Justices to Review Tax Court Secrecy

The Supreme Court agreed Monday to review the government’s way of resolving large tax disputes, accepting a challenge that claims taxpayers can be hit with multimillion-dollar judgments without knowing how the decision was reached.

Justices will hear a constitutional challenge to the little-known and technical process for people who fight government demands for taxes. At issue are the largest cases -- those involving more than $50,000, in which special judges hold trials and forward recommendations to the U.S. Tax Court for rulings.

Two cases justices chose to consider stem from accusations that Claude Ballard, a real estate executive, and Burton Kanter, a prominent tax attorney with ties to Hollywood, were part of a kickback scheme. The IRS sought $30 million in back taxes and penalties. Kanter died in 2001.

Richard Pildes, a New York University law professor representing Kanter’s family, said the court would decide whether people in tax disputes are getting fair trials. The stakes involve not only millions of dollars, he said, but also ruined reputations.

In filings, justices were told it was difficult to defend the two because the judges’ reports to Tax Court and other paperwork were kept secret. Tax Court, with 19 members appointed by the president, “keeps legally binding findings of fact completely secret,” even from the appeals court that reviews its decision, justices were told.

The Supreme Court will decide whether the secrecy violates taxpayers’ 5th Amendment right not to be “deprived of life, liberty or property without due process of law.”

Solicitor Gen. Theodore Olson, the Bush administration’s top Supreme Court lawyer, said the law does not require disclosure of all documents from Tax Court. He said Congress would have to order the opening of records.

Taxpayers fighting with the Internal Revenue Service may use traditional courts. However, they must first pay the IRS, then file a lawsuit to try to recover the money.

The Supreme Court review is limited to the type of administrative court involved when people choose to contest IRS findings without paying up first. Trials over large IRS demands average at least 50 per year, often significantly more, “through the extraordinary, secretive process at issue here,” justices were told by attorneys for Kanter.

Kanter was a leading estate tax lawyer who helped Hollywood finance movies in the 1960s and ‘70s. He was accused of taking money from people who wanted to do business with Prudential Life Insurance Co. of America and funneling about $3 million to Ballard, a vice president dealing with real estate.

The trial judge spent four years preparing a confidential report for the tax court. Tax Court found the men guilty of tax fraud, though their attorneys claim the report recommended they be exonerated. They said several Tax Court judges revealed details of the private recommendation.