Supreme Court Says Rules Are Rules: Ballard v. Commissioner of Internal Revenue*, The

Justice System Journal, 2005 by Howard, Robert M

All courts issue rules of procedure that instruct prospective litigants in every phase of a case, from the initial filing through discovery and trial to the decision, and even what will be included in the record on appeal. In the recent case of Bollard v. Commissioner of Internal Revenue, 125 S.Ct. 1270 (2005), by a 7-2 vote, with an opinion by Justice Ginsburg, the United States Supreme Court upheld the perhaps novel concept that courts, in this case the United States Tax Court, must follow, and adhere to, their own promulgated rules.

The United States Tax Court has a powerful influence on tax policy; it is one of three forums, along with the United States District Court and the United States Court of Federal Claims, where taxpayers may contest an assessment by the Internal Revenue Service. Because no prepayment of the assessment is required for someone to proceed in the tax court, significantly more cases are filed there than in either of the other courts.

The tax court consists of nineteen full'time judges, appointed by the president and confirmed by the Senate, for a fixed term of fifteen years. The chief judge of the tax court has the authority to appoint special judges to deal with any matter pending before the tax court "in accordance with these Rules and such directions as may be prescribed by the Chief Judge" (Tax Court Rule 180). In cases involving assessments exceeding $50,000, the special judge tries the case and then submits a report to a regular tax court judge, who has the authority to adopt the special trial judge's report, or the tax court judge may "modify it or may reject it in whole or in part," with "due regard given to the circumstance that the Special Trial Judge had the opportunity to evaluate the credibility of witnesses, and the findings of fact recommended by the Special Trial Judge shall be presumed to be correct" (Tax Court Rule 183 (c)). The final opinion issued by the regular tax court judge is a collaborative second report, which is "agreed to and adopted" as the opinion of the tax court.

Through the year 1983, a report by a special judge was made public and was included in the record on appeal. This allowed litigants to see why and how the regular judge's ruling may have differed from that initial opinion. Since 1983, however, the special judge's opinion has been withheld from the litigants, and the public, and excluded from the record on appeal. Although the regular tax court judge overseeing the case can change the special judge's opinion, from 1984 onward the issued opinion always contained what Justice Ginsburg called the "stock statement" that the tax court judge "agrees with and adopts the opinion of the special trial judge." 125 S.Ct., at 1275.

In the present case, three taxpayers-Ballard, Lisle, and Kanter-were assessed deficiencies and charged with fraud by the 1RS on the basis of a series of transactions that arose from Ballard and Lisle's work as real-estate executives with the Prudential Life Insurance Company. The case was assigned to and tried by Special Judge D. Irvin Couvillion, who, after a five-week trial, forwarded his report to tax court judge Howard A. Dawson, Jr. Judge Dawson, "agreeing with and adopting" the report of the special judge, found the taxpayers liable for tax deficiencies and for fraud. However, the taxpayers believed that Special Judge Couvillion's initial opinion had been sub' stantially changed from what the tax court reported in its opinion as the "report of the special trial judge." Based on information that Special Judge Couvillion original' Iy found that the petitioners did not owe certain taxes and that the fraud penalty was not applicable, the taxpayers then filed motions with the tax court seeking Couvillion's original report. When those motions were denied, they appealed to their U.S. Courts of Appeals-for the Eleventh, Seventh, and Fifth Circuits. All three courts denied the appeals upon accepting the commissioner's, and hence the tax court's, argument that the initial opinion by the special judge represented a first draft of what ultimately was a collaborative effort by the special judge and tax court judge in Grafting the final opinion.

Ballard and Kanter's estate then sought review in the United States Supreme Court, which reversed the decisions of the courts of appeals. In her opinion for the Court, Justice Ginsburg stressed the language of Rule 183, which states that in addition to adopting, modifying, or rejecting the report of the special judge, the judge may "direct the filing of additional briefs, or may receive further evidence, or may recommit the report with instructions," and that "due regard shall be given to the circumstances that the Special Trial Judge had the opportunity to evaluate the credibility of the witnesses and the findings of fact. .. shall be presumed to be correct." For Justice Ginsburg, the clear understanding of Rule 183 is that deference is due to the trial judge's fact finding, and she noted that Judge Dawson invoked none of the Rule 183 methods to supplement the record of the trial judge; as a result, Judge Dawson's findings of facts had to rest on Special Judge Couvillion's report.