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Washington-If he were alive today, the late, well-known tax lawyer Burton W. Kanter might see a certain irony in the fact that his own tax fraud case is the vehicle this week for the Supreme Court’s examination of an unusual secret procedure in the U.S. Tax Court. Kanter, one of the country’s top estate tax lawyers, died of cancer in 2001, two years after the Tax Court held him and two other men liable for $30 million in tax deficiencies and civil fraud penalties for a kickback insurance scheme. Since the 1999 Tax Court ruling, Kanter’s lawyers and subsequently his estate’s lawyers, as well as lawyers for Kanter’s alleged partner in the scheme, businessman Claude Ballard, have battled in the courts for disclosure of a Tax Court report that they believe may exonerate the men of civil fraud. The high court this week will hear arguments on the men’s claims that due process and federal statutes require disclosure of the report made by a special trial judge assigned to make findings of fact and credibility judgments in their case. Ballard v. Comm’r of Internal Revenue, No. 03-184; Estate of Kanter v. Comm’r of Internal Revenue, No. 03-1034. The special trial judge reports were available to the parties, who could file exceptions, and were part of the case record for decades until 1983, when the Tax Court changed its rule. That rule change, said one federal appellate judge to consider the issue, represented the “abandonment of a transparent process-an evolution completely counter to the trend” of openness in other courts and areas of the law. But the government argues in the high court that disclosure of the reports would amount to “interference with the [Tax] Court’s deliberative process.” The two cases have potential significance not only for the operation of the Tax Court, but for other judicial bodies and quasi-judicial administrative processes, said tax scholar Leandra Lederman of George Mason University School of Law, who filed an amicus brief supporting disclosure. “This case is a little bit of a sleeper,” she said. “Whether it turns on due process or statutory considerations, the decision would be important. Whether facts have to be disclosed to the parties and the reviewing court is so fundamental about litigation.” The chief judge of the Tax Court may appoint special trial judges, who serve at the pleasure of the court. These judges are authorized to issue the final decision in certain classes of trials, usually those involving small amounts of money. But in cases where the claimed tax deficiency is more than $50,000, the Internal Revenue Code authorizes them to conduct proceedings, including a trial, but not to enter the decision. Under the court’s Rule 183, the special trial judge in those high-dollar cases must submit a report, including findings of fact and opinion, to the chief judge, who then assigns the case to one of the Tax Court’s 19 regular judges. The Tax Court judge can accept, reject, modify or recommit the report, and that judge issues the final decision. The rule also requires that “due regard” be given “to the circumstance that the Special Trial Judge had the opportunity to evaluate the credibility of witnesses, and the findings of fact recommended by the Special Trial judge shall be presumed to be correct.” The trial in the Kanter case took five weeks and generated 5,000 pages of trial transcripts and more than 4,600 pages of briefs. The special trial judge submitted his report four years after the trial. The case was assigned to a regular Tax Court judge, who issued his decision imposing fraud liability nearly a year and a half later. What triggered the battle for the special trial judge’s report was that a regular Tax Court judge and the chief special trial judge at the time informed Kanter’s trial counsel after the final decision that the reviewing Tax Court judge had reversed the special trial judge’s findings on fraud. The Tax Court and three federal appellate courts have rebuffed their attempts to get the report. In the high court, Kanter’s counsel, Richard Pildes of Harvard Law School, argues that denying access to the findings of fact, which by the Tax Court’s own rule carry legal weight in the final decision, violates due process. The practice, he adds, also violates the federal appellate review statute because it prevents appellate courts from determining whether the Tax Court gave proper deference to the trial judge’s findings and treated them as presumptively correct. “We’ve been unable to find any context in which original independent findings of the trial judge or hearing officer or administrative law judge or any other adjunct fact-finder are not part of the record,” said Pildes, who, along with Ballard’s counsel, Vester T. Hughes Jr. of Dallas’ Hughes & Luce, has asked Stephen M. Shapiro of Chicago’s Mayer, Brown, Rowe & Maw to argue the case. “The Tax Court itself routinely disclosed these findings for 40 years,” he added. But the government relies heavily on the argument that the sought-after report is part of the Tax Court’s deliberative process. It contends that the two men are seeking an “initial” or “original” report by the special trial judge that is “not his ultimate decision, but a step in his confidential decisional process.” There is a final report published in the record that reflects collaboration between the special trial judge and the reviewing Tax Court judge, according to the government. It also argues that Rule 183′s language, which mandates “due regard” to the special trial judge’s opportunity to hear witnesses and establishes that findings of fact are “presumed to be correct,” guides Tax Court judges, but doesn’t create a right to appellate review. Consultation seen as prohibited But Pildes and Lederman contend that there is nothing in the Tax Court rule to support the government’s position. “The rule says the special trial judge shall submit a report, a report, not multiple iterations,” said Lederman, “and nowhere does it say the reviewing judge may consult with the special trial judge.” Tax scholar David Shores of Wake Forest University School of Law, who is not involved in the case, said he finds the government’s arguments weak. “There is something to be said about making that information available to the losing party so on appeal, arguments could be made based on the judgment and findings of fact of the person who actually heard the evidence,” he said. “I think the Tax Court has just missed the boat on this.” A decision is expected by July.

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