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ORAL ARGUMENT NOT YET SCHEDULED

No. 13-1090 ______________________________________

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

______________________________________

PETER KURETSKI AND KATHLEEN KURETSKI,

Petitioners-Appellants, v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee. _________________________________

On Appeal from an Order and Decision

of the United States Tax Court _________________________________

BRIEF FOR APPELLANTS

_________________________________

AGOSTINO & ASSOCIATES, P.C. Prof. Carlton M. Smith Frank Agostino Director, Benjamin N. Cardozo John P. L. Miscione School of Law Tax Clinic 14 Washington Place 55 Fifth Avenue Hackensack, New Jersey 07601 New York, New York 10003 (201) 488-5400 (212) 790-0381 Counsel for Appellants Counsel for Appellants Prof. Tuan N. Samahon Villanova University School of Law 299 North Spring Mill Road Villanova, Pennsylvania 19085 (610) 519-7088 Counsel for Appellants

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CERTIFICATE OF PARTIES, RULINGS, AND RELATED CASES

Pursuant to D.C. Cir. Rule 28(a)(1), counsel for Appellants certify as follows:

A. Parties, Intervenors, and Amici Curiae

The parties appearing in the Tax Court and in this case are as follows:

Peter Kuretski and Kathleen Kuretski

Commissioner of Internal Revenue

No intervenors or amici curiae appeared before or are expected.

B. Rulings Under Review

The rulings under review are as follows:

On September 11, 2012, the Tax Court issued an opinion at T.C.

Memo. 2012-262 (A155 - A171),1 in which it gave reasons for upholding the

levy action in this case, refusing to abate an addition to tax under §

6651(a)(2),2 and abating the addition to tax under § 6654(a). Pursuant to the

opinion, on September 12, 2012, the Tax Court entered a decision (A172)

allowing the IRS to proceed with the levy, upholding the addition to tax

under § 6651(a)(2), and enjoining the IRS from proceeding with collecting

the addition to tax under § 6654(a). 1 “A__” references are to pages in the separately-bound Joint Appendix. “Doc.” references are to documents in the record – as numbered by the Tax Court Clerk in the Docket Entries appearing in the Joint Appendix – that are not included in the Joint Appendix. 2 Unless otherwise indicated, all section references are to the Internal Revenue Code, Title 26.


On March 4, 2013, the Tax Court issued an order (A173-A176)

denying the Kuretskis’ motions to vacate the decision (based on the

unconstitutional interbranch separation-of-powers violation stemming from

§ 7443(f)) and for reconsideration (based upon the existence of a valid

installment agreement being reached between them and the IRS during a

Collection Due Process hearing), giving reasons therefor in that order.

C. Related Cases

This case was not previously before this Court or any other appellate

court, and there are no related cases or pending cases in this Court or any

other such courts, or the Tax Court, presenting issues similar to those

presented here. Initially, the Kuretskis expected the government to move to

transfer their appeal to the Circuit in which they resided (the Second), under

§ 7482(b)(1)(A). Had the government so moved, the issue of the proper

venue on appeal from the Tax Court’s Collection Due Process decisions

would be the same venue issue that is currently presented to this Court in

Ronald E. Byers v. Commissioner, D.C. Cir. Docket No. 12-1351. As a

result, the Kuretskis filed an amicus brief in Byers in support of his venue

argument in his case. However, subsequent to filing the amicus brief, the

government in this case decided not to move to transfer this case, but

instead agreed to stipulate with the Kuretskis under § 7482(b)(2) that this


Court may hear this case. As a result, the venue issue in Byers is no longer

relevant to the Kuretskis. This Court has not yet ruled on the venue transfer

motion in the Byers case.


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TABLE OF CONTENTS Page TABLE OF CONTENTS.………………………………… ……………. i TABLE OF AUTHORITIES.…………………………………………... iv GLOSSARY ………………………………………………………….. . x JURISDICTIONAL STATEMENT .…………………………...………. 1 STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ...……. 3 STATUTES AND REGULATIONS …………………………………… 3 STATEMENT OF FACTS……………………………………………… 3 SUMMARY OF ARGUMENT.……………………….………..….…… 9 ARGUMENT ……………………………………………………..…… 15 Statement of the Standards of Review ……………………..…… 15

I. The Presidential Removal Power of Tax Court Judges at § 7443(f) Violates the Separation-of-Powers Doctrine Because It Renders Tax Court Judges Biased in Favor of Ruling for the President’s Agency, the IRS ………………………………………….….…….. 16

A. The Kuretskis Timely Raised Before the Tax Court

Their Objections to the Separation-of-Powers Defect in § 7443(f) ..……………..……….……….. 16

B. This Court May Entertain the Separation-of-Powers Challenge on Appeal, Even if the Court Were To Find It Not Timely Raised and Preserved Below ………………………………………...…… 21


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C. The Kuretskis Have Standing To Raise the Separation-of-Powers Defect ………………….….. 24

D. By § 7443(f), Congress Impermissibly Granted, and the President Unconstitutionally Received, a Power to Remove Tax Court Judges ……….…… 28 1. The Tax Court exercises the judicial power

of the United States ………………………… 29

2. The President has “very broad” authority to remove from office Tax Court judges exercising the judicial power of the United States ……………………..………… 34

E. This Court Should Enforce the Separation of Powers

by Severing the President’s Removal Power From the Tax Court’s Organic Act and Then Ordering New Proceedings ……………………………..…... 45

II. The Tax Court Erred in Not Finding Reasonable Cause and Lack of Willful Neglect for Penalty Abatement

Under § 6651(a)(2) ……………………………..……….. 48

A. Penalty Abatement is Determined De Novo By the Tax Court ……………………………..……… 48

B. The Kuretskis Clearly Had Reasonable Cause for Non-payment at the Time of Filing, Entitling Them to Penalty Relief Under § 6651(a)(2) ……… 49

C. Section 6330 Requires the IRS Office of Appeals to Make Independent Determinations of Liability and Collection Alternatives, and Prohibits Conditioning Penalty Abatement on the Existence or Lack of a Collection Alternative . . 52


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III. Collection Due Process Hearings, as Currently Administered, Provide Inadequate Due Process Under the Fifth Amendment …………………………….. 54

CONCLUSION ……………………………………………………….. 61 STATUTORY ADDENDUM ……………………………………….... 62 CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE REQUIREMENTS ..…………………………..………. 71 CERTIFICATE OF SERVICE ………………………………………... 72


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TABLE OF AUTHORITIES

Pages Cases: Andantech L.L.C. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003) …………………………....……. 15 * Ballard v. Commissioner, 544 U.S. 40 (2005) …………...….. 40, 57-59 Blair v. Curran, 24 F.2d 390 (1st Cir. 1928) ………………………… 30 Bond v. United States, 131 S.Ct. 2355 (2011) ……………………..... 26 * Bowsher v. Synar, 478 U.S. 714 (1986) ………………… 11, 20, 26-29, 35-38, 43, 46 Buckley v. Valeo, 424 U.S. 1 (1976) ……………………………….... 35 Burns, Stix Friedman & Co. v. Commissioner, 57 T.C. 392 (1971) …………………………………………...… 32 Combs v. Nick Garin Trucking, 825 F.2d 437 (D.C. Cir. 1987) ……………………………….… 17 Flast v. Cohen, 392 U.S. 83(1968) ………………...………………... 26 * Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct. 3138 (2010) ………………………………..…. 20, 45-47 * Freytag v. Commissioner, 501 U.S. 868 (1991) …….. 10, 12-13, 22-24, 29, 33-35, 38-39, 41-42, 44 Glidden Co. v. Zdanok, 370 U.S. 530 (1962) …………….………. 22-23 Goza v. Commissioner, 114 T.C. 176 (2004) …………………...…… 48 ___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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* Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Bd., 684 F.3d 1332 (D.C. Cir. 2012) ………………………….…….. 47 Jifry v. FAA, 370 F. 3d 1174 (D.C. Cir. 2004) …………………….... 15 Kuretski v. Commissioner, T.C. Memo. 2012-262 ………………..….. 7 * Mathews v. Eldridge, 424 U.S. 319 (1976) …………..………….. 54-57 McAllister v. United States, 141 U.S. 174 (1891) ……………….. 40-41 Mistretta v. United States, 488 U.S. 361 (1989) ………..……….. 42-44 Montgomery v. Commissioner, 122 T.C. 1 (2004) ……….……… 48-49 Morrison v. Olson, 487 U.S. 654 (1988) ………………………… 44-45 Muserlian v. Commissioner, 932 F.2d 109 (2d Cir. 1991) …..……… 15 Orient Investment & Finance Co., Inc. v. Commissioner, 166 F.2d 601 (D.C. Cir. 1948) ……………………………… 49-50 * Ryder v. United States, 515 U.S. 177 (1995) ……………….…… 46-47 Samuel v. Commissioner, T.C. Memo. 2007-312 ………………...…. 53 Southeastern Finance Co. v. Commissioner, 153 F.2d 205 (5th Cir. 1946) ………………………….……. 49-50 Synar v. United States, 626 F. Supp. 1374 (D. D.C. 1986) ……... 27, 29 Tucker v. Commissioner, 676 F.3d 1129 (D.C. Cir. 2012) ………….. 53 * United States v. Boyle, 469 U.S. 241 (1985) …………………….. 49-50 United States v. Windsor, 133 S.Ct. 2675 (2013) …………..……….. 25 ___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) …………………………………..…….. 16-17 Williams v. United States, 289 U.S. 553 (1933) ……..……………… 41 Constitution: Article II, § 2, c. 2 (Appointments Clause) …………………...….. 12, 33 *Fifth Amendment ……………………………………...…… 3, 8, 14, 36, 54-58, 60 Statutes and Regulations: 5 U.S.C. § 557(c) …………………………………………………..… 59 5 U.S.C. § 706 ………………………………………………….……. 59 Internal Revenue Code of 1939 (26 U.S.C.), adopted by Pub. Act No. 1, 76th Cong.: § 1100, 53 Stat. 158 ………………………………………………..… 31 § 1102, 53 Stat. 159 ……………………………………………….…. 31 Internal Revenue Code of 1954 (26 U.S.C.),

adopted by Pub. L. 59, 83rd Cong.:

§ 7441, 68A Stat. 879 ………………………………………….…….. 31 § 7443(f), 68A Stat. 879 ……………………………………..…… 31-32 as amended by Pub. L. 91-172, § 951: *§ 7441, 83 Stat. 730 ………………………………………….….. 10, 32 ___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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Internal Revenue Code of 1986 (26 U.S.C.): § 6159 …………………………………………………………...…….. 2 § 6330 …………………………………………………………….….. 52 § 6330(c) ……………………………………………………..………. 15 § 6330(c)(2)(B) …………………………………………………….… 48 § 6330(c)(3) ………………………………………………………..… 53 § 6330(d)(1) ……………………………………………..…….. 2, 18-19 § 6651 …………………………………………………………….….. 49 *§ 6651(a)(2) …………………………………………... 2-4, 7, 15, 48-49 § 6654 ………………………………………………………………. 2, 7 § 6654(a) …………………………………………………….………… 4 § 7122 …………………………………………………………………. 2 *§ 7441 …………………………………………………………..……. 32 *§ 7443(f) ……………………………………………... 3, 8-9, 11, 13, 16, 18-19, 21, 27-28, 32-39, 42-47, 49 § 7443A(a) ………………………………………………...…………. 18 § 7443A(c) ………………………………………………………...…. 57 § 7447(c) …………………………………………………………..…. 18 § 7482(a) ……………………………………………………………..... 3 § 7482(a)(1) ………………………………………………………..… 15 § 7482(b)(2) …………………………………………………..……….. 3 § 7483 ……………………………………………………….………… 9 28 U.S.C. § 171(a) …………………………………………………… 41 28 U.S.C. § 176(a) ……………………………………………..… 41, 46 28 U.S.C. § 596(b)(2) ………………………………………..………. 44 28 U.S.C. § 636 ……………………………………………………… 59 28 U.S.C. § 636(b)(1)(C) …………………………………………..... 59 28 U.S.C. § 991(a) ………………………………………………..….. 42 Balanced Budget and Emergency Deficit Control Act of 1985, Pub. L. 99-177, § 274(f), 99 Stat. 1038 ………………..………. 46 Pub. L. 752, 77th Cong., ch. 618, § 504, 56 Stat. 957 ……………….. 31 ___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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Revenue Act of 1924, ch. 234:

§ 900(b), 43 Stat. 336 ………………………………………….. 9-10, 29 § 900(k), 43 Stat. 338 ……………………………………….…….. 9, 29 Revenue Act of 1926, ch. 27, § 1000, 44 Stat. 105 ………………. 30-31 26 C.F.R. §1.6161-1(b) …………………………………………….… 51 26 C.F.R. § 301.6330-1(d)(A-D6) …………………………………… 54 *26 C.F.R. § 301.6651-1(c)(1) ………………………………….…. 49-51 Miscellaneous: Declaration of Independence, para. 3 (U.S. 1776) ……………...…… 28 Delegation Order Appeals-193-1, IRM Exhibit 8.22.4-1 ………...….. 54 H. Conf. Rept. 105-599 (1998) ………………………….…………… 48 H. Dubroff, “The United States Tax Court: An Historical Analysis” (CCH 1979) ………………………………………….. 30 Federalist No. 47 (G. P. Putnam’s Sons ed. 1908) …………………... 35 Internal Revenue Manual: *1.2.20.1.1(1) ………………………………………………………….. 52 *1.2.20.1.1(9) ………………………………………………….………. 52 *8.6.4.1.2(6) ………………………………………………………….... 52 IRS Data Book, 2012 at 61 (Table 27, “Chief Counsel Workload”) ………………………… 13 Restatement (Second) of Judgments 22 (1980) ………………..…. 16-17 ___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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Tax Court Rules:

161 …………………………………………………………...… 2, 17, 21 162 ………………………………………………………...…… 2, 16, 21 183 …………………………………………………………...…… 57-58 183(d) …………………………………………………………...……. 57 Sam Young, “Kanter Plaintiffs Call for Investigation of Tax Court Judges”, Tax Notes Today, Mar. 8, 2010, 2010 TNT 44-1 …………………………………………………. 40

___________________________________________________________ *Authorities upon which we chiefly rely are marked with asterisks.


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GLOSSARY

ATM Appeals Team Manager – an employee of the IRS Office of Appeals who supervises Settlement Officer who hold Collection Due Process Hearings and who has ultimate authority to issue notices of determination at the end of such hearings

CDP Collection Due Process – a system of hearings held under 26

U.S.C. §§ 6320 and 6330 designed to determining the appropriateness of a threatened levy or a recently-filed tax lien, as well as, sometimes including challenges to underlying tax liability

IRM Internal Revenue Manual – an internal IRS manual providing

instructions to IRS employees OIC Offer in Compromise under 26 U.S.C. § 7122 under which a

taxpayer proposes to settle an amount of taxes due for less than full payment, based either on the ground of doubt as to the full collectability of the tax or for effective tax administration (equitable grounds).

SO Settlement Officer – an employee of the IRS Office of Appeals

who holds Collection Due Process hearings


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No. 13-1090 ______________________________________

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

______________________________________

PETER KURETSKI AND KATHLEEN KURETSKI,

Petitioners-Appellants, v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee. _________________________________

On Appeal from an Order and Decision of

the United States Tax Court _________________________________

BRIEF FOR APPELLANTS

_________________________________

JURISDICTIONAL STATEMENT

On October 13, 2008, the IRS issued to Peter and Kathleen Kuretski

(“the Kuretskis”) separate notices of intention to levy and right to

Collection Due Process (“CDP”) hearings concerning their joint 2007

income taxes. (A17-A20) On November 17, 2008, the IRS timely received

the Kuretskis’ requests for such hearings with the IRS Office of Appeals.

The requests were signed on November 8, 2008. (A6, A21-A24)


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Office of Appeals Settlement Officer (“SO”) Desa Lazar conducted

the hearing, supervised by Appeals Team Manager (“ATM”) John O’Dea.

(A9, A94-A95) During the hearing, the Kuretskis sought collection

alternatives – either an offer-in-compromise (“OIC”) under § 7122 (A25-

A28) or an installment agreement under § 6159 (A10) – and abatement of

penalties assessed on their unpaid taxes under §§ 6651(a)(2) and 6654.

(A85-A86) On July 20, 2010, Mr. O’Dea issued a notice of determination

denying all collection alternatives, upholding both penalties, and upholding

the IRS’ right to levy. (A94-A97)

On August 18, 2010, the Kuretskis timely appealed to the Tax Court

under § 6330(d)(1). (A1) On September 11, 2012, the Tax Court entered an

opinion prohibiting the collection of the penalty under § 6654, but otherwise

upholding the notice of determination. (A155-A171) The next day, the Tax

Court entered a decision conforming to the opinion. (A172)

Less than 30 days later; see Tax Court Rules 161 and 162; on October

11, 2012, the Kuretskis timely moved to reconsider the opinion and vacate

the decision. (A3). On March 4, 2013, the Tax Court issued an order

denying both motions. (A3, A173-A176)

Within 90 days after the order was issued, on March 27, 2013, the

Kuretskis timely appealed to this Court the parts of the Tax Court decision


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that they lost. (A4, A177-A179) See § 7483. This Court has jurisdiction

under § 7482(a). On May 1, 2013, the parties agreed that venue lies in this

Court by so stipulating under § 7482(b)(2).

STATEMENT OF THE ISSUES PRESENTED FOR REVIEW

The issues in this case are whether:

1. the separation-of-powers issue was timely raised in the Tax Court;

2. the Tax Court or this Court can rule definitively on the separation-of-

powers issue;

3. § 7443(f) violates the separation of powers;

4. the appropriate remedy here is a re-hearing by the Tax Court after the

President’s removal power is declared unconstitutional;

5. the Tax Court erred in not finding reasonable cause and lack of willful

neglect to abate the penalty under § 6651(a)(2); and

6. Collection Due Process hearings, as currently administered, provide

inadequate Due Process under the Fifth Amendment.

STATUTES AND REGULATIONS

Pertinent statutes and regulations are set forth in the Addendum.

STATEMENT OF FACTS

The Kuretskis timely filed their 2007 IRS Form 1040 reporting a

liability of $24,991 and $2,856 in withholding credit. (A5, A13, A) They


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were unable to pay the balance due at the time of filing. The IRS assessed

the tax the Kuretskis reported as well as assessed penalties for (1) failure to

pay the self-reported tax under § 6651(a)(2) and (2) failure to make

sufficient estimated tax payments under § 6654(a). (A13)

The Kuretskis are both in their 60s and not working. (A86) Mr.

Kuretski suffers from liver cancer. (A140) Their unpaid tax liability

stemmed from income taxes due on about $40,000 of early withdrawals

made in 2007 from their retirement accounts, and early-withdrawal penalties

stemming from those withdrawals (since they were under 59 ½ years of age

at the time of the withdrawals). These withdrawals were made to provide

liquidity for basic living expenses and certain extraordinary expenses. Part

of the extraordinary expenses were to pay legal fees incurred due to

unfounded allegations of possible involvement in criminal wrongdoing by

them in the securities-fraud indictment of their son in 2005, stemming from

their son’s use of their home address in the alleged scheme. (A86, A100)

During 2005, the Kuretskis also posted their home as security for a $1

million bond to obtain release of their son from prison. (A85-A89) To

satisfy the requirements for the bond, they caused a confession of judgment

to be entered in the amount of $1 million against themselves. (A87-A89)


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On October 13, 2008, the IRS issued separate notices of intention to

levy to the Kuretskis with respect to their joint 2007 income taxes, seeking

the levy the taxes, together with penalties and interest. (A17-A20) On

November 17, 2008, the IRS timely received the Kuretskis’ requests for such

hearings with the IRS Office of Appeals. The requests were signed on

November 8, 2008. (A6, A21-A24)

On October 29, 2009, the Kuretskis submitted an OIC for their tax

liability for the year 2007 (as well as the years 2006 and 2008) to the hearing

officer in an attempt to settle their liability for less than the full amount due.

They argued that equitable reasons or, in the alternative, doubt as to

collectability due to an inability to pay and meet basic living expenses

justified granting the OIC. (A6, A25-A28). To support their lack of liquid

assets and inability to pay, the Kuretskis, on the same day, submitted to the

IRS a Form 433-A financial disclosure statement, together with almost 50

pages of additional documentation supporting the entries they wrote on the

form. The documentation included a credit report and receipts for expenses

claimed on the form. (A6, A29-A84) On April 14, 2010, SO Desa Lazar

rejected the OIC. (A7, A90)


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On May 19, 2010, AO Lazar wrote in her case activity Record,

“Called re penalty abatement request and also looked at request again. It

seems they have met elements necessary to abate.” (A100)

On June 28, 2010, SO Lazar met with Susan Ascher, Esq. and the

Kuretskis in person, at which time they discussed an installment agreement

and penalty abatement. (A100, A116) SO Lazar noted in her Case Activity

Record, “Said I was willing to abate penalties and also put them on an IA

[installment agreement].” (A100) At trial in the Tax Court, Ms. Lazar

confirmed that her final determination was to abate penalties if the Kuretskis

entered into an installment agreement to her liking. (A153-A154)

Subsequent to the in-person hearing, Ms. Ascher exchanged several

phone calls and voice-mails with SO Lazar. (A100, A118-121, A142) In

their final conversation on July 19, 2010, SO Lazar told Ms. Ascher that the

CDP case had been closed. It was too late. (A118-A121). This upset Ms.

Ascher, who that day or the day after (July 20, 2010) called Ms. Lazar’s

supervisor, ATM John O’Dea, to complain about the early termination of the

hearing without finalizing the installment agreement and penalty abatement.

(A122, A126-A129)

On July 20, 2010, ATM O’Dea issued a notice of determination to the

Kuretskis upholding the IRS’ levy authority, rejecting the proposed


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installment agreement and OIC, and upholding the IRS’ assessment of the

two penalties. With respect to the penalties, he wrote,

Several issues were discussed at that meeting [June 28, 2010] and you were advised we would consider your abatement request as part of an overall resolution including agreement to pay the outstanding liabilities through an installment agreement. Although follow up telephone calls were made with respect to this resolution, you did not call or indicate you were in agreement with the proposed resolution; therefore determination in this appeal is agreement with the action taken to collect the outstanding liabilities. (A94-A97) On August 18, 2010, the Kuretskis timely appealed that determination

to the Tax Court (A1, A 103-104), where a trial was held on September 13,

2011, on stipulated facts and documents, and testimony was taken from Ms.

Ascher and SO Lazar. (A2, A105-154)

On September 11, 2012, Tax Court Judge Robert Wherry filed an

opinion at T.C. Memo. 2012-262 (1) sustaining the rejection of the OIC and

installment agreement, (2) ruling, de novo, that the penalty under §

6651(a)(2) for failure to pay self-assessed tax applied, and (3) striking down

the penalty under § 6654 for failure to pay estimated tax. (A155-A171) In

the opinion, the Judge Wherry said that the Kuretskis failed to “show that

they would have suffered a substantial financial loss if they had paid the tax

liability when due.” (A168) On September 12, 2012, the Tax Court entered

a decision in the case in accordance with Judge Wherry’s opinion. (A172)


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On October 11, 2012, the Kuretskis timely filed a motion to vacate the

decision, together with a motion for reconsideration (accompanied by a

memorandum of law in support of the motion for reconsideration). (A3)

The motion to vacate raised the constitutional impropriety of Judge

Wherry’s subservience to the President’s agency, the IRS, by virtue of §

7443(f). That section gives the President authority to remove a judge from

the Tax Court. The Kuretskis argued that the removal power was

impermissible under the separation-of-powers doctrine and directly impacted

their case by virtue of a judge subordinated to that power issuing a ruling

mostly against them. Doc. 34 at 1. The Kuretskis also argued, in their

memorandum of law in support of the motion for reconsideration, that the

IRS’ failure to follow its own procedures in determining the appropriateness

of penalty imposition was an abuse of discretion. Doc. 36 at 3-4. Further,

the Kuretskis asserted therein that because the CDP hearing officer’s

“determination was never shown to Petitioners [i.e., the Kuretskis] so that

they might have commented or raised ‘exceptions’” a violation of Fifth

Amendment Due Process occurred. Id., at 9.

In response to the motion, the IRS argued that the Kuretskis lacked

standing to make the separation-of-powers argument, but the IRS pointedly

expressed no view on whether the statute was constitutional. (Docs. 39 and


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50) The IRS did not argue that the Kuretskis raised the separation-of-

powers issue too late in the Tax Court proceeding. Id.

On March 4, 2013, Judge Wherry entered an order denying the

motions without discussing the arguments raised therein, stating, with

respect to all arguments other than the separation of powers argument, that

the Kuretskis were merely repeating arguments raised before the decision

was entered. (A3, A173-176) In that order, he also declined to express an

opinion on the constitutionality of § 7443(f) or on whether the Kuretskis had

standing to raise the issue. (A174-175) He also stated that the separation-

of-powers claim was not timely raised and suggested that he lacked the

power to find that section of the Internal Revenue Code unconstitutional. Id.

On March 27, 2013, the Kuretskis timely filed a notice of appeal to

this Court in accordance with § 7483. (A4, A177-A179) .

SUMMARY OF ARGUMENT

In 1924, Congress established the Tax Court’s predecessor, the Board

of Tax Appeals, as “an independent agency in the executive branch of

Government.” Revenue Act of 1924, ch. 234, § 900(k), 43 Stat. 338.

Congress authorized the President to appoint Board members with limited

terms with the Senate’s advice and consent; Id., at § 900(b), 43 Stat. 336;


10

and remove them in the middle of their term for “inefficiency, neglect of

duty, or malfeasance in office, but for no other reason.” Id., 43 Stat. 337.

It was reasonable and constitutional at the time for Congress to give

the President the power to remove an administrative judge of an executive

agency – especially an agency which, initially, in 1924, could not render

binding judgments. But, over time, the Tax Court – the Board’s successor –

was granted more and more powers of a judicial nature, and its

independence from the IRS was questioned – particularly since the Board’s

offices were within the IRS headquarters at 1111 Constitution Avenue.

To give the Tax Court more independence from the executive, in

1969, Congress moved the Tax Court in the constitutional structure,

providing: “There is hereby established, under article I of the Constitution

of the United States, a court of record to be known as the United States Tax

Court.” § 7441. Congress also, almost simultaneously, moved the Tax Court

physically – creating a building for the court alone outside the IRS

headquarters in Judiciary Square at 400 Second Street, N.W. Then, in

Freytag v. Commissioner, 501 U.S. 868 (1991), the Supreme Court held

that, by virtue of all of the powers and jurisdiction that it now has, the Tax

Court exercises the judicial power of the United States. What apparently

Congress forgot to do in 1969, to seal the Tax Court’s independence from


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the executive, was to eliminate the Presidential removal power – currently

set out, unchanged in § 7443(f).

Whether the Tax Court is considered part of the judicial branch or part

of the legislative branch, leaving the President the power to remove its

judges leaves those judges in an unconstitutional bind: They must fear

removal from an actor in another branch. Such an interbranch removal

power – even so limited for cause – is unconstitutional under the Supreme

Court’s holding in Bowsher v. Synar, 478 U.S. 714 (1986). Bowsher

indicates that such a removal power would cause Tax Court judges to be

subservient to and try to please the President, whose agency, the IRS, is

always one of the parties to a Tax Court suit. In other words, the removal

power causes the judges to be biased against taxpayers in their rulings. This

Court should find the Presidential removal power of Tax Court judges

unconstitutional as repugnant to the separation of powers.

After Judge Wherry ruled against them initially, the Kuretskis (in a

timely motion to vacate) raised the constitutional infirmity in his decision.

Once Judge Wherry issued his decision, the injury of a proceeding before a

judicial officer subject to presidential removal—an injury that arose in the

course of an otherwise justiciable proceeding—was squarely presented.


12

Thus, the Kuretskis had standing to raise the presidential, pro-IRS bias of

their judge.

Neither consent nor waiver prevented the Kuretskis from raising their

structural separation-of-powers objection. The Tax Court is the sole forum

where taxpayers like the Kuretskis may pursue judicial appeals of the

statutory prepayment CDP remedy. Unlike income tax refund actions, the

Kuretskis did not have the choice to proceed before an Article III adjudicator

to get a ruling about whether the IRS abused its discretion in denying them

an installment agreement to pay their concededly-owed taxes. There was no

choice, and accordingly it cannot properly be said that they either expressly

“consented” to the flawed proceeding or waived their objection by appearing

before the Tax Court.

Assuming, arguendo, the Kuretski’s separation-of-powers objection

was untimely or not preserved due to consent or waiver in the Tax Court, the

Supreme Court has recognized that appellate courts have discretion

nonetheless to entertain separation-of-powers issue challenges. This Court

would be well within its discretion to hear this case. Indeed, in Freytag, the

Supreme Court considered a separation-of-powers issue – an

Appointments Clause issue related to the Tax Court’s Special Trial Judges –

that was raised for the first time in the Supreme Court (i.e., years after the


13

Tax Court opinion and decision were initially entered). As in Freytag, this

Court should exercise its discretion to consider the separation-of-powers

issue because it is an important one that touches many citizens. Thirty-

thousand taxpayers a year file Tax Court petitions seeking judicial rulings,

and, as of September 30, 2012, more than $20 billion, in aggregate, was at

issue in pending Tax Court cases. IRS Data Book, 2012, at 61 (Table 27,

“Chief Counsel Workload”), available at www.irs.gov. The Kuretskis raise

a compelling argument, derived from the Supreme Court’s precedent in

Bowsher, that presidential cross-branch control impermissibly taints

proceedings in the Tax Court.

If this Court finds an impermissible interbranch removal power, it

should choose the most narrow remedy for the constitutional violation – to

wit, leaving the Tax Court intact, but declaring § 7443(f)’s removal power

inoperative. That would leave the removal of Tax Court judges up to

Congress through its impeachment and trial powers – the normal manner in

which misbehaving officers of the United States are removed from office.

For the Kuretskis, the remedy should also include vacating the Tax Court’s

decision and remanding the case for a Tax Court judge to decide it again,

once he is freed from the concern of the presidential removal power.


http://www.irs.gov/

14

Even if this Court either declines to consider or fails to find any

separation-of-powers violation, there are other reasons to overturn the Tax

Court’s rulings in this case. The Kuretskis’ cash flow crisis in 2007

demonstrated reasonable cause and not willful neglect – an exception to the

imposition of the late-filing penalty that the Tax Court ruled de novo they

should pay. The Tax Court’s ruling upholding the late-filing penalty was

clearly erroneous. Even SO Lazar noted – before she and her superior

issued the CDP notice of determination in this case – that the Kuretskis met

the criteria for not imposing that penalty.

Further, SO Lazar and her superior abused their discretion in making

relief from penalties in fact depend on entry into an installment agreement.

They violated instructions that are set out in the Internal Revenue Manual

not to trade penalties this way.

Finally, the IRS procedures applied in this case violated the Kuretskis’

Due Process rights. Due Process would have required that they have either

(1) an opportunity to review and comment on a mandatory written report to

be submitted by the actual hearing officer, the SO, to her superior, the ATM,

before finalization of the notice of determination or (2) some opportunity to

interact with the ATM before the rendering of the final notice of


15

determination by the ATM. That process was not afforded to the Kuretskis

in this case.

ARGUMENT

Statement of the Standards of Review

Decisions of the Tax Court are reviewed in the same manner “as

decisions of the district courts in civil actions tried without a jury.” §

7482(a)(1). De novo review is required for conclusions of law. Andantech

L.L.C. v. Commissioner, 331 F.3d 972, 976 (D.C. Cir. 2003). A

constitutional challenge to IRS procedures is also reviewed de novo. Jifry v.

FAA, 370 F. 3d 1174, 1180 (D.C. Cir. 2004). The Kuretskis further raise a

claim of error with respect to the Tax Court’s de novo failure to find

reasonable cause and not willful neglect as an exception to the application of

the late-payment penalty at § 6651(a)(2). This penalty determination is

reviewed under a clearly erroneous standard. Muserlian v. Commissioner,

932 F.2d 109, 112 (2d Cir. 1991). In addition, the Tax Court erred in its

legal conclusion that the hearing under § 6330(c) did not deny the Kuretskis

Due Process. This conclusion, as well, is reviewed de novo. See Jifry,

supra.


16

I. The Presidential Removal Power of Tax Court Judges at § 7443(f) Violates the Separation-of-Powers Doctrine Because It Renders Tax Court Judges Biased in Favor of Ruling for the President’s Agency, the IRS.

A. The Kuretskis Timely Raised Before the Tax Court Their

Objections to the Separation-of-Powers Defect in § 7443(f).

The Kuretskis promptly objected on separation-of-powers grounds to

the tainted adverse judgment entered by Judge Wherry, a judicial officer

subject to presidential removal. Judge Wherry, however, chose not to

address the flaw in § 7443(f). He offered two reasons:

First, the Kuretskis objected too late – i.e., after he had initially ruled

against them. (A175) Judge Wherry effectively treated the issue as forfeited

before him—unable to be raised even when filed within the proper time for a

motion to vacate a decision.3 His order, however, failed to elaborate

whether waiver or consent to tainted proceedings justified the supposed

forfeiture.

The Tax Court was mistaken in concluding that the Kuretskis’

objection was too late to be raised using the vehicle of a motion to vacate.

First, litigants may move to vacate a judgment when it is legally void.

“A void judgment is one so affected by a fundamental infirmity that the 3 The Kuretskis had raised their constitutional objection before the Tax Court in a timely filed motion to vacate. See Tax Court Rule 162 (“Any motion to vacate . . . shall be filed within 30 days after the decision has been entered . . . .”).


17

infirmity may be raised even after the judgment becomes final.” United

Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) (quoting

Restatement (Second) of Judgments 22 (1980)). A motion to vacate an

adverse judgment is appropriate if “the rendering court was powerless to

enter it;” Combs v. Nick Garin Trucking, 825 F.2d 437, 441 (D.C. Cir.

1987); which is the case where officers are unconstitutionally appointed (and

therefore acting ultra vires) or where, in the case of the Tax Court,

impermissibly exercising judicial power simultaneously subject to executive

superintendence. Such a separation-of-powers problem constitutes a

fundamental infirmity appropriately addressed in a motion to vacate.

Second, at the time the separation-of-powers issue was raised, the

court had not finished its deliberations on various non-constitutional issues.

Although the judge had ruled, in an opinion, against the Kuretskis on all of

these non-constitutional issues, that ruling was, in essence, provisional,

since Tax Court Rule 161 permits the filing of a motion for reconsideration

of opinion within 30 days after the opinion is filed. The Kuretskis timely

filed a motion for reconsideration asking the court to reconsider its rulings

on whether they had reached a binding agreement with the SO to enter into

an installment agreement and whether they had shown reasonable cause for

penalty abatement. This motion for reconsideration of the opinion was filed


18

the same day as the motion to vacate the decision. Thus, by Judge Wherry

ruling on the motion for reconsideration after the separation-of-powers issue

was raised in the motion to vacate the decision, the raising of the

constitutional issue was timely. While the constitutional issue may not have

been raised before any ruling in the case, it was raised before the final ruling

in the case. His ruling on the motion for reconsideration was tainted by the

removal power, the constitutionality of which was raised before he decided

that motion.

Third, the Kuretskis did not consent to the separation-of-powers flaw

or waive that objection by proceeding with their CDP case before the regular

judge of the Tax Court, Judge Wherry, who had been assigned by the Chief

Judge to hear their case.4 The Kuretskis had no choice but to proceed in the

Tax Court forum, with its attendant structural bias. The Tax Court is the

sole forum authorized by statute in which the Kuretskis could have obtained

review of the IRS notice of determination upholding the levy. § 6330(d)(1) 4 While it is true that the Kuretskis could have requested, before Judge Wherry decided the case initially, that the Tax Court’s Chief Judge reassign the case to either a Special Trial Judge or Senior Status Judge, Special Trial Judges are appointed by the Chief Judge; § 7443A(a); and Senior Status Judges are recalled to hear cases by the Chief Judge. § 7447(c). This would not have solved the constitutional problem, since the Chief Judges is removable by the President under § 7443(f) and, in effect, the Chief Judge has plenary removal power over Special Trial Judges and Senior Status Judges, so the latter, too, would be subservient to the President – though at one step removed.


19

(“Judicial review of determination. The person may, within 30 days of a

determination under this section, appeal such determination to the Tax Court

(and the Tax Court shall have jurisdiction with respect to such matter).”).

The Kuretskis were thereby limited to the defective Tax Court forum; they

had no option to pursue prepayment process review before judges free from

the taint of encroaching executive authority. Their congressionally granted

CDP rights, created to prevent the IRS from inequitably impoverishing low-

income and vulnerable taxpayers, would become beside the point if they

were affluent enough to first pay their assessed taxes such that they could

access a properly constituted Article III court to seek refund of any penalty

paid. And to pay in full would have mooted their right to argue in a court

that they were entitled to an installment agreement to pay the balance due (in

full or in part) over a number of years.

The other stated reason that Judge Wherry did not rule on the

Kuretskis’ objection was that he did not believe a decision striking down §

7443(f) would definitively remedy the defect of presidential influence. He

hypothesized, arguendo, that even “[i]f there is a constitutional problem,

such a ruling [on the constitutionality of § 7443(f)] would not make a second

determination of the case on its merits any freer from potential prejudice or

duress than our first determination.” (A174 at n.1) Apparently he believed


20

that either (1) constitutional flaw notwithstanding, he had not personally felt

his exercise of the judicial power to be prejudiced for the executive or (2) a

non-Article III judge’s decision on the separation-of-powers issue would not

clear the constitutional air of the whiff of pro-presidential bias.

Separation-of-powers analysis does not turn on whether particular

occupants of judicial office are “on good terms” with the current President;

Bowsher v. Synar, supra, at 730 (1986); or on whether “the encroached-upon

branch approves the encroachment.” Free Enterprise Fund v. Public Co.

Accounting Oversight Bd., 130 S.Ct. 3138, 3155 (2010). The litmus test for

a separation-of-powers violation is not whether an adjudicator subjectively

“feels” prejudiced in favor of the Tax Collector-in-Chief and his agents. Nor

does a presidential administration’s assurances of forbearance carry any

weight in the adjudication of separation-of-powers disputes. “Perhaps an

individual President might find advantages in tying his own hands. But the

separation of powers does not depend on the views of individual Presidents .

. . .” Id. “The President can always choose to restrain himself in his dealings

with subordinates,” but “[h]e cannot . . . choose to bind his successors by

diminishing their powers . . . .” Id. It may be that a President Obama or a

President Bush would find it unwise to exercise removal power to influence

the Tax Court. And it may be that a Judge Wherry or another Tax Court


21

judge would find it improper to be swayed by the possibility of presidential

removal. Separation of powers, however, protects liberty for the benefit of

“We the People,” not necessarily the positional interests of transient

occupants of federal offices.

The alternative interpretation of the basis for Judge Wherry’s ruling

(viz., a non-Article III judge’s decision on the separation-of-powers issue

would not clear the constitutional air of the whiff of pro-presidential bias)

supports this Court exercising its own authority to hear and decide the

separation-of-powers issue itself. If Judge Wherry himself were to declare §

7443(f) unconstitutional and sever it from the Tax Court’s organic act, he

would invite executive branch scrutiny and potential reprisal should his

ruling “not stick” upon appellate review. This souci reflects the practical

advice, colloquially put, that “you come at the king, you’d best not miss.”

B. This Court May Entertain the Separation-of-Powers Challenge on Appeal, Even if the Court Were to Find It Not Timely Raised and Preserved Below

The Kuretskis timely objected below. They filed their motions to

reconsider and vacate within the thirty-day timeframes established by Tax

Court Rules 161 and 162. As a matter of sound judicial administration, their

post-decision motions presented the most sensible timing for their objection.

Indeed, if, hypothetically, Judge Wherry had ruled for the Kuretskis on the


22

tax merits, recognized the installment plan, and granted them all the relief

they sought, in that scenario his ruling on the separation-of-powers matter

would have been unnecessary. No underlying injury would have required

redress.

Should, however, this Court nonetheless conclude the separation-of-

powers question was not preserved for a ruling by the Tax Court, Freytag v.

Commissioner, recognizes a federal appellate court’s discretion to consider

separation-of-powers issues raised for the first time on appeal. 501 U.S. 868,

879. Without deciding whether the taxpayers in Freytag had waived or

forfeited their right to make the argument, there, the Supreme Court

entertained a structural constitutional deficiency (an Appointments Clause

challenge) that was not raised at any time during the Tax Court proceeding

– or even during the Court of Appeals consideration of the case. Id. The

separation-of-powers argument in Freytag was raised for the first time in the

Supreme Court. Nonetheless, the Court entertained the merits of the

argument and authorized other federal appellate courts to do likewise.

Freytag noted abundant precedent for this departure from the ordinary

rules concerning appellate review. “This Court in the past . . . has exercised

its discretion to consider nonjurisdictional claims that had not been raised

below.” Freytag, 501 U.S. at 878. For example, in Glidden Co. v. Zdanok,


23

litigants raised the issue of the non-Article III status of trial adjudicators.

370 U.S. 530, 535-36 (1962). The Court held that it was open to litigants

“to challenge the constitutional authority of the judges below,” even where

the issue had not been properly preserved below. Id. at 536-37. The Court’s

special solicitude reflects “the strong interest of the federal judiciary in

maintaining the constitutional plan of separation of powers.” Id. at 536.

This approach is true all the more strongly “when the challenge is based

upon nonfrivolous constitutional grounds.” Id. at 536. The Glidden Court

found it particularly significant that the “alleged defect of authority . . .

relate[d] to basic constitutional protections designed in part for the benefit of

litigants.” Id.

Like the Freytag litigants, the Kuretskis challenge concerns a

nonjurisdictional but structural separation-of-powers objection concerning

Tax Court adjudication. Freytag concerned the manner in which Special

Trial Judges of the Tax Court were appointed to office; the Kuretskis’ case

concerns the manner in which regular Tax Court judges are removed from

office. The alleged defect in Freytag went to “the validity of the Tax Court

proceeding.” Id. at 879. So too does this case raise a question as to the

constitutional validity of a Tax Court proceeding. Freytag characterized the

challenge there as “neither frivolous nor disingenuous,” notwithstanding that


24

a unanimous court ultimately ruled against the taxpayers. Id. at 879.

Similarly, the Kuretskis non-frivolously and genuinely challenge the Tax

Court judges’ independence of the President by virtue of the cross-branch

removability – a probable separation-of-powers flaw recognized by at least

two sitting Supreme Court justices, Freytag, 501 U.S. at 912 (Scalia, J., and

Kennedy, J., concurring), but not previously litigated.

Cross-branch removability of the Tax Court judges has important

implications for taxpayer litigants. As a matter of sound judicial

administration, predictability for litigants and adjudicators alike would be

advanced by this Court entertaining this issue. Presidential aggrandizement,

congressional encroachment, and the need to preserve the Judiciary’s

structural integrity militate for direct review of this important separation-of-

powers issue.

C. The Kuretskis Have Standing To Raise the Separation-of-Powers Defect

Because he thought that vacating his decision and re-deciding the case

after declaring the Presidential removal power unconstitutional was not a

remedy that would provide the Kuretskis any benefit – i.e., that the any

separation-of-powers defect was, essentially, harmless error – Judge Wherry,

in his order denying the motion to vacate, stated, “we need not address any

issue regarding petitioners’ standing to raise the constitutional argument.”


25

(A175) Oddly enough, it was only the IRS, in its responses to the motion to

vacate, who argued that the Kuretskis lacked standing to raise the

separation-of-powers argument. Doc. 39 at 2-7. Indeed, the IRS raised only

the standing argument in opposition to the Kuretskis’ motion to vacate –

notably pointing out to the Tax Court that it did not, at this time, want to

express any opinion on the constitutionality of the removal power. Doc. 50

at 1-2.5

The Kuretskis will discuss below why the remedy they seek is

appropriate if there is a constitutional violation here. But, they will address

here why they have standing to raise the argument, as standing is not a

matter that an Article III court may just sweep under the rug.

“[A]n order directing an individual to pay a tax” creates a “real and

immediate” injury that satisfies the constitutional injury requirement of

standing. United States v. Windsor, 133 S.Ct. 2675, 2686 (2013). There is

no question that an individual taxpayer’s tax dispute with the federal

government over his own tax liability presents a justiciable case or

controversy within the meaning of Article III. Despite what the IRS argued

below, this is decidedly not a claim of “taxpayer standing,” where a party

5 “Throughout the course of these briefings, in respondent's response and now in this reply, respondent has only addressed the jurisdictional issues pertinent to this case.” Doc. 50 at 2.


26

claims, simply by virtue of its undifferentiated status as a federal taxpaying

citizen, standing to challenge the way in which the United States

government spends its tax revenues. Flast v. Cohen, 392 U.S. 83, 85 (1968).

Moreover, where the Kuretskis are parties to “an otherwise justiciable

case or controversy,” Bond v. United States, 131 S.Ct. 2355, 2366-67

(2011), they have constitutional and prudential standing to assert a

constitutional separation-of-powers defense against a Tax Court judgment.

Id. “[I]ndividuals, too, are protected by the operations of separation of

powers and checks and balances; and they are not disabled from relying on

those principles in otherwise justiciable cases and controversies.” Id., at

2365. This principle was evident in Bowsher v. Synar, supra, at 721, which

was the leading case on the invalidity of cross-branch removal power.

There, the comptroller general, subject to congressional removal, exercised

executive power to cancel scheduled benefits increases for federal

employees. Id. The Court readily found the federal employees had standing

to challenge the comptroller’s action on separation-of-powers grounds

because the mere possibility of congressional removal tainted that power’s

exercise. Id. It was enough, as here, that the litigants received an adverse

determination from an officer who was potentially subject to improper

removal. Id.


27

Similarly, Bowsher recognized the ripeness of the litigants’ challenge.

It rebuffed the unsound argument “that consideration of the effect of a

removal provision is not ‘ripe’ until that provision is actually used.” Id., at

727 n. 5. Actual use of the removal power was not at issue in Bowsher.

Indeed, Congress had never exercised removal power over the comptroller

since its 1921 enactment. Id., at 775 n.14 (White, J., dissenting).

Nonetheless, it sufficed that the comptroller’s “presumed desire to avoid

removal” created a “here-and-now subservience to another branch that

raise[d] separation-of-powers problems.” Id. (quoting Synar v. United

States, 626 F. Supp. 1374, 1392 (D. D.C. 1986) (per curiam) (emphasis

added)). The removal power granted by § 7443(f) hangs over the heads of

Tax Court judges—and thereby the taxpayers’ case—like Damocles’ sword.

Judges of the Tax Court labor beneath a tacit background threat of potential

removal, which, even if never exercised, engenders an actual “here-and-now

subservience” to the President.

The argument made by the IRS below that the Kuretskis lack standing

to raise the removal power issue is, when boiled down to realities, absurd.

The Kuretskis are arguing that their judge was biased in favor of the IRS and

against them because the judge sought (consciously or not) to curry favor

with the President, who both indirectly heads the IRS and who can remove


28

the judge quite easily. It should be wrong to hold that a litigant does not

have standing to challenge his judge’s bias against him.

D. By § 7443(f), Congress Impermissibly Granted, and the President Unconstitutionally Received, a Power to Remove Tax Court Judges

Under our system of separation of powers, neither Congress nor the

President, nor the two acting together, may subordinate the exercise of the

judicial power to presidential superintendence. The American colonists

recognized this principle when they enumerated among their principal

grievances the insecurity of judicial office as against the Crown. “[King

George III] has made Judges dependent on his Will alone, for the tenure of

their offices, and the amount and payment of their salaries.” Declaration of

Independence, para. 3 (U.S. 1776). Dependency on another’s grace for

continued occupancy in office creates a biasing control in favor of the

removing officer, a constitutionally “presumed desire to avoid removal by

pleasing.” Bowsher, supra, at 727 n. 5. This pleasing compliance results in

control aggrandizing the officer with removal authority. It constitutes an

indirect encroachment by a Congress that authorized the removal authority

in the first place.

In this appeal, the Kuretskis raise an important separation-of-powers

issue of first impression: Whether the Congress and President violate the


29

separation of powers when they subject the Tax Court judges, who exercise

only the judicial power of the United States; Freytag, 501 U.S. at 890-91; to

executive branch removal? The Kuretskis submit that this cross-branch

removal provision impermissibly allows the Tax-Enforcer-in-Chief to wield

the judicial power of the United States by virtue of a “here-and-now

subservience” of Tax Court judges to the President. Cf. Bowsher, supra, at

727 n.5 (citing approvingly Synar v. United States, 626 F.Supp. 1374, 1392

(D. D.C. 1986)). This dependence, which fosters influence and control, is the

antithesis of independence. To restore judicial independence in their

proceedings, the Kuretskis challenge presidential removal power over the

Tax Court judges and the attendant executive superintendence over the

judicial power of the United States.

1. The Tax Court exercises the judicial power of the United States.

In 1924, Congress established the Tax Court’s predecessor entity, the

Board of Tax Appeals as “an independent agency in the executive branch of

Government.” Revenue Act of 1924, ch. 234, § 900(k), 43 Stat. 338.

Congress authorized the President to appoint Board members with limited

terms with the Senate’s advice and consent; Id., at § 900(b), 43 Stat. 336;

and remove them in the middle of their term for “inefficiency, neglect of

duty, or malfeasance in office, but for no other reason.” Id., 43 Stat. 337.


30

It was reasonable and constitutional at the time for Congress to give

the President the power to remove an administrative judge of an executive

agency – especially an agency who, initially, in 1924, could not render

binding judgments. 6 But, over time, the Tax Court – the Board’s successor –

was granted more and more powers of a judicial nature. Eventually, its

independence from the IRS was questioned – particularly since the Board’s

offices were within the IRS headquarters at 1111 Constitution Avenue.

In 1926, Congress amended the Revenue Act of 1924 to provide that

6 How binding and final were the Board’s rulings in 1924?

Board decisions were only final with respect to the question of summary assessment; they were not final on the question of liability. Thus, if the taxpayer prevailed in the Board, the Government could not summarily assess the tax, but could commence a new action in federal court for readjudication of whether a deficiency existed. If it obtained a favorable judgment the deficiency could then be assessed. If the Government prevailed in the Board, the tax would be immediately assessed, but the taxpayer could sue for refund of tax paid pursuant to the assessment. Any action commenced after the Board proceeding would be de novo, although the Board’s factual findings would be prima facie correct. In other words, no appeal was possible from a decision by the Board, but such a decision could be reviewed collaterally.

H. Dubroff, “The United States Tax Court: An Historical Analysis” (CCH 1979) at 166 (footnotes omitted). See Blair v. Curran, 24 F.2d 390, 392 (1st Cir. 1928) (“The hearing before the Board was at that time [prior to 1926] little more than a preliminary skirmish, a run for luck. For either party, if dissatisfied with the decision, could bring a court action and try the matter de novo . . . .”).


31

the Board “is hereby continued as an independent agency in the Executive

Branch of the Government”. Revenue Act of 1926, ch. 27, § 1000, 44 Stat.

105-106. Congress also at that time inserted into the removal provision a

requirement that there be a public hearing before a member could be

removed. Id., at 106. Without any change in the removal language, § 1102

of the Internal Revenue Code of 1939 provided that members of the Board

“may be removed by the President, after notice and opportunity for public

hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no

other cause.” Pub. Act No. 1, 76th Cong., 53 Stat. 159. Section 1100 of the

1939 Code stated that the Board “shall be continued as an independent

agency in the Executive Branch of the Government.” Id., 53 Stat. 158.

Eventually Congress renamed the Board of Tax Appeals “the Tax

Court of the United States,” but maintained it “within” the Executive

Branch. Pub. L. 752, 77th Cong., ch. 618, § 504, 56 Stat. 957. The Internal

Revenue Code of 1954 renumbered these 1939 Code provisions, but did not

change their texts. Section 7441 of the 1954 Code provided, in part: “The

Board of Tax Appeals shall be continued as an independent agency in the

Executive Branch of the Government, and shall be known as the Tax Court

of the United States.” Pub. L. 59, 83rd Cong., ch. 736, 68A Stat. 879.

Section 7443(f) of the 1954 Code provided: “Judges of the Tax Court may


32

be removed by the President for inefficiency, neglect of duty, or malfeasance

in office, but for no other cause.” Id. Section 7443(f) has not undergone

any amendment since 1954.

For decades, the Board of Tax Appeals and the Tax Court had sat

within the main IRS building at 1111 Constitution Avenue, and many

thought the court not to be independent of the IRS. So, to enhance the

court’s independence from the IRS, in 1969, Congress made a crucial move

and amended § 7441 to provide, in part: “There is hereby established, under

article I of the Constitution of the United States, a court of record to be

known as the United States Tax Court.” Pub. L. 91-172, § 951, 83 Stat. 730.

In enacting this language, Congress expressed a clear intent: “Congress

removed the Tax Court from the Executive Branch and established it as an

article I court primarily for the purpose of recognizing its status as a judicial

body and disposing of any problems that its status as an executive agency

sitting in judgment on another executive agency might pose.” Burns, Stix

Friedman & Co. v. Commissioner, 57 T.C. 392, 395 (1971). In Burns, the

Tax Court held that even though it was not an Article III court, (l) it was a

legislative court that did not violate the Constitution when it exercised

“judicial power,” and (2) Congress had not exceeded its constitutional power

in assigning “judicial power” to the Tax Court.


33

Congress also, almost simultaneously, moved the Tax Court in a

physical sense – creating a building for the court alone outside the IRS

headquarters in Judiciary Square at 400 Second Street, N.W.

Then, in 1991, in Freytag v. Commissioner, supra, the Supreme Court

held that, by virtue of all of the powers and jurisdiction that the Tax Court

now has, the Tax Court exercises the judicial power of the United States.

What apparently Congress forgot to do in 1969, to seal the Tax

Court’s independence from the executive, was to eliminate the Presidential

removal power – currently set out unchanged in § 7443(f). That removal

power remains as a vestigial, festering appendix to the body of the Tax

Court.

Whether the Tax Court is considered part of the judicial branch or part

of the legislative branch, leaving the President the power to remove its

judges puts those judges in an unconstitutional bind: They must fear

removal from an actor in another branch.

In Freytag, the Supreme Court concluded, 5-4, that the Tax Court was

a division of “the Courts of Law”, as that phrase is used in the Constitution’s

Appointments Clause. Art. II, § 2, cl. 2. To decide in which branch of

government the Tax Court belonged for the Appointment Clause’s

Excepting Clause analysis, the Freytag majority and the concurring justices


34

debated the characterization of the Tax Court’s power. Resolving this issue,

the Freytag majority held that the Tax Court exercises “the judicial power of

the United States.” “The Tax Court exercises judicial, rather than executive,

legislative, or administrative, power. It was established by Congress to

interpret and apply the Internal Revenue Code in disputes between taxpayers

and the Government. By resolving these disputes, the court exercises a

portion of the judicial power of the United States.” Id., at 890-891. Since

1991 and Freytag’s characterization of the Tax Court’s power, it has been

clear that the body exercises the judicial power of the United States, not

executive power. But, whether or not the Tax Court currently exercises the

judicial power or is an Article I legislative court, it is certainly not a part of

the Executive Branch anymore. Therefore, any removal power held by the

President would be an interbranch removal power. The Kuretskis take the

primary position that the Tax Court exercises the judicial power of the

United States, but, in the alternative, the Kuretskis argue that the same

analysis would apply if the Tax Court were truly held to be an Article I

entity.

2. The President has “very broad” authority to remove from office Tax Court judges exercising the judicial power of the United States.

The President may remove the judges of the Tax Court for


35

“inefficiency,” “neglect of duty,” or “malfeasance.” § 7443(f). The Supreme

Court has previously recognized that these three statutory grounds for

removal are not really very limiting, but enable “very broad” removal

authority “for any number of actual or perceived transgressions” of the

removing authority’s will. Bowsher v. Synar, supra, at 727 n. 5. As the

Supreme Court observed in Bowsher, this “very broad” authority creates a

constitutionally problematic “here-and-now subservience;” id.; of the Tax

Court judges, who exercise “a portion of the judicial power of the United

States;” Freytag v. Commissioner, supra, at 891; to the officer with removal

authority, here, the President, in whom Article II vests the executive power

of the United States. This congressionally authorized comingling of

executive and judicial power constitutes an impermissible encroachment on

the judicial power of the United States and violates our system of a trinity of

separated powers qualified only by constitutionally-specified departures. As

James Madison observed, “[w]ere [the power of judging] joined to the

executive power, the judge might behave with all the violence of an

oppressor.” Federalist No. 47, at 299 (G. P. Putnam’s Sons ed. 1908),

quoted in Buckley v. Valeo, 424 U.S. 1, 120 (1976). This conjoining of

judicial and executive authorities courts the attendant danger of tyranny.

Bowsher already squarely rejected the argument “that the enumeration


36

of certain specified causes of removal excludes the possibility of removal for

other causes.” 478 U.S. at 729. The three enumerated grounds for removal

in Bowsher that were found not to exclude other reasons are identical to

those in § 7443(f), which provides the President authority to remove Tax

Court judges. Bowsher explained these three verbatim terms were “very

broad” and enabled removal power “for any number of actual or perceived

transgressions . . . .” Id. at 729. Tellingly, the Supreme Court berated any

contrary position: “Surely no one would seriously suggest that judicial

independence would be strengthened by allowing removal of federal judges

only by a [decision] finding ‘inefficiency,’ ‘neglect of duty,’ or

‘malfeasance.’” Id. at 730. This Court should decline to take seriously the

suggestion that the statute, particularly in the absence of any explicit

provision for judicial review of any presidential removal action, would

safeguard judicial independence.

Section 7443(f)’s provision for simple procedural safeguards fails to

distinguish it from Bowsher. “[N]otice and opportunity for public hearing”

add nothing to what the Due Process Clause would already obligate the

President to provide. Moreover, Bowsher found that a far more involved

procedure failed to adequately curb the scope of removal power. Removal

of the Comptroller General in Bowsher also required a hearing, following


37

which Congress would have to issue a joint declaration. Id. at 728-29. That

declaration would have entailed obtaining the assent of bicameral

majorities—218 House Representatives and at least 51 Senators (60, if there

were a filibuster) —and the President. If the President were to veto the joint

declaration, Congress would be obligated to seek the approval of bicameral

two-third supermajorities to override the veto—all prior to any removal of

the Comptroller. Even with these very significant procedural hedges, the

Supreme Court still rejected the removal power as permitting the violation of

the separation of powers. The Justices understood the obstacles to removal

in rejecting the process-based argument. Nonetheless, they applied a

preventative, virtually per se, bright-line rule in this area of the separation of

powers. Barring a specifically-authorized constitutional exception to cross-

branch removal (i.e. impeachment), the Supreme Court disallowed any

removal power breach, however small, in the walls that separate the great

powers of the three branches.

Viewed from a functional perspective, the procedurally lean authority

granted by § 7443(f) far more readily permits the President to exercise

influence than the more cumbersome joint declaration procedure in

Bowsher. The President is authorized to act alone, without any need for

another branch’s concurrence. And even these de minimis procedural


38

safeguards in § 7443(f) might never be triggered. Given the in terrorem

effect of the removal power, the President need not invoke the power for it

to have a constitutionally-impermissible effect.

The Freytag parties did not raise, and Freytag did not decide, whether

the President could continue to hold removal authority over Tax Court

judges. This appeal seeks to resolve the tension between the Freytag

majority’s holding that the Tax Court exercises the judicial power (on the

one hand) and the President’s continuing statutory power to remove the Tax

Court judges (on the other). The Kuretskis propose resolving that tension by

ousting the President from the Tax Court’s exercise of the judicial power of

the United States to make its power more appropriately independent of

executive duress. Justice Scalia, concurring in Freytag, noted the tension

the majority approach would cause. He concluded that the Tax Court could

not be exercising judicial power because its judges “are still removable by

the President for ‘inefficiency, neglect of duty, or malfeasance in office.”

501 U.S. at 912 (Scalia, J., concurring). He then noted parenthetically that

“[i]n Bowsher v. Synar. . . we held that these latter terms are ‘very broad’

and ‘could sustain removal . . . for any number of actual or perceived

transgressions’” and questioned “[h]ow anyone with these characteristics

can exercise judicial power ‘independent ... [of] the Executive Branch.’” Id.


39

(emphasis in original). Justice Scalia stated, “It seems to me entirely

obvious that the Tax Court, like the Internal Revenue Service, the FCC, and

the NLRB, exercises executive power.” Id. While Justice Scalia lost the

vote (5-4) that the Tax Court exercises the judicial power of the United

States, his trenchant observation that § 7443(f)’s presidential removal power

would be incompatible with a holding that the Tax Court exercises the

judicial power carries continued constitutional significance – particularly as

the majority in Freytag took no effort to discuss how its ruling would

interact with the § 7443(f) presidential removal power. Freytag addressed

only an appointment power challenge to Tax Court Special Trial Judges

appointed by its chief judge, not a challenge based on the President’s power

to remove regular, presidentially-appointed Tax Court judges.

How serious is the removal power of Tax Court judges? Although

there is no known instance in which the President has removed a Tax Court

judge under § 7443(f) or its predecessor statutes, the President’s power can

be used to precipitate a Tax Court judge’s resignation. (Over the years, there

have been some Tax Court judges who have resigned.) More seriously, the

President need not threaten removal at all to taint the exercise of the Tax

Court’s judicial power. The bare existence of a presidential removal power

chills or disciplines the Tax Court judges in their exercise of judicial


40

authority. The fear of reprisal grants the President impermissible power to

control judicial officers.

There has been at least one recent public spectacle of agitation for the

President to remove a Tax Court judge: In 2010, Lanny Davis, counsel for

the aggrieved Kanter plaintiffs in Ballard v. Commissioner, 544 U.S. 40

(2005), petitioned President Obama to institute an investigation of Senior

Tax Court Judge Howard A. Dawson, Jr. with the object of possibly

removing him.7 To date, Judge Dawson has not been removed. Barring a

transparent and formal process, however, it would be difficult to determine if

any Tax Court judge negotiated a quiet removal by way of resignation in lieu

of a potentially public spectacle. Whether any prior administration may

have precipitated resignations of Tax Court judges, or entertained referrals

proposing such a course of action, is not a matter detailed in any generally

available public record.

The cross-branch removal problem at stake here is uncommon. While

there are a number of adjudicatory independent agencies like the Tax Court,

few have been found to hold the judicial power of the United States. For

example, territorial courts do not exercise the judicial power of the United 7 “[W]e call on the president, who has the power to remove a Tax Court judge, to immediately institute an investigation on whether such removal is justified,” Sam Young, “Kanter Plaintiffs Call for Investigation of Tax Court Judges”, Tax Notes Today, Mar. 8, 2010, 2010 TNT 44-1.


41

States, as they are “incapable of receiving the judicial power conferred by

the Constitution”. McAllister v. United States, 141 U.S. 174, 190 (1891).

The former Court of Claims, which, like the Tax Court is now, was an

Article I court, also exercised the judicial power. Freytag, supra, at 899-890

(citing Williams v. United States, 289 U.S. 553, 565-567 (1933)). The Court

of Federal Claims, its successor, is also organized as a court of record under

Article I of the Constitution. 28 U.S.C. § 171(a). But, the President cannot

remove the Court of Federal Claims’ judges. 28 U.S.C. § 176(a). Tellingly,

only the judicial officers of the Federal Circuit may remove those judges for

cause. Id. Thus, the Court of Federal Claims does not suffer from a similar

cross-branch removal problem, as an Article III court’s judges can remove

Court of Federal Claims judges without presenting any issue of cross-branch

control.

Nor are independent agencies that are only “quasi-judicial” or “quasi-

legislative” subject to the same interbranch removal problem when the

President holds a “for cause” removal power over their members. The

Supreme Court has not stated that such agencies “exercise the judicial power

of the United States;” these agencies decide cases in the manner of judges—

i.e., case-by-case adjudication—but actually exercise only executive power.

Freytag, 501 U.S. at 911 (Scalia, J., concurring). In Freytag, the Supreme


42

Court majority noted that “[t]he Tax Court’s exclusively judicial role

distinguishes it from other non-Article III tribunals that perform multiple

functions and provides the limit on the diffusion of appointment power that

the Constitution demands.” Id. at 892.

Moreover, the impermissible removal power of § 7433(f) functions

differently than the narrow removal power approved in Mistretta v. United

States, 488 U.S. 361 (1989). Mistretta presented the issue whether the

United States Sentencing Commission, which promulgates the Federal

Sentencing Guidelines, suffered from a separation-of-powers defect. Under

that arrangement, the President enjoyed and enjoys a power to remove

Commission members “for neglect of duty or malfeasance in office or for

other good cause shown.” 28 U.S.C. § 991(a).

Unlike the judges of the Tax Court, the members of the Sentencing

Commission do not exercise the judicial power of the United States. The

Court observed: “The Sentencing Commission unquestionably is a peculiar

institution within the framework of our Government. Although placed by

the Act in the Judicial Branch, it is not a court and does not exercise judicial

power.” Mistretta, supra, at 384-385 (emphasis added). Accordingly, the

Court found the removal provision presented no serious separation-of-

powers difficulty. Id., at 410-411. The President wielded power only to


43

remove judges from their administrative duties with the Sentencing

Commission, not their judicial office and attendant exercise of adjudicatory

power. The Court explained: “[W]e hold here no more than that Congress

may vest in the President the power to remove for good cause an Article III

judge from a nonadjudicatory independent agency placed within the Judicial

Branch.” Id., at 411 n. 35. It was significant for the Supreme Court that the

Article III judges on the Sentencing Commission were “serving on a non-

adjudicatory commission” and “not exercising judicial power.” Id.

Accordingly, Mistretta concluded “such limited removal power gives the

President no control over judiciary functions [and] interbranch removal

authority under these limited circumstances poses no threat to the balance of

power among the Branches.” Id.

Mistretta did not present the cross-branch removal power confronted

in Bowsher. “Our paramount concern in Bowsher that Congress was

accreting to itself the power to control the functions of another Branch is not

implicated by a removal provision, like the one at issue here, which provides

no control in one Branch over the constitutionally assigned mission of

another Branch.” Misretta, at 411 n. 35. Significantly, Mistretta did not

involve Presidential removal power over a judicial officer of the United

States from his or her adjudicatory duties and office.


44

By contrast, following Freytag, § 7433(f) violates the separation of

powers by giving the President power to remove a judge exercising the

judicial power of the United States in an adjudicatory office.

Similarly to Misretta, in Morrison v. Olson, 487 U.S. 654 (1988), the

Supreme Court recognized the danger of cross-branch removal authority, but

found no issue in the case. Morrison, however, is also distinguishable. 28

U.S.C. § 596(b)(2) appeared to authorize judicial officers to terminate or

remove an independent counsel, who was an executive officer. Chief Justice

Rehnquist went out of his way to avoid a statutory construction that would

suggest a broad cross-branch removal authority wielded by judges over an

executive officer. “The termination provisions of the Act do not give the

Special Division anything approaching the power to remove the counsel

while an investigation or court proceeding is still underway—this power is

vested solely in the Attorney General.” Morrison, supra, at 682. Instead,

the Court interpreted “termination” limitedly – i.e., the Special Division

could act “only when the duties of the counsel are truly ‘completed’ or ‘so

substantially completed’ that there remains no need for any continuing

action by the independent counsel.” Id. at 682-83. The Court thereby

construed the termination power as nothing more than “basically a device for

removing from the public payroll an independent counsel who has served his


45

or her purpose, but is unwilling to acknowledge the fact.” Id. Chief Justice

Rehnquist, comforted by his limiting construction, upheld the termination

provision. “So construed, the Special Division’s power to terminate does

not pose a sufficient threat of judicial intrusion into matters that are more

properly within the Executive's authority . . . .” Id.

E. This Court Should Enforce the Separation of Powers by Severing the President’s Removal Power From the Tax Court’s Organic Act and Then Ordering New Proceedings.

Although presidential removal power infects the Tax Court’s exercise

of the judicial power of the United States, this Court need strike only §

7443(f) to cure this unconstitutional condition. The Supreme Court

counseled a similarly modest approach in another separation-of-powers

challenge that concerned removal power.

Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem, severing any problematic portions while leaving the remainder intact. Because the unconstitutionality of a part of an Act does not necessarily defeat or affect the validity of its remaining provisions, the usual rule is that partial, rather than facial, invalidation is the required course . . . . [T]he existence of the [Public Company Accounting Oversight Board (“PCOAB”)] does not violate the separation of powers, but the substantive removal restrictions . . . do.

Free Enterprise Fund v. Public Company Accounting Oversight Board, 130

S. Ct. 3138, 3161 (2010) (internal quotation marks and citations omitted).

Thus, the Court surgically excised the offending removal restriction but


46

otherwise left the PCAOB in its place.

A similarly limited remedy for the separation-of-powers problem here

would be not to abolish the Tax Court, but to eliminate the President’s §

7443(f) power to remove its judges.8 That remedy would secure the

independent exercise of the judicial power of the United States, allowing it

to serve as a taxpayer’s bulwark against a potentially overreaching executive

and his agents.9

New proceedings for the Kuretskis, before a Tax Court judge no

longer burdened by the threat of presidential removal, would complete the

constitutionally appropriate remedy under separation-of-powers

jurisprudence. The procedural remedy of new proceedings has been ordered

in several landmark separation-of-power cases. In Ryder v. United States,

8 Bowsher provides little guidance on when it is appropriate to sever a removal power to save the rest of a statutory scheme. Congress had anticipated a challenge to its Balanced Budget and Emergency Deficit Control Act and accordingly, in the event its original plan was held unconstitutional, had enacted a specific contingency plan. Bowsher, at 718-19 (citing the Balanced Budget and Emergency Deficit Control Act of 1985, Pub. L. 99-177, § 274(f), 99 Stat. 1038). The Court adopted the fallback plan explicitly supplied by Congress. Id. at 735-36. 9 Tax Court judges would doubtless remain subject to removal by the constitutionally-ordained process of impeachment. Moreover, if Congress later preferred, it presumably could provide to Article III judicial officers the power to remove Tax Court judges, similar to the authority Congress bestowed on the Court of Appeals for the Federal Circuit to remove Article I Court of Federal Claims judges for cause. 28 U.S.C. § 176(a).


47

the Court entertained an appointments clause challenge. 515 U.S. 177

(1995). A new court martial proceeding was required where an adjudicator,

improperly appointed under the Appointments Clause, had presided over an

earlier hearing. Id. The Court reversed the U.S. Court of Appeals for the

Armed Forces (formerly known as the Court of Military Appeals), which

had not granted the remedy of a new hearing, and ordered it to remand for

new proceedings below. Id. It was reversible error to permit the prior

hearing to stand as valid. Id. Instead, the Supreme Court ordered a “do-

over” by a panel constituted without any constitutional defect. Id.

Similarly, in Intercollegiate Broadcasting System, Inc. v. Copyright

Royalty Bd., 684 F.3d 1332 (D.C. Cir. 2012), this Court recently remedied a

defect in the appointment of Copyright Royalty Board judges by invalidating

and severing a provision restricting removal authority. Tellingly, after curing

the separation-of-powers flaw, this Court vacated the challenged decisions

and remanded for new proceedings. Id., at 1334.

The Kuretskis are due a remedy similar to those obtained by the

successful separation-of-powers challengers in Free Enterprise Fund, Ryder,

and Intercollegiate Broadcasting.

In sum, this Court should declare as unconstitutional the President’s §

7443(f) power to remove Tax Court judges because the threat of executive


48

domination taints the exercise of judicial power. It should then vacate both

the opinion and decision in this case. Finally, this Court should remand the

case to the Tax Court for new proceedings before adjudicators free from

presidential removal authority.

II. The Tax Court Erred in Not Finding Reasonable Cause and Lack of Willful Neglect for Penalty Abatement Under § 6651(a)(2).

A. Penalty Abatement is Determined De Novo By the Tax

Court.

A CDP hearing concerning a challenge to the underlying liability is

reviewed by the Tax Court on a de novo basis. Goza v. Commissioner, 114

T.C. 176, 181 (2004) (quoting legislative history at H. Conf. Rept. 105-599,

at 266 (1998)). Furthermore, the “underlying tax liability” which may be

challenged under § 6330(c)(2)(B) in a CDP hearing includes penalties like

the late-payment penalty of § 6651(a)(2). Montgomery v. Commissioner,

122 T.C. 1, 8-9 (2004). Therefore, the Tax Court had to review the

Kuretskis’ claim of reasonable cause and lack of willful neglect de novo,

rather than under an abuse-of-discretion standard.10 This Court , using a

clearly erroneous standard of review, should find that the Tax Court erred.

10 This standard raises a significant implication for this Court: namely that the separation-of-powers issues must be addressed in this appeal because the ultimate interpreter of the grounds for penalty abatement under § 6651(a)(2)’s reasonable-cause exception was the Tax Court itself. In other words, the Tax Court did not simply uphold the CDP hearing officer’s


49

B. The Kuretskis Clearly Had Reasonable Cause for Non-payment at the Time of Filing, Entitling Them to Penalty Relief Under § 6651(a)(2).

Under § 6651, “Failure to file return or to pay tax,” penalties are

assessable, among other reasons, for a failure to pay amounts shown “on or

before the date prescribed for payment . . . unless it is shown that such

failure is due to reasonable cause and not due to willful neglect . . . .” Id. at

§ 6651(a)(2) (emphasis added). Both the case law interpreting this section

and the applicable regulations that the IRS propounded thereon show that the

Kuretskis had reasonable cause for non-payment at the time of filing their

2007 return.

Although reasonable cause and willful neglect are not defined in the

Internal Revenue Code, there is ample precedent concerning their meaning.

More specifically, “‘[r]easonable cause’ means the exercise of ‘ordinary

business care and prudence’”. United States v. Boyle, 469 U.S. 241, 246

(1985) (quoting from 26 C.F.R. § 301.6651-1(c)(1)). This Court has

followed “the rule that ‘reasonable cause means nothing more than the

exercise of ordinary business care and prudence.’ ” Orient Investment &

Finance Co., Inc. v. Commissioner, 166 F.2d 601 (D.C. Cir. 1948) (quoting

determination due to a lack of abuse of discretion at the CDP-hearing level, but found no reasonable cause as a de novo fact, sua sponte. That finding was thus tainted by the impermissible removal power under § 7443(f).


50

Southeastern Finance Co. v. Commissioner, 153 F.2d 205 (5th Cir. 1946)).

In Orient, this Court relied on the IRS Commissioner’s own guideline that

“if the delinquency occurs notwithstanding the exercise of ordinary care and

caution, the penalty will not be charged.” Id. at 602. “Whether the elements

which constitute ‘reasonable cause’ are present in a particular case is a

question of fact, but what elements must be present to constitute reasonable

cause is a question of law.” Boyle, supra, at 249 n. 8 (emphasis in original).

According to the Treasury Regulations on which the Supreme Court

partly relied in Boyle, “ordinary business care” is the making of “reasonable

efforts to conserve sufficient assets in marketable form to satisfy . . . [a] tax

liability [while being] nevertheless . . . unable to pay” when filing. 26

C.F.R. § 301.6651-1(c)(1). In Boyle, the Supreme Court observed that it

was up to the district director to determine “whether the asserted cause [for

non-payment while filing] is reasonable.” Id. at 243. Relief is to be granted

by the IRS when the delay in payment “ ‘appears to a person of ordinary

prudence and intelligence as a reasonable cause . . . which clearly negatives

willful neglect . . . .’ ” Id. at n. 1 (quoting a former provision of the Internal

Revenue Manual).

Avoidance of “undue hardship” by a taxpayer is also sufficient to

sustain an assertion of “reasonable cause”. 26 C.F.R. § 301.6651-1(c)(1).


51

The test for reasonable cause takes into account all the “facts and

circumstances of the taxpayer’s financial situation . . . .” Id. Undue

hardship is “more than an inconvenience to the taxpayer.” 26 C.F.R. §

1.6161-1(b). However, undue hardship occurs when it “appear[s] that

substantial financial loss . . . due to the sale of property at a sacrifice price,

will result to the taxpayer for making the payment on the due date . . . .” Id.

Here, the Kuretskis were both unemployed and required funds for

counsel fees in a federal criminal case in which they were falsely implicated.

After taking withdrawals from their retirement accounts, their principal

assets that could be used to pay the taxes on those withdrawals were either

illiquid (their home) or gaining access thereto would have increased the

Kuretskis’ already difficult tax and financial burdens (i.e., further

withdrawal of funds from their retirement accounts, which would have

triggered more taxes and early withdrawal penalties) and caused a reduction

of funds needed for eventual retirement. The Kuretskis also had insufficient

income and no reasonable way to borrow against illiquid or otherwise

encumbered assets, due to their lack of creditworthiness because they both

were close to retirement age and not employed, and the confession of

judgment existing against them at the time of filing their 2007 return. That

confession particularly made Mrs. Kuretski not employable in her former


52

profession at a bank. (A85-A86) Such a situation clearly amounted to more

than an inconvenience, and, considering that they were on a fixed income,

represented an undue hardship under the definitions above.

C. Section 6330 Requires the IRS Office of Appeals to Make Independent Determinations of Liability and Collection Alternatives, and Prohibits Conditioning Penalty Abatement on the Existence or Lack of a Collection Alternative.

The IRS Office of Appeals is required to make a “determination” in

CDP hearings. § 6330(c)(3). This statutory duty is separate from other

agreements Appellees may make in resolving tax disputes. “Penalty issues

are not traded in Appeals.” Internal Revenue Manual (“IRM”) 8.6.4.1.2(6).

“Penalties are settled, but the settlement is based on the merits and hazards

surrounding each penalty issue standing alone.” Id. “Penalties are used to

enhance voluntary compliance.” IRM 1.2.20.1.1(1). Moreover, “penalties

are not a ‘bargaining point’ in resolving the taxpayer’s other tax adjustments

. . . [but are] an incentive for taxpayers to avoid careless or overly aggressive

tax reporting positions.” IRM 1.2.20.1.1(9).

Here, ATM O’Dea, in his notice of determination, inappropriately tied

penalty relief to the entry into an installment agreement. “Several issues

were discussed at that meeting and you were advised we would consider

your abatement request as part of an overall resolution including agreement


53

to pay outstanding liabilities through an installment agreement.” (A95) SO

Lazar had initially determined that the Kuretskis qualified for penalty

abatement . (A100). Yet, she, too, by the in-person conference on June 28,

2010, had apparently decided to tie penalty abatement to an installment

agreement. (A100, A153-154) These actions by ATM O’Dea and SO Lazar

were contrary to the IRS policies on penalties stated in the IRM sections

above.11 Penalty relief should have been found by them because the penalty

determination should have been wholly separate from any determination

regarding an installment agreement. It was improper for Ms. Lazar and Mr.

O’Dea to bundle the two issues.

Further, there was no conceivable way for imposition of the penalty to

“enhance voluntary compliance,” as contemplated under the IRS penalty

guidelines, because the allegedly willful failure to pay had already occurred.

The Kuretskis had in no way adopted an “overly aggressive” or careless

position in their return filing, and payment shown due on the return at that

11 The Tax Court has held that the IRS must follow the IRM. See e.g., Samuel v. Commissioner, T.C. Memo. 2007-312 at *18 (“under the abuse of discretion standard, [the Tax Court] must assure that the [IRM offer in compromise “dissipated assets”] guideline is correctly applied [by the SO]”). Cf. Tucker v. Commissioner, 676 F.3d 1129, 1135-1137 (D.C. Cir. 2012) (no abuse of discretion found where SO properly followed IRM “dissipated assets” provisions).


54

time would simply have been unreasonable, imprudent, and unduly

burdensome for them.

For the foregoing reasons, this Court should reverse ATM O’Dea’s

actions and recognize that reasonable cause did exist in this matter entitling

the Kuretskis to complete penalty abatement.

III. Collection Due Process Hearings, as Currently Administered, Provide Inadequate Due Process Under the Fifth Amendment.

ATMs supervise the SOs who actually conduct the CDP hearings.

Hearings take place either in-person, by telephone, by mail or through some

combination of these methods. 26 C.F.R. § 301.6330-1(d)(A-D6). ATMs

are required to “review and approve” final CDP determinations made by

SOs. Delegation Order Appeals-193-1, IRM Exhibit 8.22.4-1.

In this and other cases, this approval process raises significant Due

Process concerns. The basic meaning of Due Process is notice and a

meaningful opportunity to be heard. See, e.g. Mathews v. Eldridge, 424 U.S.

319, 333 (1976). To be sure, the Kuretskis had notice and were heard.

However, there was a failure of Due Process around the time of the

finalization of the notice of determination by ATM O’Dea.

The Kuretskis have a sneaking suspicion that AMT O’Dea influenced

SO Lazar to begin linking penalty abatement with an installment agreement

or overruled her on penalty abatement. Further, there is no apparent


55

procedure for the Kuretskis or any other taxpayer to speak to an ATM before

the ATM issues an adverse notice of determination. In this case, SO Lazar

told the Kuretskis’ lawyer the day before the notice of determination that the

case had already been closed adversely. This is borne out by the issuance of

the notice of determination the following day. The Due Process problems

here are ones of transparency and access to the ultimate decision-maker.

With regard to transparency, it is simply impossible to know what happened

here because SO Lazar never wrote up her preliminary determination for

penalty abatement. The Kuretskis cannot know whether she was actually

upheld by ATM O’Dea or whether, behind the scenes, he influenced her or

co-wrote the final determination to deny penalty abatement. Under IRS

procedures, there is no way that a taxpayer formally discusses the proposed

notice of determination with the ATM – the final decision-maker – before it

is issued.

The test under the Supreme Court’s Mathews holding involves three

factors to evaluate sufficiency of procedural Due Process. A court must

consider:

1. “[T]he private interest that will be affected by the official action;”

2. “[T]he risk of an erroneous deprivation of such interest through the

procedures used, and;”


56

3. “[T]he probable value, if any, of additional or substitute procedural

safeguards;” and, “[T]he Government’s interest [at stake] . . . and

the fiscal and administrative burdens that the additional or

substitute procedural requirement would entail.”

Mathews, 424 U.S. at 335.

A balancing of the Mathews factors clearly shows that the Kuretskis,

as well as those similarly situated, are deprived of Due Process under the

Fifth Amendment under the current handling of statutorily-mandated CDP

hearings. First, the Kuretskis’ property interest in maintaining their home

and adequate funds for retirement suffices for prong one. Second, the fact

that the conditions for penalty abatement were present under the evaluation

of Ms. Lazar, who actually conducted the hearing, shows a significant

administrative lapse. It is hereby respectfully submitted if a taxpayer had

either (1) an opportunity to review and comment on a mandatory written

report to be submitted by the actual hearing officer to the ATM before

finalization of the notice of determination or (2) some opportunity to interact

with the ATM before the rendering of the final notice of determination by

the ATM, unfair outcomes such as the one arrived at in this case would be

rendered significantly less likely. Any additional burden on the IRS Office


57

of Appeals, created by such a policy would be practically trivial so there

would be no issue regarding the second portion of the third Mathews factor.

A Supreme Court case with very similar facts to those arising here,

Ballard v. Commissioner, 544 U.S. 40 (2005), is highly instructive. There,

although the taxpayers asserted a Due Process violation, the Court declined

to address that argument, finding sufficient other grounds to hold for the

taxpayers. Id. at 64-65. In Ballard, the Supreme Court held that the Tax

Court must disclose the report of the Special Trial Judge who actually

presided over the case. Id. at 52. In cases involving tax deficiencies that

exceed $50,000, the decision is reserved for a regular Tax Court judge. §

7443A(c). The procedure is that the Special Trial Judge prepares a report

for submission to the regular Tax Court judge, including “findings of fact

recommended by the Special Trial Judge [that] shall be presumed to be

correct.” Tax Court Rule 183(d). At the time of Ballard, Tax Court Rule

183 did not explicitly provide that a copy of the Special Trial Judge’s report

be included in the record or shown to the parties for their comment before

the regular Tax Court judge decided the case. And, it appeared that a

process of collaborative opinion writing had developed between Special

Trial Judges hearing the cases and regular Tax Court judges reviewing their

reports – such that the Tax Court always would issue an opinion of the


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regular Tax Court judge purporting to adopt, word-for-word, the report of

the Special Trial Judge (even though adopting the Special Trial Judge’s

findings was not always the situation in reality).

The petitioners in Ballard objected to concealment by the Tax Court

of the original Special Trial Judge’s report in their case – particularly, since

they had heard it had been altered adversely by the regular judge (contrary to

the purported word-for-word agreement between the two judges stated in the

final opinion). In reinterpreting the meaning of Tax Court Rule 183 to avoid

a possible Due Process concern, the Supreme Court stated that the omission

from the record of the Special Trial Judge’s report “impedes fully informed

appellate review of the Tax Court’s decision.” Id. at 59-60. The Supreme

Court required that the Special Trial Judge’s report both be incorporated into

the record and that the parties have an opportunity to comment on it to the

regular judge ultimately deciding the case. There is an almost identical

parallel here: Had the Kuretskis had an opportunity to know what the

proposed determination submitted by SO Lazar to ATM O’Dea was, a more

complete record would have been before the Tax Court, and, ultimately,

before this Court. Also, the Kuretskis could have commented on the

proposed adverse resolution to ATM O’Dea before he issued the adverse

notice of determination to them.


59

In Ballard, the Court observed that “in forums in which one official

conducts the trial (and thus sees and hears the witnesses), and another

official subsequently renders the final decision” disclosure of reports of the

first stage is “nearly universal.” Id. at 62. For example, 28 U.S.C. § 636,

which provides for designation of magistrate judges to conduct hearings,

requires that “the magistrate judge shall file his proposed findings and

recommendations . . . with the court and a copy shall forthwith be mailed to

all parties.” 28 U.S.C. § 636(b)(1)(C). The Administrative Procedure Act

also directs: “All decisions, including initial, recommended, and tentative

decisions, are a part of the record” which shall be reviewed in its entirety by

a reviewing court. 5 U.S.C. §§ 557(c) and 706. The Federal Rules of Civil

and Bankruptcy Procedure similarly provide the same procedure when

decisions are finalized by persons other than the hearing officer. Ballard at

61.

In substance, the Supreme Court ruled in Ballard that some form of

the proposed conclusions reached by the de facto hearing officer must be

both included in the record on appeal and made available to the parties so

that they may comment thereon. The current procedures under which CDP

hearings are handled are thus improper. This Court should remand this case


60

to the Tax Court with instructions to provide a suitable remedy, since the

current IRS procedures appear to violate Due Process.

It is hereby also respectfully submitted that the Due Process violations

here cannot be dismissed as harmless error simply because the Tax Court

decided the penalty issue de novo. Had the notice of determination provided

for penalty abatement, the Kuretskis might not have appealed to the Tax

Court the rest of the CDP determination denying them the installment

agreement they had proposed to SO Lazar. Absent such an appeal to the Tax

Court, IRS’ Collection Division would have taken back authority to issue a

levy (though only with respect to the underlying tax and interest) and the

Kuretskis could still potentially have negotiated an installment agreement

with the Collection Division under either terms identical to those which they

had proposed to Lazar or similar ones. Such a scenario would have been a

probable outcome had the CDP hearing properly accorded with the Supreme

Court’s procedural views as expressed in Ballard.


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CONCLUSION

Wherefore, it is prayed that if the Court reaches the separation-of-

powers issue, it vacate the Tax Court’s decision and March 4, 2013 order,

declare the President’s interbranch removal power unconstitutional, and

remand this case to the Tax Court to be re-decided by that Court. If this

Court does not reach or does not agree that there is anything unconstitutional

about the removal power, then it should rule that Kuretskis were entitled to

penalty abatement under § 6651(a)(2). If this Court declines to so rule under

§ 6651(a)(2), it should find that current CDP hearing procedures violate Due

Process, and this Court should remand this case to the Tax Court for the Tax

Court to fashion an appropriate remedy for the violation.

Respectfully submitted,

/s/ Frank Agostino /s/Carlton M. Smith Frank Agostino Prof. Carlton M. Smith Director, Benjamin N. Cardozo /s/ John P. L. Miscione School of Law Tax Clinic John P.L. Miscione 55 Fifth Avenue AGOSTINO & ASSOCIATES, P.C. New York, New York 10003 14 Washington Place (212) 790-0381 Hackensack, New Jersey 07601 Counsel for Appellants (201) 488-5400 Counsel for Appellants /s/ Tuan N. Samahon Prof. Tuan Samahon Villanova Univ. School of Law 299 North Spring Mill Road Villanova, Pennsylvania 19085 (610) 519-7088 July 2013 Counsel for Appellants


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STATUTORY ADDENDUM

TABLE OF CONTENTS

Page 26 U.S.C. § 6330 (excerpt) ………………………………………… 63

26 U.S.C. § 6651(a) (excerpt) …………………………………….. 66

26 U.S.C. § 7441 …………………………………………………… 67

26 U.S.C. § 7443 (excerpt) ………………………………………... 68 26 C.F.R. § 301.6651-1(c) (excerpt) ……………………………… 69


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26 U.S.C. § 6330 (excerpt)

§ 6330. Notice and opportunity for hearing before levy (a) Requirement of notice before levy. (1) In general. No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made. Such notice shall be required only once for the taxable period to which the unpaid tax specified in paragraph (3)(A) relates. (2) Time and method for notice. The notice required under paragraph (1) shall be-- (A) given in person; (B) left at the dwelling or usual place of business of such person; or (C) sent by certified or registered mail, return receipt requested, to such person's last known address; not less than 30 days before the day of the first levy with respect to the amount of the unpaid tax for the taxable period. (3) Information included with notice. The notice required under paragraph (1) shall include in simple and nontechnical terms-- (A) the amount of unpaid tax; (B) the right of the person to request a hearing during the 30-day period under paragraph (2); and (C) the proposed action by the Secretary and the rights of the person with respect to such action, including a brief statement which sets forth-- (i) the provisions of this title relating to levy and sale of property; (ii) the procedures applicable to the levy and sale of property under this title; (iii) the administrative appeals available to the taxpayer with respect to such levy and sale and the procedures relating to such appeals; (iv) the alternatives available to taxpayers which could prevent levy on property (including installment agreements under section 6159); and (v) the provisions of this title and procedures relating to redemption of property and release of liens on property. (b) Right to fair hearing. (1) In general. If the person requests a hearing in writing under subsection (a)(3)(B) and states the grounds for the requested hearing, such hearing shall be held by the Internal Revenue Service Office of Appeals. (2) One hearing per period. A person shall be entitled to only one hearing


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under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates. (3) Impartial officer. The hearing under this subsection shall be conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax specified in subsection (a)(3)(A) before the first hearing under this section or section 6320. A taxpayer may waive the requirement of this paragraph. (c) Matters considered at hearing. In the case of any hearing conducted under this section-- (1) Requirement of investigation. The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. (2) Issues at hearing. (A) In general. The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including-- (i) appropriate spousal defenses; (ii) challenges to the appropriateness of collection actions; and (iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise. (B) Underlying liability. The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. (3) Basis for the determination. The determination by an appeals officer under this subsection shall take into consideration-- (A) the verification presented under paragraph (1); (B) the issues raised under paragraph (2); and (C) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary. (4) Certain issues precluded. An issue may not be raised at the hearing if-- (A) (i) the issue was raised and considered at a previous hearing under section 6320 or in any other previous administrative or judicial proceeding; and (ii) the person seeking to raise the issue participated meaningfully in such hearing or proceeding; or (B) the issue meets the requirement of clause (i) or (ii) of section


65

6702(b)(2)(A). This paragraph shall not apply to any issue with respect to which subsection (d)(2)(B) applies. (d) Proceeding after hearing. (1) Judicial review of determination. The person may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). (2) Jurisdiction retained at IRS Office of Appeals. The Internal Revenue Service Office of Appeals shall retain jurisdiction with respect to any determination made under this section, including subsequent hearings requested by the person who requested the original hearing on issues regarding-- (A) collection actions taken or proposed with respect to such determination; and (B) after the person has exhausted all administrative remedies, a change in circumstances with respect to such person which affects such determination.


66

26 U.S.C. § 6651(a) (excerpt)

§ 6651. Failure to file tax return or to pay tax. (a) Addition to the tax. In case of failure-- (1) to file any return required under authority of subchapter A of chapter 61 [(which includes income taxes)], . . . on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate; (2) to pay the amount shown as tax on any return specified in paragraph (1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;


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26 U.S.C. § 7441 § 7441. Status. There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court.


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26 U.S.C. § 7443 (excerpt)

§ 7443. Membership. (a) Number. The Tax Court shall be composed of 19 members. (b) Appointment. Judges of the Tax Court shall be appointed by the President, by and with the advice and consent of the Senate, solely on the grounds of fitness to perform the duties of the office. . . . (e) Term of office. The term of office of any judge of the Tax Court shall expire 15 years after he takes office. (f) Removal from office. Judges of the Tax Court may be removed by the President, after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.


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26 C.F.R. § 301.6651-1(c) (excerpt)

(c) Showing of reasonable cause. (1) Except as provided in subparagraphs (3) and (4) of this paragraph (b), a taxpayer who wishes to avoid the addition to the tax for failure to file a tax return or pay tax must make an affirmative showing of all facts alleged as a reasonable cause for his failure to file such return or pay such tax on time in the form of a written statement containing a declaration that it is made under penalties of perjury. Such statement should be filed with the district director or the director of the service center with whom the return is required to be filed; . . . . If the district director, the director of the service center, or, where applicable, the Regional Director, Bureau of Alcohol, Tobacco and Firearms, determines that the delinquency was due to a reasonable cause and not to willful neglect, the addition to the tax will not be assessed. . . . A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship (as described in § 1.6161-1(b) of this chapter) if he paid on the due date. In determining whether the taxpayer was unable to pay the tax in spite of the exercise of ordinary business care and prudence in providing for payment of his tax liability, consideration will be given to all the facts and circumstances of the taxpayer's financial situation, including the amount and nature of the taxpayer's expenditures in light of the income (or other amounts) he could, at the time of such expenditures, reasonably expect to receive prior to the date prescribed for the payment of the tax. Thus, for example, a taxpayer who incurs lavish or extravagant living expenses in an amount such that the remainder of his assets and anticipated income will be insufficient to pay his tax, has not exercised ordinary business care and prudence in providing for the payment of his tax liability. Further, a taxpayer who invests funds in speculative or illiquid assets has not exercised ordinary business care and prudence in providing for the payment of his tax liability unless, at the time of the investment, the remainder of the taxpayer's assets and estimated income will be sufficient to pay his tax or it can be reasonably foreseen that the speculative or illiquid investment made by the taxpayer can be utilized (by sale or as security for a loan) to realize sufficient funds to satisfy the tax liability. A taxpayer will be considered to have exercised ordinary business care and prudence if he made reasonable efforts to conserve sufficient assets in marketable form to satisfy his tax liability and nevertheless was unable to pay all or a portion of the tax when it became due.


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(2) In determining if the taxpayer exercised ordinary business care and prudence in providing for the payment of his tax liability, consideration will be given to the nature of the tax which the taxpayer has failed to pay. Thus, for example, facts and circumstances which, because of the taxpayer's efforts to conserve assets in marketable form, may constitute reasonable cause for nonpayment of income taxes may not constitute reasonable cause for failure to pay over taxes described in section 7501 that are collected or withheld from any other person.


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CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS,

AND TYPE STYLE REQUIREMENTS

1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because:

[X] this brief contains 13,525 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or

[ ] this brief uses a monospaced typeface and contains [state the number of] lines of text, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App.

P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because:

[X] this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2000 in 14 point Times New Roman, or

[ ] this brief has been prepared in a monospaced typeface using [state name and version of word processing program] with [state number of characters per inch and name of type style].

/s/ Carlton M. Smith Prof. Carlton M. Smith

Counsel for Appellants Dated: July 30, 2013


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CERTIFICATE OF SERVICE

I hereby certify that on on July 30, 2013, I served a copy of the

foregoing on Bethany B. Hauser, Esq., counsel for the Appellee, by filing it

with the Court’s CM/ECF system, on which she is registered.

I further certify that on July 30, 2013, I served two copies of the

foregoing on Bethany B. Hauser, Esq., counsel for the Appellee, by mailing

them to her, postage pre-paid, at Tax Division, Department of Justice, P.O.

Box 502, Washington, D.C. 20044.

/s/ Carlton M. Smith Prof. Carlton M. Smith

Counsel for Appellants


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