Senate Report 108-42 - TAX COURT MODERNIZATION ACT

[Senate Report 108-42]
[From the U.S. Government Publishing Office]

Calendar No. 84
108th Congress Report
SENATE
1st Session 108-42

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TAX COURT MODERNIZATION ACT

_______

May 5, 2003.--Ordered to be printed

_______

Mr. Grassley, from the Committee on Finance, submitted the following

R E P O R T

[To accompany S. 753]

[Including cost estimate of the Congressional Budget Office]

The Committee on Finance, to which was referred the bill
(S. 753) to amend the Internal Revenue Code of 1986 to provide
for the modernization of the United States Tax Court, and for
other purposes, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.

CONTENTS

Page
I. Legislative Background............................................2
II. Explanation of the Bill...........................................2
Title I. Tax Court Procedure......................................2
A. Consolidate Review of Collection Due Process Cases in
the Tax Court (sec. 101 of the bill and sec. 6330 of
the Code)............................................ 2
B. Extend Authority for Special Trial Judges to Hear and
Decide Certain Employment Status Cases (sec. 102 of
the bill and sec. 7443A(b) of the Code).............. 3
C. Confirmation of Tax Court Authority to Apply Equitable
Recoupment (sec. 103 of the bill and sec. 6214 of the
Code)................................................ 4
D. Tax Court Filing Fee (sec. 104 of the bill and sec.
7451 of the Code).................................... 5
E. Employees of the Tax Court (sec. 105 of the bill and
sec. 7471(a) of the Code)............................ 5
F. Use of Practitioner Fee (sec. 106 of the bill and sec.
7475 of the Code).................................... 7
Title II. Tax Court Pension and Compensation......................8
A. Judges of the Tax Court (secs. 201-207 and 213 of the
bill and secs. 7443, 7447, 7448, and 7472 of the
Code)................................................ 8
B. Special Trial Judges of the Tax Court (secs. 208-213
of the bill, and sec. 7448 and new secs. 7443A,
7443B, and 7443C of the Code)........................ 10
III.Budget Effects of the Bill.......................................13

A. Committee Estimates................................... 13
B. Budget Authority and Tax Expenditures................. 15
C. Consultation with Congressional Budget Office......... 15
IV. Votes of the Committee...........................................18
V. Regulatory Impact and Other Matters..............................18
A. Regulatory Impact..................................... 18
B. Unfunded Mandates Statement........................... 19
C. Tax Complexity Analysis............................... 19
VI. Changes in Existing Law Made by the Bill as Reported.............19

I. LEGISLATIVE BACKGROUND

The Senate Committee on Finance marked up S. 753 (the ``Tax
Court Modernization Act'') on April 2, 2003, and ordered the
bill favorably reported by voice vote.

II. EXPLANATION OF THE BILL

TITLE I. TAX COURT PROCEDURE

A. Consolidate Review of Collection Due Process Cases in the Tax Court

(Sec. 101 of the bill and sec. 6330 of the Code)

PRESENT LAW

In general, the Internal Revenue Service (``IRS'') is
required to notify taxpayers that they have a right to a fair
and impartial hearing before levy may be made on any property
or right toproperty.\1\ Similar rules apply with respect to
liens.\2\ The hearing is held by an impartial officer from the IRS
Office of Appeals, who is required to issue a determination with
respect to the issues raised by the taxpayer at the hearing. The
taxpayer is entitled to appeal that determination to a court. The
appeal must be brought to the Tax Court, unless the Tax Court does not
have jurisdiction over the underlying tax liability. If that is the
case, then the appeal must be brought in the district court of the
United States.\3\ If a court determines that an appeal was not made to
the correct court, the taxpayer has 30 days after such determination to
file with the correct court.
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\1\ Sec. 6330(a).
\2\ Sec. 6320.
\3\ Sec. 6330(d).
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The Tax Court is established under Article I of the United
States Constitution \4\ and is a court of limited
jurisdiction.\5\ Thus, the Tax Court may not have jurisdiction
over the underlying tax liability with respect to an appeal of
a due process hearing relating to a collections matter. As a
practical matter, many cases involving such appeals (whether
within the jurisdiction of the Tax Court or a district court)
do not involve the underlying tax liability.
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\4\ Sec. 7441.
\5\ Sec. 7442.
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REASONS FOR CHANGE

The Tax Court does not have jurisdiction over all of the
tax issues underlying collection due process cases (such as
issues involving most excise taxes). The judicial appeals
structure of present law was designed in recognition of these
jurisdictional limitations; however, in many cases the
underlying taxes are not involved in determining the due
process issue. The present-law structure can lead to confusion
over which court is the proper court in which to file an
appeal. Some believe that this confusion may also be used by
some taxpayers seeking to delay the collection process.
Accordingly, the Committee believes that the Tax Court should
have jurisdiction over all appeals of collection due process
determinations. The simplification provided will both benefit
the taxpayers involved and the IRS by eliminating confusion
over which court is the proper venue for appeal and will reduce
the period of time before judicial review. This provision will
also eliminate the opportunity to use the present-law rules in
unintended ways to delay or defeat the collection process.

EXPLANATION OF PROVISION

The provision modifies the jurisdiction of the Tax Court by
providing that all appeals of collection due process
determinations are to be made to the United States Tax Court.

EFFECTIVE DATE

The provision applies to determinations made after the date
of enactment.

B. Extend Authority for Special Trial Judges to Hear and Decide Certain
Employment Status Cases

(Sec. 102 of the bill and sec. 7443A(b) of the Code)

PRESENT LAW

In connection with the audit of any person, if there is an
actual controversy involving a determination by the IRS as part
of an examination that (1) one or more individuals performing
services for that person are employees of that person or (2)
that person is not entitled to relief under section 530 of the
Revenue Act of 1978, the Tax Court has jurisdiction to
determine whether the IRS is correct and the proper amount of
employment tax under such determination.\6\ Any redetermination
by the Tax Court has the force and effect of a decision of the
Tax Court and is reviewable.
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\6\ Sec. 7436.
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An election may be made by the taxpayer for small case
procedures if the amount of the employment taxes in dispute is
$50,000 or less for each calendar quarter involved.\7\ The
decision entered under the small case procedure is not
reviewable in any other court and should not be cited as
authority.
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\7\ Sec. 7436(c).
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The chief judge of the Tax Court may assign proceedings to
special trial judges. The Code enumerates certain types of
proceedings that may be so assigned and may be decided by a
special trial judge. In addition, the chief judge may designate
any other proceeding to be heard by a special trial judge.\8\
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\8\ Sec. 7443A.
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REASONS FOR CHANGE

The Committee believes that clarifying that special trial
judges may decide proceedings involving a determination of
employment status in which the amount of employment taxes in
dispute is $50,000 or less for each calendar quarter involved
will improve the operations and internal functioning of the Tax
Court.

EXPLANATION OF PROVISION

The provision clarifies that the chief judge of the Tax
Court may assign to special trial judges any employment tax
cases that are subject to the small case procedure and may
authorize special trial judges to decide such small tax cases.

EFFECTIVE DATE

The provision is effective for any action or proceeding in
the Tax Court with respect to which a decision has not become
final as of the date of enactment.

C. Confirmation of Tax Court Authority to Apply Equitable Recoupment

(Sec. 103 of the bill and sec. 6214 of the Code)

Equitable recoupment is a common-law equitable principle
that permits the defensive use of an otherwise time-barred
claim to reduce or defeat an opponent's claim if both claims
arise from the same transaction. U.S. District Courts and the
U.S. Court of Federal Claims, the two Federal tax refund
forums, may apply equitable recoupment in deciding tax refund
cases.\9\ In Estate of Mueller v. Commissioner,\10\ the Court
of Appeals for the Sixth Circuit held that the Tax Court may
not apply the doctrine of equitable recoupment. More recently,
the Court of Appeals for the Ninth Circuit, in Branson v.
Commissioner,\11\ held that the Tax Court may apply the
doctrine of equitable recoupment.
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\9\ See Stone v. White, 301 U.S. 532 (1937); Bull v. United States,
295 U.S. 247 (1935).
\10\ 153 F.3d 302 (6th Cir.), cert. den., 525 U.S. 1140 (1999).
\11\ 264 F.3d 904 (9th Cir.), cert. den., 2002 U.S. LEXIS 1545
(U.S. Mar. 18, 2002).
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REASONS FOR CHANGE

The Committee believes that it is important to resolve the
conflict among the circuit courts by eliminating the
uncertainty or confusion of differing results in differing
circuits. The Committee also believes that the provision will
provide simplification benefits to both taxpayers and the IRS.

EXPLANATION OF PROVISION

The provision confirms that the Tax Court may apply the
principle of equitable recoupment to the same extent that it
may be applied in Federal civil tax cases by the U.S. District
Courts or the U.S. Court of Claims. No implication is intended
as to whether the Tax Court has the authority to continue to
apply other equitable principles in deciding matters over which
it has jurisdiction.

EFFECTIVE DATE

The provision is effective for any action or proceeding in
the Tax Court with respect to which a decision has not become
final as of the date of enactment.

D. Tax Court Filing Fee

(Sec. 104 of the bill and sec. 7451 of the Code)

PRESENT LAW

The Tax Court is authorized to impose a fee of up to $60
for the filing of any petition for the redetermination of a
deficiency or for declaratory judgments relating to the status
and classification of 501(c)(3) organizations, the judicial
review of final partnership administrative adjustments, and the
judicial review of partnership items if an administrative
adjustment request is not allowed in full.\12\ The statute does
not specifically authorize the Tax Court to impose a filing fee
for the filing of a petition for review of the IRS's failure to
abate interest or for failure to award administrative costs and
other areas of jurisdiction for which a petition may be filed.
The practice of the Tax Court is to impose a $60 filing fee in
all cases commenced by petition.\13\
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\12\ Sec. 7451.
\13\ See Rule 20(a) of the Tax Court Rules of Practice and
Procedure.
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REASONS FOR CHANGE

The Committee believes it is appropriate to clarify that
the Tax Court filing fee applies to any case commenced by the
filing of a petition.

EXPLANATION OF PROVISION

The provision provides that the Tax Court is authorized to
charge a filing fee of up to $60 in all cases commenced by the
filing of a petition.

EFFECTIVE DATE

The provision is effective on the date of enactment.

E. Employees of the Tax Court

(Sec. 105 of the bill and sec. 7471(a) of the Code)

PRESENT LAW

The Tax Court is a legislative court established by the
Congress pursuant to Article I of the U.S. Constitution (an
``Article I'' court).\14\ The Tax Court is authorized to
appoint employees, subject to the rules applicable to
employment with the Executive Branch of the Federal Government
(generally referred to as ``competitive service''), as
administered by the Office of Personnel Management.\15\
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\14\ Sec. 7441.
\15\ Sec. 7471.
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Employment with the Federal Executive Branch is governed by
certain general statutory principles, such as recruitment of
qualified individuals, fair and equitable treatment of
employees and applicants, maintenance of high standards of
employee conduct, and protection of employees against arbitrary
action. The rules for employment in the Federal Executive
Branch address various aspects of such employment, including:
(1) procedures for the appointment of employees in the
competitive service, including preferences for certain
individuals (e.g., veterans); (2) compensation, benefits, and
leave programs for employees; (3) appraisals of employee
performance; (4) disciplinary actions; and (5) employee rights,
including appeal rights. In addition, employees are protected
from certain personnel practices (referred to as ``prohibited
personnel practices''), such as discrimination on the basis of
race, color, religion, age, sex, national origin, political
affiliation, marital status, or handicapping condition.

REASONS FOR CHANGE

The Tax Court was established as an Article I court in part
because of its need for independence from the Executive Branch
and its responsibility for reviewing determinations of a
Federal Executive Branch agency (i.e., the Internal Revenue
Service).\16\ Accordingly, the Committee believes that the Tax
Court should have the authority to establish its own personnel
system, rather than being subject to the rules administered by
the Federal Executive Branch. Similar authority has previously
been provided to other Article I courts and to courts
established under Article III of the U.S. Constitution. The
Committee also believes that a personnel system established by
the Tax Court should be consistent with the general principles
that govern other employment with the Federal Government and
should provide certain protections to employees.
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\16\ See, e.g., S. Rep. No. 91-552, at 302 (1969).
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EXPLANATION OF PROVISION

The provision extends to the Tax Court authority to
establish its own personnel management system. Any personnel
management system adopted by the Tax Court must: (1) include
the merit system principles that govern employment with the
Federal Executive Branch; (2) prohibit personnel practices that
are prohibited in the Federal Executive Branch; and (3) in the
case of an individual eligible for preference for employment in
the Federal Executive Branch, provide preference for that
individual in a manner and to an extent consistent with
preference in the Federal Executive Branch.
The provision requires the Tax Court to prohibit
discrimination on the basis of race, color, religion, age, sex,
national origin, political affiliation, marital status, or
handicapping condition. The Tax Court is also required to
promulgate procedures for resolving complaints of
discrimination by employees and applicants for employment.
The provision allows the Tax Court to appoint a clerk
without regard to the Federal Executive Branch rules regarding
appointments in the competitive service. Under the provision,
the clerk serves at the pleasure of the Tax Court.
The provision allows the clerk of the Tax Court to appoint
deputies and other employees without regard to the Federal
Executive Branch rules regarding appointments in the
competitive service. Under the provision, these deputies and
employees are subject to removal by the clerk.
The provision allows judges and special trial judges of the
Tax Court to appoint law clerks and secretaries, in such
numbers as the Tax Court may approve, without regard to the
Federal Executive Branch rules regarding appointments in the
competitive service. Under the provision, a law clerk or
secretary serves at the pleasure of the appointing judge.
The provision exempts law clerks from the sick leave and
annual leave provisions applicable to employees of the Federal
Executive Branch. Any unused sick or annual leave to the credit
of a law clerk as of the effective date of the provision
remains credited to the individual and is available to the
individual upon separation from the Federal Government, or upon
transfer to a position subject to such sick leave and annual
leave provisions.
The provision allows the Tax Court to fix and adjust the
compensation of the clerk and other employees without regard to
the Federal Executive Branch rules regarding employee
classifications and pay rates. To the maximum extent feasible,
Tax Court employees are to be compensated at rates consistent
with those of employees holding comparable positions in the
Federal Judicial Branch. The Tax Court may also establish
programs for employee evaluations, premium pay, and resolution
of employee grievances.
In the case of an individual who is an employee of the Tax
Court on the day before the effective date of the provision,
the provision preserves certain rights that the employee is
entitled to as of that day. The provision preserves the right
to: (1) appeal a reduction in grade or removal; (2) appeal an
adverse action; (3) appeal a prohibited personnel practice; (4)
make an allegation of a prohibited personnel practice; or (5)
file an employment discrimination appeal. These rights are
preserved for as long as the individual remains an employee of
the Tax Court.
Under the provision, a Tax Court employee who completes at
least 1 year of continuous service under a nontemporary
appointment with the Tax Court acquires competitive service
status for appointment to any position in the Federal Executive
Branch competitive service for which the employee possesses the
required qualifications.
The provision also allows the Tax Court to procure the
services of experts and consultants in accordance with Federal
Executive Branch rules.

EFFECTIVE DATE

The provision is effective on the date that the Tax Court
adopts a personnel management system after date of enactment of
the provision.

F. Use of Practitioner Fee

(Sec. 106 of the bill and sec. 7475 of the Code)

PRESENT LAW

The Tax Court is authorized to impose on practitioners
admitted to practice before the Tax Court a fee of up to $30
per year.\17\ These fees are to be used to employ independent
counsel to pursue disciplinary matters.
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\17\ Sec. 7475.
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REASONS FOR CHANGE

The Committee understands that many pro se taxpayers are
not familiar with Tax Court procedures and applicable legal
requirements. The Committee believes it is beneficial for Tax
Court fees imposed on practitioners also to be available to
provide services to pro se taxpayers.

EXPLANATION OF PROVISION

The provision provides that Tax Court fees imposed on
practitioners also are available to provide services to pro se
taxpayers.

EFFECTIVE DATE

The provision is effective on the date of enactment.

TITLE II. TAX COURT PENSION AND COMPENSATION

A. Judges of the Tax Court

(Secs. 201-207 and 213 of the bill and secs. 7443, 7447, 7448, and 7472
of the Code)

PRESENT LAW

The Tax Court is established by the Congress pursuant to
Article I of the U.S. Constitution.\18\ The salary of a Tax
Court judge is the same salary as received by a United States
District Court judge.\19\ Present law also provides Tax Court
judges with some benefits that correspond to benefits provided
to United States District Court judges, including specific
retirement and survivor benefit programs for Tax Court
judges.\20\
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\18\ Sec. 7441.
\19\ Sec. 7443(c).
\20\ Secs. 7447 and 7448.
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Under the retirement program, a Tax Court judge may elect
to receive retirement pay from the Tax Court in lieu of
benefits under another Federal retirement program. A Tax Court
judge may also elect to participate in a plan providing annuity
benefits for the judge's surviving spouse and dependent
children (the ``survivors' annuity plan''). Generally, benefits
under the survivors' annuity plan are payable only if the judge
has performed at least 5 years of service. Cost-of-living
increases in benefits under the survivors' annuity plan are
generally based on increases in pay for active judges.
Tax Court judges participate in the Federal Employees Group
Life Insurance program (the ``FEGLI'' program). Retired Tax
Court judges are eligible to participate in the FEGLI program
as the result of an administrative determination of their
eligibility, rather than a specific statutory provision.
Tax Court judges are not covered by the leave system for
Federal Executive Branch employees. As a result, an individual
who works in the Federal Executive Branch before being
appointed to the Tax Court does not continue to accrue annual
leave under the same leave program and may not use leave
accrued prior to his or her appointment to the Tax Court.
Tax Court judges are not eligible to participate in the
Thrift Savings Plan.
Tax Court judges are subject to limitations on outside
earned income under the Ethics in Government Act of 1978.

REASONS FOR CHANGE

Tax Court judges receive compensation at the same rate as
United States District Court judges. In addition, the benefit
programs for Tax Court judges are intended to accord with
similar programs applicable to District Court judges.\21\
However, subsequent legislative changes in the benefits
provided to District Court judges have not applied to Tax Court
judges, thus creating disparities between the treatment of Tax
Court judges and the treatment of District Court judges. The
Committee believes that parity should exist between the
benefits provided to Tax Court judges and those provided to
District Court judges.
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\21\ See, e.g., S. Rep. No. 91-552, at 303 (1969).
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EXPLANATION OF PROVISION

Survivor annuities for assassinated judges

Under the provision, benefits under the survivors' annuity
plan are payable if a Tax Court judge is assassinated before
the judge has performed 5 years of service.

Cost-of-living adjustments for survivor annuities

The provision provides that cost-of-living increases in
benefits under the survivors' annuity plan are generally based
on cost-of-living increases in benefits paid under the Civil
Service Retirement System.

FEGLI program

Under the provision, a judge or retired judge of the Tax
Court is deemed to be an employee continuing in active
employment for purposes of participation in the FEGLI program.
In addition, in the case of a Tax Court judge age 65 or over,
the Tax Court is authorized to pay on behalf of the judge any
increase in employee premiums under the FEGLI program that
occur after April 24, 1999,\22\ including expenses generated by
such payment, as authorized by the chief judge of the Tax Court
in a manner consistent with payments authorized by the Judicial
Conference of the United States (i.e., the body with
policymaking authority over the administration of the courts of
the Federal Judicial Branch).
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\22\ This date relates to changes in the FEGLI program, including
changes to premium rates to reflect employees' ages.
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Accrued annual leave

Under the provision, in the case of a judge who is employed
by the Federal Executive Branch before appointment to the Tax
Court, the judge is entitled to receive a lump-sum payment for
the balance of his or her accrued annual leave on appointment
to the Tax Court.

Thrift Savings Plan participation

Under the provision, Tax Court judges are permitted to
participate in the Thrift Savings Plan. A Tax Court judge is
not eligible for agency contributions to the Thrift Savings
Plan.

Exemption for teaching compensation from outside earned income
limitations

Under the provision, compensation earned by a retired Tax
Court judge for teaching is not treated as outside earned
income for purposes of limitations under the Ethics in
Government Act of 1978.

EFFECTIVE DATE

The provisions are effective on the date of enactment,
except that: (1) the provision relating to cost-of-living
increases in benefits under the survivors' annuity plan applies
with respect to increases in Civil Service Retirement benefits
taking effect after the date of enactment; (2) the provision
relating to payment of accrued annual leave applies to any Tax
Court judge with an outstanding leave balance as of the date of
enactment and to any individual appointed to serve as a Tax
Court judge after such date; (3) the provision relating to
participation by Tax Court judges in the Thrift Savings Plan
applies as of the next open season; and (4) the provision
relating to teaching compensation of a retired Tax Court judge
applies to any individual serving as a retired Tax Court judge
on or after the date of enactment.

B. Special Trial Judges of the Tax Court

(Secs. 208-213 of the bill, and sec. 7448 and new secs. 7443A, 7443B,
and 7443C of the Code)

PRESENT LAW

The Tax Court is established by the Congress pursuant to
Article I of the U.S. Constitution.\23\ The chief judge of the
Tax Court may appoint special trial judges to handle certain
cases.\24\ Special trial judges serve for an indefinite term.
Special trial judges receive a salary of 90 percent of the
salary of a Tax Court judge and are generally covered by the
benefit programs that apply to Federal Executive Branch
employees, including the Civil Service Retirement System or the
Federal Employees' Retirement System.
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\23\ Sec. 7441.
\24\ Sec. 7443A.
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REASONS FOR CHANGE

Special trial judges of the Tax Court perform a role
similar to that of magistrate judges in courts established
under Article III of the U.S. Constitution (``Article III''
courts). However, disparities exist between the positions of
magistrate judges of Article III courts and special trial
judges of the Tax Court. For example, magistrate judges of
Article III courts are appointed for a specific term, are
subject to removal only in limited circumstances, and are
eligible for coverage under special retirement and survivor
benefit programs. The Committee believes that special trial
judges of the Tax Court and magistrate judges of Article III
courts should receive comparable treatment as to the status of
the position, salary, and benefits.

EXPLANATION OF PROVISION

Magistrate judges of the Tax Court

Under the provision, the position of special trial judge of
the Tax Court is renamed as magistrate judge of the Tax Court.
Magistrate judges are appointed (or reappointed) to serve for
8-year terms and are subject to removal in limited
circumstances.
Under the provision, a magistrate judge receives a salary
of 92 percent of the salary of a Tax Court judge.
The provision exempts magistrate judges from the leave
program that applies to employees of the Federal Executive
Branch and provides rules for individuals who are subject to
such leave program before becoming exempt.

Survivors' annuity plan

Under the provision, magistrate judges of the Tax Court may
elect to participate in the survivors' annuity plan for Tax
Court judges. An election to participate in the survivors'
annuity plan must be filed not later than the latest of 6
months after: (1) the date of enactment of the provision; (2)
the date the judge takes office; or (3) the date the judge
marries.

Retirement annuity program for magistrate judges

The provision establishes a new retirement annuity program
for magistrate judges of the Tax Court, under which a
magistrate judge may elect to receive a retirement annuity from
the Tax Court in lieu of benefits under another Federal
retirement program. A magistrate judge may elect to be covered
by the retirement program within 5 years of appointment or 5
years of date of enactment. A magistrate judge who elects to be
covered by the retirement program generally receives a refund
of contributions (with interest) made to the Civil Service
Retirement System or the Federal Employees' Retirement System.
A magistrate judge may retire at age 65 with 14 years of
service and receive an annuity equal to his or her salary at
the time of retirement. For this purpose, service may include
service performed as a special trial judge or a magistrate
judge, provided the service is performed no earlier than 9\1/2\
years before the date of enactment of the provision. The
provision also provides for payment of a reduced annuity in the
case of a magistrate judge with at least 8 years of service or
in the case of disability or failure to be reappointed.
A magistrate judge receiving a retirement annuity is
entitled to cost-of-living increases based on cost-of-living
increases in benefits paid under the Civil Service Retirement
System. However, such an increase cannot cause the retirement
annuity to exceed the current salary of a magistrate judge.
Contributions of 1 percent of salary are withheld from the
salary of a magistrate judge who elects to participate in the
retirement annuity program. Such contributions must be made
also with respect to prior service for which the magistrate
judge elects credit under the retirement annuity program. No
contributions are required after 14 years of service. A lump
sum refund of the magistrate judge's contributions (with
interest) is made if no annuity is payable, for example, if the
magistrate judge dies before retirement.
The provision includes rules under which annuity payments
may be made to a person other than the magistrate judge in
certain circumstances, such as divorce or legal separation.
A magistrate judge's right to a retirement annuity is
generally suspended or reduced in the case of employment
outside the Tax Court.
The provision establishes the Tax Court Judicial Officers'
Retirement Fund (the ``Fund''). Amounts in the Fund are
authorized to be appropriated for the payment of annuities,
refunds, and other payments under the retirement annuity
program. Contributions withheld from a magistrate judge's
salary are deposited in the Fund. In addition, the provision
authorizes to be appropriated to the Fund amounts required to
reduce the Fund's unfunded liability to zero. For this purpose,
the Fund's unfunded liability means the estimated excess,
actuarially determined on an annual basis, of the present value
of benefits payable from the Fund over the sum of (1) the
present value of contributions to be withheld from the future
salary of the magistrate judges and (2) the balance in the Fund
as of the date the unfunded liability is determined.
Under the provision, a magistrate judge who elects to
participate in the retirement annuity program is also permitted
to participate in the Thrift Savings Plan. Such a magistrate
judge is not eligible for agency contributions to the Thrift
Savings Plan.

Special retirement annuity rule for incumbent magistrate judges

The provision provides a special rule under which a
magistrate judge in active service on the date of enactment of
the provision may elect to receive both an annuity under the
Civil Service Retirement System or the Federal Employees'
Retirement System (as applicable to the magistrate judge) and
an annuity under the magistrate judges' retirement program.
Under the special rule, such a magistrate judge is entitled
to an annuity under the Civil Service Retirement System or the
Federal Employees' Retirement System based on prior service
that is not credited under the magistrate judges' retirement
annuity program. If the magistrate judge made contributions to
the Civil Service Retirement System or the Federal Employees'
Retirement System with respect to service that is credited
under the magistrate judges' retirement annuity program, such
contributions are refunded (with interest).
A magistrate judge who elects the special rule is also
entitled to the annuity payable under the magistrate judges'
retirement program in the case of retirement with at least 8
years of service or on failure to be reappointed. This annuity
is based on service as a magistrate judge or special trial
judge of the Tax Court that is performed no earlier than 9\1/2\
years before the date of enactment of the provision and for
which the magistrate judge makes contributions of 1 percent of
salary.

Recall of retired magistrate judges

The provision provides rules under which a retired
magistrate judge may be recalled to perform services for a
limited period.

EFFECTIVE DATE

The provisions are effective on date of enactment.

III. BUDGET EFFECTS OF THE BILL

A. Committee Estimates

In compliance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the following statement is made
concerning the estimated budget effects of the provisions of
the bill as reported.

ESTIMATED BUDGET EFFECTS OF S. 753, THE ``TAX COURT MODERNIZATION ACT,'' AS REPORTED BY THE COMMITTEE ON FINANCE
[Fiscal years 2003-2013, in millions of dollars]
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Provision Effective 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003-08 2003-13
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Tax Court Procedure............ various...... Negligible Revenue Effect
Tax Court Pension and various...... ...... -3 (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) -1 -4 -6
Compensation \1\ \2\.
Net Total................ ............. (\4\) -3 (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) -1 -4 -6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Certain portions of the estimate were provided by the Congressional Budget Office.
\2\ Includes the following outlay effects--2003: .....; 2004: -3; 2005:(\3\); 2006:(\3\); 2007:(\3\); 2008:(\3\); 2009:(\3\); 2010:(\3\); 2011:(\3\);
2012:(\3\); 2013:(\3\); 2003-08: -3; 2003-13: -5.
\3\ Loss of less than $500,000.
\4\ Negligible revenue effect.
Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Budget Authority and Tax Expenditures

Budget authority

In compliance with section 308(a)(1) of the Budget Act, the
Committee states that the revenue provisions of the bill
involve new or increased budget authority with respect to the
Tax Court Judicial Officers' Retirement Fund.

Tax expenditures

In compliance with section 308(a)(2) of the Budget Act, the
Committee states that the revenue reduction provided for by the
bill involves increased tax expenditures (see revenue table in
Part III.A, above).

C. Consultation With Congressional Budget Office

In accordance with section 403 of the Budget Act, the
Committee advises that the Congressional Budget Office
submitted the following statement on this bill.

U.S. Congress,
Congressional Budget Office,
Washington, DC, April 24, 2003.
Hon. Charles E. Grassley,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 753, the Tax Court
Modernization Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Geoffrey
Gerhardt.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.

S. 753--Tax Court Modernization Act

Summary: Enacting S. 753 would establish a new retirement
program for certain employees of the U.S. Tax Court. The bill
would give all current and future special trial judges of the
Tax Court the option of being covered by this new retirement
program in lieu of another federal retirement system. The
program established under S. 753 would provide retirement and
survivor benefits similar to those accrued under retirement
programs that cover regular Tax Court judges. Retirement
benefits for regular Tax Court judges are more generous than
those under the Civil Service Retirement System (CSRS) and the
Federal Employees' Retirement System (FERS).
CBO estimates that enacting the bill would increase direct
spending by $3 million in 2004 and by $5 million over the 2004-
2013 period. CBO and the Joint Committee on Taxation (JCT)
estimate S. 753 would decrease revenue by $1 million over the
2004-2013 period. In addition, implementing the bill would
increase spending subject to appropriation by $2 million each
year during the 2004-2013 period.
JCT has reviewed the tax provisions of S. 753 and has
determined they contain no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
CBO has reviewed the nontax provisions of the bill and
determined that they contain no intergovernmental or private-
sector mandates as defined in UMRA and would have no
significant impact on the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 753 is shown in the following table. The
costs of this legislation fall within budget function 600
(income security).

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
---------------------------------------------------------------------
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
Changes in Direct Spending

Estimated Budget Authority................ 3 * * * * * * * * *
Estimated Outlays......................... 3 * * * * * * * * *

Changes in Revenues

Various Taxes and Fees.................... * -* -* -* -* -* -* -* -* -*

Changes in Spending Subject to Appropriation

Estimated Authorization Level............. 2 2 2 2 2 2 2 2 2 2
Estimated Outlays......................... 2 2 2 2 2 2 2 2 2 2
----------------------------------------------------------------------------------------------------------------
*Less than $500,000.

Basis of estimate: For this estimate, CBO assumes the
legislation will be enacted in September 2003.

Direct spending

S. 753 would establish a new retirement program for special
judges of the U.S. Tax Court and renames those positions to be
magistrate judges of the Tax Court. Under current law, most
special trial judges participate in either CSRS or FERS,
depending on when they first entered government service. The
bill would provide all current and future magistrate judges the
option of being covered by the new retirement program or
continuing their coverage under CSRS or FERS. Information
provided by the U.S. Tax Court indicate that 10 special trial
judges currently work for the court and that these judges have
been employed by the government for an average of 33 years. All
10 of these special trial judges are covered under CSRS and
earn about $140,000 annually.
Current or newly appointed judges who opt to be covered by
the new retirement program would be entitled to refunds of
employee contributions made to either CSRS or FERS. The
employee contribution rate for most workers covered by CSRS is
7 percent, while the rate for FERS is 0.8 percent. CBO assumes
that all of the special judges employed by the courtwould elect
to have their retirement contributions refunded and be covered by the
new retirement program. Based on this assumption, CBO estimates that
enacting S. 753 would increase direct spending for refunds of employee
contributions by $3 million in 2004 and less than $50,000 for each year
thereafter.
Both CSRS and FERS are defined benefit pension programs
that provide retirement annuities based on the final years of
salary and amount of creditable service. For workers with the
age and service history of the current special judges of the
Tax Court, CSRS replaces about 60 percent of a retiree's salary
and FERS replaces about 30 percent, although those in CSRS do
not earn Social Security credits while those in FERS do. The
new retirement program for special trial judges, like that for
regular Tax Court judges, would replace 100 percent of a
judge's final salary upon retirement. CBO estimates that the
difference between what these judges would have gotten under
CSRS and what they would get under the new retirement program
would increase federal spending by less than $500,000 annually
during the 2004-2013 period, but total nearly $2 million over
the 10-year period.
Section 106 of the bill would allow the tax court to use
fees collected from attorneys before the court to pay for
services for taxpayers who represent themselves. Under current
law, such fees may only be used to employ independent counsel
to pursue disciplinary matters. Based on information from the
Tax Court, CBO estimates that enacting section 106 would
increase direct spending from the fund in the first few years
of the period. However, such increase would not be significant.
S. 753 also contains several other proposals that could
have an effect on direct spending. These include provisions to
provide survivor annuities for assassinated Tax Court judges
and changes the eligibility standards for Tax Court judges
under the Federal Employees' Group Life Insurance program. CBO
estimates each of these provisions would increase federal
spending by less than $500,000 annually.

Revenues

The bill would require that judges who elect to be covered
by the new retirement program contribute 1 percent of their
salary toward the program. Judges also would have to make a
lump-sum contribution--at 1 percent of salary--for previous
years they worked for the court equal to what they would have
contributed if the new retirement program had been in
existence. CBO estimates these changes in employee
contributions would have a negligible effect on receipts.
S. 753 also would make several changes to existing Tax
Court procedure and modify laws relating to Tax Court pensions
and compensation. Title I of the bill would expand filing fees
to include petition cases and expand use of practice fees to
include pro se taxpayers. In addition, title I would provide
the Tax Court with jurisdiction over all appeals of collection
due process determinations. JCT estimates that these provisions
would have a negligible effect on federal revenues. Title II
would allow Tax Court judges to participate in the Thrift
Savings Plan (TSP), which JCT estimates would decrease
governmental receipts by about $1 million over the 2004-2013
period.

Spending subject to appropriation

S. 753 also would require that the Secretary of the
Treasury establish a new trust fund for the new retirement
program. This fund, to be called the Tax Court Judicial
Officers' Retirement Fund, would receive agency and employee
contributions and pay out benefits to retirees and survivors.
the bill specifies that the Tax Court would make adequate
contributions to eliminate the program's unfunded liability,
taking employee contributions into account. Information
provided to CBO by the Tax Court indicates that this payment
would amount to about $2 million annually during the 2004-2013
period, subject to the availability of appropriated funds.
In addition, the bill allows those employed by the Federal
Executive Service before appointment to the Tax Court the right
to collect a lump-sum payment for all unused annual leave. CBO
estimates that this provision would have a negligible effect on
outlays.
Intergovernmental and private-sector impact: JCT has
reviewed the tax provisions of S. 753 and has determined they
contain no intergovernmental or private-sector mandates as
defined in UMRA. CBO has reviewed the nontax provisions of the
bill and determined that they contain no intergovernmental or
private-sector mandates as defined in UMRA and would have no
significant impact on the budgets of state, local, or tribal
governments.
Estimate prepared by: Federal Spending: Geoffrey Gerhart;
Federal Revenue: Annabelle Bartsch; Impact on State, Local, and
Tribal Governments: Leo Lex; and Impact on the Private Sector:
Kate Bloniarz.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.

IV. VOTES OF THE COMMITTEE

In compliance with paragraph 7(b) of rule XXVI of the
Standing Rules of the Senate, the Committee states that the
bill was, with a quorum present, ordered favorably reported by
voice vote on April 2, 2003.

V. REGULATORY IMPACT AND OTHER MATTERS

A. Regulatory Impact

Pursuant to paragraph 11(b) of rule XXVI of the Standing
Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact that might be
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses

The bill includes provisions relating to the jurisdiction
and procedures of the Tax Court relating to taxpayer appeals of
collection due process determinations, employment status cases,
application of the principle of equitable recoupment, authority
to charge filing fees, and the use of practitioner fees. The
bill also gives the Tax Court the authority to establish its
own personnel system, makes changes to the benefit programs and
outside compensation limitations for Tax Court judges, renames
the position of special trial judge of the Tax Court as
magistrate judge of the Tax Court, and provides new
compensation and benefits rules for magistrate judges. The
provisions of the bill are not expected to impose additional
administrative requirements or regulatory burdens on
individuals or businesses.

Impact on personal privacy and paperwork

The provisions of the bill do not impact personal privacy.
The provisions of the bill do not impose increased
paperwork burdens on individuals.

B. Unfunded Mandates Statement

This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).
The Committee has determined that the revenue provisions of
the bill do not contain Federal mandates on the private sector.
The Committee has determined that the revenue provisions of the
bill do not impose a Federal intergovernmental mandate on
State, local, or tribal governments.

C. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the IRS Reform Act) requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the Senate Committee on
Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
(the Code) and has widespread applicability to individuals or
small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Code and that have ``widespread
applicability'' to individuals or small businesses.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL AS REPORTED

In the opinion of the Committee, it is necessary in order
to expedite the business of the Senate, to dispense with the
requirements of paragraph 12 of rule XXVI of the Standing Rules
of the Senate (relating to the showing of changes in existing
law made by the bill as reported by the Committee).