39–010 

Calendar No. 96 

109TH CONGRESS REPORT " ! SENATE 1st Session 109–64 

UNITED STATES TAX COURT MODERNIZATION ACT 

APRIL 28, 2005.—Ordered to be printed 

Mr. GRASSLEY, from the Committee on Finance, 

submitted the following 

R E P O R T 

[To accompany S. 661] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Finance, to which was referred the bill (S. 

661) to amend the Internal Revenue Code of 1986 to provide for the 

modernization of the United States Tax Court, and for other purposes, having considered the same, reports favorably thereon with 

an amendment in the nature of a substitute and recommends that 

the bill, as amended, do pass. 

CONTENTS 

Page 

I. Legislative Background .................................................................................... 2 

II. Explanation of the Bill ..................................................................................... 2 

Title I.—Tax Court Procedure ......................................................................... 2 

A. Jurisdiction of Tax Court Over Collection Due Process Cases (sec. 

101 of the bill and sec. 6330 of the Code) ........................................ 2 

B. Authority for Special Trial Judges to Hear and Decide Certain 

Employment Status Cases (sec. 102 of the bill and sec. 7443A 

of the Code) ......................................................................................... 4 

C. Confirmation of Tax Court Authority to Apply Doctrine of Equitable Recoupment (sec. 103 of the bill and sec. 6214 of the 

Code) ................................................................................................... 5 

D. Tax Court Filing Fees (sec. 104 of the bill and sec. 7451 of 

the Code) ............................................................................................. 5 

E. Appointment of Tax Court Employees (sec. 105 of the bill and 

sec. 7471(a) of the Code) .................................................................... 6 

F. Expanded Use of Practice Fees (sec. 106 of the bill and sec. 

7475 of the Code) ................................................................................ 8 

Title II.—Tax Court Pension and Compensation ........................................... 9 

A. Judges of the Tax Court (secs. 201–207 and 213 of the bill and 

secs. 7443, 7447, 7448, and 7472 of the Code) ................................. 9 

2 

1Sec. 6330(a). Unless otherwise indicated, all section references are to the Internal Revenue 

Code of 1986, as amended. 2Sec. 6320. 

3Sec. 6330(d). 

B. Special Trial Judges of the Tax Court (secs. 208–213 of the bill 

and sec. 7448 and new secs. 7443A, 7443B, and 7443C of the 

Code) ................................................................................................... 12 

III. Budget Effects of the Bill ................................................................................. 14 

IV. Votes of the Committee .................................................................................... 19 

V. Regulatory Impact and Other Matters ........................................................... 19 

VI. Changes in Existing Law Made by the Bill as Reported .............................. 20 

I. LEGISLATIVE BACKGROUND 

Overview 

The Senate Committee on Finance marked up S. 661, the 

‘‘United States Tax Court Modernization Act,’’ on April 19, 2005, 

and ordered the bill, with an amendment in the nature of a substitute, favorably reported by voice vote. 

Activity during the 108th Congress 

During the 108th Congress, the Senate passed a bill, H.R. 1528 

as amended by the Senate (the ‘‘Tax Administration Good Government Act’’), which contained provisions to address the same issues 

addressed by the current bill. During the 108th Congress, the Committee also reported several bills addressing the same issues as the 

current bill: (1) S. 753 (the ‘‘Tax Court Modernization Act’’), reported May 5, 2003; (2) S. 882 (the ‘‘Tax Administration Good Government Act’’), reported May 4, 2004; and (3) S. 2424 (the ‘‘National Employee Savings and Trust Equity Guarantee Act of 

2004’’), reported May 14, 2004 (which contained the Tax Court Pension and Compensation provisions). The provisions of the current 

bill are substantially the same as the related provisions contained 

in the bills from the 108th Congress. 

II. EXPLANATION OF THE BILL 

TITLE I.—TAX COURT PROCEDURE 

A. JURISDICTION OF TAX COURT OVER COLLECTION DUE PROCESS

CASES

(Sec. 101 of the bill and sec. 6330 of the Code) 

PRESENT LAW

In general, the Internal Revenue Service (‘‘IRS’’) is required to 

notify taxpayers that they have a right to a fair and impartial 

hearing before levy may be made on any property or right to property.1 Similar rules apply with respect to liens.2 The hearing is 

held by an impartial officer from the IRS Office of Appeals, who is 

required to issue a determination with respect to the issues raised 

by the taxpayer at the hearing. The taxpayer is entitled to appeal 

that determination to a court. The appeal must be brought to the 

United States Tax Court (the ‘‘Tax Court’’), unless the Tax Court 

does not have jurisdiction over the underlying tax liability. If that 

is the case, then the appeal must be brought in the district court 

of the United States.3 If a court determines that an appeal was not 

3 

4Sec. 7441. 

5Sec. 7442. 

6Sec. 7442. 

made to the correct court, the taxpayer has 30 days after such determination to file with the correct court. 

The Tax Court is established under Article I of the United States 

Constitution 4 and is a court of limited jurisdiction.5 The Tax Court 

only has the jurisdiction that is expressly conferred on it by statute.6 For example, the jurisdiction of the Tax Court includes the 

authority to redetermine the correct amount of an income, estate, 

or gift tax deficiency, to make certain types of declaratory judgments, and to determine certain worker classification status issues, 

but does not include jurisdiction over most excise taxes imposed by 

the Internal Revenue Code. Thus, the Tax Court lacks jurisdiction 

over the appeal of a due process hearing relating to certain collections matters. 

REASONS FOR CHANGE

The Tax Court does not have jurisdiction over all of the tax 

issues underlying collection due process cases. For example, the jurisdiction of the Tax Court does not extend to issues involving most 

excise taxes. Thus, a taxpayer seeking to appeal the collection due 

process determination must know whether the Tax Court or a district court has jurisdiction over the underlying tax liability. 

The judicial appeals structure of present law was designed in 

recognition of these jurisdictional limitations; however, in many 

cases the underlying taxes are not involved in determining the due 

process issue. The present-law structure can lead to taxpayer confusion over which court is the proper court in which to file an appeal. Some believe that this confusion may also be used by some 

taxpayers seeking to delay the collection process. Accordingly, the 

Committee believes that the Tax Court should have jurisdiction 

over all appeals of collection due process determinations. The Committee believes that the simplification provided by the provision 

will benefit the taxpayers seeking judicial review and benefit the 

IRS by eliminating confusion over which court is the proper venue 

for appeal and will reduce the period of time before judicial review. 

This provision will also eliminate the opportunity to use the 

present-law rules in unintended ways to delay or defeat the collection process. 

EXPLANATION OF PROVISION

The provision modifies the jurisdiction of the Tax Court by providing that all appeals of collection due process determinations are 

to be made to the Tax Court. 

EFFECTIVE DATE

The provision applies to determinations made by the IRS after 

the date which is 60 days after the date of enactment. 

4 

7Sec. 7436. 

8Sec. 7436(c). 

9Sec. 7443A(b) and (c). 

B. AUTHORITY FOR SPECIAL TRIAL JUDGES TO HEAR AND DECIDE

CERTAIN EMPLOYMENT STATUS CASES

(Sec. 102 of the bill and sec. 7443A of the Code) 

PRESENT LAW

In connection with the audit of any person, if there is an actual 

controversy involving a determination by the IRS as part of an examination that (1) one or more individuals performing services for 

that person are employees of that person or (2) that person is not 

entitled to relief under section 530 of the Revenue Act of 1978, the 

Tax Court has jurisdiction to determine whether the IRS is correct 

and the proper amount of employment tax under such determination.7 Any redetermination by the Tax Court has the force and effect of a decision of the Tax Court and is reviewable. 

An election may be made by the taxpayer for small case procedures if the amount of the employment taxes in dispute is $50,000 

or less for each calendar quarter involved.8 The decision entered 

under the small case procedure is not reviewable in any other court 

and should not be cited as authority. 

The chief judge of the Tax Court may assign proceedings to special trial judges. The Code enumerates certain types of proceedings 

that may be so assigned and may be decided by a special trial 

judge. In addition, the chief judge may designate any other proceeding to be heard by a special trial judge.9

REASONS FOR CHANGE

The Committee believes that it is important for special trial 

judges to preside over and enter decisions in proceedings involving 

a determination of employment status in which the amount of employment taxes in dispute is $50,000 or less for each calendar quarter. The Committee believes that this clarification will improve the 

operations and internal functioning of the Tax Court. 

EXPLANATION OF PROVISION

The provision clarifies that the chief judge of the Tax Court may 

assign to special trial judges any employment tax cases that are 

subject to the small case procedure and may authorize special trial 

judges to decide such small tax cases. 

EFFECTIVE DATE

The provision is effective for any employment status proceeding 

in the Tax Court with respect to which a decision has not become 

final before the date of enactment. 

5 

10See Stone v. White, 301 U.S. 532 (1937); Bull v. United States, 295 U.S. 247 (1935). 11 153 F.3d 302 (6th Cir. 1998), cert. den., 525 U.S. 1140 (1999). 12 264 F.3d 904 (9th Cir. 2001), cert. den., 535 U.S. 927 (2002). 

C. CONFIRMATION OF TAX COURT AUTHORITY TO APPLY DOCTRINE

OF EQUITABLE RECOUPMENT

(Sec. 103 of the bill and sec. 6214 of the Code) 

PRESENT LAW

Equitable recoupment is a common-law equitable principle that 

permits the defensive use of an otherwise time-barred claim to reduce or defeat an opponent’s claim if both claims arise from the 

same transaction. U.S. District Courts and the U.S. Court of Federal Claims, the two Federal tax refund forums, may apply equitable recoupment in deciding tax refund cases.10 In Estate of 

Mueller v. Commissioner,11 the Court of Appeals for the Sixth Circuit held that the Tax Court may not apply the doctrine of equitable recoupment. More recently, the Court of Appeals for the 

Ninth Circuit, in Branson v. Commissioner,12 held that the Tax 

Court may apply the doctrine of equitable recoupment. 

REASONS FOR CHANGE

The conflict among the circuit courts regarding the application of 

the doctrine of equitable recoupment results in uncertainty and 

confusion. For example, the cases of similarly situated taxpayers 

may be resolved differently simply because the taxpayers reside in 

different circuit court jurisdictions. The Committee believes that it 

is important to clarify the applicability of the doctrine of equitable 

recoupment in order to eliminate the uncertainty or confusion of 

differing results in differing circuits. The Committee also believes 

that the provision will provide simplification benefits to both taxpayers and the IRS. 

EXPLANATION OF PROVISION

The provision confirms that the Tax Court may apply the principle of equitable recoupment to the same extent that it may be applied in Federal civil tax cases by the U.S. District Courts or the 

U.S. Court of Federal Claims. No negative inference should be 

drawn as to whether the Tax Court has the authority to continue 

to apply other equitable principles in deciding matters over which 

it has jurisdiction. 

EFFECTIVE DATE

The provision is effective for any action or proceeding in the Tax 

Court with respect to which a decision has not become final as of 

the date of enactment. 

D. TAX COURT FILING FEES

(Sec. 104 of the bill and sec. 7451 of the Code) 

PRESENT LAW

The Tax Court is authorized to impose a fee of up to $60 for the 

filing of any petition for the redetermination of a deficiency or for 

declaratory judgments relating to the status and classification of 

6 

13Sec. 7451. 14See Rule 20(a) of the Tax Court Rules of Practice and Procedure. 15Sec. 7441. 16Sec. 7471. 

section 501(c)(3) organizations, the judicial review of final partnership administrative adjustments, and the judicial review of partnership items if an administrative adjustment request is not allowed in full.13 The statute does not specifically authorize the Tax 

Court to impose a filing fee for the filing of a petition for review 

of the IRS’s failure to abate interest or for failure to award administrative costs and other areas of jurisdiction for which a petition 

may be filed. The practice of the Tax Court is to impose a $60 filing 

fee in all cases commenced by petition.14

REASONS FOR CHANGE

The Committee believes it is appropriate to clarify that the Tax 

Court filing fee applies to any case commenced by the filing of a 

petition. 

EXPLANATION OF PROVISION

The provision clarifies that the Tax Court is authorized to charge a filing fee of up to $60 in all cases commenced by the filing of a 

petition. No negative inference should be drawn as to whether the 

Tax Court has the authority under present law to impose a filing 

fee for any case commenced by the filing of a petition. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

E. APPOINTMENT OF TAX COURT EMPLOYEES

(Sec. 105 of the bill and sec. 7471(a) of the Code) 

PRESENT LAW

The Tax Court is a legislative court established by the Congress 

pursuant to Article I of the U.S. Constitution (an ‘‘Article I’’

court).15 The Tax Court is authorized to appoint employees, subject 

to the rules applicable to employment with the Executive Branch 

of the Federal Government (generally referred to as ‘‘competitive 

service’’), as administered by the Office of Personnel Management.16

Employment with the Federal Executive Branch is governed by 

certain general statutory principles, such as recruitment of qualified individuals, fair and equitable treatment of employees and applicants, maintenance of high standards of employee conduct, and 

protection of employees against arbitrary action. The rules for employment in the Federal Executive Branch address various aspects 

of such employment, including: (1) procedures for the appointment 

of employees in the competitive service, including preferences for 

certain individuals (e.g., veterans); (2) compensation, benefits, and 

leave programs for employees; (3) appraisals of employee performance; (4) disciplinary actions; and (5) employee rights, including appeal rights. In addition, employees are protected from certain personnel practices (referred to as ‘‘prohibited personnel practices’’), 

such as discrimination on the basis of race, color, religion, age, sex, 

7 

17See, e.g., S. Rep. No. 91–552, at 302 (1969). 

national origin, political affiliation, marital status, or handicapping 

condition. 

REASONS FOR CHANGE

The Tax Court was established as an Article I court in part because of its need for independence from the Executive Branch and 

its responsibility for reviewing determinations of a Federal Executive Branch agency (i.e., the Internal Revenue Service).17 Accordingly, the Committee believes that the Tax Court should have the 

authority to establish its own personnel system, rather than being 

subject to the rules administered by the Federal Executive Branch. 

Similar authority has previously been provided to other Article I 

courts and to courts established under Article III of the U.S. Constitution (‘‘Article III’’ courts). Currently, the Tax Court is the only 

Federal court (Article I or III) that does not have its own personnel 

system. Authority to establish its own personnel system will also 

provide the Tax Court with greater flexibility in meeting its staffing needs, thus enabling the court to operate more effectively. The 

Committee also believes that a personnel system established by the 

Tax Court should be consistent with the general principles that 

govern other employment with the Federal Government and should 

provide certain protections to employees. 

EXPLANATION OF PROVISION

The provision extends to the Tax Court authority to establish its 

own personnel management system. Any personnel management 

system adopted by the Tax Court must: (1) include the merit system principles that govern employment with the Federal Executive 

Branch; (2) prohibit personnel practices that are prohibited in the 

Federal Executive Branch; and (3) in the case of an individual eligible for preference for employment in the Federal Executive Branch, 

provide preference for that individual in a manner and to an extent 

consistent with preference in the Federal Executive Branch. 

The provision requires the Tax Court to prohibit discrimination 

on the basis of race, color, religion, age, sex, national origin, political affiliation, marital status, or handicapping condition. The Tax 

Court is also required to promulgate procedures for resolving complaints of discrimination by employees and applicants for employment. 

The provision allows the Tax Court to appoint a clerk without regard to the Federal Executive Branch rules regarding appointments in the competitive service. Under the provision, the clerk 

serves at the pleasure of the Tax Court. 

The provision also allows the Tax Court to appoint other necessary employees without regard to the Federal Executive Branch 

rules regarding appointments in the competitive service. Under the 

provision, these deputies and employees are subject to removal by 

the Tax Court. 

The provision allows judges and special trial judges of the Tax 

Court to appoint law clerks and secretaries, in such numbers as the 

Tax Court may approve, without regard to the Federal Executive 

Branch rules regarding appointments in the competitive service. 

8 

18Sec. 7475. 

Under the provision, a law clerk or secretary serves at the pleasure 

of the appointing judge. 

The provision exempts law clerks from the sick leave and annual 

leave provisions applicable to employees of the Federal Executive 

Branch. Any unused sick or annual leave to the credit of a law 

clerk as of the effective date of the provision remains credited to 

the individual and is available to the individual upon separation 

from the Federal Government, or upon transfer to a position subject to such sick leave and annual leave provisions. 

The provision allows the Tax Court to fix and adjust the compensation of the clerk and other employees without regard to the 

Federal Executive Branch rules regarding employee classifications 

and pay rates. To the maximum extent feasible, Tax Court employees are to be compensated at rates consistent with those of employees holding comparable positions in the Federal Judicial Branch. 

The Tax Court may also establish programs for employee evaluations, premium pay, and resolution of employee grievances. 

In the case of an individual who is an employee of the Tax Court 

on the day before the effective date of the provision, the provision 

preserves certain rights that the employee is entitled to as of that 

day. The provision preserves the right to: (1) appeal a reduction in 

grade or removal; (2) appeal an adverse action; (3) appeal a prohibited personnel practice; (4) make an allegation of a prohibited personnel practice; or (5) file an employment discrimination appeal. 

These rights are preserved for as long as the individual remains an 

employee of the Tax Court. 

Under the provision, a Tax Court employee who completes at 

least one year of continuous service under a nontemporary appointment with the Tax Court acquires competitive service status for appointment to any position in the Federal Executive Branch competitive service for which the employee possesses the required 

qualifications. 

The provision also allows the Tax Court to procure the services 

of experts and consultants in accordance with Federal Executive 

Branch rules. 

EFFECTIVE DATE

The provision is effective on the date that the Tax Court adopts 

a personnel management system after the date of enactment. 

F. EXPANDED USE OF PRACTICE FEES

(Sec. 106 of the bill and sec. 7475 of the Code) 

PRESENT LAW

The Tax Court is authorized to impose on practitioners admitted 

to practice before the Tax Court a fee of up to $30 per year.18

These fees are to be used to employ independent counsel to pursue 

disciplinary matters. 

REASONS FOR CHANGE

The Committee understands that many pro se taxpayers are not 

familiar with Tax Court procedures and applicable legal requireVerDate Aug 04 2004 22:30 May 02, 2005 Jkt 039010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\SR064.XXX SR064
9 

19Sec. 7441. 20Sec. 7443(c). 21Sec. 7447. 22Sec. 7448. 

ments. The Committee believes it is beneficial for Tax Court fees 

imposed on practitioners also to be available to provide services to 

pro se taxpayers. 

EXPLANATION OF PROVISION

The provision provides that Tax Court fees imposed on practitioners also are available to provide services to pro se taxpayers. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

TITLE II.—TAX COURT PENSION AND COMPENSATION 

A. JUDGES OF THE TAX COURT

(Secs. 201–207 and 213 of the bill and secs. 7443, 7447, 7448, and 

7472 of the Code) 

PRESENT LAW

The Tax Court is established by the Congress pursuant to Article 

I of the U.S. Constitution (an ‘‘Article I’’ court).19 The salary of a 

Tax Court judge is the same salary as received by a United States 

District Court (‘‘District Court’’) judge.20 Present law also provides 

Tax Court judges with some benefits that correspond to benefits 

provided to District Court judges, including a specific retirement 

program for Tax Court judges.21

Under the retirement program, a Tax Court judge may elect to 

receive retirement pay from the Tax Court in lieu of benefits under 

another Federal retirement program. A Tax Court judge may also 

elect to participate in a plan providing annuity benefits for the 

judge’s surviving spouse and dependent children (the ‘‘survivors’

annuity plan’’).22 Generally, benefits under the survivors’ annuity 

plan are payable only if the judge has performed at least five years 

of service. Cost of living increases in benefits under the survivors’ annuity plan are generally based on increases in pay for active 

judges. 

Tax Court judges participate in the Federal Employees Group 

Life Insurance program (the ‘‘FEGLI’’ program). Retired Tax Court 

judges are eligible to participate in the FEGLI program as the result of an administrative determination of their eligibility, rather 

than a specific statutory provision. 

Tax Court judges are not covered by the leave system for Federal 

Executive Branch employees. As a result, an individual who works 

in the Federal Executive Branch before being appointed to the Tax 

Court does not continue to accrue annual leave under the same 

leave program and may not use leave accrued prior to his or her 

appointment to the Tax Court. 

Tax Court judges are not eligible to participate in the Thrift Savings Plan. 

Under the retirement program for Tax Court judges, retired 

judges generally receive retired pay equal to the rate of salary of 

10 

23See, e.g., S. Rep. No. 91–552, at 303 (1969). 

an active judge and must be available for recall to perform judicial 

duties as needed by the court for up to 90 days a year (unless the 

judge consents to more). However, retired judges may elect to 

freeze the amount of their retired pay, and those who do so are not 

available for recall. 

Retired Tax Court judges on recall are subject to the limitations 

on outside earned income that apply to active Federal employees 

under the Ethics in Government Act of 1978. However, retired District Court judges on recall may receive compensation for teaching 

without regard to the limitations on outside earned income. Retired 

Tax Court judges who elect to freeze the amount of their retired 

pay (thus making themselves unavailable for recall) are not subject 

to the limitations on outside earned income. 

REASONS FOR CHANGE

Tax Court judges receive compensation at the same rate as District Court judges. In addition, the benefit programs for Tax Court 

judges are intended to accord with similar programs applicable to 

District Court judges.23 However, subsequent legislative changes in 

the benefits provided to District Court judges and judges in certain 

other Article I courts have not applied to Tax Court judges, thus 

creating disparities between the treatment of Tax Court judges and 

the treatment of other Federal judges. 

The Committee believes that, as a general matter, parity should 

exist between the benefits provided to Tax Court judges and those 

provided to District Court judges. Thus, the benefits provided to 

Tax Court judges should be updated to reflect benefits currently 

provided to District Court judges. 

In addition, the Committee is concerned that certain aspects of 

the present-law rules relating to Tax Court judges may be inequitable in that Tax Court judges are treated less favorably than District Court judges and judges in certain other Article I courts. With 

respect to increases in FEGLI premiums for Tax Court judges age 

65 or older, the Committee believes that the Tax Court should be 

authorized to pay for such increases, similar to authority in other 

Federal courts. In addition, because Tax Court judges are not covered by the leave system for Federal Executive Branch employees, 

a judge who has unused accrued annual leave for service with the 

Federal Executive Branch should be able to receive a lump sum 

payment for such accrued annual leave. Moreover, the Committee 

believes that exempting from the limitations on outside earned income compensation received by retired Tax Court judges for teaching will encourage such judges to remain available for recall by the 

court. 

EXPLANATION OF PROVISION

Survivor annuities for assassinated judges 

Under the provision, benefits under the survivors’ annuity plan 

are payable if a Tax Court judge is assassinated before the judge 

has performed five years of service. 

11 

24This date relates to changes in the FEGLI program, including changes to premium rates 

to reflect employees’ ages. 

Cost-of-living adjustments for survivor annuities 

The provision provides that cost of living increases in benefits 

under the survivors’ annuity plan are generally based on cost of living increases in benefits paid under the Civil Service Retirement 

System. 

Life insurance coverage 

Under the provision, a judge or retired judge of the Tax Court 

is deemed to be an employee continuing in active employment for 

purposes of participation in the FEGLI program. In addition, in the 

case of a Tax Court judge age 65 or over, the Tax Court is authorized to pay on behalf of the judge any increase in employee premiums under the FEGLI program that occur after April 24, 1999,24

including expenses generated by such payment, as authorized by 

the chief judge of the Tax Court in a manner consistent with payments authorized by the Judicial Conference of the United States 

(i.e., the body with policy-making authority over the administration 

of the courts of the Federal Judicial Branch). 

Accrued annual leave 

Under the provision, in the case of a judge who is employed by 

the Federal Executive Branch before appointment to the Tax Court, 

the judge is entitled to receive a lump sum payment for the balance 

of his or her accrued annual leave on appointment to the Tax 

Court. 

Thrift Savings Plan participation 

Under the provision, Tax Court judges are permitted to participate in the Thrift Savings Plan as provided under the Thrift Savings Plan. A Tax Court judge is not eligible for agency contributions to the Thrift Savings Plan. 

Exemption for teaching compensation from outside earned income 

limitations 

Under the provision, compensation earned by a retired Tax Court 

judge for teaching is not treated as outside earned income for purposes of the limitations under the Ethics in Government Act of 

1978. 

EFFECTIVE DATE

The provisions are effective on the date of enactment, except 

that: (1) the provision relating to cost of living increases in benefits 

under the survivors’ annuity plan applies with respect to increases 

in Civil Service Retirement benefits taking effect after the date of 

enactment; (2) the provision relating to FEGLI coverage applies to 

any individual serving as a Tax Court judge or any retired Tax 

Court judge on or after the date of enactment; (3) the provision relating to payment of accrued annual leave applies to any Tax Court 

judge with an outstanding leave balance as of the date of enactment and to any individual appointed to serve as a Tax Court 

judge after such date; and (4) the provision relating to teaching 

compensation of a retired Tax Court judge applies to any individual 

12 

25With respect to participation in the Thrift Savings Plan, recent legislation permits elections 

under the Thrift Savings Plan to be made at any time, rather than only during open seasons. 

Thus, Tax Court judges will be able to participate in the Thrift Savings Plan as of the date 

of enactment. 26Sec. 7441. 27Sec. 7443A. 

serving as a retired Tax Court judge on or after the date of enactment.25

B. SPECIAL TRIAL JUDGES OF THE TAX COURT

(Secs. 208–213 of the bill and sec. 7448 and new secs. 7443A, 

7443B, and 7443C of the Code) 

PRESENT LAW

The Tax Court is established by the Congress pursuant to Article 

I of the U.S. Constitution.26 The chief judge of the Tax Court may 

appoint special trial judges to handle certain cases.27 Special trial 

judges serve for an indefinite term. Special trial judges receive a 

salary of 90 percent of the salary of a Tax Court judge and are generally covered by the benefit programs that apply to Federal Executive Branch employees, including the Civil Service Retirement System or the Federal Employees’ Retirement System. 

REASONS FOR CHANGE

Special trial judges of the Tax Court perform a role similar to 

that of magistrate judges in courts established under Article III of 

the U.S. Constitution (‘‘Article III’’ courts). However, disparities 

exist between the positions of magistrate judges of Article III 

courts and special trial judges of the Tax Court. For example, magistrate judges of Article III courts are appointed for a specific term, 

are subject to removal only in limited circumstances, and are eligible for coverage under special retirement and survivor benefit programs. The Committee believes that special trial judges of the Tax 

Court and magistrate judges of Article III courts should receive 

comparable treatment as to the status of the position, salary, and 

benefits. This will better enable the Tax Court to attract and retain 

qualified persons to serve in this capacity. 

EXPLANATION OF PROVISION

Magistrate judges of the Tax Court 

Under the provision, the position of special trial judge of the Tax 

Court is renamed as magistrate judge of the Tax Court. Magistrate 

judges are appointed (or reappointed) to serve for eight year terms 

and are subject to removal in limited circumstances. 

Under the provision, a magistrate judge receives a salary of 92 

percent of the salary of a Tax Court judge. 

The provision exempts magistrate judges from the leave program 

that applies to employees of the Federal Executive Branch and provides rules for individuals who are subject to such leave program 

before becoming exempt. 

Survivors’ annuity plan 

Under the provision, magistrate judges of the Tax Court may 

elect to participate in the survivors’ annuity plan for Tax Court 

13 

judges. An election to participate in the survivors’ annuity plan 

must be filed not later than the latest of: (1) twelve months after 

the date of enactment of the provision; (2) six months after the 

date the judge takes office; or (3) six months after the date the 

judge marries. 

Retirement annuity program for magistrate judges 

The provision establishes a new retirement annuity program for 

magistrate judges of the Tax Court, under which a magistrate 

judge may elect to receive a retirement annuity from the Tax Court 

in lieu of benefits under another Federal retirement program. A 

magistrate judge may elect to be covered by the retirement program within five years of appointment or five years of date of enactment. A magistrate judge who elects to be covered by the retirement program generally receives a refund of contributions (with interest) made to the Civil Service Retirement System or the Federal 

Employees’ Retirement System. 

A magistrate judge may retire at age 65 with 14 years of service 

and receive an annuity equal to his or her salary at the time of retirement. For this purpose, service may include service performed 

as a special trial judge or a magistrate judge, provided the service 

is performed no earlier than 91⁄2 years before the date of enactment 

of the provision. The provision also provides for payment of a reduced annuity in the case of a magistrate judge with at least eight 

years of service or in the case of disability or failure to be reappointed. 

A magistrate judge receiving a retirement annuity is entitled to 

cost of living increases based on cost of living increases in benefits 

paid under the Civil Service Retirement System. However, such an 

increase cannot cause the retirement annuity to exceed the current 

salary of a magistrate judge. 

Contributions of one percent of salary are withheld from the salary of a magistrate judge who elects to participate in the retirement annuity program. Such contributions must be made also with 

respect to prior service for which the magistrate judge elects credit 

under the retirement annuity program. No contributions are required after 14 years of service. A lump sum refund of the magistrate judge’s contributions (with interest) is made if no annuity 

is payable, for example, if the magistrate judge dies before retirement. 

A magistrate judge’s right to a retirement annuity is generally 

suspended or reduced in the case of employment outside the Tax 

Court. 

The provision includes rules under which annuity payments may 

be made to a person other than the magistrate judge in certain circumstances, such as divorce or legal separation, under a court decree, a court order, or a court-approved property settlement. 

The provision establishes the Tax Court Judicial Officers’ Retirement Fund (the ‘‘Fund’’). Amounts in the Fund are authorized to 

be appropriated for the payment of annuities, refunds, and other 

payments under the retirement annuity program. Contributions 

withheld from a magistrate judge’s salary are deposited in the 

Fund. In addition, the provision authorizes to be appropriated to 

the Fund amounts required to reduce the Fund’s unfunded liability 

to zero. For this purpose, the Fund’s unfunded liability means the 

14 

estimated excess, actuarially determined on an annual basis, of the 

present value of benefits payable from the Fund over the sum of 

(1) the present value of contributions to be withheld from the future salary of the magistrate judges and (2) the balance in the 

Fund as of the date the unfunded liability is determined. 

Under the provision, a magistrate judge who elects to participate 

in the retirement annuity program is also permitted to participate 

in the Thrift Savings Plan. Such a magistrate judge is not eligible 

for agency contributions to the Thrift Savings Plan. 

Retirement annuity rule for incumbent magistrate judges 

The provision provides a transition rule for magistrate judges in 

active service on the date of enactment of the provision. Under the 

transition rule, such a magistrate judge is entitled to an annuity 

under the Civil Service Retirement System or the Federal Employees’ Retirement System based on prior service that is not credited 

under the magistrate judges’ retirement annuity program. If the 

magistrate judge made contributions to the Civil Service Retirement System or the Federal Employees’ Retirement System with 

respect to service that is credited under the magistrate judges’ retirement annuity program, such contributions are refunded (with 

interest). 

A magistrate judge who elects the transition rule is also entitled 

to the annuity payable under the magistrate judges’ retirement 

program in the case of retirement with at least eight years of service or on failure to be reappointed. This annuity is based on service 

as a magistrate judge or special trial judge of the Tax Court that 

is performed no earlier than 91⁄2 years before the date of enactment 

of the provision and for which the magistrate judge makes contributions of one percent of salary. 

Recall of retired magistrate judges 

The provision provides rules under which a retired magistrate 

judge may be recalled to perform judicial duties for up to 90 days 

a year. 

EFFECTIVE DATE

The provisions are effective on the date of enactment. 

III. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATES

In compliance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate, the following statement is made concerning 

the estimated budget effects of the provisions of the bill as reported. 

15 


Insert graphic folio 21 here SR64.001
16 

B. BUDGET AUTHORITY AND TAX EXPENDITURES

Budget authority 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that the revenue provisions of the bill involve new or 

increased budget authority with respect to the Tax Court Judicial 

Officers’ Retirement Fund. 

Tax expenditures 

In compliance with section 308(a)(2) of the Budget Act, the Committee states that the revenue reduction provided for by the bill involves increased tax expenditures (see revenue table in Part III.A, 

above). 

C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

In accordance with section 403 of the Budget Act, the Committee 

advises that the Congressional Budget Office submitted the following statement on this bill. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 28, 2005. 

Hon. CHARLES E. GRASSLEY, 

Chairman, Committee on Finance, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 661, the Tax Court Modernization Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Geoffrey Gerhardt. 

Sincerely, 

ELIZABETH M. ROBINSON

(For Douglas Holtz-Eakin, Director). 

Enclosure. 

S. 661—Tax Court Modernization Act 

Summary: S. 661 would establish a new retirement program for 

certain employees of the U.S. Tax Court. The bill would give all 

current and future special trial judges of the Tax Court the option 

of being covered by this new retirement program in lieu of another 

federal retirement system. The program established under S. 661 

would provide retirement and survivor benefits similar to those accrued under retirement programs that cover regular Tax Court 

judges. Retirement benefits for regular Tax Court judges are more 

generous than those under the Civil Service Retirement System 

(CSRS) and the Federal Employees’ Retirement System (FERS). 

CBO estimates that enacting the bill would increase direct 

spending by $2 million in 2006 and by $4 million over the 2006–

2015 period. CBO and the Joint Committee on Taxation (JCT) estimate S. 661 would decrease revenue by about $1 million over the 

2006–2015 period—but by less than $500,000 in each year. In addition, implementing the bill would have discretionary costs of approximately $1 million in 2006 and $13 million over the 2006–2015 

period, assuming the appropriation of the necessary funds. 

17 

JCT has reviewed the tax provisions of S. 661 and has determined they contain no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA). 

CBO has reviewed the nontax provisions of the bill and determined 

that they contain no intergovernmental or private sector mandates 

as defined in UMRA and would have no significant impact on the 

budgets of state, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated 

bugetary impact of S. 661 is shown in the following table. The costs 

of this legislation fall within budget function 600 (income security). 

By fiscal year, in millions of dollars— 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN DIRECT SPENDING 1

Estimated Budget Authority .............................. 2 * * * * * * * * * 

Estimated Outlays ............................................. 2 * * * * * * * * * 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Estimated Authorization level ........................... 1 1 1 1 1 1 1 1 1 1 

Estimated Outlays ............................................. 1 1 1 1 1 1 1 1 1 1 

1 Enacting the bill also would affect revenues, but those effects would be less than $500,000 in each year. 

Note.—* = less than $500,000. 

Basis of estimate: For this estimate, CBO assumes the legislation 

will be enacted in September 2005. 

Direct spending 

S. 661 would establish a new retirement program for special 

judges of the U.S. Tax Court and rename those positions to be magistrate judges of the Tax Court. Under current law, most special 

trial judges participate in either CSRS or FERS, depending on 

when they first entered government service. The bill would provide 

all current and future magistrate judges the option of being covered by the new retirement program or continuing their coverage 

under CSRS or FERS. Information provided by the U.S. Tax Court 

indicate that seven special trial judges currently work for the court 

and that these judges have been employed by the government for 

an average of 32 years. All of these special trial judges are covered 

under CSRS and earn about $150,000 annually. 

Current or newly appointed judges who opt to be covered by the 

new retirement program would be entitled to refunds of employee 

contributions made to either CSRS or FERS. The employee contribution rate for most workers covered by CSRS is 7 percent, while 

the rate for FERS is 0.8 percent. CBO assumes that all of the special judges employed by the court would elect to have their retirement contributions refunded and be covered by the new retirement 

program. Based on this assumption CBO estimates that enacting 

S. 661 would increase direct spending for refunds of employee contributions by $2 million in 2006 and by less than $75,000 for each 

subsequent year. 

Both CSRS and FERS are defined benefit pension programs that 

provide retirement annuities based on the final years of salary and 

amount of creditable service. For workers with the age and service 

history of the current special judges of the Tax Court, CSRS replaces about 60 percent of a potential retiree’s salary and FERS replaces about 30 percent, although those in CSRS do not earn Social 

Security credits while those in FERS do. The new retirement proVerDate Aug 04 2004 22:30 May 02, 2005 Jkt 039010 PO 00000 Frm 00017 Fmt 6659 Sfmt 6602 E:\HR\OC\SR064.XXX SR064
18 

gram for special trial judges, like that for regular Tax Court 

judges, would replace 100 percent of a judge’s final salary upon retirement. CBO estimates that the difference between what these 

judges would have gotten under CSRS and what they would get 

under the new retirement program would increase federal spending 

by less than $500,000 annually during the 2006–2015 period, but 

total a little more than $1 million over the 10-year period. 

Section 106 of the bill would allow the tax court to use fees collected from attorneys before the court to pay for services for taxpayers who represent themselves. Under current law, such fees 

may only be used to employ independent counsel to pursue disciplinary matters. Based on information from the Tax Court, CBO estimates that enacting section 106 would increase direct spending 

from the fund in the first few years of the period. However, such 

increases would not be significant. 

S. 661 also contains several other proposals that could have an 

effect on direct spending. These include provisions to provide survivor annuities for assassinated Tax Court judges and cost-of-living 

adjustments for survivor annuities. CBO estimates these provisions 

would increase federal spending by less than $500,000 annually. 

Revenues 

The bill would require that judges who elect to be covered by the 

new retirement program contribute 1 percent of their salary toward 

the program. This would reduce overall employee retirement contributions since the rate for CSRS employees is 7 percent of salary. 

Judges also would have to make a lump-sum contribution—at 1 

percent of salary—for previous years they worked for the court 

equal to what they would have contributed if the new retirement 

program had been in existence. CBO estimates these changes in 

employee contributions would have a negligible effect on receipts. 

S. 661 also would make several changes to existing Tax Court 

procedure and modify laws relating to Tax Court pensions and 

compensation. Title I of the bill would expand filing fees to include 

petition cases and expand use of practice fees to include taxpayers 

who choose to represent themselves pro se taxpayers. In addition, 

title I would provide the Tax Court with jurisdiction over all appeals of collection due process determinations. JCT estimates that 

these provisions would have a negligible effect on federal revenues. 

Title II would allow Tax Court judges to participate in the Thrift 

Savings Plan, which JCT estimates would decrease governmental 

receipts by about $1 million over the 2006–2015 period. 

Spending subject to appropriation 

S. 661 also would require that the Secretary of the Treasury establish a new trust fund for the new retirement program. This 

fund, to be called the Tax Court Judicial Officers’ Retirement Fund, 

would receive agency and employee contributions and payout benefits to retirees and survivors. The bill specifies that the Tax Court 

would make adequate contributions to eliminate the program’s unfunded liability, taking employee contributions into account. Information from the Tax Court indicates that this payment would 

amount to about $1 million annually during the 2006–2015 period, 

subject to the availability of appropriated funds. 

19 

In addition, the bill would allow those employed by the Federal 

Executive Service before appointment to the Tax Court the right to 

collect a lump-sum payment for all unused annual leave. It would 

also change eligibility standards for Tax Court judges under the 

Federal Employees’ Group Life Insurance program. CBO estimates 

that these provisions would have a negligible effect on outlays. 

In total, CBO estimates S. 661 would increase spending subject 

to appropriation by a little more than $1 million annually and $13 

million over the 2006–2015 period. 

Intergovernmental and private-sector impact: JCT has reviewed 

the tax provisions of S. 661 and has determined they contain no 

intergovernmental or private-sector mandates as defined in UMRA. 

CBO has reviewed the nontax provisions of the bill and determined 

that they contain no intergovernmental or private-sector mandates 

as defined in UMRA and would have no significant impact on the 

budgets of state, local, or tribal governments. 

Estimate prepared by: Federal spending: Geoffrey Gerhardt; Federal Revenues: Annabelle Bartsch; Impact on State, Local, and 

Tribal Governments: Leo Lex; and Impact on the Private Sector: 

Meena Fernandes. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

IV. VOTES OF THE COMMITTEE 

In compliance with paragraph 7(b) of rule XXVI of the Standing 

Rules of the Senate, the following statements are made concerning 

the votes taken on the Committee’s consideration of the bill. 

Motion to report the bill 

The bill as amended was ordered favorably reported by voice 

vote, a majority and quorum being present, on April 19, 2005. 

Votes on amendments 

The amendment in the nature of a substitute was passed by 

voice vote. No other amendments were offered and voted upon. 

V. REGULATORY IMPACT AND OTHER MATTERS 

A. REGULATORY IMPACT

Pursuant to paragraph 11(b) of rule XXVI of the Standing Rules 

of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying 

out the provisions of the bill. 

Impact on individuals and businesses 

The bill includes provisions relating to the jurisdiction and procedures of the Tax Court relating to taxpayer appeals of collection 

due process determinations, employment status cases, application 

of the principle of equitable recoupment, authority to charge filing 

fees, and the use of practitioner fees. The bill also gives the Tax 

Court the authority to establish its own personnel system, makes 

changes to the benefit programs and outside compensation limitations for Tax Court judges, renames the position of special trial 

judge of the Tax Court as magistrate judge of the Tax Court, and 

20 

provides new compensation and benefits rules for magistrate 

judges. The provisions of the bill are not expected to impose additional administrative requirements or regulatory burdens on individuals or businesses. 

Impact on personal privacy and paperwork 

The provisions of the bill do not impact personal privacy. 

The provisions of the bill do not impose increased paperwork burdens on individuals. 

B. UNFUNDED MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the revenue provisions of 

the bill do not contain Federal mandates on the private sector. The 

Committee has determined that the revenue provisions of the bill 

do not impose a Federal intergovernmental mandate on State, 

local, or tribal governments. 

C. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the IRS Reform Act) requires the Joint 

Committee on Taxation (in consultation with the Internal Revenue 

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 

amends the Internal Revenue Code (the Code) and has widespread 

applicability to individuals or small businesses. 

The staff of the Joint Committee on Taxation has determined 

that a complexity analysis is not required under section 4022(b) of 

the IRS Reform Act because the bill contains no provisions that 

amend the Code and that have ‘‘widespread applicability’’ to individuals or small businesses. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL AS 

REPORTED 

In the opinion of the Committee, it is necessary in order to expedite the business of the Senate, to dispense with the requirements 

of paragraph 12 of rule XXVI of the Standing Rules of the Senate 

(relating to the showing of changes in existing law made by the bill 

as reported by the Committee). 

Æ