D.C. Circuit Holds IRS Appeals Officers Are Not Subject to the Appointments Clause

Today the D.C. Circuit affirmed the Tax Court’s determination that IRS Appeals Officers, who are authorized to make deficiency determinations and compromise a taxpayer’s disputed liability, are not “Officers of the United States” who must be appointed by the President or by the heads of departments pursuant to the Appointments Clause. 

Although the Court avoided deciding whether the Appeals Officer position was “established by law,” Senior Judge Williams, who wrote the unanimous opinion, agreed with the Tax Court that Congress’s failure to create an officer-level position by statute does not, by itself, exempt the office from the appointment requirement of Article II:  “[I]t would seem anomalous if the Appointments Clause were inapplicable to positions extant in the bureaucratic hierarchy, and to which Congress assigned ‘significant authority,’ merely because neither Congress nor the executive branch had formally created the positions.”

Instead, the Court relied on the limited discretionary authority that Appeals employees exercise.  Among other limitations, they must follow detailed guidelines and prior IRS positions, and they must consult presidentially appointed Chief Counsel “when a lack of uniformity exists on the disposition of the issue or the issue is unusual or complex.”

The D.C. Circuit also agreed with the Tax Court that the IRS’s Appeals Officer did not abuse his discretion by counting losses the delinquent taxpayer incurred in day trading on the stock market as “dissipated assets” and considering them along with the taxpayer’s “reasonable collection potential” in deciding whether to accept an offer in compromise.

The D.C. Circuit’s last major Appointments Clause case was affirmed in part and reversed in part in Free Enterprise Fund v. PCAOB, 130 S. Ct. 3138 (2010), which found a violation of the Appointments Clause where an inferior officer could only be removed for cause by a principal officer whom the President likewise could remove only for cause.

From the Opinion:

Freytag [v. Commissioner] had relied in part on the [special trial judges’] procedural powers, such as the authority to take testimony and to rule on admissibility of evidence. Appeals does nothing of this sort. It does not hold trials at all. It simply provides a chance for the taxpayer (and his counsel) to use argument and information to claim more favorable treatment than he has received from IRS employees encountered earlier in the process.

Tucker v. Commissioner of Internal Revenue, No. 11-1191 (April 20, 2012) (Williams, S.J., joined by Sentelle, C.J., & Griffith, J.) (pdf)

See:

• Tucker v. Comm’r, 135 T.C. 114, 158 (2010) (“[I]f the phrase ‘established by Law’ were construed to mean that the Appointments Clause can apply only to a position expressly created by a statute, then abuses could arise.  For example, Congress could take a pre-existing low-level position (which had been created by the Executive Branch pursuant to a general authorization like section 7804(a), and which was not subject to appointment by the President or a Head of a Department) and could invest it with significant additional power, thus evading the Appointments Clause by seeming to avoid ‘establishing’ the office.  Where such a pattern existed, the courts would have to see through the subterfuge and enforce the Appointments Clause.”)
• Tucker v. Comm’r, T.C. Memo. 2011-67 (“The losses that Mr. Tucker sustained were not due to an unforeseeable event but rather were commonplace (especially for a neophyte) in such a highly volatile activity. Mr. Tucker knew he owed outstanding taxes; and he had the cash in hand that would have paid in full the taxes and accruals he owed as of early 2003 (i.e., for tax years 1999, 2000 and 2001); and yet he chose instead to devote that money to a risky investment. Mr. Tucker’s foray into day trading was purely speculative, and his already slim chances of success were undermined by his inexperience. In short, Mr. Tucker’s circumstances were of his own making. Therefore, we cannot criticize the Office of Appeals’ conclusion that Mr. Tucker’s losses associated with his day trading were a dissipation of assets that should be considered for inclusion in RCP as contemplated by IRM pt. 5.8.5.4.”).

But see:

• Stacy Lindstedt, Developing the Duffy Defect: A Reasoned Approach to Identifying Which Government Workers Are Constitutionally Required To Be Appointed, SSRN (June 5, 2011) (“In one of the most thorough opinions to address the distinction between constitutional officers and mere employees, the Tax Court rejected Tucker’s arguments, ruling that neither Appeals Officers nor their managers are officers in the constitutional sense and therefore need not be appointed. . . . This Article concludes that in so holding, the Tax Court provides Congress with a blueprint on how to avoid the Appointments Clause.”)

Cf.:

• SoundExchange, Inc. v. Librarian of Cong., 571 F.3d 1220, 1226-27 (D.C. Cir. 2009) (Kavanaugh, J., concurring) (“Copyright Royalty Board members plainly are officers of the United States. And they appear to be principal officers—not inferior officers—because they are not removable at will and their decisions regarding royalty rates apparently are not reversible by the Librarian of Congress or any other Executive Branch official. . . . If the members of the Board are in fact principal officers, then the present means of appointing Board members is unconstitutional.”)