DESCRIPTION OF

THE “TAX COURT MODERNIZATION ACT”

Scheduled for Markup

by the

SENATE COMMITTEE ON FINANCE

on April 2, 2003

Prepared by

the Staff of the

JOINT COMMITTEE ON TAXATION

April 1, 2003

JCX-26-03
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

I. TAX COURT PROCEDURE...................................................................................................... 2

A. Consolidate Review of Collection Due Process Cases in the United States Tax Court 

(the “Tax Court”)................................................................................................................ 2

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

Status Cases ........................................................................................................................ 3

C. Confirmation of Tax Court Authority to Apply Equitable Recoupment............................ 4

D. Tax Court Filing Fee........................................................................................................... 5

E. Employees of the Tax Court ............................................................................................... 6

F. Use of Practitioner Fee........................................................................................................ 8

II. TAX COURT PENSION AND COMPENSATION ................................................................. 9

A. Judges of the Tax Court ...................................................................................................... 9

B. Special Trial Judges of the Tax Court............................................................................... 12
1

INTRODUCTION

The Senate Committee on Finance has scheduled a markup on April 2, 2003, on the “Tax 

Court Modernization Act.” This document,1 prepared by the staff of the Joint Committee on 

Taxation, provides a description of the Chairman’s mark of the “Tax Court Modernization Act.”

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of 

the “Tax Court Modernization Act” (JCX-26-03), April 1, 2003.
2

I. TAX COURT PROCEDURE

A. Consolidate Review of Collection Due Process Cases in the United States Tax Court 

(the “Tax Court”)

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.2 Similar rules apply with respect to liens.3 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 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.4 If a court determines that an appeal was not 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 Constitution5 and is a 

court of limited jurisdiction.6 Thus, the Tax Court may not have jurisdiction over the underlying 

tax liability with respect to an appeal of a due process hearing relating to a collections matter. 

As a practical matter, many cases involving such appeals do not involve the underlying tax 

liability.

Description of Proposal

The proposal modifies the jurisdiction of the Tax Court by providing that all appeals of

collection due process determinations are to be made to the United States Tax Court.

Effective Date

The proposal applies to determinations made after the date of enactment.

 

2

 Sec. 6330(a). 

3

 Sec. 6320. 

4

 Sec. 6330(d). 

5

 Sec. 7441.

6

 Sec. 7442.
3

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

Certain Employment Status Cases

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

Description of Proposal

The proposal 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 proposal 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.

 

7

 Sec. 7436.

8

 Sec. 7436(c).

9

 Sec. 7443A.
4

C. Confirmation of Tax Court Authority to Apply Equitable Recoupment

 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.

Description of Proposal

The proposal 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 Claims. No implication is intended 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 proposal 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.

 

10

 See Stone v. White, 301 U.S. 532 (1937); Bull v. United States, 295 U.S. 247 (1935).

11 153 F.3d 302 (6th Cir.), cert. den., 525 U.S. 1140 (1999).

12 264 F.3d 904 (9th Cir.), cert. den., 2002 U.S. LEXIS 1545 (U.S. Mar. 18, 2002).
5

D. Tax Court Filing Fee

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 501(c)(3) organizations, the judicial review of final partnership administrative 

adjustments, and the judicial review if an administrative adjustment request of partnership items 

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

Description of Proposal

The proposal provides 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.

Effective Date

The proposal is effective on the date of enactment.

 

13 Sec. 7451.

14

 See Rule 20(a) of the Tax Court Rules of Practice and Procedure.
6

E. Employees of the Tax Court

Present Law

The Tax Court is a legislative court established by the Congress pursuant to Article I of 

the U.S. Constitution.15 The Tax Court is authorized to appoint employees, subject to the rules 

applicable to employment with the Federal Executive Branch (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, 

national origin, political affiliation, marital status, or handicapping condition.

Description of Proposal

The proposal extends to the Tax Court authority to establish its own personnel system. 

Similar authority has previously been provided to Article III courts. Under the proposal, various 

rules and procedures that apply to employment with the Federal Executive Branch do not apply 

to employment with the Tax Court, as described below. However, any personnel management 

system adopted by the Tax Court must: (1) include the general 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 proposal allows the Tax Court to appoint a clerk without regard to the Federal 

Executive Branch rules regarding appointments in the competitive service. Under the proposal, 

the clerk serves at the pleasure of the Tax Court.

The proposal allows the clerk of the Tax Court to appoint deputies and other employees 

without regard to the Federal Executive Branch rules regarding appointments in the competitive 

service. Under the proposal, these deputies and employees are subject to removal by the clerk.

 

15 Sec. 7441.

16 Sec. 7471.
7

The proposal 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. Under the proposal, a 

law clerk or secretary serves at the pleasure of the appointing judge.

The proposal 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 proposal remains credited to the individual 

and is available to the individual upon separation from the Federal Government.

The proposal 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.

The proposal 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 regulations providing procedures for resolving 

complaints of discrimination by employees and applicants for employment.

In the case of an individual who is an employee of the Tax Court on the day before the 

effective date of the proposal, the proposal preserves certain rights that the employee is entitled 

to as of that day. The proposal 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 proposal, 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 proposal also allows the Tax Court to procure the services of experts and consultants 

in accordance with Federal Executive Branch rules.

Effective Date

The proposal is effective on the date that the Tax Court adopts a personnel management 

system after date of enactment of the proposal.
8

F. Use of Practitioner Fee 

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.17 These fees are to be used to employ independent 

counsel to pursue disciplinary matters.

Description of Proposal

 The proposal provides that Tax Court fees imposed on practitioners also are available to 

provide services to pro se taxpayers.

Effective Date

The proposal is effective on the date of enactment.

 

17 Sec. 7475.
9

II. TAX COURT PENSION AND COMPENSATION

A. Judges of the Tax Court

Present Law

The Tax Court is a legislative court established by the Congress pursuant to Article I of 

the U.S. Constitution.18 The salary of a Tax Court judge is the same salary as received by a 

United States District Court judge.19 Present law also provides Tax Court judges with some 

benefits that correspond to benefits provided to United States District Court judges, including 

specific retirement and survivor benefit programs for Tax Court judges.20

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”). 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.

Tax Court judges are subject to limitations on outside earned income under the Ethics in 

Government Act of 1978.

 

18 Sec. 7441.

19 Sec. 7443(c).

20 Secs. 7447 and 7448.
10

Description of Proposal

In general

The proposal makes various changes to the compensation and benefits rules that apply to 

Tax Court judges to eliminate disparities between the treatment of Tax Court judges and the 

treatment of other Federal judges.

Survivor annuities for assassinated judges 

Under the proposal, benefits under the survivors’ annuity plan are payable if a Tax Court 

judge is assassinated before the judge has performed five years of service.

Cost-of-living adjustments for survivor annuities

The proposal 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.

FEGLI program

Under the proposal, 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, 1999,21 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 proposal, 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 proposal, Tax Court judges are permitted to participate in the Thrift Savings 

Plan. A Tax Court judge is not eligible for agency contributions to the Thrift Savings Plan.

 

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

rates to reflect employees’ ages.
11

Exemption for teaching compensation from outside earned income limitations

Under the proposal, compensation earned by a retired Tax Court judge for teaching is not 

treated as outside earned income for purposes of limitations under the Ethics in Government Act 

of 1978.

Effective Date

The proposals are effective on the date of enactment, except that: (1) the proposal 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 

proposal 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; (3) the proposal relating to participation by Tax Court judges 

in the Thrift Savings Plan applies as of the next open season; and (4) the proposal relating to 

teaching compensation of a retired Tax Court judge applies to any individual serving as a retired 

Tax Court judge on or after the date of enactment.
12

B. Special Trial Judges of the Tax Court

Present Law

The chief judge of the Tax Court may appoint special trial judges to handle certain 

cases.22 Special trial judges serve for an indefinite term. Special trial judges receive pay at a rate 

of 90 percent of the pay of a Tax Court judge and are generally covered by the benefit programs 

that apply to Federal Executive Branch employees.

Description of Proposal

Magistrate judges of the Tax Court 

The proposal is generally designed to eliminate disparities between the treatment of 

special trial judges of the Tax Court and magistrate judges in the Article III courts.

Under the proposal, 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 proposal, magistrate judges receive pay at a rate of 92 percent of the pay of a 

Tax Court judge.

The proposal 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 proposal, magistrate judges of the Tax Court are eligible to participate in the 

survivors’ annuity plan for Tax Court judges.

Retirement annuity program for magistrate judges

The proposal establishes a new retirement annuity program for magistrate judges, 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. The proposal establishes the “Tax Court 

Judicial Officers’ Retirement Fund” to hold contributions and investments to finance the new 

retirement annuity program for magistrate judges. The proposal also provides transition rules for 

sitting special trial judges on the date of enactment of the proposal.

Under the proposal, 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.

 

22 Sec. 7443A.
13

Recall of retired magistrate judges

The proposal provides rules under which a retired magistrate judge may be recalled to 

perform services for a limited period. 

Effective Date

The proposals are effective on date of enactment.