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It’s a well-established concept in most American courts that parties involved in litigation are allowed to see the ruling of the judge who listened to testimony and weighed the credibility of witnesses in their case. But there’s one federal court where litigants allege that’s not always the case — U.S. Tax Court. That’s the primary issue in Lisle v. Commissioner of Internal Revenue, a closely watched case that will be argued before the 5th U.S. Circuit Court of Appeals on Oct 1. The case highlights a wrinkle that several tax litigators say is found nowhere else in federal jurisprudence. According to U.S. Tax Court Rule 183, the Tax Court is not required to release the reports of “special trial judges” who occasionally are called on by the chief judge of the U.S. Tax Court to hear controversial tax cases. Special trial judges serve at the will of the U.S. Tax Court’s chief judge. Like the 19 U.S. Tax Court judges appointed by the president, special trial judges have nationwide jurisdiction. To help U.S. Tax Court judges manage their busy dockets, special trial judges can issue decisions and dispose of cases usually involving $50,000 or less of tax liability in accordance with the Internal Revenue Code. But when special trial judges are assigned larger cases, the opinions must come from U.S. Tax Court judges, who then issue the actual opinions pursuant to U.S. Tax Court Rule 183, several tax court litigators say. That means that even though the U.S. Tax Court judge may not have heard any live evidence in a case, that judge still makes the final call, say several tax court litigators. That is what happened to the late Robert W. Lisle, a former Houston resident. In December 1999, a U.S. Tax Court judge found that Lisle committed fraud, even though a special trial judge heard all of the live testimony in his case, his lawyers say. Lisle’s lawyers allege that the special trial judge’s report has never been released. However, Rule 183 does not require release of the special trial judge’s report: That, Lisle’s lawyers argue, is a violation of their client’s due process rights. “It raises a sort of fundamental issue of whether the tax court rules relating to cases that are referred to special trial judges are in accordance with the legal practice in the American tradition,” says Vester Hughes, a partner in Dallas’ Hughes & Luce who represents Lisle’s estate before the 5th Circuit in Lisle v. Commissioner of Internal Revenue. The findings of Special Trial Court Judge D. Irvin Couvillion, who heard Lisle’s 28-day trial in 1994, have never been released to the parties, according to briefs filed by Hughes. According to briefs filed by lawyers from the Tax Division of the U.S. Department of Justice, the practice of keeping special trial judges “reports” private is permissible under Tax Court Rule 183. They argue that special trial judge reports should remain secret because they are part of the “deliberative process” between special trial judges and tax court judges and are “part and parcel” of the U.S. Tax Court’s original fact-finding process. Neither Joan Oppenheimer nor Kenneth Greene, the DOJ lawyers handling the case, returned a phone call. DOJ spokeswoman Dana Perino says the department does not comment on pending cases. Adding further intrigue to the case is the fact that the 5th Circuit will not be alone in deciding the issues in Lisle. Lisle, a former real estate executive, was found to have committed fraud as part of a kickback scheme with the late Burton Kanter and Claude Ballard in the U.S. Tax Court’s 1999 opinion. The Internal Revenue Service accused Lisle, Kanter and Ballard of failing to report more than $10 million in income they earned assisting individuals and entities in obtaining business opportunities. The alleged conspirators, along with Lisle, have filed similar appeals denying any fraud and complaining about the process in which their cases were heard in U.S. Tax Court. Hughes also represents Ballard in his appeal. The 7th U.S. Circuit Court of Appeals heard an appeal from Kanter’s estate on Sept. 4 in Kanter v. Commissioner of Internal Revenue, and the 11th U.S. Circuit Court of Appeals heard Ballard’s appeal on Aug. 29 in Ballard v. Commissioner of Internal Revenue. According to federal appellate rules, U.S. Tax Court appeals are heard by the circuit court in which the taxpayer lives and filed the tax return in question. If the three circuit courts do not agree in their decisions, it’s likely that the issue will be presented to the U.S. Supreme Court, says Gerald Kafka, a tax attorney with Washington, D.C.’s McKee Nelson who has been watching all three appeals. “Potentially, it affects every case in the tax court, and [that court] now has a docket of about 20,000 cases,” Kafka says. DIFFERENCE OF OPINION? The most serious allegation lodged by Lisle’s lawyers is that the special trial judge’s report analyzing the fraud allegations differed from the U.S. Tax Court’s final decision. In their brief to the 5th Circuit, Lisle’s lawyers reference an affidavit by Randall Dick, the trial lawyer who represented alleged conspirator Kanter. Dick alleged that the initial report by Special Trial Judge Couvillion, who heard the case, found that Lisle and his alleged conspirators had not engaged in fraud. Only later, when a ruling by Senior U.S. Tax Court Judge Howard Dawson was issued in 1999, did the court rule that Lisle, Kanter and Ballard had committed fraud. Couvillion also signed that opinion. Dick, of San Francisco’s Jeffer, Mangels, Butler & Marmaro, believes the reason the U.S. Tax Court didn’t follow the special judge’s report was because of the reputation of his late client — an assertion Lisle’s lawyers make in their 5th Circuit brief. Kanter was a well-known Chicago trusts and estates lawyer and a former University of Chicago Law School professor who earned a maverick reputation in the 1970s for advising clients on how to shelter their assets in offshore accounts to protect them from U.S. taxation, according to two tax litigators. “After learning of Kanter’s involvement in the case, the chief judge and/or Judge Dawson refused to accept the findings and conclusions contained in Special Trial Judge Couvillion’s report,” according to the brief filed by Lisle’s attorneys. “Judge Dawson rewrote the opinion, changing the factual conclusion from one in which fraud was not present to one in which it was, consuming 606 pages in the process,” the brief states. “The re-written opinion was then ‘adopted’ as ‘an opinion’ of the tax court. Special Trial Judge Couvillion, who is an at-will employee of the tax court, signed off on the revised opinion.” Dick bases his assertions about Couvillion’s initial report “on statements made out of court to Mr. Dick by two judges of the Tax Court who were sufficiently unhappy with the procedure and/or the result that they felt willing to air these facts to Mr. Dick,” according to Lisle’s brief. Dick says what he heard from those two judges, whom he declines to name, is not material to the appeal. Dick says the only reason the parties know there is dissent about the opinion in the tax court is based on what he heard from two tax court judges — information he believes is irrelevant because the system is fundamentally wrong. Couvillion declines to comment on the case. There was no answer at an office phone listing for Dawson. And U.S. Tax Court Chief Judge Thomas B. Wells did not return a call for comment. Briefs filed by DOJ lawyers do not address Dick’s allegations. But government lawyers argue that the procedures of the U.S. Tax Court are legally sound under Tax Court rules and under the due process clause of the U.S. Constitution. “Procedures of the type employed by the Tax Court involving the use of special trial judges to hear and report on cases to judges of the Tax Court who retain authority and responsibility for the case plainly pass muster under the due process clause,” the DOJ brief states. The government’s brief draws the conclusion that there was no disagreement between the tax court judges and the special trial court judge who heard the case. “Furthermore, in the instant case, both the opinion of the Tax Court, and an order signed by the special trial judge, the regular judge, and the chief judge, state that the opinion agreed to and adopted by the Tax Court was the report of the special trial judge,” the government’s brief states. While Lisle and its companion appeals have caught the attention of tax litigators across the nation, there is dissent among tax lawyers over the propriety of U.S. Tax Court Rule 183, which keeps special trial judge reports private. Some lawyers believe the release of special trial judge reports is not material because special trial judges do not have the authority to issue final rulings in specially assigned cases. “It’s kind of irrelevant,” says Allen Madison, a tax litigator with Palo Alto, Calif.’s Fenwick & West who has been watching Lisle. “The tax court judge is the only one that’s authorized to issue the opinion.” But Richard Pildes, a New York University School of Law professor who represented Kanter’s estate before the 7th Circuit, says special trial judge reports should be made part of the record in U.S. Tax Court decisions. “You would think that … for the purposes of the taxpayer’s rights and for the purposes of appellate court review … documents prepared by the fact-finder would be part of the public record,” says Pildes, who teaches constitutional law. “The government’s position is this [special trial judge report] is like a law clerk bench memo.” Pildes says special trial judge reports were released to the parties up until 1984 when the U.S. Tax Court changed U.S. Tax Court Rule 183 to make them private. “There’s nothing in the public record about the reasons for it,” Pildes says. Chuck Meadows, a tax litigator and partner in Dallas’ Meadows, Owens, Collier, Reed, Cousins & Blau, says the issues pending in Lisle are important. “If the tax court is going to function with special trial judges who determine the credibility of witnesses and make factual findings, the lawyers need to know what those facts are,” Meadows says.” Meadows says the U.S. Tax Court rules are ripe for change. “I believe the system is wrong,” Meadows says.

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