Cathy Marie Lantz v. Commissioner

132 T.C. No. 8UNITED STATES TAX COURT
CATHY MARIE LANTZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25078-06. Filed April 7, 2009.
P sought relief under sec. 6015(f), I.R.C., from
joint income tax liability for 1999. R denied relief
on the basis that P did not request relief within 2
years of R’s first collection action. Consequently, R
did not reach the substantive issues of the claim.
Both parties argue the validity of sec. 1.6015-5(b)(1),
Income Tax Regs., which applies the 2-year limitations
period to sec. 6015(f), I.R.C.
Held: Sec. 1.6015-5(b)(1), Income Tax Regs., is
an invalid interpretation of sec. 6015(f), I.R.C., and
further proceedings are required to determine the
validity of P’s claim for relief.
Paul M. Kohlhoff and Robert B. Nadler, for petitioner.
Timothy S. Sinnott, for respondent.
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OPINION
GOEKE, Judge: Petitioner brought this case under section
60151 seeking review of respondent’s denial of relief from joint
income tax liability for 1999. Respondent denied relief solely
because petitioner did not request relief from joint tax
liability within 2 years of the time respondent took a collection
action against petitioner for the joint tax liability. Both
parties have argued the validity of section 1.6015-5(b)(1),
Income Tax Regs., which provides a 2-year limitations period
after a collection action for request for relief under section
6015(f). For the reasons explained herein, we find the
regulation to be inconsistent with and to be an impermissible
interpretation of the statute.
Background
At the time the petition was filed, petitioner resided in
Indiana.
During 1999 petitioner was married to Dr. Richard M.
Chentnik, a dentist. Petitioner did not work outside the home in
1999.
Petitioner and Dr. Chentnik timely filed a joint Form 1040,
U.S. Individual Income Tax Return, for the tax year 1999. The
return reflected tax of $112,291.11 and an estimated tax penalty
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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of $2,070.60. Included with the return was a payment of
$115,550, resulting in a credit of $1,188.29, which was
transferred to a Form 941, Employer’s Quarterly Federal Tax
Return, of Dr. Chentnik for 1985.
Dr. Chentnik was arrested on June 8, 2000, and subsequently
convicted of Medicare fraud. As a result of the conviction he
was sentenced to Federal prison and incarcerated in Terre Haute,
Indiana. He was incarcerated throughout 2003 and was released
from prison to a halfway house in August 2004.
In the summer of 2002 petitioner moved to Logansport,
Indiana, where she resided throughout 2003.
As a result of the Medicare fraud, respondent determined
that the joint income tax liability for 1999 was understated.
When no petition was filed after the issuance of a notice of
deficiency, respondent assessed the following amounts against
petitioner and Dr. Chentnik on August 12, 2002:
Item Amount
Income tax $656,111
Sec. 6662 penalty 131,222
Interest 140,778
Another result of Dr. Chentnik’s Medicare fraud was the seizure
of his assets in April 2000 by U.S. Marshals. As a result of the
seizure, the U.S. Marshals Service transmitted a check in the
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amount of $2,592,022.68 to the center for Medicare and Medicaid
services in November 2003.
On May 11, 2003, respondent issued separate letters to
petitioner and Dr. Chentnik at the Logansport address, advising
them that respondent was proposing a levy action to collect their
joint income tax liability for 1999. Respondent considers the
letter to petitioner to be a collection action, and we agree.
These letters conformed with the notice requirements of section
6330. Although Dr. Chentnik was in prison, he advised petitioner
that he would communicate with respondent regarding these
notices, which he did. As a result of Dr. Chentnik’s
communications with respondent’s Appeals Office, on February 9,
2004, two notices of determination were issued solely to Dr.
Chentnik. In these notices of determination the Appeals Office
determined that the joint account of petitioner and Dr. Chentnik
should be moved into currently noncollectible status because “the
taxpayer’s financial condition reflects that the account is
noncollectible at this time. Therefore, serving a levy would
cause undue hardship for the taxpayer at this time.”
In his correspondence with the Appeals Office, Dr. Chentnik
advised that the Appeals officer should communicate with him
directly, and he requested a form to seek relief for petitioner.
He characterized petitioner as “the innocent spouse” in his
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correspondence with respondent. Dr. Chentnik died in a halfway
house in October 2004.
Petitioner relied upon Dr. Chentnik to resolve the 1999
income tax issue and took no independent action regarding the
collection letters from respondent until her income tax
overpayment for 2005 was applied against the 1999 tax liability.
After communicating with representatives from the Internal
Revenue Service (IRS), petitioner filed Form 8857, Request for
Innocent Spouse Relief, on June 23, 2006. Petitioner dated the
Form 8857 June 9, 2006. In July 2006 respondent notified
petitioner that relief for the year 2005 was not needed because
she did not file a joint return for that year. On July 6, 2006,
respondent issued a preliminary determination denying petitioner
relief for 1999 because her claim was filed more than 2 years
after the first collection action taken against her. Petitioner
protested this determination, and her claim was assigned to an
Appeals officer. The Appeals officer determined that petitioner
is not entitled to relief under section 6015 because she did not
file a claim within 2 years of the first collection activity.
Because respondent denied petitioner’s claim as untimely, the
substantive merits of her claim were never addressed. Respondent
issued a notice of determination denying petitioner’s claim for
relief on September 7, 2006. Petitioner then timely filed a
petition in this Court.
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Discussion
1. Joint Liability
In general, taxpayers filing joint Federal income tax
returns are each responsible for the accuracy of their return and
are jointly and severally liable for the entire tax liability due
for the year of the return. Sec. 6013(d)(3). In certain
circumstances, however, a spouse may obtain relief from joint and
several liability by satisfying the requirements of section 6015.
Section 6015(a)(1) provides that a spouse who made a joint
return may elect to seek relief from joint and several liability
under section 6015(b) (dealing with relief from liability for an
understatement of tax with respect to a joint return). Section
6015(a)(2) provides that a spouse who is eligible to do so may
elect to limit that spouse’s liability for any deficiency with
respect to a joint return under section 6015(c). Relief from
joint and several liability under section 6015(b) and/or (c) is
available only with respect to a deficiency for the year for
which relief is sought. Sec. 6015(b)(1)(D) and (c)(1). Also, to
qualify for relief under section 6015(b) or (c), the requesting
spouse must make an election not later than 2 years after the
Commissioner has begun a collection action. Sec. 6015(b)(1)(E)
and (c)(3)(B). If relief is not available under either section
6015(b) or (c), an individual may seek equitable relief under
section 6015(f), which we find is the basis of petitioner’s
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claim. Petitioner’s request for relief was submitted to
respondent over 2 years after the May 11, 2003, collection
action, and section 6015(b) and (c) is unavailable to her.
Section 6015(f) does not impose the 2-year limitations
period. However, a 2-year limitations period for requesting
relief under section 6015(f) was included in Notice 98-61, sec.
3.01(3), 1998-2 C.B. 756, 757, and subsequently in Rev. Proc.
2000-15, 2000-1 C.B. 447; Rev. Proc. 2003-61, 2003-2 C.B. 296;
and section 1.6015-5, Income Tax Regs.
2. Rulemaking Under Section 6015
Rev. Proc. 2000-15, supra, was published on January 31,
2000, to provide guidance for taxpayers seeking relief from
Federal tax liability under section 6015(f). Rev. Proc. 2000-15,
sec. 4.01, 2000-1 C.B. at 448, sets forth seven general
requirements that must be satisfied for any request for equitable
relief under section 6015(f) to be considered by the
Commissioner: (1) The requesting spouse filed a joint return for
the year for which relief is sought; (2) relief is not available
to the requesting spouse under section 6015(b) or (c); (3) the
application for relief is no later than 2 years after the date of
the Commissioner’s first collection activity after July 22, 1998;
(4) except where an exception applies, the liability remains
unpaid; (5) no assets were transferred between spouses as part of
a fraudulent scheme; (6) no disqualified assets were transferred
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to the requesting spouse by the nonrequesting spouse; and (7) the
requesting spouse did not file the return with fraudulent intent.
Rev. Proc. 2003-61, supra, published on August 11, 2003,
adds the threshold requirement that absent enumerated exceptions,
the liability from which relief is sought must be attributable to
an item of the nonrequesting spouse. Rev. Proc. 2003-61, supra,
omits requirement No. 4 of Rev. Proc. 2000-15, supra, from its
list of threshold requirements, revises the “knowledge or reason
to know” factor for determining whether to grant equitable
relief, and broadens the availability of refunds if equitable
relief is granted under section 6015(f).
Sections 1.6015-0 through 1.6015-9, Income Tax Regs., were
published on July 17, 2002 (effective July 18, 2002), pursuant to
a mandate from Congress to promulgate regulations pertaining to
section 6015 in general under section 6015(h) and procedures
concerning requests for equitable relief under section 6015(f) in
particular. Section 1.6015-4(a), Income Tax Regs., states that
the IRS has discretion to grant equitable relief from joint and
several liability when, considering all of the facts and
circumstances, it would be inequitable to hold the requesting
spouse jointly and severally liable. Section 1.6015-4(c), Income
Tax Regs., refers taxpayers to Rev. Proc. 2000-15, supra,2 for
2
Rev. Proc. 2000-15, 2000-1 C.B. 447, was superseded by Rev.
Proc. 2003-61, 2003-2 C.B. 296.
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guidance concerning the criteria to be used in determining
whether it is inequitable to hold the requesting spouse jointly
and severally liable under section 6015(f). Section 1.6015-5,
Income Tax Regs., sets forth the time and manner for requesting
relief and limits the time for requesting relief under section
6015(f) to 2 years from the first collection activity against the
requesting spouse after July 22, 1998, in the same manner as the
statutory restrictions on section 6015(b) and (c). In connection
with the promulgation of the regulation, a Notice of Proposed
Rulemaking and Public Hearing was issued on January 17, 2001, 66
Fed. Reg. 3888, and a public hearing was held on May 30, 2001.
Subsequently, a Treasury Decision was issued promulgating the
final regulation--T.D. 9003, 2002-2 C.B. 294.
3. Prior Tax Court Cases
Respondent asserts that this Court has previously accepted
the 2-year period imposed on requests for relief under section
6015(f), citing Campbell v. Commissioner, 121 T.C. 290 (2003),
and McGee v. Commissioner, 123 T.C. 314 (2004). In Campbell, we
determined that an offset of a subsequent year overpayment to the
joint liability in question was a collection activity initiating
the 2-year period set forth in Rev. Proc. 2000-15, sec. 5, 2000-1
C.B. at 449. The taxpayer did not raise the permissibility of
imposing a limitations period for requests for relief under
section 6015(f). The sole issue before the Court was whether the
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application of the overpayment constituted a collection action.
Campbell v. Commissioner, supra at 291.
In McGee v. Commissioner, supra, we held that the
Commissioner’s failure to include an explanation of the
taxpayer’s rights under section 6015 in the notice of the
application of a subsequent year overpayment to the joint
liability in question was a violation of the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3501(b), 112 Stat. 770, and accordingly, it was
inequitable and an abuse of discretion for the Commissioner to
apply the 2-year limitations period of Rev. Proc. 2000-15, supra.
We specifically stated in McGee v. Commissioner, supra at 320
n.4, that we did not reach the question raised by the taxpayer as
to whether it was inappropriate to have a strict limitations
period apply to section 6015(f).
The Court has not yet addressed the issue of whether the
imposition of the 2-year limitations period in section 1.6015-
5(b)(1), Income Tax Regs., is valid. See Campbell v.
Commissioner, supra; McGee v. Commissioner, supra; Nelson v.
Commissioner, T.C. Memo. 2005-9; Durham v. Commissioner, T.C.
Memo. 2004-184; Hall v. Commissioner, T.C. Memo. 2004-170.
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4. Standard of Review
We need not revisit whether the proper standard of review of
the Commissioner’s regulations is the standard of Natl. Muffler
Dealers Association, Inc. v. United States, 440 U.S. 472 (1979),
or the standard set forth in Chevron, U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842-843 (1984), insofar as
there may be a difference between them. See Swallows Holding,
Ltd. v. Commissioner, 515 F.3d 162 (3d Cir. 2008), vacating and
remanding 126 T.C. 96 (2006). Following Golsen v. Commissioner,
54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), we apply
the law of the Court of Appeals to which an appeal in the case
would normally lie. Section 1.6015-5, Income Tax Regs., was
issued under both a general grant of authority under section 7805
and a specific grant of authority under section 6015(h). T.D.
9003, 2002-2 C.B. 294. The U.S. Court of Appeals for the Seventh
Circuit has held that regulations issued under general or
specific authority of the IRS to promulgate necessary rules are
entitled to Chevron deference. Bankers Life & Cas. Co. v. United
States, 142 F.3d 973, 979, 982-983 (7th Cir. 1998); see also Khan
v. United States, 548 F.3d 549 (7th Cir. 2008) (reviewing a
general authority tax regulation under Chevron); Square D Co. &
Subs. v. Commissioner, 438 F.3d 739, 745 (7th Cir. 2006)
(reviewing a regulation issued pursuant to an express delegation
of authority under Chevron), affg. 118 T.C. 299 (2002).
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Accordingly, we will follow the Chevron standard in this
analysis.3
In Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
supra at 842-843, the Supreme Court created a two-prong test:
(1) If Congress has directly spoken to the precise question at
issue, we give effect to the unambiguously expressed intent of
Congress. If the statute is ambiguous, then we continue to the
second prong: (2) If the statute is ambiguous with respect to
the specific issue, we determine whether the regulation is a
permissible construction of the statute.4 See also Bankers Life &
Cas. Co. v. United States, supra at 983.
5. Whether Congress Has Spoken on the Issue
Respondent argues that section 1.6015-5(b)(1), Income Tax
Regs., passes the first prong of Chevron because section 6015(f)
is silent with respect to the period of limitations for seeking
3
Respondent argues in the alternative that Rev. Proc. 2003-
61, supra, is entitled to Skidmore deference, because Congress
specifically directed the Secretary to prescribe procedures
pertaining to requests for equitable relief under sec. 6015(f).
See Skidmore v. Swift & Co., 323 U.S. 134 (1944). We find the
appropriate test to be that of Chevron, not Skidmore. See
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837, 842-843 (1984). Therefore, our prior discussion is
dispositive.
4
The Court of Appeals for the Seventh Circuit has
interpreted the second prong of the Chevron test as a question of
“the reasonableness of the regulation”. Bankers Life & Cas. Co.
v. United States, 142 F.3d 973, 983 (7th Cir. 1998). However, we
find that sec. 1.6015-5(b)(1), Income Tax Regs., is neither a
permissible construction of the statute nor a reasonable
regulation, and our analysis is the same under either standard.
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relief. Consequently, respondent maintains that promulgating a
regulation that prescribes a period of limitations is a
permissible exercise of the authority delegated to the Secretary.
Section 6015(f) provides:
SEC. 6015(f). Equitable Relief.--Under procedures
prescribed by the Secretary, if--
(1) 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); and
(2) relief is not available to such
individual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.
While it is clear that section 6015(f) does not set forth a
period of limitations, we disagree that the statute is silent as
to whether a period of limitations applies to subsection (f).
The first prong of Chevron requires the Court to employ the
traditional tools of statutory construction to try to determine
the intent of Congress. NLRB v. United Food & Commercial Workers
Union, Local 23, 484 U.S. 112, 123 (1987); INS v. Cardoza-
Fonseca, 480 U.S. 421, 447-448 (1987). “It is a central tenet of
statutory construction that, when interpreting any one provision
of a statute, the entire statute must be considered.” Fla.
Country Clubs, Inc. v. Commissioner, 122 T.C. 73, 79 (2004),
affd. 404 F.3d 1291 (11th Cir. 2005); see also Lexecon Inc. v.
Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 36 (1998).
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Accordingly, we must consider the significance of the omission of
a deadline for requesting relief in section 6015(f) in the light
of section 6015 as a whole.
To be eligible for relief under section 6015(b) or (c), the
statute explicitly provides that the requesting spouse must elect
relief not later than the date that is 2 years after the date the
Secretary has begun collection activities with respect to the
individual making the election. Sec. 6015(b)(1)(E) and
(c)(3)(B). However, there is no such limitation in section
6015(f). “‘It is generally presumed that Congress acts
intentionally and purposely’ when it ‘includes particular
language in one section of a statute but omits it in another’”.
City of Chicago v. Envtl. Def. Fund, 511 U.S. 328, 338 (1994)
(quoting Keene Corp. v. United States, 508 U.S. 200, 208 (1993)).
We find that by explicitly creating a 2-year limitation in
subsections (b) and (c) but not subsection (f), Congress has
“spoken” by its audible silence. Because the regulation imposes
a limitation that Congress explicitly incorporated into
subsections (b) and (c) but omitted from subsection (f), it fails
the first prong of Chevron.
Furthermore, under section 6015(f)(2), the equitable remedy
is available only “if * * * relief is not available to such
individual under subsection (b) or (c)”. That is, by its very
nature the equitable relief under subsection (f) is to be broader
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than relief under subsection (b) or (c). In order for subsection
(f) relief to be more broadly available than under the 2-year
filing rule of subsections (b)(1)(E) and (c)(3)(B), a deadline
under subsection (f) would need to be longer than 2 years.
Clearly, the timing of the request for relief is not the only
possible element by which subsection (f) relief would be broader
than that of subsection (b) or (c). For example, the individual
might have signed the return knowing of the understatement (and
thus falling afoul of subsection (b)(1)(C)) but might have been a
victim of spousal abuse so that it could be inequitable to hold
that individual liable. An equitable remedy that had a 2-year
bar but allowed relief to the abused spouse would be more liberal
than subsection (b), despite the time limit. Accordingly, a
Congress intending broader relief under subsection (f) might be
nonetheless content with the same timing rule as for subsections
(b) and (c). However, the Congress that enacted section 6015
made it clear on the face of the statute that one difference
between subsection (f) and subsections (b) and (c) was the time
for requesting relief, because it established a 2-year deadline
in subsections (b) and (c) and imposed no deadline in subsection
(f). In fact, the timing distinction is one of the only three
differences between subsections (b) and (f) that are explicit in
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the statute.5 Had Congress intended a 2-year period of
limitations for equitable relief, then of course it could have
easily included in subsection (f) what it included in subsections
(b) and (c). However, Congress imposed no deadline, yet the
Secretary prescribed a period of limitations identical to the
limitations Congress imposed under section 6015(b) and (c).
While subsection (f) demonstrates a clear congressional
attempt to address inequitable situations not addressed by
subsections (b) and (c), apart from the absence of a time limit
the statute does not define those situations. Rather, Congress
provides that the Secretary consider all the facts and
circumstances and determine whether equitable relief is
appropriate. Congress also provided jurisdiction to this Court
to determine whether the taxpayer is entitled to relief under
section 6015(f). Tax Relief and Health Care Act of 2006 (TRHCA),
Pub. L. 109-432, div. C, sec. 408, 120 Stat. 3061. Under section
1.6015-5(b)(1), Income Tax Regs., the Secretary must deny section
5
The three conditions that are present in sec. 6015(b) but
are absent from sec. 6015(f) are: (1) The requirement in sec.
6015(b)(1)(B) that there be an understatement of tax; (2) the
requirement in sec. 6015(b)(1)(C) that the individual did not
know of the understatement; and (3) the requirement of sec.
6015(b)(1)(E) that the election be filed within 2 years of
collection activity. Sec. 1.6015-5, Income Tax Regs., treats
only the third of these requirements (the 2-year limitation) as a
condition that should also be imposed on sec. 6015(f). While
Rev. Proc. 2003-61, supra, treats the second condition (the
individual’s lack of knowledge) as a factor to be considered when
determining whether relief should be granted under sec. 6015(f),
it is not a threshold or determinative factor.
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6015(f) relief where the individual seeking relief failed to meet
a 2-year time limit, without considering circumstances such as
abuse, intimidation, or misrepresentation, which might have
contributed to or caused the request for relief to be delayed.
We do not believe that Congress intended the circumvention
of the analysis required by section 6015(f) that results from the
restrictions of section 1.6015-5(b)(1), Income Tax Regs. In
subsection (f), Congress designed a general remedy to meet
inequitable situations not specifically addressed in subsections
(b) and (c). The general nature of the remedy in subsection (f)
implies an intent to address difficult marital circumstances too
subject to variation for more specificity. The Secretary’s
adoption of the very timing rule that Congress had imposed on
subsections (b) and (c) but had specifically omitted from
subsection (f) runs directly contrary to the nature of the relief
provided by Congress.6
However, for the sake of argument, we consider whether
section 1.6015-5(b)(1), Income Tax Regs., is a permissible
construction of the statute in the event that the absence of a 2-
6
The legislative history mirrored the statute:
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, at 254 (1998), 1998-3 C.B. 747, 1008.
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year limitations period in section 6015(f) is construed as an
ambiguity.
6. Whether the 2-Year Limitations Period Is Permissible
a. Congress’s Intent in Omitting a Limitations Period
For the same reasons we believe section 1.6015-5(b)(1),
Income Tax Regs., fails the first step of the Chevron test, we
find that the regulation is impermissible because it is contrary
to the intent of Congress. Section 6015(f) is a recognition that
the circumstances of joint tax liability can be complex and
difficult. Such circumstances can lead to unfair results under
section 6013(d)(3) that may not be remedied under section 6015(b)
or (c). Therefore, Congress provided section 6015(f) as a last
resort to avoid potential harsh circumstances imposed upon one
spouse in a joint return situation, and Congress specifically
omitted a temporal limitation on a request for equitable relief.
Because the failure to comply with a 2-year limitations period
does not necessarily indicate that a taxpayer should not be
eligible for equitable relief, to deny a taxpayer relief under
section 6015(f) for failure to comply with a limitation rule that
would also prevent the taxpayer from obtaining relief under
section 6015(b) or (c) is impermissible.7
7
Petitioner relied upon her spouse to address their joint
tax problems. This reliance initially appeared to result in a
successful resolution, and she took no further action after his
death.
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b. Contrasting Timing Rules Under Section 66(c)
Section 1.6015-5(b)(1), Income Tax Regs., reflects a one-
size-fits-all approach for both traditional and equitable relief
that the Secretary did not employ when promulgating regulations
under a companion statute--section 66(c). The different approach
used in the regulations under section 66(c) underscores the
unreasonableness of the rule under consideration here.
Section 66 provides for the treatment of “community income”
in community property States when the spouses do not file
jointly. This section, amended in 1984 by the Deficit Reduction
Act of 1984, Pub. L. 98-369, sec. 424(b), 98 Stat. 801, allocates
the income between the spouses, and its subsection (c), embodying
relief referred to as “traditional relief”, creates exceptions
where “taking into account all facts and circumstances, it is
inequitable” to follow the general rule--the same language that
appears in section 6015(b)(1)(D). At the time, Congress noted in
legislative history that the availability of such relief might
take into account “whether the defense was promptly raised”.8
An “equitable relief” provision was added to section 66(c)
by RRA 1998 sec. 3201(b), 112 Stat. 739, in the same section of
8
H. Rept. 98-432 (Part 2), at 1503 (1984). As is noted
below, the congressional reference to acting “promptly”
influenced Treasury’s later drafting of the regulations.
However, no regulations were promulgated under sec. 66 until
after the statute was amended in 1998.
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RRA 1998 that enacted section 6015(f). To the very end of
section 66(c), RRA 1998 added this sentence:
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.
[Emphasis added.]
The language emphasized above, enacted in RRA 1998 sec. 3201(b),
is identical to language added by RRA 1998 sec. 3201(a), 112
Stat. 734, to the statute relevant here--section 6015(f).
In 2002 the Secretary proposed regulations under
section 66(c) that included section 1.66-4(g)(2), Proposed Income
Tax Regs, 67 Fed. Reg. 2845 (Jan. 22, 2002), entitled “Time
period for filing a request for relief”. This proposed
regulation had two relevant subdivisions: The first was
“(i) Specific relief”, and it included a 6-month cutoff
provision; and the second was “(ii) Equitable relief”, and it
included no cutoff.9
9
In the announcement of the proposed regulations under
sec. 66(c), 67 Fed. Reg. 2841 (Jan. 22, 2002), the Secretary
observed that the relief provided in sec. 66(c) “is analogous to
the relief provision in section 6015(b) * * * [and] section
6015(f)”. It explained that “a requesting spouse seeking
[traditional] relief from the operation of community property law
under sec. 66(c) must request such relief no later than 6 months
before the statute of limitations on assessment of section 6501
expires with regard to the nonrequesting spouse”, id. at 2842,
but that a “spouse seeking equitable relief * * * may seek relief
on or after the date the return for such year is filed”, id. at
(continued...)
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In 2003 the Secretary announced the promulgation of the
final regulations, T.D. 9074, 2003-2 C.B. 601, 603, and explained
this timing difference by reference to the legislative history:
One commentator suggested that the time
limitations set forth in § 1.66-4 for requesting relief
under section 66(c) are not supported by the language
of section 66(c). Although the statute itself does not
set forth time limitations on the filing of a request
for relief, the time limitations in the proposed
regulations are supported by the [1984] legislative
history of the traditional relief provision of section
66(c). Specifically, the House Report explaining
traditional relief under section 66(c) states that, in
making the determination as to relief, the IRS should
consider (among other things) “whether the defense was
promptly raised so as to prevent the period of
limitations from running on the other spouse.” H.R.
Rep. 98-432, pt. 2, at 1501 (1984). Thus, the final
regulations retain the time limitations set forth in
the proposed regulations. In contrast, § 1.66-
4(j)(2)(ii) sets forth timing requirements for
requesting equitable relief that are broader than the
requirements applicable to traditional relief because
the legislative history of the equitable relief
provision does not contain similar timing requirements.
Therefore, a requesting spouse who does not meet the
time limitations to request traditional relief may be
eligible to request equitable relief. [Emphasis added.]
The Secretary was thus alert to an arguably subtle distinction
not even reflected in the language of section 66(c), but only in
its legislative history. Thus informed by the legislative
history, the Secretary established, by regulation, a cutoff for
requesting “traditional relief” under section 66(c) (because the
legislative history suggested a need for making such requests
9
(...continued)
2843.
- 22 -
“promptly * * * so as to prevent the period of limitations from
running on the other spouse”), but it made a distinction and
declined to establish a deadline for requesting equitable relief
(because the legislative history on the equitable relief
provision in section 66(c) was silent as to any timing issue).
While the Secretary imposed a 2-year deadline on requesting
equitable relief under section 66(c) in Rev. Proc. 2000-15, secs.
4.01(3) and 5, 2000-1 C.B. at 448, 449, and Rev. Proc. 2003-61,
secs. 4.01(3) and 5, 2003-2 C.B. at 297, 299, this deadline is
four times as long as the 6-month deadline available for
traditional relief under section 66(c).
For section 6015, on the other hand, one need not be so
alert to note the distinction: it appears not merely in
legislative history but in the words of the statute itself; and
the distinction is reflected not merely in one subtle adverb
(“promptly”) but in explicit deadlines in section 6015(b) and
(c), and no deadline in section 6015(f). However, despite this
patent distinction between the traditional and equitable relief
provisions under section 6015, the same department that had
sensibly promulgated different regimes for traditional and
equitable relief under section 66(c) established, without
explanation, one timing rule for all relief under section 6015,
whether traditional or equitable.
- 23 -
The Secretary should have been no less alert to the timing
distinctions explicit in section 6015 than he was to the timing
distinctions implicated by the word “promptly” in the legislative
history to section 66(c). In implementing section 6015 the
Secretary should have understood (as he understood when
section 66(c) was under consideration) that the statutory silence
about deadlines in section 6015(f) was meaningful, and he should
have inferred that the procedures to be prescribed under
section 6015(f) should not contain the same deadline that
Congress imposed in subsections (b) and (c) but declined to
impose in subsection (f).
In 1998 Congress evidently intended that taxpayers have two
kinds of remedies--traditional remedies (sections 66(c)(4) and
6015(b) and (c)) with stricter deadlines, and equitable remedies
(sections 66(c) (flush language) and 6015(f)) with looser
procedures to be set up by the Secretary (as he did in the case
of section 1.66-4(j)(2)(ii), Income Tax Regs.). But given the
explicit congressional purpose, it was not reasonable for the
Secretary to adopt for the equitable remedy of section 6015(f) a
deadline that was identical to, and no looser than, the 2-year
deadline Congress had enacted for the traditional remedy in
section 6015(b).10
10
The parties both assert that a taxpayer seeking sec.
6015(f) relief more than 2 years after the initial collection
(continued...)
- 24 -
c. Swallows Holding Ltd. Distinguished
Respondent argues that this case is analogous to Swallows
Holding, Ltd. v. Commissioner, 515 F.3d 162 (3d Cir. 2008), where
the court found that the Secretary was justified in promulgating
a regulation that prescribed a filing deadline where the statute
was ambiguous. However, because of the equitable test in section
6015(f) and the statutory contrast between section 6015(b) and
(c) and section 6015(f), this case is distinguishable from
Swallows Holding, Ltd. Although both cases involved the
imposition by regulation of a temporal limitation on filing, the
10
(...continued)
action cannot obtain an extension of time under sec. 301.9100-3,
Proced & Admin. Regs. We accept their mutual position in this
case because in the light of respondent’s position any effort by
petitioner to apply for relief under sec. 301.9100-3, Proced. &
Admin. Regs., would be fruitless. An agency’s interpretation of
its own regulation is entitled to “controlling weight unless it
is plainly erroneous or inconsistent with the regulation.”
Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945);
Philips Petroleum Co. v. Commissioner, 101 T.C. 78, 97 (1993),
affd. without published opinion 70 F.3d 1282 (10th Cir. 1995).
In addition, the complex procedures required for requesting
an extension under sec. 301.9100-3(e), Proced. & Admin. Regs.,
would, for many or most claimants under sec. 6015(f), be daunting
to the point of impracticability. To request an extension, a
taxpayer would have to file affidavits and information as
required by sec. 301.9100-3(e)(2) through (4), Proced. & Admin.
Regs., and, pursuant to sec. 301.9100-3(e)(5), Proced. & Admin.
Regs., would have to meet the requirements of Rev. Proc. 2007-1,
2007-1 C.B. 1, for ruling requests. Those requirements include
making the payment of a $625 “user fee” and providing the
information requested in the 18 items of information requested in
Rev. Proc. 2007-1, sec. 7.01. We agree that an extension under
section 301.9100-3, Proced. & Admin. Regs., is not available--
either legally or practically--to a sec. 6015(f) claimant.
- 25 -
similarity ends there; and the statutory framework is completely
different regarding the nature of the relief afforded.
Swallows Holdings, Ltd. addressed section 1.882-4(a)(3)(i),
Income Tax Regs., which was promulgated pursuant to section
882(c)(2) and prescribes the manner in which a return should be
filed. That regulation sets forth an 18-month filing deadline
for foreign businesses claiming deductions against income from
business activities conducted in the United States. The Court of
Appeals for the Third Circuit held that prescribing a filing
deadline was appropriate. Respondent argues that the instant
case is analogous to that situation. However, section 882(c)
sets forth a rule regarding the allowance of deductions and
credits, not a test for inequity from which a 2-year limit was
specifically omitted in contrast to the related preceding
subsections of the statute.
d. A Better Analogy: The Bureau of Prisons Regulatory
Cases
We find the present regulatory controversy to be analogous
to those in several appellate cases involving the conflict
between the Bureau of Prisons (BOP) regulations codified at 28
C.F.R. sections 570.20 and 570.21 and the congressional intent
articulation in 18 U.S.C. section 3621(b). See Wedelstedt v.
Wiley, 477 F.3d 1160 (10th Cir. 2007); Levine v. Apker, 455 F.3d
71 (2d Cir. 2006); Fults v. Sanders, 442 F.3d 1088 (8th Cir.
2006); Woodall v. Fed. Bureau of Prisons, 432 F.3d 235 (3d Cir.
- 26 -
2005). The controversy in those cases involved the eligibility
of prisoners for Community Correctional Center (CCC) placement.
Title 28 C.F.R. section 570.21(a) (2008) provides that the BOP
“will designate inmates to community confinement only * * *
during the last ten percent of the prison sentence being served,
not to exceed six months.” The BOP identified 18 U.S.C. section
3621(b) as authorizing this categorical exercise of discretion
and viewed the promulgation of a categorical rule as permissible
under Lopez v. Davis, 531 U.S. 230 (2001). The Courts of Appeals
in the cases cited above found the BOP regulations invalid under
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837 (1984). The Court of Appeals for the Third Circuit
explained in Woodall v. Fed. Bureau of Prisons, supra at 249:
we are faced with a statute providing that the BOP must
consider several factors in CCC placement, and a
regulation providing that the agency may not consider
those factors in full. The conflict between the
regulations and the statute seems unavoidable.
While 18 U.S.C. section 3621(b), like section 6015(f), uses
the discretionary term “may” with respect to the BOP’s authority
to select the place of imprisonment,11 the courts cited above
11
18 U.S.C. sec. 3621(b) (2006) provides:
(b) Place of Imprisonment.–-The Bureau of Prisons
shall designate the place of the prisoner’s
imprisonment. The Bureau may designate any available
penal or correctional facility that meets minimum
standards of health and habitability established by the
Bureau, whether maintained by the Federal Government or
(continued...)
- 27 -
found that this does not give the BOP discretion to decline to
consider certain factors before making that decision. As the
Court of Appeals in Woodall v. Fed. Bureau of Prisons, supra at
245, explains:
The government argues that the use of the word
“may” at the beginning of § 3621(b), rather than
“shall,” is determinative in proving that consideration
of the factors is essentially optional. We believe
that this narrow reading ignores the context of the
statute. See Deal v. United States, 508 U.S. 129, 132,
113 S.Ct. 1993, 124 L.Ed.2d 44 (1993) (noting the
“fundamental principle of statutory construction ...
that the meaning of a word cannot be determined in
isolation, but must be drawn from the context in which
it is used”). A commonsense reading of the text--
especially when combined with the legislative history--
makes clear that the BOP is required to consider each
factor. “May” refers to the ability of the BOP to make
ultimate placement designations, not to the § 3621
factors. The word “may” is a full fifty words away
from the considerations, and its effect is separated
from the factors with a comma. [Emphasis added.]
We find section 1.6015-5(b), Income Tax Regs., to be a
similar attempt to limit factors for consideration in making the
mandated determination under section 6015(f) in a way that is
contrary to the intent of Congress. The regulation would enable
the Secretary to avoid consideration of “all the facts and
circumstances” in section 6015(f) cases by imposing a 2-year
period of limitations, the same period of limitations that
11
(...continued)
otherwise and whether within or without the judicial
district in which the person was convicted, that the
Bureau determines to be appropriate and suitable,
considering–-[five specific factors.] [Emphasis added.]
- 28 -
Congress specifically applied to section 6015(b) and (c) but
omitted from subsection (f).12 However, a commonsense reading of
section 6015 is that the Secretary has discretion to grant relief
under section 6015(f) but may not shirk his duty to consider the
facts and circumstances of a taxpayer’s case by imposing a rule
that Congress intended to apply only to subsections (b) and (c).
See also Estate of Roski v. Commissioner, 128 T.C. 113, 128-129
(2007) (finding that where the Commissioner is required to
exercise discretion, the Commissioner may not avoid this
responsibility by imposing a universal rule that is contrary to
the intent of Congress).
Congress’s intent that the Secretary not have unfettered
discretion in applying section 6015(f) is evidenced by its
reinstatement of the Court’s jurisdiction to review the
Secretary’s determinations in nondeficiency cases under section
6015(f). In 2006 the Court of Appeals for the Ninth Circuit
overturned a decision of this Court and held that the Tax Court
does not have jurisdiction to review the Secretary’s denial of
relief under section 6015(f) in a case where no deficiency has
been asserted. Commissioner v. Ewing, 439 F.3d 1009 (9th Cir.
2006), revg. 118 T.C. 494 (2002) and vacating 122 T.C. 32 (2004).
12
Sec. 6015(f) requires the Secretary to take into account
“all the facts and circumstances” in deciding whether to grant
equitable relief. However, we do not decide at this time whether
a period of limitations that was longer than 2 years would run
afoul of this requirement.
- 29 -
Soon after, the Court of Appeals for the Eighth Circuit took the
same position. Bartman v. Commissioner, 446 F.3d 785 (8th Cir.
2006), affg. in part and vacating T.C. Memo. 2004-93.
Accordingly, the Court reversed its prior position and issued
Billings v. Commissioner, 127 T.C. 7 (2006), construing section
6015(e) as not giving the Court jurisdiction over nondeficiency
petitions filed under section 6015(f).
In response, in the TRHCA div. C, sec. 408, Congress
reinstated our jurisdiction to review the Commissioner’s
determinations under section 6015(f) where no deficiency has been
asserted.
While a taxpayer’s delay in applying for relief under
section 6015(f) is a factor to be considered in applying the “all
the facts and circumstances” test of section 6015(f), the
Secretary must be reasonable when creating restrictions that
categorically exclude taxpayers from relief. For example, in
Rev. Proc. 2003-61, supra, the Secretary imposes a requirement
that the requesting spouse must not have transferred property to
the nonrequesting spouse as part of fraudulent scheme by the
spouses in order to be eligible for relief under section 6015(f).
However, unlike restrictions that exclude taxpayers who request
relief after engaging in fraudulent activities, whether a
taxpayer requests relief within 2 years of the IRS’ first
collection activity does not necessarily indicate whether it
- 30 -
would be equitable to grant the taxpayer relief. While we need
not decide today whether any temporal limitation would be
appropriate, it is clear from the omission of a 2-year
limitations period in section 6015(f) that such a 2-year
limitations period is impermissible.
e. No Tacit Congressional Approval
Finally, respondent argues that under Hanover Ins. Co. v.
Commissioner, 65 T.C. 715, 719-720 (1976), regulations and
interpretations by the Secretary that have continued without
substantial change, applying to unamended or substantially
reenacted statutes, are deemed to have received congressional
approval and have the effect of law. Respondent argues that the
fact that Congress has amended section 6015(f) twice since the
Secretary first imposed the 2-year limitations period shows that
Congress has tacitly approved of the limitation. See
Consolidated Appropriations Act, 2001, Pub. L. 106-554, app. G,
sec. 313, 114 Stat. 2763A-640 (2000); TRHCA div. C, sec. 408.
While we agree with this general rule, we do not believe it
applies here. First, the regulations in Hanover and the cases
cited therein had been in place for at least 20 years, sometimes
as long as 39 years. Hanover Ins. Co. v. Commissioner, supra at
716; see also United States v. Correll, 389 U.S. 299, 302 n.10
(1967); Fribourg Navigation Co. v. Commissioner, 383 U.S. 272,
279-280 nn.4&5 (1966); Helvering v. Winmill, 305 U.S. 79, 82
- 31 -
(1938). Furthermore, regarding the regulations or
interpretations at issue in Hanover and Correll, there was
evidence that Congress had considered and rejected arguments
against them. See United States v. Correll, supra at 305 n.20
(Congress heard pleas for a change in the disputed rule but did
not make the requested change); H. Conf. Rept. 99-841 (Vol. II),
at II-357 (1986), 1986-3 C.B. (Vol. 4) 1, 357 (explicitly citing
the regulation disputed in Hanover).
While 10 years may be long enough to treat Congress’
inaction as tacit approval in some cases, such as where Congress
is clearly aware of the disputed regulation and amends a portion
of the related statute without superseding the regulation, the
Commissioner has provided the Court with no indication that the
application of the 2-year limitations period has been brought to
Congress’ attention or that Congress has considered whether the
limitations period is valid.
It was not until 2003 that the Court first upheld the
Commissioner’s disallowance of relief under section 6015(f)
because of the 2-year limitations period, Campbell v.
Commissioner, 121 T.C. 290 (2003), and the Court has done so on
only two other occasions, Durham v. Commissioner, T.C. Memo.
2004-184; Hall v. Commissioner, T.C. Memo. 2004-170. In each
case the requesting spouse appeared pro se, failed to challenge
the validity of the regulation (or may not have been aware that
- 32 -
it existed), and did not appeal the Court’s decision. In Durham
we noted that the Court was not expressing an opinion on the
validity of the rule, and the taxpayer would not have been
entitled to relief even if she had satisfied the 2-year
limitations period. In Hall we did not discuss the validity of
the 2-year limitations period.
This situation is far different from the situation that
prompted Congress to amend section 6015(f) in 2006. As discussed
above, before Congress amended section 6015(e) to give the Court
jurisdiction to review denial of relief under section 6015(f),
the Court of Appeals for the Ninth Circuit overturned a decision
of this Court on the issue, and this Court subsequently reversed
its prior position. Commissioner v. Ewing, supra; Billings v.
Commissioner, supra. The TRHCA was enacted less than a year
after the Court of Appeals held that the Court did not have
jurisdiction in such cases, and there is no evidence that the 2-
year limitations period in section 1.6015-5(b)(1), Income Tax
Regs., had been brought to Congress’ attention. It seems that
before petitioner raised the issue in this case, this rule was
given very little attention in any forum. Accordingly, we do not
believe that Congress’ failure to overturn section 1.6015-
5(b)(1), Income Tax Regs., amounts to a tacit approval of the 2-
year limitations period.
- 33 -
7. Conclusion
Accordingly, we hold that section 1.6015-5(b)(1), Income Tax
Regs., is an invalid interpretation of section 6015, and
respondent abused his discretion by failing to consider all facts
and circumstances in petitioner’s case. Further proceedings will
be needed to fully determine petitioner’s 1999 tax liability.
On the basis of the foregoing,
An appropriate order will
be issued.
Reviewed by the Court.
COLVIN, COHEN, WELLS, FOLEY, VASQUEZ, MARVEL, HAINES,
WHERRY, KROUPA, GUSTAFSON, and PARIS, JJ., agree with this
majority opinion.
GALE, J., dissents.
- 34 -
HALPERN, J., dissenting: Although I join the dissenting
opinion of Judges Thornton and Holmes, I write separately to
furnish what I believe to be another significant reason for
rejecting the majority’s conclusion that section 1.6015-5(b)(1),
Income Tax Regs., is an impermissible interpretation of section
6015(f) and, therefore, invalid.
The 2-year period of limitations on requests for equitable
relief under section 6015(f) promulgated in section 1.6015-
5(b)(1), Income Tax Regs., is not the absolute temporal bar to
relief that the majority assumes it to be. Section 301.9100-
1(c), Proced. & Admin. Regs., gives the Commissioner discretion
to “grant a reasonable extension of time under the rules set
forth in § * * * 301.9100-3 to make a regulatory election” (9100
relief). Pursuant to section 301.9100-3(a), Proced. & Admin.
Regs., requests for 9100 relief “will be granted” provided the
taxpayer is able to establish that he or she “acted reasonably
and in good faith, and the grant of relief will not prejudice the
interests of the Government”, conditions which petitioner,
presumably, is able to satisfy. The term “election” is broadly
defined to include “an application for relief in respect of tax”.
Sec. 301.9100-1(b), Proced. & Admin. Regs.
The majority, in note 10 of its opinion, accepts the “mutual
position” of the parties that 9100 relief is unavailable to
extend the 2-year period of limitations under section 1.6015-
- 35 -
5(b)(1), Income Tax Regs., because, in the light of respondent’s
position to that effect, “any effort by petitioner to apply for
[9100] relief * * * would be fruitless.” In support of that
position, the majority cites Bowles v. Seminole Rock & Sand Co.,
325 U.S. 410, 414 (1945), and Phillips Petroleum Co. v.
Commissioner, 101 T.C. 78, 97 (1993), affd. without published
opinion 70 F.3d 1282 (10th Cir. 1995), for the proposition that
an agency’s interpretation of its own regulation is entitled to
“controlling weight unless it is plainly erroneous or
inconsistent with the regulation.” The majority overlooks the
fact that, in both of those cases, deference was afforded to
agency interpretations issued in the form of published guidance
(in Seminole Rock, a “bulletin” issued contemporaneously with the
regulation and, in Phillips Petroleum, a published IRS Notice).
Here, respondent’s position is no more than a litigating position
that, in my view, is without merit, or, in the language of Bowles
v. Seminole Rock & Sand Co., supra at 414, “plainly erroneous”
and “inconsistent with the regulation”, which would cause its
rejection in any event.
Nor do I agree with the majority’s conclusion (also in note
10) that the procedures for requesting 9100 relief are so
burdensome as to make that relief “practically” unavailable to
putative innocent spouses. Section 301.9100-3(e)(2), Proced. &
Admin. Regs., imposes a not unreasonable requirement that the
individual seeking relief under section 6015(f) submit a
- 36 -
statement, albeit in affidavit form and under penalties of
perjury, demonstrating that he or she acted reasonably and in
good faith in failing to meet the regulatory deadline; and many,
if not most, of the requirements for third-party affidavits and
additional information set forth in section 301.9100-3(e)(3) and
(4), Proced. & Admin. Regs., are of doubtful application to
putative innocent spouses. And although it is true that (1) a
request for 9100 relief is treated as a request for a letter
ruling, see sec. 301.9100-3(e)(5), Proced. & Admin. Regs., and
(2) a request for a letter ruling generally must be accompanied
by a great deal of information and documentary support, see Rev.
Proc. 2009-1, sec. 7, 2009-1 I.R.B. 1, 16, much of the required
information and documentation is not germane to requests for
innocent spouse relief under section 6015(f), and substantial
compliance with the need to furnish the balance of the required
information and documentation will probably suffice. See
Militello v. Cent. States, Se. & Sw. Areas Pension Fund, 360 F.3d
681, 688-689 (7th Cir. 2004).
- 37 -
THORNTON and HOLMES, JJ., dissenting: We agree with our
colleagues that Chevron is the test we have to apply but
respectfully disagree with their conclusion that the 2-year
limitations period in section 1.6015-5(b)(1), Income Tax Regs.,
is invalid under either Chevron step 1 or step 2.
I. Chevron: Step 1
Chevron’s step 1 asks “whether Congress has directly spoken
to the precise question at issue.” Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). The
majority hears “audible silence” in the absence from section
6015(f) of the expressly stated 2-year deadlines of subsections
(b) and (c). Majority op. p. 14. From this it concludes that
Congress has foreclosed a 2-year, and possibly any, deadline for
subsection (f) relief.
The majority likewise hears a whisper from the provision of
section 6015(f)(2) that the Secretary may grant equitable relief
to a spouse under subsection (f) only “ `if * * * relief is not
available to such individual under subsection (b) or (c)’”. See
majority op. p. 14. From this it similarly reasons that
subsection (f) relief must be broader than relief under
subsection (b) or (c); and since subsection (b) and (c) relief
requires meeting a 2-year deadline, making subsection (f) relief
broader requires that requests for subsection (f) relief not be
subject to the same deadline. Majority op. pp. 14-15. (The
majority does later admit, though, that “the timing of the
- 38 -
request for relief is not the only possible element by which
subsection (f) relief would be broader than that of subsection
(b) or (c).” Majority op. p. 15.)
We agree with the majority that the precise question in this
case is whether the Secretary can impose a 2-year limit on
requests for relief under section 6015(f). And we agree that the
answer to this question depends on a close reading of the Code.
But we disagree that the express time limits of subsections (b)
and (c) denote or even imply that there can be no time limits in
subsection (f), for congressional silence may simply be
ambiguous. See Crosby v. Natl. Foreign Trade Council, 530 U.S.
363, 388 (2000) (“The State’s inference of congressional intent
is unwarranted here, therefore, simply because the silence of
Congress is ambiguous.”); Burns v. United States, 501 U.S. 129,
136 (1991) (“An inference drawn from congressional silence
certainly cannot be credited when it is contrary to all other
textual and contextual evidence of congressional intent.”).
Subsection (f) differs markedly from subsections (b) and (c)
in giving the Secretary discretion to grant relief where there is
an underpayment of tax; i.e., where the joint return shows tax
due that is not paid with the return. When added to the Code in
1998, section 6015(f) was new and important and affected a lot of
cases, since innocent spouse relief before section 6015(f) was
limited to understatements; i.e., where the joint return shows
less tax due than is owed. See Butler v. Commissioner, 114 T.C.
- 39 -
276, 283 (2000).1 We think this suggests that it is the
Secretary’s discretion, and not the dilatory applicant’s ability
to request relief, that subsection (f) makes broad.
Consistent with this view, subsections (b) and (c) are
mandatory subsections–if a taxpayer meets their requirements, the
Secretary has to grant relief. Section 6015(f), in contrast, is
a permissive section--if a taxpayer follows the prescribed
procedures, the Secretary “may relieve such individual of such
liability.”
This distinction is important in understanding the
majority’s discussion, majority op. pp. 25-27, of the Bureau of
Prisons cases. It relies on the Second, Third, Eighth, and Tenth
Circuits’ invalidation of 28 C.F.R. secs. 570.20 and 570.21--
regulations that categorically denied some prisoners the chance
to serve their entire sentences in halfway houses.2 The problem
these cases identified was 18 U.S.C. sec. 3621(b), which gave the
BOP discretion over where to house inmates but required the
agency to consider at least five listed factors. All these
Circuit Courts concluded that the BOP regulations categorically
removed the agency’s ability to consider these five listed
1
We discuss Congress’s intent in adding sec. 6015(f) in
greater detail in our analysis of Chevron step 2, infra p. 45.
2
See Wedelstedt v. Wiley, 477 F.3d 1160 (10th Cir. 2007);
Levine v. Apker, 455 F.3d 71 (2d Cir. 2006); Fults v. Sanders,
442 F.3d 1088 (8th Cir. 2006); Woodall v. Fed. Bureau of Prisons,
432 F.3d 235 (3d Cir. 2005).
- 40 -
factors for at least some individual prisoners. That meant the
challenged regulations stumbled on Chevron step 1.
But where is the similar mandatory consideration of any
factor in the section of the Code we are looking at? Section
6015(f) does not provide that “if, taking into account all the
facts and circumstances, * * * the Secretary shall relieve such
individual of such liability;” it provides that “if * * * taking
into account all the facts and circumstances, * * * the Secretary
may relieve such individual of such liability.” (Emphasis
added.) The distinction is an important one. And it is the
distinction at the heart of the Supreme Court’s decision in Lopez
v. Davis, 531 U.S. 230 (2001)-- the decision that, though
mentioned briefly in the opinion, majority op. p 26--is much more
similar to our case than the halfway-house cases on which the
majority relies.
Lopez involved a different statute, 18 U.S.C. sec.
3621(e)(2)(B), providing that the prison time for an inmate
convicted of a nonviolent crime “may be reduced by the Bureau of
Prisons”. The BOP issued a regulation that categorically
excluded prisoners who had possessed a firearm in connection with
their crime; and an affected prisoner sued to invalidate the
regulation, arguing that the statutory definition of a class of
eligible inmates necessarily invalidated additional exclusions by
regulation--he wanted case-by-case consideration. Lopez v.
Davis, supra at 239. The Court rejected his argument. In the
- 41 -
absence of express statutory language “the agency may exclude
inmates either categorically or on a case-by-case basis, subject
of course to its obligation to interpret the statute reasonably.”
Id. at 240. The Court held that
“Even if a statutory scheme requires individualized
determinations,” which this scheme does not, “the
decisionmaker has the authority to rely on rulemaking
to resolve certain issues of general applicability
unless Congress clearly expresses an intent to withhold
that authority.” * * *
Id. at 243-244 (quoting Am. Hosp. Association v. NLRB, 499 U.S.
606, 612 (1991)).3
There is no withholding of such authority here--in contrast
to the specific factors Congress told the Secretary to consider
in deciding applications for relief under section 6015(b) and
(c), it left relief under section 6015(f) to his discretion. It
chose to use “may” in section 6015(f) to grant wider discretion
to the Secretary than it did in choosing “shall” in section
6015(b) and (c). Read sensibly, section 6015(f) gives the
3
Am. Hosp. Association v. NLRB, 499 U.S. 606, 612 (1991),
decided whether the NLRB’s obligation to decide the appropriate
size of the collective bargaining unit “in each case”, 29 U.S.C.
sec. 159(b), meant that it had to exercise “standardless
discretion in each case.” The answer was “no”, because
“[T]he principal instruments for regularizing the
system of deciding ‘in each case’ are classifications,
rules, principles, and precedents. Sensible men could
not refuse to use such instruments and a sensible
Congress would not expect them to.” * * *
Id. (quoting Davis, Administrative Law Text, sec. 6.04, at 145
(3d ed. 1972)).
- 42 -
Secretary the authority, but not the duty, to grant relief
unavailable under section 6015(b) and (c). And read in the
context of delegations of authority to administrative agencies
more generally, the statute gives the Secretary authority to
issue rules and procedures instead of making case-by-case
decisions as to the timeliness of requests for relief.
The majority also reads the statutory command to consider
“all the facts and circumstances” (emphasis added) as forcing us
to toss out the 2-year time limit, because such a strict deadline
makes the time that it takes a spouse to request relief into a
single, decisive fact or circumstance. Yet section 6015(f), in a
passage quoted but unconstrued by the majority, creates
discretionary authority to provide equitable relief “Under
procedures prescribed by the Secretary”.
The question that the majority should have asked is whether
setting a deadline is a “procedure”--if it is, then we have no
business holding that the Secretary could not set one. The first
clue that the 2-year limit is a procedural requirement, and not
just another one of the facts to be weighed in each case, is
section 6015(b)(1)(D). In that section, the Secretary is also
told to take “into account all the facts and circumstances” in
deciding whether it is “inequitable” to hold the requesting
spouse jointly liable for a particular tax debt. We have already
held that the language of section 6015(f) does not significantly
differ from this parallel language in section 6015(b). Alt v.
- 43 -
Commissioner, 119 T.C. 306, 316 (2002), affd. 101 Fed. Appx. 34(6th Cir. 2004); Becherer v. Commissioner, T.C. Memo. 2004-282;
Doyel v. Commissioner, T.C. Memo 2004-35. And the equitable
factors we consider under section 6015(b) are the same equitable
factors we consider under section 6015(f). Alt v. Commissioner,
supra at 316.
That same section 6015(b) imposes the 2-year deadline for
electing relief. Sec. 6015(b)(1)(E). We think this allowed the
Secretary to infer that deadlines for seeking relief are just
part of the procedural rules a taxpayer seeking relief must
follow. Read in this way, the language in section 6015(b)(1) and
(f) giving the Secretary power to prescribe “procedures” is
identical--except that the Secretary cannot set a deadline of
other than 2 years for section 6015(b) relief. The silence on
deadlines in section 6015(f), seen in this light, is what courts
since Chevron have construed to be an implicit delegation to the
agency involved to fill the gap with its own construction.
Treating deadlines as procedural is the general rule in
nontax administrative cases as well. The Seventh Circuit--the
court to which this case may be appealed--has already held that
rules setting deadlines for seeking discretionary relief from
immigration orders are procedural:
are the time limits valid and, if so, * * * is the rule
procedural and within the Attorney General’s grant of
authority?
- 44 -
We conclude that it is. Section 1003.44(h) [the
regulation setting the deadline] is similar to time
limits imposed in the Federal Rules of Civil Procedure,
Appellate Procedure, and even Criminal Procedure. And,
in general, the formulation of procedures is left to
the discretion of the agencies with responsibility for
substantive judgments. Vermont Yankee Nuclear Power
Corp. v. NRDC, 435 U.S. 519 * * * (1978). We grant
deference to agency interpretations of the law it
administers. Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837* * * (1984). * * *
[Johnson v. Gonzales, 478 F.3d 795, 799 (7th Cir.
2007).]
See also, e.g., Foroglou v. Reno, 241 F.3d 111, 113 (1st Cir.
2001).
We finally note that the majority seems not to notice that
the revenue procedure that currently guides the Secretary in the
exercise of his discretion has seven threshold conditions--only
one of which is the 2-year time limit--and a taxpayer who fails
to meet any of them does not currently qualify for equitable
relief. If we peek into the future to see where the majority’s
reasoning might take us, we can’t help but conclude that at least
some of these other threshold conditions4 will have to be
invalidated as well. Rev. Proc. 2003-61, sec. 4.01(4), 2003-2
C.B. 296, 297, for example, denies equitable relief to any spouse
who transferred assets as “part of a fraudulent scheme”. This
language matches section 6015(c)(3)(A)(ii)--and the majority’s
4
We say “some” because the list, Rev. Proc. 2003-61, sec.
4.01, 2003-2 C.B. 296, 297, includes some conditions that the
Code itself requires, e.g., that the requesting spouse have filed
a joint return and not be eligible for relief under sec. 6015(b)
or (c).
- 45 -
reasoning would seem to bar the Secretary from stopping
fraudsters at the threshold just as much as it would bar him from
stopping the dilatory.
For all these reasons, we would hold that Congress has not
directly spoken to the precise question of whether the Secretary
may impose a deadline for requesting equitable relief. This
leaves a gap, and we would therefore climb up to the second step
of Chevron: is the 2-year limit “based on a permissible
construction of the statute”? Chevron U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. at 843.
II. Chevron: Step 2
Step 2 of Chevron--whether the contested regulation is a
permissible construction of the statute--rests fundamentally on
the reasonableness of the choice made by the agency that issued
the regulation. See, e.g., Bankers Life & Cas. Co. v. United
States, 142 F.3d 973, 983 (7th Cir. 1998). In the Seventh
Circuit, this step is also where a court will look to a
provision’s legislative history. See id. (we “lean toward
reserving consideration of legislative history and other
appropriate factors until the second Chevron step * * *. In the
second step, the court determines whether the regulation
harmonizes with the language, origins, and purpose of the
- 46 -
statute”); see also Square D Co. & Subs. v. Commissioner, 438
F.3d 739, 745 (7th Cir. 2006), affg. 118 T.C. 299 (2002).5
The legislative history is quite plain on this point,
suggesting that what Congress wanted was primarily to extend
relief to spouses with underpayments. The original House-passed
version of the expanded relief provisions now found in section
6015(b) included no relief for underpayments. See H. Conf. Rept.
105-599, at 249-250 (1998), 1998-3 C.B. 747, 1003-1004. A Senate
amendment would have provided limited relief in underpayment
situations by making the separate liability election (now in
section 6015(c)) applicable to underpayments. Id. at 250, 1998-3
C.B. at 1004. The conference committee omitted this aspect of
the Senate amendment and instead gave the Secretary broad
authority in subsection (f) to address such situations. The
conference report explained:
The conference agreement does not include the
portion of the Senate amendment that could provide
relief in situations where tax was shown on a joint
return, but not paid with the return. The conferees
intend that the Secretary will consider using the grant
of authority to provide equitable relief in appropriate
situations to avoid the inequitable treatment of
spouses in such situations. * * * [Id. at 254, 1998-3
C.B. at 1008.]
5
Whether to consider legislative history at step 1 or step 2
is a matter of some controversy. See Coke v. Long Island Care at
Home, Ltd., 376 F.3d 118, 127 n.3 (2d Cir. 2004) (collecting
cases); see also Tax Analysts v. IRS, 350 F.3d 100, 103-104 (D.C.
Cir. 2003); Hosp. Corp. of Am. & Subs. v. Commissioner, 348 F.3d
136, 144 (6th Cir. 2003), affg. 107 T.C. 73 (1996) and 107 T.C.
116 (1996). We put it here because the Seventh Circuit will be
reviewing our decision in this case.
- 47 -
Although the conference report also indicated that this
equitable relief was not to be limited to underpayment
situations, the only other specific example involved a “spouse
that does not know, and had no reason to know, that funds
intended for the payment of tax were instead taken by the other
spouse for such other spouse’s benefit.” Id. We find nothing in
this legislative history suggesting that Congress wanted the
Secretary to use his new discretion under subsection (f) to give
relief to those who missed the statutory deadlines for relief
under subsections (b) and (c).
An ounce of history is worth more than a pound of logic on
this question, especially since the majority opinion does not
even suggest that--quite apart from any legislative history--the
2-year regulatory deadline for requesting relief under subsection
(f) is inherently unreasonable. Indeed, it cites with apparent
approval an identical 2-year regulatory deadline that applies to
comparable requests for equitable relief from joint and several
liability under section 66(c) where a joint return is filed from
a community property State.6 And it seems to just assume
6
The majority seeks to make much of differing deadlines
provided in the sec. 66(c) regulations for so-called traditional
relief, for which the statute has made provision since 1984, and
for “equitable relief”, which Congress authorized in 1998 in the
same legislation containing the sec. 6015 relief provisions.
Seeming to hold out the sec. 66(c) regulations as a model of
sorts, the majority asserts that these regulations provide a
deadline for equitable relief that is “four times as long as the
6-month deadline for traditional relief under section 66(c).”
Majority op. p. 22. The majority falls into error, however, by
(continued...)
- 48 -
that a 2-year regulatory deadline under subsection (f) is
unreasonable if it is the same as the statutory deadlines found in
subsections (b) and (c).
We do not share that assumption. Drawing a negative
inference from subsection (f)’s lack of the 2-year deadlines found
in subsections (b) and (c) falls apart if applied to requests for
relief from underpayments, for which there is no statutory
6
(...continued)
misconstruing what it simplistically mischaracterizes as a “6-
month deadline” for requesting traditional relief under sec.
66(c). The actual deadline for traditional relief under the sec.
66(c) regulations is:
6 months before the expiration of the period of
limitations on assessment, including extensions,
against the nonrequesting spouse for the taxable year
that is the subject of the request for relief, unless
the examination of the requesting spouse’s return
commences during that 6-month period. If the
examination of the requesting spouse’s return commences
during that 6-month period, the latest time for
requesting relief * * * is 30 days after the
commencement of the examination. [Sec. 1.66-
4(j)(2)(i), Income Tax Regs.]
By contrast, the equitable relief deadline under sec. 66(c) is
the same as the equitable relief deadline under sec. 6015(f);
i.e., 2 years after the first collection activity. It is not
accurate to say that the equitable relief deadline is four times
longer than the sec. 66(c) traditional relief deadline or, for
that matter, that they correlate according to any mathematical
ratio. Indeed, the traditional relief deadline would seem no
more likely to fall on a date that is (as the majority suggests)
exactly 18 months before the equitable relief deadline than it
would be to fall on a date that is after the equitable relief
deadline. In any event, we do not understand the majority to
suggest, nor do we understand how it plausibly could be
maintained, that the Secretary’s prescribing a 2-year deadline
for requesting equitable relief under sec. 66(c) made it
unreasonable for the Secretary to prescribe the same 2-year
deadline for comparable requests for equitable relief arising
under sec. 6015(f).
- 49 -
deadline but only a delegation of authority to the Secretary.
Holding that the Secretary cannot exercise his discretion to set a
common deadline isn’t a reasonable inference; it’s the usurpation
of the authority that Congress delegated to the Secretary, not us.
We would hold that the Secretary acted eminently reasonably
in exercising his procedure-making authority by prescribing a
deadline under subsection (f) that is comparable to the statutory
deadlines under subsections (b) and (c) and identical to the
regulatory deadline for equitable relief under section 66(c).
Indeed, considerations of administrability strongly support
consistent deadlines under these various provisions. Spouses
filing requests for relief under either section 6015 or section
66(c) use the same Form 8857, Request for Innocent Spouse Relief.
See Rev. Proc. 2003-61, sec. 5, 2003-2 C.B. at 299. Many if not
most spouses requesting relief may be unsophisticated in the tax
laws and may not fully appreciate which of the various provisions
of section 6015 or section 66(c) might be most likely to benefit
them. We doubt that most applicants seeking relief carefully
parse the different categories for which they might qualify; more
likely, they simply plead for whatever relief might be available.
In recognition of this reality, the Secretary’s Form 8857
elicits information pertinent to all forms of relief under
sections 6015 and 66(c) but does not require the requesting spouse
to specify under which section or subsection relief is sought.
Similarly, the regulations provide that a single claim for relief
- 50 -
will suffice for considering relief under section 6015 (b), (c),
and (f). Sec. 1.6015-1(a)(2), Income Tax Regs. Having comparable
deadlines for the various types of relief facilitates this
sensible administrative practice. The majority would confound
this practice in bizarre ways and place undue pressure upon the
manner in which the request for relief might be drawn up or
characterized.
For instance, the Court is today invalidating the regulatory
deadline for equitable relief under subsection (f) but approving
an identical regulatory deadline for equitable relief under
section 66(c). The Court is also holding that a request for
relief deemed to arise under subsection (b) or (c) remains subject
to their 2-year statutory deadlines but may be considered under
subsection (f) even if it misses those deadlines, with the
untimeliness apparently to be taken into account as part of a
facts-and-circumstances analysis.
By contrast, a request for relief deemed to arise under
subsection (f)--for example, a request involving an underpayment,
which cannot arise under subsection (b) or (c)--apparently would
be subject to no deadline because the majority has invalidated the
regulatory 2-year deadline under subsection (f). Although the
majority states that “the taxpayer’s delay in applying for relief
under section 6015(f) is a factor to be considered in applying
‘all the facts and circumstances’ test of section 6015(f)”, it
declines to answer the obvious followup question of whether “any
- 51 -
temporal limitation would be appropriate”. Majority op. pp. 29-
30. Consequently, in the absence of any “temporal limitation”, it
is not apparent how “delay” in applying for subsection (f) relief
should be identified or measured.
It would have been better to leave the regulation alone
rather than create a tangle that will now take so much time to
unravel.
We respectfully dissent.
HALPERN and MORRISON, JJ., agree with this dissenting
opinion.