Freytag v. Commissioner of Internal Revenue

Decision Date27 June 1991
Docket NumberNo. 90-762,90-762
Citation111 S.Ct. 2631,501 U.S. 868,115 L.Ed.2d 764
PartiesThomas FREYTAG, et al., Petitioners v. COMMISSIONER OF INTERNAL REVENUE
CourtU.S. Supreme Court

The chief judge of the United States Tax Court, an Article I court composed of 19 judges appointed by the President, is authorized to appoint special trial judges, 26 U.S.C. § 7443A(a), and to assign to them certain specified proceedings, §§ 7443A(b)(1), (2), and (3), and "any other proceeding which the chief judge may designate," § 7443A(b)(4). As to subsection (b)(4) proceedings, the special trial judge may hear the case and prepare proposed findings and an opinion, but the actual decision is rendered by a Tax Court judge, § 7443A(c). When petitioners sought review in the Tax Court of determinations of approximately $1.5 billion in federal income tax deficiencies, their cases were assigned to a Tax Court judge but were later reassigned, with petitioners' consent, to a special trial judge. His unfavorable opinion was adopted by the chief judge as the opinion of the Tax Court. The Court of Appeals affirmed, rejecting petitioners' arguments that the assignment of complex cases to a special trial judge was not authorized by § 7443A and that such assignment violated the Appointments Clause of the Constitution, which, inter alia, limits congressional discretion to vest the appointment of "inferior Officers" to the President, the Heads of Departments, and the Courts of Law.


1. Subsection (b)(4) authorizes the chief judge to assign any Tax Court proceeding, regardless of complexity or amount in controversy, to a special trial judge for hearing and preparation of proposed findings and a written opinion. Its plain language contains no limiting term restricting its reach to cases that are minor, simple, or narrow; and neither the statute's structure nor legislative history contradicts the broad sweep of this language. Pp. 873-877.

2. Section 7443A does not transgress the structure of separation of powers embodied in the Appointments Clause. Pp. 877-892.

(a) This is one of those rare cases in which the Court should exercise its discretion to hear petitioners' challenge. That challenge goes to the validity of the Tax Court proceeding that is the basis for this litigation and, thus, is a nonjurisdictional structural constitutional objection that may be considered, even though petitioners consented to the assignment. See Glidden Co. v. Zdanok, 370 U.S. 530, 535-536, 82 S.Ct. 1459, 1464-1465, 8 L.Ed.2d 671. Pp. 878-880.

(b) A special trial judge is an "inferior Officer" whose appointment must conform to the Appointments Clause. Such a judge acts as an inferior officer who exercises independent authority in cases governed by subsection (b)(1), (2), and (3). The fact that in subjection (b)(4) cases he performs duties that may be performed by an employee not subject to the Appointments Clause does not transform his status. Pp. 880-882.

(c) The Clause reflects the Framers' conclusion that widely distributed appointment power subverts democratic government. Thus, such power can be vested in the Tax Court's chief judge only if that court falls within one of the three repositories the Clause specifies. Clearly Congress did not intend to grant the President the power to appoint special trial judges. And the term "Department" refers only to executive divisions like Cabinet-level departments. United States v. Germaine, 99 U.S. 508, 510-511, 25 L.Ed. 482. Treating the Tax Court as a "Department" would defy the purpose of the Clause, the meaning of the Constitution's text, and the clear intent of Congress to transform that court from an executive agency into an Article I court. Pp. 882-888.

(d) An Article I court, which exercises judicial power, can be a "Court of Law," within the meaning of the Appointments Clause. The reference to "Courts of Law" cannot be limited to Article III courts merely because they are the only courts the Constitution mentions. Congress has wide discretion to assign the task of adjudication to legislative tribunals, see, e.g., American Ins. Co. v. Canter, 26 U.S. (1 Pet.) 511, 546, 7 L.Ed. 242, and an Article I court cannot exercise judicial power and not be one of the "Courts of Law." Buckley v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659, distinguished. To hold otherwise would also undermine Congress' understanding that Article I courts can be given the power to appoint. See, e.g., In re Hennen, 38 U.S. (13 Pet.) 230, 10 L.Ed. 138. Pp. 888-890.

(e) The Tax Court is a "Court of Law" within the Clause's meaning. It exercises judicial power to the exclusion of any other function; its function and role closely resemble those of the federal district courts; and it is independent of the Executive and Legislative Branches, in that its decisions are appealable in the same manner as those of the district courts. Pp. 890-892.

904 F.2d 1011 (CA5 1990), affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court with respect to Parts I, II, and III, and the opinion of the Court with respect to Part IV, in which REHNQUIST, C.J., and WHITE, MARSHALL, and STEVENS, JJ., joined. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, in which O'CONNOR, KENNEDY, and SOUTER, JJ., joined.

Kathleen M. Sullivan, for petitioners.

John G. Roberts, Jr., for respondent.

Justice BLACKMUN delivered the opinion of the Court.

The leading Framers of our Constitution viewed the principle of separation of powers as the central guarantee of a just government. James Madison put it this way: "No political truth is certainly of greater intrinsic value or is stamped with the authority of more enlightened patrons of liberty." The Federalist No. 47, p. 324 (J. Cooke ed. 1961). In this litigation, we must decide whether the authority that Congress has granted the chief judge of the United States Tax Court to appoint special trial judges transgresses our structure of separated powers. We answer that inquiry in the negative.


By the Tax Reform Act of 1969, § 951, 83 Stat. 730, 26 U.S.C. § 7441, Congress "established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court." It also empowered the Tax Court to appoint commissioners to assist its judges. § 958, 83 Stat. 734. By the Tax Reform Act of 1984, § 464(a), 98 Stat. 824, the title "commissioner" was changed to "special trial judge." By § 463(a) of that Act, 98 Stat. 824, and by § 1556(a) of the Tax Reform Act of 1986, 100 Stat. 2754, Congress authorized the chief judge of the Tax Court to appoint and assign these special trial judges to hear certain specifi- cally described proceedings and "any other proceeding which the chief judge may designate." 26 U.S.C. §§ 7443A(a) and (b). The Tax Court presently consists of 19 judges appointed to 15-year terms by the President, by and with the advice and consent of the Senate. 26 U.S.C. §§ 7443(a), (b), and (e).


This complex litigation began with determinations of federal income tax deficiencies against the several petitioners, who had deducted on their returns approximately $1.5 billion in losses allegedly realized in a tax shelter scheme.1 When petitioners sought review in the Tax Court in March 1982, their cases were assigned to Tax Court Judge Richard C. Wilbur. Trial began in 1984. Judge Wilbur became ill in November 1985, and the chief judge of the Tax Court assigned Special Trial Judge Carleton D. Powell to preside over the trial as evidentiary referee, with the proceedings videotaped. App. 2. When Judge Wilbur's illness forced his retirement and assumption of senior status effective April 1, 1986, the cases were reassigned, with petitioners' specified consent, Brief for Petitioners 8; Tr. of Oral Arg. 10, to Judge Powell for preparation of written findings and an opinion. App. 8, 12-14. The judge concluded that petitioners' tax shelter scheme consisted of sham transactions and that peti- tioners owed additional taxes. The chief judge adopted Judge Powell's opinion as that of the Tax Court. 89 T.C. 849 (1987).2

Petitioners took an appeal to the Court of Appeals for the Fifth Circuit. It affirmed. 904 F.2d 1011 (1990). Petitioners did not argue to the Court of Appeals, nor do they argue here, that the Tax Court is not a legitimate body. Rather, they contended that the assignment of cases as complex as theirs to a special trial judge was not authorized by § 7443A, and that this violated the Appointments Clause of the Constitution, Art. II, § 2, cl. 2. The Court of Appeals ruled that because the question of the special trial judge's authority was "in essence, an attack upon the subject matter jurisdiction of the special trial judge, it may be raised for the first time on appeal." 904 F.2d, at 1015 (footnote omitted). The court then went on to reject petitioners' claims on the merits. It concluded that the Code authorized the chief judge of the Tax Court to assign a special trial judge to hear petitioners' cases and that petitioners had waived any constitutional challenge to this appointment by consenting to a trial before Judge Powell. Id., at 1015, n. 9.

We granted certiorari, --- U.S. ----, 111 S.Ct. 781, 112 L.Ed.2d 844 (1991), to resolve the important questions the litigation raises about the Constitution's structural separation of powers.


Section 7443A(b) of the Internal Revenue Code specifically authorizes the chief judge of the Tax Court to assign four categories of cases to special trial judges: "(1) any declaratory judgment proceeding," "(2) any proceeding under section 7463," "(3) any proceeding" in which the deficiency or claimed overpayment does not exceed $10,000, and "(4) any other proceeding which the chief judge may designate." In the first three categories, the chief judge may assign the special trial judge not only to hear and report on a case but also to decide it. § 7443A(c). In the fourth category, the chief...

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