Suzanne L. Porter, a.k.a. Suzanne L. Holman v. Commissioner , 130 T.C. No. 10 ( 2008 )

130 T.C. No. 10UNITED STATES TAX COURT
SUZANNE L. PORTER, a.k.a. SUZANNE L. HOLMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13558-06. Filed May 15, 2008.
R denied P’s application for relief from joint
income tax liability under sec. 6015, I.R.C. P
petitioned this Court to seek our determination whether
she is entitled to relief under sec. 6015(f), I.R.C. R
filed a motion in limine to preclude P from introducing
at trial any evidence, documentary or testimonial,
which was not available to R during the administrative
process. R urges us to reconsider our holding in Ewing
v. Commissioner, 122 T.C. 32 (2004), vacated on
unrelated jurisdictional grounds 439 F.3d 1009 (9th
Cir. 2006).
Held: We will continue to follow our holding in
Ewing v. Commissioner, 122 T.C. 32 (2004). Therefore,
our determination whether P is entitled to relief under
sec. 6015(f), I.R.C., is made in a trial de novo and we
may consider evidence introduced at trial which was not
included in the administrative record.
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Held, further: R’s motion in limine will be
denied.
Suzanne L. Porter, a.k.a. Suzanne L. Holman, pro se.
Kelly R. Morrison-Lee and Ann M. Welhaf, for respondent.
HAINES, Judge: The issue for decision is whether in
determining petitioner’s eligibility for relief under section
6015(f) we may consider evidence introduced at trial which was
not included in the administrative record.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, the exhibits attached thereto, and the
stipulation of settled issues are incorporated herein by this
reference. At the time she filed her petition, petitioner
resided in Silver Spring, Maryland.
Petitioner and her husband (Mr. Porter) filed a joint Form
1040, U.S. Individual Income Tax Return, for 2003 (2003 return).
Mr. Porter prepared the 2003 return. On April 21, 2004, 6 days
1
Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended. Rule references are to the
Tax Court Rules of Practice and Procedure. Amounts are rounded
to the nearest dollar.
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after petitioner signed the 2003 return, she and Mr. Porter
legally separated.2
On June 20, 2005, respondent issued petitioner and Mr.
Porter a statutory notice of deficiency for 2003. Neither
petitioner nor Mr. Porter petitioned this Court for
redetermination of the deficiency.
On December 1, 2005, petitioner submitted a Form 8857,
Request for Innocent Spouse Relief. In a June 14, 2006, final
determination, respondent’s Appeals officer determined that
pursuant to section 6015(c) petitioner was entitled to relief
from joint and several liability with respect to the income tax
on $12,765 of unreported employee compensation Mr. Porter
received in 2003, but denied relief under section 6015(b), (c),
and (f) from the 10-percent additional tax of $1,070 imposed by
section 72(t) on an IRA distribution of $10,700 reported on the
2003 return. The parties stipulated that petitioner does not
qualify for relief from joint and several liability on the 10-
percent additional tax under section 6015(b) or (c).
Respondent filed a motion in limine to preclude petitioner
from introducing any evidence, documentary or testimonial, which
was not available to respondent during the administrative
process. The Court took the motion under advisement and
2
A Judgment of Absolute Divorce was entered on May 16, 2006.
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permitted petitioner to testify and introduce evidence subject to
its ruling on the motion in limine.
OPINION
A. Respondent’s Position and Background
Respondent contends that, pursuant to the Administrative
Procedure Act (APA), 5 U.S.C. secs. 551-559, 701-706 (2000), and
cases decided thereunder, this Court may consider only the
administrative record (the record rule) in making our
determination in this case. See Camp v. Pitts, 411 U.S. 138, 142
(1973); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715
(1963). We first stated our position on that issue in Ewing v.
Commissioner, 122 T.C. 32 (2004). Respondent urges us to
reconsider our position since the U.S. Court of Appeals for the
Ninth Circuit vacated our decision in Ewing on jurisdictional
grounds. See Commissioner v. Ewing, 439 F.3d 1009 (9th Cir.
2006), revg. 118 T.C. 494 (2002), vacating 122 T.C. 32 (2004).
However, Congress subsequently confirmed our jurisdiction to
determine the appropriate relief available to a taxpayer under
section 6015(f) with respect to tax liability remaining unpaid on
or after December 20, 2006. Sec. 6015(e)(1)(A); Tax Relief and
Healthcare Act of 2006, Pub. L. 109-432, div. C, sec. 408, 120
Stat. 3061.
In Ewing v. Commissioner, 122 T.C. at 44, we held that our
determination of whether a taxpayer is entitled to relief under
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section 6015(f) “is made in a trial de novo and is not limited to
matter contained in respondent’s administrative record”.
Respondent raises many of the same arguments we considered in
Ewing. Consequently, our discussion of this issue draws heavily
on the reasoning of the majority opinion in Ewing as well as the
reasoning of Judge Thornton’s concurrence. See id. at 50. For
the reasons stated more fully herein, we hold that in determining
whether a taxpayer is eligible for relief under section 6015(f)
we may consider evidence introduced at trial which was not
included in the administrative record.
B. The Applicability of the APA Judicial Review Provisions
to Tax Court Proceedings Under Section 6015
Since its enactment in 1946 the APA has generally not
governed proceedings in this Court (or in its predecessor, the
Board of Tax Appeals). See Ewing v. Commissioner, 122 T.C. at 50(Thornton, J., concurring). The U.S. Court of Appeals for the
Fourth Circuit, the Court to which an appeal in this case would
lie, has held that “The Tax Court * * * is a court in which the
facts are triable de novo” and “the Tax Court is not subject to
the Administrative Procedure Act.” O’Dwyer v. Commissioner, 266
F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957). This
long-established practice comports with the provisions of the APA
and its history. Ewing v. Commissioner, 122 T.C. at 50(Thornton, J., concurring).
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As a statute of general application, the APA does not
supersede specific statutory provisions for judicial review. Id.“When Congress enacted the APA to provide a general authorization
for review of agency action in the district courts, it did not
intend that general grant of jurisdiction to duplicate the
previously established special statutory procedures relating to
specific agencies.”3 Bowen v. Massachusetts, 487 U.S. 879, 903
(1988).
The Code has long provided a specific statutory
framework for reviewing deficiency determinations of the Internal
Revenue Service. Secs. 6213 and 6214; Ewing v. Commissioner, 122
T.C. at 52 (Thornton, J., concurring). Section 6015 is part and
3
Applying these principles, the U.S. Court of Appeals for
the Fifth Circuit has indicated that the APA is not an
appropriate vehicle for challenging the Commissioner’s denial of
a request to abate interest under sec. 6404. See Beall v. United
States, 336 F.3d 419, 427 n.9 (5th Cir. 2003) (“review under the
APA is accordingly available only where ‘there is no other
adequate remedy in a court.’” (quoting 5 U.S.C. sec. 704)).
Similarly, in an unpublished opinion involving the validity of
the Commissioner’s issuance of a notice of deficiency, the U.S.
Court of Appeals for the Seventh Circuit concluded: “The APA is
irrelevant, however, because the IRS’s issuance of a notice of
tax deficiency and the Tax Court’s review of it are governed by
the Internal Revenue Code and the rules and procedures of the Tax
Court * * * and not by the APA.” Bratcher v. Commissioner, 116
F.3d 1482 (7th Cir. 1997), affg. without published opinion T.C.
Memo. 1996-252; see also Poirier v. Commissioner, 299 F. Supp.
465, 466 (E.D. La. 1969) (rejecting taxpayer’s claim that review
to restrain enforcement of IRS summons is governed by APA secs.
703 and 704 because secs. 7602 and 7604 and Reisman v. Caplin,
375 U.S. 440, 443 (1964), “[provide] an adequate remedy”).
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parcel of the same statutory framework. Our de novo review
procedures emanate from that statutory framework.
Our jurisdiction under section 6015 is couched in language
similar to that of our deficiency jurisdiction under sections
6213 and 6214. Section 6015(e)(1)(A) authorizes this Court to
“determine” the appropriate relief available under section 6015.
Section 6213(a) provides that taxpayers who receive a notice of
deficiency may petition this Court for a “redetermination” of the
deficiency. Section 6214(a) provides this Court jurisdiction to
“redetermine” the amount of the deficiency.
Congress first granted the Board of Tax Appeals (the
predecessor to the Tax Court) jurisdiction to “redetermine”
deficiencies and additions to tax in 1924. Ewing v.
Commissioner, 122 T.C. at 38. Since 1926 we have also had
jurisdiction to “determine” overpayments. Id. These
determinations and redeterminations have always been made de
novo. O’Dwyer v. Commissioner, supra at 580; Greenberg’s
Express, Inc. v. Commissioner, 62 T.C. 324, 327-328 (1974); see
Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989);
Raheja v. Commissioner, 725 F.2d 64, 66 (7th Cir. 1984), affg.
T.C. Memo. 1981-690; Jones v. Commissioner, 97 T.C. 7, 18 (1991).
Congress has defined the jurisdiction of this Court using the
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words “determine” and “redetermination”.4 Ewing v. Commissioner,
122 T.C. at 38. We see no material difference between
“determine” in section 6015(e), “determine” in section 6512(b),
and “redetermination” in section 6213(a) for purposes of this
discussion. Id.We can presume that in 1998 when Congress chose to use the
word “determine” in section 6015, it did so in full awareness of
our long history of de novo review.5 If Congress includes
language from a prior statute in a new statute, courts can
presume that Congress intended the longstanding legal
interpretation of that language to be applied to the new statute.
Commissioner v. Estate of Noel, 380 U.S. 678, 680-681 (1965);
United States v. 101.80 Acres, 716 F.2d 714, 721 (9th Cir. 1983).
The use of the word “determine” in section 6015(e)(1)(A) suggests
4
As another example, sec. 6404 authorizes this Court to
“determine” whether the Secretary’s refusal to abate interest was
an abuse of discretion. Our practice has been to make our
determination after providing an opportunity for a trial de novo.
See, e.g., Goettee v. Commissioner, T.C. Memo. 2003-43, affd. 192
Fed. Appx. 212 (4th Cir. 2006); Jean v. Commissioner, T.C. Memo.
2002-256; Jacobs v. Commissioner, T.C. Memo. 2000-123.
5
There are other situations besides the redetermination of
deficiencies in which we make determinations de novo. For
example, sec. 7436(a) provides that the Tax Court may “determine”
whether the Commissioner’s determination regarding an
individual’s employment status is correct. The legislative
history shows that Congress intended for us to conduct a trial de
novo with respect to our determinations regarding employment
status. See H. Rept. 105-148, at 639 (1997), 1997-4 C.B. (Vol.
1) 319, 961; S. Rept. 105-33, at 304 (1997), 1997-4 C.B. (Vol. 2)
1067, 1384; H. Conf. Rept. 105-220, at 734 (1997), 1997-4 C.B.
(Vol. 2) 1457, 2204.
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that Congress intended that we conduct trials de novo in making
our determinations under section 6015(f).
C. The Eighth Circuit Decision in Robinette v. Commissioner
Does Not Govern the Decision in This Case
Respondent argues that pursuant to the Court of Appeals for
the Eighth Circuit’s decision in Robinette v. Commissioner, 439
F.3d 455 (8th Cir. 2006), revg. 123 T.C. 85 (2004), our review is
limited to the administrative record. We disagree.
Robinette involved a claim under section 6330, not section
6015(f). We held that the APA was not applicable to our review
of the Commissioner’s determinations under section 6330. The
Court of Appeals reversed. The Court of Appeals’ opinion in
Robinette, a case brought under section 6330, is distinguishable
from the current case brought under section 6015.6 Whereas
section 6015 provides that we “determine” whether the taxpayer is
entitled to relief, section 6330(d) provides for judicial review
of the Commissioner’s determination by allowing the taxpayer to
“appeal such determination to the Tax Court” and vesting the Tax
Court with “jurisdiction with respect to such matter”. As
discussed above, the use of the word “determine” suggests that we
conduct a trial de novo. That Congress chose not to use the word
“determine” or some derivation thereof in section 6330(d)
6
No inference should be drawn that, by distinguishing
Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), we are
changing our position in lien and levy cases as expressed in 123
T.C. 85 (2004).
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distinguishes Robinette v. Commissioner, 439 F.3d 455 (8th Cir.
2006), from cases arising under section 6015.
D. The Scope of Review in Other Areas of Our Jurisdiction
We have jurisdiction to issue declaratory judgments relating
to the status, qualification, valuation, or classification of
certain section 501(c)(3) organizations, retirement plans, gifts,
governmental obligations, and installment payments under section
6166. Secs. 7428, 7476, 7477, 7478, 7479. In contrast to
section 6015, none of those sections authorizes us to make a
determination; instead, those sections authorize this Court,
after the Commissioner has made a determination, to make a
declaration with respect to the matter. Our Rules regarding
declaratory judgments generally require these actions to be
disposed of on the basis of the administrative record.7 See Rule
217(a). The reason for this limited review lies in Congress’s
legislative directive that “The court is to base its
determination upon the reasons provided by the Internal Revenue
Service in its notice to the party making the request for a
determination, or based upon any new matter which the Service may
wish to introduce at the time of trial.” H. Rept. 93-807, at 108
7
Our Rules relating to declaratory judgment cases provide
for consideration under various circumstances of evidence not in
the administrative record. See Ewing v. Commissioner, 122 T.C.
at 39 n.7.
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(1974), 1974-3 C.B. (Supp.) 236, 343; see Rule 217(a),
Explanatory Note, 68 T.C. 1048.
Congress, in full awareness of our history of de novo
review, did not impose a similarly restrictive standard on our
review of the Commissioner’s determinations under section 6015.
Ewing v. Commissioner, 122 T.C. at 55 (Thornton, J., concurring).
Unlike the statutes providing our jurisdiction to issue
declaratory judgments, nothing in section 6015 or its legislative
history indicates that the APA is to apply to section 6015 cases
or that we are to restrict our review to the administrative
record. Id. Section 6015 expanded the Court’s jurisdiction to
review all denials of relief from joint and several liability.
Id. As described in the conference report, the House bill
“specifically provides that the Tax Court has jurisdiction to
review any denial of innocent spouse relief.” H. Conf. Rept.
105-599, at 250 (1998), 1998-3 C.B. 747, 1004. Similarly, under
the Senate amendment, “The Tax Court has jurisdiction of disputes
arising from the separate liability election.” Id. at 251, 1998-
3 C.B. at 1005. The conference agreement “follows the House bill
and the Senate amendment in establishing jurisdiction in the Tax
Court over disputes arising in this area.” Id.
That section 6015 postdates the APA does not render the APA
judicial review procedures applicable here. Ewing v.
Commissioner, 122 T.C. at 52 (Thornton, J., concurring). APA
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section 559 provides that the APA does “not limit or repeal
additional requirements imposed by statute or otherwise
recognized by law.” 5 U.S.C. sec. 559 (2000). When the APA was
enacted in 1946, this Court’s de novo procedures for reviewing
IRS functions were well established and “recognized by law”
within the meaning of APA section 559.8 See Ewing v.
Commissioner, 122 T.C. at 38. These de novo trial procedures,
which have remained essentially unchanged since the APA’s
enactment, provide a stricter scope of review of the
Commissioner’s determinations than would obtain under APA review
procedures. Ewing v. Commissioner, 122 T.C. at 52-53 (Thornton,
J., concurring). Consequently, pursuant to APA section 559, the
8
When the APA was enacted, this Court had jurisdiction not
only to redetermine deficiencies, but also to determine certain
overpayments, to redetermine excessive profits on defense
contracts as previously determined by the Secretary, and to hear
claims for refunds of processing taxes; all these matters were
reviewed de novo. See Revenue Act of 1943, ch. 63, sec. 701(e),
58 Stat. 86 (excessive profits); Revenue Act of 1942, ch. 619,
secs. 504, 510(b), 56 Stat. 957, 967 (refunds of processing
taxes); Revenue Act of 1926, ch. 27, sec. 284(e), 44 Stat. (Part
2) 67 (overpayments); Revenue Act of 1924, ch. 234, sec. 274, 43
Stat. 297 (deficiencies).
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APA does not limit or repeal our de novo review procedures.9 Id.
at 53 (Thornton, J., concurring).
E. Abuse of Discretion and De Novo Review
We have reviewed the Commissioner’s denial of relief in
cases arising under section 6015(f) for abuse of discretion.10
Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d
1181 (10th Cir. 2003); Van Arsdalen v. Commissioner, T.C. Memo.
2007-48. Review for abuse of discretion does not trigger
application of the APA record rule or preclude us from conducting
a de novo trial. Ewing v. Commissioner, 122 T.C. at 40. Our
longstanding practice has been to hold trials de novo in many
situations where an abuse of discretion standard applies. In
9
The legislative history of the APA confirms this
understanding. See S. Comm. on the Judiciary, 79th Cong., 1st
Sess., Administrative Procedure Act (Comm. Print 1945), reprinted
in Administrative Procedure Act Legislative History, 1944-46, at
22 (1946) (stating that there are exempted from APA formal
adjudication requirements matters that are subject to de novo
review of facts and law such “as the tax functions of the Bureau
of Internal Revenue (which are triable de novo in The Tax
Court)”); S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted
in Administrative Procedure Act Legislative History, 1944-46, at
214 (1946) (explaining that pursuant to APA provisions governing
the scope of judicial review, courts establish facts de novo
where the agency adjudication is not subject to APA formal
adjudication provisions “such as tax assessments * * * not made
upon an administrative hearing and record, [where] contests may
involve a trial of the facts in the Tax Court”); H. Rept. 1980,
79th Cong., 2d Sess. (1946), reprinted in Administrative
Procedure Act Legislative History, 1944-46, at 279 (1946) (same).
10
In deciding respondent’s motion in limine relating to our
scope of review, we need not decide any issue relating to the
standard of review. Our determination of the proper scope of
review does not depend on the standard of review applied.
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those cases, our practice has not been to limit taxpayers to
evidence contained in the administrative record or arguments made
by the taxpayer at the administrative level.
Examples of actions in which we conduct a trial de novo
include those where we must decide whether it was an abuse of
discretion for the Commissioner to (1) determine that a
taxpayer’s method of accounting did not clearly reflect income
under section 446, e.g., Thor Power Tool Co. v. Commissioner, 439
U.S. 522, 533 (1979) (Supreme Court used Tax Court findings in
making its determination); Mulholland v. United States, 25 Cl.
Ct. 748 (1992); (2) reallocate income or deductions under section
482, e.g., Bausch & Lomb, Inc. v. Commissioner, 933 F.2d 1084,
1088 (2d Cir. 1991) (U.S. Court of Appeals for the Second Circuit
implicitly approved our de novo consideration of section 482
reallocations), affg. 92 T.C. 525 (1989); (3) fail to waive
penalties and additions to tax, e.g., Krause v. Commissioner, 99
T.C. 132, 179 (1992) (based in part on the Commissioner’s
expert’s testimony that taxpayers were influenced by energy
crisis to invest in energy partnerships, failure to waive the
addition to tax for underpayment attributable to valuation
overstatement under section 6659(e) was an abuse of discretion),
affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th
Cir. 1994); (4) refuse to abate interest under section 6404,
e.g., Goettee v. Commissioner, T.C. Memo. 2003-43, affd. 192 Fed.
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Appx. 212 (4th Cir. 2006); Jean v. Commissioner, T.C. Memo. 2002-
256; Jacobs v. Commissioner, T.C. Memo. 2000-123; (5) refuse to
grant the taxpayer’s request for an extension of time to file,
e.g., Estate of Proios v. Commissioner, T.C. Memo. 1994-442(taxpayer’s failure to call witnesses held against the taxpayer);
and (6) disallow a bad debt reserve deduction, e.g., Newlin Mach.
Corp. v. Commissioner, 28 T.C. 837, 845 (1957) (testimony and
evidence considered). We are aware of no reason to depart from
this longstanding practice in making our determination under
section 6015(f).11
F. Neither Magana v. Commissioner nor Giamelli v.
Commissioner Governs This Case
Respondent contends that under Magana v. Commissioner, 118
T.C. 488 (2002), we may not consider facts or issues that were
not previously raised by the taxpayer during the Commissioner’s
consideration of the taxpayer’s request for relief under section
6015(f). In Magana v. Commissioner, supra at 493, a case in
which we reviewed the Commissioner’s determination under section
6330(d)(1) that tax lien filings were appropriate, we held that,
11
This is not to say, however, that we could not or should
not, in appropriate circumstances, borrow principles of judicial
review embodied in the APA. See Dittler Bros., Inc. v.
Commissioner, 72 T.C. 896, 909 (1979) (this Court looked to APA
caselaw in adopting a “substantial evidence” rule as the
appropriate measure for reviewing the reasonableness of the
Commissioner’s determination as to tax avoidance in a declaratory
judgment action arising under former sec. 7477), affd. without
published opinion 642 F.2d 1211 (5th Cir. 1981).
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absent special circumstances, the taxpayer could not raise before
this Court an issue he had not raised in a hearing conducted by
the Commissioner’s Appeals Officer under section 6330(b). See
also Giamelli v. Commissioner, 129 T.C. 107 (2007).
Neither Magana nor Giamelli applies here. See Ewing v.
Commissioner, 122 T.C. at 41. First, in Magana v. Commissioner,
supra at 494 n.3, we said we were not deciding whether our
holding therein applies to claims for relief from joint liability
under section 6015 raised in a collection proceeding under
section 6330. In Giamelli, we did not extend our holding to
claims under section 6015. Second, we did not say in Magana or
Giamelli that the taxpayer would be limited to the administrative
record or that the taxpayer may not offer evidence in the
proceeding in this Court. Third, in neither Magana nor Giamelli
did we discuss the APA or the record rule. Thus, Magana and
Giamelli do not govern here.
G. Our Adoption of Respondent’s Position Would Lead to
Inconsistent Procedures in Similar Cases
Adoption of respondent’s position would lead to the anomaly
of proceedings in some section 6015(f) cases on the basis of the
Commissioner’s administrative record and in other such cases on
the basis of trials de novo. See Ewing v. Commissioner, 122 T.C.
at 42. Consider two examples.
First, we have jurisdiction to make a determination if a
taxpayer petitions this Court 6 months after filing an election
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for section 6015 relief and the Commissioner has made no
determination granting or denying relief. Sec.
6015(e)(1)(A)(i)(II); Ewing v. Commissioner, 122 T.C. at 42. A
trial de novo would be necessary and is clearly authorized in
this situation; there may be only a skeletal administrative
record. Second, in a deficiency case we hold a trial de novo
relating to a taxpayer’s affirmative defense that he or she is
entitled to innocent spouse relief under section 6015(f).
Adoption of respondent’s position would cause us to apply
different procedures in our determinations in cases under section
6015. See Ewing v. Commissioner, 122 T.C. at 42. We believe
that cases in which the taxpayer seeks relief under section
6015(f) should receive similar treatment and, thus, the same
scope of review.
The nonrequesting spouse may intervene in the proceeding in
which we determine whether the requesting spouse qualifies for
relief under section 6015(f). Sec. 6015(e)(4). Intervention by
the nonrequesting spouse is available both in deficiency cases in
which section 6015 relief is requested and in stand-alone case
such as this case. Rule 325; Ewing v. Commissioner, 122 T.C. at
43; King v. Commissioner, 115 T.C. 118, 122-123 (2000); Corson v.
Commissioner, 114 T.C. 354, 365 (2000). That Congress provided
for intervention by nonrequesting spouses suggests Congress
intended that we conduct trials de novo under section 6015(f) to
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permit the intervenor an opportunity to offer evidence relating
to the requesting spouse’s entitlement to relief. See Ewing v.
Commissioner, 122 T.C. at 43.
H. Conclusion
We read section 6015(e) and (f) to give effect to both.
Ewing v. Commissioner, 122 T.C. at 43. Our de novo review of the
Commissioner’s determinations under section 6015(f) gives effect
to the congressional mandate that we determine whether a taxpayer
is entitled to relief under section 6015. The measure of
deference provided by the abuse of discretion standard is a
proper response to the fact that section 6015(f) authorizes the
Secretary to provide procedures under which, on the basis of all
the facts and circumstances, the Secretary may relieve a taxpayer
from joint liability. That approach (de novo review, applying an
abuse of discretion standard) properly implements the statutory
provisions at issue here and has a long history in numerous other
areas of Tax Court jurisprudence.
To reflect the foregoing,
An order will be issued
denying respondent’s motion in
limine.
Reviewed by the Court.
COLVIN, COHEN, SWIFT, WELLS, FOLEY, VASQUEZ, GALE, THORNTON,
MARVEL, GOEKE, and WHERRY, JJ., agree with this majority opinion.
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VASQUEZ, J., concurring: I agree with the majority opinion
and write separately to clarify the confusion that exists between
the terms “scope of review” and “standard of review”.
It is important to distinguish between two separate
concepts: scope of review and standard of review. The scope of
judicial review refers merely to the evidence the reviewing court
will examine in reviewing an agency decision; the standard of
judicial review refers to how the reviewing court will examine
that evidence. See Franklin Sav. Association v. Dir., Office of
Thrift Supervision, 934 F.2d 1127, 1136 (10th Cir. 1991).
In Robinette v. Commissioner, 439 F.3d 455, 460 (8th Cir.
2006), revg. 123 T.C. 85 (2004), the U.S. Court of Appeals for
the Eighth Circuit stated: “The agreed-upon standard of review
[abuse of discretion] itself implies that review is limited to
the administrative record”. To support this conclusion, the
Court of Appeals relied on Living Care Alt. of Utica, Inc. v.
United States, 411 F.3d 621 (6th Cir. 2005). See Robinette v.
Commissioner, supra at 458-459. Living Care, however, dealt with
the standard of review (abuse of discretion) and not the scope of
review (de novo or the administrative record).
With all due respect to the Court of Appeals for the Eighth
Circuit, I believe it is incorrect to conclude when the standard
of review is “abuse of discretion” that a fortiori our scope of
review is limited to the administrative record. See majority op.
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pp. 13-14 (listing numerous instances where the standard of
review the Court applies is “abuse of discretion” but where the
scope of our review is not limited to the administrative record--
i.e., we conduct trials de novo and receive evidence in
accordance with Rule 143 and section 7453).
SWIFT and WELLS, JJ., agree with this concurring opinion.
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THORNTON, J., concurring: I agree with the majority opinion
and write separately to offer additional historical perspective.
A. Status of the Tax Court Under the APA
When the APA was enacted in 1946, the Tax Court of the
United States was an agency of the executive branch. In
substance, however, it functioned as a court. Consequently, for
over two decades after the APA’s enactment, there was uncertainty
as to whether or how the APA should apply to the Tax Court.1
Partly to resolve that question, in 1969 the United States Tax
Court, as it was newly renamed, was formally incorporated into
the judiciary as an Article I court. Tax Reform Act of 1969,
1
During consideration of the APA, at the request of the
Chairman of the Senate Judiciary Committee, the Attorney General
commented on various aspects of the legislation. In his
statement, which was later appended to the Senate report, the
Attorney General opined that for purposes of the APA the term
“Courts” included the Tax Court and that consequently the APA did
not apply to its procedures. S. Rept. 752, 79th Cong., 1st Sess.
(1945), reprinted in Administrative Procedure Act Legislative
History, 1944-1946, at 224. Notwithstanding this authority,
contemporary commentators disagreed over whether the APA applied
to the Tax Court. Compare Note, “Effect of the Administrative
Procedure Act on Decisions of the Tax Court”, 2 Tax L. Rev. 103(1946) (concluding that the APA applied to the Tax Court), with
Gordon, “Reviewability of Tax Court Decisions”, 2 Tax L. Rev. 171(1947) (concluding that the APA did not apply to the Tax Court).
There developed a split in the circuits as to whether the Tax
Court was to be considered an agency so as to be subject to the
provisions of the APA governing agency adjudications. Compare
Kennedy Name Plate Co. v. Commissioner, 170 F.2d 196 (9th Cir.
1948), affg. a Memorandum Opinion of this Court, and Anderson v.
Commissioner, 164 F.2d 870 (7th Cir. 1947), affg. 5 T.C. 443(1945) (both holding that the APA provisions did not apply to the
Tax Court), with Lincoln Elec. Co. v. Commissioner, 162 F.2d 379,
382 (6th Cir. 1947) (holding that review of Tax Court decisions
was governed by the APA), revg. 6 T.C. 37 (1946).
- 22 -
Pub. L. 91-172, secs. 951-962, 83 Stat. 730. Since then, it has
been clear that this Court is not subject to the APA rules that
govern agency adjudications.
Similarly, the APA has never affected this Court’s long-
established practice of conducting trials de novo in deficiency
actions and most other actions, including those involving claims
for relief from joint and several liability. The explanation for
this well-established practice lies largely in the history of the
Tax Court and of the APA.
B. Historical Roots of De Novo Review in the Tax Court
The precursor of the Tax Court, the Committee on Appeals and
Review (the Committee), was part of the Bureau of Internal
Revenue. Dubroff, The United States Tax Court: An Historical
Analysis 39 (1979). This Committee was not a fact finder;
instead, it operated under its own version of a record rule.
“The taxpayer was generally permitted to introduce evidence to
the Committee only in affidavit or documentary form and could not
adduce evidence that had not been considered by the Income Tax
Unit.” Id. at 42.
Pressures to replace the Committee resulted largely from two
factors: (1) The Committee was not independent of the Bureau of
Internal Revenue; and (2) the proceedings in the Committee were
not adversary, were not public, and did not permit the
introduction of new evidence. Id. at 44. To address these
- 23 -
concerns, the Revenue Act of 1924, ch. 234, 43 Stat. 253,
replaced the Committee with the Board of Tax Appeals (the Board).
Originally, the Administration had proposed that the Board be
created as an informal hearing body within Treasury. Dubroff,
supra at 111. Under the original Administration proposal, the
Board was to consider its cases “on the basis of Bureau files.
Since under the proposal the Board was to be a part of Treasury,
there was no impediment to access by the Board to Bureau files.”
Id. at 91.
In the 1924 legislation, Congress changed this plan to make
the Board an independent agency in the executive branch; it was
generally required to follow formal judicial procedures. Id. at
111. Moreover, the Board’s record had to be independently
compiled. Id. at 95. “Thus, the Board stressed that ‘[w]hat has
been submitted to or considered by the Bureau of Internal Revenue
is beyond the ken of this Board . . . . [E]vidence that has been
presented before any other department of the Government must be
reintroduced before this Board before we can consider it.’” Id.
(quoting Lyon v. Commissioner, 1 B.T.A. 378, 379 (1925)).
The Revenue Act of 1924 left the resolution of most
procedural and evidentiary issues to the discretion of the Board.
Dubroff, supra at 151. In adopting judicial standards for the
receipt of evidence, the Board chose to follow the liberal rules
of evidence applicable in equity proceedings in the District of
- 24 -
Columbia, where most of its cases were tried. Id. at 153-154. In
1926 this evidentiary rule was codified. Revenue Act of 1926, ch.
27, sec. 1000, 44 Stat. 105. Essentially the same provision
survives today in section 7453.
In 1942 the Board of Tax Appeals was renamed the Tax Court of
the United States. This name change did not significantly affect
the jurisdiction, powers, or duties that previously had belonged
to the Board. Dubroff, supra at 182.
In sum, when the APA was enacted in 1946, de novo trials in
the deficiency actions and various other matters within the Tax
Court’s jurisdiction were well-established practice and
fundamental to this Court’s reason for existence. Similarly, it
was well-established practice in Federal District Courts to
conduct trials de novo in tax refund cases. See, e.g., Lewis v.
Reynolds, 284 U.S. 281, 283 (1932).
C. Legislative History of the APA
In enacting the APA Congress expressly recognized that tax
matters were the subject of de novo proceedings in the courts.
APA section 554, which defines the procedures that generally
govern agency adjudications, applies only in the case of an
“adjudication required by statute to be determined on the record
after opportunity for an agency hearing”; it excepts all matters
that are “subject to a subsequent trial of the law and of the
facts de novo in a court”. The associated legislative history
- 25 -
states: “The exception of matters subject to a subsequent trial
of the law and the facts de novo in any court exempts such matters
as the tax functions of the Bureau of Internal Revenue (which are
triable de novo in the Tax Court)”. S. Comm. on the Judiciary,
79th Cong., 1st Sess., Administrative Procedure Act (Comm. Print
1945), reprinted in Administrative Procedure Act Legislative
History, 1944-1946, at 22 (1946).2
As a corollary to these APA provisions regarding agency
adjudications, APA section 706 expressly contemplates that certain
types of agency actions will be subject to de novo judicial
review. In particular, APA section 706(2)(F) provides that the
“reviewing court” shall “hold unlawful and set aside agency
action, findings, and conclusions found to be * * * unwarranted by
the facts to the extent that the facts are subject to trial de
novo by the reviewing court.” Although the statute does not
otherwise specify the types of cases in which the facts are to be
“subject to trial de novo”, the legislative history illuminates
2
The Senate and House reports explain this provision in
identical terms, noting that it is one of several exceptions
affecting “even adjudications otherwise required by statute to be
made after hearing. The first [exception], where the
adjudication is subject to a judicial trial de novo, is included
because whatever judgment the agency makes is effective only in a
prima facie sense at most and the party aggrieved is entitled to
complete judicial retrial and decision.” S. Rept. 752, 79th
Cong., 1st Sess. (1945), reprinted in Administrative Procedure
Act Legislative History, 1944-1946, at 202 (1946); H. Rept. 1980,
79th Cong., 2d Sess. (1946), reprinted in Administrative
Procedure Act Legislative History, 1944-1946, at 260 (1946).
- 26 -
this matter. The Senate and House reports state identically:
“Thus, where adjudications such as tax assessments are not made
upon an administrative hearing and record, contests may involve a
trial of the facts in the Tax Court or the United States District
Courts.” S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted in
Administrative Procedure Act Legislative History, 1944-1946, at
214 (1946); H. Rept. 1980, 79th Cong., 2d Sess. (1946), reprinted
in Administrative Procedure Act Legislative History, 1944-1946, at
279 (1946).
D. De Novo Review in Deficiency Actions
Consistent with this legislative history, the courts have
uniformly held that deficiency proceedings in the Tax Court are de
novo and not governed by the APA. In O’Dwyer v. Commissioner, 266
F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957), the Court
of Appeals for the Fourth Circuit stated:
The Tax Court is given jurisdiction to redetermine the
deficiency asserted by the Commissioner, and in doing so
it is empowered to prescribe rules of practice and
procedure and is required to apply the rules of evidence
applicable to nonjury trials in the United States Court
of the District of Columbia and make findings of fact
upon such evidence. Secs. 6213, 7453 and 7459, Internal
Revenue Code of 1954 * * * . The Tax Court thus renders
its decision only upon the evidence produced before it.
* * *
The Tax Court, rather than being a “reviewing
court”, within the meaning of Sec. 10(e) [the APA
provision governing scope of judicial review] reviewing
the “record”, is a court in which the facts are triable
de novo * * *. We agree that the Tax Court is not
subject to the Administrative Procedure Act.
- 27 -
In a more recent unpublished opinion, the Court of Appeals
for the Ninth Circuit reached the same conclusion. Sharon v.
Commissioner, 1991 U.S. App. LEXIS 31395, 1992 WL 8190 (9th Cir.
1992), affg. without published opinion T.C. Memo. 1990-604. The
Court of Appeals cited Clapp v. Commissioner, 875 F.2d 1396, 1403
(9th Cir. 1989), which states:
The Tax Court has as its purpose the redetermination of
deficiencies, through a trial on the merits, following a
taxpayer petition. It exercises de novo review. * * *
* * * * * * *
The courts carefully review administrative action for
arbitrariness when an agency exercises final, statutory
decisionmaking authority, such as an agency rulemaking.
In tax cases such as this, the Tax Court or United
States District Court review the Commissioner’s decision
on the merits de novo. Too detailed a substantive
review of the Commissioner’s threshold “determination”,
undertaken solely for purposes of exercising subject
matter jurisdiction would be duplicative and burdensome
on the courts and the Commissioner.
Similarly, in an unpublished opinion involving the validity
of the Commissioner’s issuance of a notice of deficiency, the
Court of Appeals for the Seventh Circuit concluded: “The APA is
irrelevant, however, because the IRS’s issuance of a notice of tax
deficiency and the Tax Court’s review of it are governed by the
Internal Revenue Code and the rules and procedures of the Tax
Court * * * and not by the APA.” Bratcher v. Commissioner, 116
F.3d 1482 (7th Cir. 1997), affg. without published opinion T.C.
Memo. 1996-252.
- 28 -
Although some have criticized the rationale of these
decisions, even among these critics there appears to be no dispute
that the APA does not affect the Tax Court’s long-established
practice of conducting trials de novo in deficiency actions.3
E. De Novo Review in Actions Involving Claims for Relief From
Joint and Several Liability
The original statutory provision for relief from joint and
several liability, as contained in former section 6013(e), was
enacted in 1971. Although this relief provision postdated
enactment of the APA, actions involving claims for relief under
former section 6013(e) were subject to de novo review in both the
Tax Court and the Federal District Courts, in the same manner as
deficiency actions and tax refund actions always had been. See,
e.g., Terzian v. Commissioner, 72 T.C. 1164 (1979); Sanders v.
3
The decision in O’Dwyer v. Commissioner, 266 F.2d 575 (4th
Cir. 1959), affg. 28 T.C. 698 (1957), has been criticized as
being “premised on a now-outmoded understanding that informal
agency action cannot be reviewed based on an administrative
record.” Robinette v. Commissioner, 439 F.3d 455, 461 (8th Cir.
2006), revg. 123 T.C. 85 (2004); see also Ewing v. Commissioner,
122 T.C. 32, 61 (2004) (Halpern and Holmes, JJ., dissenting)
(characterizing O’Dwyer as being of “dubious” continuing
relevance), vacated 439 F.3d 1009 (9th Cir. 2006). Even these
critics of O’Dwyer, however, do not appear to disagree with its
holding that deficiency actions in the Tax Court are properly
conducted de novo; but apparently they arrive at that conclusion
by a different route, construing APA sec. 706(2)(F) narrowly as
contemplating “trials de novo” in income tax deficiency
proceedings seemingly to the exclusion of all other types of tax
proceedings. See Ewing v. Commissioner, supra at 61 (Halpern and
Holmes, JJ., dissenting). As discussed infra, this narrow
interpretation of APA sec. 706(2)(F) is contrary to the
legislative history of the APA and the well-established practice
of the Tax Court and the District Courts.
- 29 -
United States, 369 F. Supp. 160 (N.D. Ala. 1973), affd. 509 F.2d
162 (5th Cir. 1975). Similarly, claims arising pursuant to the
more recently enacted provisions of section 6015(b) and (c) are
subject to de novo review. See, e.g., Alt v. Commissioner, 119
T.C. 306 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). Hence,
although an action for relief under former section 6013(e) or
under section 6015(b) or (c) technically may not constitute a
deficiency action, there appears to be no question that such
actions are appropriately subject to trial de novo.
F. Section 6015(f) Claims for Relief
1. Abuse of Discretion Standard Does Not Preclude De Novo
Review.
Similarly, a claim for relief from joint and several
liability that arises under section 6015(f) is appropriately
subject to de novo judicial review. This is true even if the
standard of review is for abuse of discretion. As the majority
opinion discusses at page 13, this Court has long conducted trials
de novo in numerous types of actions in which the pertinent
question was whether the Commissioner had abused his or her
discretion, for example, in determining that a taxpayer’s method
of accounting did not clearly reflect income under section 446 or
in reallocating income or deductions under section 482.
Some have suggested that actions involving section 6015(f)
claims for relief demand different treatment, reasoning that
although de novo review of the Commissioner’s exercise of
- 30 -
discretion is appropriate with respect to deficiency actions, it
is inappropriate with respect to other actions, such as actions
involving claims for relief from joint and several liability.
Ewing v. Commissioner, 122 T.C. 32, 66 (2004) (Halpern and Holmes,
JJ., dissenting), vacated 439 F.3d 1009 (9th Cir. 2006). The
premise seems to be that APA section 706(2)(F) contemplates
“trials de novo” in income tax deficiency actions but seemingly in
no other type of tax proceeding, including actions involving
claims for relief from joint and several liability. See id. at
60. No authority has been cited, and none has been discovered, in
support of this restrictive view as to the types of tax matters
subject to “trials de novo” under APA section 706(2)(F). As shown
by the previous discussion, this restrictive view is not supported
by the text or legislative history of the APA and is contradicted
by the well-established practice of the courts (both the Tax Court
and the District Courts) to review de novo claims for relief from
joint and several liability.
2. Section 6015(f) Claims Arising in Deficiency Actions
In any event, section 6015(f) claims for relief can, and do,
arise in deficiency actions, as affirmative defenses. If the
taxpayer prevails on his or her claim for section 6015(f) relief,
this Court will enter a decision reflecting a reduced deficiency
due after application of section 6015(f). Notably, section
6015(f) claims in such cases will not necessarily arise as
- 31 -
challenges to administrative determinations made before the
commencement of the Tax Court litigation. Section 6015(f)
contains no requirement of an Appeals Office hearing. Nor does it
fix a specific point from which to measure the Commissioner’s
determination. Consequently, while the Commissioner’s
determination can be made in response to a Form 8857, Request for
Innocent Spouse Relief, it can also be made by way of an answer to
a petition in this Court which might raise entitlement to relief
under section 6015(f) for the first time as an affirmative
defense. See, e.g., Cheshire v. Commissioner, 115 T.C. 183 (2000)
(the taxpayer’s claim for equitable relief was initiated in her
petition, the Commissioner conceded partial relief before trial,
and this Court held that the taxpayer was entitled to additional
relief under section 6015(f)), affd. 282 F.3d 326 (5th Cir. 2002);
Rowe v. Commissioner, T.C. Memo. 2001-325 (the taxpayer raised
section 6015 claims in an amended petition, the Commissioner
granted partial relief in his amended answer and subsequently
conceded section 6015 relief for other items, and this Court held
that the taxpayer was entitled to additional relief under section
6015(f)).
3. Section 6015 Claims Based on Administrative Inaction
In other cases, section 6015(f) claims might come before this
Court on a stand-alone basis. The statute expressly contemplates
that the petition might be filed in the Tax Court before there has
- 32 -
been any administrative action; it provides that if the Internal
Revenue Service has failed to act on the individual’s request for
relief within 6 months, the individual may petition the Tax Court
for relief. Sec. 6015(e)(1)(A)(i)(II).
Consequently, in a variety of circumstances section 6015(f)
claims for relief may be raised in the Tax Court even in the
absence of prior administrative action. In such circumstances
limiting judicial review to the administrative record would be
meaningless.
4. Statutorily Mandated Standards and Procedures
Statutorily mandated standards and procedures contemplate
that the Tax Court will generally conduct trials de novo in its
proceedings, including actions involving claims for relief from
joint and several liability. Section 7453 provides that, with
limited exceptions not relevant here, “the proceedings of the Tax
Court * * * shall be conducted in accordance with such rules of
practice and procedure (other than rules of evidence) as the Tax
Court may prescribe and in accordance with the rules of evidence
applicable in trials without a jury in the United States District
Court of the District of Columbia.” As previously discussed, this
is substantially the same requirement that has been in effect
since the inception of the Board of Tax Appeals in 1924; the
requirement was in direct response to the legislative imperative
that the Board independently compile the record upon which it
- 33 -
decided cases. Moreover, section 7459 requires the Tax Court to
make findings of fact in each report upon “any proceeding”
instituted before the Tax Court.
5. Jurisdictional Grant Under Section 6015(e) Contemplates
Trials De Novo
Section 6015(e)(1)(A) grants the Tax Court jurisdiction to
“determine the appropriate relief available to the individual” who
requests equitable relief under subsection (f). Particularly in
the light of this Court’s inability to remand section 6015(f)
cases for further administrative consideration, see Friday v.
Commissioner, 124 T.C. 220 (2005), a trial de novo is appropriate
and often necessary to enable the Court to determine the
appropriate relief. In determining the appropriate relief, it is
not necessarily sufficient to decide whether the Commissioner
abused his or her discretion. For instance, the Court might
conclude that the Commissioner had abused his or her discretion in
the methodology or procedures employed in denying section 6015(f)
relief but still decide after a de novo trial that no relief was
appropriate. Or the Court might conclude that the Commissioner
had abused his or her discretion and decide on the basis of
evidence presented at trial that the taxpayer was entitled to
either partial or full relief.
As the majority opinion notes, the jurisdictional grant in
section 6015(e)(1)(A) for the Tax Court to “determine the
appropriate relief available to the individual” differs
- 34 -
significantly from its jurisdictional grant in section 6330(d)(1)
“with respect to such matter” as may involve an Appeals office
determination in a collection proceeding. Moreover, section 6015,
unlike section 6330, contains no statutory requirement of an
Appeals Office hearing, and there is no assurance of any
meaningful record to review with respect to a section 6015(f)
request for relief. The jurisdictional grant pursuant to section
6015(e)(1)(A) lies entirely with the Tax Court, so there is no
risk of “disparate forms of judicial review depending on which
court was reviewing” the claim for relief, as seemed to concern
the Court of Appeals in Robinette v. Commissioner, 439 F.3d 455,
461 (8th Cir. 2006), revg. 123 T.C. 85 (2004), with respect to
judicial review of collection determinations pursuant to section
6330.4
COLVIN, SWIFT, WELLS, GALE, and MARVEL, JJ., agree with this
concurring opinion.
4
In any event, the Court of Appeals’ concern in this
particular regard was addressed by Congress in the Pension
Protection Act of 2006, Pub. L. 109-280, sec. 855, 120 Stat.
1019, which gave the Tax Court exclusive jurisdiction in
collection matters to hear appeals from notices of determination
issued after Oct. 16, 2006.
- 35 -
GOEKE, J., concurring: I agree with the conclusion of the
majority opinion but write separately for two reasons: (1)
Applying the record rule to section 6015(f) cases would be
contrary to Congress’s mandate that the Commissioner use the
Appeals process for administrative hearings in section 6015(f)
cases, and (2) an abuse of discretion standard is not the
appropriate standard of review in section 6015(f) cases.
The Record Rule Is Not Appropriate in Section 6015(f) Cases
In addition to the reasons provided by the statutory analysis
in the majority opinion, I believe that the Court’s review of
section 6015(f) decisions should not be limited to the
administrative record because the informal Appeals process by
which the Commissioner makes decisions under section 6015(f) is
incompatible with a rule that limits the Court’s review to a well-
defined administrative record. Any attempt to limit the Court’s
review to such a record would be problematic in the vast majority
of section 6015(f) cases.
The Office of Chief Counsel attempted to define the
“administrative record” in section 6015(f) cases in Chief Counsel
Notice CC-2004-026 (July 12, 2004):
The administrative record is that part of the
petitioner’s administrative file that the Service
considered, or the petitioner or nonrequesting spouse
submitted to the Service for consideration, with respect
to petitioner’s claim for relief. This includes, but is
not limited to, Form 8857, Request for Innocent Spouse
Relief; Form 12507, Innocent Spouse Statement; Form
12508, Questionnaire for Nonrequesting Spouse; Form
- 36 -
12510, Questionnaire for Requesting Spouse; all written
correspondence between the petitioner and the Service;
all written correspondence between the nonrequesting
spouse and the Service; any documents presented to the
examiner or Appeals officer; the preliminary notice of
determination; the final notice of determination; any
written analysis by the examiner or Appeals officer; and
the Appeals Case Memorandum.
Notably, this explanation does not include a record of any
hearings or other oral communications between the taxpayer and the
settlement officer. In addition, what is characterized as the
“administrative record” in fact ranges widely from case to case.
In some cases the stipulated administrative record includes draft
reports and miscellaneous documents from the Internal Revenue
Service’s (IRS) Cincinnati Service Center. In others, the
administrative record consists of correspondence sent to the
taxpayer and abbreviated notes from telephone conversations with
the taxpayer.
Another practical problem with the record rule is that the
administrative record, however defined, is frequently incomplete.
Many taxpayers assume that the settlement officers will request
more information if they do not have enough evidence to grant
relief, and the taxpayers therefore do not produce all relevant
evidence they have because they are not specifically asked for it.
In some of these situations, consideration of additional evidence
establishes that relief is appropriate even though the settlement
officer initially denied relief. See, e.g., Washington v.
Commissioner, 120 T.C. 137 (2003). In other cases the financial
- 37 -
situations of the taxpayers may deteriorate after the settlement
officer denies relief, making it more likely that the taxpayers
are eligible for relief on the basis of their economic hardship.
While the Court should not relieve taxpayers of their burden of
proving that relief is appropriate and coming forward with
relevant evidence, it would be inconsistent with the focus of
section 6015(f) on equitable relief for the Court to turn a blind
eye to any relevant information that the taxpayer can provide
unless the taxpayer withholds or conceals the information at the
administrative level or otherwise fails to cooperate with the
settlement officer.
Although the Court has long accepted telephone hearings in
both section 6015 and 6330 cases, see, e.g., Greene-Thapedi v.
Commissioner, 126 T.C. 1 (2006); Katz v. Commissioner, 115 T.C.
329, 337 (2000); Magee v. Commissioner, T.C. Memo. 2005-263;
Hendricks v. Commissioner, T.C. Memo. 2005-72; Pahamotang v.
Commissioner, T.C. Memo. 2003-177, the trend toward expediency has
made it increasingly difficult to determine the accuracy of
representations made about conversations between the taxpayer and
the settlement officer. The Court is often left with only the
often-cryptic notes of the settlement officer as evidence of those
conversations.
This is not a criticism of the Commissioner’s administrative
practices. The Appeals process is and has been an expedited and
- 38 -
efficient means to resolve tax disputes. The Appeals process has
never been conducted to create a reviewable administrative record
and is ineffective for that purpose.
Congress enacted section 6015 as part of the Internal Revenue
Service Restructuring and Reform Act (RRA) of 1998, Pub. L. 105-
206, sec. 3201, 112 Stat. 734, replacing section 6013(e). In RRA
Congress also mandated a reorganization of IRS, particularly the
Appeals process:
[The reorganization plan shall] ensure an independent
appeals function within the Internal Revenue Service,
including the prohibition in the plan of ex parte
communications between appeals officers and other
Internal Revenue Service employees to the extent that
such communications appear to compromise the
independence of the appeals officers.
RRA sec. 1001(a)(4), 112 Stat. 689. Furthering this mandate,
Senator Roth, Chairman of the Senate Finance Committee, explained
in his statement introducing RRA for Senate debate:
One of the major concerns we heard throughout our
oversight initiative was that the taxpayers who get
caught in the IRS hall of mirrors have no place to turn
that is truly independent and structured to represent
their concerns. This legislation requires the agency to
establish an independent Office of Appeals--one that may
not be influenced by tax collection employees or
auditors. Appeals officers will be made available in
every state, and they will be better able to work with
taxpayers who proceed through the appeals process.
144 Cong. Rec. 14689 (1998) (Statement of Senator Roth). As the
Court discussed in Lewis v. Commissioner, 128 T.C. 48, 59-60
(2007), Congress saw the informal Appeals process as serving an
important function in resolving tax disputes while giving
- 39 -
taxpayers a meaningful opportunity to voice their concerns. But
because the Appeals conferences in section 6015(f) cases have
always been informal, the information that settlement officers
receive from taxpayers to determine whether relief is appropriate
is not always well documented. A problem arises when the
Commissioner attempts to limit the Court’s review to the evidence
contained in the administrative record, but because of the
informality of the proceedings, the administrative record does not
include a complete and accurate account of the taxpayer’s
situation. Applying the Administrative Procedure Act (APA), 5
U.S.C. secs. 551-559, 701-706 (2000), to the administrative
procedures under section 6015(f) might be effective if the
Commissioner adopted formal procedures to review requests for
relief under section 6015(f), but this would be contrary to the
congressionally mandated use of the traditional Appeals function,
which has never included transcripts of the hearings or records of
the proceedings.
In Volentine & Littleton v. United States, 136 Ct. Cl. 638,
145 F. Supp. 952 (1956) (arising under the Wunderlich Act, which
was the subject of United States v. Carlo Bianchi & Co., 373 U.S.
709 (1963), upon which the Court of Appeals for the Eighth Circuit
in Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), revg.
123 T.C. 5 (2004), and the dissent in Ewing v. Commissioner, 122
T.C. 32 (2004), vacated 439 F.3d 1009 (9th Cir. 2006), relied
- 40 -
heavily), the Court of Claims considered the Government’s argument
that where a department’s decision must be upheld unless it is
“fraudulent or capricious or arbitrary or so grossly erroneous as
necessarily to imply bad faith, or is not supported by substantial
evidence”, the court’s review of the department’s decision is
limited to the administrative record. The court explained the
flaw in the Government’s argument as follows:
There is logic in the Government’s position. But we do
not adopt it. It would require two trials in many cases
involving this question. The first trial would include
the presentation of the “administrative record” and its
study to determine whether, on the basis of what was in
it, the administrative decision was tolerable. But the
so-called “administrative record” is in many cases a
mythical entity. There is no statutory provision for
these administrative decisions or for any procedure in
making them. * * * Whoever makes it has no power to put
witnesses under oath or to compel the attendance of
witnesses or the production of documents. There may or
may not be a transcript of the oral testimony. The
deciding officer may, and even in the departments
maintaining the most formal procedures, does, search out
and consult other documents which, it occurs to him,
would be enlightening, and without regard to the
presence or absence of the claimant.
Volentine & Littleton v. United States, 136 Ct. Cl. at 641-642.
Although Volentine & Littleton arose under a different
statute, the logic used therein is compelling in the context of
section 6015(f) cases. Even after United States v. Carlo Bianchi
& Co., supra, the Court of Claims adhered to the idea that the
Supreme Court did not create a rule of general application in that
case. Brown v. United States, 184 Ct. Cl. 501, 396 F.2d 989(1968). The Court of Claims adopted the rule that whether to
- 41 -
apply the record rule is a matter that should be determined after
considering the relationship between the judicial function and the
role of the agency, as well as the adequacy of the administrative
record. Id. at 506-517, 396 F.2d at 993-999. In cases such as
the one before the Court, where the Court is well equipped to
apply section 6015(f) to individual taxpayers and the settlement
officer has frequently failed to create an administrative record
adequate for the Court’s review, a de novo review of the facts is
appropriate.
In many of the cases where courts have found it appropriate
to limit their review to the administrative record, the
administrative record was clearly defined and extensive and, if
there was an administrative hearing, closely resembled the record
that would be created in one of our own cases. For example, in
United States v. Carlo Bianchi & Co., supra at 711, the Board of
Claims and Appeals of the Corps of Engineers created a substantial
record by holding an adversarial hearing, allowing the parties to
offer evidence, and allowing each side the opportunity for cross-
examination. In United States v. Iron Mountain Mines, Inc., 987
F. Supp. 1250, 1253-1254 (E.D. Cal. 1997), the smaller of the two
administrative records at issue contained 359 documents, including
reports from a 2-year investigation, comments and proposals
submitted by interested parties, and the agency’s responses to
those comments and proposals. The larger of the administrative
- 42 -
records contained 2,648 of the same types of documents. Id. at
1254; see also NVE, Inc. v. HHS, 436 F.3d 182 (3d Cir. 2006).
The APA itself suggests that hearings conducted under its
rules will be well documented. APA section 556, 5 U.S.C. sec.
556, which provides the rules for hearings conducted under APA
sections 553 and 554, explains the contents of the record as
follows:
(e) The transcript of testimony and exhibits,
together with all papers and requests filed in the
proceeding, constitutes the exclusive record for
decision in accordance with section 557 of this title
and, on payment of lawfully prescribed costs, shall be
made available to the parties. When an agency decision
rests on official notice of a material fact not
appearing in the evidence in the record, a party is
entitled, on timely request, to an opportunity to show
the contrary.
By contrast, the administrative record in section 6015(f)
cases does not include testimony or a transcript of the
conference. Furthermore, the administrative record is rarely, if
ever, given to the taxpayer in full to allow the taxpayer to
present before the Court a case based on the administrative
record. Finally, because settlement officers unilaterally decide
what information is shared with the taxpayer and generally control
what is included in the administrative record, the safeguard
available to parties to APA hearings under APA section 556--to ask
for the opportunity to contradict agency findings based on
material facts not in the record–-would offer little protection to
taxpayers in section 6015 cases.
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While courts have applied the record rule in cases where the
procedures are less formal than section 6015(f) conferences, the
record rule was generally more appropriate in those cases because
the agencies’ decisions did not depend as heavily on informal
communication with individuals. See, e.g., Camp v. Pitts, 411
U.S. 138, 140-141 (1973); Holy Land Found. For Relief and Dev. v.
Ashcroft, 333 F.3d 156, 163 (D.C. Cir. 2003); Beno v. Shalala, 30
F.3d 1057, 1073-1074 (9th Cir. 1994). In those cases, resolution
of the dispute depended largely on written information available
to the agency even without substantial evidentiary submissions by
the other party, making a clearly defined administrative record
unnecessary.
By contrast, equitable relief under section 6015(f) depends
largely upon statements and evidence provided by the requesting
spouse, and the requesting spouse generally has few resources
available to ensure that the statements and evidence produced are
completely and adequately represented in the record. The Court
often receives an incomplete administrative record where the truth
of the parties’ claims is difficult to determine. As the
majority opinion points out, the Court holds trials de novo under
section 6015(e)(1)(A)(i)(II) where a taxpayer petitions the Court
6 months after filing an election for section 6015 relief and has
not received a determination, and in such cases the administrative
record is generally deficient. The Court also allows intervention
- 44 -
by the nonrequesting spouse in both deficiency cases and stand-
alone cases, and allows the nonrequesting spouse to present
evidence that is not part of the administrative record.1 In the
administrative process, the Commissioner recognizes that
intervenors have the right to participate; but because intervenors
have even less of an opportunity to create a complete and accurate
administrative record than requesting spouses, the Court allows
intervenors to supplement the record at trial. See King v.
Commissioner, 115 T.C. 118, 124-125 (2000). In deficiency cases,
the Court accepts evidence outside of the administrative record
where taxpayers may raise section 6015(f) as an affirmative
defense. The fact that section 6015(e) commits review of innocent
spouse cases to the Tax Court confirms that Congress believes that
the Court is well equipped to address questions under section
6015(f).
Rejecting the record rule does not mean that taxpayers will
be free to withhold information at the administrative level and
then introduce it at trial. Where the settlement officer has
requested relevant facts or documents from the taxpayer and the
taxpayer has not cooperated, the Court may exclude evidence that
1
While Rev. Proc. 2003-19, 2003-1 C.B. 371, gives the
nonrequesting spouse the right to participate at the
administrative level, in practice, the nonrequesting spouse
frequently suffers from the same problems as the requesting
spouse in building a complete administrative record and does not
have a statutory right to an in-person or telephone hearing.
- 45 -
is not part of the administrative record. However, the Court
should not assume that because certain facts or evidence are not
in the administrative record it necessarily follows that the
taxpayer had an adequate opportunity to present them.
My concern is that lost in the statutory debate both in our
Court and in the Courts of Appeals is the impracticality of the
Commissioner’s narrow position and the inconsistency of the
Commissioner’s position with decades of administrative practice in
the Appeals process.
The Standard of Review
I agree with Judge Wherry’s concurring opinion that the Court
should not apply an abuse of discretion standard of review in
section 6015(f) cases. I write separately to explain in greater
detail why the Court’s current reliance on Butler v. Commissioner,
114 T.C. 276 (2000), and its progeny as the source of the Court’s
standard of review in section 6015(f) cases, is misplaced in the
light of the amendment to section 6015(e)(1) by the Tax Relief and
Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408(a), 120
Stat. 3061.
After Congress enacted section 6015 in RRA sec. 3201, Butler
v. Commissioner, supra, was the first Tax Court case to consider
the Court’s jurisdiction to review the Commissioner’s denial of
- 46 -
relief under section 6015(f).2 In Butler v. Commissioner, supra
at 289, the Court faced the issue of whether the Commissioner’s
decision to deny relief under section 6015(f) was subject to
judicial review at all or was committed to agency discretion.
The Court then concluded that it had jurisdiction to review the
Commissioner’s denial of relief under section 6015(f) and stated
without discussion that the standard of review was abuse of
discretion.3 Id. at 292.
Section 6015(f) provides that the Commissioner “may” grant
relief under certain circumstances, indicating that the
Commissioner’s decision is discretionary. Before 2006 Congress
had not specified whether the Court had jurisdiction to review the
Commissioner’s decision whether to grant relief under section
2
Mira v. United States, 245 Bankr. 788 (Bankr. M.D. Pa.
1999), was the first case to address this issue. The court
concluded that because of the word “may” in sec. 6015(f), the
Commissioner’s determinations were committed to agency discretion
by law and therefore were not reviewable by any court. Id. at
792.
3
In Butler v. Commissioner, 114 T.C. 276, 291 (2000), the
Court found that there was an ascertainable standard upon which
to review the Commissioner’s discretionary denial of relief
pursuant to sec. 6015(f), pointing out that the Court had applied
a facts and circumstances analysis in considering the application
of former sec. 6013(e)(1)(D), which uses substantially the same
language as the current sec. 6015(f). The Court supported this
argument by citing cases such as Terzian v. Commissioner, 72 T.C.
1164 (1979), and Kistner v. Commissioner, T.C. Memo. 1995-66,
where the Court made de novo determinations of whether the
taxpayers satisfied former sec. 6013(e)(1)(D). However, the
Court declined to apply the same standard of review to sec.
6015(f) as it had applied to former sec. 6013(e)(1)(D).
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6015(f) or, if it did, what standard of review the Court should
use. Although section 6015(e) gave the Court jurisdiction to
determine appropriate relief under section 6015(b) and (c), it was
silent as to section 6015(f). In the absence of any clear
guidance from Congress, it was logical for the Court in Butler v.
Commissioner, supra, to hold that it did have jurisdiction to
review the Commissioner’s decisions but to find that the standard
of review was abuse of discretion because of the discretionary
language in section 6015(f).
After the Court’s Opinion in Billings v. Commissioner, 127
T.C. 7 (2006), Congress amended section 6015(e)(1) to make it
clear that the Court has jurisdiction to review taxpayers’
requests for equitable relief under section 6015(f). However,
section 6015(e)(1) does not provide the Court with jurisdiction to
review the Commissioner’s decision but “to determine the
appropriate relief available to the individual under this
section”. (Emphasis added.)
After section 6015(e)(1) was amended, the Court continued to
review the Commissioner’s denial of relief under section 6015(f)
using an abuse of discretion standard, relying on Jonson v.
Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th
Cir. 2003), and Butler v. Commissioner, supra. Banderas v.
Commissioner, T.C. Memo. 2007-129; Ware v. Commissioner, T.C.
Memo. 2007-112; Farmer v. Commissioner, T.C. Memo. 2007-74; Van
- 48 -
Arsdalen v. Commissioner, T.C. Memo. 2007-48. The Court in Jonson
v. Commissioner, supra at 125, stated that the Court reviews the
Commissioner’s denial of relief under section 6015(f) for an abuse
of discretion, citing Butler v. Commissioner, supra at 292, as the
source of the Court’s jurisdiction.
While it was logical for the Court in Butler and other pre-
Billings cases to review the Commissioner’s denial of relief under
section 6015(f) for an abuse of discretion using the reasoning of
Mailman and Gardner, given the ambiguity in section 6015(e)(1) at
the time, the amendment to section 6015(e)(1) warrants a
reconsideration of our standard of review in section 6015(f)
cases. This explicit grant of authority to make determinations
under section 6015(f) in section 6015(e)(1) should now be the
source of the Court’s standard of review.
COLVIN, SWIFT, FOLEY, MARVEL, WHERRY, and KROUPA, JJ., agree
with this concurring opinion.
- 49 -
WHERRY, J., concurring in the result: I agree with the
majority’s designated scope of review but write separately to urge
the adoption of a matching standard of review when the merits of
this case are decided.1 The majority concludes that the
Administrative Procedure Act, 5 U.S.C. secs. 551-559, 701-706
(2000), does not control and that our scope of review in this case
allows us to look beyond the administrative record. The majority
then correctly notes that the Court has historically applied an
abuse of discretion standard of review in determining whether
relief is warranted. See Butler v. Commissioner, 114 T.C. 276,
291-292 (2000); see also Fernandez v. Commissioner, 114 T.C. 324,
332 (2000). However, notwithstanding the caselaw cited by the
majority regarding the standard of review, section 6015(e) itself
provides no basis for the imposition of that deferential standard
of review in any section 6015 case.2
1
The majority denies respondent’s motion in limine to limit
our review to the administrative record. The Court has not yet
applied a standard of review because it has yet to address the
merits of petitioner’s case.
In addition, although the terms “scope of review” and
“standard of review” are sometimes used interchangeably, there is
undoubtedly a difference between them. Our “scope of review”
relates to what we will consider in determining whether the
Commissioner committed an error. Our “standard of review”
relates to how much, if any, deference to afford the Commissioner
in determining whether an error was made.
2
It is unclear to me why the Court has adopted a deferential
standard of review when addressing sec. 6015(f) even in the
context of a petition for redetermination of a deficiency, a
(continued...)
- 50 -
Given that the recent amendment to section 6015(e), Tax
Relief and Health Care Act of 2006, Pub. L. 109-432, div. C, sec.
408(a), (c), 120 Stat. 3061, 3062, resolves any lingering doubts
regarding our jurisdiction over section 6015(f) cases, it is
appropriate to revisit the issues of the scope and standard of
review to be used in determining whether such relief is warranted.
Moreover, because section 6015(e) grants us the authority to
determine whether relief is warranted under section 6015(b), (c),
and (f), we look to subsection (e), rather than to subsection (f),
in order to determine the appropriate scope and standard of review
in section 6015 cases. Section 6015(e) provides in relevant part
as follows:
SEC. 6015(e). Petition for Review by Tax Court.--
(1) In general.--In the case of an individual
against whom a deficiency has been asserted and who
elects to have subsection (b) or (c) apply, or in the
case of an individual who requests equitable relief
under subsection (f)--
(A) In general.--In addition to any other
remedy provided by law, the individual may petition
the Tax Court (and the Tax Court shall have
jurisdiction) to determine the appropriate relief
2
(...continued)
context in which our standard of review is normally unrestricted.
See Butler v. Commissioner, 114 T.C. 276, 291-292 (2000).
That the Court has conducted de novo trials using an abuse
of discretion standard of review under other circumstances sheds
no light whatsoever on whether it should do so in this particular
context. In addition, considering evidence that was not part of
the administrative record while at the same time analyzing the
agency’s decision for an abuse of discretion presents difficult
conceptual problems.
- 51 -
available to the individual under this section if
such petition is filed * * *. [Emphasis added.]
I agree with the majority that the use of the word
“determine” suggests that Congress intended for us to use a de
novo scope of review in determining the appropriateness of relief
under section 6015(f). In other instances where the word
“determine” or “redetermine” is used, such as in sections 6213 and
6512(b), the Court applies a de novo scope of review and standard
of review. If, as the majority notes, the use of the word
“determine” in section 6015(e) suggests a de novo scope of review,
why does it not also suggest a de novo standard of review?
Importantly, nothing in section 6015(e) suggests that
Congress intended for us to use an abuse of discretion standard of
review, despite the fact that, in similar circumstances, Congress
has shown that it knows how to limit our standard of review when
it wants to. See sec. 6404(h) (providing the Court with
jurisdiction “to determine whether the Secretary’s failure to
abate interest * * * was an abuse of discretion” (emphasis
added)).3 In amending section 6015(e), Congress gave us
3
Sec. 6404 was amended in a historical context similar to
that in which Congress recently amended sec. 6015(e). Before
statutory amendments in 1996, this Court lacked jurisdiction to
determine whether interest abatement was warranted; whether a
taxpayer warranted such relief was entirely within the discretion
of the Secretary. See Beall v. United States, 336 F.3d 419, 425
(5th Cir. 2003). In 1996, Congress amended sec. 6404 to give us
jurisdiction to determine whether interest abatement is warranted
under an abuse of discretion standard of review. In amending
(continued...)
- 52 -
jurisdiction over section 6015(f) cases without any such
limitation.4
An abuse of discretion standard of review is also at odds
with our decision to decline to remand section 6015(f) cases to
the Secretary for reconsideration. Friday v. Commissioner, 124
T.C. 220, 222 (2005). Section 6330 is analogous to section
6015(f) insofar as both sections consider economic hardship as a
factor in determining whether relief is appropriate. In section
6330(d)(2), Congress provided that the Internal Revenue Service
Office of Appeals would retain jurisdiction over collection cases
to allow it to consider changes in the taxpayers’ circumstances.
The fact that Congress did not include a similar provision in
section 6015 is consistent with the recent amendment to section
6015(e)(1) that allows the Court to determine whether relief for
taxpayers under section 6015(f) is appropriate. See Friday v.
Commissioner, supra at 222 (“There is in section 6015 no analog to
section 6330 granting the Court jurisdiction after a hearing at
the Commissioner’s Appeals Office.”).
3
(...continued)
sec. 6015(e) to provide unequivocally that we possess
jurisdiction over sec. 6015(f) cases, Congress imposed no such
limitation upon our standard of review.
4
See Franklin Natl. Bank v. New York, 347 U.S. 373, 378
(1954) (“We find no indication that Congress intended to make
this phase of national banking subject to local restrictions, as
it has done by express language in several other instances.”).
- 53 -
Finally, it is noteworthy that section 6015(e)(1), which
addresses our jurisdiction over requests for innocent spouse
relief, applies to subsections (b), (c), and (f). The Court
applies a de novo scope and standard of review in determining
whether relief is warranted under subsections (b) and (c).
See, e.g., Alt v. Commissioner, 119 T.C. 306, 313-316 (2002)
(applying the abuse of discretion standard of review only to
section 6015(f), not subsection (b) or (c)), affd. 101 Fed. Appx.
34 (6th Cir. 2004). Because subsection (e) grants us jurisdiction
to “determine the appropriate relief available” under subsections
(b), (c), and (f), our scope and standard of review should be the
same in all cases under section 6015. There is no reason to
single out taxpayers seeking relief under subsection (f) for
disparate treatment. Yet, that is the consequence of a nonuniform
standard of review in innocent spouse cases.
COLVIN, SWIFT, FOLEY, GALE, MARVEL, GOEKE, and KROUPA, JJ.,
agree with this concurring opinion.
- 54 -
HALPERN and HOLMES, JJ., dissenting: Respectfully, we
dissent. The majority repeats what we considered to be the error
of its analysis in Ewing v. Commissioner, 122 T.C. 32, 56, 57-67
(2004) (Halpern and Holmes dissenting with respect to the scope of
review appropriate to the Commissioner’s determination), vacated
439 F.3d 1009 (9th Cir. 2006). We see no need to repeat, or
elaborate on, what we said in Ewing.