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Tax Notes

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Tax Notes



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On December 7, 2004, the Supreme Court will hear oral arguments in the consolidated Kanter and Ballard cases. The Tax Court had substantially upheld the IRS’s determinations of large deficiencies and fraud penalties against several taxpayers. The taxpayers argued in part that the Tax Court's application of its Rule 183 violated both due process and applicable statutes. I disagreed with those arguments then, and I continue to do so now. On appeal, the taxpayers' challenges to Rule 183 were rejected by the Fifth, Seventh, and Eleventh Circuits. The decisions of those circuits are sound and should be affirmed.

Both an affirmative case and a negative case can be made in favor of the decisions. The affirmative case consists of the values that the current regime reflects, values that would be compromised by accepting the taxpayers' arguments. The negative case responds to the constitutional and statutory contentions raised by the taxpayers and others.

This article has five parts. Part I recounts the procedural context and pertinent facts of the cases. Parts II and III develop the affirmative case. Affirming the decisions would support the process values that courts speak through their opinions and it is inappropriate to go behind opinions to examine judges’ thought processes or motivations (Part II), and that courts should be able to craft rules that reflect their needs and safeguard their internal deliberative processes (Part III).

Parts IV and V present the negative case. They do not address every point raised by the taxpayers and others but instead focus on particularly instructive parts of the arguments. Part IV considers the due process arguments. It maintains in part that the taxpayers inappropriately conflate evaluation of witness credibility and the smaller, included notion of evaluation of witness demeanor, and that the taxpayers seek to impose procedural inflexibility that the due process component of the Fifth Amendment has never required and does not require today Part V considers the statutory arguments and the policy of judicial transparency. It argues that Rule 183 is consistent with existing statutes, and that, if the rule is to be changed, the agent of change should be Congress, not the Supreme Court.


© 2004 Steve R. Johnson


First published in Tax Notes.

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