WASHINGTON – The Supreme Court (search) eliminated some of the secrecy faced by Americans taking tax disputes to the U.S. Tax Court (search), ruling Monday that factual recommendations in the proceedings must be disclosed.
While the official opinions of the tax court are made public, people are not allowed to see recommendations by specially appointed judges who hold trials in cases involving more than $50,000, and who also write detailed reports.
In a 7-2 decision, the court said that was wrong, finding it to be a violation of tax court rules. It noted that initial findings made by magistrate and bankruptcy judges in other proceedings are open.
"However efficient the Tax Court's practice may be, we find no warrant for it in the rules the Tax Court publishes," Justice Ruth Bader Ginsburg (search) wrote for the majority. "The commissioner may not rely on the tax court's arbitrary construction of its own rules to insulate special trial judges from disclosure."
In a dissent, Chief Justice William H. Rehnquist (search) said justices should defer to the Tax Court's interpretation of its own rules. He said while the Tax Court had released the fact reports for 40 years, a rules change in 1983 arguably allowed them to stop the practice.
"An agency's interpretation of its own rule or regulation is entitled to controlling weight unless it is plainly erroneous," Rehnquist wrote in an opinion joined by Justice Clarence Thomas (search).
Taxpayers fighting with the Internal Revenue Service (search) may use traditional courts if they pay the IRS first, then sue to recover the money. The U.S. Tax Court is available to people who want to contest IRS findings before paying any cash. The president names the 19 members.
The case involved a pair of appeals that stem from accusations that a real estate executive, Claude Ballard, and a prominent, now-deceased tax attorney with ties to Hollywood, Burton Kanter, were part of a kickback scheme. The IRS sought $30 million in back taxes and penalties.
A special trial judge held a five-week trial then spent four years preparing a confidential report for the Tax Court. The court found the men guilty of tax fraud, though their attorneys claim the trial judge had initially recommended against that and may have been pressured to change the recommendation.
In her opinion, Ginsburg argued that more disclosure is critical in fraud cases such as Ballard and Kanter's, noting that full appellate review of the decision would be impeded without access to the trial judge's factual recommendations.
"Fraud cases, in particular, may involve critical credibility assessments, rendering the appraisals of the judge who presided at trial vital to the Tax Court's ultimate determinations," she wrote.
The cases are Estate of Burton W. Kanter v. Commissioner of Internal Revenue, 03-1034, and Ballard v. Commissioner of Internal Revenue, 03-184.