Wednesday, August 31, 2011

The Tax Court serves many masters

One thing we noted about the U.S. Tax Court is that cases from that court are appealable to federal courts of appeals all over the country.  Appeal from a Tax Court decision lies in the circuit in which the taxpayer lived when the taxpayer filed his, her, or its petition (complaint) in the Tax Court.  (The appeal venue can be changed by stipulation of the taxpayer and the IRS, but that's the general rule.)

This makes the life of a Tax Court judge a bit challenging.  If there is a conflict among the courts of appeals on a tax issue, the Tax Court needs to know to which circuit its decision is going to be appealable.  For that reason, one of the things the taxpayer has to include in the petition is a statement of the taxpayer's place of residence.

And that means that the Tax Court may have to rule one way or another depending on where the taxpayer lives, treating taxpayers from different parts of the country differently.  For example, let's say that on a particular tax issue, the Ninth Circuit favors the IRS but the Fifth Circuit favors the taxpayer.  And let's say that the Tax Court, if left to its own decision, agrees with the Ninth Circuit.  If a taxpayer comes in from the Fifth Circuit, the Tax Court will have to apply the Fifth Circuit rule, even though the Tax Court thinks it's wrong.  The Tax Court doesn't have much choice in the matter -- it will be reversed by the Fifth if it does what it thinks is right -- and so it has to buckle under.  If a taxpayer comes in with the same issue from the Ninth Circuit -- or a circuit in which the court of appeals has not yet spoken -- the Tax Court can and will do what it thinks is the right thing, and on these facts hold for the government.

There's a famous 1970 Tax Court case that lays out the rules of the road here.  It's Golsen v. Commissioner, 54 TC 742 (1970) (aff'd on other grounds), and for Pete's sake, it even has its own Facebook page!  I went ahead and gave it a "Like."

What this blog is about

Years ago, my colleague, the late, great Ed Belsheim, took me aside and revealed to me some of the secrets of his success as a law professor.  One of them was this: "We're here to teach the basics.  In class, by the time you say anything that's interesting to you, you've said too much."

Ed was a character.  At age 80-something, he'd cover huge swaths of material in every class session, and he had his syllabus memorized.  If a student asked an advanced question early on the semester, Ed would say something like, "We'll be covering that at 3:12 p.m. on October 14."  One evening, as I watched him slowly shuffling to his lecture, huffing and puffing a bit as he went, I kidded him: "Hey Ed, another 40 pages tonight?"  Without missing a beat, he replied: "At least."  The students loved him, and rewarded him with several best teacher awards.

As the years pass, I appreciate Ed's wisdom more and more.  I call it the Belsheim Rule.  There are so many interesting (at least to me) things that I'd like to say in the courses I teach -- the basic Income Tax class in particular -- but there isn't time for all of them.  And succumbing to the temptation to include too many can worsen the constant problem of trying to boil the entire income tax law into 52 hours.

This blog is an attempt to avoid that pitfall.  When I get out of a class session in which I've resisted the impulse to tell a good story, I'm going to reward myself by writing it down here.  I'll let the students know that this site exists, but I'll make their looking at it completely optional.  I hope I'll feel as though I satisfied my duty to share what I know, without gumming up the march through the syllabus with too many detours.