Good History Lesson on the Interface of Civil Procedure and Tax Refund Suits (2/2/18)

In United States v. Stein, 2018 U.S. App. LEXIS 2392 (11th Cir. 2018) (en banc), here, the Eleventh Circuit unanimously held that "an affidavit which satisfies Rule 56 of the Federal Rules of Civil Procedure may create an issue of material fact and preclude summary judgment even if it is self-serving and uncorroborated."  For civil trial lawyers, this seems an unexceptional holding, which is why it was a unanimous en banc opinion.  But there is some trial procedure intrigue behind the holding which explains why the panel opinion predicate to the en banc opinion held otherwise.  See United States v. Stein, 840 F.3d 1355 (11th Cir. 2016), here.

The background was Mays v. United States, 763 F.2d 1295 (11th Cir. 1985), here, which was the authority cited in the panel opinion.  In Mays, the court granted summary judgment on the following basis (emphasis supplied by JAT):

In a tax refund suit, the Commissioner's deficiency determinations are presumed correct, and the burden of proof is on the taxpayer to show that the Commissioner's findings were erroneous. Helvering v. Taylor, 293 U.S. 507, 514-15, 55 S.Ct. 287, 290-91, 79 L.Ed. 623 (1935); Anselmo v. Commissioner, 757 F.2d 1208, 1211 (11th Cir.1985). A taxpayer seeking a refund must show not only that the Commissioner erred, but must establish the correct amount of the refund due. King v. United States, 641 F.2d 253, 259 (5th Cir.1981)*; Crosby v. United States, 496 F.2d 1384, 1390 (5th Cir.1974). The claim must be substantiated by something other than tax returns, Lunsford v. Commissioner, 212 F.2d 878, 883 (5th Cir.1954), uncorroborated oral testimony, Griffin v. United States, 588 F.2d 521, 530 (5th Cir.1979), or self-serving statements. See Gibson v. United States, 360 F.2d 457, 462 (5th Cir.1966). 

Mays does not dispute that the computer printout he submitted with his response to the government's interrogatories was prepared after the tax audit; indeed, the "amount allowed by auditor" appeared on the face of the printout. His net worth statements did not refer to any original records, and he presented no contemporaneous documentation of his expenses or other evidence to establish that the Commissioner's tax assessment was wrong or to establish the correct amount due. In sum, Mays did not overcome the presumption of correctness due determinations of the Commissioner. Rather, he has submitted only self-serving documents which do not substantiate his claims. Accordingly, the government was entitled to summary judgment.

The Stein en banc opinion reverses Mays on straight-forward trial civil procedure grounds. Uncorroborated properly submitted affidavit testimony on a key factual issue can avoid summary judgment.  The effect of denying summary judgment is that the party opposing summary judgment can go to trial on that issue.  Trial can be either to a jury (if requested and the type of fact issue triable to a jury) or to a judge.

In tax cases, refund suits may be tried to a jury.  The majority en banc opinion does not get into the particular tax issue, other than to say that there is nothing unique about taxes that would require a different result than compelled by the ordinary civil procedure rules.  But, the tax setting is an entre for Judge William Pryor to talk in a concurring opinion about the unique historical role of taxes, procedure and jury trials.  I want to focus on Judge William's concurring opinion, but first I conclude the discussion of the majority opinion:

We do not mean to suggest that a self-serving and/or uncorroborated affidavit will always preclude summary judgment. We hold only that the self-serving and/or uncorroborated nature of an affidavit cannot prevent it from creating an issue of material fact. And we leave to the panel the task of determining the impact of Ms. Stein's affidavit. 

Finally, we recognize that the government, in its en banc brief, has made a number of additional and related arguments in support of the district court's summary judgment order. For example, the government argues that, in a case like this one, a taxpayer's affidavit concerning the matter of payment must be substantiated and corroborated (for example, by documentary evidence) pursuant to principles of substantive federal tax law, particularly given the presumption of correctness that attaches to its assessments. Given the narrow question presented for en banc review, we think it is best for the panel to consider the government's arguments, as well as Ms. Stein's responses to them.

So, perhaps the majority is leaving some opening for something about the federal tax law to influence the result.  We'll see when the panel next speaks.

Now to Judge Pryor's concurring opinion which is relatively short and which I quote in full because it is a good history lesson all fans of tax law, particularly tax procedure, should know:

I concur fully in the majority opinion, but I write separately to highlight the irony of our earlier precedent when viewed in the light of the history of the Seventh Amendment. The precedent we overrule today, Mays v. United States, prevented juries from resolving factual disputes when a taxpayer offered only a self-serving affidavit in support of his position. 763 F.2d 1295, 1297 (11th Cir. 1985). As the majority opinion explains, that rule had no basis in law. But it also flouted the history of the right to a jury trial in civil cases. 

In the decades before the American Revolution, Parliament developed procedures to enforce its revenue measures by evading colonial juries. See 1 Julius Goebel, Jr., History of the Supreme Court of the United States 85-86 (Paul A. Freund ed., 1st ed. 1971); Philip Hamburger, Is Administrative Law Unlawful? 150 (2014). England had struggled to enforce its trade laws in the colonies, and colonial officials in America blamed local juries for refusing to be impartial in customs disputes. See Carl Ubbelohde, Vice-Admiralty Courts and the American Revolution 15 (1960). In response, Parliament expanded the jurisdiction of admiralty courts, which sat without juries, to include trade cases that would have been tried by a jury in England. See Ubbelohde, supra at 15-16, 21. Later, seeking to extract more revenue from the colonies, Parliament enacted the Sugar Act for "the improvement of 'the Revenue of th[e] Kingdom'" and extended the power of customs officials, at their discretion, to "channel cases into admiralty courts, and so to eliminate jury trial." Goebel, supra at 85-86 (quoting 4 Geo. 3, c. 15 (Eng. 1764)); see also Caleb Nelson, The Constitutionality of Civil Forfeiture, 125 Yale L.J. 2446, 2463 (2016). And the Stamp Act, 5 Geo. 3, c. 12 (Eng. 1765), provided that customs officials could enforce not only the stamp tax, but also "revenue acts in general" in the juryless admiralty courts. Goebel, supra at 86. 

Colonial Americans vehemently objected to these measures, and the denial of the right to a jury in tax cases became a chief complaint animating the American Revolution. The "colonies formed a Congress to protest 'the tyrannical acts of the British Parliament.'" Hamburger, supra at 150 (quoting Resolutions of the Stamp Act Congress (Oct. 19, 1765)). The Stamp Act Congress declared that "trial by jury, is the inherent and invaluable right of every British subject in these colonies." Resolutions of the Stamp Act Congress (Oct. 19, 1765), in Select Charters and Other Documents Illustrative of American History 1606-1775, at 315 (William MacDonald ed., MacMillan & Co. 1906). And it denounced "extending the jurisdiction of the courts of admiralty beyond its ancient limits" because of its "manifest tendency to subvert the rights and liberties of the colonists." Id. In the Declaration of Independence, Americans cited the "depriv[ation] in many cases, of the benefit of Trial by Jury" as one of the "Usurpations" committed by King George III that they would no longer tolerate. The Declaration of Independence paras. 2, 20 (1776). 

The failure to guarantee the right to a jury trial in civil cases almost prevented the ratification of the Constitution. In attempting to persuade New York to ratify the Constitution, Alexander Hamilton acknowledged "[t]he objection" that had "met with most success" in his home state and "several of the other states" was "the want of a constitutional provision for the trial by jury in civil cases." The Federalist No. 83, at 558 (Alexander Hamilton) (Jacob E. Cooke ed., 1961). And he discussed the specific argument that the civil jury is a necessary "safeguard against an oppressive exercise of the power of taxation." Id. at 563. As Justice Story later explained, Americans decided that it was not enough that Congress had the authority "to provide in all cases for the trial by jury." United States v. Wonson, 28 F. Cas. 745, 750 (C.C. Mass. 1812) (No. 16,750). The defenders of the Constitution prevailed in the ratification debates only after promising an amendment that guaranteed the right to trial by jury in civil cases. Stanton D. Krauss, The Original Understanding of the Seventh Amendment Right to Jury Trial, 33 U. Rich. L. Rev. 407, 412-13 (1999). Americans then enshrined that right in the Seventh Amendment. U.S. Const. Amend. VII. 

Our precedent in Mays lost sight of the historical basis for the right to a civil jury when it denied a taxpayer a jury trial if all he offered in his favor was a self-serving affidavit to rebut official records of his delinquency. In so doing, Mays ousted the jury from its historical role in the exact context-the enforcement of tax laws-that prompted the founding generation to adopt the Seventh Amendment in the first place. Today, we rectify that error.