BALLARD v. COMMISSIONER OF INTERNAL REVENUE
Under federal law, the Tax Court could appoint special trial judges to hear certain cases and to make recommendations to the Tax Court. The Tax Court judge, under Tax Rule 183(b), had to presume the special judge's fact findings to be correct, but could make the ultimate decision in the case. The special trail judge reports were made public and included in the record on appeal. Only after a rule revision in 1983 did the Tax Court stop making such reports public and exclude them from the appellate record. Whether the final Tax Court's decision deviated from the special judge's recommendations was kept secret. Tax Court Judge Howard Dawson ruled that Kanter was guilty of tax fraud and of illegally diverting money to Claude Ballard, a business associate. In his opinion, Dawson claimed to have adopted the opinion of the special trial judge. Ballard and Kanter separately appealed, objecting to the absence of the special trial judge's report from the appellate record. Two federal appellate courts ruled against Kanter and Ballard.
Could the Tax Court exclude from the record on appeal Rule 183(b) reports submitted by special trial judges?
Legal provision: Internal Revenue Code
No. In a 7-2 opinion delivered by Justice Ruth Bader Ginsburg, the Court held that no statute authorized, and Rule 183's text did not warrant, the concealment of the special report. Rule 183 did not allow the "novel practice" of treating the trial judge's opinion as an "in-house draft to be worked over collaboratively by the regular Tax Court judge and the special trial judge." The rules allowed only one trial judge opinion to be issued and before a separate Tax Court ruling, Ginsburg wrote. It would be impossible for a Tax Court judge to give deference to an opinion he himself collaborated in producing. Moreover, the Tax Court's refusal to disclose the trial judge's original report did not allow fully informed appellate review of the court's decision.
Argument of Stephen M. Shapiro
Justice Stevens: The Court will now hear argument in Ballard against the Commissioner of Internal Revenue.
Mr. Shapiro: Thank you, Justice Stevens, and may it please the Court:
Judge Cudahy stated in his dissent in the Seventh Circuit that disclosure of the rule 183 report in this case should be required on both statutory and constitutional grounds.
As Judge Cudahy put it, there is no item of more significance in evaluating a Tax Court's decision on fraud than the unfiltered findings of the STJ.
Justice O'Connor: Mr. Shapiro, can this case, in your view, be decided solely on the statutory question?
Mr. Shapiro: Oh, yes, Your Honor.
We believe it can.
Justice O'Connor: There also are due process allegations, and I'm not sure I even quite understand what the precise due process violation is that's alleged.
But I would like you to address both and to tell us, first of all, how it would be resolved solely on a statutory basis from your perspective.
Mr. Shapiro: The readiest ground for decision is the statutory basis, and we believe that the statute is a good means to avoid a complex due process question.
There are two statutes that are key here.
One is the appellate review statute.
The other is the public record statute.
The public record statute says all reports of the Tax Court are public records, and we're talking about a report of the Tax Court in this case.
The legislative history of that provision shows Congress had the broadest possible intent to make all practices in the Tax Court completely transparent.
All steps in the adjudication were supposed to be--
Justice O'Connor: Well, would that include... if a Tax Court judge had a law clerk, would it include law clerk memos to the judge?
Mr. Shapiro: --We... we don't take that position.
It refers to reports of judges, and this is a report of a trial judge who heard the witnesses.
The report is presumed correct under rule 183.
It's the only independent evaluation of witness credibility--
Justice Breyer: Now, why... why do you say that?
Mr. Shapiro: --and the only judge--
Justice Breyer: Would you elaborate for this reason?
Because the briefs and you again today keep talking about that first document.
You use the word report.
Mr. Shapiro: --Yes.
Justice Breyer: Well, to me that's the whole conclusion of the case.
I'm prepared to assume, at least for the moment, if you can convince me that that's the report they're talking about, you'd win.
But that isn't what the Government says.
The Government says that's a piece of paper, preliminary.
We... like my draft.
I write drafts all the time.
So... so do trial judges.
And he goes and brings the draft to the other two judges and says, let's sit down and talk about it.
And they sit down and talk about it, and he changes his mind and writes a different document.
And that different document, of course, is totally public.
The whole opinion of the Tax Court.
There is that document.
Mr. Shapiro: There is only one rule 183 report.
Under the rule, it's the report the trial judge prepares and submits to the chief judge at the completion of the trial, which contains his independent credibility findings.
Justice Breyer: How do we know that?
Now... now, what is the answer specifically in the statute?
Let's call it document 1 and document 2.
And it really didn't help me that much in the briefs to see document 1 continuously labeled with the word report when I thought that's the key question.
Is it that report they're referring to?
So now, go ahead.
Mr. Shapiro: Under rule 183(b) there is a report denominated as such.
There's no question here it was submitted to the court.
If you look at page 114a of the Kanter appendix, it says that the special trial judge submitted a report, as required by rule 183(b).
And this case was then referred to Judge Dawson.
He had no involvement with the case until this report was given to him.
Justice Breyer: Which--
Mr. Shapiro: I'm sorry.
Justice Breyer: --Which... which brief--
Mr. Shapiro: Oh.
It's the petition for cert. The Kanter petition.
Justice Ginsburg: At least--
Justice Scalia: What... what page did you say?
Justice Breyer: --What... what page?
Mr. Shapiro: 114a, 114a.
Justice Ginsburg: --Mr. Shapiro, why don't you simply read the text of 183(b)--
Mr. Shapiro: --Yes.
Justice Ginsburg: --which is in the Government's brief at 4a?
It says, special trial judge's report.
It is the only report to which the Tax Court rules refer.
Mr. Shapiro: That's correct, Your Honor.
Justice Souter: And... and if in fact--
Mr. Shapiro: --it is presumed correct.
Justice Souter: --you rely on the rule, do we even have to resolve the issue of meaning of report in the statute?
Can't we simply, from your position, rely on the rule and say you've got to follow your own rules?
Mr. Shapiro: Absolutely.
This is a report that must be submitted.
It is presumed correct under this rule.
It's an independent evaluation of credibility from the only judge who heard the witnesses, and of course, it's part of the record.
And it doesn't--
Justice Souter: So you've really got three arguments.
You've got the rule.
You've got the statute, and you have due process.
Mr. Shapiro: --And it doesn't make the slightest difference that the superior judge caused the subordinate judge to say, I have changed my mind at a later stage in the proceeding, because it is the original report that is presumed correct under the rules.
Justice Breyer: All right.
Now, what... what was the page?
You're going quite... and I want to... because Justice Ginsburg referred to a statement in the Government's brief that you said yes--
Justice Ginsburg: No, not the Government's brief.
The Tax Court rules.
Mr. Shapiro: That's... that's appendix 4a.
Justice Ginsburg: 4a of the Government's brief.
Justice Scalia: It's the rule.
Mr. Shapiro: Yes, it's the rule itself, 183(b).
And it makes it clear that there must be a report filed with the chief judge.
The docket here says that that was done.
Justice Kennedy: Can you make the argument that... maybe you can't... that the special trial judge can go to the Tax Court judge, with the permission of the chief judge, and say, now, here's what... kind of what I'm thinking?
It's not my report, but here's what I'm thinking.
And then the... the Tax Court judge says, well, why don't you have some more findings on X and Y and Z?
He says, okay, and then he goes back.
Can you make the argument that that first document is not the report?
Mr. Shapiro: The first... there is only one--
Justice Kennedy: Well, I guess another way of saying it is, do the rules permit any consultation before the report is submitted?
I... I guess that's my question.
Mr. Shapiro: --The rules are silent on that, but Judge Dawson has no involvement in the case until the report is submitted.
Then the case is assigned to Judge Dawson, and then he is supposed to review it under a presumptive correctness standard.
So it would be surprising if there were consultation of that sort.
But what we contend is if there is consultation behind the scenes about credibility determinations, then it is critically important that the report be submitted and made part of the record and not concealed, and that the deferential standard of review be--
Justice Ginsburg: Would... would that problem be overcome if the special trial judge simply... if his... the proceedings before him were simply videotaped and then the reviewing judge, Judge Dawson in this case, could look at the trial proceedings and would have as much of a notion of the credibility of the witnesses as the special tax judge?
Mr. Shapiro: --I suppose that's a possibility, but in Anderson, the Court said absent some procedure like that, the trial judge is uniquely situated to evaluate demeanor and tone of voice, and because of that, great deference has to be given to the independent evaluation of the trial judge.
Maybe in a... in the future the Tax Court would want to use a procedure like that to mitigate the Raddatz problem that they now have.
Justice Scalia: In which case, they... they might well revise the language of their rule.
Mr. Shapiro: Yes, they... they might, and--
Justice Scalia: Which currently requires that the finding of facts of the trial judge be presumed to be correct.
Mr. Shapiro: --That's correct, and after all, we should remember that the Government was supposed to present clear and convincing evidence of fraud in this case, and if there was a flip-flop of this sort going on behind the scenes, leaving no trace in the record, what could be more important to the reviewing court than to know what had occurred at the first stage and the second stage here?
If the trial judge found no underpayment and no fraud, which we have reason to believe he did... three Tax Court judges stated that to us... if that was... that was his finding and he found our witnesses to be credible, then an unexplained overturning of that credibility determination with no trace in the record would surely be a candidate for reversal on appeal.
Justice Kennedy: Let... let me ask this question, if I may.
Suppose the... a special trial judge hears the witnesses, makes a report.
It's assigned by the chief judge to a Tax Court judge, and the Tax Court judge looks it over it and says, you know, before I... before I really spend a lot of time on this, you really didn't explore these three problems.
Would you please do it over again?
Is he permitted to do that or is that a violation of the rule that he shall presume the report to be correct?
Mr. Shapiro: Well, we haven't challenged the conversations as such.
We think it is... it is suspect, however.
Under Raddatz, if somebody who has not heard the witnesses is telling somebody who has heard the witnesses, I don't agree or I think you may be wrong in your credibility determination, I'd like you to reconsider that, that's a serious Raddatz problem.
And the only cure for that is to make the first report part of the record.
Justice Kennedy: I'm asking if it's a violation of... of the rule.
Mr. Shapiro: The--
Justice Kennedy: Because the... the rule says a special report shall be presumed to be correct.
Mr. Shapiro: --Yes.
Justice Kennedy: And if there's this initial review, he says, you know, I think it's really pretty incomplete until you do X, Y, Z, please do it over again, is that a violation of the rule?
Mr. Shapiro: Well, I think the rule is silent on that, but the spirit of the rule, frankly, is that the STJ does his job.
He completes his report.
He submits it, and the reviewing judge examines it under a presumed-correct standard in... in the same orderly fashion that ordinarily occurs when there is an initial judgment from a... from a trial judge about credibility with deferential review that comes later.
But the rule doesn't tell us much about these consultations, and we do submit that if... if they do take place, as the Government suggests, there's importuning and changing of minds going on through consultations, do this on record.
Turn square corners because it would be quite important to the appellate court to know if there was a good reason for the overturning of these credibility determinations.
And we... we've seen that kind of review in the Stone case in the D.C. Circuit, which is very similar to this case.
Factually the cases are quite similar.
And the reviewing court, Judge Williams, found clear error based on what the rule 183 report stated about witness credibility.
There was an elaborate explanation why particular witnesses were credible and incredible, and the court could use that to evaluate the judgment of the Tax Court.
Justice Scalia: Of course, what you're asking us to do would... would just solve your problem in this case, and... and in the future, I suppose they could revise rule 183 as simply not to require a report.
There... there's nothing in the statute that requires this report, is there?
Mr. Shapiro: Well, that's true.
They could cease using the STJ's, but--
Justice Scalia: Well, they could... they could use them, but just say, instead of filing a report, he'll consult with the... with the deciding judge.
Mr. Shapiro: --I... I suppose that could happen.
If there is... if there is no report written, we couldn't contend it has to be disclosed under these statutes, and that... that might be.
But it... there could be a Raddatz issue in that scenario that you present, Justice Scalia.
If one judge heard the witnesses and the other judge didn't hear the witnesses and... and the... the superior judge--
Justice Scalia: Well, they confer with each other.
Mr. Shapiro: --But it... it would be... it would be quite strange to have credibility determinations made by a judge who had never heard from any of the witnesses.
Justice Breyer: --What happens in cases in agencies, you know, where... where... suppose the agency itself or a member thereof is going to make a decision, and there might be other members who would hear the witnesses.
And I was thinking of that analogy.
It happens in the Federal Communications Commission where the staff, you know, consults back and forth in ratemaking cases.
Mr. Shapiro: Oh, yes.
Justice Breyer: It's hard to find precisely the analogy, but it seems likely.
Mr. Shapiro: The... the closest analogy in this Court's decisions is the Morgan II decision.
Justice Breyer: Yes, which gives and takes away.
Mr. Shapiro: Now, Morgan II is really on point because there, a subordinate official drafted up findings, proposed findings, didn't serve them on the parties, but did give them to the decision-maker, the agency.
And this Court held that was a violation of due process.
Justice Breyer: You have to have an opportunity to refute the information that's going to--
Mr. Shapiro: Absolutely.
Justice Breyer: --Yes.
Mr. Shapiro: And... and every administrative body that we know of in the Federal courts and in the State too... Chief Judge Vanderbilt pointed that out in the Mazza case.
Every State in the Union requires disclosure of these administrative law decisions to the parties.
Justice Breyer: If you analogize the STJ to the administrative ALJ.
But you might also analogize him to a member of the agency itself, and if you make that analogy, it doesn't become so far-fetched, particularly when you look at Morgan as also not allowing you to probe at what's going on.
Mr. Shapiro: Yes.
Well, we... we've avoided suggesting that any depositions should be taken of... of judicial personnel here.
That's not our view.
Our view is simply that the report that was prepared... it was prepared... should be made part of the record by virtue of two statutes.
There is an appellate review statute, Justice O'Connor, that states quite expressly that Congress expected review to take place here just as it does in the district court, to the same degree, to the same extent, and in the same manner.
And in the district court, if an adjunct judge makes a finding of fact, whether it's a master or a magistrate or bankruptcy judge, that is always disclosed to the parties.
Justice O'Connor: Mr. Shapiro, is there any evidence in this record that the special trial judge in fact changed his report beyond the hearsay affidavit?
Mr. Shapiro: We don't know what is contained in that first report.
We have heard from three of the judges, including the chief judge of the STJ's, that... that what happened was that Judge Dawson rewrote the credibility findings.
Now, we won't know until we see this.
That could be wrong.
But... but it should be part of the record for the court of appeals.
Justice Ginsburg: Mr. Shapiro, on credibility, which you have been emphasizing, are you overstating the case for it?
Because credibility is more than just observing the witnesses' demeanor.
I mean, Judge Dawson could have said, yes, they... these witnesses might have looked honest to the special trial judge, but considering this documentary evidence in the record, it's clear to me that what the witness said on the stand was a lie.
Mr. Shapiro: Well, you'll see in perhaps a dozen situations, he says, I simply don't believe that witness, none of whom he heard.
And this is a case where credibility was key.
Was there a bribery scheme of the kind that the IRS claimed?
Every witness who testified said no, it didn't exist.
These are simple investments with the proceeds being paid to the corporations, and yet, the Government's theory was there is some nefarious bribery scheme that every witness denied.
And there is no documentary evidence of that.
The evidence of the proceeds flowing to these corporations was simply the result of their investing money in real estate deals.
And so credibility was the key to this whole case.
And the... the Government, I don't think, can be serious when it tells this Court that this first report is some confidential document, that it's privileged internal deliberative material.
For 40 years, the... the Tax Court made these reports available to the public.
It... they were routinely served on the parties.
For 40 years there was no suggestion--
Justice Kennedy: Would... would you comment on that?
I... I understood from the brief there was a suggestion that if you prevail, we're going to have a huge volume of... of printed material that we're not troubled with now.
Mr. Shapiro: --Oh, yes.
That's a post hoc rationale.
There was no such explanation when this rule was changed, and there's not a bit of work or a bit of expense resulting from our position.
We simply ask for a copy of a report that exists.
They can serve it on us electronically.
It won't cost them a cent.
We're making a very modest request under these statutes and under the Due Process Clause.
And there was no explanation--
Justice Scalia: Well, now, wait.
Under the Due Process Clause, I assume you would be asking for more than just access to the report.
You... if... if you're really relying on Morgan II, he who hears must decide, I think you would be saying that after reading the report, you should have the opportunity to argue to the... to Dawson here, to... to the Tax Court judge that the report should not be adopted.
Mr. Shapiro: --Well, we defer to--
Justice Scalia: Isn't that part of your due process case?
Mr. Shapiro: --It... it really is not.
Justice Scalia: You think it satisfies due process just to show you the report, and then--
Mr. Shapiro: --To give... and make it part of the appellate record.
We're not asking for any remand to the Tax Court.
If the Tax Court doesn't--
Justice Scalia: --Well, then... then you're not relying on Morgan II.
Mr. Shapiro: --Well, we... we just rely on that as an example of the need to disclose this at an appropriate juncture.
Justice Scalia: There wasn't a need to disclose the point that Morgan II made.
It was he who hears must decide.
Mr. Shapiro: Well, in Morgan II, the... the point was that any... any proposed findings that are drafted up have to be shared with the parties.
Now, there they had to be shared with the parties at the administrative level.
We're not going that far.
If the Tax Court tells us that they don't want to have that layer of review within the Tax Court, they don't want to receive our comments on the initial report, that's fine with us.
We want it to be made part of the appellate record so that the judges who are interested in this and believe it will shed a strong light on the issue of clear and convincing evidence can have this be part of the record.
And already the Fifth Circuit has overturned the finding of fraud in this very same case.
Justice Ginsburg: Do... do I understand that you would be satisfied if the Court simply looked to... what is it... 7482(a)(1), the appellate review section, which says that the Tax Court decisions shall be reviewed in the same manner and to the same extent as district court decisions?
Mr. Shapiro: Yes.
We'd be satisfied because that is a sufficient basis to say the record has to include the rule 183 report.
And it is not up to the trial court to tell the appellate court what's in the record on appeal.
It's up to the appellate court to... to determine what goes into that... that record.
This... the case in the Second Circuit on that is IBM v. United States where the Second Circuit analyzed rule 10(a) and said it is not the province of the trial court to dictate to the reviewing court what is in that record.
And this Court in--
Justice Ginsburg: --And where is it?
It's... it is specified someplace, but when you review a district court decision in... in a court of appeals, the... certainly the magistrate's report would be included, but there's someplace where it lists the contents, some rule that lists--
Mr. Shapiro: --Oh, yes.
It's rule 10(a) and it's... it's very general.
It says that all the original papers in the trial court come before the appellate court, and an original report is an original document submitted in the trial court.
And this Court confronted that question in Universal Camera 50 years ago, and the Government made the same arguments then that it's making now and it lost 7 to 2 in that case.
It... it said that the report--
Justice Scalia: Institutional memory.
Isn't that... that's a good institutional memory--
Mr. Shapiro: --It goes back.
The same argument was made that the report is an irrelevance.
It's just an aid to the decision-maker, and the decision-maker can do what it wants and has ultimate judgmental power.
So there's no need to include that report in the record, and no weight should be given to it.
This Court said, we will not adopt an exclusionary rule for the administrative law judge's report.
And this is an a fortiori case because this report is presumed correct.
In Universal Camera, there was no presumption of correctness at all.
So that... that case, you know, goes further than... than what the Court has to do here.
And the Government's argument that... that somehow this is--
Justice Scalia: --Of course, that... that was decided under the APA, wasn't it?
I mean, that was an APA case, which this isn't.
Mr. Shapiro: --Well, yes, that's true.
But, you know, the Court reached out to the APA for guidance in construing the labor laws.
The labor laws were silent on this issue, but under the APA, the Court said the general policy is to disclose these reports and we are going to say that that is applicable to the NLRB.
Now, the Government says all of this changes the course because the judge changed his mind, but you know, there are so many opinions and orders and reports in the Federal judicial system where a mind is changed and an opinion is suppressed or... or vacated or replaced and that first opinion is still part of the record.
It's a fallacy to say it's not part of the record just because it's been abandoned.
For example, if I seek summary judgment in the district court and it's denied and then I ask for reconsideration and it's granted, the opinion has been abandoned, but it's still part of the record.
And if I... if an appeal is taken, it's going to be exhibit A in any appeal, and it may result in a reversal.
Same thing when a case goes en banc.
The panel opinion is vacated, but then when... when cert is granted, the argument before this Court may convince this Court that the panel was right.
Even though it's been abandoned, it's still very important.
Or if a jury verdict is set aside... the... the district court says, judgment as a matter of law... on appeal, the jury... jury verdict may get sustained.
So it's just a logical fallacy to say that because somebody has changed his mind, if that's what happened here, that... that the first report drops out of the record.
Justice Ginsburg: --Would the... the Tax Court rule... now, this 183(c)... says... it describes the special trial judge's report, which is submitted to the chief judge, and then the chief judge assigns a Tax Court judge, and then it says that... that the Tax Court judge may modify it, modify the special trial judge's report, or may reject it in whole or in part.
Does the Tax Court ever modify a special trial judge's report?
Does it ever reject it in whole or in part?
Mr. Shapiro: Oh, yes, and... and the remarkable thing is that every time it does that, it recites, we hereby adopt the findings and opinions of the trial judge.
Now, in the old days, that was not a problem.
Justice Ginsburg: But that's one thing that they can do.
They can adopt it, but my question is, do they always adopt and never use... never use the term modify it or reject?
Mr. Shapiro: Oh, no.
They... they do modify and reject.
It's just it's hard to determine, when they are doing that.
In the old days--
Justice Scalia: They... they never say so in their opinion.
Mr. Shapiro: --They don't--
Justice Scalia: They always say that they adopt the trial judge's report.
Mr. Shapiro: --Yes.
That's entirely correct. And now, in the old days, before they amended the rule, you could compare the two and see what was changed, but now you can't.
You can't tell what has been changed.
And in this instance, we believe there's been a complete rewrite of that first report, and the appellate courts can't tell what's going on.
Was there a reason for doing this?
Was deference given?
Was some other agenda at work in this decision?
No one can tell because it is all off the record.
Justice Breyer: What... what is... can I ask you a really esoteric administrative law question, which I have never been able to figure out?
It's probably relevant, but I... this is an agency.
That's what... my great tax professor, Ernie Brown, used to say there is no Tax Court.
He says, the Board of Tax Appeals shall be known as the Tax Court.
What he meant by that is it's not... it isn't the Tax Court, just known as.
So... so this is an agency, an administrative agency.
So I look to the APA for guidance, and the APA, when you look at the section, says this initial decision can be made by a 556-qualified person.
Now, a 556-qualified person can include the agency itself or a member of the agency or an ALJ.
Then when you to look at what happens in 557, after that presiding employee makes an initial decision, it says you have to give a chance to the party to respond to the initial decision, which you like, in the case where the presiding employee... presiding person is a subordinate employee.
And so, that's what I was just checking here.
And so... so what's supposed to happen where the presiding person under 556 for that initial or tentative decision is not a subordinate employee, but rather, quote, one or more members of the body which comprise the agency?
I've never run into that before.
Maybe you haven't.
Maybe they didn't mean anything by it, but maybe they did.
Mr. Shapiro: Well, I... I haven't either.
But the judge here certainly was subordinate and--
Justice Breyer: He was a subordinate employee?
Mr. Shapiro: --Yes, he was.
Justice Breyer: Rather than a member... is... is... if he's a subordinate employee, that's easy.
Then the case is easy I think.
Mr. Shapiro: He... he is a subordinate because as the Government keeps telling us, the Tax Court judge is the only official spokesman for the court.
They get to make the final judgment.
And the Tax Court judge reviews what the STJ has done.
Justice Ginsburg: These... these--
Justice Scalia: But you're... you're not asserting that the APA governs this.
Mr. Shapiro: Oh--
Justice Breyer: No.
I'm just looking--
Justice Scalia: Isn't there an express exception for... for--
Mr. Shapiro: --Yes, and this a court.
This is an Article I court, this Court has held.
And Congress has created very specific appellate review procedures for this court.
Justice Ginsburg: --The... the special trial judge has no tenure, does she?
Mr. Shapiro: That's correct.
He... those judges could be terminated at will, including because there is not sufficient work for the judge.
They can be terminated on that basis.
And that, we think, colors the analysis here for the reasons Judge Cudahy gave.
This is not an independent judge.
When he is persuaded by his superior to change his mind, it's obvious that he... in our view, that he's going to be heavily influenced by that.
It's a serious Raddatz problem.
The only cure is to make this part of the record and to enforce the rule 183 presumption of correctness, which creates a clear error standard of review.
I see my time has run out.
May I reserve the rest for--
Justice Stevens: Yes, you may, of course.
Argument of Thomas G. Hungar
Mr. Hungar: Justice Stevens, and may it please the Court:
The central flaw in petitioners' case is that both of the trial court judges responsible for evaluating the evidence in the record reached the same conclusion regarding all of the factual issues.
Justice Ginsburg: Mr. Hungar, before you proceed to your legal argument, I was very curious why the Government is defending this practice because the Government, after all, is on the other side of every case.
And aren't there situations where it might be that the special trial judge would call a credibility question in the Government's favor and then the Government loses the case before the Tax Court judge and might like to know, before it goes to the court of appeals, how solid the credibility findings were?
I mean, I... I... the Government being a party to all these proceedings, why is it satisfied with not knowing what the report of the special tax judge... special trial judge was?
Mr. Hungar: Justice Ginsburg, we do know what the report of the special trial judge was.
It is in the record.
Judge Couvillion's name is on his report.
Justice Ginsburg: No, it is not the report.
It is called an opinion.
It isn't even called the report, and if you will read 183(b), that describes the report.
Does anything else describe the report?
And what is this report?
There is a report.
It is submitted to the chief judge.
What would you call that?
Mr. Hungar: The report is the... contains the recommended findings of fact and opinion, analysis of the law and application of the law to the fact, of the special trial judge.
The report is the findings of fact plus, quote, the opinion.
Justice Ginsburg: Now, what is the 183(b) report?
Mr. Hungar: Well--
Justice Ginsburg: There--
Mr. Hungar: --The... under rule 183(b), the... the special trial judge submits his report to the chief judge.
It is then referred to a Tax Court judge.
Justice Ginsburg: --So that report, the special trial judge's report, is a document prepared by the special trial judge which he gives to the chief judge.
Mr. Hungar: Correct.
But the important thing to understand, Your Honor, is that nothing in the rule precludes, during the course of the deliberative process that then follows, the special trial judge from concluding that he has made a mistake, that he no longer agrees with the... the stated findings of fact in that... in that original report, from withdrawing and submitting a corrected report.
Justice Souter: But that's not the way the rule reads.
The rule reads, as I understand it, under (c) that the court itself may accept, reject, or modify.
It doesn't say anything about the special trial judge reconsidering and rewriting his report.
Mr. Hungar: It doesn't preclude it either, Your Honor.
There's a longstanding practice--
Justice Scalia: Yes, it does because it... it goes on to say that due regard shall be given to the circumstance that the special trial judge had the opportunity to evaluate and the findings of fact recommended by the special trial judge shall be presumed to be correct.
But if those findings of fact are simply the same findings of fact that he agrees with the rest of the... the panel on, it just makes no sense at all.
Mr. Hungar: --The Tax Court judge cannot report in... in the opinion that is issued by the Tax Court, he cannot say I'm adopting the opinion and findings of the special trial judge if the... if the Tax Court judge does not agree with those and the... and the special trial judge adheres to his original decision.
The only way it is possible for there to be a change is for the special trial judge himself to determine, in the exercise of his responsibility as a judicial officer, that he made a mistake.
Justice Scalia: What report goes to the chief judge?
Mr. Hungar: Originally the original report goes to the chief judge.
Justice Scalia: That's a report.
Is that not a report?
Mr. Hungar: It is a report, Your Honor.
Justice Scalia: Why doesn't that... why isn't that required to be... to be made public?
Mr. Hungar: Because if... because the... because the Tax Court has determined that it will not be made public, that it is part of internal deliberation.
Justice Scalia: It's a report.
The statute says that the reports have to be made public.
Mr. Hungar: No, Your Honor.
Justice Scalia: That is a report.
Mr. Hungar: No, Your Honor.
Justice Scalia: And it goes to the--
Mr. Hungar: With respect, the tax... the... the statute says a report of the Tax Court must be made public.
A... a report--
Justice Kennedy: Well, but the rule... the rule says that the first report, the document 1, has to be given deference.
It's presumed to be correct.
Mr. Hungar: --Well, Justice Kennedy, if I may, I'd like first to finish my response to Justice Scalia.
Justice Kennedy: Sure.
Mr. Hungar: The statutes... the... the disclosure requirement applies only to reports of the Tax Court.
It is perfectly clear that a report, the original report, or any report of a special trial judge is not and cannot be the report of the Tax Court unless it is first adopted and approved by a Tax Court judge, and then goes through the next step of... of being submitted--
Justice O'Connor: Well, it's... it's very hard to understand how appellate review can function if that first report of the special trial judge is never disclosed.
I just don't see how the appellate review can function properly.
Justice Kennedy: And how do we know that it was... that it was presumed to be correct under the rule?
Justice O'Connor: Yes.
How does the appellate court know whether deference, as required by the rules, was given unless the appellate court can see it?
It's such a strange procedure.
Why, in answer to Justice Ginsburg, does the government take the view it does?
Wouldn't you like to see it if it went against you?
Mr. Hungar: --We submit, Your Honor, that there is no evidentiary or probative value in an initial conclusion that the... that the person who reached that conclusion has abandoned, has concluded was wrong.
Special Trial Judge--
Justice O'Connor: Well, the rule--
Mr. Hungar: --Couvillion rejected--
Justice O'Connor: --the rule... the rule 183 does provide for a certain degree of deference to be given to those findings of the special trial judge.
Mr. Hungar: --To the recommended findings of the special trial judge.
And I submit that if the special trial judge has concluded that his initial recommendations were mistaken because, based upon further consideration as a judicial officer in the exercise of his obligations, he has realized he made a mistake, I submit it would be bizarre to require a Tax Court judge to give some sort of... of deference to--
Justice Ginsburg: Mr. Hungar, do you--
Mr. Hungar: --abandoned findings.
Justice Ginsburg: --Do you see somewhat of a problem, that we are not dealing here with the relationship between peers?
Judge Dawson is appointed, what, for a 15-year term.
The special trial judge is appointed by the Tax Court and his job is at the Tax Court's grace.
And if you have compared in your brief that relationship to, say, a discussion among colleagues, I think it's worlds different.
Mr. Hungar: Justice Ginsburg, Judge Dawson actually is a senior judge who was recalled.
So he doesn't have the 15-year term protection.
But it's true that special trial judges are... are appointed by the chief judge, not by the Tax Court judges, but by the chief judge, so that Judge Dawson wasn't, in a sense, his... his appointing, employing official.
But more to the point, special--
Justice Ginsburg: He has had a special... a... a long term and he is well-known and respected as a Tax Court judge who was appointed, as all other members of the court were appointed.
Mr. Hungar: --Well, Judge Couvillion has been a special trial judge, I think, for nearly 20 years.
But the point is special trial judges are bound by the code of conduct.
The Tax Court has adopted for both Tax Court judges and special trial judges the same code of conduct that applies to Federal judges under Article III, which--
Justice Ginsburg: It seems to me--
Mr. Hungar: --obligates independent decision-making.
Justice Ginsburg: --It seems to me that it's very much like, if you have to compare it with something, the relationship between a magistrate and a Federal district court judge.
The magistrate also hears testimony, makes a report, findings, and a recommendation.
What's the difference between those two?
Mr. Hungar: Well, one difference is that the district court judges, as I understand it, appoint the magistrate, not the chief judge.
But a more significant difference is that the statute and rules applicable to magistrates require disclosure of their reports and do not treat them as part of the internal deliberative process.
The Tax Court has determined that it is inefficient to have disclosure of the original report, then have exceptions and have that whole process followed that they used to follow.
They have determined that they will treat the Tax Court... excuse me... the special trial judge's report--
Justice Breyer: So where does it say that?
Where does it say that?
Justice Stevens: They're not requiring the... this case doesn't involve the question of whether they can make objections to the finding in... in the special report.
It's just whether it's disclosed.
Mr. Hungar: --Yes, Your Honor.
But the... but the Tax Court has determined not to disclose it.
Justice Stevens: No, I understand.
But your argument about how it would make the proceeding more cumbersome, it seems to me, is... is misplaced.
Mr. Hungar: Well, it certainly would be more cumbersome if they followed the procedure that they used to follow, which we submit, although the record is... they did not specifically state--
Justice Stevens: But they're not asking for that.
Am... am I wrong on--
Mr. Hungar: --Yes, that's true, Your Honor.
What they're asking for here, what they say they want is merely disclosure of the original report.
Justice Stevens: --And it's a particularly strong argument in a case... in several of the issues.
I remember Judge Fromm's opinion turned on the credibility of oral testimony, and in one case, Judge Fromm found the... the judge here made an erroneous ruling on credibility on one issue, if I remember correctly.
And it seems to me that's a case in which it would be particularly relevant to know the reasons pro and con on why credibility determinations were made by the person who heard the witnesses.
Mr. Hungar: But the person who heard the witnesses is Special Trial Judge Couvillion.
Justice Stevens: Has been convinced that he was wrong.
Mr. Hungar: Yes.
Justice Stevens: And the question is, well, what was his... what was the basis for his original position when you're evaluating whether you've got a valid argument to make on appeal?
Mr. Hungar: Under that rationale, Justice Stevens, every time a district court judge changes his mind, after giving further thought to a case--
Justice Stevens: No, no, no.
Mr. Hungar: --before he issues his final opinion--
Justice Stevens: Only if he is required by a rule to make certain findings and to deliver a completed report to someone else.
Mr. Hungar: --Well, again, the... the rule does not preclude the practice.
It is a common practice--
Justice Stevens: It doesn't forbid it.
It doesn't forbid it in so many words.
But I just wonder, does it comport with your normal notions of a fair way to conduct a fair hearing, letting the parties know what the basis for decision was and who thought what about the witnesses and so forth?
Mr. Hungar: --Absolutely, Your Honor.
If the... in a... when a... when a court has a collegial deliberative process involving more than one person that is involved in the decision-making... certainly this is an unusual process in that... and there is no identical analog, but we see no due process problem.
Justice Souter: No. But I don't see what is consistent with your notion of a deliberative process as producing the report and the presumption of correctness in the rule.
The rule presumes that some original document, which you are treating as provisional, enjoys a presumption of correctness, and I don't see the consistency between provisionality and deliberate character on the one hand and presumption on the other.
Mr. Hungar: If I may, Your Honor, the rule does not state that the, quote, original report shall receive a presumption of correctness.
It doesn't even say that... that any report shall receive a presumption of correctness.
It says the findings of fact recommended by the special trial judge.
Justice Souter: And aren't those findings of fact the findings of fact that are delivered to the chief judge in the report that is made to the chief judge before it is even assigned to a Tax Court judge?
Mr. Hungar: Not if... not if the tax... if the special trial judge has abandoned those recommendations, withdrawn those recommendations, and replaced them.
Justice Souter: But he hasn't abandoned them at the point that he delivers them to the chief judge, and if that's what this is referring to, then the presumption of the... of... of correctness necessarily has to apply to whatever the document is that's delivered to the chief judge.
Mr. Hungar: Well, it applies to the report, but I submit that if the special trial judge withdraws in order to correct an error in the report, what he submits as the corrected report is then the, quote, report.
Justice Kennedy: You're... you're--
Justice Ginsburg: Why isn't that explained in the rules, if that's the process?
Justice Kennedy: --have a condition subsequent.
It seems to me that you're saying, Mr. Hungar, that the last sentence of 183 is unenforceable.
Mr. Hungar: The... the credibility... the due regard and presumption of--
Justice Souter: The presumption.
Mr. Hungar: --Well, it's important to understand also that, in fact, it would violate the Internal Revenue Code.
This rule must be construed to be consistent with the Internal Revenue Code.
The Internal Revenue Code makes very clear, and this Court held in Freytag, that the Tax Court judge, not the special trial judge, is the decision-maker, the only finder of fact in these kinds of cases under subsection (b)(4) of the statute.
This Court so held in Freytag and the... and the statute makes that very clear.
So it would violate the statute to construe this, as petitioners do, to require some sort of deferential clear error review.
Justice Souter: So you're saying the rule itself in that respect is invalid?
Mr. Hungar: If construed as petitioners would have it, yes.
Justice Souter: Well, how else could you possibly construe it?
There's no presumption operating at all on your reading.
Mr. Hungar: In the tax context, Your Honor, the... there is a presumption of correctness that attaches to assessments and deficiency notices issued by--
Justice Souter: No, but you're saying there is... there is no presumption of correctness that can operate with respect to the report that goes first to the chief judge because, I understood you to say, to do that would violate the Internal Revenue Code provision that the fact-finder and the only fact-finder is the Tax Court judge.
And therefore, I think the implication of what you're saying is that the rule on its face is invalid.
Mr. Hungar: --Your Honor, presumption of correctness does not necessarily equate with clear error, deferential review.
That's my point.
Justice Souter: I'm... I'm not even getting to whatever the standard of review may be.
I presume the word presumption means something other than it's there unless you want to change it later after the person who employs you objects to it.
It's got to mean something more than that.
Mr. Hungar: What the presumption of correctness means in the tax context, with respect to deficiency determinations and the like, is that the burden of going forward is on the party seeking to change what... what... the determination that is presumed correct.
Justice Souter: But there's no party who is seeking to change at this point because the parties don't know what's in it.
They're not going forward.
This is, as you point out, an internal process that is going on here.
So that definition can't apply.
Mr. Hungar: No, Your Honor.
If... there... there are two processes that go on.
The Tax Court judge, quite appropriately, we... we assume and have... have no reason to disagree, confers with, discusses with the special trial judge.
If... if in the course of that discussion, one or both of them come to the conclusion that something is wrong in the original report and if the special trial judge agrees, the special trial judge has the option of withdrawing his original report, submitting a corrected report, and having the presumption of correctness, whatever it means, apply to his corrected report.
Justice Scalia: In... in that discussion, does the Tax Court judge have to give great weight to the findings of fact of the... of the special judge?
Mr. Hungar: --No, Your Honor, not great weight because, again, that would violate the statute.
Justice Souter: Any weight?
Mr. Hungar: He is to give due... the due regard provision we think is essentially precatory, as the... as the Seventh Circuit said.
It reminds the... the Tax Court judge that he should not lightly set aside the credibility determinations.
But again, that's not what happened here.
Justice Souter: So I... I think your... I think your answer then is not that this is invalid.
It is simply unenforceable.
It is precatory language, looks okay, but there's no way to police it.
Mr. Hungar: It's certainly not enforceable in an appellate court.
Justice Souter: Judicially it cannot be enforced.
Mr. Hungar: That's correct, because otherwise it would violate the statute if it imposed some meaningful limitation.
But again, it's important to understand here the Tax Court judge did not exercise his authority in this case to reverse or set aside the special trial judge's findings.
He could have done so--
Justice Ginsburg: Do they... do they ever?
I mean, this... this says, this decision... it's labeled... the... the court agrees with and adopts the opinion of the special trial judge.
Are there Tax Court cases where the Tax Court says, instead of that, the court modifies the decision of the special trial judge or the court rejects, in whole or in part, the report of the special trial judge?
Mr. Hungar: --We cite--
Justice Ginsburg: Do Tax Court opinions come out that way?
Mr. Hungar: --We cite in footnote 4 a small number of cases from prior to the last rule change in which that occurred.
In addition, there are at least a couple of cases since the rule change in which the Tax Court judge rejected parts of the opinion, but not the findings.
We're not aware of any cases in which the Tax Court judge has rejected the findings, but there are other cases... Little against Commissioner, 103 T.C. 285; Walker against Commissioner, 101 T.C. 537... in which the Tax Court judge expressed a disagreement with a portion of the opinion of the special trial judge and then proceeded to decide the case in the manner he or she thought--
Justice Ginsburg: Because if one were just to rule this... read this rule straight: first, the report that goes to the chief judge, and then it says that the Tax Court judge may modify it, reject it in whole... adopt, modify, or reject in whole or in part.
You would expect, if we were having truth in labeling, that whenever, with consultation, without, there's a difference between the two documents, the Tax Court judge, in combination with the special trial judge or without, would say, action on the report... action on the report, which is the special trial judge's report, is it is modified or it is rejected or it is rejected in part.
Mr. Hungar: --Well, again, that assumes that the... that the... the rule compels the interpretation that the special trial judge is prohibited from withdrawing, correcting, and resubmitting his report.
I submit it does not compel that interpretation, and the Tax Court--
Justice Ginsburg: --The rule... the rule doesn't say anything about this consultation that you've described.
And if that's the Tax Court's procedure, why isn't it laid out in the rules so everyone can see it instead of being deceived by reading here is the special trial judge's report, and now what the Tax Court will do is either adopt, modify, or reject in whole or in part?
Mr. Hungar: --Well, I don't think it... I mean, I don't think it's... it's deceitful, the... the possibility that a court--
Justice Ginsburg: Misleading.
Because when I just read this rule cold, that's what I assumed, that we have the initial report and then it goes to the Tax Court judge, and that judge does something with it, and that something may be adopt, it may be modify, it may be reject in whole or in part.
Mr. Hungar: --Your Honor, when the Tax Court adopted its present procedures in 1984, it... it certainly did not do so in as artful a manner as it could have.
But the question is whether it violates the statute or due process for it to do what it has done.
Let me just... we've been spending most of our time talking about this issue of whether the Tax Court... the special trial judge is permitted to change his report under rule 183.
That's not even one of the questions in the questions presented.
The only rule 183 question in the questions presented is whether the rule requires clear error review.
We submit the answer to that is no because it would violate the Internal Revenue Code.
So this... this question about whether the report permits... whether the rule permits the report to be changed isn't even one of the questions presented.
The courts of appeals upheld the judgment on the premise that it was permissible for the Tax Court judge and the trial... the special trial judge to engage in the deliberative process and for the special trial judge to revise his findings as he did--
Justice Stevens: I don't think there's any... any question they can change the report, but the one... the one... I'd like to ask you a question as a matter of information.
The first sentence of 183(c) refers to the possibility that the judge to whom the case is assigned may direct the filing of additional briefs to receive further evidence and oral argument.
Does it ever happen that before the judge to whom it's assigned decides whether or not to go along with the recommended findings, that he will direct oral argument?
Does that ever happen?
Mr. Hungar: --I don't know the answer to that, Your Honor.
I'm not aware of that, but--
Justice Stevens: Because if he did, it would seem almost necessary for him to disclose to the parties what the report they're arguing about would say.
Mr. Hungar: --Again, I... this is a holdover from the prior version of the rule in which the exceptions process was followed, and again, it may be that had the Tax Court given it further consideration, they might have viewed that unnecessary.
But we're not aware of that happening.
Justice Stevens: But it certainly seems to contemplate deliberation by the judge to whom the case is assigned about whether or not to accept the report and deliberation which might be informed from input... input from the parties.
That's a fair reading of the rule, I think.
Mr. Hungar: If--
Justice Stevens: Maybe it's not practiced.
Mr. Hungar: --if the Tax Court judge so determines, yes.
The rule certainly allows that, but it doesn't obviously require that.
Justice Stevens: And if he did then ask for further briefings, do you think that there would then have been a requirement to disclose the report?
Mr. Hungar: Well, presumably it would be a waste of everyone's time unless he... I don't know that he would have to disclose the report, but he would need to direct their attention to the issue he would like them to brief.
Justice Stevens: It seems to me that the author of this subsection (c) must have contemplated the possibility of disclosure of the report.
Mr. Hungar: Well, again, Your Honor, this language was adopted at a time when they followed the exception--
Justice Stevens: When they followed a different procedure, and the question is to how much... how much did they intend the... to change that prior procedure.
Mr. Hungar: --Well, we know that the Tax Court has interpreted its rule to permit precisely the practice it followed here because it said so.
And it would be quite extraordinary, we submit, for this Court to reverse the Tax Court, which is surely entitled to considerable deference in interpreting its own rules, since, after all, the Tax Court has exclusive statutory authority to promulgate its own rules, and particularly with respect to this issue about whether the special trial judge can change his report, since that was not even one of the questions presented.
If I may turn to... back to the statutory question.
Section 7461 requires disclosure of reports of the Tax Court.
The special trial judge report is not the report of the Tax Court.
Indeed, even a Tax Court judge's opinion and report does not become the report of the Tax Court.
Justice Kennedy: Does the statute you just quoted prohibit the disclosure of other reports if we call this first draft something other than a report?
Mr. Hungar: The statute doesn't--
Justice Kennedy: In other words, would... would the rule go further than the statute?
Mr. Hungar: --The statute does not prohibit the disclosure of other reports, but the rule clearly does not require the disclosure of reports.
The Tax Court in 1984 amended the rule to make perfectly clear that... that initial reports of special trial judges are not to be disclosed.
The Tax Court said in its orders in this case the reason for that is that those are now internal deliberative processes.
The Tax Court has made clear that its rules permit exactly what it's doing here.
Justice Scalia: Mr. Hungar, you started to say that... that even the opinion of a... of a Tax Court judge is not a report of the Tax Court.
Mr. Hungar: Yes, Your Honor.
Justice Scalia: How does that work?
Mr. Hungar: Page 2a of the appendix to the gray brief, at the bottom of the page, section 7460(b) provides that the report of the division... and the Tax Court is now and has for many years been divided into one-judge divisions.
They used to sit en banc or--
Justice Scalia: I was... I was going to ask you what... what 7461 referred to when it says the Tax Court and its divisions.
Mr. Hungar: --Yes.
Justice Scalia: It also is referred to there.
Mr. Hungar: For a brief period of time, they sat in... in panels.
Justice Scalia: I see.
Mr. Hungar: But they... the... the press of work force them to... to divide into one-judge divisions.
Justice Scalia: So it's a single judge is a division of the Tax Court.
Mr. Hungar: Yes, that's correct.
Justice Scalia: And the publicity of proceedings does say... it does say that all reports of the Tax Court--
Mr. Hungar: Yes, Your Honor.
Justice Scalia: --And all evidence received by the Tax Court and its divisions, meaning its single judges.
Well, what happens with... with a single judge's opinion?
Mr. Hungar: He... he prepares it and submits it to the chief judge under rule... under statute... under the statute 7460(b) where it says the report of the division shall become the report of the Tax Court within 30 days after such report by the division, unless the chief judge directs it to be reviewed by the full court.
So... so even a Tax Court judge's opinion is not the report of the Tax Court.
Surely the report of the special trial judge is not either.
Justice Ginsburg: It's like an en banc.
I... I have written decisions for a panel in my years on the court of appeals, and there's been an en banc and my opinion gets vacated.
It's no longer counts for anything.
And isn't that exactly what the Tax Court is?
They have the--
Mr. Hungar: No, Your Honor.
The... the opinion is not made public.
In fact, the statute precludes it from being made... made a part of the record.
The last sentence of that same section 7460(b) at the top of page 3a, it says the report of a division shall not be a part of the record in any case in which the chief judge directs that such report shall be reviewed by the Tax Court.
And that's a very important point.
Congress has mandated by statute essentially the same procedure that the Tax Court follows here.
Justice Ginsburg: --Oh, no.
No, no, no.
How often, when there is a decision reviewed by the court, so that the initial judge's decision is changed, does that judge dissent, so all the world knows what that judge's initial position was?
Mr. Hungar: The... the Tax Court judge certainly has the authority to dissent, just as a special trial judge has the authority and, indeed, the obligation under the code of conduct to refuse to put his name on a... on a report if he doesn't agree with it.
If he doesn't agree with the Tax Court judge's view, he has the obligation, the ethical obligation... and we presume he follows it... to say I don't agree.
This is my report.
Justice Ginsburg: Then he... then he can publish his... he can publish his dissent, just as a Tax Court judge can?
Mr. Hungar: --No, but he can preclude the Tax Court judge from doing what the Tax Court judge did in this case, which is simply adopting his report.
If the... if the special trial judge refuses to change his report--
Justice Ginsburg: But then we still won't know what his report is.
Yes, he can say, I won't sign this.
Tax Court says, fine.
This rule says I can reject your findings in whole or in part.
I don't need your name on this decision of the Tax Court.
Mr. Hungar: --Justice Ginsburg, if... if that were the case here, obviously our arguments would be more difficult.
But that is not what happened here.
Justice Ginsburg: I'm asking you just as the... the judge who disagrees with the... the full court can publish his dissent, can the special trial judge who disagrees with the Tax Court judge publish his dissent?
Mr. Hungar: --In the... the one case involving a change in the opinion, where the Tax Court judge said, I don't adopt a portion of the opinion of the special trial judge, there was no published opinion of the special trial judge.
So I don't believe there's a procedure for the dissent.
But the point is the court of appeals--
Justice Ginsburg: Has there ever been?
Has there ever been?
Mr. Hungar: --A published dissent by a special trial judge?
Not that I'm aware of.
But the point is the court of--
Justice Ginsburg: And how... how often does the... is there a dissent when there's... when there's a full court review decision?
Mr. Hungar: --Well, there's often a dissent.
It's... it's hard to know from the standpoint of a researcher when... when it is that the judge who heard the evidence and tried the case is the one who's dissenting, unless they happen to say it in their opinion, because again, there's no original opinion issued by the Tax Court judge who first heard the case.
That's kept confidential by statute, which again is an important point.
Congress has mandated confidentiality of the initial reports prepared even by Tax Court judges, and it has given the Tax Court plenary authority to promulgate rules governing special trial judges.
It is hardly surprising, let alone impermissible under the statute or Due Process Clause, for the Tax Court to follow a similar process for special trial judges.
Justice Souter: Except that the... the relationship between the... the one judge and the full Tax Court is a relationship basically of people who are in the same boat with respect to what they know about or can know about law and what they can know about the evidence and the facts of the case; whereas the relationship between the special trial judge and the judge to whom it is assigned is... is quite different because only one of them has heard evidence and only one of them is the source of conclusion about fact.
Mr. Hungar: No, Your Honor.
The... the full Tax Court--
Justice Souter: It certainly is not identical in... in the sense that the... the Tax Court judge then goes and listens to evidence.
That's the whole point.
Mr. Hungar: --Well, neither does the full Tax Court when it--
Justice Souter: Neither does the full Tax Court, but if the full Tax Court is disagreeing with one judge, the one judge and the full Tax Court are in the same boat.
They have access to the same material.
Their limits are exactly the same in each case.
That is not true in the relationship between the single Tax Court judge and the special Tax Court judge.
The special Tax Court judge is the only one who has heard evidence and can find facts based upon the evidence that he heard.
Mr. Hungar: --No, Your Honor.
The... the tax... the full Tax Court doesn't go back and... and hold a new trial, just like the individual Tax Court judges--
Justice Souter: I... I am quite aware of that.
That's not... that's not the point.
I'm... I'm saying that you cannot draw an analogy between one judge and full Tax Court and use that as an analogy to legitimize the relationship between one judge and a trial master.
They are in different positions.
They are not in parallel positions.
Mr. Hungar: --Well, then if... if I understand the point you're making, it's a point of the... the... it's the hierarchy issue, if that's... if that's the point you're making.
Justice Souter: It's the knowledge issue.
The special Tax Court judge heard somebody.
Mr. Hungar: So did the Tax Court judge--
Justice Souter: Nobody on the Tax Court did.
Mr. Hungar: --No, Your Honor.
Justice Souter: In other words, they're... they're sitting hearing witnesses?
They are... they are redoing the trial?
Mr. Hungar: Your Honor, in a review... if a Tax Court judge... most Tax Court cases are tried by Tax Court judges.
Tax Court judges are trial judges, and if a Tax Court judge tries a case--
Justice Souter: But we are talking about situations in which the trial judge is the special judge.
Mr. Hungar: --Well, I'm talking about the full Tax Court, Your Honor.
If the full Tax Court reviews an individual Tax Court judge's decision, the Tax Court judge has presided over the trial, heard the evidence, just like the special trial judge here, and then the full Tax Court judge reviews it.
That's exactly what happened in the Estate of Varian case, which is in our briefs, out of the Ninth Circuit.
The parties complained that they wanted access to the original judge's report because he had been reversed... been reversed by the full court after trial on an... on an evidentiary issue, and the Ninth Circuit said no.
Justice Stevens: Mr. Hungar, I think we understand your answer.
Mr. Hungar: Thank you.
Justice Stevens: Mr. Shapiro, you have about 4 minutes left.
Rebuttal of Stephen M. Shapiro
Mr. Shapiro: The question came up whether rule 183 forbids disclosure of this report.
The answer is it does not forbid disclosure of the report.
It is silent on the point.
But the press release the Tax Court issued in 1983, coming from the chief judge of the court, said that this simply meant that it would not automatically be disclosed.
Justice Scalia: Why does 7461 require its... its disclosure?
Because it does say that the... it's only the decision of the Tax Court.
Mr. Shapiro: Well--
Justice Scalia: That reports of the Tax Court that have to be disclosed.
Mr. Shapiro: --Our view is that of... of the Tax Court means any report emanating from the Tax Court.
That's the literal meaning of that language.
It doesn't mean final.
Justice Scalia: Well, that... that would mean that... that you would have to make public the... the reports of a regular Tax Court judge in cases that then go on to the full court.
And that's not done, is it?
Mr. Shapiro: There's an exception for the en banc situation because legal issues are addressed en banc, not the factual issues.
And there's an opportunity to dissent.
Justice Scalia: Well, but it doesn't matter.
It would still be a report of the Tax Court if you don't take that language literally.
If you say any report coming out of the institution is a report of the Tax Court, you would have to make public the reports of the individual Tax Court judges, which is not done.
Mr. Shapiro: Oh, we say there's a special statute dealing with the en banc situation that... that governs in that situation.
And that the publicity--
Justice Scalia: Why is that?
What... what statute is that?
Mr. Shapiro: --That... that's the en banc provision that counsel referred to that said that when the case is heard en banc, the trial... the... the single judge's report is not made part of the record.
Congress' assumption there was that there would be a new... new report issued.
People would be able to dissent if they disagreed.
And this process focuses on legal issues.
There is no presumption of correctness.
Justice Kennedy: That's not a... that's not a de novo... they can rehear matters de novo on the en banc Tax Court, can they not?
That's a de novo hearing.
Mr. Shapiro: Yes, but it addresses legal issues.
It's not a device to second guess factual determinations, and there's a special statute that deals with that, which does not apply to this STJ situation, where there's a presumption of correctness applicable to what the trial judge does.
And there is the general disclosure statute that applies there.
Justice Breyer: I don't know if I'm getting... so that's his basic point.
The rule doesn't require the disclosure because they've interpreted it differently within their... within their discretion.
The statute doesn't require it and the Constitution doesn't require it.
If we have to go to the Constitution, I don't see exactly the implications.
So I'm nervous.
And now, the reports... he says, go read 7460(b).
That's what they're talking about.
And then... and again, I don't know what I'm getting into once I read it more broadly than that.
And what about all evidence received by the Tax Court, including a transcript.
Of course, this isn't evidence but neither is a transcript.
And... and so maybe that word evidence can be read more broadly, given the fact that it's to include a transcript of the stenographic report.
Mr. Shapiro: I think you're right, and--
Justice Breyer: You think I'm right just suddenly for the for the first time?
You have thought of this?
Mr. Shapiro: --Well, I... I think that the intent of this provision... and I know Your Honor consults the legislative history.
The intent was to make all of the steps in the adjudicative process transparent, including the evidence, including the... the stenographer's report, and all reports from the Tax Court.
Justice Scalia: There's... there's a very careful use of language.
It says all reports of the Tax Court and all evidence received by the Tax Court and its divisions.
So it's only the evidence that... that's received by the individual judges has to be made public, not the reports.
Mr. Shapiro: Well, we believe that the word all is a broad, generic inclusive term that should be applied, as Judge Cudahy stated, to an STJ report that actually has to be submitted to the chief judge and that has legal effect.
It's not just a casual document like a law clerk memorandum.
It has legally operative effect.
Congress' purpose here was very broad, to have transparency, applicable to all the steps along the way in the Tax Court.
It was quite clear on that, that there are arbitrary actions at each step of the way.
If you look at the Senate report and Congressman LaGuardia's statements, they said secrecy is a vicious practice in this context, and it... it should be avoided.
Justice Ginsburg: But we... we don't have to get into any of that if we accept your argument about 7482(a)(1), that is, the record will be in the same manner and to the same extent as decisions of the district court.
Mr. Shapiro: Absolutely, Your Honor.
There... there are three separate bases for ruling in our favor.
One is the appellate review statute.
The other is the disclosure statute.
The third is due process.
And due process should inform the construction of these statutes.
This Court tries to avoid serious due process issues through its interpretation of legislation.
Judge Cudahy suggested that was the right way to decide this case and we agree that it is.
We thank the Court.
Justice Stevens: Thank you, Mr. Shapiro.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.
Argument of Speaker
Mr. Speaker: Justice Ginsburg has the opinion of the Court to announce in Ballard versus Internal Revenue Service, 03-184 and Kanter versus Internal Revenue Service, 03-1034.
Argument of Justice Ginsburg
Mr. Ginsburg: The Tax Court's employment of special trial judges auxiliary officers appointed of the Chief Judge to assist in the work of the court.
Any case before the Tax Court maybe assigned a special trial judge for hearing.
Ultimate decision in large cases however is reserved of the Tax Court.
Tax Court Rule 183 governs the two-tiered proceedings in which special trial judge hears the case.
But the Tax Court itself renders the final decision.
The rule directs that after trial and submission of briefs the special trial judge shall submit a report including findings of fact and opinion to the Chief Judge and the Chief Judge will assign the case to a judge of the court.
In acting on the report the Tax Court judge, to whom the case is assigned, must give in the words of the rule do regard to the circumstance that the special trial judge has the opportunity to evaluate the credibility of the witnesses.
For other the Rule instructs that fact findings contained in the report shall be presumed to be correct.
The final Tax Court decision again coding from the Rule may adapt the special trial judge's report or may modify it or may reject it in whole or in part.
Until 1983 special trial judge report as submitted to the Chief Judge were made public and were included in the record on appeal.
A rule revision that year dispense with the requirement that the parties received copies of the special trial judge report.
And because the report was to be withheld from the parties the new rule dropped the provision giving parties an opportunity to set forth exceptions to the report.
Once the rule changes were in place, the Tax Court significantly altered its practice in cases referred for trial but not final decision to special trial judges.
In accord with the revised rule the Tax Court now denies public access to the special trial judge report and excludes the report from the record on appeal.
Further, since 1984, Tax Court judges have refrained from disclosing in any case whether the Tax Court's final decision in fact modifies or rejects the special trial judge's initial report all together or in part.
Instead the final decision including the decision at issue in this case invariably begins with this stock statement.
The Tax Court judge agrees with and adapts the opinion of the special trial judge.
Whether and how the published opinion of the Tax Court in fact alter the special trial judge's original report is never disclosed.
Petitioners are taxpayers who unsuccessfully opposed asserted tax deficiencies and fraud penalties in the Tax Court and on appeal.
They object to the concealment of the special trial judge's initial report and in particular exclusion of the report from the record on appeal.
Without access to the special trial judge report, petitioners assert the Court of Appeals cannot tell whether the Tax Court judge as accorded the report the deference required by Rule 183.
We agree with the petitioners that no statute authorizes in the current text of Rule 183 does not warrant the concealment at issue.
It appears that since that the 1983 rule revision the Tax Court has instituted a practice in which it treats the special trial judge's report as it draft to be worked over collaboratively by the regular judge and the special trial judge.
Rule 183 however, does not contemplate a collaborative revision process rather it provides that the report submitted post trial by this special trial judge is the report.
The one and only report the Tax Court judge must review and formally adapt, modify or reject.
The Tax Court practice we think it claimed impedes fully informed appellate review of the Tax Court's decision.
Fraud cases, in particular, may involved critical credibility assessments rendering the appraisals of the judge who presided it trial vital to the Tax Court's ultimate determination.
But without access to the special trial judge's report the Appellate Court will be at a loss to determine whether the special trial judge's credibility and other findings were given due regard and presumed correct or whether they were discarded without regard to those standards.
Indeed, in this very case, two Tax Court judges allegedly informed counsel for one of the taxpayers that the special trial judge, in the post trial report he filed by the Chief Judge, found the deficiency overstated and the fraud penalty inapplicable.
We are all the more resistant to the Tax Court's concealment of the special trial judge report.
In light of the prevailing practice regarding a tribunals used of hearing offices it is routine in federal judicial and administrative decision making both to disclose the initial report of a hearing officer and to make that report part of the appellate record.
A departure of the bold character practiced by the Tax Court, the creation and attribution solely to the special trial judge of the superseding report composed in unrevealed collaboration with regular Tax Court judge demands at the very least full and fair statements in the Tax Court's own rules.
Where the Tax Court to amend its rules expressly to insulate special trial judge report from disclosure that change would be subject to appellate review for consistency with the relevant federal statutes and due process issues we do not reach today.
Justice Kennedy has filed a concurring opinion in which Justice Scalia joins; the Chief Justice has filed the dissenting opinion in which Justice Thomas joins.