they may “deny transparency when
engaging in like decisional processes” to those the Tax
Court uses here. Kanter, 337 F.3d at 875.

As an alternative to granting the Ballard petition at
this stage, the Court should hold Ballard until the
Seventh Circuit acts upon the en ban: petition in
Kanter. The due process issue is the focus of the 2-1
division within the Seventh Circuit panel. Given the
length and forcefulness of Judge Cudahy’s dissent,

there is obviously strong disagreement in the Seventh
Circuit on the fundamental constitutional issue raised
here.

A brief hold in Ballard will afford this Court the .-

benefit of full lower-court analysis of a substantial

constitutional issue that already is dividing lower-court

judges.”

I. THE TAX COURT’S DECISIONMAKING
PROCESS VIOLATES ELEMENTAL
PRINCIPLES OF DUE PROCESS

The final decision of the Tax Court depends, in
part, on an undisclosed trial judge’s report that has
legally operative effect under the “due regard” standard
of Rule 183. That report is part of the “private record”
of the case, but not the public record. This practice -
inconsistent with every federal agency or court of
which amicus is aware — surely violates due process,
particularly in a tax fraud trial where credibility is
critical.

This process violates a taxpayer’s due process
rights to a fair initial trial and adequate appellate
review. Because constitutionally protected property
and liberty interests are at stake in a tax fraud trial, the
three-part test of Mathews v. Eldridge, 424 U.S. 319,
335 (1976) and United States v. Raddatz, 447 U.S. 667,
677 (1980) must be applied for determining the process
required. That familiar test requires an assessment of
(1) the private interests at stake; (2) the extent to which
decisionmaking accuracy will be enhanced by

* The government acknowledged the importance of co-ordinating
judicial treatment of Ballard and Kanter in its motion for an
extension of time to file its en banc answer in Kanter. See App. at
4a.

1]

providing the procedure at issue; and (3) the public
interests implicated by the procedure at issue. In this
context, the second part of this standard is critical:
whether disclosure of the trial judge’s report will
significantly enhance the accuracy of the overall
decisional process. This Court has long recognized the
common-sense principle that accuracy is substantially
enhanced by including the trier of facts’ findings and
credibility judgments in the public record. Analysis of
the due process issue must be informed by this Court’s
decisions on the legal role of factfinding and credibility
judgments in _—_ judicial and administrative
decisionmaking.

Disclosure of the findings of a trial judge, hearing
officer, or analogous initial factfinder is such a
fundamental premise of fair and proper judicial and
administrative process that amicus has been unable to
find any area in modern law, outside the Tax Court,
where such disclosure is not routine. “As this Court has
stated from its first due process cases, traditional
practice provides a touchstone for constitutional
analysis” of due process issues. Honda Motor Co. v.
Oberg, 512 U.S. 415, 430 (1994) (citations omitted).
Transparency of agency and judicial decisionmaking
has long been a fundamental premise of American
practice. Even the Administrative Procedure Act
(APA) -- which applies to the less formal processes of
agencies, not to courts such as the Tax Court which are
presumably held to even higher standards -- requires
that the record on review must include any preliminary
findings from a hearing officer or administrative law
judge, regardless of whether the agency has de novo
power over facts. 5U.S.C. §§ 557(b), 706. The

12

framers of the APA considered this a_ critical
requirement, particularly “on matters which the hearing
commissioner, having heard the evidence and seen the
witnesses, is best qualified to decide... .”° As Judge
Cudahy noted in Kanter, “[w]hen a reviewing court
reviews agency findings on credibility for substantial
evidence, it is strongly influenced by the preliminary
findings of the ALJ who actually heard the witnesses -
influence that becomes even more significant when an
agency has reversed those preliminary credibility
findings.” Kanter, 337 F.3d at 885.

Congress has also required that the report of a
magistrate judge (who, unlike the STJ here, may be
employed only with the consent of the parties) be
served on the parties and be part of the record. That is
so even though the District Court has greater legal
authority in reviewing a magistrate’s actions than the
Tax Court does in reviewing the “presumptively
correct” findings of its trial judges. Unlike the Tax
Court, which is legally bound to treat its trial judge’s
findings as presumptively correct, a District Court can
make de novo factual findings on certain matters a
magistrate addresses. See 28 US.C. § 636(b)(1).
Similarly, a bankruptcy judge’s initial findings of fact
are part of the record and cannot be set aside upon
review in the District Court unless clearly erroneous;
the Distnct Court must also specifically give “due
regard . . . to the opportunity of the bankruptcy court to
judge the credibility of the witnesses.” Fed. R. Bankr.
P. 8013. The reports of Special Masters, including
findings of fact where required, must be filed with the

* Final Report of Attorney General's Committee on
Admunistrative Procedure 5] (1941).

13

clerk of the court; the parties must be notified of this
filing. Fed. R. Civ. P. 53(e)(1). See also Fed. R. Civ.
P. 52(a).

This Court, Congress, and the lower federal courts
have thus consistently concluded that the accuracy,
accountability, and integrity .of administrative and
judicial proceedings require including in the record the
initial findings of any preliminary factfinder. That is so
even for routine matters in which constitutionally-
protected liberty and property interests are not at stake.
That must be all the more so in a tax fraud trial, in
which constitutionally-protected property and liberty
interests are implicated. Decisionmaking accuracy,
within the meaning of Mathews, demands disclosure of
the Rule 183 report. That would be so even if the Tax
Court were not required to treat the findings in that
report as “presumptively correct.” Given that these
findings do legally constrain the reviewing Tax Court
judge, it is clear that accurate decisionmaking and
review is not only enhanced but only made possible by
disclosing a report that forms the basis for the Tax
Court’s decision. Because the added public cost of
disclosure is de minimis — if transparency is a cost at
all, as opposed to a benefit — Mathews requires
disclosure.

Due process protections for factfinding are even
more enhanced when, as here, credibility is at issue.
Raddatz makes clear the constitutional dimensions
surrounding the overtuming of a trier of fact’s
credibility judgments. Raddatz imvolved the
relationship between the District Courts and magistrates
in suppression-hearing contexts when the magistrate
has conducted a hearing and made credibility

14

judgments. In that context, this Court suggested, and
the lower courts have consistently concluded, that due
process is violated if a District Court overturns a
magistrate’s findings on credibility without hearing the
witnesses. 447 U.S. at 681 n.7; see, e.g., Cullen v.
United States, 194 F.3d 401, 406 (2d Cir. 1999)
(Newman, J.) (due process violated when District Court
without hearing witnesses rejects Magistrate’s
credibility findings regarding plea bargain); Hill v.
Beyer, 62 F.3d 474, 482 (3d Cir. 1995); In re Hipp,
Inc., 895 F.2d 1503, 1519-21 (Sth Cir. 1990). If the
District Judge cannot constitutionally reverse credibility
judgments without hearing the witnesses, it goes
without saying that the magistrate’s report must also be
part of the record. The decision below conflicts with
Raddatz and these decisions of the Courts of Appeals
and for that reason alone requires this Court’s review.

To protect the STJ’s factfinding role on credibility
and other matters, the trial judge’s report must similarly
be part of the record. This Court’s substantive
emphasis on the role of credibility findings in proper
adjudicative processes surely requires the procedural
measure of including in the record the findings and
credibility judgments of the STJ who presided over the
tnal. See Anderson vy. City of Bessemer City, N.C., 470
U.S. 564, 575 (1985) (“When findings are based on
determinations regarding the credibility of witnesses,
[the clearly erroneous standard] demands even greater
deference to the trial court’s findings . . . .”); Universal
Camera Corp. v. NLRB, 340 U.S. 474, 496 (1951)
(“[E]vidence supporting a conclusion may be less
substantial when an impartial, experienced examiner
who has observed the witnesses and lived with the case

a ——

:
:

15

has drawn conclusions different from the Board’s than
when he has reached the same conclusion. ... The
significance of [the presiding judge’s or examiner’s]
report, of course, depends largely on the importance of
credibility in the particular case.”) (Frankfurter, J.).

This case highlights how essential the trial judge’s
findings are to preserve due process and the right to
adequate appellate review. Intent and credibility are
critical elements in this tax fraud case. To establish
fraud, the government must prove by clear and
convincing evidence that underpayment occurred with
the intent to evade taxes that the taxpayer knew or
believed to be owed. This case involves three taxpayers
who the government claims were involved in a
conspiracy to commit tax fraud. But the Court of
Appeals for the Fifth Circuit, in an opinion by Judge
Higginbotham, has already held clearly erroneous the
Tax Court’s fraud judgment in this very case with
respect to one of the purported “co-conspirators.”
Estate of Lisle v. Commissioner, 341 F.3d 364 (Sth Cir.
2003). In addition, in upholding the Tax Court’s
findings against Kanter, the Seventh Circuit at least
eight times gave central importance to the Tax Court’s
purported judgments regarding Kanter’s credibility or
his “intent.” Indeed, the divided panel held that “the
lack of credibility of Kanter’s testimony,” which the
Tax Court purportedly found, was a central justification
for upholding the judgment of fraud. Kanter, 337 F.3d
at 846. Yet undisputed record evidence shows that the
actual trial judge found that Kanter and Ballard were in
fact credible and had no intent to defraud. Those
original findings and the reasons the reviewing judge
gave for overturning them are, at the least, relevant —

16

indeed, they would likely be critical — to federal
appellate review of Tax Court decisions.

Before this case, the Tax Court’s procedure was
itself shrouded in secrecy. Neither the Tax Court rules
nor any other document of the Tax Court of which
amicus is aware publicly described this policy. The
government's briefs remained enigmatic. The Eleventh
Circuit mistakenly thought petitioners’ arguments were
moot because the trial judge ultimately signed the
second document, the final Tax Court opinion.

But the view that the due process issue is moot
misunderstands the essential constitutional challenge
here. That challenge does not depend on whether the
Tax Court reviewing judge and the special tral judge
(who is employed at will by the Tax Court) can
appropriately be characterized as “agreeing” at the end
of the day — even assuming there were any way of
knowing or determining this fact. The Rule 183 report,
legally required, is itself a legally operative document
whose “presumptively correct” findings of fact must be
given “due regard.” There is a world of difference
between a factfinder committing findings to the record,
with those findings then reviewed under the appropriate
standard, and a factfinder negotiating and modifying
those findings in secret with a reviewing judge under an
unknowable standard of review not capable of being
judicially enforced. The integrity of the legal process
— and hence due process itself — depends on a
differentiation between the roles and functions of
different legal actors, such as factfinders and reviewing
judges.

The Tax Court must comply with its own rules,
and the federa] courts must ensure that the Tax Court

17

has done so. See, e.g., Service v. Dulles, 354 U.S. 363,
388 (1957). It is not a lawful process for the trial and
reviewing judges to negotiate their own private
understanding of what “due regard” means, and
whether it has been given, and then make these
determinations unreviewable. No court can just
announce that it “has complied with all legal
requirements” and, by that bare proclamation, insulate
its decision from all appellate review.

Moreover, as Judge Cudahy’s dissent in the
Seventh Circuit analyzed in detail, the structural
imbalance of power between an at-will trial judge and
the Tax Court makes any purported final “agreement”
between trial and reviewing judge too shaky a
foundation on which to rest the due process rights of
taxpayers. In nearly 900 cases since 1983, not a single
disagreement between an STJ and reviewing judge has
ever emerged on the record. Whether this unbroken
pattern reflects genuine agreement or the fact that STJs
serve at the pleasure of the Tax Court is not a question
on which this Court need speculate. Either way, the
Rule 183 report must still be made part of the record.

Il. FEDERAL STATUTES REQUIRE
DISCLOSURE OF THE TRIAL JUDGE’S
FINDINGS

The Tax Court practice also violates the federal
statutes that govern the Tax Court. See 26 U.S.C. §§
7459, 7461, and 7462. Section 7461(a) requires that
“all reports of the Tax Court . . . shall be public
records.” The STJ’s Rule 183 report is such a report, as
the plain language of Rule 183 itself recognizes. See
T.C. Rule 183(b) (requiring preparation and filing of
the “Special Trial Judge’s Report”). The statutory text

18

does not exempt the STJ’s Rule 183 report from the
statute’s disclosure requirements. The plain language
of Section 7461(a) therefore requires that this report be
a public record. Similarly, Section 7459(b) requires
that “[t]he Tax Court shall report in wniting ail its
findings of fact, opinions, and memorandum opinions”
(emphasis added). The Rule 183 report includes
findings of fact and opinions of the Tax Court. In
addition to the plain language of the statutes, the
general purposes of these statutes reflect a not
surprising congressional policy commitment to
transparency in Tax Court adjudications. The Tax
Court’s refusal to disclose the findings of its trial judges
is flatly inconsistent with the text and purposes of these
Statutes. In light of the constitutional problems
otherwise presented, these statutes should be construed,
as Judge Cudahy in the Seventh Circuit also concluded,
to require disclosure of the Rule 183 tnal judge's
report. See Edward J. DeBartolo Corp. v. Florida Gulf
Coast Bldg. & Constr. Trades Council, 485 U.S. 568,
575 (1988).

In addition, Congress has assigned the Courts of
Appeals the duty to review decisions of the Tax Court.
See 26 U.S.C. § 7482. That appellate obligation must
include the ability to review the legally relevant record
as a whole. Findings of fact that are legally binding on
the Tax Court, that form part of the basis for decision,
but that are secret and not part of the record on review
preclude the Courts of Appeals from performing their
Sstatutorily-assigned role. In light of the serious
constitutional questions at stake, the appellate review
Statute should also be construed to require disclosure of
the Rule 183 report.

19

Ili. THE PETITION FOR WRIT OF
CERTIORARI SHOULD, IN THE
ALTERNATIVE, BE HELD

This case and Kanter arise from the same
underlying Tax Court decision and raise the same legal
issues. The Seventh Circuit is scheduled to issue a
determination whether to grant the pending petition for
rehearing in Kanter no later than November 3, 2003
Seventh Circuit Operating Procedure No. 5. This Court
should hold Ballard until the Seventh Circuit acts on
the pending en banc petition. In essence, the appellate
court proceedings reviewing the Tax Court action are
not yet concluded; this Court should await a “final
order” of the Seventh Circuit before acting on the
Ballard petition. Counsel for Ballard have filed a letter
with the clerk of this Court making a similar request.”

A short hold of this petition until the Seventh
Circuit rules on rehearing would give this Court the
benefit of full lower-court analysis and consideration of
the constitutional questions raised here. The petition
for certiorari should therefore be held pending the
Seventh Circuit’s ruling on the Kanter rehearing
petition. If the Seventh Circuit denies the Kanter
rehearing petition, Kanter intends to file a petition for
writ of certiorari expeditiously.

CONCLUSION

The petition for writ of certiorari in Ballard should
be granted. Alternatively, the Court should hold that

* The fraud judgment in Lisle was held clearly erroneous in the
Fifth Circuit, resulting in a reversal of most of the deficiency and
penalties assessed against the Lis/e estates by the Tax Court. The
time in which a petition for certiorari can be filed in Lis/e will
expire on October 28, 2003.

petition until the Seventh Circuit acts on the pending en
banc petition in Kanter. The Court should then
consider the Ballard petition and any petition in Kanter
together.

Respectfully submitted,

Richard H. Pildes

Professor of Law

40 Washington Square South
Vanderbilt Hall #322B

New York, NY 10012-1099
(212) 998-6377

N. Jerold Cohen

Teresa Wynn Roseborough
Matthew J. Gries

Sutherland Asbill & Brennan LLP
999 Peachtree Street NE
Atlanta, GA 30309-3996
(404) 853-8000

Randall G. Dick

Law Office of Randall G. Dick
744 Montgomery St., 3rd FI.

San Francisco, CA 9411]
(415) 288-9433

Counsel for Amicus Curiae

October 6, 2003

APPENDIX

la

APPENDIX A — DECLARATION OF
RANDALL G. DICK
DATED AUGUST 21, 2000

UNITED STATES TAX COURT

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 and 25981-93

INVESTMENT RESEARCH ASSOCIATES, LTD.,
AND SUBSIDIARIES, et al.,

Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
DECLARATION OF RANDALL G. DICK

Randall G. Dick, for his Declaration under penalty of
perjury, pursuant to 28 U.S.C. § 1746, states as follows:

1. Iam of full age, and if called to testify, would be
competent to give the testimony as to the following
matters.

2a

Appendix A

I am counsel for Investment Research Associates,
Ltd. and Subsidiaries and for Burton and Naomi
Kanter.

In its Opinion in this matter filed on December 15,
1999 (T.C. Memo 1999-407) the U.S. Tax Court
concluded, with respect to Issue 1, that payments
made by Hyatt, Frey, Schaffel, Schnitzer and Eulich
(the “Five”) were taxable to the individual
Petitioners and the individual Petitioners were liable
for the fraud additions to tax and penalty with respect
to such income. (Opinion, 226-319).

Subsequent to the issuance of the Tax Court’s
Opinion, Declarant was informed by two judges of
the Tax Court, that in his original report submitted
to the Chief Judge pursuant to Rule 183(b), Special
Trial Judge D. Irwin Couvillion concluded that
payments made by the Five were not taxable to the
individual Petitioners and that the fraud penalty was
not applicable.

In my conversations with the judges of the Tax Court,
I was told the following: That substantial sections
of the opinion were not written by Judge Couvillion,
and that those sections containing findings related
to the credibility of witnesses and findings related
to fraud were wholly contrary to the findings made
by Judge Couvillion in his report. The changes to
Judge Couvillion’s findings relating to credibility
and fraud were made by Judge Dawson.

3a
Appendix A

Judge Dawson's revisions resulted in a finding that
over nine million dollars is taxable to the individual
Petitioners. This finding, based upon credibility of
witnesses, results in liability of the individual
Petitioners for tax, penalties and interest in an
amount in excess of $30,000,000.

1 confirmed the information in paragraphs 4 and 5
above with another judge of this Court, who
informed me that, in faci, the Opinion was changed,
and that to his knowledge, it was the first time the
Tax Court had made an outright rejection of
credibility findings made by a Special Trial Judge.

I was also told by a judge of the Tax Court that the
changed sections of the report were written in such
a way so that wherever there was the “slightest issue
of doubt, it went against” the Petitioners.

I declare under penalty of perjury that the foregoing is
true and correct and that this Declaration is executed in San
Francisco, California on August 21, 2000.

s/ Randall G. Dick
RANDALL G. DICK

4a

APPENDIX B — MOTION FOR EXTENSION OF TIME
IN WHICH TO FILE ANSWER TO PETITION FOR

REHEARING AND PETITION FOR REHEARING
IN BANC DATED SEPTEMBER 12, 2003

IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Nos. 01-4316, 01-4317, 01-4318, 01-4319. 01-4320
01-4321, 01-4322, 02-1220 )

ESTATE OF BURTON W. KANTER, DECEASED
and NAOMI R. KANTER, .

Petitioners- Appellants

V.

COMMISSIONER OF INTERNAL REVENUE,

Respondent- Appellee

MOTION FOR EXTENSION OF TIME
IN WHICH TO FILE ANSWER
TO PETITION FOR REHEARING
AND PETITION FOR REHEARING IN BANC

Comes now the Commissioner of Internal
and through his counsel, and respectfully oman 7
extension of time in which to file his answer to the petition
for rehearing and petition for rehearing en banc in the
above-entitled consolidated cases for a period of 21 da
from September 23, 2003, to and including October 14, 2003
In support of this motion, counsel states as follows: |

Sa

Appendix B

1. The Commissioner’s answer to the petition for
rehearing and petition for rehearing en banc in the
above-entitled case is currently due to be filed and served on
or before September 23, 2003, and no request for an extension
of time with respect to the answer has previously been sought.

2. The above-entitled cases are among a group of three
cases that arose out of the same proceedings before the
Tax Court, and which involve challenges to the procedures
employed by the Tax Court in its use of special trial judges.
The other two cases are Ballard v. Commissioner (S.Ct. No.
(3-283), and Lisle v. Commissioner (Sth Cir. No. 01-60639
through 01-60642). The Government's response to the
petition for a writ certiorari filed in Ballard is due to be filed
in the Supreme Court on October 6, 2003.

3. As a result of the filing of the petition for a writ of
certiorari in Ballard, the Office of the Solicitor General now
has responsibility over that case. Because the issue in Ballard
and the above-entitled case are essentially identical, it will
be necessary to coordinate with the Office of the Solicitor
General in preparing the response to the petition for rehearing
and rehearing en banc filed in the above-entitled cases.
In order to allow for this coordination, an extension of time
until a short period after the due date for filing of the response
to the petition for a writ of certiorari in Ballard is needed for
the Commissioner to file the answer to the petition for
rehearing and rehearing en banc filed in the above-entitled
cases.

6a
Appendix B

4. In addition, I could not turn to preparation of a draft
answer to the petition for rehearing and rehearing en banc
immediately in any event due to the press of previously
assigned work, including preparation of the brief for
the United States in Crigler v. Commissioner (4th Cir.
No. 03-1861), due on extension on September 18, 2003, and
preparation of the draft brief in opposition to a petition for a
writ of certiorari in Shell Petroleum, Inc. v. United States
(S.Ct. No. 03-283), currently due to the Supreme Court on
September 22, 2003, and for which we anticipate that an
extension of time to October 22, 2003 will be sought.

5. We have today provided a copy of the foregoing
motion, by facsimile (in addition to service thereof), to
Richard H. Pildes, counsel for the appellants.

WHEREFOR, for the reasons stated, the Commissioner
respectfully moves that the time for filing and serving his
answer to the petition for rehearing and petition for rehearing
en banc be extended from September 23, 2003, to and
including October 14, 2003.

s/ Steven W. Parks

STEVEN W. PARKS
Attorney, Appellate Section
Tax Division

Department of Justice

Post Office Box 502
Washington, D.C. 20044
(202) 514-2954

Counsel for the Commissioner

Dated: This 12th day of September, 2003.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0699%3A05. Public record. Not legal advice.