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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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