Updates From the Tax Court: Post-COVID Plans and New Funding

U.S. Tax Court Chief Judge Kathleen Kerrigan discusses the court’s post-COVID transition and case management system, and how the additional funding from the Inflation Reduction Act may be used.

Listen to our episode with Judge Foley, "Talking With the Tax Court Chief Judge: A Year of Change."

For additional coverage, read these articles in Tax Notes:

• Company Looks to Reverse Tax Court Software Fee Deduction Ruling
• Medtronic II’s Unspecified Method Raises Specific Questions
• Tax Court Should Never Have Heard Whistleblower Case, IRS Says
• Tax Court’s Sealed Case Iceberg Will Soon Be Fully Thawed

In our “Editors’ Corner” segment, Filippo Noseda, a partner at Mishcon de Reya LLP and a visiting professor at King’s College in London, chats about his Tax Notes series on potentially corrupt behavior with FATCA and EU public registers.   

Follow us on Twitter:

• David Stewart: @TaxStew
• Tax Notes: @TaxNotes

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This episode is sponsored by 360 Coverage Pros. For more information, visit 360coveragepros.com/taxnotes.

This episode is sponsored by SafeSend. For more information, visit safesend.com.

This episode is sponsored by the University of California Irvine School of Law Graduate Tax Program. For more information, visit law.uci.edu/gradtax.

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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Alexis Hart

Transcript

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: meeting the chief judge.

Earlier this year, Kathleen Kerrigan began her term as chief judge of the U.S. Tax Court, taking over for Judge Maurice Foley, who we interviewed at the end of 2020, and we'll link to that in the show notes.

Since then, the court has transitioned into its post-COVID era and is looking forward to additional funding from the Inflation Reduction Act. We'll hear more about the court under Judge Kerrigan from Tax Notes legal reporter Nathan Richman in just a minute.

Later in the episode, we'll hear from Tax Notes International author Filippo Noseda about his series on potentially corrupt behavior with FATCA (Foreign Account Tax Compliance Act) and the EU public registers.

But first, Nate, welcome back to the podcast.

Nathan Richman: Thanks for having me.

David D. Stewart: I understand you recently talked to Chief Judge Kerrigan, but before we get into that, could you give us a bit of background on the judge?

Nathan Richman: Well, she spent a fair amount of time working on Capitol Hill, serving in [Congressman Richard] Neal (D-MA) and [Senator John] Kerry's (D-MA) offices before and after a stint at BakerHostetler. And then in 2012, President Obama nominated her for a 15-year term on the Tax Court.

David D. Stewart: Now how does one become chief judge of the court?

Nathan Richman: The judges serving Senate-confirmed terms vote for the chief judge for two-year terms.

David D. Stewart: Before we get to the interview, could you tell us a bit about what you talked about?

Nathan Richman: We discussed further court action related to the evolving pandemic, the rollout of the court's new case management system, and what the court expects to see from the Inflation Reduction Act.

David D. Stewart: All right. Let's go to that interview.

Nathan Richman: Judge Kerrigan, welcome to the podcast and thanks for joining us.

Kathleen Kerrigan: You're welcome.

Nathan Richman: So let's just start off pretty straightforwardly. Tell us about your journey to the Tax Court. What got you started in tax and how did you end up nominated to the court?

Kathleen Kerrigan: I've been with the court for over 10 years now. I started in tax. Out of law school, I first worked for Congressman Richard Neal (D-MA), and at that time he was on the banking committee (House Committee on Financial Services) and I wasn't sure what I was going to do and then he got on the Ways and Means (House Committee on Ways and Means) committee.

I do not have my LLM but I did take a couple classes at night in the LLM program when he got on Ways and Means, and I switched over to doing his tax work and that's when I started doing tax policy work. I worked for him for about seven years.

And then I went to BakerHostetler was there for about, I think about seven years.

And then from there I went to work for Senator [John] Kerry (D-MA) and did his finance committee work. And I guess it's a theme. I think I was there about seven years. And while I was there I was nominated by President Obama for the Tax Court.

Nathan Richman: Sounds like quite a journey. So what's your favorite part about being a Tax Court judge?

Kathleen Kerrigan: Well, I think how I'm going to answer this is I think some people wonder how somebody who didn't have a practice in the courtroom could wind up being a Tax Court judge. But I think being on the Hill doing work for a member of the tax writing committees is very valuable training. Because as you know from following tax legislation it covers a plethora of issues.

So I feel like when you're doing that type of work, you can't become an expert in one type of area that you're always working all over the code. Because as you know in tax bills, sometimes it doesn't seem like, "How is that section in this bill?" It seems pretty random or a broad range. That often tax bills aren't very focused on just one section of the code. They're a little bit everywhere. And I feel like that is good training for the Tax Court because, as you probably know, not one judge specializes in any particular cases.

So, my shortest trial was 20 minutes and my longest trial, I think was six and a half weeks. And so, I've gone from $200 of a deficiency, I think that was the 20 minute trial, to over a billion.

Nathan Richman: Well, and don't the judges come from a wide range of backgrounds? You've got a legislative background, and some people come from litigation focused on one or planning focused on other tax topics. It's a plethora.

Kathleen Kerrigan: We have a wide range of background. And we also have some people who in themselves have a wide background, who have done a bit of everything because we've done people who've been on the Hill. One person who's been on the Hill, IRS and private sector. So covers all the bases. And we also have people who have come from the Department of Justice.

Nathan Richman: And you've got one internal candidate: Judge [Alina I.] Marshall?

Kathleen Kerrigan: Yes. And we also have Judge [Travis A.] Greaves who was also a former clerk.

Nathan Richman: So is the trial work your favorite part?

Kathleen Kerrigan: I don't know. I think the trial work is what I find the most interesting. But the trial work, I could take it from the beginning to the end. When you start with your pretrial motions all the way through to your opinion. So that covers a lot of ground.

Nathan Richman: And only some of that have you had to give up since your election as chief judge?

Kathleen Kerrigan: I do much less cases. I am traveling some. A couple previous chief judges have done that and sometimes if a new judge comes along — I don't expect one in the fall sessions I have scheduled — but you can give them, you know, go do that as a training session.

But we had it a very busy fall and one of the things the chief judge does is the schedule. And to make the schedule work, I thought, "Oh it would help if I take two sessions."

Nathan Richman: You needed one more hand?

Kathleen Kerrigan: Right.

Nathan Richman: OK. When last I spoke to Judge [Maurice B.] Foley, it was before the vaccines had come out. And it's been an eventful couple of years and I also see that the court just posted a webcast on the pandemic and how it's been changing.

How has the court dealt with the evolving pandemic since the beginning of 2021?

Kathleen Kerrigan: Well, Chief Judge Foley might have given you some of these statistics. But in 2020, we did 12 remote trials because we didn't start doing that towards the end of 2020 gearing up. And then in 2021, we did a 122 remote trials. And in 2022, we've switched, starting in the winter session, we do a mix.

And I think if you look on the court's website you'll see we still stream the remote trials but it's a lot less than we used to have. And it was hard for me. I was trying to calculate the numbers and then it was off a little bit. Because a couple times a judge will at the last minute change a session to a remote session. And a few times that's happened: COVID in the spring. There were some areas of the country where COVID was high and there was hardly anything left on the calendar. So it wasn't really worth going to that session.

We've had other times where the sessions, most all the cases have settled. So we've had a variety, but we really are back in person to some extent. We've had some special sessions in person so we've been moving along.

So I will take the opportunity. So I thought that was good timing I was here. I'll give a plug for the Tax Court's webinar. You can register on our website. And I'll be moderating it and I'll be joined by Judges [Cary Douglas] Pugh and [Emin] Toro.

But we'll be joined by two attorneys from the IRS and an attorney from the private sector who's active in the ABA tax practice section. Another attorney from the private sector, who's very active in our low-income tax clinics. And right now, we work with about 133 low-income tax clinics.

So what we're going to talk about is lessons learned from COVID, what we can improve on, what we should continue to do, and how do we keep moving forward as we're still living with COVID.

Nathan Richman: Even in 2020, as you were starting with some of the first of these lessons, the first of these remote trials, there was some discussion about these pandemic tools and how they might be useful afterwards. What is the court planning on keeping?

Kathleen Kerrigan: We haven't made any final decision on that. This webinar will help us learn. Not only is it going to help the public, it's also going to help the court learn. And that's on Wednesday, November 16, at 12 o'clock.

And the important part I think is the court is trying to figure out what works best for the taxpayer to make sure all taxpayers are having access to justice and are able to avail themselves of a court remedy. And so, what I think what we're looking at is, if the parties both agree that there can be a remote trial and the judge is OK with it being a remote trial, we're still allowing remote trials to go forward.

And on our calendar each, we have at least one remote session each calendar that we're assigning cases that need to be remote, so they're really not done by region. And there's still some places where we borrow space. Sometimes because courts are behind, we're not able to get the space. So a few cities, we did it remote this fall in those type of situation.

Nathan Richman: Have you heard much from petitioners requesting these remote sessions? Is there a large uptake there?

Kathleen Kerrigan: There's some, but I think there's some people who still like to have their day in court.

Nathan Richman: Feels more official.

Kathleen Kerrigan: Or I think sometimes they'd rather in person.

Nathan Richman: Does the court have any other either still COVID-related changes or moving from COVID changes in mind at the moment?

Kathleen Kerrigan: We're just kind of going forward— I think we think things are working the way they are that we were able to switch to remote relatively quickly so we don't have too far— Well we have a backlog but that's a different issue. But we were able to keep trying cases and moving along.

Because our normal number of case sessions is, rough estimate, about 170 a year. So we were lower than that, and I'd say we're probably going to be back on target closer to that number by the end of 2022. But I think we're just staying the course for now.

Nathan Richman: So there's been a lot of headlines about the Inflation Reduction Act and the IRS funding, but I understand that you guys are getting about $153 million extra over the next 10 years. What do you plan to do with that money?

Kathleen Kerrigan: I think the court's looking into it and just want to make sure that they provide prudent stewardship of taxpayers' dollars. And at this time just making sure that anything we do is improving on what we do that taxpayers are able to access justice. And anything that we do do would be in our congressional budget justification, but it wouldn't be until next year's. But we haven't made any final decisions yet.

And also, we are also going to have to see how our caseload changes because of the increased money that the IRS has. I think that's a factor we have to look at.

Nathan Richman: So you're not yet decided between more clerks, more staff, more technology or even more special trial judges, anything like that?

Kathleen Kerrigan: No.

Nathan Richman: OK. So finally with Boechler [v. Commissioner of Internal Revenue], there's some clarity and finality on how Tax Court jurisdiction and the Supreme Court's new views on filing requirement statutes interact. But that's only collection due process cases. What else needs to be clarified?

Kathleen Kerrigan: Well, there has been a motion filed in a case on deficiency and the court is addressing that in due course.

Nathan Richman: And while that happens you're building up a list of cases that will follow whatever that decision is?

Kathleen Kerrigan: Right. On the general docket, we're waiting on cases until that opinion comes out.

Nathan Richman: There's also been some development in whistleblower jurisdiction recently. For one thing there was Myers [v. Commissioner], which even before Boechler settled jurisdiction for whistleblower cases. But there's also now Li [v. Commissioner of Internal Revenue] which questions what's actually even a reviewable case. What cases actually can be brought? What is the court doing?

Kathleen Kerrigan: We're waiting to see what happens with the litigation in Li until it's settled law and just following and monitoring it very closely and seeing how that impacts our whistleblower jurisdiction.
And even though it seems like we've had some whistleblower cases lately, our number of petitions that came in for 2021, only about 0.2 percent were whistleblower.

Nathan Richman: So what's that calculate out to?

Kathleen Kerrigan: About 50 cases.

Nathan Richman: As compared to what?

Kathleen Kerrigan: 96 percent is deficiency cases.

Nathan Richman: Oh wow. It sometimes seems like a two to one deficiency to collection due process.

Onto the update that was just in the offing when last I had a Tax Court judge to talk to, your new case management system. It's been, what, almost two years since that's been live. How's that been going for you guys so far?

Kathleen Kerrigan: It's going. The first aspect of it, we did a lot with the public interface. And now we're doing a lot with the internal interface. So a lot of features are now coming to help the judge. Like in our old system, we were able to grant and stamp deny orders. We were not able to do that in the new system. But maybe for the last month, we've been able to do that. So we're getting improvements.

The next improvement, I think that's going to be on the private sector side is going to be consolidated cases, making it easier to file a consolidated case. But we keep moving along and having improvements.
I think we're past the stages where there's some glitches, but overall I think it's been a good change for the court and provides more access. We're hoping electronic petitions increases and that's something we're trying to encourage.

Nathan Richman: What's the uptake been so far?

Kathleen Kerrigan: I think it's been about 18 percent.

Nathan Richman: And you're hoping to end up somewhere closer to say 80 percent?

Kathleen Kerrigan: I'm not sure how realistic 80 percent is, but we'd just like to see a steady increase. And until we had DAWSON, we didn't take petitions electronically.

Nathan Richman: What sorts of feedback have you guys been getting from the public, the IRS representatives, et cetera?

Kathleen Kerrigan: I think we've gotten positive feedback. There's been a few glitches, but we've been able to address them and I think people just getting used to the system. But I think overall it's been a success.

Nathan Richman: So I'm sure I'm not the first one to ask about the court's stance on electronic access to files. And this might actually not even be the first time I have asked.

But where does the court stand on electronic access to documents, especially as people have to point out compared to what's available on PACER?

Kathleen Kerrigan: And this is something the court's looked into and tries to make as much available as possible. But the problem is the taxpayer identification information — bank accounts, social security numbers — and as you can imagine looking at the exhibits in a Tax Court case, you have a lot of that information. So we're just trying to seek the right balance.

Nathan Richman: Any thoughts to using DAWSON or some of the pandemic tools to tweak that balance? Can DAWSON segregate types of documents in a way that would be useful?

Kathleen Kerrigan: I'm not sure if it can. And one of the problems we have is the parties not redacting information.

Nathan Richman: Yes, I recall Judge Buch's presentation from shortly before the pandemic, showing all the different parties that failed their redaction. So any thoughts to running another study like that?

Kathleen Kerrigan: I think it's something we all still see, and I think right now we've been just focused on getting the necessities of DAWSON and working through the pandemic before we go back and tackle this issue again.

Nathan Richman: Unfortunately, this might be considered a luxury?

Kathleen Kerrigan: I wouldn't call it a luxury because we're always striking to make sure we have as much information available to the public as possible and we are always seeking to strike the right balance.

Nathan Richman: So, one glitch that got a lot of attention was — you can correct me if you don't think of it as a glitch — where whole case dockets were getting sealed for any one sealed document in those cases. What happened there and how has that been resolved?

Kathleen Kerrigan: It's still being resolved, but great progress has been made to resolve it. I think there's a few closed cases which it hasn't been addressed in. But like most judges, including myself, have gone through and we, with the help of our docket staff, have just made sure the documents that were supposed to be sealed are sealed and the rest of the case is available.

Nathan Richman: So you're doing the manual sealing of the individual documents before you unseal the whole dockets?

Kathleen Kerrigan: We're just making sure— what happened in DAWSON was when something was sealed, it triggered the whole case file to be sealed. So we're just making sure that the proper documents are sealed.

Nathan Richman: That when you undo that whole sealing, it doesn't unseal the thing you would actually like to be sealed.

Kathleen Kerrigan: Yes.

Nathan Richman: Any ETA on the last stragglers of that resolution?

Kathleen Kerrigan: Hopefully by the end of the year. But mostly those, as I said, are closed cases.

Nathan Richman: Thank you very much for joining us. It's been a entertaining and illuminating discussion.

Kathleen Kerrigan: Thank you.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what would you have for us?

Paige Jones: Thanks, Dave. In Tax Notes Federal, three practitioners from Greenberg Glusker Fields Claman and Machtinger describe the advantages and pitfalls of F reorganizations. David Kamin examines the ambition and limits of the global minimum tax.

In Tax Notes State, Charles Kearns and Charles Capouet describe D.C.'s statutory residency law and its associated risks. Breen Schiller and Colleen Redden review the taxability on the sale of passthrough entity interests.

In Tax Notes International, three practitioners and lawyers with Withers Bergman consider the use of Canadian registered plans by U.S. residents who are working in Canada and whether those plans should be treated as foreign trusts in the United States. Josh Maxwell and Jared Garfield emphasize the importance and difficulty of international tax compliance, especially given the increased IRS funding under the Inflation Reduction Act.

In Featured Analysis, Marie Sapirie examines the IRS and Treasury's invitation to taxpayers to provide comments on the Inflation Reduction Act's changes to energy tax provisions.

On the Opinions page, the commentary editors of Tax Notes share the topics they hope to see covered this fall and winter, such as corporate taxation, environmental taxes, and inflation.

And now, for closer look at what's new and noteworthy in our magazines, here's Tax Notes Executive Editor for Commentary Jasper Smith.

Jasper Smith: Thank you, Paige. I'm here with Filippo Noseda, a partner at Mishcon and a visiting professor at Kings College in London. Filippo, welcome to the podcast.

Filippo Noseda: Oh, thank you very much for having me. It's nice to be here.

Jasper Smith: We're here to discuss your Tax Notes International series, looking at what might be termed as corrupt behavior involving FATCA and EU public registers. Can you give us a brief overview of that series?

Filippo Noseda: I'll comment on the word corruption in a minute, but the series is about a research that we've done in relation to a case that is going on before the European Court of Justice, the equivalent of the Supreme Court in the U.S., which has to look at the compatibility of public registers of beneficial ownership with EU fundamental rights.

And I think this is clearly a question which is relevant for Europeans because it's about EU law and the EU court, but it also has indirectly relevant for the U.S. because you've got the FinCen registers, which are not public, or maybe I say not yet public because with transparency, once you introduce a measure, then it's quite easy to tighten the screw. So I think that this case is relevant globally.

In addition to the EU, Canada is going to introduce public registers in 2023. All of the territories that are somehow linked to the U.K., these are called crown dependencies, the likes of Jersey Guernsey and the Isle of Man. And overseas territories, the likes of EVI (Eaton Vance International), Cayman, have agreed to effectively introduce public registers also in 2023. So it's a bit of a global phenomenon.

And the European Court of Justice, following a number of appeals in Luxembourg, which led to the one case being referred to the Court of Justice, now has to look at the compatibility of registers that contain names and interests, the nature of interest of ultimate shareholders of the EU companies. With a right to privacy that in Europe was introduced in 1950 following the horrors of the second World War when totalitarian states didn't think much about people's privacy.

So we are looking at a clash in a way between concepts developed in the 21st century of transparency following along the lines of FATCA, the common reporting standard, and now these registers. And key concepts of the second half of the 20th century: privacy and data protection. Data protection, also something that has experienced a revival following the revelations by Edwards Snowden, which has led the EU to adopt the GDPR, the general data protection regulation, that most Americans as well are familiar with. Which was introduced with a view to increasing the level of data protection of citizens.

And so, here we got a case where on the one hand, looks at individual's right to privacy and data protection. On the other hand, deals with laws that effectively go beyond a mere transfer of information between authorities. It actually puts data in the public domain.

My interest in this case stems from the research that I've been carrying out in relation to FATCA. It's now been seven years. We've been looking as a part of that research, at internal documents of the EU, which showed that the EU took an approach that queried the data protection implications of FATCA and then changed its mind.

And so we wrote a number of letters on that. But that's FATCA. And in relation to this very case, I got access to a couple of documents from the European Commission that showed that the European Commission was firmly against the idea of having public registers because the commission felt, and using the words that this was "unacceptable, not acceptable," that's what the commission said, without a proper evaluation of the data protection implications.

So the series of articles looks at the documents from the EU. I represent clients in the Luxembourg proceedings, but not in the case before the European Court of Justice. But in a case which has an impact potentially on millions of citizens, you can imagine everyone who owns more than 25 percent of a company in the EU, and there are hundreds of thousands, if not million, is going to be affected by this ruling. And we are aware of political pressures at EU level to push this one through.

So I felt that in the absence of a debate on the balance between the interest of transparency and the interest, legitimate interest, of fundamental rights to privacy, that a series of articles could invite a debate on these very important issues.

Jasper Smith: Well, that makes complete sense, Filippo, and we really appreciate the explanation. And you've given us a nice thorough look into the reasons behind the series itself. So certainly, we're sure that readers who have not seen it yet, you have peaked their interest. So we certainly again appreciate you coming on the podcast with us today.

Filippo Noseda: Thank you. And you mentioned the word corruption. Actually, it was something that I first read in the invite for this podcast. And when I read it, you invited me to talk about the EU corruption around FATCA and the registers. I was taken aback and I said, "Ooh, that that's a strong word."
Because for me, corruption, I look at it in a legal perspective and that's effectively bribery. There's a financial interest. And I never thought that anyone who is opposing our work in relation to privacy had a financial gain.

But then I look in the dictionary and look, English is my fifth language, certainly not my mother tongue. And I looked at the dictionary and the Cambridge dictionary defines corruption as "illegal, bad, or dishonest behavior, especially by people in position of power." And I said, "That's interesting." And then I looked at the Oxford Thesaurus of English and says, corrupt means "dishonest, dishonorable, unscrupulous, unprincipled, amoral, untrustworthy, underhand, deceitful, double dealing, discreditable, disreputable behavior."

And I thought, "Well, then we got something here." Because in relation to FATCA in particular, we have discovered through our perusal of the internal documents from the EU, that the European Commission in 2010, '11, and '12 led a series of high-level negotiations with the U.S. Treasury as a result of the EU concerns in relation to the interaction between FATCA, that was back then a novelty, and EU data protection law. And as a result of those high-level negotiations, the EU commissioned reports and those reports came back in 2012 to say that effectively FATCA clashed with EU data protection law.

The problem was that within two months, the U.K. signed the first FATCA agreement with the U.S., effectively allowing U.K. banks to work with Americans. And therefore the EU Commission changed the position from a defense of fundamental rights to effectively allowing a level playing field.

And therefore the EU said, "Look," to EU member states. "Rush, everyone should now sign these agreements. But then we come back and we'll try to find out a more proportionate solution." That never happened.

And when campaigners and petitioners in front of the European Parliament brought up the issue, EU commissioners went before parliament and made statements effectively negating the existence of negotiations with the U.S. They said the "U.S. was not part of negotiations with the EU" verbatim. And another commissioner said that, "to date, there is no evidence indicating that there is a clash between FATCA and EU data protection rights." Now, that is clearly in contrast with the evidence from the European Commission.

Now, it is always possible. Politicians are busy and who knows in 2018 what your predecessor did in 2012. So we put this document before the commission and we asked them to comment and they say, "Look, if you got it wrong, just rectify." They never came back, and actually they've been resisting all our correspondence. We put in a formal complaint over two years ago.

Now, when you have a body that constitutionally is supposed to be the guardians of the EU treaties, and therefore, the defender of the EU constitution, which includes fundamental rights, that do one thing at one point and exactly the opposite at a different point and then actually negate it. Well, I think that we got double dealing here and I think it's disreputable and discredible. And therefore, I think it does fit into the definition of corruption. Maybe not the criminal law sense, but certainly in the sense of plain English as reflected in the Cambridge Dictionary, for example.

Jasper Smith: Very illuminating, Filippo, and we certainly appreciate you clarifying that term. It does seem like that you have landed on what might be the proper application of the English word corruption. So again, thank you. And like I said, thanks for coming on the podcast today.

Filippo Noseda: Thank you very much. It was really a pleasure being here with you and talking to you about this series.

Jasper Smith: Yeah. So you can find Filippo's series online at taxnotes.com and be sure to subscribe to our YouTube channel Tax Notes for more in-depth discussions on what's new and noteworthy. Again, that's Tax Notes with an S. Back to you Dave.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.