Alice M. Beagles - Page 11

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               backlog now lies with the Tax Court.  The positive                     
               response that the Court has made to several recent GAO                 
               recommendations is encouraging and the conferees expect                
               the Court to implement swiftly these and other                         
               appropriate management initiatives.  The conferees also                
               note favorably the steps the Court has begun to take in                
               consolidating similar tax shelter cases and dispensing                 
               with lengthy opinions in routine tax protestor cases.                  
               The Court should take further action in these two                      
               areas, as well as to assert, without hesitancy in                      
               appropriate instances, the penalties that the Congress                 
               has provided.                                                          
                    The Internal Revenue Service also has significant                 
               responsibilities in reducing the Tax Court backlog.                    
               The Service’s settlement policy should be fair and                     
               flexible, and only appropriate cases should be                         
               litigated.  Although in the recent past the Service has                
               offered to settle many tax shelter cases by permitting                 
               taxpayers to deduct out of pocket expenses, the Service                
               no longer routinely offers this as a settlement.  This                 
               is a constructive change in policy, in that a taxpayer                 
               should not expect to be able to deduct out of pocket                   
               expenses regardless of the circumstances of his case.                  
               The Service should assert, without hesitancy in                        
               appropriate circumstances, the penalties that the                      
               Congress has provided.  In particular, the negligence                  
               and fraud penalties are not currently being applied in                 
               a large number of cases where their application is                     
               fully justified.  The conferees note with approval the                 
               steps the Service has recently taken to eliminate the                  
               backlog in the Appeals Division.                                       
          The Court’s practice of selecting test cases and holding other              
          cases in abeyance pending the resolution of the test cases was              
          among the management tools adopted to deal with the large number            
          of cases.  It was not feasible to litigate simultaneously                   
          hundreds of cases involving substantially similar issues.  Here,            
          respondent’s counsel turned to the group of TEFRA cases,                    
          including petitioner’s partnership, as soon as the trial of the             
          Swanton test cases concluded in 1992.  Prior to that time, the              

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