Former Tax Court Judge Kroupa resigned from the Tax Court on June 16, 2014, apparently in response to an IRS criminal investigation concerning the tax liabilities of herself and her husband. We previously reported on her resignation here. At the time the indictment came out, some speculation occurred in the tax press about the impact of her tax troubles on the decisions she rendered, see here. In Eaton Corporation v. Commissioner the first case that we are aware of involving the fallout of Judge Kroupa’s indictment comes before the Tax Court for it to review whether her decision should be reconsidered. On June 9, 2016, the company filed a motion for reconsideration of an order dated June 26, 2013. The ordinary time period for filing a motion for reconsideration is 30 days, not 1,083 days. It will be an interesting case to watch for others who received a ruling from Judge Kroupa they would still like to challenge.
The request for reconsideration does not dwell on Judge Kroupa’s tax problems but rather on the incorrectness of her ruling. Yet, her tax problems must be central to this extraordinary request. While she has been indicted, she has not pled or been determined to have been guilty. The allegations concerning her tax crimes bear no relation to the issues presented in this motion to reconsider her opinion. The opinion concerns the burden of proof in an Advance Pricing Agreement. She held for the IRS for reasons with which Eaton strongly disagrees.
When the opinion came out, Les started a blog post because he recognized the importance of the case which could severely damage the APA program. He did not finish it because we lack expertise in some areas of procedure and sometimes do not have time to do the research necessary to be comfortable with drafts we write. Each of us has drafts left on the cutting room floor which have some value but not enough to make it into the blog. I do not know what has happened to the APA program generally after the decision Eaton because I am not an expert in that area and assume that Eaton’s request here supports the conclusion that this is still a major issue in the transfer pricing arena. Here is the description of the case that Les begun:
The parties differed as to how courts should evaluate whether the IRS was justified in cancelling the agreement. Here is where an understanding of the procedural context is key. When it believed that Eaton violated the terms of the agreements, IRS issued a deficiency notice with millions of dollars in adjustments, reflecting allocations in a way that differed materially from that the parties had agreed to in the APAs. After Eaton petitioned the Tax Court, both parties filed motions for summary judgment, with Eaton arguing that the APAs were enforceable contracts, and that the IRS needed to show that the cancellations were appropriate under contract law.
In Eaton’s view, the IRS should be held to traditional contract principles, with the party exercising a contractual cancellation provision (here, the IRS) having to “demonstrate that a factual predicate exists to cancel the contract.” IRS argued that the revenue procedures govern the legal effect and administration of the APAs and the cancellations were administrative determinations. In the IRS’s view, the court’s role was limited to determining if IRS abused the discretion to cancel or revoke the APAs.
In essence, the dispute as centered in the summary judgment revolved around who has the burden to prove that there was noncompliance with the APA and the governing revenue procedures. Eaton said the IRS as the party wishing to cancel a contract had to bear the burden of proof; the IRS claimed that the court’s role in considering why the IRS terminated the APAs was more limited, and that Eaton had to prove that the IRS’s actions were not within its considerable discretion.
Yet, is that a reason for reconsidering the case so long after the normal time period for requesting reconsideration? What has happened in other situations in which sitting federal judges have been indicted or convicted?
Judge G. Tom Porteus, who was a federal district judge in New Orleans, was impeached in 2010. Prior to his impeachment, he had presided over and decided the case of Turner v. Pleasant. The judgment in the Turner case was entered in 2001, but in 2011 the Turners sought to reopen the judgment, which was then reversed and remanded (in favor of the Turners). In this case, the link between the allegations of misconduct by Judge Porteus and the case was strong. Mrs. Turner brought a personal injury case resulting from a boating incident. Shortly before trial, the defendant hired an additional attorney who happened to be a close personal friend of the judge. The attorney hired as a medical expert another individual who happened to be a close personal friend of the judge. The judge relied on the testimony of this expert in deciding against Mrs. Turner. The length of time between the decision and the follow-up action was not too long based on the information available to Mrs. Turner.
Judge Samuel Kent was a federal district judge in Galveston, Texas. He was charged with many acts of sexual harassment related primarily to court clerks. The process of investigating his actions and making a determination concerning his case took time. While the process for determining his fate unfolded, a party in a case he had decided file a motion for reconsideration. Initially, the decision on the motion was deferred until the trial of Judge Kent. When the judge was indicted on additional charges, the Judicial Council of the Fifth Circuit granted the motion for reconsideration of the case. Here the charges and the decision regarding the motion had nothing to do with his behavior in the prior case but related to the management of his docket.
There may be many other examples of judges with legal problems and the impact of those problems on the cases they have decided. We did not do an exhaustive research project on this. Both of the examples provide logical responses to the circumstances. In the case before Judge Porteus, it appears quite possible that the outcome of the case was improperly influenced by his relationship to the attorney and the expert witness. Given the nature of his problems resulting in impeachment, the nature of the case, and the timing of the request, the reversal seems to logically follow. The granting of the motion for reconsideration in the case before Judge Kent seems unrelated to any prior decision and more related to moving the case along. It is not clear that these cases provide much guidance in the situation with Judge Kroupa and her decision in Eaton, or that Eaton is seeking to directly tie the two. Her indictment, however, places her decisions generally in a situation that may cause the Court to look at them with more scrutiny.
It is interesting that Judge Kroupa’s problem came during the debate about the removal powers of Tax Court judges raised in the Kuretski case. We blogged about the Kuretski case on many occasions here, here, here, here, here, here, here, here, here, here, and here. Had she not resigned, the language of the statute would have perhaps been tested. That did not happen, however, and she is simply a judge who resigned who happens to have been indicted after her resignation. The question is how that impacts the cases she did decide.
Her 2013 decision in Eaton was never appealed. That decision did not fully dispose of the case. At the end, the opinion states that a trial will be scheduled in due course, but will not consider the issues presented in the motions on which Judge Kroupa ruled and that an order reflecting the opinion will be issued.
We will watch what happens in this case with interest. If Eaton succeeds with this motion, the Tax Court may field requests from both sides regarding adverse rulings they would then seek to have the Court reconsider.