Tax Court May Not Exclude Special Trial Judge Report from Record on Appeal

A recent Supreme Court decision held that the Tax Court may not exclude the special trial judges Tax Court Rule 183(b) report from the record on appeal. The Court found that the Tax Courts practice of not disclosing the special trial judges original report and of obscuring the Tax Court judges mode of reviewing that report, impedes a fully informed appellate review of the Tax Court decision.

Tax Court Rule 183

Tax Court Rule 183 delineates the procedural framework and substantive standards governing that courts review of special trial judge findings. Rule 183(b) provides that, after the trial and submission of briefs, the Special Trial Judge shall submit a report, including findings of fact and opinion, to the Chief Judge, and the Chief Judge will assign the case to a Judge...of the Court. Rule 183(c), directed to the Tax Court judge to whom the case is assigned for final decision, reads:

Action on the Report: The Judge to whom...the case is assigned may adopt the Special Trial Judges 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. 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.

In these cases, the Tax Court judge assigned to take action on the special trial judges report invoked none of the means Rule 183(c) provides to supplement the record. From the record, the Tax Court judges review of the fact-findings contained in the special trial judges report rested on the report itself, the trial transcript and the other documents on file. Rule 183(c) guides the appraisal of those filed materials and confirms the clear understanding that, from the start, deference is due fact-findings made by the trial judge.

Under Rule 183 (formerly 182) as it was formulated in 1973, the Tax Courts review of the special trial judges report was a transparent process. Rule 182(b) provided for service of copies of the special trial judges report on the parties, and Rule 182(c) allowed parties to file exceptions to the report. However, in 1983, the Tax Court eliminated both of these provisions. It left intact, however, Rule 182(c)s call for [d]ue regard to the special trial judges credibility determinations and the instruction that the findings of fact recommended by the Special Trial Judge shall be presumed to be correct. Never, in any instance since the adoption of current Rule 183, has a Tax Court judge not agreed with and adopted the special trial judges opinion.

Trial Judge Report

The Tax Court judge treats the special trial judges report essentially as an in-house draft to be worked over collaboratively by the regular judge and the special trial judge. When the collaborative process is complete, the Tax Court judge issues a decision in all cases agree[ing] with and adopt[ing] the opinion of the Special Trial Judge. In the review process contemplated by Rule 183(c), the Tax Court judge must accord deference to the special trial judges findings. One would be hard put to explain, however, how a final decisionmaker, here the Tax Court judge, would give [d]ue regard to, and presum[e] to be correct, an opinion the judge collaborated in producing.

However efficient the Tax Courts current practice may be, there is no warrant for it in the published Tax Court Rules. The Tax Court, like all other decisionmaking tribunals, is obliged to follow its own Rules. Although it is not without leeway in interpreting them, it is unreasonable to read into Rule 183 an unprovided-for collaborative process, and to interpret the phrases due regard and presumed to be correct, to convey something other than what those same words meant prior to the 1983 Rule changes.

The IRS, however, argues that the special trial judges report is an internal draft, a mere step in a confidential decisional process, and, thus, properly withheld from a reviewing court. Given the generally prevailing practice regarding a tribunals use of hearing officers, we are all the more resistant to the Tax Courts concealment of the only special trial judge report its Rules authorize. For example, the initial findings or recommendations of magistrate judges, special masters and bankruptcy judges are available to the appellate court authorized to review the operative decision of the district court. [I]f there are policy reasons that dictate transparency for everyone else, why do these reasons not apply to the Tax Court? (Est. of Kanter, 337 F3d 833 (7th Cir. 2003); cf. Mazza v. Cavicchia, 15 NJ 498 (1954) (We have not been able to find a single case in any state...justifying or attempting to justify the use of secret reports by a hearer to the head of an administrative agency.)).

The IRS, however, argues that the Tax Courts practice of replacing the special trial judges initial report with a collaborative report and refusing to disclose the initial report is neither unique nor aberrational. As a direct statutory analog, the IRS points to Sec. 7460(b), governing cases reviewed by the full Tax Court. It states that when the full Tax Court reviews the decision of a single Tax Court judge, the initial one-judge decision shall not be a part of the record. However, such proceedings differ markedly from the review of a special judges report.

The procedure described and defended by the IRS, although not the system of adjudication that Rule 183 currently creates, is one the Tax Court might some day adopt. If the Tax Court amended its rules to express the changed character of the Tax Court judges review of special trial judge reports, that change would, of course, be subject to appellate review for consistency with the relevant Federal statutes and due process. The judgments are reversed.

Claude M. Ballard, Sup. Ct., 3/7/05