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March 22, 2005

Posted 1:00 AM Eastern

This past January, reported that the United States Supreme Court was being asked to decide the issue of whether or not U.S. Tax Courts should be able to keep vital information from taxpayers on the losing side. (search)

On March 7, 2005, the high court, in a 7-2 decision sharply reprimanded the United States Tax Court for concocting a "bold" scheme which allowed them to withhold documents from individuals who had cases before the court and also to any federal judges who would be reviewing the tax court's rulings on appeal.

In the two cases brought before the court, Ballard v. Commissioner of Internal Revenue and Estate of Kanter v. Commissioner of Internal Revenue, by what is called a Writ of Certiorari, the question was:

In this case, the trial was conducted by a �Special Trial Judge,� an employee-at-will of the Tax Court who serves at the pleasure of its Chief Judge. The Special Trial Judge was required to create a report of factual and legal findings, but his Tax Court Rule 183 report has never been made available to the parties, the public, or the reviewing Article III courts. Instead, his superiors on the Tax Court either overruled his factual findings or persuaded him to change his mind, thus creating a factual finding of tax fraud and income tax deficiencies. This entire process took place off the record, and came to light only in subsequent conversations between two Tax Court Judges and counsel for another party. The questions presented are:

1. Whether this secretive process is consistent with the Due Process Clause or the right to effective Article III review?

2. Whether this secretive process is consistent with 26 U.S.C. � 7482, which provides that Article III courts must review Tax Court decisions just as they would decisions of a U.S. district court.

Justice Ginsberg said that neither federal or the tax court's own rules authorize this type of concealment and stated, "Neither federal law nor the tax court's rules authorize such "concealment," adding: "In comparison to the nearly universal practice of transparency in forums in which one official conducts the trial (and thus sees and hears the witnesses), and another official subsequently renders the final decision, the tax court's practice is anomalous."

Chief Justice William H. Rehnquist and Justice Clarence Thomas both filed dissenting opinions with Rehnquist stating, "The tax court's compliance with its own rules is a matter on which we should defer to the interpretation of that court."

The high court's decision was hailed by the National Federation of Independent Businesses giving this comment from Karen Harned of the group's legal foundation: "Taxpayers fighting an unfair tax bill should have the tools and information needed to mount a fair fight."

The fact that the U.S. Supreme Court even heard these cases is rare because it overturns rulings of two federal appeals courts, the Seventh Circuit in Chicago and the 11th Circuit in Atlanta. Generally, federal appeals courts address issues upheld in tax court.

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The high court's decision was hailed by the National Federation of Independent Businesses