Golsen and Small Cases -- S Cases -- in the Tax Court (1/15/14)

Professor Keith Fogg of the Procedurally Taxing Blog has this excellent blog:  Forum Shopping in the Tax Court – Small Tax Case Procedure and the Rand Decision (Procedurally Taxing 1/14/14), here.  Here is an interesting blurb from  it that I hope encourage tax procedure enthusiasts to read and savor Keith's entire blog entry.

IRC 7463(a) creates a special procedure for cases in which less than $50,000 is in dispute for each taxable period, the Small Tax Case procedure (S procedure – so named because of the S that appears after the Tax Court docket number of these cases.)  To qualify for the S procedure the taxpayer must make an election to use this procedure and the Tax Court must concur.  The election usually occurs at the time the petition is filed but may be made at any time prior to the trial of the case pursuant to the statute and Tax Court Rule 171(b).  If the taxpayer elects the S procedure and if neither the taxpayer nor the Government requests the discontinuation of such procedure prior to the entry of the case as permitted by IRC 7463(d), then the decision of the Tax Court is the final decision of the case pursuant to IRC 7463(b) and is not subject to appeal. There are two excellent articles exploring the issue of the Golson rule and the S procedure.  Carl Smith, Does the Tax Court’s Use of its Golsen rule in Unappealable Small Tax Cases Hurt the Poor?, 11 J. Tax Prac. & Proc. 35 (2009-2010) and Saul Mezei and Joseph Judkins, “A Square Peg in a Round Hole: The Golsen Rule in S Cases” Tax Notes Today, January 8, 2012.  While it is unclear why the Tax Court decided to apply the Golson rule to cases that cannot receive appellate review, it is clear that it does so and has consistently done so for over 40 years.

Prefessor Fogg has a second installment on the subject, Current status of Rand cases and Praise for Tax Court Search Feature (Procedurally Taxing 1/15/14), here.

Incidentally, Professor Fogg advises of the Tax Court's new web search feature:

Today, I write to praise a really nice feature of the Tax Court’s electronic system, which is the ability to search for orders.  This is a remarkable feature of the Tax Court electronic system unlike search capabilities in other electronic court databases and deserves high praise.  It can be accessed from the home page of the Tax Court web site.  

For readers not familiar with the Golsen rule, here is the discussion in my Federal Tax Procedure book (footnotes omitted except for the final footnote):

c. The Golsen Rule.

The Tax Court follows the law of the Court of Appeals to which an appeal would be taken.  This is referred to in tax litigator jargon as the Golsen rule, named after the Tax Court case establishing the rule.  Accordingly, in determining whether the Tax Court is a favorable or unfavorable forum, you look not only to the precedent of the Tax Court but also the precedent of the Court of Appeals to which an appeal may be taken.  Unfavorable Tax Court precedent but favorable appellate court precedent will produce a winner in the Tax Court; favorable Tax Court precedent but unfavorable appellate court precedent will produce a loser in the Tax Court, in which case relief will come only if you can convince the Court of Appeals that it messed up in its earlier precedent (usually unlikely).

What if there is no precedent in the Court of Appeals for the circuit in which the taxpayer resides?  Well, if the matter is important enough, presumably the taxpayer could change residence (or, if a corporation, its principal place of business) before filing the petition and thereby secure the favorable precedent.  This is unlikely to be a satisfactory alternative for most taxpayers.  The taxpayer might still be able to obtain the benefit of the favorable precedent in other circuits, however, even if the Tax Court precedent is not consistent with that favorable precedent.  Note that the usual formulation of the Golsen rule would permit the Tax Court to follow its own precedent if the Circuit of the taxpayer’s residence has not yet spoken, despite contrary precedent in other circuits.  Consider the following argument.  Some courts of appeals take the position that, in the absence of that court having spoken on the issue, that court should give respectful consideration to other circuit’s decisions.  For example, the Seventh Circuit recently said: 

As a general matter, “[r]espect for the decisions of other circuits is especially important in tax cases because of the importance of uniformity, and the decision of the Court of Appeals of another circuit should be followed unless it is shown to be incorrect.” 

In this circumstance, the taxpayer should argue to the Tax Court that, indeed, the Tax Court is bound to follow the decision of another circuit or, at a minimum, give substantial deference to that decision, even if the Tax Court has a prior different position on the matter. 

Finally, I noted above that, at present, some Tax Court appeals are to the Court of Appeals of residence or principal place of business and some are to the Court of Appeals for the District of Columbia Circuit.  This dichotomy can and, should it continue, over time will affect the interpretation and application of the tax law.  Where the appeals are not defaulted to the Court of Appeals for the District of Columbia Circuit, as apparent from the foregoing discussion, conflicts among the circuits can develop in the various Courts of Appeals to which Tax Court appeals can be taken.  Those conflicts are not always resolved by the Supreme Court and certainly not quickly resolved.  So that taxpayers in different parts of the country can be treated differently.  However, where the appeal must be taken under the default provision to the Court of Appeals for the District of Columbia, a uniform rule will apply.  For example, if the taxpayer pursues a CDP remedy in the Tax Court, the Golsen result for the Court of Appeals for the District of Columbia will apply to all – taxpayers and the Government alike.  In some ways, on this issue, the Court of Appeals for the District of Columbia will become the court of tax appeals that various practitioners and scholars have argued for and against over many years. n1640
   n1640 Thanks for the inspiration for this paragraph goes to Keith Fogg, Appellate Venue in Tax Court cases – Taking Care in Applying Golsen in non-deficiency cases (Procedurally Taxing Blog 11/26/13).