Academic journal article Duke Law Journal

(Un)appealing Deference to the Tax Court

Academic journal article Duke Law Journal

(Un)appealing Deference to the Tax Court

Article excerpt

C. Dobson's Long Shadow

Thus far, this Article has argued that the limitations on appellate review of Tax Court decisions can be traced to the Tax Court's history as an administrative agency and that those limitations were later overturned by Congress. Congress likely accomplished parity with review of district court decisions in 1948, but if it did not, it left for judicial determination the standard of review of Tax Court decisions on questions of law. Since then, not only has the Tax Court been removed from the executive branch and made an Article I court, but the Supreme Court has generally also treated the Dobson rule as a matter of history rather than as a current precedent. (161) Where does that leave review of Tax Court decisions?

Federal Rule of Civil Procedure 52(a)(6) governs the standard of review of findings of fact in district court bench trials; Rule 52(a)(6) states that "[findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the witnesses' credibility." (162) The standard of review on legal issues appealed from the district courts is de novo. (163) In general, these are the standards courts apply to Tax Court cases, as well. (164) For example, the Court of Appeals for the Second Circuit has noted, "We review the legal rulings of the Tax Court de novo and its factual determinations for clear error," (165) further explaining, "[W]e owe no deference to the Tax Court's statutory interpretations, its relationship to us being that of a district court to a court of appeals, not that of an administrative agency to a court of appeals." (166)

However, Dobson has cast a long shadow. For example, in 2011, without citing [section] 7482, a district court cited Dobson for the proposition that, "[w]hile decisions by the Tax Court are not binding, 'uniform administration would be promoted by conforming to them where possible.'" (167) And it took until 2013 for the Second Circuit to hold that [section] 7482(a) requires it to apply the same standard of review to mixed questions of law and fact decided by the Tax Court as it does to district court decisions. (168)

In the 2013 case of Diebold Foundation, Inc. v. Commissioner, (169) the Second Circuit explained that, in a 1991 case, it had adopted the "clear error" standard used by the Seventh Circuit in reviewing mixed questions of law and fact decided by the Tax Court. (170) However, unlike the Seventh Circuit, which applied the same standard to district court decisions, the Second Circuit's standard of review of district court cases involving mixed questions of law and fact hinged on whether the alleged error dealt with the legal or factual aspect of the mixed question. (171) The Second Circuit had apparently overlooked [section] 7482 in rendering the 1991 decision. (172)

Other examples may be more subtle. Professor Steve Johnson has observed that "boilerplate language in appellate court opinions as to the standard of review may not describe the true behavior of those courts. Heightened deference to the Tax Court may operate as 'Dobson sub silencio.'" (173) That may be the case if a court relies on Dobson's reasoning, or cases reflecting that reasoning, without actually citing Dobson.

For example, in 2012, the Ninth Circuit recited the de novo review standard for Tax Court conclusions of law, then stated, "[although we do not give the Tax Court special deference in a de novo review, '[b]ecause the Tax Court has special expertise in the field,... its opinions bearing on the Internal Revenue Code are entitled to respect.'" (174) The opinion quotes a 1999 Ninth Circuit case, the language of which traces back (175) to a 1979 case and a 1980 case. (176) The 1979 case, Allstate Savings & Loan Ass'n v. Commissioner, (177) involved the treatment of selling expenses of foreclosed property. …

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