Ballard et ux. v. Commissioner of Internal Revenue & Estate of Kanter v. Commissioner of Internal Revenue (consolidated)
The IRS charged Ballard, his wife, and Kanter with tax deficiency notices alleging that they had fraudulently failed to declare and pay taxes on a substantial amount of income. The IRS alleged that this income was earned through a complex scheme that involved influence peddling, kickbacks, and tax shelters. Their case was assigned to trial before a Special Trial Judge, who, pursuant to Rule 183(b), prepared a written report containing his findings of facts and opinions and submitted it to the Tax Court. None of the parties received a copy of the Special Trial Judge’s report. The Tax Court approved the report, released the report to the parties, and entered a judgment against the Ballards and Kanter.
Amidst rumors that the report of the Special Trial Judge had been altered or disregarded by the Tax Court, the Ballards and Kanter filed various motions requesting access to the original reports and opinions of the Special Trial Judge, or an indication of any changes that were made to the original. The motions were denied and the parties appealed.
The Third Circuit Court of Appeals affirmed the Tax Court in the Ballards’ case, holding that the procedures of Rule 183, which allowed the Tax Court to review the findings of the Special Trial Judge without first making the findings available to the parties, did not violate the parties’ due process rights because the Special Trial Judge had also signed the final report of the Tax Court, indicating that it was consistent with the original report. The Seventh Circuit Court of Appeals affirmed the Tax Court in Kanter’s case for the same reason.
Questions Presented:
Ballard v. Commissioner of Internal Revenue:
In this case, the trial was conducted by a Special Trial Judge employed at will by the Tax Court. The Special Trial Judge was required to create a report of factual and legal findings, but his
original report has never been made available to the parties, the public, or the reviewing Article III courts. Instead, his superiors on the Tax Court either overruled his factual findings or
persuaded him to change his mind, thus creating a factual finding of tax fraud. This entire process took place off the record, and came to light only in a subsequent conversation between two Tax
Court judges and a counsel for another party.
The questions presented are:
1. Whether this secretive process is consistent with the Due Process Clause or the right to effective Article III review?
2. Whether this secretive process is consistent with 26 U.S.C. § 7482, which provides that Article III courts must review Tax Court decisions just as they would decisions of a U.S. district
court?
Estate of Kanter v. Commissioner of Internal Revenue:
The Tax Court keeps secret, even from the reviewing courts of appeals, the findings of fact and credibility judgments of its special trial judges. By law, these trial judges are required to file
reports containing findings of fact and opinion with the Tax Court. Tax Ct. R. 183(b). By law, these findings of fact "shall be presumed to be correct" and the Tax Court is required to give "due
regard" to the circumstance that the trial judge "had the opportunity to evaluate the credibility of witnesses." Tax Ct. R. 183(c). Nonetheless, the Tax Court overturns the factual findings,
including the credibility findings, of its trial judges without the record revealing those findings or that the Tax Court has overturned them. Secret trial judge reports preclude the courts of
appeals from determining whether the Tax Court has complied with the legal constraints described above. Secret trial judge reports also preclude the courts of appeals from reviewing a Tax Court
decision on the basis of the entire record on which that decision in fact rests. Federal statutes require that "all reports of the Tax Court . . . shall be public records." 26 U.S.C. §
7461(a).
The questions presented are:
1. Whether the due process clause or the governing federal statutes require that the courts of appeals be able to review Tax Court decisions on the basis of the complete record, including the
trial judge's findings of fact that, by law, the Tax Court must presume to be correct.
2. Whether Tax Court Rule 183 requires judges of the Tax Court to uphold findings of fact and credibility judgments made by their trial judges unless those findings are "clearly erroneous,"
as the D.C. Circuit has held, or are those findings and credibility judgments entitled to no deference at all, as the Seventh Circuit held in this case.
Decisions under Review:
Ballard v. Commissioner of Internal Revenue
Estate of Kanter v. Commissioner of Internal Revenue
