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U.S. Supreme Court Rules Tax Court May Not Exclude Special Trial Judge's Report From Appeal

March 16, 2005

WASHINGTON (March 16, 2005) – The U.S. Supreme Court has handed down a key decision regarding the secrecy of special reports often used by Tax Court judges to decide cases.  In a 7-2 vote, the high court ruled the Tax Court must make such reports public.  Sutherland Asbill & Brennan LLP served as one of the legal team leaders representing one of the successful appealing parties in the case, the Estate of Burton W. Kanter.

In an opinion written by Justice Ginsburg, the Supreme Court held that the Tax Court may not exclude from the record on appeal reports submitted by special trial judges.  The case is Ballard et ux. v. Commissioner of Internal Revenue, Slip. Op., No. 03-184 (Argued Dec. 7, 2004 – Decided March 7, 2005). 

"The Tax Court's practice of not disclosing the special trial judge's original report, and of obscuring the Tax Court judge's mode of reviewing that report, impedes fully informed appellate review of the Tax Court's decisions," Justice Ginsburg concluded.

The Ballard case concerned three taxpayers who faced a five-week trial in Tax Court in 1994.  The government alleged the taxpayers had improperly assigned income to entities they controlled, and charged them with tax fraud.  The trial was held before a special trial judge who issued a report—four years after the trial—that was submitted to the Chief Judge of the Tax Court for review.  A regular Tax Court judge then was assigned to review the report, and 15 months later, the Tax Court issued an opinion purporting to "adopt" the opinion of the special trial judge.

One of the taxpayers' attorneys learned, through conversations with Tax Court judges, that the special trial judge's report was not in fact adopted, but was instead reversed by the reviewing Tax Court judge.  The taxpayers sought to obtain the original report, but the Tax Court refused on the grounds that the court's rules did not provide for such disclosure.  Until 1983, such special trial judge reports were made public and included in the record on appeal.  The rules were revised that year, and the court began withholding such reports from the public and excluding them from the record on appeal.

Each of the taxpayers appealed to the U.S. Court of Appeals in the circuit in which he resided (the Fifth, Seventh and Eleventh Circuits), and in each case, the circuit court upheld the decision of the Tax Court declining to disclose the special trial judge's report.  Sutherland represented the Estate of Burton W. Kanter on appeal before the Seventh Circuit, where one of the three judges on the panel hearing the case sided with the taxpayer.

The taxpayers petitioned for certiorari, and the Supreme Court agreed to hear the case.  On appeal, the high court concluded that no statute authorizes, and the court's rules do not support, concealment of the special trial judge reports.

Representing the Estate of Burton W. Kanter were Sutherland's N. Jerold Cohen, Teresa Wynn Roseborough, Matthew J. Gries and Leighton Moore.

Sutherland Asbill & Brennan LLP is a national law firm known for solving challenging business problems and resolving unique legal issues for many of the nation's largest companies.  Founded in 1924, the firm has grown to more than 400 lawyers with offices in Atlanta, Austin, Houston, New York, Tallahassee and Washington.  For further information about the firm, please visit sutherland.com.

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