Opposition Brief — Estate of Kanter, Deceased v. Commissioner of Internal Revenue

\ Supreme Cowrt. US

FILED

(2) MAR 22 2008

No. 03-1034 CFFICE Cr THE CLE’K

In the Supreme Court of the United States

ESTATE OF BURTON W. KANTER, DECEASED, ET AL.,

PETITIONERS

Uv.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH 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.” T.C. 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.” T.C. 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 made

public by inclusion in the record.

2. Whether 26 U.S.C. 7459(b), 7461(a), (b), or 7482

requires that the “original” report of a special trial

judge be made public by inclusion in the record.

(I)

TABLE OF CONTENTS

Page

Ee 1

EL Le l

Statement 2

I 6

I ieee 21

TABLE OF AUTHORITIES

Cases:

Atlas Roofing Co. v. Occupational Safety &

Health Review Comm'n, 430 U.S. 442 (1977) ............... 1s

Bakelite Corp., Ex parte, 279 U.S. 488 (1929) coccccccccccccsoces 17

Ballard vy. Commissioner, 321 F.3d 1087 (11th Cir.

2003), petition for cert. pending, No. 03-184 ...... 5, 7,9, 14, 15

Ballard, In re, No. 00-14762-H (11th Cir. Oct. 28.

2000) iesbanettanieiiaieiitenesteteenddenemmensnes 5

C. Blake McDowell, Inc. v. Commissioner,

67 T.C. 1043 (1977), vacated and remanded, 576 F.2d

718 (6th Cir.), on remand, 71 T.C. 71 (1978), aff'd, 652

TN 13

Checkosky v. SEC, 23 F.3d 452 (D.C. Cir. 1994) .............. 14

Colorado v. New Mevico, 467 U.S. 310 (1984) oo... 15

Cook, In re, 49 F.3d 263 (7th Cir, 1995) cocccccccccccccccccccccceseees 9

Crowell v. Benson, 285 U.S. 22 (W982) cocccccccccccccccccccssceceees 17

Erhard v. Commissioner, 46 F.3d 1470 (9th Cir.),

cert. denied, 516 U.S. 980 (1995) oo cccccccccccccecseceeeseesees 15, 20

Estate of Lisle v. Commissioner, 341 F.3d 364

CEE 7, 15, 21

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

(9th Cir), cert. denied, 393 U.S. 962 (1968) ooo. 11,15

Fayerweather v. Ritch, 195 U.S. 276 (1904) oo cccccoces 9

(III)

IV

Cases—Continued: Page

Freytag v. Commissioner:

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

868 (1991) 16

501 U.S. 868 (1991) 3

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

cert. denied, 516 U.S. 821 (1995) 9

Halle v. Commissioner, 175 F.2d 500 (2d Cir. 1949),

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

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

1958) 11,15

Helvering v. Mitchell, 303 U.S. 391 (1938) 18

Hilton v. Commissioner, 74 T.C. 305 (1980) 13

Holly Farms Corp. v. NLRB, 517 US. 392

(1996) 19

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

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

Dec. 15, 2000) 5

Kansas City S. Ry. v. Commissioner, 76 T.C.

1067 (1981) 13

La Farque v. Commissioner, T3 TC. 40 (1979)... 13

Landry v. FDIC, 204 F.3d 1125 (D.C. Cir.), cert.

denied, 531 U.S. 924 (2000) - 17

Lawn v. United States, 355 U.S. 339 (1958) 19

Lisle, In re, No. 00-60637 (5th Cir. Sept. 18, 2000) ............ 5

Mathews v. Eldridge, 424 U.S. 319 (1976) 18

Mazza v. Caviechia, 105 A.2d 545 (NJ. 1954) «2... 11

Morgan v. United States, 298 U.S. 468 (1986) ..... 9, 10, 15, 17

Murray's Lessee v. Hoboken Land & Improvement

Co., 59 U.S. (8 How.) 272 (1855) 17, 18

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

(1988) 10

Narver v. Commissioner, 75 T.C. 53 (1980) 13

North Pipeline Constr. Co. v. Marathon Pipe Line

Co., 458 U.S. 50 (1982) 17

Cases—-Continued: Page

Ocean Sands Holding Corp. v. Commissioner,

41 T.C.M. (CCH) 1 (1980) 13

Old Colony Trust Co. v. Commissioner, 279 US.

716 (1929) 18

Orzechowski v. Commissioner, 69 T.C. 750 (1978) .......... 13

Peoria Braumeister Co. v. Yellowley, 123 F.2d 637

(7th Cir. 1941) ) 10-11

Renegotiation Bd. v. Grumman Aircraft Eng’g

Corp., 421 U.S. 168 (1975) 16

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

990 (2d Cir.), cert. denied, 308 U.S. 618 (1989) 00000000... 11

Stone v. Commissioner, 865 F.2d 342 (D.C. Cir. 1989),

rev'g Rosenbaum v. Commissioner, 45 T.C.M.

(CCH) 825 (1983) 16

TRW Inc. v. Andrews, 534 U.S. 19 (2001) 19

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

1957), cert. denied, 355 U.S. 914 (1958) 11,15

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

1978) 9

United States v. Magana, 118 F.3d 1173 (7th Cir.

1997), cert. denied, 522 U.S. 1139 (1998) 19

Utica Mut. Ins. Co. v. Vincent, 375 F.2d 129 (2d Cir.),

cert. denied, 389 U.S. 839 (1967) 10

Constitution, statutes and rules:

U.S. Const. Art. III 17, 19

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

§ 6511 19

§ 6532 19

§ 7422 19

§ 7443A(a) s

§ 7443A(b)(1)-(3) 7

§ 7443A(b)(4) 2,3,7,8

§ 7443A(b)(5) s

§ 7443A(c) 7,8, 15

§ 7453 S

Vi

Statutes and rules—Continued: Page

§ 7459 12

$ 745% b) 6, 19, 20

$ 7460(b) 11, 15, 19

§ 7461(a) 6, 19

§ 7461(b) 6, 19

§ 7482 20

§ 7482(aX(1) 12

Revenue Act of 1928, ch. 852, § 601, 45 Stat. 871

(26 U.S.C. 7460(b)) 11

T.C. R.:

Rule 182(b), 60 T.C 1149 (1973) 16

Rule 182(c), 60 T.C. 1149 (1973) ; 16

Rule 182(d) 16

Rule 183, 81 T.C. 1045 (1983) 16

EE 2, 6, 8, 12, 13, 14, 15, 17, 18

Rule 183/b) 12,14

Rule 183(c) 7,8, 11,19

Miscellaneous:

A. Carter, A History of the English Courts (7th ed.

1944) 19

H.R. Conf. Rep. No. 844, 68th Cong., Ist Sess.

(1924) 19

9 W. Holdsworth, A History of English Law

ini 18

Jn the Supreme Court of the United States

No. 03-1034

ESTATE OF BURTON W. KANTER, DECEASED, ET AL.,

PETITIONERS

v.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-97a)

is reported at 337 F.3d 833. The opinion of the Tax

Court (Pet. App. 98a) is reported at 78 T.C.M. (CCH)

951. The orders of the Tax Court denying petitioners’

post-judgment motions (Pet. App. 99a-103a, 107a-112a)

are unreported.

JURISDICTION

The judgment of the court of appeals was entered on

July 24, 2003. A petition for rehearing was denied on

October 21, 2003 (Pet. App. 115a). The petition for a

writ of certiorari was filed on January 20, 2004 (a

(1)

2

Tuesday following a holiday). The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. Burton Kanter, a tax attorney, along with Claude

Ballard and Robert Lisle, both vice-presidents of Pru-

dential Life Insurance Co. of America, participated in a

scheme in which five persons seeking to do business

with Prudential paid kickbacks for such business to

Kanter. Kanter then divided the money among himself,

Ballard, and Lisle by funneling that money through a

complex web of corporations, partnerships and trusts.

Pet. App. 16a-17a, 23a-68a.

Kanter failed to report the kickbacks he received as

income on his federal income tax returns. After dis-

covering the kickbacks, the Commissioner issued

notices of deficiency to Kanter, Ballard and Lisle for the

resulting income tax deficiencies and, later, asserted

civil fraud penalties. Pet. App. 14a.

2. Kanter, Ballard, and Lisle each sought review of

the Commissioner’s determinations in the Tax Court.

Pet. App. 98a. After their cases were consolidated in

the Tax Court, the Chief Judge assigned them to be

heard by Special Trial Judge D. Irvin Couvillion pur-

suant to 26 U.S.C. 7443A(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 for decision. Pet. App. 98a, 113a. On

December 15, 1999, the Tax Court issued an opinion in

the consolidated cases which states that “[t]he Court

agrees with and adopts the opinion of the Special Trial

Judge, which is set forth below.” Jd. at 98a. This

opinion of the Tax Court sustained the major portion of

3

the deficiencies and penalties determined by the Com-

missioner.

3. Kanter, along with Ballard and Lisle, thereafter

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. 107a-

108a. In the alternative, they asked the Tax Court to

make a copy of such materials part of the record in the

case. Id. at 108a. The Tax Court denied this motion,

stating that (ibid.):

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 Find-

ings of Facts 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

7443A(b)(4) and Rule 183 were followed by the

Court.

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.” Pet. App. 109a (quoting Freytag v. Commis-

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

cluded that, “\iJn any event such materials are confi-

dential and not subject to production because they

relate to the internal deliberative processes of the

Court. Cf. Sec. 7460(b).” Ibid.

Kanter then filed a second motion requesting that the

special trial judge’s report be included in the record

4

under seal. That motion was also denied by the Tax

Court. Pet. App. 101a.

4. Kanter then moved for reconsideration or for a

new trial. Pet. App. 99a. Attached to this motion was

an affidavit of his counsel, Randall G. Dick. In that

affidavit, Dick stated that he had been informed by two

or three unnamed judges of the Tax Court that Special

Trial Judge Couvillion had recommended in his “origi-

nal” 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 102a.

The Tax Court denied that motion in an order signed

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

Special Trial Judge Couvillion. Pet. App. 103a. 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.” Jd. at 102a. The Tax

Court stated that the alleged statements purportedly

made to Dick were thus “irrelevant and immaterial.”

Ibid. The court further stated that (ibid.):

Judge Dawson states and Special Trial Judge

Couvillion agrees, that, after a meticulous and time-

consuming review of the complex record 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-

mended by Special Trial Judge Couvillion were

correct, and that Judge Dawson gave due regard to

the circumstance that Special Trial Judge Couvillion

evaluated the credibility of witnesses.

5

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

petitions for mandamus to the Seventh, Eleventh, 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

prepared by Special Trial Judge Couvillion. In the

alternative, they sought an order directing the Tax

Court to describe any changes made to the initial report

submitted by Special Trial Judge Couvillion. The

petitions for writs of mandamus were denied. Jn re

Investment Research Ass’ns & Sub. & Burton W. &

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

In re Ballard, No. 00-14762-H (11th Cir. Oct. 23, 2000);

In re Lisle, No. 00-60637 (5th Cir. Sept. 18, 2000).

6. After the entry of final decisions, Kanter’s estate,

a petitioner herein,’ appealed to the Seventh Circuit,

Ballard appealed to the Eleventh Circuit, and Lisle’s

executor 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 due

process of law. Pet. App. la-97a; Ballard v. Commis-

sioner, 321 F.3d 1037, 1042-1043 (11th Cir. 2003),

petition for cert. pending, No. 03-184; Estate of Lisle v.

Commissioner, 341 F.3d 364, 384 (5th Cir. 2003).

In the present case, the panel majority noted that the

Chief Judge of the Tax Court, Judge Dawson, and

Special Tria. Judge Couvillion all signed the final

opinion, and took that statement “at face value.” Pet.

App. 7a. The court concluded that “Kanter’s arguments

are immaterial if the Tax Court’s final opinion is the

[special trial judge’s] report.” Jbid. The court went on

to note that, if a quasi-collaborative deliberative pro-

' Kanter died on October 31, 2001, and his estate was sub-

stituted as the petitioner in the Tax Court. Pet. App. la.

6

cess between the special trial judge and the Tax Court

judge was involved, since the opinion agreed to and

adopted by the Tax Court was the ultimate opinion of

the special trial judge, any different preliminary recom-

mendation by the special trial judge would no longer be

relevant. Jd. at 13a.

Judge Cudahy concurred in part and dissented in

part. Pet. App. 70a-97a. In his view, failure to include a

special trial judge’s original report in the record

violated petitioner’s due process right to “meaningful

appellate review.” Id. at 94a.

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.

Petitioners argue that due process requires that the

“original” report of the special trial judge be made

public by inclusion in the record so that the appellate

court can ensure compliance with Tax Court Rule 183,

which provides that the recommended findings of fact

of the special trial judge are presumed correct and that

due regard be given to the circumstance that the

special trial judge had the opportunity to evaluate the

credibility of the witnesses. Pet. 13-21. Petitioners

similarly argue that Rule 183 requires that findings of

the special trial judge contained in his “original” report

must be reviewed by the regular Tax Court judge

under a clearly erroneous standard, and inclusion of the

report in the record on appeal is necessary to determine

whether this was done. Pet. 25-29. Finally, petitioners

assert that 26 U.S.C. 7459(b), 7461(a) and (b), and 7482

require that the “original” report of a special trial judge

be made part of the record on appeal. Pet. 21-25. Peti-

7

tioners’ contentions, which largely reiterate contentions

advanced in Ballard, petition for cert. pending, No. 03-

184, have been rejected by three circuits and are

without merit. Pet. App. la-97a; Ballard v. Commis-

sioner, 321 F.3d 1037 (11th Cir. 2003), petition for cert.

pending, No. 03-184; Estate of Lisle v. Commissioner,

341 F.3d 364 (5th Cir. 2003).

1. Petitioners’ assertion that they have a due pro-

cess right to have the “original” report of a special trial

judge made public by inclusion in the record funda-

mentally misperceives the functions and responsibilities

of special trial judges and regular judges of the Tax

Court in cases assigned to special trial judges for

hearing. Authority to determine the facts and law ap-

plicable to a case must come from Congress, and Con-

gress has not given the chief judge of the Tax Court

authority to allow special trial judges to make the

findings and decision in cases that are assigned to them

only for hearing. 26 U.S.C. 7443A(b)(4) and (c); see Pet.

App. 8a (“The Tax Court thus acts as the original finder

of fact.”). In light of the requirement that the case

must be decided by a regular judge of the Tax Court,

Rule 183 provides that reports prepared by special trial

judges merely “recommend” findings in the case. T.C.

R. 183(c). Thus, the Tax Court, not the special trial

judge, was the decisionmaker whose factual findings

are subject to appellate review, and petitioners’ re-

peated assertions to the contrary (Pet. 14-19) are

simply mistaken.

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

Revenue Code permit the chief judge of the Tax

Court to assign particular types of cases—which are

ordinarily small cases—to be heard and decided by

special trial judges. 26 U.S.C. 7443A(b)(1)-(3) and (ce).

At the time relevant to this case, Section 7443A(b)(4) of

8

_ 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.

Any decision in this latter category of cases must be

entered by a regular Tax Court judge. 26 U.S.C.

7443A(b)(4) and (c). The present case, involving con-

cealed kickback income received by Kanter, was as-

signed to the special trial judge only for hearing and

recommended decision under this statute. Pet. App.

108a.

The Internal Revenue Code does not prescribe

procedures to be employed by the Tax Court in its use

of special trial judges. Rather, Congress has authorized

the Tax Court to adopt rules prescribing such pro-

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

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(b)(4)

and (c)), Rule 183 states 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 evidence or may direct oral argument, or may

recommit the report with instructions.” T.C. 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

9

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. 109a. 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); In

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

v. Ritch, 195 U.S. 276, 306-307 (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. 13a-l4a (quoting

Ballard, 321 F.3d at 1043).

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

in which due process requires a trial-type hearing,

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

evidence in the sense of having reviewed and con-

sidered 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, or that the officer disclose the work product of

examiners who observed the evidence, or that parti-

cular deference be given to those examiners. See Pet.

19 (“Petitioner does not argue that the Tax Court

should * * * be required to hear witnesses.”); Pet.

App. 84a (Cudahy, J., dissenting) (“[D]ue process does

not require that the ultimate fact finder be constrained

by a formal degree of deference to the original hearing

officer.”).

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):

10

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 subject to argument and exceptions be-

fore the Secretary to whom the authority to enter the

decision had been given by Congress. /d. 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 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 & Tel. Co., 304 U.S. 333, 350-351 (1938); Peoria

Braumeister Co. v. Yellowley, 123 F.2d 637, 639 (7th

11

Cir. 1941) (“The right to receive a copy of the findings

of the examiner and of his report, with an opportunity

to file exceptions and be heard by brief and in oral

argument, is a desirable but not essential ingredient of

procedural due process and a fair hearing.”)*

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

“original” opinion of the judge who presided at trial is

to be excluded from the record. Revenue Act of 1928,

ch. 852, § 601, 45 Stat. 871 (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.

denied, 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).

c. Petitioners are similarly mistaken in arguing that

due process requires disclosure of a special trial judge’s

report because the taxpayer has a due process right to

ensure that the Tax Court complied with Rule 183(c)’s

statement that the recommended findings of fact of the

2 Petitioners’ reliance (Pet. 17) on Mazza v. Cavicchia, 105

A.2d 545 (N.J. 1954), is misplaced. Mazza rests on state law

grounds that are independent of federal law. Moreover, the court

in Mazza concluded that, since a judge may not consider matters

outside of the record in deciding a case, a hearing examiner's

report could not be used by a judge unless the report were made

part of the record. /d. at 554-555. That view erroneously conflates

the evidentiary record and deliberations based on that record.

12

special trial judge are presumed correct and that due

regard be given to the circumstance that the special

trial judge had the opportunity to evaluate the credi-

bility of the witnesses. Under 26 U.S.C. 7482(a)(1), the

courts of appeals review “decisions” of the Tax Court

“in the same manner and to the same extent” as de-

cisions of the district courts in civil actions tried with-

out a jury. The report of a special trial judge is plainly

not the “decision” of the Tax Court. 26 U.S.C. 7459;

T.C. R. 183(b). Only the decision of the Tax Court, not

any “original” recommendation that may have been

made by a special trial judge, is the subject of the

appellate jurisdiction of the court of appeals.

Moreover, as the court of appeals emphasized in this

case, Pet. App. 7a, 13a-14a, petitioners’ contention that

Rule 183 may have been violated is completely belied

by the fact that Chief Judge, Dawson, and Special Trial

Judge Couvillion signed orders stating that the decision

of the Tax Court was the opinion of the special trial

judge. /d. at 102a (“Judge Dawson states and Special

Trial Judge Couvillion agrees, that * * * Judge

Dawson adopted the findings of fact and opinion of

Special Trial Judge Couvillion, that judge Dawson

presumed the findings of fact recommended by Special

Trial Judge Couvillion were correct, and that Judge

Dawson gave due regard to the circumstances that

Special Trial Judge Couvillion evaluated the credibility

of witnesses.”); accord id. at 108a. Even petitioners

concede that the statement that the opinion of the

special trial judge was adopted evidences that the

opinion issued by the Tax Court states “the final views

of the [special] trial judge.” Pet. 9. Thus, even assum-

ing that the special trial judge had a view of Kanter’s

case at the time the judge submitted his “original”

report that differed from the views that are reflected in

13

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.

Petitioners assert that the Tax Court routinely

makes changes to the “original” reports prepared by

special trial judges without telling the parties. Pet. 4-7.

Petitioners claim (Pet. 6) that this is evidenced by the

absence of any case decided since Rule 183’s adoption in

1984 in which the Tax Court disagreed with a recom-

mended finding by a special trial judge. 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,

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. In only one of those

opinions, moreover, did the reviewing judge of the Tax

Court disagree with or “reverse” the special trial judge.

See Kansas City S. Ry. v. Commissioner, 76 T.C. 1067

(1981); Narver v. Commissioner, 75 T.C. 53 (1980);

Hilton v. Commissioner, 74 T.C. 305 (1980); La Fargque

v. Commissioner, 73 T.C. 40 (1979); Orzechowski v.

Commissioner, 69 T.C. 750 (1978); C. Blake McDowell,

Inc. v. Commissioner, 67 T.C. 1043 (1977), vacated and

remanded, 576 F.2d 718 (6th Cir.), on remand, 71 T.C.

71 (1978), aff'd, 652 F.2d 606 (6th Cir. 1980). There is

thus no factual basis for petitioners’ assertion that

when (as in the present case) the Tax Court issues an

* 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).

14

opinion that adopts the report of a special trial judge, it

fails accurately to set forth the view of the special trial

judge in the case.

At bottom, petitioners challenge the authority of the

Tax Court, without public disclosure, to communicate

or collaborate with a special trial judge about a case

after the judge submits an “original” report to the Chief

Judge under Rule 183(b). Yet nothing in Rule 183

forbids such communications, nor does Rule 183 pre-

vent the special trial judge himself from modifying his

recommended findings based upon that collaborative

process. Nor would such non-public communications or

collaborations violate due process. Internal communi-

cations among judges and special trial judges are part

of the internal deliberative process of the court. Pet.

App. 109a. As explained by the court of appeals, “there

is nothing unusual about judges conferring with one

another about cases assigned to them,” and, as a result

of such conferences, judges sometimes change their

original position or thoughts. /d. at 13a-l4a (quotirg

Ballard, 321 F.3d at 1043). 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”).

Moreover, as discussed above, the record demon-

strates that the opinion of the court does accurately set

forth the opinion reached by Special Trial Judge

Couvillion. Pet. App. 98a, 103a. As the court of appeals

noted, where (as here) an opinion entered accurately

states the views of the special trial judge, any differing

preliminary recommendation would no longer have any

relevance, because it would not constitute a valid

15

statement of the special trial judge’s view of the case.

Id. at 13a; accord Ballard, 321 F.3d at 1042-1043; Estate

of Lisle, 341 F.3d at 384.

d. Contrary to petitioners’ contention, the court of

appeals correctly concluded that Rule 183 does not

require regular judges of the Tax Court to review the

recommended findings of a special trial judge under a

“clearly erroneous” or other deferential standard of

review. Pet. App. 8a-9a; see id. at 75a (Cudahy, J.,

concurring in part and dissenting in part) (“I agree with

the majority’s determination that Rule 183 imposes no

requirement of disclosure or of clearly erroneous de-

ference upon the Tax Court.”). Rule 183 simply does

not embody a “standard of review” in the traditional

sense. As discussed, the findings that are reviewed on

an appeal from a decision of the Tax Court are the

factual findings of the regular judge of the Tax Court.

26 U.S.C. 7443A(c); see, e.g., Heim, 251 F.2d at 45-46:

Estate of Varian, 396 F.2d at 755; Towers, 247 F.2d at

237; Erhard v. Commissioner, 46 F.3d 1470, 1476 (9th

Cir.), cert. denied, 516 U.S. 930 (1995). See also, Mor-

gan, supra; 26 U.S.C. 7460(b).

Because responsibility and authority for the findings

and decision is vested in the regular judge assigned to

the case and with the Tax Court itself (26 U.S.C.

7443A(c)), Rule 183 does not (and indeed, it could not)

permit a regular judge to subordinate his or her judg-

ment as to the findings or decision to that of a special

trial judge. See Pet. App. 8a (Rule 183 merely instructs

the regular judge “to be cognizant that the [special trial

judge] had the opportunity to evaluate the credibility of

witnesses”); see also, e.g., Colorado v. New Mexico, 467

U.S. 310, 317 (1984) (in reviewing exceptions to findings

of a special master, the special master’s findings “de-

serve respect and a tacit presumption of correctness”

16

but “the ultimate responsibility for deciding what are

correct findings of fact remains with us”); Rene-

gotiation Bd. v. Grumman Aircraft Engg Corp., 421

U.S. 168, 185 n.22 (1975) (review limited by “a clearly

erroneous or some other deferential standard” would

grant “de facto decisional authority”).

Petitioners argue (Pet. 25-29) that the court of

appeals’ reading of Rule 183 conflicts with Stone ».

Commissioner, 865 F.2d 342, 344-347 (D.C. Cir. 1989),

rev'g Rosenbaum v. Commissioner, 45 T.C.M. (CCH)

825 (1983), which held that former Rule 182(d) required

that the Tax Court review the recommended findings of

the special trial judge for clear error. Petitioner is

mistaken. As Judge Cudahy pointed out (Pet. App.

76a-79a), Stone was decided under the prior rules of the

Tax Court, under which litigants were furnished with

copies of special trial judges’ recommended findings and

conclusions and then were given an opportunity to take

exception thereto, with only the exceptions being

reviewed by a regular judge of the Tax Court. T.C.

R. 182(b) and (c), 60 T.C. 1149 (1973); see Freytag v.

Commissioner, 904 F.2d 1011, 1015 n.8 (Sth Cir. 1990),

aff'd, 501 U.S. 868 (1991). When the Tax Court adopted

Rule 183 in 1983 (effective January 16, 1984), it

withdrew the provisions requiring litigants to be

furnished with copies of reports of special trial judges

and to file exceptions thereto. See notes to Rule 183,

reproduced at 81 T.C. 1045, 1070 (1983) (“The prior

provisions for service of the Special Trial Judge's report

on each party and for the filing of exceptions to that

report have been deleted.”).

By eliminating the procedures for disclosure and the

filing of exceptions, the Tax Court Rules now make it

clear that review by a regular judge of a special trial

judge’s report is not in the nature of an appellate

See,

17

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

original fact-finding authority. T.C. R. 183; see Pet.

App. 76a-77a (Cudahy, J., concurring in part and

dissenting in part). And although the D.C. Circuit has

cited Stone since Rule 183 was amended, see Landry v.

FDIC, 204 F.3d 1125, 1133, cert. denied, 531 U.S. 924

(2000), that decision neither involved the correct

interpretation of the current Tax Court Rule nor

considered whether Rule 183 requires deference under

a clearly erroneous standard of review notwithstanding

the Tax Court’s determination to withdraw procedures

for service and exceptions to a special trial judge’s

report. Finally, as discussed, because the Tax Court

decision in this case in fact adopts in whole “the findings

of fact and opinion of Special Trial Judge Couvillion,”

Pet. App. 102a, the issue of whether Rule 183 requires

particular deference to the recommended findings of

the special trial judge is entirely moot. Jd. at 7a.

e. Petitioners’ also assert that they are entitled to

the special trial judge’s so-called original report by

virtue of “long-established judicial practice.” Pet. 16.

Unlike litigation that must be assigned to an Article III

court for adjudication, however, tax cases 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, 50 (1932) (quoting Murray’s Lessee v. Hoboken

Land & Improvement Co., 59 U.S. (18 How.) 272, 284

(1855)); see North 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). See Morgan,

supra.’ During the first two years after creation of the

* Although petitioners note that this case involved a civil fraud

penalty (Pet. 8), public rights cases include tax cases in which the

18

Board of Tax Appeals (the predecessor to the Tax

Court), decisions of the Board were not appealable.

Instead, a litigant dissatisfied with the decision in the

case had to bring a separate action in an appropriate

court to challenge the Board’s decision. Congress

subsequently created a statutory right of direct review

of decisions of the Board of Tax Appeals. Old Colony

Trust Co. v. Commissioner, 279 U.S. 716, 721 (1929).

Nor were tax cases subject to procedures at common

law similar to those of present day Article III courts.

At common law, tax cases were resolved in a branch of

the “court of exchequer” and were not “judicial con-

troversies * * * according to the ordinary course of

the common law or equity.” Murray’s Lessee, 59 U.S.

(18 How.) at 282. The Exchequer was a “department”

in which “a court [of revenue] [was] held before the

Treasurer,” and which was “probably the nearest ap-

proach to a body of administrative law that the English

legal system has ever known; and the court of Ex-

chequer, sitting as a court of Revenue, is the nearest

approach to an administrative court.” 9 W. Holds-

worth, A History of English Law 231, 239 (1926). See

Government asserts penalties. See Atlas Roofing Co. v. Occupa-

tional Safety & Health Review Comm’n, 430 U.S. 442, 450 (1977)

(emphasis added) (“public rights” doctrine extends to cases that

involve “taxes * * * together with penalties”); Helvering v.

Mitchell, 303 U.S. 391, 401 (1938) (noting that the civil fraud

penalty is “provided primarily as a safeguard for the protection of

the revenue and to reimburse the Government for the heavy ex-

pense of investigation and the loss resulting from the taxpayer's

fraud”).

5 Petitioners’ reliance (Pet. 15-16) on Mathews v. Eldridge, 424

U.S. 319 (1976), is misplaced. Mathews involved a party’s right to

a hearing before being deprived of property. Kanter received a

full pre-deprivation hearing. Mathews requires no more—and

often much less.

19

A. Carter, A History of the English Courts 51 (7th ed.

1944). Accordingly, due process does not prohibit the

use of procedures in federal tax cases similar to those

sustained in Morgan or mandated by Congress in 26

U.S.C. 7460(b), and does not require that the Tax Court

operate in a manner identical to Article III courts.

Indeed, taxpayers who wish to avail themselves of an

Article III forum can do so by paying the asserted

deficiency and suing for a refund in accordance with the

procedures set forth in 26 U.S.C. 7422, 6511, 6532.

2. There is also no merit to petitioners’ assertion

(Pet. 21) that 26 U.S.C. 7461(a) and 7459(b) require that

“original” reports of special trial judges be included in

the record. Petit‘oners raised no issue under Section

7461(a) in his briefs below, and referred to Section

7459(b) for the first time in their reply brief. The con-

tentions thus were waived in the court of appeals

(United States v. Magana, 118 F.3d 1173, 1198 n.15 (7th

Cir. 1997), cert. denied, 522 U.S. 1139 (1998)), and are

therefore not properly before this Court. TRW Inc. v.

Andrews, 534 U.S. 19, 34 (2001); Holly Farms Corp. v.

NLRB, 517 U.S. 392, 400 n.7 (1996); Lawn v. United

States, 355 U.S. 339, 362 n.16 (1958).

In any event, 26 U.S.C. 7461(a) does not require dis-

closure of documents prepared by a special trial judge

but states that “reports of the Tax Court” and “evi-

dence” received by the court are public records that are

open to inspection by the public. See H.R. Conf. Rep.

No. 844, 68th Cong., lsi Sess. 30 (1924) (“the Board

shall make a report * * * of its findings of fact and its

opinion and decision in each case * * * [and] such

report and all evidence received by the Board shall be

public records”). A report that a special trial judge

prepares for submission to the chief judge and is

assigned to a regular judge is described in Rule 183(c)

20

as “the Special Trial Judge’s report.” It is neither a

report “of the Tax Court” nor “evidence.”

Similarly, 26 U.S.C. 7459(b) does not require dis-

closure of a special trial judge’s “original” report.

Section 7459(b) states that the Tax Court shall report

all of “its findings of fact, opinions, and memorandum

opinions” (emphasis added). As discussed, recom-

mendations in reports of special trial judges are not

findings or opinions of the Tax Court.

Petitioners’ reliance on 26 U.S.C. 7482 is equally

unavailing. That statute provides that courts of appeals

are to review “decisions” of the Tax Court “in th> 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, however, is plainly not

the “decision” of the Tax Court. As noted above, it is

the decision of the Tax Court, not the recommendation

of the special trial judge (either initial or final), that is

the subject of the appellate jurisdiction of the courts of

appeals. Pet. App. 9a.

3. The courts of appeals that have addressed the

precise questions presented in this case are fully in

accord with the decision of the court of appeals below.

In Ballard, the Eleventh Circuit rejected the conten-

tion that the procedures employed by the Tax Court

violated the taxpayer’s due process rights. In Estate of

Lisle, the Fifth Circuit agreed with the decision below

and the decision of the Eleventh Circuit in Ballard.

341 F.3d at 384. See Erhard, 46 F.3d at 1475-1476 (up-

holding review by a regular judge of special trial

judge’s recommendation under the procedures in Rule

183(c) in which litigants are not provided a copy of the

special trial judge’s recommendations). There is thus

no conflict or other reason to warrant granting a writ of

certiorari in this case.

21

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

MARCH 2004