Kuretski v. Comm'r

Decision Date20 June 2014
Docket NumberNo. 13–1090.,13–1090.
Citation755 F.3d 929
PartiesPeter KURETSKI and Kathleen Kuretski, Appellants v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

OPINION TEXT STARTS HERE

On Appeal from the Decision and Order of the United States Tax Court.

Tuan N. Samahon argued the cause for appellants. With him on the briefs were Carlton M. Smith, Frank Agostino, and John P.L. Miscione.

Bethany B. Hauser, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief was Teresa E. McLaughlin, Attorney.

Before: SRINIVASAN, Circuit Judge, and EDWARDS and SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Circuit Judge SRINIVASAN.

SRINIVASAN, Circuit Judge:

Peter and Kathleen Kuretski owed more than $22,000 in federal income taxes for the 2007 tax year. They paid none. The Internal Revenue Service assessed the unpaid amount plus penalties and interest, and then attempted to collect from the Kuretskis by means of a levy on the couple's home. The Kuretskis unsuccessfully challenged the proposed levy in the Tax Court.

The Kuretskis now contend that the Tax Court judge may have been biased in favor of the IRS in a manner that infringes the constitutional separation of powers. They point to 26 U.S.C. § 7443(f), which enables the President to remove Tax Court judges on grounds of “inefficiency, neglect of duty, or malfeasance in office.” According to the Kuretskis, Tax Court judges exercise the judicial power of the United States under Article III of the Constitution, and it violates the constitutional separation of powers to subject any person clothed with Article III authority to “interbranch” removal at the hands of the President. The Kuretskis thus ask us to strike down 26 U.S.C. § 7443(f), vacate the Tax Court's decision, and remand their case for re-decision by a Tax Court judge free from the threat of presidential removal and hence free from alleged bias in favor of the Executive Branch.

To our knowledge, this is the first case in any court of appeals to present the question of whether 26 U.S.C. § 7443(f) infringes the constitutional separation of powers. We answer that question in the negative. Even if the prospect of “interbranch” removal of a Tax Court judge would raise a constitutional concern in theory, there is no cause for concern in fact: the Tax Court, in our view, exercises Executive authority as part of the Executive Branch. Presidential removal of a Tax Court judge thus would constitute an intra—not inter—branch removal. We also reject the Kuretskis' remaining challenges to the Tax Court's disposition of their case.

I.
A.

When the Internal Revenue Service determines that a taxpayer owes more to the federal government than the taxpayer has paid, the IRS may make an assessment recording the taxpayer's outstanding liability. See26 U.S.C. § 6201; United States v. Fior D'Italia, Inc., 536 U.S. 238, 243, 122 S.Ct. 2117, 153 L.Ed.2d 280 (2002). An assessment is “essentially a bookkeeping notation” made when the IRS “establishes an account against the taxpayer on the tax rolls.” Laing v. United States, 423 U.S. 161, 170 n. 13, 96 S.Ct. 473, 46 L.Ed.2d 416 (1976). Upon issuance of an assessment, the federal government acquires a lien on all property belonging to the delinquent taxpayer. See26 U.S.C. §§ 6321, 6322. ‘A federal tax lien, however, is not self-executing,’ and the IRS must take ‘affirmative action to enforce collection of the unpaid taxes.’ EC Term of Years Trust v. United States, 550 U.S. 429, 430–31, 127 S.Ct. 1763, 167 L.Ed.2d 729 (2007) (alteration and ellipsis omitted) (quoting United States v. Nat'l Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985)). One of the IRS's “principal tools” for collecting unpaid taxes is a “levy,” a “legally sanctioned seizure and sale of property.” Id. at 431, 127 S.Ct. 1763 (internal quotation marks omitted).

Until 1921, taxpayers had no pre-assessment opportunity to dispute the amount they owed the Treasury. Nor could they challenge a levy before its imposition. A taxpayer's only recourse was to pay the disputed amount and then bring a refund suit against the tax collector or the United States. See Flora v. United States, 362 U.S. 145, 151–52, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960); Burns, Stix Friedman & Co. v. Comm'r, 57 T.C. 392, 394 n. 7 (1971).

The Revenue Act of 1921 for the first time required giving taxpayers pre-assessment notice of a deficiency. The 1921 Act also provided that [o]pportunity for hearing shall be granted” before assessment of the tax. Revenue Act of 1921, ch. 136, § 250(d), 42 Stat. 227, 266. But it was not until 1924 that Congress created a tribunal separate from the Bureau of Internal Revenue (as the IRS was then known) to hear taxpayers' pre-assessment appeals. See Harold Dubroff, The United States Tax Court: An Historical Analysis, 40 Alb. L.Rev. 7, 64–66 (1975); see also John Kelley Co. v. Comm'r, 326 U.S. 521, 527–28, 66 S.Ct. 299, 90 L.Ed. 278 (1946).

The Revenue Act of 1924 established the Board of Tax Appeals as “an independent agency in the executive branch of the Government.” Revenue Act of 1924, ch. 234, § 900(a), (k), 43 Stat. 253, 336, 338. The Act provided for the President to appoint members of the Board to ten-year terms with the advice and consent of the Senate. Id. § 900(b), 43 Stat. at 336–37. The Act also stated that [a]ny member of the Board may be removed by the President for inefficiency, neglect of duty, or malfeasance in office, but for no other reason.” Id. at 337. In 1926, Congress extended the term of Board members to twelve years and amended the removal provision to guarantee “notice and opportunity for a public hearing” before the President could remove a Board member for cause. Revenue Act of 1926, ch. 27, § 1000, 44 Stat. 9, 105–06. The 1926 Act also made the Board's decisions directly reviewable by the circuit courts of appeals. Id. § 1001(a), 44 Stat. at 109–10.

In 1942, Congress changed the name of the Board to “The Tax Court of the United States” and declared that the court's members “shall be known” as “judges.” See Revenue Act of 1942, ch. 619, § 504(a), 56 Stat. 798, 957. But the 1942 Act otherwise left intact the provisions governing the former Board of Tax Appeals.

More than a quarter of a century later, Congress enacted a series of additional changes to the statutes governing the Tax Court. See Tax Reform Act of 1969, Pub.L. No. 91–172, §§ 951–962, 83 Stat. 487, 730–36. The 1969 Act amended the statute addressing the status of the court to read:

There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court.

Id. § 951, 83 Stat. at 730 (codified at 26 U.S.C. § 7441). The 1969 Act extended the term of Tax Court judges from twelve years to fifteen years. See Pub.L. No. 91–172, § 952, 83 Stat. at 730. Congress did not, however, alter the provision allowing for presidential removal of Tax Court judges. The removal statute remains in place today, and states:

Judges of the Tax Court may be removed by the President, after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.

26 U.S.C. § 7443(f). It appears that no President has ever sought to remove a member of the Tax Court or the Board of Tax Appeals. See Deborah A. Geier, The Tax Court, Article III, and the Proposal Advanced by the Federal Courts Study Committee: A Study in Applied Constitutional Theory, 76 Cornell L.Rev. 985, 994 n. 54 (1991).

After the 1969 Act, the Tax Court continued to provide a pre-assessment forum for taxpayers to challenge the IRS's deficiency determinations. Upon making an assessment, however, the IRS could levy on a delinquent taxpayer's property without any additional opportunity for a hearing. See United States v. Nat'l Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985); United States v. Rodgers, 461 U.S. 677, 682–83, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983). That changed in 1998, when Congress established the “collection due process” hearing procedure “to temper ‘any harshness' caused by the IRS's ability to levy on a taxpayer's property before the taxpayer could challenge the collection action. Byers v. Comm'r, 740 F.3d 668, 671 (D.C.Cir.2014) (quoting Olsen v. United States, 414 F.3d 144, 150 (1st Cir.2005)); Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105–206, § 3401(b), 112 Stat. 685, 747–48 (codified as amended at 26 U.S.C. § 6330).

Under the 1998 Act, the IRS must give thirty days' notice before levying on any property to collect unpaid taxes. 26 U.S.C. § 6330(a). During those thirty days, the taxpayer may request a collection-due-process hearing before the IRS Office of Appeals, at which the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy.” Id. § 6330(b)(1), (c)(2). If dissatisfied with the result of a collection-due-process hearing, the taxpayer may appeal to the Tax Court. See id. § 6330(d)(1). The Tax Court's decisions in collection-due-process cases are subject to review in this Court. Byers, 740 F.3d at 675–77.

B.

On April 15, 2008, Peter and Kathleen Kuretski of Staten Island, N.Y., filed a joint federal income tax return for 2007 on which they reported a tax liability of $24,991 and claimed a withholding credit of $2856. The Kuretskis did not include any payment of the liability reported on their return. Because the Kuretskis did not dispute the amount they owed, the IRS assessed the balance shown on the return along with penalties and interest. In October 2008, the IRS notified the Kuretskis that they owed $23,601.50 to the United States Treasury, and the IRS told the Kuretskis that it intended to levy on their property thirty days later unless they paid...

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