Opinion ID: 782888
Heading Depth: 2
Heading Rank: 1

Heading: The STJ's Report

Text: 13 Kanter's first argument is that the STJ's original report must be made a part of the record on appeal so that this court can determine whether the appropriate degree of deference had been paid to it by the Tax Court judge, whose opinion is before us. Kanter claims that informal conversations between his attorney and other Tax Court judges revealed that the STJ who presided over the trial of this case submitted a report that found Kanter credible and recommended rejection of much of the Commissioner's assessed deficiencies, specifically the fraud deficiency. Kanter argues that the STJ's report cannot be rejected by the Tax Court unless clearly erroneous, and that, without the STJ's report in the record, there is no way for this court to determine if proper deference was accorded it. Moreover, this secret and unaccountable process of review allegedly violates Kanter's due process rights. Kanter, relying on a Supreme Court case examining the relationship between U.S. district court judges and magistrate judges, argues that this quasi-collaborative process affords a Tax Court the opportunity to reverse an STJ's credibility findings without first hearing or seeing the witnesses itself—thus offending due process. See United States v. Raddatz, 447 U.S. 667, 681 n. 7, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980) (observing in dicta that in the criminal context a district court judge's reversal of a magistrate judge's credibility findings without the district judge hearing or seeing the witnesses would raise serious questions). Kanter argues that in addition, our review of the Tax Court's decision is unconstitutionally impaired by the omission of the STJ's report from the record. Kanter's challenge of the Tax Court's refusal to include the original STJ report presents questions of law that we review de novo. Pittman v. Comm'r, 100 F.3d 1308, 1312 (7th Cir.1996). 14 Of course, Kanter's arguments are immaterial if the Tax Court's final opinion is the STJ's report. See Ballard, 321 F.3d at 1042-43. The Tax Court's final opinion clearly states that it agrees with and adopts the opinion of the Special Trial Judge. IRA, 78 T.C.M. (CCH) at 963. The Chief Judge of the Tax Court, Judge Dawson, and Special Trial Judge Couvillion himself all signed that final opinion, and we take their statement at face value. Therefore, notwithstanding Kanter's attorney's declaration, we accept as true the Tax Court's statement that the underlying report adopted by the Tax Court was in fact Special Trial Judge Couvillion's. See Ballard, 321 F.3d at 1042-43. This renders moot all of Kanter's arguments. 15 But even if, as the dissent suggests, the phrase agrees with and adopts masks what is in fact a quasi-collaborative judicial deliberation in which an STJ's initial findings are malleable, neither the Tax Court's own rules of procedure, the Federal Rules of Appellate Procedure, nor Congress' scheme for appeals from Tax Court decisions would require the Commissioner to include the STJ's preliminary report as part of the appellate record. Furthermore, this purportedly quasi-collaborative process would not offend our notions of fundamental fairness, nor would due process require the inclusion of the report in the appellate record to preserve the fairness of our review. 16 First, it is clear that the Tax Court's own rules do not require the report to be disclosed to the parties or made part of the appellate record. To the contrary, its rules specifically preclude the report's disclosure. That the Tax Court has the power to prescribe its own rules of procedure is undisputed. See 26 U.S.C. § 7453; Stone v. Comm'r, 865 F.2d 342, 347 (D.C.Cir.1989) (The Tax Court is of course free to make its own rules determining the relation between it and its Special Trial Judges.). Having exercised that rulemaking authority, the Tax Court no longer requires an STJ's report to be made available to the parties and, by extension, no longer allows those parties to file objections to it. Compare Tax Court Rule 182(b), (c), 60 T.C. 1149, (1973) (providing for service of the STJ's report on each party and allowing each party to file objections to the report's findings), with Tax Court Rule 183, 81 T.C. 1070, (adopted 1983) (noting that [t]he prior provisions for service of the [STJ's] report on each party and for the filing of exceptions to that report have been deleted). 17 Neither do the Tax Court procedures prescribe any particular level of deference due the STJ's report. Under the current rule, the Tax Court maintains sole authority to decide cases assigned to an STJ. Tax Court Rule 183(c) (The Judge to whom or the Division to which the case is assigned may adopt the [STJ's report] or may modify it or may reject it in whole or in part....); see also Freytag v. Comm'r, 501 U.S. 868, 875 n. 3, 111 S.Ct. 2631, 115 L.Ed.2d 764 (1991) ([A] special trial judge has no authority to decide a case assigned under [§ 7443(b)(4)].). The Tax Court thus acts as the original finder of fact. Conversely, the STJ's inability to decide cases limits the amount of deference that the Tax Court, as the original factfinder, must pay to those preliminary findings. Although the Rule requires that due regard be given to the STJ's opportunity to evaluate the credibility of witnesses and that those findings be presumed correct, see Tax Court Rule 183(c), to impose the further requirement that the Tax Court review an STJ's findings for clear error, as Kanter urges, would all but abdicate the Tax Court's original decisionmaking authority. Instead, we believe Rule 183's due-regard language merely instructs the Tax Court to be cognizant that the STJ had the opportunity to evaluate the credibility of witnesses, and allows the Tax Court to overcome the presumption of correctness it prescribes should it find that the evidence suggests those findings were incorrect. Consequently, secreting the report does not offend any rule-mandated check on the Tax Court's power to decide cases assigned to an STJ. 18 Second, Congress has by statute precluded direct appellate review of STJ reports. We lack jurisdiction to review anything but decisions of the Tax Court. 26 U.S.C. § 7482(a)(1). We have repeatedly held that the use of the term decisions in § 7482 means that the appellate courts can review only (i) dismissals (e.g., for lack of jurisdiction) or (ii) formal determinations of deficiency (or lack thereof). See, e.g., Kreider v. Comm'r, 762 F.2d 580, 584 (7th Cir.1985). In other words, a decision of the Tax Court is the final formal ruling of the Tax Court; a preliminary report is not a decision. See 26 U.S.C. § 7459(a) (A report upon any proceeding instituted before the Tax Court and a decision thereon shall be made as quickly as practicable. The decision shall be made by a judge in accordance with the report of the Tax Court, and such decision so made shall, when entered, be the decision of the Tax Court. (emphasis added)). An STJ report, therefore, is not reviewable, see Estate of Smith v. Comm'r, 638 F.2d 665, 670 (3d Cir.1981), which lends credence to the Commissioner's argument that Congress intended STJ reports to be treated as preliminary findings comprising part of the Tax Court's internal deliberative process. 19 Third, the Federal Rules of Appellate Procedure do not require that STJ reports be made part of the statutorily required record on appeal of a decision of the Tax Court. Federal Rule of Appellate Procedure 14 excepts appeals of Tax Court decisions from certain rules of appellate procedure. 5 Among those rules not applicable to Tax Court review is Rule 16, which provides that the record on review of an administrative order shall include any findings or report on which [the order] is based. FED. R. APP. P. 16(a)(2). Unlike other administrative actions, the Federal Rules of Appellate Procedure thus do not require that Tax Court decisions be reviewed in light of the preliminary findings upon which the decision was based. Instead, Rule 13 notes that Rule 10 governs the contents of a Tax Court appellate record, and that rule does not require the record to include any preliminary findings or reports. FED. R. APP. P. 13 & 10(a) 6 20 With these considerations in mind, we find that the relationship between the preliminary reports of STJs and the final, reviewable decisions of the Tax Court bears striking resemblance to the relationship between reports of divisions of the Tax Court and final decisions of the Tax Court itself. A division is a subset of the Tax Court (often a single judge) that is designated to hear a single case and is empowered to make determinations with respect to disputes before the Tax Court. 26 U.S.C. §§ 7444(c), 7460(a). Under § 7460, the division's decision generally becomes the decision of the Tax Court, but the Tax Court retains the power to review the division's decision and render its own. Those preliminary recommendations of the division which do not become part of the final decision of the Tax Court also do not become part of the record for any additional future review. Id. § 7460(b) (The report of a division shall not be a part of the record in any case in which the chief judge directs that such report shall be reviewed by the Tax Court.). 21 Thus, the two circuits to have interpreted § 7460 have ruled that a division's preliminary report is not part of the appellate record and not available for review by a federal appeals court once the Tax Court has undertaken an internal review. See Estate of Varian v. Comm'r, 396 F.2d 753, 755 n. 2 (9th Cir.1968); Heim v. Comm'r, 251 F.2d 44, 48 (8th Cir.1958). The Ninth Circuit noted a congressional intent in § 7460 to preclude a two-tier appellate relationship between the division and the full court and determined that such a mandate did not offend the court's notions of fundamental fairness. Varian, 396 F.2d at 755 n. 2. 22 Given the similarities between these two relationships, we are led to the same conclusion that the Ninth Circuit reached in Varian: there is no two-tier appellate relationship between STJs and the Tax Court. Instead, STJ reports are treated by the Tax Court as preliminary findings only and, in accordance with applicable rules and statutes, are not required to be made part of the record on appeal. 23 The dissent takes issue with this comparison, noting that divisions are comprised of one or more Tax Court judges, who are all presidentially appointed and serve a fifteen-year, statutorily mandated term of office from which they can be removed only for inefficiency, neglect of duty, or malfeasance in office but for no other cause. 26 U.S.C. § 7443(f). STJs, however, serve at the discretion of the Chief Judge and have no statutorily mandated term of office. Id. § 7443A. If Tax Court Rule 183 provides for a quasi-collaborative process, the dissent fears this distinction between the participants impairs the judicial independence of the STJ. As a result, the dissent questions whether an STJ can participate meaningfully in this internal deliberative process. See post at 87. 24 We respectfully disagree. We are hesitant to suggest that members of the Tax Court would either expressly coerce or by nature of their office exert undue influence over an STJ. Nor will we discredit an STJ's express statement that the final Tax Court opinion agrees with his own based solely on this observed distinction. 25 This procedure, while admittedly unusual vis a vis typical judicial procedure, does not offend our notions of fundamental fairness. See Varian, 396 F.2d at 755. In this respect, we agree with the dissent's conclusion that due process neither requires the Tax Court to be constrained by a formal degree of deference to the STJ nor requires the Tax Court to rehear witnesses whether or not it ultimately reverses the STJ's findings. See post at 89-94 (discussing United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980) and Universal Camera Corp. v. NLRB, 340 U.S. 474, 492-94, 71 S.Ct. 456, 95 L.Ed. 456 (1951)). Although dictum in the Supreme Court's decision in Raddatz suggests that serious questions may arise from a district court's reversal of a magistrate judge's credibility findings without the opportunity to personally see or hear the witnesses, see 447 U.S. at 681 n. 7, 100 S.Ct. 2406, that observation was made within the context of a criminal appeal. In a civil tax proceeding, a party's interests are more akin to those at stake in a typical administrative adjudication, and we agree with the dissent that the risk of erroneous deprivation in a civil proceeding is neither as high, nor the costs as great, as would be the case in a criminal milieu. See post at 93 (discussing Tax Court Rule 183 within the procedural-due-process framework established by Mathews v. Eldridge, 424 U.S. 319, 333, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976)). Moreover, we agree that the only fully responsive remedy to Kanter's complaint would prove unworkable, as it would require the enormous burden and prohibitive cost of rehearing witnesses, which would ultimately prove to add little value given the continued input that the STJ retains under Tax Court Rule 183's purportedly quasi-collaborative process. See post at 883-884. 26 But the recognition that little value would be added to the process given the STJ's continued involvement—signified by his adoption of the statement that the final Tax Court opinion reflects his own opinion—is ultimately why we take issue with the dissent's conclusion that our review of the Tax Court's opinion is unconstitutionally impaired by this procedure. The conclusion rests on the premise that STJs do not enjoy an equal voice in this purportedly quasi-collaborative process. See post at 886-887. As discussed above, we reject this premise. In as much as the final Tax Court opinion purports to agree with and adopt the opinion of the STJ, we therefore believe that the final opinion reflects the true legal opinions and findings of the STJ. Any differing preliminary recommendations—if they ever existed—would no longer be constitutionally relevant because the STJ has abandoned them. Should he feel otherwise, we would expect him—or the Tax Court—to say so. 27 As the Eleventh Circuit recently noted, there is nothing unusual about judges conferring with one another about cases assigned to them. Ballard, 321 F.3d at 1043. If Tax Court Rule 183 in fact provides the opportunity for STJs and Tax Court judges to conference regarding the STJ's preliminary findings, then we have every reason to believe that Tax Court judges would duly regard the input of the STJ and that he, in turn, would participate meaningfully in the exchange. Like the Ninth and the Eleventh Circuits, we too are loath to interfere with another court's deliberative process. See id. 28 In any event, the issue is academic since the Tax Court's opinion in this case purports to agree with and adopt Special Trial Judge Couvillion's opinion. We will take the Tax Court at its word and, thus, move on to a discussion on the merits of Kanter's appeal.