Tax Court Rejects Constitutional Challenges to Appeals Office CDP Participation (1/30/25)

In Tooke v. Commissioner, 164 T.C. ___, No. 2 (1/29/25), here * and GS here** [to come], the Court, in a CDP case, rejected taxpayer arguments that (i) Appeals Office participants violated the Appointments Clause of the Constitution and (ii) Appeals Office violated the Separation of Powers requirement of the Constitution. I just provided a nonnuanced summary of the arguments rejected. This blog entry will serve primarily as notice to practitioners and students of the holding, an important one; I copy and paste the Tax Court syllabus which, I think, fairly summarizes the full opinion:

           P filed federal income tax returns for taxable years 2012 through 2017 but did not pay the tax. The Internal Revenue Service (IRS) assessed the tax and separately issued P a Notice of Federal Tax Lien Filing and a Final Notice of Intent to Levy. P timely requested a collection due process (CDP) hearing with the IRS Independent Office of Appeals (Appeals). During the CDP hearing, P raised constitutional arguments that Appeals, and the employees who work therein, serve in violation of the constitutional separation of powers, particularly the Appointments Clause; these arguments were rejected. The Appeals Officer prepared a draft Notice of Determination, which was subsequently reviewed and approved by the Appeals Team Manager.

          Pursuant to I.R.C. § 6330(d)(1), P timely filed a Petition with the Tax Court. During this proceeding, P filed two Motions concerning the constitutional separation of powers and the CDP hearing before Appeals: (1) an Appointments Clause Motion, asserting that the Appeals Officers who conducted the CDP hearing, the Appeals Team Manager who reviewed and approved the Notice of Determination, and the Chief of Appeals (Chief), who the statutory scheme tasks with the “supervision and direction” of Appeals, see I.R.C. § 7803(e)(2)(A), but did not  [*2] participate in the CDP hearing, each serve in violation of the Appointments Clause, see U.S. Const. art. II, § 2, cl. 2; and (2) a Separation of Powers Motion (Removal Power Motion), asserting that Appeals, codified by the Taxpayer First Act, Pub. L. No. 116-25, § 1001(a), 133 Stat. 981, 983 (2019) (codified at I.R.C. § 7803(e)(1)), is a de facto independent agency whose head, the Chief, a position also codified by the Taxpayer First Act § 1001(a), 133 Stat. at 983 (codified at I.R.C. § 7803(e)(2)(a)), is subject to an unlawful removal restriction.

          Held: We reject P’s “root-to-branch” theory of causation. P has not made the necessary showing that the Chief’s tenure affected his hearing and prejudiced him in some way. See, e.g., United States v. Smith, 962 F.3d 755 (4th Cir. 2020); United States v. Castillo, 772 F. App’x 11 (3d Cir. 2019).

          Held, further, P has failed to establish each element of standing regarding the Chief. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). Therefore, P lacks standing to challenge the appointment and removal of the Chief.

          Held, further, P’s Appointments Clause Motion will be denied as to the Chief. P’s Removal Power Motion will be denied.

          Held, further, P has standing to challenge the appointments, or lack thereof, of Appeals Officers and Appeals Team Managers.

          Held, further, following Tucker v. Commissioner, 135 T.C. 114 (2010), aff’d, 676 F.3d 1129 (D.C. Cir. 2012), Appeals Officers and Appeals Team Managers are not “Officers of the United States” and therefore do not need to be appointed within the mandates of the Appointments Clause. P’s Appointments Clause Motion will be denied as to Appeals Officers and Appeals Team Managers.

 The foregoing is the functional equivalent of a Supreme Court syllabus. See Judge Halpern Synthesizes Taxpayer and IRS Burdens when Seeking a Tax Result Based on Substance Rather than Form (Federal Tax Procedure Blog 5/31/21), here (JAT Comments at ¶ 3, citing Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here).

 JAT Comments:

1. Just for fun, I asked ChatGPT 4.o to summarize the Tax Court Syllabus:

P filed federal income tax returns from 2012 to 2017 but did not pay the taxes owed. The IRS assessed the taxes and issued a Notice of Federal Tax Lien and a Final Notice of Intent to Levy to P. P requested a collection due process (CDP) hearing, during which P argued that the Appeals Office violated constitutional separation of powers and the Appointments Clause; these arguments were dismissed. The Appeals Officer's draft Notice of Determination was approved by the Appeals Team Manager. P filed a Petition with the Tax Court asserting that the Appeals Officers, the Appeals Team Manager, and the Chief of Appeals violated the Appointments Clause, and that the Chief's removal restrictions were unconstitutional. The court rejected P's arguments, stating that P failed to show any prejudice from the Chief's tenure and lacked standing to challenge the Chief's appointment and removal. The court also held that Appeals Officers and Appeals Team Managers are not "Officers of the United States" and do not require appointments under the Appointments Clause, denying P's motions.

 Readers can reach their own conclusions as to whether the AI summary is useful.

2. For readers’ general knowledge, I recommend the section of the opinion titled “IRS Independent Office of Appeals with subheadings for

• A. Brief History of the Independent Office of Appeals (Slip Op. 7-9); and
• B. Modern-Day Independent Office of Appeals (Slip Op. 9-13)

3. Focus on the “Brief History.” The first iteration of what became the Office of Appeals appeared in 1918 as the Advisory Tax Board, which shortly became the Committee on Appeals and Review by the Revenue Act of 1921. Shortly thereafter in 1924, the Committee on Appeals and Review was replaced by the Board of Tax Appeals (“BTA”), the first predecessor of what became the Tax Court in 1942. (Remember the year 1942, because it is important to my comments.) The BTA (called Tax Court after 1942) was then an “independent agency within the executive branch”. (Slip Op. 8 n. 6.) 

The foil I use for my discussion is Chief Justice Roberts’ claim in Loper Bright Ent. v. Raimondo, 603 U.S. ___, 144 S. Ct. 2244 (2024) that, at the time of the APA, deference to agency interpretations was not a feature in the law. The relevant cases show otherwise.

In Dobson v. Commissioner, 320 U.S. 489 (1943), Justice Jackson for a unanimous Court held that Tax Court interpretations of law were entitled to deference for two independent reasons:

1. As an agency, Tax Court interpretations of law were reviewed with deference.

Dobson did not use the word deference to describe the respect due agency interpretations, but used “clear cut mistake of law” which is the concept we now call deference. E.g., Arrowsmith v. Commissioner, 344 U.S. 6, 12 (1942) (Jackson, dissenting: “Where the statute is so indecisive and the importance of a particular holding lies in its rational and harmonious relation to the general scheme of the tax law, I think great deference is due the twice-expressed judgment of the Tax Court,” citing Dobson).); John Q. Barrett, Justice Jackson on “What the Law’s Going to Be” – At Least Until Its “Gelding”, 6 Green Bag 2d 125, 128 (2003) (“Dobson and its doctrine of deference”).

2. The statute required that Tax Court interpretations of law be reversed only if “not in accordance with law” which, the Court held, required deference.

To repeat, these were independent bases upon which to defer to Tax Court interpretations—one based on general agency deference (#1) and one based on the specific review statute for Tax Court interpretations (#2).

Dobson’s statement of deference to agency interpretations (#1 above)  was consistent with deference described in The Final Report of Attorney General's Committee on Administrative Procedure (1941) (“Final Report 1941”). Jackson served on the Committees and then was the Attorney General to whom the Final Report was addressed. The Final Report 1941 had robust statements of deference to agency interpretations of law. Justice Jackson knew precisely what he was saying as the pre-APA state of the law, for he described it in crystal clear terms in Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944): “This Court has long given considerable and in some cases decisive weight to Treasury Decisions and to interpretative regulations of the Treasury and of other bodies that were not of adversary origin.” (Skidmore is most often cited for the persuasion nondeferential standard for subregulatory interpretations, but so far as I can tell most authorities addressing Skidmore ignore the strong statement of deference to interpretive regulations).

And, then to put the icing on the cake, in enacting the APA review provision (now § 706), the Act says that agency action should not be overturned unless “not in accordance with law,” the precise language Dobson held to require deference (see #2 above). Properly interpreted, the APA is consistent with and even requires deference. Chief Justice Roberts was just wrong, motivated, I speculate, by shift in deference discussion to the political rather than the legal or practical.

I have covered all of this in my draft article Loper Bright Is the Law But Poor Statutory Interpretation, available at SSRN here. (My argument has not gained traction and doubtless will never gain traction, but it is correct (that’s my story and I’m sticking to it).)

* This link is to the opinion on my Google Docs site. The Tax Court does not offer a permalink to its opinions until they appear in Pamphlet Form here. As of today, the latest pamphlet is Volume 161, Numbers 5 and 6 (November 1, 2023 to December 31, 2023).

**Google Scholar (“GS”) offers the opinion shortly after the Tax Court decides it. The first GS offering is temporary until the Tax Court final pagination is reached, when GS will then have a new link with that final pagination and delete the temporary offering.