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The Tax Prophet Newsletter   Issue #24 June, 2005

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In This Issue:
What Were They Thinking?
Supreme Court
Taxpayer Victimized
Court Rules
Aftermath


Major Tax Court Scandal


What Were They Thinking?

Shock, disbelief and anger. That's the reaction of tax practitioners upon learning that Tax Court judges outright "lied" about the findings of a trial judge, which were kept secret by the U.S. Tax Court, until a recent U.S. Supreme Court ruling forced the Tax Court to make the report public.

In general, taxpayers disputing an additional IRS tax assessment may petition the Tax Court for a ruling. This procedure permits taxpayers to contest tax assessments before paying additional taxes. In contrast, taxpayers who desire a hearing in federal court must first pay the tax and then sue for a refund.

The Supreme Court decision casts doubt on the integrity of Tax Court decisions involving trial judges' reports which have been illegally shielded from taxpayers, thus depriving them of appeal rights.


Supreme Court

Until 1984, the findings of trial judges were made public, but at that time, the rules were changed so their findings were not made part of the court record. In a March 2005 ruling, Ballard vs. Commissioner, the U.S. Supreme Court, in a 7 to 2 decision, ordered Couvillion's 1998 findings to be made public and criticized the Tax Court's 1984 rule that such findings should be kept secret. The Court stated:

The Tax Court's practice is extraordinary, for it is routine in federal judicial and administrative decision making both to disclose a hearing officer's initial report, ... and to make that report part of the record available to an appellate forum...

.... Given this Court's holding that the Tax Court's practice is not described and authorized by that court's Rules, this Court need not reach, and expresses no opinion on, the taxpayers' further arguments based on due process and other statutory provisions.


Taxpayer Victimized

The case involved Burton Kanter, a prominent California tax attorney who was accused of engaging in fraudulent transactions, depriving IRS of more than $30 million in tax revenue. D. Irvin Couvillion, a Special Trial Judge for the Tax Court, oversaw the trial of the case in 1994 and filed his findings in 1998. Pursuant to Tax Court rules, those findings were sent to Tax Court Judge Harold Dawson for review and issuance of a final decision.

Couvillion found no fraud and ruled in Mr. Kanter's favor, but in 2000, the then Chief Tax Court Judge, Thomas Wells, Judge Dawson and Judge Couvillion, issued a court order stating that "after a meticulous and time-consuming review of the complex record in these cases, Judge Dawson adopted the findings ... of Special Trial Judge Couvillion." Bizarre! Couvillion signed another order that directly contradicted his original findings.


Court Rules

Under Tax Court rules, a reviewing judge must give due regard to the trial judge's assessment of witnesses and the findings of the trial judge shall be presumed to be correct. Thus, a Tax Court judge cannot merely overrule a trial judge's findings because he does not like the result.

According to Randall Dick, the tax attorney representing Mr. Kanter's estate, "...there is an absolute arrogance in Tax Court that they could do whatever they wanted to do without reporting to anyone--in secret."


Aftermath

There are calls for a full investigation into the Tax Court's practices and a review of all trial judge reports. However, to date, both the American Bar Association and the American Institute of Certified Public Accountants have been silent on the scandalous actions by the Tax Court and the prospect that other taxpayers may have been similarly victimized. These organizations should express the appropriate outrage at this blatant effort to undermine a taxpayer's right to a fair hearing.



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© 2005 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.