Tax Court Cases Stall as IRS Enforcement Grows, Vacancies Linger

Vacancies on the US Tax Court doubled in the last year, leaving the court with fewer confirmed judges and no picks by President Joe Biden to handle a bevy of cases expected to grow as the IRS amps up enforcement.

The court has 19 Senate-confirmed judges when fully staffed but only 13 judges currently serve 15-year terms, working alongside senior and special trial judges to handle thousands of cases, some requiring lengthy trials. Seven of the 13 remaining judges were confirmed during President Donald Trump’s administration.

The overall number of cases filed at the court in fiscal 2023 was lower than the previous two years, but an influx of conservation easement donation and small captive insurance cases are leading to lengthy trials. And as the IRS invests billions of new funding to modernize and amp up enforcement on high-wealth taxpayers, even more complex cases could be headed to the court, creating a backlog.

“As the IRS grows, the Tax Court needs to be ready for that, and it’s hard for them to be ready, if they’re down by one-third of their number of judges,” said Keith Fogg, an emeritus professor and former director of Harvard’s Federal Tax Clinic at the Legal Services Center.

The court, which also received millions as part of the 2022 tax-and-climate law, acknowledged that ramped-up enforcement could lead to more complex cases and said the funding would be used to do things ranging from modernizing technology to hiring more staffers and streamlining processes, the court’s fiscal 2024 report said.

Travel, Special Session

With fewer Senate-confirmed judges, the court relies on special trial and senior status judges to pick up the slack. Some cases are heard online but others require travel to nearly 70 locations across the US. The court in 2023 added two more special trial judges capable of handling cases under a certain annual dollar amount and about a dozen senior judges are still taking cases even though their terms expired or they reached retirement age.

Despite a dip from over 35,000 cases following the Covid pandemic’s onset in fiscal 2021 to about 22,000 in fiscal 2023, the conservation and insurance trials are handled by judges during a growing number of special sessions. Unlike roughly one-week regular sessions, special sessions consist of one or a few big cases that could lead to trials lasting several days or stretching for weeks.

That trend is likely to continue, said Chief Judge Kathleen Kerrigan in an interview with Bloomberg Tax, adding the court is adapting to the challenges. She estimated that there are several hundred conservation easement cases at the court and over a hundred captive insurance cases.

“Judges were doing between one and two specials a year, and that’s increased,” she said. “Now, they’re up to five to seven.”

Kerrigan said she believed newly confirmed judges would transition to the bench and be productive in their first year.

But job demands like frequent travel can take a toll, said Tax Court Judge Cary Douglas Pugh, adding that the court relies on senior judges to take a heavy load to fill in the gaps of the vacancies. She was speaking at a conference hosted by the American Bar Association’s tax section in San Francisco earlier this month.

“I don’t think there’s any sort of magic solution other than emphasizing to the extent possible, it’d be great to get the nominees,” said Pugh.

Small Taxpayers Most at Risk

The century-old court, housed in downtown Washington in a giant cube clad in granite and glass, is tasked as the forum for taxpayers to resolve disputes with the IRS. Many are individuals representing themselves.

The Tax Court started 2023 with 16 judges, but three judges moved to senior status during the year as two saw their 15-year terms expire and another reached the age of retirement. No judges are expected to retire this year.

President Joe Biden’s administration has touted its achievements getting a diverse group of about 170 judges to lifetime federal judiciary posts across the US. But it has so far named no nominees to fill the Tax Court vacancies.

The White House didn’t immediately respond to requests for comment.

Unlike circuit and district court judges vetted by the Senate Judiciary Committee, Tax Court nominees are nominated by the White House before facing the Senate Finance Committee. A Tax Court pick hasn’t appeared before the panel since 2020.

Finance Chair Ron Wyden (D-Ore.) said the court remains a top priority.

“The Finance Committee has a long tradition of handling Tax Court nominations in a bipartisan fashion,” he said in a statement Jan. 19. “With several vacancies currently on the Court, I look forward to quickly processing nominees in that tradition once the administration sends them along.”

The White House has received recommendations for Tax Court nominees from Wyden, said Finance spokesperson Ryan Carey, declining to share details about individual nominees.

Kevin Kenworthy, lead of Miller & Chevalier’s tax controversy and litigation practice, worked as a Tax Court clerk in the 1980s. He hasn’t observed a major impact of the vacancies yet because the court has managed its caseloads well, he said. And he’s used to handling complex cases that sometimes plod along for years.

The potential for delays will likely be more problematic for ordinary taxpayers and small businesses, some who come to the court with limited knowledge of the process, he said.

And if their cases drag out longer, that could mean a higher tax bill at the end.

“If the Tax Court ultimately determines that they owe the tax, they’re going to have to pay the tax, plus interest,” he said. “And that’s a problem. It has a greater impact on the mom-and-pop taxpayers than it would on corporate taxpayers.”

—With assistance from Erin Slowey.