Cole Barnett & Chris Weeg, Intervention in the Tax Court and the Appellate Review of Tax Court Procedural Decisions

67 Fla. L. Rev. 1483 |

The Tax Court is an Article I court. It resolves more than 95% of all tax-related litigation—actually nearly 97% of the total federal tax docket in 2012. Despite this substantial role in federal litigation, scholars and courts have generally put aside the issue of what standard is appropriate when a U.S. federal court of appeals reviews Tax Court procedural questions. Section 7482 of the Internal Revenue Code (I.R.C.) grants jurisdiction to the courts of appeals to review Tax Court decisions “in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury.”Unlike district courts, which must follow the Federal Rules of Civil Procedure (FRCP), the Tax Court operates under its own separate set of procedural rules—the Tax Court Rules of Practice and Procedure (Tax Court Rules). Congress explicitly authorized the Tax Court to choose its own procedural rules under I.R.C. § 7453.

Where there is no applicable Tax Court procedural rule, Tax Court Rule 1(b) provides that the Tax Court “may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”Currently, no judicial decision analyzes the appropriate standard for appellate review of a Tax Court’s decision to apply (or not apply) a federal procedural rule where the Tax Court lacks its own applicable procedure.

The appropriate standard of appellate review for Tax Court procedural decisions garnered attention when the U.S. Virgin Islands (USVI) recently sought to intervene in several Tax Court proceedings under FRCP 24(a)(2).  The Tax Court Rules lack an intervention procedure and the Tax Court, acting pursuant to its discretion under Rule 1(b), has never granted a third party non-taxpayer’s motion to intervene under FRCP 24(a)(2).Given the outcome-determinative potential of the standard of review,these recent USVI cases—discussed individually below— provide an important opportunity to determine whether the abuse of discretion or de novo standard should govern appellate review of Tax Court procedural decisions.

In 2014, the U.S. Court of Appeals for the Eleventh Circuit became the third federal appellate court to overturn a Tax Court decision denying a motion by the USVI to intervene in a dispute between the Internal Revenue Service (IRS) and a taxpayer. In Huff v. Commissioner,10 the Eleventh Circuit joined the U.S. Courts of Appeals for the Third and Eighth Circuits in allowing the USVI to intervene in a Tax Court proceeding.  However, not all federal appellate courts have ruled this way. The U.S. Court of Appeals for the Fourth Circuit created a circuit split when it affirmed the Tax Court in denying intervention to the USVI.

The Huff decision deepened the current circuit split and complicatedthe matter further. The Eleventh Circuit in Huff—unlike the other three circuits that have addressed this issue—allowed intervention as a matter of right under FRCP 24(a)(2).  This approach is novel, as the Tax Court has never allowed a third party non-taxpayer to intervene under this provision—although it has the discretion to do so under Tax Court Rule 1(b).

The Huff decision presents two issues worthy of discussion in this Comment. The first is whether de novo review is appropriate when a court of appeals reviews Tax Court procedural decisions. Generally, under I.R.C. § 7482, the appeals courts review Tax Court decisions “in the same manner and to the same extent” as district court decisions.  Yet, given the Tax Court’s general power to prescribe its own procedural rules under I.R.C. § 7453,16 the Huff court erred in applying the de novo standard of review to the Tax Court’s decision to not apply FRCP 24(a)(2).

The second issue the Huff opinion presents—regarding the substance of the case—is whether the USVI has a right to intervene under FRCP 24(a)(2). This issue turns on whether a Tax Court proceeding is the proper forum in which to confront the weighty concerns of fair implementation and coordination of two separate but interrelated taxing agencies—the IRS and the USVI’s Bureau of Internal Revenue (BIR). Part I of this Comment briefly summarizes the pertinent facts of Huff. Part II surveys the current circuit split on intervention in Tax Court proceedings. Part III analyzes the proper standard for review of the USVI’s motion to intervene under FRCP 24(a)(2), as well as the proper standard regarding all appellate review of Tax Court procedural decisions—a discussion that is largely absent from both scholarly works and court opinions. This Comment concludes in Part III with a critique of the Huff court’s FRCP 24(a)(2) analysis.

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