Tax Court Judge Test to Aid Constitutional Issue Resolution (1)

The Eleventh Circuit is set to consider a constitutional challenge to the authority of US Tax Court judges, a case that attorneys say can help shape a line of rulings on the powers of nontraditional adjudicators.

Taxpayer Fannie Wright will try to convince the US Court of Appeals for the Eleventh Circuit at oral arguments Thursday that the entire court system is invalid as part of her appeal from a Tax Court decision upholding $6,100 in deficiencies and penalties originally assessed by the IRS.

The case centers around Internal Revenue Code Section 7443, which governs how the Tax Court’s 19 judges are appointed and can be removed by the president for inefficiency, neglect of duty, or malfeasance.

If the judges are part of the executive branch, Wright argues the law circumvents the president’s powers under Article II of the Constitution. If they are part of the judicial branch, presidential authority to remove them violates separation of powers, she says.

If Wright prevails, it could open the door for more procedural legal challenges to the Tax Court, said Peter Hardy, a partner with Holland & Knight LLP’s tax practice.

But he said Wright faces an uphill battle because Tax Court Judges are Article I judges, and the removal protections at issue in Wright’s argument fall under Article II.

“Taxpayers themselves take advantage of the Tax Court; it’s not perceived as some kind of insider court for the IRS,” Hardy said. “That doesn’t mean there aren’t criticisms of the court, fair or not, but taxpayers tend to get a fair shake at the court and it rules against the IRS all of the time.”

Then again, especially considering the US Supreme Court’s Loper Bright v. Raimondo decision last year ending judicial deference to federal agencies, Wright’s case could allow the Eleventh Circuit to clarify the Tax Court’s power, said Ryan Regula, an attorney at Snell & Wilmer LLP.

“There’s an opportunity to provide some nuance here; it could be another measure by which administrative law judges could be checked,” Regula said. “I think the plaintiff’s argument is strong in terms of if they are Article I judges or executive branch adjudicators.”

Broader Landscape

Constitutional arguments about the Tax Court’s judges aren’t new, but the latest case comes amid a larger wave of challenges to administrative law judges, including dozens of suits targeting the removal protections enjoyed by judges at the National Labor Relations Board, the Federal Trade Commission, the Drug Enforcement Administration, and other agencies.

A major shift came after the Fifth Circuit determined in Jarkesy v. SEC that the Securities and Exchange Commission’s in-house judges violate the Constitution’s right to a fair trial for civil penalties.

But the Supreme Court didn’t fully address those conclusions, upholding a right to jury trial for monetary damages but avoiding explicit rejection of SEC judges’ power.

The Trump administration’s Justice Department also has signaled a shift in its posture toward the issue.

In a February statement, DOJ Chief of Staff Chad Mizelle said removal restrictions shielding administrative law judges are unconstitutional and that it was “restoring constitutional accountability” over officials that have “exercised immense power for far too long.”

Hardy isn’t convinced the administration would want to touch the Tax Court though, considering both its specialized expertise and its workload.

In 2023, the court managed about 28,000 cases filed, and closed another 31,000. A great majority of cases involve taxpayers contesting deficiencies, tax liens, or levies, according to its fiscal year 2025 congressional budget justification.

A single Tax Court judge can oversee 100 to 125 cases in a one-week session—work that otherwise would fall to federal district courts that see far fewer tax-related cases, and which are usually more general in nature and don’t require as complex a reading of the tax code, Hardy said.

And Tax Court judges don’t have the same removal protections as those in the SEC, which weakens the legal argument.

“The vibes are off, if you will,” Hardy said.

The Eleventh Circuit’s ultimate decision, however, could add fuel to the question of whether the courts are setting up to review the 90-year-old Humphrey’s Executor v. United States decision and the president’s power to remove judges and other officials, said Charlene Warner, an associate at Snell & Wilmer LLP.

That case, which blocked the removal of a Federal Trade Commissioner on policy grounds, has in the decades since maintained the independence of regulatory agencies and their appointees.

“I don’t see this as providing some sort of sea change but it will help with some analysis about where the Tax Court fits,” she said.

Margulis Gelfand DiRuzzo & Lambson LLC represents Wright.

The case is Wright v. Commissioner, 11th Cir., No. 24-10563, oral arguments scheduled 4/3/25.