Suzanne L. Porter a.k.a. Suzanne L. Holman v. Commissioner , 132 T.C. No. 11 ( 2009 )

132 T.C. No. 11UNITED STATES TAX COURT
SUZANNE L. PORTER a.k.a. SUZANNE L. HOLMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13558-06. Filed April 23, 2009.
P applied for relief from joint and several
liability for additional tax under sec. 72(t), I.R.C.,
related to a distribution her husband received from his
individual retirement account. R denied P’s
application for relief. P petitioned this Court to
seek our determination whether she is entitled to
relief under sec. 6015(f), I.R.C.
Held: In determining whether P is entitled to
equitable relief under sec. 6015(f), I.R.C., we apply a
de novo standard of review, not an abuse of discretion
standard of review.
Held, further: P is entitled to equitable relief
under sec. 6015(f), I.R.C.
Suzanne L. Porter a.k.a. Suzanne L. Holman, pro se.
Kelly R. Morrison-Lee and Ann M. Welhaf, for respondent.
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HAINES, Judge: Respondent determined that petitioner is not
entitled to relief from joint and several income tax liability
for 2003 with respect to an early distribution from her ex-
husband’s individual retirement account (IRA).1 In Porter v.
Commissioner, 130 T.C. 115, 117 (2008), we held that in
determining whether petitioner is entitled to relief under
section 6015(f), we conduct a trial de novo and we may consider
evidence introduced at trial which was not included in the
administrative record. We then denied respondent’s motion in
limine seeking to limit petitioner’s right to introduce evidence
outside the administrative record. The issues remaining for
decision are: (1) Whether in determining petitioner’s
eligibility for relief under section 6015(f) we use a de novo
standard of review or review for abuse of discretion; and (2)
whether petitioner is entitled to equitable relief under section
6015(f).
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 Maryland.
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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Petitioner holds a bachelor of science degree in business
administration from the University of Maryland. In 1994 she
married John S. Porter. Together, they had two children.
Sometime in 2002 petitioner was wrongfully discharged from her
job with the Federal Government. Before returning to Government
employment petitioner was employed as a bus driver.
Petitioner was not aware of Mr. Porter’s finances during
2003. They maintained separate checking accounts and credit
cards. Petitioner did not review the monthly bank statements,
nor did she pick up the daily mail. Mr. Porter was responsible
for the home mortgage and car insurance payments. Petitioner was
responsible for paying all other home expenses, including
groceries, which she paid for with her credit cards.
During 2003 petitioner received $24,285 in wages and
unemployment compensation. During 2003 Mr. Porter earned $12,765
in nonemployee compensation. He also received a $10,700
distribution from his IRA. Petitioner did not know of the
distribution at the time it was made because Mr. Porter refused
to tell petitioner about his income for 2003.
Before 2003 Mr. Porter was responsible for filing the
couple’s tax returns. He also prepared the couple’s 2003 joint
Form 1040, U.S. Individual Income Tax Return. The return
reported Mr. Porter’s IRA distribution and petitioner’s wages and
unemployment compensation. Mr. Porter’s nonemployee compensation
was not reported on the return. He gave the return to petitioner
to sign on April 15, 2004, the day it was due. Because Mr.
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Porter was pressuring her to sign the return quickly so he could
get it to the post office, petitioner reviewed the return in
haste, ensuring that her own income was properly reported. Six
days after petitioner signed the return, on April 21, 2004, she
and Mr. Porter legally separated.2
On June 20, 2005, respondent issued petitioner and Mr.
Porter statutory notices of deficiency for 2003. Respondent
adjusted their 2003 income to include $12,765 in nonemployee
compensation attributable to Mr. Porter. Respondent also
adjusted their 2003 income tax to include 10-percent additional
tax of $1,070 with respect to Mr. Porter’s IRA distribution
pursuant to section 72(t)(1). Neither petitioner nor Mr. Porter
petitioned this Court for redetermination of the deficiency.
In subsequent years petitioner has complied with all income
tax laws. After their separation petitioner discovered that Mr.
Porter had not filed their joint Federal income tax return for
2002. Petitioner promptly filed her own return for 2002,
choosing married-filing-separately status.
On December 1, 2005, petitioner filed a Form 8857, Request
for Innocent Spouse Relief. On June 14, 2006, respondent’s
Appeals officer issued a final determination regarding
petitioner’s request for relief. The Appeals officer determined
that pursuant to section 6015(c) petitioner was entitled to
relief from joint and several liability with respect to the
$12,765 in unreported nonemployee compensation. However,
2
A judgment of absolute divorce was entered on May 16, 2006.
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petitioner was denied relief under section 6015(b), (c), and (f)
from the 10-percent additional tax of $1,070 on Mr. Porter’s IRA
distribution. The Appeals officer determined that petitioner
knew or had reason to know the 10-percent additional tax was not
reported on the couple’s return. On January 31, 2007, as a
result of debt from her marriage, petitioner filed for
bankruptcy.3
Mr. Porter did not intervene in this case, though he was
given the opportunity to do so under section 6015(e)(4). See Van
Arsdalen v. Commissioner, 123 T.C. 135, 143 (2004). Rather,
respondent called him as a witness at trial. He had not
previously participated in petitioner’s administrative hearing.
OPINION
I. Section 6015(f)
Petitioner contends that under section 6015(f) she qualifies
for relief from joint and several liability for the 10-percent
additional tax on Mr. Porter’s early distribution from his IRA.
When a husband and wife file a joint Federal income tax return,
3
A final decree in petitioner’s bankruptcy case was issued
on May 8, 2007, lifting the automatic stay imposed pursuant to 11
U.S.C. sec. 362(a)(8). Trial was held on Mar. 27, 2007, before
the automatic stay was lifted. Respondent was not aware and the
Court was not otherwise notified of petitioner’s bankruptcy
petition. The parties subsequently filed a joint motion for
relief from the automatic stay, nunc pro tunc, with the U.S.
Bankruptcy Court for the District of Maryland. The bankruptcy
court granted the joint motion and ordered “that the automatic
stay be lifted in order that * * * [petitioner] may seek innocent
spouse relief from the United States Tax Court, nunc pro tunc;
and * * * that * * * [petitioner’s] innocent spouse Tax Court
proceedings and any orders and opinions issued therewith are not
void as violating the automatic stay.”
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they generally are jointly and severally liable for the tax due.
Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282
(2000). However, a spouse may qualify for relief from joint and
several liability under section 6015(b), (c), or (f) if various
requirements are met. 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).
A taxpayer qualifies for relief under section 6015(f) if
relief is not available under section 6015(b) or (c) and, in the
light of the facts and circumstances, it is inequitable to hold
the taxpayer liable for the tax or deficiency. This Court has
jurisdiction to determine whether a taxpayer is entitled to
equitable relief under section 6015(f). Sec. 6015(e)(1)(A). Our
determination is made in a trial de novo. Porter v.
Commissioner, 130 T.C. at 117. Therefore, we may consider
evidence introduced at trial which was not included in the
administrative record. Both parties submitted evidence at trial
which was not available to respondent’s Appeals officer.
II. The Standard of Review
We have generally reviewed the Commissioner’s denial of
relief under section 6015(f) for abuse of discretion.4 See
Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d
4To prevail under this standard of review, the taxpayer has
the burden of proving that the Commissioner’s determination was
arbitrary, capricious, or without sound basis in fact or law.
Jonson v. Commissioner, 118 T.C. 106, 113, 125 (2002), affd. 353
F.3d 1181 (10th Cir. 2003); Butler v. Commissioner, 114 T.C. 276,
291-292 (2000).
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1181 (10th Cir. 2003); Butler v. Commissioner, supra; cf. Wiener
v. Commissioner, T.C. Memo. 2008-230 (abuse of discretion
standard not applied where notice of determination did not recite
any analysis or factual determinations to review). In their
concurring opinions in Porter v. Commissioner, supra at 142-146,
Judges Goeke and Wherry contended that our existing precedent
with respect to the standard of review in section 6015(f) cases
is no longer applicable in the light of the 2006 amendments to
section 6015. Judge Wherry urged the Court to adopt a de novo
standard of review when the merits of this case would be
decided.5 Id. at 144.
Congress enacted section 6015 as part of the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, sec. 3201, 112 Stat. 734.6 Section 6015(f) provides
that the Commissioner “may” grant relief under certain
circumstances, suggesting a grant of relief is discretionary. In
its original form section 6015(e) granted us jurisdiction to
determine appropriate relief under section 6015(b) and (c) but
was silent as to our jurisdiction under section 6015(f). In
Butler v. Commissioner, supra, we considered whether we had
jurisdiction to review the Commissioner’s denial of equitable
5
In Porter v. Commissioner, 130 T.C. 115, 122 n.10 (2008),
we expressly reserved any determination regarding the appropriate
standard of review in sec. 6015(f) cases because our
determination of the proper scope of review was not dependent on
the standard of review.
6
Sec. 6015 replaced sec. 6013(e), which provided for a
spouse to be relieved from joint and several liability under
certain limited circumstances.
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relief under section 6015(f) or whether the granting of relief
was committed solely to agency discretion.
In the absence of any clear guidance from Congress, we held
that we had jurisdiction to review the Commissioner’s
determinations but should review for abuse of discretion because
of the discretionary language in section 6015(f). Butler v.
Commissioner, supra; see Porter v. Commissioner, supra at 143
(Goeke, J. concurring). Under the statutory framework provided
by Congress at the time, our adoption of an abuse of discretion
standard was appropriate. Porter v. Commissioner, supra at 143
(Goeke, J. concurring).
Our assertion of jurisdiction over cases brought under
section 6015(e) and (f) by individuals against whom no deficiency
had been asserted was reversed by the U.S. Courts of Appeals for
the Eighth Circuit and for the Ninth Circuit. See Bartman v.
Commissioner, 446 F.3d 785, 787 (8th Cir. 2006), affg. in part
and vacating in part T.C. Memo. 2004-93; Commissioner v. Ewing,
439 F.3d 1009 (9th Cir. 2006), revg. 118 T.C. 494 (2002) and
vacating 112 T.C. 32 (2004); see also Billings v. Commissioner,
127 T.C. 7 (2006). However, in 2006 Congress amended section
6015(e)(1) to confirm our jurisdiction to determine the
appropriate relief available under section 6015(f). Tax Relief
and Health Care Act of 2006, Pub. L. 109-432, div. C, sec.
408(a), 120 Stat. 3061. Given Congress’s confirmation of our
jurisdiction, reconsideration of the standard of review in
section 6015(f) cases is warranted.
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Amended section 6015(e)(1) provides that “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)”,
the Court has jurisdiction “to determine the appropriate relief
available to the individual under this section”. (Emphasis
added.) The use of the word “determine” suggests that Congress
intended us to use a de novo standard of review as well as scope
of review. In other instances where the word “determine” or
“redetermine” is used, as in sections 6213 and 6512(b), we apply
a de novo scope of review and standard of review. See Porter v.
Commissioner, 130 T.C. at 118-119.
Nothing in amended section 6015(e) suggests that Congress
intended us to review for abuse of discretion. In similar
circumstances, Congress expressly provided that we review the
Commissioner’s determinations for abuse of discretion. Before
1996 the Commissioner was granted the authority to abate
assessments of interest in certain circumstances. Sec. 6404(e)
(as in effect for tax years beginning on or before July 30,
1996). Under that statutory framework, we lacked jurisdiction to
determine whether interest abatement was warranted. See Beall v.
United States, 336 F.3d 419, 425 (5th Cir. 2003); 508 Clinton St.
Corp. v. Commissioner, 89 T.C. 352, 354 (1987). Congress then
amended section 6404 by expressly granting us jurisdiction “to
determine whether the Secretary’s failure to abate interest * * *
was an abuse of discretion”. (Emphasis added.) Taxpayer Bill of
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Rights 2, Pub. L. 104-168, sec. 302, 110 Stat. 1457 (1996); see
Hinck v. United States, 550 U.S. 501 (2007) (holding that this
Court is the exclusive forum for judicial review of the
Commissioner’s refusal to abate interest, abrogating Beall v.
United States, supra).
Section 6015(e) was amended in a similar historical context.
Sections 6015(f) and 6404(e) are taxpayer relief provisions.
Under each provision the decision whether to grant relief (in the
form of an interest abatement or relief from joint and several
liability) was committed largely to agency discretion, and it had
been determined that we lacked jurisdiction over a claim brought
by a taxpayer under each provision. See Commissioner v. Ewing,
439 F.3d 1009 (9th Cir. 2006) (Court of Appeals determined that
this Court lacked jurisdiction over cases brought under section
6015(f)); 508 Clinton St. Corp. v. Commissioner, supra (this
Court lacked jurisdiction over interest abatement claim).
In amending section 6404, Congress provided us jurisdiction
over interest abatement cases but expressly limited our
jurisdiction to reviewing whether the Commissioner’s failure to
abate interest was an abuse of discretion. Sec. 6404(h). In
amending section 6015(e), Congress provided us jurisdiction over
cases brought under section 6015(f). But unlike the amendment to
section 6404, the amendment to section 6015(e) gives no
indication that we should review the Commissioner’s determination
for abuse of discretion. Congress’s failure to include any such
limitation in section 6015(e) when it had previously included the
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limitation in a similar situation indicates that our jurisdiction
is not limited to reviewing the Commissioner’s determination for
abuse of discretion. 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.”).
An abuse of discretion standard of review is also at odds
with our decision to decline to remand section 6015(f) cases 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.
That Congress did not include a similar provision in section 6015
is consistent with the requirement that we 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.”).
We have always applied a de novo scope and standard of
review in determining whether relief is warranted under
subsections (b) and (c) of section 6015. See, e.g., Alt v.
Commissioner, 119 T.C. 306, 313-316 (2002), affd. 101 Fed. Appx.
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34 (6th Cir. 2004). We believe that cases in which taxpayers
seek relief under section 6015(f) should receive similar
treatment and thus the same standard of review. Given Congress’s
direction that we determine the appropriate relief available
under subsections (b), (c), and (f), there is no longer any
reason to apply a different standard of review under subsection
(f) than under subsections (b) and (c), and we shall no longer do
so.
Accordingly, in cases brought under section 6015(f) we now
apply a de novo standard of review as well as a de novo scope of
review. Petitioner bears the burden of proving that she is
entitled to equitable relief under section 6015(f). See Rule
142(a). The Commissioner analyzes petitions for section 6015(f)
relief using the procedures set forth in Rev. Proc. 2003-61,
2003-2 C.B. 296. See Banderas v. Commissioner, T.C. Memo. 2007-
129. The parties have not disputed application of the conditions
and factors listed in the revenue procedure.
The Commissioner generally will not grant relief unless the
taxpayer meets seven threshold conditions. Rev. Proc. 2003-61,
sec. 4.01, 2003-2 C.B. at 297. Respondent concedes that
petitioner meets these conditions. If a taxpayer meets the
threshold conditions, the Commissioner considers several factors
to determine whether a requesting spouse is entitled to relief
under section 6015(f). Rev. Proc. 2003-61, sec. 4.03, 2003-2
C.B. at 298. We consider all relevant facts and circumstances in
determining whether the taxpayer is entitled to relief. Sec.
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6015(e) and (f)(1). The following factors are relevant to our
inquiry.
III. Factors Relating to Petitioner’s Claim for Relief
A. Petitioner and Mr. Porter Are Divorced
Petitioner and Mr. Porter legally separated on April 21,
2004, 6 days after she signed the couple’s 2003 return. They
divorced on May 16, 2006. This factor favors relief.7
B. Petitioner Would Suffer Economic Hardship If Relief
Were Not Granted
Economic hardship is present if payment of tax would prevent
the taxpayer from paying her reasonable basic living expenses.
Sec. 301.6343-1(b)(4)(i) and (ii), Proced. & Admin. Regs. The
determination varies according to the unique circumstances of the
taxpayer. Id.
Petitioner earns a modest income. She is the mother of two
children. She has a bachelor of science degree in business
administration, and presumably she will be able to be employed
for many more years. Because of debts she was left with after
her separation and divorce from Mr. Porter, petitioner has been
unable to meet her monthly expenses. Consequently, she was
forced to file for bankruptcy. If relief were not granted,
petitioner would be jointly liable for paying $1,070 plus related
interest.
7
In analyzing such factors as the taxpayer’s marital status,
whether the taxpayer would suffer hardship, and whether the
taxpayer has complied with income tax laws in subsequent years,
our inquiry is directed to the taxpayer’s status at the time of
trial.
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Under these circumstances, we conclude that petitioner would
suffer economic hardship if relief were not granted. This factor
favors relief.
C. Petitioner Had Reason To Know of the Item Giving Rise
to the Deficiency
In the case of an income tax liability resulting from a
deficiency, we are less likely to grant relief under section
6015(f) if the requesting spouse knew or had reason to know of
the item giving rise to the deficiency. If the requesting spouse
did not know or have reason to know, we are more likely to grant
relief.
A taxpayer who signs a return is generally charged with
constructive knowledge of its contents. Hayman v. Commissioner,
992 F.2d 1256, 1262 (2d Cir. 1993), affg. T.C. Memo. 1992-228.
In establishing that a taxpayer had no reason to know, the
taxpayer must show that she was unaware of the circumstances that
gave rise to the error and not merely unaware of the tax
consequences. Bokum v. Commissioner, 94 T.C. 126, 145-146
(1990), affd. 992 F.2d 1132 (11th Cir. 1993); Purcell v.
Commissioner, 86 T.C. 228, 237-238 (1986), affd. 826 F.2d 470,
473-474 (6th Cir. 1987). Section 6015 does not protect a spouse
who turns a blind eye to facts readily available to her.
Charlton v. Commissioner, 114 T.C. 333, 340 (2000); Bokum v.
Commissioner, supra. In such instances, we may impute the
requisite knowledge to the putative innocent spouse unless she
satisfies her duty of inquiry. Hayman v. Commissioner, supra at
1262; Adams v. Commissioner, 60 T.C. 300, 303 (1973).
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Mr. Porter presented the couple’s income tax return to
petitioner to sign on April 15, 2004, the day it was due.
Petitioner scanned the contents of the return only to ensure that
her own income was reported correctly, which it was. Petitioner
relied on Mr. Porter to prepare the return properly with respect
to his own income. Petitioner’s reliance was misplaced.
Nevertheless, petitioner signed a return which clearly shows that
Mr. Porter received an IRA distribution during 2003. Despite Mr.
Porter’s reluctance to discuss his finances with petitioner, we
presume she knew that Mr. Porter had not reached the age of 59½,
so as to except the distribution from the section 72(t)
additional tax.
Accordingly, petitioner had reason to know of Mr. Porter’s
IRA distribution. This factor favors not granting petitioner
relief.
D. Petitioner Did Not Receive a Significant Benefit Beyond
Normal Support From the Item Giving Rise to the
Deficiency
Receipt by the requesting spouse, either directly or
indirectly, of a significant benefit in excess of normal support
from the unpaid liability or the item giving rise to the
deficiency weighs against relief. Lack of a significant benefit
beyond normal support weighs in favor of relief. Normal support
is measured by the circumstances of the particular parties.
Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989).
Mr. Porter testified that he used the proceeds from his IRA
distribution to pay petitioner’s credit card debt. Petitioner
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testified that she does not know how Mr. Porter spent the
distribution from his IRA but that he did not use the proceeds to
pay her credit card debt. We evaluated petitioner’s and Mr.
Porter’s testimonies by observing their candor, sincerity, and
demeanor. Mr. Porter was not credible. Petitioner was, and we
accept her testimony.
However, even if we were to accept Mr. Porter’s testimony
that he used the proceeds of the IRA distribution to pay
petitioner’s credit card debt, he admitted that a portion of the
credit card charges related to grocery shopping; i.e. normal
support. Petitioner earned a very modest income during 2003
after being wrongfully discharged from her job. Therefore, it is
reasonable to conclude that petitioner used her credit cards for
necessary services and supplies in addition to groceries.
We conclude that petitioner did not receive a significant
benefit beyond normal support from Mr. Porter’s IRA distribution.
This factor favors relief.
E. Petitioner Complied With All Income Tax Laws in
Subsequent Tax Years
Petitioner has complied with income tax laws in all
subsequent years. Furthermore, upon discovering that her husband
had neglected to file the couple’s joint Federal income tax
return for 2002, she promptly filed her own return, choosing
married-filing-separately status. This factor favors relief.
IV. Conclusion
Factors favoring relief are that petitioner and Mr. Porter
are divorced, that she would suffer hardship if relief were not
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granted, that she did not receive a significant benefit beyond
normal support from the IRA distribution, and that she diligently
complied with income tax laws in subsequent years. That
petitioner had reason to know of the distribution because it
appears on the face of the return favors not granting relief.
Under an abuse of discretion standard, this Court has upheld
the Commissioner’s denial of relief under section 6015(f) where
the taxpayer knew or had reason to know of the item giving rise
to the deficiency or that the tax would not be paid. See, e.g.,
Magee v. Commissioner, T.C. Memo. 2005-263; Simon v.
Commissioner, T.C. Memo. 2005-220; Sjodin v. Commissioner, T.C.
Memo. 2004-205, vacated 174 Fed. Appx. 359 (8th Cir. 2006);
Demirjian v. Commissioner, T.C. Memo. 2004-22. However, we are
no longer restricted to determining whether the Commissioner’s
determination was an abuse of discretion. Under a de novo
standard of review, we take into account all the facts and
circumstances and determine whether it is inequitable to hold the
requesting spouse liable for the unpaid tax or deficiency.
We recognize that petitioner had reason to know of the IRA
distribution because she signed the return and did not inquire
into its contents. However, this factor is tempered by the fact
that petitioner regularly inquired into Mr. Porter’s finances
during the preceding year and he refused to answer or answered
evasively.
The other factors discussed above which favor relief
outweigh petitioner’s reason to know of her husband’s IRA
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distribution. Accordingly, petitioner has met her burden of
proving by the preponderance of the evidence that it would be
inequitable to hold her liable for the section 72(t) additional
tax on Mr. Porter’s IRA distribution.
To reflect the foregoing,
Decision will be entered
for petitioner.
Reviewed by the Court.
COLVIN, VASQUEZ, GALE, MARVEL, GOEKE, WHERRY, KROUPA, and
PARIS, JJ., agree with this majority opinion.
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GALE, J., concurring: I agree with the position taken in
the majority opinion that de novo review is the appropriate
standard of review in determining entitlement to relief under
section 6015(f).1 I write separately to highlight certain other
factors that support that position.
First, the statute is unclear in prescribing a standard of
review. While, as the majority acknowledges, the articulation in
section 6015(f) that under certain conditions the Secretary “may”
relieve an individual of liability is suggestive that review
should be for abuse of discretion, the use of “may” in section
6015(f) is not dispositive. Internal Revenue Code sections
providing that the Secretary “may” take an action have sometimes
been interpreted as mandating review for abuse of discretion,
see, e.g., sec. 482; Ballentine Motor Co. v. Commissioner, 321
F.2d 796, 800 (4th Cir. 1963), affg. 39 T.C. 348 (1962); Dolese
v. Commissioner, 82 T.C. 830, 838 (1984), affd. 811 F.2d 543, 546
(10th Cir. 1987); Foster v. Commissioner, 80 T.C. 34, 142-143
(1983), affd. in part and vacated in part on another issue 756
F.2d 1430 (9th Cir. 1985); Ach v. Commissioner, 42 T.C. 114, 125-
126 (1964), affd. 358 F.2d 342 (6th Cir. 1966), and sometimes de
novo review, see, e.g., sec. 269(a);2 VGS Corp. v. Commissioner,
1
It is worth noting that, while 9 Judges have voted “yes”
and 8 have voted “no” in this case, two of the “no” votes agree
with the majority with respect to the standard of review. Thus,
the number of Judges supporting the application of a de novo
standard of review is 11 and the number opposing it is 6.
2
The standard of review applied with respect to the “may”
language in sec. 269(a) is noteworthy in that the “may” language
(continued...)
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68 T.C. 563, 595-598 (1977); Capri, Inc. v. Commissioner, 65 T.C.
162, 178 (1975); D’Arcy-MacManus & Masius, Inc. v. Commissioner,
63 T.C. 440, 449 (1975); Indus. Suppliers, Inc. v. Commissioner,
50 T.C. 635, 645-646 (1968); Inductotherm Indus., Inc. v.
Commissioner, T.C. Memo. 1984-281, affd. without published
opinion 770 F.2d 1071 (3d Cir. 1985).
Moreover, our grant of jurisdiction to review the
Secretary’s (or Commissioner’s) decisions concerning equitable
relief is contained not in section 6015(f) but in section
6015(e)(1)(A), which provides that the Tax Court shall have
jurisdiction “to determine the appropriate relief available to
the individual under this section”. This broad phrasing3 must be
compared, as the majority notes, to another discrete grant of
jurisdiction to the Court, a mere 2 years earlier, to review the
Secretary’s decisions not to abate interest. That grant, now
codified in section 6404(h)(1),4 is explicit with respect to the
standard of review: “The Tax Court shall have jurisdiction * * *
to determine whether the Secretary’s failure to abate interest
under this section was an abuse of discretion”. When the general
terms of section 6015(e)(1)(A) are compared with the specificity
2
(...continued)
in the statute had previously been “shall”. See Revenue Act of
1964, Pub. L. 88-272, sec. 235(c)(2), 78 Stat. 126.
3
I emphasize here the entire quoted phrase from sec.
6015(e)(1)(A), not just the verb “determine”, on which the
majority places singular emphasis.
4
The grant of Tax Court jurisdiction was originally codified
as sec. 6404(g)(1). Taxpayer Bill of Rights 2 (TBOR 2), Pub. L.
104-168, sec. 302(a), 110 Stat. 1457 (1996).
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of the standard enunciated in section 6404(h)(1), Congress’s
intention regarding the review standard in the former becomes
less clear.5 To suggest that the “may” in section 6015(f)
settles the matter in this context puts more freight on that word
than it can carry.6
Second, given the statute’s lack of clarity regarding the
standard of review, consideration of the legislative history is
appropriate. The history of amendments to the joint and several
liability relief provisions since the original enactment in 1971
5
A similar contrast emerges in the legislative history of
secs. 6320 and 6330 as compared to the legislative history of
sec. 6015(e)(1)(A). These Code sections were all enacted as part
of the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, secs. 3401 and 3201, 112 Stat. 734, 746.
The legislative history underlying secs. 6320 and 6330 specifies
that courts are to apply an abuse of discretion standard in
reviewing IRS collection determinations and a de novo standard in
reviewing determinations of tax liability. H. Conf. Rept. 105-
599, at 266 (1998), 1998-3 C.B. 755, 1020; see Giamelli v.
Commissioner, 129 T.C. 107, 111 (2007). Thus, the legislative
history of sec. 6330 makes clear that, to the extent specified
therein, we must apply a deferential standard of review. See
Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). In contrast,
the legislative history underlying sec. 6015(e)(1)(A) does not
specify the standard of review. See H. Conf. Rept. 105-599,
supra at 250-251, 1998-3 C.B. at 1004-1005.
6
In describing the Secretary’s authority to grant equitable
relief, the legislative history puts no emphasis on
administrative discretion:
The conferees do not intend to limit the use of
the Secretary’s authority to provide equitable relief
to situations where tax is shown on a return but not
paid. The conferees intend that such authority be used
where, taking into account all the facts and
circumstances, it is inequitable to hold an individual
liable for all or part of any unpaid tax or deficiency
arising from a joint return. * * * [H. Conf. Rept.
105-599, supra at 254, 1998-3 C.B. at 1008.]
-22-
evidences congressional dissatisfaction with the adequacy of
relief afforded taxpayers. The 1971 version of “innocent spouse”
relief provided relief only in the case of omitted income. See
Act of Jan. 12, 1971, Pub. L. 91-679, sec. 1, 84 Stat. 2063.
Amendments in 1984 extended relief in the case of erroneous
deductions, though the deductions needed to be “grossly
erroneous” and the deductions and/or the income omission had to
have resulted in a “substantial” understatement of tax on the
return. See Deficit Reduction Act of 1984, Pub. L. 98-369, sec.
424(a), 98 Stat. 801. Finding the level of relief afforded by
the statute still inadequate, Congress in the 1998 amendments
removed the requirement that the deductions claimed be “grossly”
erroneous or that the understatement of tax be “substantial” and
added provisions allowing elections to allocate liability and
establishing equitable relief. See Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,
sec. 3201(a), 112 Stat. 734.
The pattern of legislative changes designed to make innocent
spouse relief more readily available also reflected congressional
dissatisfaction with the administration of the statute by the
Commissioner. This dissatisfaction reached the apex in 1998,
when section 6015(f) was enacted as part of RRA 1998. In a
February 11, 1998, Senate Finance Committee hearing on “Innocent
Spouse Tax Rules” presaging that legislation, Chairman William V.
Roth, Jr., diagnosed the problem with the “innocent spouse” rules
-23-
as due in significant part to unsatisfactory administration by
the IRS.
[T]he agency [IRS] is all too often electing to go
after those who would be considered innocent spouses
because they are easier to locate, as well as less
inclined and able to fight.
Part of these problems reside with the IRS, part
of them are the fault of Congress. Though the agency
officially acknowledges the status of innocent spouses
under current law and has the ability to clear such an
individual from his or her tax liability, it rarely
does. [IRS Restructuring (Innocent Spouse Tax Rules):
Hearings Before the S. Comm. on Finance, 105th Cong.,
2d Sess. 142 (1998) (S. Hrg. 105-529, Fourth Hearing);
emphasis added.]
At a February 24, 1998, hearing7 before the Subcommittee on
Oversight of the Committee on Ways and Means concerning a
Treasury Department Report on Innocent Spouse Relief,8 Chairman
Johnson stated:
As the Congress develops legislation to restructure and
reform the Internal Revenue Service, we have learned of
a number of disturbing cases in which taxpayers have
been grossly mistreated by the IRS. Out of all the
horror stories that have surfaced in recent months,
none have been more heartbreaking than those involving
innocent spouses--taxpayers who in many cases have been
left to rear children as single parents, often without
child support, only to find that their former spouses
have saddled them with a crushing debt. Many of these
horror stories have been going on for years without the
IRS helping the spouses who are seeking relief from
mounting tax liabilities, interest, and penalties.
[U.S. Treasury Department Report on Innocent Spouse
7
The Oversight Subcommittee hearing was held after the House
had passed its version of RRA 1998 (H.R. 2676, 105th Cong., 1st
Sess. (1997)) on Nov. 5, 1997. However, neither the Senate nor
the conference version of H.R. 2676 had been considered or
passed, and the essential form of sec. 6015(f) as finally enacted
did not emerge until the conference version of the legislation.
8
The report had been mandated by Congress in 1996
legislation. See TBOR 2 sec. 401, 110 Stat. 1459.
-24-
Relief: Hearing Before the Subcommittee on Oversight
of the House Comm. on Ways and Means, 105th Cong., 2d
Sess. 5 (1998).]
Testifying on behalf of the Treasury Department at the hearing,
Assistant Secretary for Tax Policy Donald C. Lubick conceded a
problem in the Internal Revenue Service’s administration of the
statute:
Mr. Lubick. I think you’ve put your finger on
what I think is the most disturbing part of this whole
problem [inadequacy of current arrangements for
innocent spouse relief], which is that--and I think
it’s produced the most dramatic of the examples; that
there have been some particular agents who are hard-
nosed and unsympathetic * * *. [Id. at 28.]
One of the solutions proposed in the Treasury Department report,
as described in Assistant Secretary Lubick’s testimony, was to
“significantly expand taxpayers’ procedural opportunities to
claim substantive relief under the innocent spouse provisions, by
making access to Tax Court routinely available”. Id. at 19.
Chairman Johnson endorsed the expansion of Tax Court jurisdiction
as an important part of the solution to the unsatisfactory
results that had been experienced under the statute.
I am particularly pleased to note that the
innocent spouse legislative recommendations discussed
in the [Treasury and General Accounting Office] reports
are included in our House-passed * * * legislation * *
*. To summarize, the bill expands the availability of
innocent spouse relief by, No. 1, eliminating the
various dollar thresholds; No. 2, broadening the
definition of eligible tax understatements, and three,
providing partial innocent spouse relief in certain
situations, and No. 4, providing tax court jurisdiction
over denials of innocent spouse relief. [Id. at 7;
emphasis added.]
Given the evidence of congressional dissatisfaction with the
IRS’s track record in administering the “innocent spouse” rules
-25-
and of the congressional perception that one solution to the
problem was expanded Tax Court jurisdiction, it appears unlikely
that Congress intended that a significant portion of the Court’s
review of the IRS’s disposition of innocent spouse claims be
circumscribed under the deferential standard inherent in review
for abuse of discretion. To conclude otherwise is to turn a tin
ear to the strong critique of the Commissioner’s record in
administering “innocent spouse” relief evidenced in congressional
hearings on the subject.
Third, another specific feature of section 6015 countervails
the claim that abuse of discretion review was intended for
section 6015(f) claims; namely, the provision in section
6015(e)(4) for intervention in a Tax Court proceeding by the
spouse not seeking relief. As originally enacted, section
6015(e)(4) provided as follows:
(4) Notice to other spouse.--The Tax Court shall
establish rules which provide the individual filing a
joint return but not making the election under
subsection (b) or (c) with adequate notice and an
opportunity to become a party to a proceeding under
either such subsection. [RRA 1998 sec. 3201(a).]
Congress therefore contemplated that in Tax Court proceedings for
review of section 6015 claims--or, more specifically, claims
under subsection (b) or (c)--there would be interventions by
nonrequesting spouses resulting in new evidence or argument in
the Tax Court proceeding that was not available to the
Commissioner as part of the administrative determination.
-26-
The 2006 amendments by the Tax Relief and Health Care Act of
2006, div. C, sec. 408, 120 Stat. 3061, to clarify the Tax
Court’s jurisdiction over section 6015(f) cases did not merely
modify section 6015(e)(1)(A), as discussed in the majority and
dissenting opinions. The 2006 amendments also modified section
6015(e)(4) to read as follows:
(4) Notice to other spouse.--The Tax Court shall
establish rules which provide the individual filing a
joint return but not making the election under
subsection (b) or (c) or the request for equitable
relief under subsection (f) with adequate notice and an
opportunity to become a party to a proceeding under
either such subsection. [Emphasis added.]
Thus, in connection with clarifying the Tax Court’s jurisdiction
over section 6015(f) cases not involving a deficiency, Congress
simultaneously added spousal intervention rights for such cases
as part of the 2006 amendments.9 The conclusion is inescapable
that Congress considered intervention rights to be an important
component of this Court’s review of section 6015 cases, including
those under section 6015(f). Intervention rights entail the
distinct likelihood that new evidence will surface in the Tax
9
Because of the more expansive retooling of sec. 6015(f)
review procedures effected by the 2006 amendments of sec.
6015(e)(4), I agree with the majority’s conclusion that the 2006
amendments are cause for the Court to reconsider the standard of
review in sec. 6015(f) cases.
The Court of Appeals for the 11th Circuit recently upheld
this Court’s position in Ewing v. Commissioner, 122 T.C. 32(2004), vacated on other grounds 439 F.3d 1009 (9th Cir. 2006),
and Porter v. Commissioner, 130 T.C. 115 (2008), that the scope
of review in a sec. 6015(f) review proceeding should not be
limited to the administrative record. Commissioner v. Neal, 557
F.3d 1262 (11th Cir. 2009), affg. T.C. Memo. 2005-201. The
standard of review was not in issue in Neal, as the parties had
agreed that the standard was abuse of discretion.
-27-
Court proceeding. Yet to review the Commissioner’s
administrative determination for abuse of discretion on the basis
of evidence not available to him would be, at best, anomalous.
The Supreme Court has instructed that, in applying an abuse of
discretion standard of review, “the focal point for judicial
review should be the administrative record already in existence,
not some new record made initially in the reviewing court.” Camp
v. Pitts, 411 U.S. 138, 142 (1973). By expressly providing for
intervenors in section 6015(f) review cases in the Tax Court,
Congress contemplated a “new record made initially in the
reviewing court” in those cases. Application of an abuse of
discretion standard of review is not appropriate in such
circumstances.
In addition to the intervenor issue, we must bear in mind
problems with the administrative record, our inability to remand,
and the fact that a stand-alone nondeficiency petition can bring
a section 6015(f) case before us even where there has been no
administrative decision.10
This case is appealable, absent stipulation to the contrary,
to the Court of Appeals for the Fourth Circuit. Under the rule
laid down in Golsen v. Commissioner, 54 T.C. 742, 757 (1970),
10
In fact, we have recently applied a de novo standard of
review in a sec. 6015(f) case. See Wiener v. Commissioner,
T.C. Memo. 2008-230 (“Because we cannot ascertain what analysis
was made by the Appeals officer in reaching his or her
determination that petitioner is not entitled to relief under
section 6015(f), we cannot review the determination for abuse of
discretion. [Fn. ref. omitted.] Instead, we shall examine the
trial record de novo to decide whether respondent properly
concluded that petitioner is not entitled to relief.”).
-28-
affd. 445 F.2d 985 (10th Cir. 1971), we abide by that court’s
precedent. The Court of Appeals for the Fourth Circuit
disapproves of the odd pairing of a de novo scope of review with
an abuse of discretion standard of review. See Sheppard & Enoch
Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120, 125 (4th
Cir. 1994) (“Thus, although it may be appropriate for a court
conducting a de novo review of a plan administrator’s action to
consider evidence that was not taken into account by the
administrator, the contrary approach should be followed when
conducting a review under either an arbitrary and capricious
standard or under the abuse of discretion standard.”).11 That is
reason enough to reject that mismatched standard and scope of
review in this case.
Given the statute’s failure to specifically address the
standard of review, Congress’s expressed dissatisfaction with the
Commissioner’s history of administering the “innocent spouse”
rules, and the anomalous results of the employment of an abuse of
discretion standard of review in section 6015(f) cases, I believe
the better interpretation of section 6015 is that it provides for
11
In the sec. 6015(f) context, we have recognized the
conceptual difficulty of conducting a trial de novo while at the
same time deferring to an administrative determination. See
Nihiser v. Commissioner, T.C. Memo. 2008-135 (“Although rarely
employed by district courts in reviewing administrative agency
action, a trial de novo typically consists of independent fact-
finding and legal analysis unmarked by deference to the original
factfinder.”); see also Black’s Law Dictionary 1544 (8th ed.
2004) (defining “trial de novo” as “A new trial on the entire
case * * * conducted as if there had been no trial in the first
instance.”).
-29-
a de novo standard of review in all section 6015 cases, whether
under subsection (b), (c), or (f).
COLVIN, MARVEL, GOEKE, WHERRY, KROUPA, and PARIS, JJ., agree
with this concurring opinion.
-30-
HALPERN and HOLMES, JJ., concurring in part and dissenting
in part.
I. Concurrence
We concur in so much of the majority opinion as holds the
appropriate standard of review to be de novo. We do so
notwithstanding our dissent in the Court’s prior report in this
case, Porter v. Commissioner, 130 T.C. 115, 146-147 (2008),
holding that the appropriate scope of review is de novo. That
holding is now binding on us, and for that reason alone we concur
that “it would be incongruous to hold that review is limited to
determining whether an appeals officer ‘abused his discretion,’
but also to conclude that the appeals officer committed such an
‘abuse’ by failing to weigh information that was never even
presented to him.” Robinette v. Commissioner, 439 F.3d 455, 460
(8th Cir. 2006) (addressing the scope and standard of review
appropriate to judicial review of an Appeals officer’s decision
under section 6330), revg. 123 T.C. 85 (2004).
II. Dissent
We dissent from the majority’s conclusion that petitioner is
entitled to equitable relief. In particular we fail to see how
the majority can conclude that petitioner would suffer economic
hardship if relief were not granted. First, the majority states
that economic hardship is present if payment of the tax would
prevent the taxpayer from paying her reasonable basic living
expenses. Majority op. p. 14. Second, the majority holds that
the hardship determination (and certain other determinations) are
- 31 -
made with respect to the taxpayer’s status “at the time of
trial.” Majority op. p. 14, note 7. Third, the majority fails
to find (and the record contains no evidence of) petitioner’s
reasonable basic living expenses. Fourth, and most importantly,
at the time of trial, petitioner was in bankruptcy, and she was
not discharged until almost 7 weeks after the trial concluded,
when we assume her solvency and the hardship (if any) resulting
from her joint liability to pay $1,070 would be determinable. We
fail to see how the majority could determine that payment of that
liability would work a hardship before it knew the disposition of
her petition in bankruptcy (of which, like her reasonable basic
living expenses, the record contains no evidence).
- 32 -
WELLS, J., dissenting: I agree with and have joined Judge
Gustafson’s thorough and well-reasoned dissent. I respectfully
write separately to address an issue that Judge Gustafson does
not address in his dissent but is raised by concurring Judges and
to point to additional reasons for not abandoning the abuse of
discretion standard of review in section 6015(f) cases.
Judges Halpern and Holmes indicate that it would be
incongruous to apply the abuse of discretion standard of review
on the basis of trial evidence that the “Appeals officer” had
never seen.1 They apparently believe that the Commissioner’s
exercise of discretion is complete and final before trial.
However, in section 6015(f) cases and in other cases where the
abuse of discretion standard of review is applied after a trial
de novo, I believe that the exercise of discretion that is under
review is the Commissioner’s position after all of the evidence
is in. The final exercise of discretion by the Commissioner
typically is a posttrial brief containing the Commissioner’s
reasons and arguments. Indeed, our experience is that the
Commissioner often will grant partial or full relief after
considering all of the evidence adduced at trial. When, however,
the Commissioner finally argues that relief should be denied
1
Unlike sec. 6330, sec. 6015 does not require a “hearing”
before an “Appeals officer” or that a “determination” against the
taxpayer be made before filing a petition requesting relief under
sec. 6015(f). As noted by Judge Gustafson in his dissent, it is
the Secretary, through his delegate the Commissioner, who is
vested with the discretion under sec. 6015(f), and it is the
Commissioner who appears as the respondent in every case before
the Tax Court.
- 33 -
after all of the trial evidence is considered, it is that
position (i.e., the Commissioner’s exercise of discretion at that
point) that we review for abuse of discretion.
Additionally, I am concerned that today the Court, on the
pretext that a 2006 amendment to section 6015(e) provides an
occasion to reconsider our prior rulings,2 essentially overrules
our longstanding precedent that this Court reviews the
Commissioner’s denial of section 6015(f) relief for abuse of
discretion. That precedent originated with our Opinion in Butler
v. Commissioner, 114 T.C. 276 (2000), and was subsequently
reaffirmed in three Court-reviewed Opinions, the latest of which
was rendered in this very case less than a year ago. Porter v.
Commissioner, 130 T.C. 115 (2008) (Porter I); Ewing v.
Commissioner, 122 T.C. 32 (2004), vacated 439 F.3d 1009 (9th Cir.
2006); Cheshire v. Commissioner, 115 T.C. 183 (2000), affd. 282
F.3d 326 (5th Cir. 2002).
In overruling this precedent, the majority fails to
recognize the opinions of six Courts of Appeals that have
affirmed our practice of holding a trial de novo in section
6015(f) relief cases and then applying the abuse of discretion
standard of review. Commissioner v. Neal, 557 F.3d 1262, (11th
Cir. 2009), affg. T.C. Memo. 2005-201; Capehart v. Commissioner,
204 Fed. Appx. 618 (9th Cir. 2006), affg. T.C. Memo. 2004-268;
Alt v. Commissioner, 101 Fed. Appx. 34 (6th Cir. 2004), affg. 119
2
As Judge Gustafson’s dissent explains, the 2006 amendment
had nothing to do with changing the standard of review in sec.
6015(f) cases.
- 34 -
T.C. 306 (2002); Doyle v. Commissioner, 94 Fed. Appx. 949 (3d
Cir. 2004), affg. T.C. Memo. 2003-96; Mitchell v. Commissioner,
292 F.3d 800 (D.C. Cir. 2002), affg. T.C. Memo. 2000-332;
Cheshire v. Commissioner, 282 F.3d 326 (5th Cir. 2002). The most
recent of these opinions was issued on February 11, 2009, and
affirmed what it described as:
the Tax Court’s longstanding rule and practice * * *
to hold trials de novo in situations where it makes
determination and redeterminations, including § 6015(f)
cases. To prevail in the trial de novo, the taxpayer
petitioner must show that the Commissioner’s denial of
equitable relief was an abuse of discretion.
[Commissioner v. Neal, supra at 1268; citations omitted.]
These Courts of Appeals do not appear to have any disagreement
with the abuse of discretion standard of review in a trial where
evidence is taken de novo.
I also would like to address Judge Gale’s argument in his
concurring opinion that the Court of Appeals for the Fourth
Circuit would reject a “mismatched standard and scope of review”
in section 6015(f) cases, pursuant to its opinion in Sheppard &
Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120 (4th
Cir. 1994), and that we are bound to follow that outcome under
the rule of Golsen v. Commissioner, 54 T.C. 742, 757 (1970),
affd. 445 F.2d 985 (10th Cir. 1971). I believe that Sheppard is
not squarely in point and is distinguishable.
As noted by Judge Gale, Sheppard holds that where an abuse
of discretion standard of review is applicable to a plan
- 35 -
administrator’s action under ERISA,3 the scope of review is
limited to the evidence that was taken into account by the plan
administrator at the time it acted. Id. at 25. The Court of
Appeals did not hold that it disapproves of any pairing of a de
novo scope of review with an abuse of discretion standard of
review (a holding that would run headlong into Thor Power Tool
Co. v. Commissioner, 439 U.S. 522, 532 (1979)), and it made no
holding whatsoever about section 6015(f) cases under the Internal
Revenue Code. Moreover, under section 6015(f) we are reviewing,
pursuant to the statute, the exercise of discretion of a
Government agency’s administrator who, as mentioned above,
appears as the respondent in every case before us, as opposed to
a District Court in an ERISA case reviewing a private entity’s
exercise of discretion conferred in a plan document.4
Consequently, I believe that the Golsen rule has no bearing on
the case before us.
Our review of section 6015(f) cases differs from a District
Court’s review of a plan administrator’s exercise of discretion
in another material respect. Under our precedent in Friday v.
3
ERISA is the Employee Retirement Income Security Act of
1974, Pub. L. 93-406, 88 Stat. 829, codified as amended not in
the Internal Revenue Code (26 U.S.C.) but in 29 U.S.C. secs.
1001-1461 (2006).
4
Under the Supreme Court’s holding in Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), quoted in Sheppard
& Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120, 123
(4th Cir. 1994), the plan administrator’s action is reviewed
under a de novo standard of review unless the plan document vests
the administrator with discretion, in which case, the action is
reviewed under an abuse of discretion standard.
- 36 -
Commissioner, 124 T.C. 220, 222 (2005), we have no authority to
remand section 6015(f) cases to the Commissioner, whereas in a
case arising under ERISA like Sheppard, a district court has the
authority to remand the case to the plan administrator. Sheppard
& Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., supra at 125.
In response to the criticism that a limited record can hide an
abuse of discretion that results from a plan administrator’s
failure to consider or admit into the record all of the relevant
facts, the Court of Appeals specifies remand as the “proper
course” to bring in additional evidence when the record is
otherwise lacking: “‘If the court [believes] the administrator
lacked adequate evidence, the proper course [is] to remand to the
trustees for a new determination . . . not to bring additional
evidence before the district court.’” Id. at 125 (quoting Berry
v. Ciba-Geigy Corp., 761 F.2d 1003, 1007 (4th Cir. 1985)).
In a section 6015(f) case, however, if this Court finds the
factual underpinnings of the Commissioner’s determination to be
lacking, we have no authority, pursuant to Friday, to remand the
case to the Commissioner to bring in additional evidence to allow
us to review a sufficient record to test the Commissioner’s
exercise of discretion which, as mentioned above, continues
throughout the case until all of the evidence is in.
Accordingly, in a section 6015(f) case, a de novo scope of
review, as we held in Porter I, is the only means by which we can
supplement an insufficient record.
- 37 -
Finally, I would like to address the venerable principle of
stare decisis. For the reasons cited by Judge Gustafson in his
dissent and others discussed here, I think that the correct
standard to use in reviewing section 6015(f) cases in this Court
is abuse of discretion. Consequently, I do not think it is
necessary to rely on stare decisis alone as the reason for
continuing to review section 6015(f) cases for abuse of
discretion. Nonetheless, stare decisis is additional support for
not abandoning the abuse of discretion standard. The majority
makes no mention of and gives no consideration to that principle
or why it should not apply.
Stare decisis should apply in the instant case for reasons
stated in the recent opinion of the Supreme Court in John R. Sand
& Gravel Co. v. United States, 552 U.S. ___, ___, 128 S. Ct. 750,
756-757 (2008)(citations and quotation marks omitted):
stare decisis in respect to statutory
interpretation has special force, for
Congress remains free to alter what
we have done. * * *
* * * Justice Brandeis once observed that in
most matters it is more important that the
applicable rule of law be settled than that
it be settled right. To overturn a decision
settling one such matter simply because we
might believe that decision is no longer
right would inevitably reflect a willingness
to reconsider others. And that willingness
could itself threaten to substitute
disruption, confusion, and uncertainty for
necessary legal stability. * * *
In sum, the use of an abuse of discretion standard of review
in a de novo trial is consistent with this Court’s precedent, the
- 38 -
opinions of the Courts of Appeals I have cited above, the Supreme
Court’s holding in Thor Power, and stare decisis.
For the foregoing reasons, I dissent.
COHEN, THORNTON, and GUSTAFSON, JJ., agree with this
dissenting opinion.
- 39 -
GUSTAFSON, J., dissenting: I respectfully dissent from the
majority opinion, which abandons the abuse-of-discretion standard
for the Court’s review of the IRS’s denial of relief under
section 6015(f) and adopts in its place a “de novo” standard of
review. In so doing, the majority departs from the better
reading of the statute and from very substantial precedent.
I. By Conferring Discretion on the Secretary, Section 6015(f)
Calls for the Court To Review the Secretary’s Actions for
Abuse of That Discretion.
A. Section 6015(f) Confers Discretion On the Secretary.
Section 6015(f) provides that “the Secretary may relieve
such individual of such liability”. (Emphasis added.) Four
features of section 6015 show that this language confers
discretion on the Secretary: First, “The word ‘may’ customarily
connotes discretion”.1 Jama v. Immigration & Customs
Enforcement, 543 U.S. 335, 346 (2005). Second, section 6015(f),
rather than simply providing a rule, expressly names an official
(“the Secretary”) to apply its rule. Most provisions in the
Internal Revenue Code simply state a rule and do not repeat in
each instance the truism2 that it will be the Commissioner who
1
The majority so acknowledges. Majority op. p. 8
(“Section 6015(f) provides that the Commissioner ‘may’ grant
relief under certain circumstances, suggesting a grant of relief
is discretionary”). See also Kirkendall v. Dept. of the Army,
479 F.3d 830, 870 (Fed. Cir. 2007); Lantz v. Commissioner, 132
T.C. ____, ___ (2009) (slip op. at 26) (“section 6015(f), uses
the discretionary term ‘may’”).
2
See sec. 7801(a)(1) (“the administration and enforcement of
this title shall be performed by or under the supervision of the
Secretary of the Treasury”); sec. 7803(a)(2) (“The Commissioner
shall have such duties and powers as the Secretary may prescribe,
(continued...)
- 40 -
applies that rule on behalf of the Government. It is therefore a
departure from the norm when a statutory provision does name an
official to apply the rule--e.g., by stating that “the Secretary
may” impose a given treatment,3 or that “[t]he Secretary may
waive” a certain provision,4 or that a given treatment shall
obtain when it is appropriate “in the opinion of the Secretary”,5
or that a determination of an issue will be made by some
specified subordinate of the Secretary.6 When a statute thus
explicitly names the agency decision-maker, this is a further
indication7 that the matter is committed to his or her
(...continued)
including the power to * * * administer, manage, conduct, direct,
and supervise the execution and application of the internal
revenue laws”).
3
See sec. 482; Dolese v. Commissioner, 82 T.C. 830, 838
(1984), affd. 811 F.2d 543, 546 (10th Cir. 1987).
4
See former sec. 6659(e); Krause v. Commissioner, 99 T.C.
132, 179 (1992), affd. sub nom. Hildebrand v. Commissioner,
28 F.3d 1024 (10th Cir. 1994).
5
See secs. 446(b), 471(a); Thor Power Tool Co. v.
Commissioner, 439 U.S. 522, 532 (1979); see also Hernandez-
Cordero v. U.S. INS, 819 F.2d 558, 566 & nn.18-24, 570 (5th Cir.
1987) (Rubin, J., dissenting) (appendix listing 169 sections in
the United States Code “placing discretion in the opinion of the
President, the Attorney General, or a Cabinet Secretary” with the
language “in the opinion of”).
6
See sec. 6330(c)(3); Goza v. Commissioner, 114 T.C. 176,
181-182 (2000).
7
Admittedly, the naming of the official who makes that
decision is not, by itself, an infallible marker that discretion
has been granted to that official. Rather, for example,
section 269(a) provides that “the Secretary may disallow” losses
acquired in tax-motivated transactions, but the case law under
section 269 does not indicate a special grant of discretion. Cf.
United States v. Jefferson Elec. Manufacturing Co., 291 U.S. 386,
(continued...)
- 41 -
discretion. This ought to be considered a particularly strong
indication where, as with section 6015(f), that feature of the
statute contrasts with its neighboring provisions, i.e.,
subsections (b) and (c).8 If we level these distinctions and
find that all the forms of relief under section 6015 have the
same standard of review, notwithstanding their different
vocabulary, then we ignore the Congress’s use of distinctive
language in the various subsections.
Third, section 6015(e) contrasts the discretionary character
of section 6015(f) (under which one is said to “request” relief)
with the nondiscretionary character of subsections (b) and (c)
(under which one is said to “elect” relief).9 A benefit that may
(...continued)
397-398 (1934) (the phrase “to the satisfaction of the Secretary”
does not “invest the Commissioner with absolute authority or
discretion” (emphasis added) but “means that the additional
element is not lightly to be inferred but to be established by
proof which convinces in the sense of inducing belief”);
R.E. Dietz Corp. v. United States, 66 AFTR 2d 5772, 5779, 90-2
USTC par. 50,447, at 85,439 (N.D.N.Y. 1990) (the phrase “‘to the
satisfaction of the Secretary’ * * * may very well indicate that
the instant action should have been stylized and litigated as one
* * * challenging that determination as arbitrary or capricious
or as an abuse of discretion”), affd. 939 F.2d 1 (2d Cir. 1991).
8
Section 6015(b)(1) provides that “the other individual
shall be relieved of liability”; section 6015(b)(2) provides that
“such individual shall be relieved of liability”; and section
6015(c) provides that “the individual’s liability * * * shall not
exceed” his or her allocable portion; but section 6015(f) departs
from the pattern to provide that “the Secretary may relieve”.
(Emphasis added.) As is discussed infra part IV.D, we recognize
the difference of these forms of relief in our opinion in Lantz
v. Commissioner, supra at ___ (slip op. at 23).
9
To the existing provision of section 6015(e)(1) granting
jurisdiction to the Tax Court “[i]n the case of an individual
* * * who elects to have subsection (b) or (c) apply”, the 2006
(continued...)
- 42 -
be “elected” is one’s right; but a benefit that must be
“requested” invokes the discretion of one who may or may not
grant the benefit.10
Fourth, the pertinent language in section 6015(f) is
identical to discretionary language in a companion provision,
section 66(c) (which grants analogous relief for liability from
tax on community income). The same 1998 amendment that created
section 6015(f) also added an “equitable relief” provision as the
last sentence of section 66(c) (emphasis added):
(...continued)
amendment (discussed in greater detail below) added “or in the
case of an individual who requests equitable relief under
subsection (f)”. (Emphasis added.) In addition, where existing
language in subsection (e)(1)(A)(i)(II) and (B)(i) referred to
“elect[ing]” relief under subsections (b) and (c), equivalent
amendments were made to add reference to “request[ing]” relief
under subsection (f). The majority ignores the difference
between “electing” and “requesting” when they state, “Nothing in
amended section 6015(e) suggests that Congress intended us to
review for abuse of discretion.” Majority op. p. 10.
10
To “request” is “to ask * * * to do something” or “to ask
* * * for something”, whereas to “elect” is “to make a selection
of” or “to choose”. Webster’s Third New International Dictionary
(1986). This Court has similarly “defined the legal term
‘election’” as the “choice of one of two rights or things”.
Boardwalk Natl. Bank v. Commissioner, 34 T.C. 937, 945 (1960)
(quoting Weis v. Commissioner, 30 B.T.A. 478, 488 (1934) (“The
term ‘election’ in its legal sense means the choice of one of two
rights or things, to each of which the party choosing has an
equal right, but both of which he can not have, * * * as when a
man is left to his own free will to take or do one thing or
another, which he pleases, * * * a choice between different
things, * * * the act of electing or choosing’”)); see also Snow
v. Alley, 30 N.E. 691, 692 (Mass. 1892) (“Election exists when a
party has two alternative and inconsistent rights, and it is
determined by a manifestation of a choice”); Black’s Law
Dictionary 557 (8th ed. 2004) (describing an “election” as “The
exercise of choice; esp., the act of choosing from several
possible rights or remedies”).
- 43 -
Under procedures prescribed by the Secretary, if,
taking into account all the facts and circumstances, it
is inequitable to hold the individual liable for any
unpaid tax or any deficiency (or any portion of either)
attributable to any item for which relief is not
available under the preceding sentence, the Secretary
may relieve such individual of such liability.
The language emphasized above is identical to language added by
the same amendment to section 6015(f).11 When reviewing IRS
action under this provision in section 66(c), we have reviewed
for abuse of discretion. See Bernal v. Commissioner, 120 T.C.
102, 107 (2003); Morris v. Commissioner, T.C. Memo. 2002-17; Beck
v. Commissioner, T.C. Memo. 2001-198. If this language in
section 66(c) granted discretion to the IRS, then the identical
language in section 6015(f), enacted at the same time, must have
done the same.
B. When a Statute Confers Discretion on an Agency, a Court
Reviewing Agency Action Must Defer to That Discretion
and Review It Only for Abuse.
The majority acknowledges that section 6015(f) confers
discretion on the Secretary,12 but it then denies that we review
11
See Internal Revenue Service Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 3201(a), (b), 112 Stat. 734, 739.
We observe in Lantz v. Commissioner, 132 T.C. at ____ (slip op.
at 19-23), that section 6015(f) and the final sentence of
section 66(c) are “companion statute[s]”.
12
See majority op. p. 11 (under section 6015(f), “the
decision whether to grant relief * * * was committed largely to
agency discretion”); majority op. p. 8 (the word “may” in
section 6015(f) “suggest[s that] a grant of relief is
discretionary”). If those statements by the majority are
equivocal (qualified as they are by “largely” and “suggest[s]”),
then this Court has removed all doubt by lately holding that “a
commonsense reading of section 6015 is that the Secretary has
discretion to grant relief under section 6015(f)”. Lantz v.
Commissioner, supra at ___ (slip op. at 28).
- 44 -
the IRS’s action for abuse of that discretion, insisting rather
that we review “de novo”, without enhanced deference to the
agency’s decision-making. This conception denudes that
“discretion” of any effect and contradicts the essence of
discretion being granted to an agency. If a Code provision that
grants no discretion yields de novo review of an agency’s
determination, and a Code provision that does grant discretion
yields the same de novo review, then the discretion is illusory.
The majority’s approach effectively relegates the agency’s
discretion to being relevant only to the agency that exercises it
and overlooks that discretion when the agency’s action is being
reviewed.
Contrary to that approach, it is when agency action is being
judicially reviewed that a grant of discretion has its
significance. Of course, this Court can properly employ an
abuse-of-discretion standard to review IRS action only where the
Code has conferred discretion on the IRS. By the same token,
where discretion has in fact been conferred, the only proper
review is for abuse of that discretion.13 The majority pays lip
service to the grant of discretion in section 6015(f) but then
overlooks that discretion with its de novo review.
13
See Estate of Roski v. Commissioner, 128 T.C. 113, 128
(2007) (noting the Commissioner’s concession that “‘a
discretionary act * * * could only be subject to an abuse of
discretion review’”).
- 45 -
II. Abandoning the Abuse-of-Discretion Standard Contradicts
Uniform Precedent.
The majority acknowledges, majority op. p. 7, that “[w]e
have generally reviewed the Commissioner’s denial of relief under
section 6015(f) for abuse of discretion”, majority op. p. 7-8,
and it appropriately cites Butler v. Commissioner, 114 T.C. 276(2000), in which we held that this Court had jurisdiction over
section 6015(f) and that the standard of review in a section
6015(f) case is for abuse of discretion. Butler so held (as the
majority states, majority op. p. 8) “because of the discretionary
language in section 6015(f)” (i.e., “the Secretary may relieve”
(emphasis added)).
The abuse-of-discretion standard for reviewing denial of
relief under section 6015(f) was employed again in Cheshire v.
Commissioner, 115 T.C. 183, 197-198 (2000), affd. 282 F.3d 326(5th Cir. 2002), which the Court of Appeals for the Fifth Circuit
affirmed, stating:
Section 6015(f) confers power upon the Secretary
and his delegate, the Commissioner, to grant equitable
relief where a taxpayer is not entitled to relief under
§ 6015(b) or (c), but “taking into account all the
facts and circumstances, it is inequitable to hold the
individual liable for any unpaid tax or any deficiency
(or any portion of either).” In this case, Appellant
argues that the Commissioner improperly denied her
equitable relief with respect to the retirement
distributions and the interest income. This court
reviews the Commissioner’s decision to deny equitable
relief for abuse of discretion. [282 F.3d at 338;
emphasis added; fn. refs. omitted.]
Similarly, in Mitchell v. Commissioner, T.C. Memo. 2000-332,
affd. 292 F.3d 800 (D.C. Cir. 2002), we held, and the Court of
- 46 -
Appeals for the D.C. Circuit affirmed, that the Commissioner had
not abused discretion in denying section 6015(f) relief. In
affirming the use of the abuse-of-discretion standard, the Court
of Appeals relied on the language of section 6015(f) and stated:
As the decision whether to grant this equitable
relief is committed by its terms to the discretion of
the Secretary, the Tax Court and this Court review such
a decision for abuse of discretion. See Flores v.
United States, 51 Fed. Cl. 49, 51 & n. 1 (2001);
Butler, 114 T.C. at 291-92. We conclude that there was
no such abuse, for the reasons given by the Tax Court
in its decision * * *. [292 F.3d at 807; emphasis
added.]
In Mitchell the Court of Appeals thus cites, inter alia, Flores
v. United States, 51 Fed. Cl. 49, 51 & n.1 (2001), in which the
Court of Federal Claims stated that it “has jurisdiction to
review whether the Commissioner has abused his discretion under
section 6015(f)”. Again, in Neal v. Commissioner, 557 F.3d 1262,
1263 (11th Cir. 2009), affg. T.C. Memo. 2005-201, where “[b]oth
parties agree[d] that the Tax Court appropriately used an abuse
of discretion standard of review”, the Court of Appeals for the
Eleventh Circuit affirmed our holding that section 6015(f) calls
for an abuse-of-discretion standard of review and a de novo scope
of review. In unpublished opinions, the Courts of Appeals for
the Third, Sixth, and Ninth Circuits have also affirmed the Tax
Court’s use of the abuse-of-discretion standard for reviewing
section 6015(f) cases. See Capehart v. Commissioner, 204 Fed.
Appx. 618 (9th Cir. 2006) (citing Mitchell v. Commissioner, 292
F.3d 800 (9th Cir. 2006), affg. T.C. Memo. 2000-332), affg. T.C.
Memo. 2004-268; Doyle v. Commissioner, 94 Fed. Appx. 949 (3d Cir.
- 47 -
2004) (citing Mitchell), affg. T.C. Memo. 2003-96; Alt v.
Commissioner, 101 Fed. Appx. 34 (6th Cir. 2004), affg. 119 T.C.
306 (2002).
This Court’s above-cited opinions in Butler, Cheshire,
Mitchell, and Neal were decided before the 2006 amendments to
which the majority attaches importance and which are discussed
below; but for the current point it is sufficient to observe that
even after that amendment, this Court has consistently used the
abuse of discretion standard.14 See Stolkin v. Commissioner,
T.C. Memo. 2008-211; Alioto v. Commissioner, T.C. Memo. 2008-185;
Nihiser v. Commissioner, T.C. Memo. 2008-135; Dunne v.
Commissioner, T.C. Memo. 2008-63; Gonce v. Commissioner, T.C.
Memo. 2007-328; Dowell v. Commissioner, T.C. Memo. 2007-326;
Golden v. Commissioner, T.C. Memo. 2007-299, affd. 548 F.3d 487(6th Cir. 2008); Billings v. Commissioner, T.C. Memo. 2007-234;
Beatty v. Commissioner, T.C. Memo. 2007-167; Butner v.
Commissioner, T.C. Memo. 2007-136; 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 Arsdalen v.
Commissioner, T.C. Memo. 2007-48.
14
Cf. Wiener v. Commissioner, T.C. Memo. 2008-230 (“Because
we cannot ascertain what analysis was made by the Appeals officer
in reaching his or her determination that petitioner is not
entitled to relief under section 6015(f), we cannot review the
determination for abuse of discretion. Instead, we shall examine
the trial record de novo to decide whether respondent properly
concluded that petitioner is not entitled to relief” (fn. ref.
omitted)).
- 48 -
Thus not only this Court but also the Courts of Appeals and
the Court of Federal Claims have uniformly applied the abuse-of-
discretion standard to review the Commissioner’s exercise of the
discretion granted to him by the terms of section 6015(f), and
until today no court has held otherwise. Indeed, today’s
majority opinion is at odds with this Court’s prior opinion
issued less than a year ago in this very case, Porter v.
Commissioner, 130 T.C. 115, 122-123 (2008) (Porter I), in which
we defended the use of an abuse-of-discretion standard of review
with a de novo record scope of review. The Court did state in a
footnote that “we need not decide any issue relating to the
standard of review”, id. at 122, but the opinion concludes with
these words, id. at 125:
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.
In making its about-face, the majority does not state today that
this Court erred in its original holding in Butler v.
Commissioner, 114 T.C. 276 (2000), but says rather that in Butler
“our adoption of an abuse of discretion standard was
appropriate.” Majority op. p. 9.15 However, the majority has
15
See Porter v. Commissioner, 130 T.C. 115, 143 (2008)
(Goeke, J., concurring) (“it was logical for the Court in Butler
* * * to find that the standard of review was abuse of discretion
(continued...)
- 49 -
undertaken a “reconsideration” that was prompted by the 2006
amendments, to which we now turn.
III. The 2006 Amendment to Section 6015(e) Does Not Implicate the
Abuse-of-Discretion Standard.
A. The Background to the 2006 Amendment
Before 2006, requests for section 6015(f) relief could arise
in the Tax Court in various procedural contexts. Three of
these--i.e.,
[1] as an affirmative defense in deficiency
redetermination cases because of section 6213(a),
[2] as a remedy on review of collection due process
determinations because of section 6330(d)(1)(A), and
[3] as relief in stand-alone petitions when the
Commissioner has asserted a deficiency against a
petitioner[16]
--were not implicated in the jurisdiction controversy that arose
in 2006. However, a fourth procedure is the so-called
“nondeficiency stand-alone petition”. Where a joint tax return
reports a tax liability that the joint taxpayers have not fully
paid, and the IRS has not asserted a deficiency, one of the
spouses might request relief from that joint liability and, if
the relief is denied, might file a petition under section
6015(e)(1). Such nondeficiency stand-alone petitions became a
subject of controversy because of language in the first sentence
(...continued)
because of the discretionary language in section 6015(f)”). As
we argue below, nothing material has changed since Butler was
decided in 2000; and if the abuse-of-discretion standard was
“logical” and “appropriate” then, it remains so today.
16
Billings v. Commissioner, 127 T.C. 7, 18 (2006)
(Billings I).
- 50 -
of section 6015(e)(1): “In the case of an individual against whom
a deficiency has been asserted”. (Emphasis added.) This
emphasized language had been added to section 6015(e)(1) in
December 2000; and for any petitioner seeking section 6015(f)
relief whose jurisdictional basis was section 6015(e), this 2000
amendment raised an obvious question whether the case could
proceed in the absence of a deficiency’s having been asserted.
As is noted above, it was in Butler that we held that we
would use an abuse-of-discretion standard to review the IRS’s
denial of such relief. Butler itself was a deficiency suit
brought pursuant to section 6213(a) by a claimant against whom a
deficiency had been asserted, but its reasoning would apply to
review of section 6015(f) relief however it arose. Butler was
brought and decided before the 2000 amendment that provoked the
particular controversy that produced the 2006 amendment on which
the majority relies. In any event, cases like Butler--a
deficiency suit under section 6213(a) brought by a petitioner who
sought relief under section 6015(f) and against whom a deficiency
had been asserted--were not implicated in this jurisdictional
problem involving section 6015(e)(1).
On the basis of the language added to section 6015(e)(1) in
2000 (“against whom a deficiency has been asserted”), first the
Ninth Circuit, in Commissioner v. Ewing, 439 F.2d 1109 (9th Cir.
2006), revg. 118 T.C. 494 (2002) and vacating 122 T.C. 32 (2004),
and then the Eight Circuit, in Bartman v. Commissioner, 446 F.3d
785 (8th Cir. 2006), revg. in part T.C. Memo. 2004-93, held that
- 51 -
we lacked jurisdiction under section 6015(e)(1) where no
deficiency had been asserted against the taxpayer. The Tax Court
accepted this analysis in Billings v. Commissioner, 127 T.C. 7(2006) (Billings I),17 and implied that Congress should
“identif[y] this as a problem and fix[] it legislatively”.
B. The Nature of the 2006 Amendment
Congress did identify and fix the problem. On June 15,
2006, Senators Feinstein and Kyl proposed an amendment that
Senator Feinstein characterized as “only minor legislative
modifications * * * [to] clarif[y] the statute’s original intent”
and to “provide a straightforward and uncontroversial solution to
the unfair treatment of innocent spouses under current law” that
resulted after “[r]ecent decisions of the Eighth and Ninth
Circuit Courts of Appeals” (i.e., Ewing and Bartman). 152 Cong.
Rec. S5962-5963 (daily ed. June 15, 2006). Senator Kyl similarly
explained that he sought “to clarify the jurisdiction of the U.S.
Tax Court in cases involving ‘equitable relief’ for innocent
spouse claims.” Id. at S5963. Congress adopted their proposal
17
The Tax Court observed in Billings I, 127 T.C. at 17, that
this analysis did not deprive the Tax Court of jurisdiction over
all section 6015(f) cases, but only over those raised in so-
called “nondeficiency stand-alone petitions”. . It observed that
“innocent spouse relief under all subsections of 6015” (i.e.,
including section 6015(f) relief) remained available in
deficiency cases under section 6213(a) and in collection due
process cases under section 6330(d)(1)(A), as well as in “stand-
alone petitions when the Commissioner has asserted a deficiency
against a petitioner.” Id. at 18.
- 52 -
and amended section 6015(e)(1) to read as follows, by adding the
language that is emphasized here:18
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 available to the individual under this
section * * *.
(It should be noted that, apart from the language emphasized, all
the language quoted above was in the statute before 2006. In
particular, the pre-2006 statute gave the Tax Court jurisdiction
“to determine the appropriate relief” (emphasis added), and the
2006 amendments made no change to that terminology.)
C. The Inapplicability of the 2006 Amendment to This Case
The gist of the 2006 amendment was to add subsection (f)
relief to the provision in section 6015(e) giving jurisdiction to
the Tax Court. The amendment responded to court opinions holding
that the Tax Court lacked jurisdiction over one category of
section 6015(f) cases (nondeficiency stand-alone petitions). The
express purpose of the 2006 amendment was to clarify Congress’s
18
The Tax Relief and Health Care Act of 2006, Pub. L. 109-
432, div. C, sec. 408(a), 120 Stat. 3061. As is discussed supra
p. 4 & note 9, these 2006 amendments also added, to the existing
references in section 6015(e)(1)(A)(i)(II) and (B)(i) to a
taxpayer’s “elect[ing]” relief under subsections (b) and (c), new
references to a taxpayer “request[ing]” subsection (f) relief.
Id. sec. 408(b), 120 Stat. 3062.
- 53 -
intent that the Tax Court should have jurisdiction to review all
types of section 6015(f) cases. To do this, the 2006 amendment
simply added a phrase to the existing provision of section
6015(e). It had no effect on the other types of section 6015(f)
cases. It made no change to the discretionary language in
section 6015(f).
The language and history of the 2006 amendment show that the
amendment had nothing to do with the abuse-of-discretion
standard. There is no hint in the legislative history that
Congress intended to modify the long line of cases that had
previously applied the abuse-of-discretion standard. Thus, after
the amendment, we explained its purpose and effect in Billings v.
Commissioner, T.C. Memo. 2007-234 (Billings II), and stated: “We
are mindful that our review of that decision [to deny
section 6015(f) relief] is for abuse of discretion. See Butler
v. Commissioner, 114 T.C. 276, 287-92 (2000).” The 2006
amendment was simply a straightforward clarification of our
jurisdiction.
In fact, the majority does not actually argue that the
2006 amendment made any change that drives their conclusion.
Rather, the majority simply states that a “reconsideration” of
our standard of review is “warranted” because of “Congress’s
confirmation of our jurisdiction” in the 2006 amendments.
Majority op. p. 8. The 2006 amendments thus appear to be not a
justification but an occasion for the majority’s decision, and
the specific arguments in support of that decision do not
- 54 -
actually turn on any statutory language that was changed in 2006.
We now turn to those specific arguments.
IV. Abandonment of the Abuse-of-Discretion Standard of Review
for Section 6015(f) Cases Is Not Warranted by Any Feature of
the Statute.
A. The Word “Determine” in Section 6015(e)
The majority opinion places great importance on the fact
that amended section 6015(e) provides the Tax Court with
jurisdiction “to determine the appropriate relief available to
the individual under this section” (emphasis added)--language
that existed before the 2006 amendment and that had been
considered in Butler and all the cases after it that applied the
abuse-of-discretion standard. The majority now asserts:
The use of the word “determine” suggests that Congress
intended us to use a de novo standard of review as well
as scope of review. In other instances where the word
“determine” or “redetermine” is used, as in sections
6213 and 6512(b), we apply a de novo scope of review
and standard of review. See Porter v. Commissioner,
130 T.C. at 118-119. [Majority op. p. 10.]
The cited passage in Porter I does discuss the significance of
the word “determine”--albeit for its implications on the scope of
review. However, when Porter I came to address the standard of
review, it correctly argued at some length, see 130 T.C. at 122-
123, for the compatibility of a de novo trial and a review for
abuse of discretion. And it could hardly have done otherwise.
Anyone who would argue that an abuse-of-discretion standard of
review cannot be employed after a de novo trial will promptly
confront the Supreme Court’s contrary holding in Thor Power Tool
Co. v. Commissioner, 439 U.S. 522, 533 (1979) (cited, of course,
- 55 -
in Porter I), which approved precisely that regime. See also
Ewing v. Commissioner, 122 T.C. at 40-41.
In fact, the word “determine” cannot have the significance
that the majority infers for the issue of standard of review.
The preeminent appearance of a form of the term “determine” is in
our principal jurisdictional statute, which authorizes us to give
a “redetermination of the deficiency.” Sec. 6213(a). In a
deficiency suit, however, the standard of review may vary. See
Rule 142. It may be that in most deficiency cases we do both
conduct the trial de novo and decide the case “de novo”, imposing
on the taxpayer only a normal burden of proof by the
preponderance of the evidence and entertaining only a normal
presumption that the Commissioner’s determination was correct.
However, in some deficiency cases, we do review the
Commissioner’s determination for an abuse of discretion. See,
e.g., Thor Power Tool Co. v. Commissioner, supra. On the other
hand, in some deficiency cases, the burden of proof is on the
Commissioner, who must, for example, prove fraud by “clear and
convincing evidence.” Rule 142(b). In our “redetermination” of
a deficiency, we apply the burden of proof and the standard of
review called for by the law applicable to the given case.
That the word “determine” does not at all preclude abuse-of-
discretion review is made explicit in a statute on which, for a
different point, the majority opinion expressly relies:
Section 6404(h) explicitly provides, “The Tax Court shall have
jurisdiction * * * to determine whether the Secretary’s failure
- 56 -
to abate interest under this section was an abuse of discretion”.
(Emphasis added.) As it is used in the Internal Revenue Code,
the word “determine” does not imply that an abuse-of-discretion
standard of review should be abandoned in favor of “de novo”
review.
B. The Comparison to Section 6404
The point that the majority derives from section 6404(h) is
that, when Congress wants to impose an abuse-of-discretion
standard, it knows how to do so. The majority observes, majority
op. pp. 10-11, that when Congress granted jurisdiction for review
of the IRS’s denial of interest abatement (suggested by the
majority as analogous to Congress’s confirming jurisdiction in
section 6015(e)(1)),19 it made explicit that we are to determine
whether there “was an abuse of discretion”. Sec. 6404(h)(1).
Clearly, section 6404(h)(1) is the high-water mark of
congressional clarity on this issue of standard of review.
However, there is a substantial body of case law calling for
abuse-of-discretion review in instances where the statute does
19
In this regard, section 6404 is not, in fact, a
particularly close analogue to section 6015(e) but is different
in two significant respects: First, the 1996 amendment of
section 6404 gave the Tax Court jurisdiction where before it had
none; but the 2006 amendment of section 6015(e) clarified the Tax
Court’s jurisdiction as to only one form of section 6015(f)
relief, leaving unaffected the Court’s preexisting jurisdiction
as to other forms. Second, the 1996 amendment of section 6404
created a new review regime; but the 2006 amendment of
section 6015(e) presupposed the existence of a body of case law
that had consistently recognized an abuse-of-discretion standard
of review.
- 57 -
not include the phrase “abuse of discretion”.20 Manifestly, when
Congress wants to impose an abuse-of-discretion standard, it has
more than one way to do so. One way it may do so is to refer (as
in section 6404(h)(1)) to “abuse of discretion”; but another is
to provide (as in section 6015(f)) that “the Secretary may
relieve such individual of such liability.” (Emphasis added.)
C. The Absence of the Possibility of Remand
The majority states that “[a]n abuse of discretion standard
of review is also at odds with our decision to decline to remand
section 6015(f) cases for reconsideration. Friday v.
Commissioner, 124 T.C. 220, 222 (2005).” Majority op. p. 12.
Tax jurisprudence would be simpler, and preferable to some, if
each tax case called for either abuse-of-discretion review of an
agency-level record with a possibility of remand to the agency,
or else de novo decision based on a new trial record with no
option of agency remand. This neat paradigm is compromised when
our system calls for a decision to be based on an agency record
but for the court to review the matter de novo,21 or when our
system calls for a decision to be based on a trial de novo but
20
See supra notes 3-6.
21
“[T]he standard * * * of review to be employed by the
District Court [under section 7428] in examining the
determination of the Secretary [as to initial qualification for
tax-exempt status] * * * is to be de novo. * * * Normally, the
Court’s decision will be based on the facts as represented in the
administrative record.” Inc. Trustees of the Gospel Worker Soc.
v. United States, 510 F. Supp. 374, 377 n.6 (D.D.C. 1981), affd.
without published opinion 672 F.2d 894 (D.C. Cir. 1981).
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for the court to review for an abuse of discretion22--but that is
what our system sometimes calls for. If the system would be
improved by allowing the Tax Court to remand section 6015(f)
cases to the IRS, then Congress will have to enact a “statutory
provision[] reserv[ing] jurisdiction to the Commissioner”.
Friday v. Commissioner, 124 T.C. 220, 221 (2005) (denying remand
of section 6015 cases).
D. The Comparison to Section 6015(b) and (c)
The majority opines that, since our jurisdiction to decide
section 6015(f) cases has now been settled by the 2006
amendments, “there is no longer any reason to apply a different
standard of review under subsection (f) than under subsections
(b) and (c)”. Majority op. p. 13. In fact, as we have already
shown, the relief provided in subsection (f) is materially
different from the relief provided in subsections (b) and (c)--
both in the language of those subsections (see supra note 8) and
in the characterization of those forms of relief in
section 6015(e) and its amendments made in 2006 (see supra
note 9). The Court currently recognizes in Lantz v.
Commissioner, 132 T.C. ___, ___ (2009) (slip op. at 23), that
Congress “intended that taxpayers have two kinds of remedies”--
22
See Porter I, 130 T.C. at 122-123 (“Review for abuse of
discretion does not * * * preclude us from conducting a de novo
trial. Ewing v. Commissioner, 122 T.C. [32] at 40 [(2004)]”
(citing, e.g., cases under secs. 446, 482, and 6404). Remand is
not possible in a refund case, see D’Avanzo v. United States,
54 Fed. Cl. 183, 187 (2002), or in a deficiency case; and when
these abuse-of-discretion issues arise (as they do) in refund and
deficiency cases, remand is not an option.
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“traditional” and “equitable”. If indeed Congress intended
subsection (f) to provide a distinct regime, with an equitable
remedy to be “requested” rather than “elected”, it is perfectly
consistent with that intention that it also intended us to review
agency action for an abuse of discretion.
Under section 6015(f), “the Secretary may relieve” from
joint liability; but when the Secretary denies such relief, and
we review that decision under section 6015(e)(1)(A), we should
review for an abuse of discretion. I would so hold.
COHEN, WELLS, FOLEY, THORNTON, and MORRISON, JJ., agree with
this dissenting opinion.