Samuels, Kramer & Co. v. C.I.R.
| Decision Date | 02 April 1991 |
| Docket Number | D,Nos. 274,275,s. 274 |
| Citation | 930 F.2d 975 |
| Parties | -760, 59 USLW 2616, 91-1 USTC P 50,181 SAMUELS, KRAMER & COMPANY, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. ockets 90-4060, 90-4064. |
| Court | U.S. Court of Appeals — Second Circuit |
Kathleen M. Sullivan, Cambridge, Mass. (Brian Stuart Koukoutchos, Cambridge, Mass., and Richard J. Sideman, Martha A. Boersch, Sideman & Bancroft, San Francisco, Cal., of counsel), for petitioner-appellant Samuels, Kramer & Co.
Kenneth W. Starr, Sol. Gen., Dept. of Justice, Washington, D.C. , for respondent-appellee C.I.R.
Erwin N. Griswold, Washington, D.C. (Michael Doss, Jones, Day, Reavis & Pogue, Washington, D.C., of counsel), for amicus curiae Erwin N. Griswold.
Before MESKILL and ALTIMARI, Circuit Judges, and METZNER *, District Judge.
Samuels, Kramer & Company (the Company) challenges the authority of the Chief Judge of the United States Tax Court to appoint "special trial judges" and to assign the adjudication of tax cases involving complex issues and substantial deficiency assessments to these "special judges" pursuant to 26 U.S.C. Secs. 7443A(a) and 7443A(b)(4). The Company submits that section 7443A does not authorize the assignment of such cases to "special trial judges," and if authorized, the Chief Judge's appointment of such judges violates the Appointments Clause of the United
States Constitution, Article II, Section 2, Clause 2.
The Company is a Nevada corporation with its principal place of business in New York City. The Company invested, for itself and for others, in straddles in forward contracts to buy and to sell government securities. Specifically, the Company would agree to buy (a long position) or to sell (a short position) at a pre-set price certain securities on a specific date in the future. As a straddle investor, the Company would hold an equal number of long and short positions in the same underlying security. This investment strategy permitted favorable tax treatment of both gains and losses.
In July 1984, after auditing the Company's tax returns for the years 1979, 1980, and 1981, the Commissioner of the Internal Revenue Service (Commissioner) notified the Company of a tax deficiency in an aggregate amount of approximately $1.4 million. The Commissioner also imposed pursuant to 26 U.S.C. Sec. 6653(b) a civil fraud penalty of $568,291 in connection with the Company's return for the 1979 tax year and assessed interest at the penalty rate of 120 percent of the ordinary underpayment rate pursuant to 26 U.S.C. Sec. 6621(c)(1). In March 1986, after auditing the Company's return for the tax year ending October 31, 1982, the Commissioner notified the Company of a deficiency in the amount of $20,300 and assessed additional penalties. In both instances, the Commissioner asserted that the Company's straddle investments were sham transactions which lacked economic substance and which had not been entered into for profit. Indeed, with respect to the pre-1982 tax years, the IRS took the position that these transactions were "entered into solely or primarily to reduce income taxes by converting short term capital gain and ordinary income to long term capital gain income and defer reporting the same." The Commissioner asserted several other arguments to support the deficiency assessment.
In response to these notifications and assessments, the Company availed itself of its right to contest the deficiencies in the United States Tax Court. The Company filed two petitions with the Tax Court seeking redetermination of the deficiencies. The Chief Judge of the United States Tax Court, Arthur L. Nims, III, acting pursuant to 26 U.S.C. Sec. 7443A and Tax Court Rules of Practice and Procedure 180, 181, and 183, assigned each of the Company's petitions to special trial judge Carleton D. Powell "for trial or other disposition."
The Company and other Tax Court petitioners, who also had their cases assigned to a special trial judge, moved to vacate the assignment of their cases on the grounds that the assignment was not authorized by section 7443A, and, if authorized by section 7443A, violated the Appointments Clause of the Constitution, Article II, Section 2, Clause 2. The Tax Court consolidated the cases for purposes of ruling on the motions to vacate the assignments.
On April 9, 1990, in an opinion reviewed by the full Tax Court pursuant to 26 U.S.C. Sec. 7460(b), the Tax Court denied the motions to vacate the assignments (two judges did not participate). First Western Gov't Sec., Inc. v. Commissioner, 94 T.C. 549 (1990). The Tax Court concluded (1) that the language, structure, and legislative history of section 7443A clearly demonstrates Congress' intent to assign "any other proceeding" to a special trial judge for hearing and report, and (2) that the Tax Court is a "Court of Law" within the meaning of the Appointments Clause and that special trial judges are "inferior officers" within the meaning of that Clause. Thus, the Tax Court held that the appointment of a special trial judge by the Chief Judge of the Tax Court comported with the Appointments Clause. 1 In an order accompanying its opinion, the Tax Court certified the issues advanced by the Company and the other petitioners for interlocutory appeal pursuant to 26 U.S.C. Sec. 7482(a)(2). The
Tax Court also stayed all the proceedings pending resolution of any interlocutory appeal. On April 18, 1990, the Company filed a motion in this Court for leave to appeal and on May 16, 1990, we granted the motion.
The United States Tax Court was created by Congress to provide taxpayers with a means of challenging assessments made by the Commissioner without first having to pay the alleged deficiency. Without such a forum, taxpayers would have to pay the asserted deficiency and then initiate a suit in federal district court for a refund. The Tax Court is currently composed of nineteen judges who are appointed by the President with the advice and consent of the Senate. The judges serve fifteen year terms and are paid at the same rate and in the same installments as federal district court judges. 26 U.S.C. Sec. 7443.
The Company does not challenge the legitimacy of the Tax Court. Rather, the Company questions the constitutional authority of the Chief Judge of the Tax Court to appoint "special trial judges" and his statutory authority to assign large tax cases to these judges for adjudication. We, therefore, must address two basic issues: (1) whether 26 U.S.C. Sec. 7443A permits the assignment of a tax case that involves complex issues and a large deficiency assessment to a "special trial judge" for adjudication, and (2) if permitted, whether the Appointments Clause of the Constitution permits the Congress to vest the Chief Judge with the power to appoint a "special trial judge."
The Courts of Appeals have jurisdiction to review the decisions of the Tax Court. 26 U.S.C. Sec. 7482(a)(1). In general, Tax Court decisions are to be reviewed "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." 26 U.S.C. Sec. 7482(a). An appeal of an interlocutory order, however, is permissive and is not a matter of right. Id. at Sec. 7482(a)(2)(A). Here, we granted the application of the Company to review the Tax Court's interlocutory order addressing the authority of the Chief Judge to appoint special trial judges and to assign complex cases to these judges. The questions before us present pure issues of law. As such, we review the Tax Court's determinations de novo. Vukasovich, Inc. v. Commissioner, 790 F.2d 1409, 1413 (9th Cir.1986).
In challenging the power of the Chief Judge of the Tax Court to assign cases to a "special trial judge," the Company asserts that the language and structure of section 7443A clearly demonstrate that Congress did not intend complex tax cases involving substantial deficiencies to be assigned to special trial judges. We, therefore, must interpret the language of this provision.
"It is axiomatic that '[t]he starting point in every case involving construction of a statute is the language itself.' " Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985) (quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44 L.Ed.2d 539 (1975) (Powell, J., concurring)). The plain meaning of the statute's language should control except in the "rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982). In such cases it is the intention of the legislators, rather than the strict language, that controls. Id. Finally, "in expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51, 107 S.Ct. 1549, 1555, 95 L.Ed.2d 39 (1987) (citations omitted). With these guiding principles in mind, we turn to the statute and its language.
Section 7443A confers on the Chief Judge of the Tax Court the authority to appoint a special trial judge and to assign certain tax cases to such judges for adjudication.
Section 7443A provides, in pertinent part:
(a) Appointment
The chief judge may, from time to time, appoint special trial judges who shall proceed under such rules and regulations as may be promulgated by the Tax Court.
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