Gwendolyn A. Ewing v. Commissioner

122 T.C. No. 2
UNITED STATES TAX COURT
GWENDOLYN A. EWING, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1940-01. Filed January 28, 2004.
After submitting an application to and receiving
an adverse determination from respondent (R),
petitioner (P) petitioned this Court to seek our
determination whether she is entitled to relief from
joint liability under sec. 6015(f), I.R.C.
R contends that: (1) In making our determination,
we may not consider evidence introduced at trial which
was not included in the administrative record; and (2)
whether or not our review is limited to R’s
administrative record, P is not entitled to equitable
relief under sec. 6015(f), I.R.C.
Held: Our determination whether P is entitled to
relief under sec. 6015(f), I.R.C., is made in a trial
de novo; thus, we may consider matter raised at trial
which was not included in the administrative record.
Held, further, P is entitled to equitable relief
under sec. 6015(f), I.R.C.
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Karen L. Hawkins, for petitioner.
Thomas M. Rohall, for respondent.
COLVIN, Judge: Respondent determined that petitioner is not
entitled to relief from joint liability for tax under section
6015(f) for 1995. Petitioner filed a petition under section
6015(e)(1) seeking our determination whether she is entitled to
relief under section 6015(f).
The issues for decision are:1
1. Whether, in determining petitioner’s eligibility for
relief under section 6015(f), we may consider evidence introduced
at trial which was not included in the administrative record. We
hold that we may.
2. Whether petitioner is entitled to relief from joint
liability for tax under section 6015(f). We hold that she is.
Section references are to the Internal Revenue Code in
effect for the applicable years. Rule references are to the Tax
Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
1
We have previously decided that we have jurisdiction in
this case. Ewing v. Commissioner, 118 T.C. 494 (2002).
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A. Petitioner and Petitioner’s Husband
1. Petitioner
Petitioner resided in Martinez, California, when she filed
her petition. She married Richard Wiwi (Mr. Wiwi) on September
9, 1995. At the time of trial, they were still married and
living together.
Petitioner is a licensed clinical laboratory scientist. In
1995, she worked full time for the Blood Bank of Alameda/Contra
Costa Counties as a medical technologist and was eligible for
various employee benefits (not described further in the record).
Later in 1995, the blood bank changed her position to part time.
From 1997 to 1999, petitioner was employed in two temporary
medical technologist positions, and she received no employee
benefits.
2. Petitioner’s Husband
In 1995, Mr. Wiwi was the sole proprietor of a financial
services business. He was licensed to trade securities and sell
insurance. Petitioner knew about his business, but she did not
know how much he earned. He concealed from her the fact that he
had prior financial obligations, including unpaid income tax for
1993 and 1994.
3. Petitioner and Her Husband’s 1995 Tax Return
Taxes in the amount of $10,862 were withheld from
petitioner’s wages in 1995. Mr. Wiwi made no estimated tax
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payments to the United States and was not subject to withholding
in 1995. Petitioner and Mr. Wiwi filed a joint Federal income
tax return for 1995. On that return, they reported Federal
income tax withheld on petitioner’s wages of $10,862 and
additional tax due of $6,220. However, they paid only $1,620
with their return; petitioner paid $1,069, and Mr. Wiwi paid
$551. As a result of withholding and the payment with the
return, petitioner paid an amount equal to the tax on her income,
but Mr. Wiwi paid less than the tax due on his income.
Mr. Wiwi told petitioner (and she reasonably believed) that
he would pay the unpaid 1995 tax as provided in a proposed
installment agreement that he submitted with their 1995 income
tax return. Mr. Wiwi failed to pay the remaining 1995 tax, but
he concealed that fact from petitioner until 1998. Early in
1999, he filed an offer in compromise in which he said he could
not pay the unpaid tax for 1995.
4. Petitioner’s Finances
Petitioner and Mr. Wiwi have always kept their finances
separate. Petitioner paid her own expenses (including Federal
income tax on her income) beginning before they were married and
continuing until the time of trial. Petitioner paid at least
half of their household expenses from the date they were married
until 1997. Mr. Wiwi began having medical problems in 1996. He
lost his license to sell securities in 1997, and his income
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decreased dramatically. Since 1997, petitioner has worked at
several temporary jobs and paid all of her and about 80 percent
of Mr. Wiwi’s expenses. Petitioner’s total monthly household
expenses on behalf of herself and Mr. Wiwi in 1997 and 1998
(including rent, utilities, transportation, food, clothing, and
medical insurance) were about $2,800.
Petitioner had about $5,000 in her savings account in 1996
and $13,500 at the time of trial. She received wages of $65,792
in 1997, $65,338 in 1998, $66,315 in 2000, and $79,000 in 2002.2
Mr. Wiwi’s medical condition worsened, which prevented him
from working in 2000. He had hip replacement surgery in 2000 and
2001.
In 2000, petitioner liquidated an individual retirement
account (IRA) and used the proceeds (about $20,000) as part of a
$33,000 downpayment to buy a $333,000 residence for Mr. Wiwi and
herself. The monthly mortgage payment was about the same as
their previous rent payments. At the time of trial, petitioner
had a section 401(k) retirement account with the American Red
Cross. The record does not indicate the value of that account.
B. Petitioner’s Request for Relief From Joint Tax Liability
On February 2, 1999, petitioner filed Form 8857, Request for
Innocent Spouse Relief (And Separation of Liability and Equitable
Relief), in which she sought relief from joint liability for a
2
The record does not indicate the amount of petitioner’s
income for 1999 and 2001.
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portion of the amount of the unpaid tax liability shown on the
1995 joint return. On June 6, 1999, respondent sent petitioner a
letter which said that respondent had preliminarily determined
that petitioner was not entitled to relief under section 6015(f).
An Appeals officer met with petitioner’s representative for
3 hours on November 18, 1999, and for 2 hours on September 21,
2000. Respondent determined on October 31, 2000, that petitioner
was not entitled to equitable relief under section 6015(f) for
1995. Respondent's only stated reasons were: “You had knowledge
of the liability, and you are still married and living with the
nonrequesting spouse.” Exhibit 10-R, which includes the
materials assembled by the examining agent and the Appeals
officer in response to petitioner’s claim for equitable relief,
is respondent’s administrative file (the administrative file) for
this case. Petitioner timely filed a petition in this Court.
OPINION
A. Whether We Are Limited to Respondent’s Administrative Record
in Making Our Determination
1. Respondent’s Position
Respondent contends that, in making our determination under
section 6015(f), we may not consider evidence introduced at trial
which was not included in the administrative record. More
specifically, respondent contends that, pursuant to the
Administrative Procedure Act (APA), 5 U.S.C. secs. 551-559, 701-
706 (2000), and cases decided thereunder, this Court may consider
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only the administrative record (the record rule) in making our
determination in this case.3 See Camp v. Pitts, 411 U.S. 138,
142 (1973); United States v. Carlo Bianchi & Co., 373 U.S. 709,
715 (1963). We disagree. As discussed next, our holding herein
is based on more than 75 years of well-established interpretative
history and practice before this Court.
3
The Commissioner has recently taken the contrary position
in three U.S. Courts of Appeals cases. Specifically, the
Commissioner contended that the Tax Court did not err in
collection cases arising under sec. 6330 in allowing the
introduction of evidence that was not part of the administrative
record. See the Commissioner’s briefs in Holliday v.
Commissioner, 57 Fed. Appx. 774 (9th Cir. 2003), affg. T.C. Memo.
2002-67; Lindsey v. Commissioner, 56 Fed. Appx. 802 (9th Cir.
2003), affg. T.C. Memo. 2002-87; and Chase v. Commissioner, 55
Fed. Appx. 717 (5th Cir. 2002), affg. T.C. Memo. 2002-93. In the
Commissioner’s brief in Holliday v. Commissioner, supra, the
Commissioner argued that the:
taxpayer labors under the faulty assumption that
judicial review of CDP hearings is governed by the
“record review” requirements of the Administrative
Procedure Act, * * * Although judicial review of the
merits of agency actions pursuant to the APA is
generally limited to the administrative record upon
which the challenged action was based, see, e.g.,
Florida Power & Light Co. v. Lorion, 470 U.S. 729, 743-
44 (1985); Camp v. Pitts, 411 U.S. 138, 142 (1973),
taxpayer’s petition in Tax Court was founded upon
I.R.C. §6330(d)(1), not the judicial review provisions
of the APA. * * * Section 6330 does not impose any
requirement that the Office of Appeals create a record
or that judicial review by the Tax Court be limited to
the facts or documents presented at the CDP hearing.
These three Courts of Appeals opinions are unpublished and
are not binding precedent. In each of those opinions, the Court
of Appeals upheld the Commissioner’s position.
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2. Our Jurisdiction To Determine Whether the Taxpayer
Qualifies for Relief Under Section 6015(f)
Section 6015(f)4 authorizes the Secretary to prescribe
procedures under which, taking into account all the facts and
circumstances, the Secretary may determine that it is
inequitable to hold an individual jointly liable for tax.
Section 6015(e)(1)(A)5 provides our jurisdiction in section 6015
cases. Section 6015(e)(1)(A) provides that a taxpayer against
whom a deficiency has been asserted and who elects to have
4
Sec. 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.
5
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--
(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 if such petition is filed–
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section 6015(b) or (c) apply may petition this Court “to
determine the appropriate relief available to the individual”
under section 6015, including relief under section 6015(f).
Fernandez v. Commissioner, 114 T.C. 324, 330-331 (2000). To
prevail under section 6015(f), petitioner must show that
respondent’s denial of equitable relief from joint liability
under section 6015(f) was an abuse of discretion. Jonson v.
Commissioner, 118 T.C. 106, 125 (2002); Cheshire v. Commissioner,
115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002);
Butler v. Commissioner, 114 T.C. 276, 292 (2000).
3. Determinations and Redeterminations by This Court
Section 6015(e)(1)(A), which authorizes this Court to
determine the appropriate relief available under section 6015,
is similar to our deficiency jurisdiction in section 6213, which
provides that taxpayers who receive a notice of deficiency may
petition this Court for a redetermination of the deficiency.
Sec. 6213(a).
It is well established that the APA does not apply to
deficiency cases in this Court; that is, cases arising under
sections 6213 or 6214 in which we may redetermine the taxpayer’s
tax liability. O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th
Cir. 1959), affg. 28 T.C. 698 (1957); Nappi v. Commissioner, 58
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T.C. 282, 284 (1972).6 In contrast, respondent contends that the
APA applies to our proceedings under section 6015(f). As
discussed next, we find no convincing reason to treat our
determinations under section 6015(f) and section 6213(a)
differently for purposes of applicability of the APA.
We make redeterminations under section 6213(a) de novo.
O’Dwyer v. Commissioner, supra at 580; Greenberg’s Express, Inc.
v. Commissioner, 62 T.C. 324, 327-28 (1974); see Clapp v.
Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989); Raheja v.
Commissioner, 725 F.2d 64, 66 (7th Cir. 1984), affg. T.C. Memo.
1981-690; Jones v. Commissioner, 97 T.C. 7, 18 (1991) (“a trial
before this Court is a proceeding de novo; hence our
determination of a taxpayer’s liability must be based on the
merits of the case and not on any previous record developed at
the administrative level”). Congress has used both “determine”
and “redetermination” in establishing the jurisdiction of the Tax
Court. We see no material difference between the words
6
In O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir.
1959), affg. 28 T.C. 698 (1957), the U.S. Court of Appeals for
the Fourth Circuit held that 5 U.S.C. sec. 554(a)(1) does not
apply to deficiency determinations in this Court because in those
cases we are not reviewing a record of a formal proceeding; i.e.,
there is no hearing transcript, witness testimony, or exhibits
introduced by the parties. To emphasize that the Tax Court is a
trial court, the Court in O’Dwyer pointed out that the Tax Court
is empowered to prescribe rules of practice and procedure, and is
required to apply the rules of evidence applicable to nonjury
trials in the U.S. District Court for the District of Columbia
and to make findings of fact upon such evidence. Secs. 6213,
7453, 7459.
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“determine” in section 6015(e) and “redetermination” in section
6213(a) for purposes of this discussion.
Since 1924, the Tax Court (and the predecessor Board of Tax
Appeals, see Consol. Cos. v. Commissioner, 15 B.T.A. 645, 652
(1929)) has had jurisdiction to “redetermine” deficiencies and
additions to tax, secs. 6213 and 6214(a); and, since 1926, to
determine overpayments, sec. 6512(b). Under section 6213(a) and
its predecessors, we (and earlier, the Board of Tax Appeals) have
“redetermined” deficiencies de novo, not limited to the
Commissioner’s administrative record, for more than 75 years.
We can presume that Congress was aware of this long history
in 1998 when Congress used the word “determine” in section 6015.
If Congress includes language from a prior statute in a new
statute, courts can presume that Congress intended the
longstanding legal interpretation of that language to be applied
to the new statute. Commissioner v. Noel’s Estate, 380 U.S. 678,
680-681 (1965); United States v. 101.80 Acres, 716 F.2d 714, 721
(9th Cir. 1983).
There are other situations in which this Court makes
determinations de novo. For example, section 7436(a) provides
that the Tax Court may “determine” whether the Commissioner’s
determination regarding an individual’s employment status is
correct. Congress intended that we conduct a trial de novo with
respect to our determinations regarding employment status. See
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H. Rept. 105-148, at 639 (1997), 1997-4 C.B. (Vol. 1) 319, 961;
S. Rept. 105-33, at 304 (1997), 1997-4 C.B. (Vol. 2) 1067, 1384;
H. Conf. Rept. 105-220, at 734 (1997), 1997-4 C.B. (Vol. 2) 1457,
2204. As another example, section 6404 authorizes this Court to
“determine” whether the Secretary’s refusal to abate interest was
an abuse of discretion. Our practice has been to make our
determination after providing an opportunity for a trial de novo.
See, e.g., Goettee v. Commissioner, T.C. Memo. 2003-43; Jean v.
Commissioner, T.C. Memo. 2002-256; Jacobs v. Commissioner, T.C.
Memo. 2000-123.
Our long tradition of providing trials de novo in making our
determinations, and Congress’s use of the word “determine” in our
jurisdictional grant in section 6015(e)(1)(A), suggest that
Congress intended that we provide an opportunity for a trial de
novo in making our determinations under section 6015(f).7
7
This Court has jurisdiction to issue declaratory
judgments relating to the status, qualification, valuation, or
classification of certain sec. 501(c)(3) organizations,
retirement plans, gifts, governmental obligations, and
installment payments under sec. 6166. Secs. 7428, 7476, 7477,
7478, 7479. None of those sections authorizes us to make a
determination; instead, those provisions authorize this Court,
after the Commissioner has made a determination, to make a
declaration with respect to the matter.
Our Rules relating to declaratory judgment cases provide for
consideration of evidence not in the administrative record under
various circumstances. Our disposition of actions under sec.
7476 for declaratory judgment involving the initial qualification
of a retirement plan, and actions under sec. 7428 for the initial
qualification or classification of an exempt organization,
private foundation, or private operating foundation is
(continued...)
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4. Whether Trial De Novo Is Appropriate in Determining
Whether Respondent’s Determination Under Section
6015(f) Was an Abuse of Discretion
Respondent contends that, because a taxpayer is entitled to
relief under section 6015(f) only if we determine that the
Commissioner’s determination was an abuse of discretion, we may
consider only the Commissioner’s administrative record in making
our determination. We disagree. Respondent’s view that we
should not provide a trial de novo if the standard of review is
abuse of discretion is at odds with decades of Tax Court
precedent and practice. The traditional effect of applying an
abuse of discretion standard in this Court is to alter the
standard of review, not to restrict what evidence we consider in
making our determination.
Courts have used various, but similar, phrases to describe
the meaning of an abuse of discretion standard, such as: The
taxpayer bears a heavy burden of proof, the Commissioner’s
7
(...continued)
“ordinarily” based on the administrative record, unless, “with
the permission of the Court, upon good cause shown,” the Court
permits a party to introduce evidence that had not been presented
to the Commissioner. Rule 217(a). Our disposition of a
governmental obligation action under sec. 7478 is “made on the
basis of the administrative record, augmented by additional
evidence to the extent that the Court may direct.” Id. Our
disposition of a declaratory judgment action involving a
revocation, gift valuation, or the eligibility of an estate with
respect to installment payments under sec. 6166 “may be made on
the basis of the administrative record alone only where the
parties agree that such record contains all the relevant facts
and that such facts are not in dispute.” Id.
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position deserves our deference, and we do not interfere unless
the Commissioner’s determination is arbitrary, capricious,
clearly unlawful, or without sound basis in fact or law. See,
e.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533,
550 (1979); Jonson v. Commissioner, 118 T.C. 125; see also
Patton v. Commissioner, 116 T.C. 206, 210 (2001); Buzzetta
Constr. Corp. v. Commissioner, 92 T.C. 641, 648 (1989); Oakton
Distribs., Inc. v. Commissioner, 73 T.C. 182, 188 (1979).
Our longstanding practice has been to hold trials de novo in
many situations where an abuse of discretion standard applies.
In those cases, our practice has not been to limit taxpayers to
evidence contained in the administrative record or arguments made
by the taxpayer at the administrative level. Examples of actions
in which we conduct a trial de novo are whether it was an abuse
of discretion for the Commissioner to (1) determine that a
taxpayer’s method of accounting did not clearly reflect income
under section 446, e.g., Thor Power Tool Co. v. Commissioner,
supra at 533 (Supreme Court used Tax Court findings in making its
determination); Mulholland v. United States, 25 Cl. Ct. 748
(1992);8 (2) reallocate income or deductions under section 482,
8
The U.S. Court of Federal Claims conducts a trial de novo
in tax refund cases in which the Commissioner has exercised
discretion and determined that the taxpayer’s method of
accounting does not clearly reflect income under sec. 446(b).
Mulholland v. United States, 25 Cl. Ct. 748 (1992). In
Mullholland, the Claims Court rejected the Government’s
(continued...)
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e.g., Bausch & Lomb, Inc. v. Commissioner, 933 F.2d 1084, 1088
(2d Cir. 1991) (U.S. Court of Appeals for the Second Circuit
implicitly approved our de novo consideration of section 482
reallocations), affg. 92 T.C. 525 (1989); (3) fail to waive
penalties and additions to tax, e.g., Krause v. Commissioner, 99
T.C. 132, 179 (1992) (based in part on the Commissioner’s
expert’s testimony that taxpayers were influenced by energy
crisis to invest in energy partnerships, failure to waive the
addition to tax for underpayment attributable to valuation
overstatement under section 6659(e) was an abuse of discretion),
affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th
Cir. 1994); (4) refuse to abate interest under section 6404, see
paragraph A-3, above; (5) refuse to grant the taxpayer’s request
for an extension of time to file, e.g., Estate of Proios v.
Commissioner, T.C. Memo. 1994-442 (taxpayer’s failure to call
witnesses held against the taxpayer); and (6) disallow a bad debt
reserve deduction, e.g., Newlin Mach. Corp. v. Commissioner, 28
8
(...continued)
contention that Thor Power Tool Co. v. Commissioner, 439 U.S. 522
(1979), limits the court to review of the record and the facts
upon which the Commissioner relied in making the determination.
The court said that the Supreme Court did not indicate in Thor
Power Tool Co. v. Commissioner, supra, and AAA v. United States,
367 U.S. 687 (1961), “that either the Tax Court or the Court of
Claims improperly conducted a trial de novo to determine whether
the Commissioner had, in fact, abused his discretion in
determining whether the accounting method clearly reflected
income. Instead, the [Supreme] Court relied on the findings of
fact of both courts in making its own determination.” Mulholland
v. United States, supra at 756.
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T.C. 837, 845 (1957) (testimony and evidence considered). We are
aware of no reason to depart from this longstanding practice in
making our determination under section 6015(f).
5. Magana v. Commissioner Does Not Govern This Case
In Magana v. Commissioner, 118 T.C. 488 (2002), a case in
which we reviewed the Commissioner’s determination under section
6330(d)(1) that tax lien filings were appropriate, we held that,
absent special circumstances, the taxpayer could not raise before
this Court an issue he had not raised in a hearing conducted by
the Commissioner’s Appeals office under section 6330(b). Id. at
493. The issue the taxpayer first sought to raise before this
Court was that collection of tax would cause hardship to him
because of his poor health and the resulting cloud on title to
his residence, his only significant asset. Id. at 493-494. We
said that, absent special circumstances, in our review of whether
the Commissioner’s determination was an abuse of discretion under
section 6330(d),9 we consider only arguments, issues, and other
matters that were raised at the section 6330(b) hearing or
otherwise brought to the attention of the Appeals Office. Id.
9
Under sec. 6330, we review a taxpayer’s underlying tax
liability de novo. Sego v. Commissioner, 114 T.C. 604, 610
(2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).
Magana v. Commissioner, 118 T.C. 488, 493 (2002), involved only
issues where our review was for abuse of discretion. In Magana,
underlying tax liability was not at issue.
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Respondent contends that, under our holding in Magana, we
may not consider facts or issues that were not previously raised
by the taxpayer during the Commissioner’s consideration of the
taxpayer’s request for relief under section 6015(f). We disagree
that Magana applies here for several reasons. First, in Magana,
we said we were not deciding whether our holding therein applies
to claims for relief from joint liability under section 6015
raised in a collection proceeding under section 6330. Id. at 494
n.3. Clearly, then, our holding in Magana does not apply to
claims for relief from joint liability not brought under section
6330, e.g., brought as stand alone claims under section 6015(f).
Second, we did not say in Magana that the taxpayer would be
limited to the administrative record or that the taxpayer may not
offer evidence in the proceeding in this Court. Third, in Magana
we did not discuss the APA or the record rule. Thus, we conclude
that Magana does not govern here.
6. Our Adoption of Respondent’s Position Would Lead to
Inconsistent Procedures in Similar Cases
Adoption of respondent’s position would lead to the anomaly
of proceedings in some section 6015(f) cases on the basis of the
Commissioner’s administrative record and trials de novo in
others. Consider two examples. First, a trial de novo would be
necessary if a taxpayer petitions this Court 6 months after
filing an election for section 6015 relief and the Commissioner
has made no determination granting or denying relief. Sec.
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6015(e)(1)(A)(i)(II). We have jurisdiction to make a
determination in this situation, even though there may be no
administrative record. Thus, trial de novo is clearly authorized
and appropriate.
Second, in a deficiency case, we hold a trial de novo
relating to a taxpayer’s affirmative defense that he or she is
entitled to innocent spouse relief under section 6015(f). See,
e.g., Butler v. Commissioner, 114 T.C. 287, 292. Adoption of
respondent’s position here would cause us to apply different
procedures in our determinations under section 6015 cases.
We have previously indicated our preference for uniform
procedures under section 6015(e). For example, we have declined
to treat nonelecting spouses in deficiency proceedings
differently from nonelecting spouses in stand alone proceedings
(i.e., cases in which a taxpayer requests relief from joint and
several liability that are independent of any deficiency
proceeding). Corson v. Commissioner, 114 T.C. 354, 364 (2000).
Similarly, we believe taxpayers should have the same opportunity
to have a trial de novo relating to entitlement to relief under
section 6015(f) whether relief was raised as an affirmative
defense in a deficiency proceeding, in a stand alone proceeding
where the Commissioner has issued a final determination denying
the taxpayer’s request for relief, or in a stand alone proceeding
where the Commissioner has failed to rule on the taxpayer’s claim
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within 6 months of its filing. In Corson v. Commissioner, supra
at 364, we stated:
we believe that the interests of justice would be ill
served if the rights of the nonelecting spouse were to
differ according to the procedural posture in which the
issue of relief under section 6015 is brought before
the Court. Identical issues before a single tribunal
should receive similar treatment. * * *
As in Corson, we believe that cases in which the taxpayer seeks
relief under section 6015(f) should receive similar treatment
and, thus, the same standard of review.
The nonrequesting spouse may elect to intervene in the
judicial proceeding in which we determine whether the requesting
spouse qualifies for relief under section 6015(f). Sec.
6015(e)(4).10 This election is available both in deficiency
cases in which section 6015 relief is requested, and in stand
alone cases, such as this case. Rule 325; King v. Commissioner,
115 T.C. 118, 122-123 (2000); Corson v. Commissioner, supra at
365. The fact that Congress provided for intervention by
nonrequesting spouses in the Tax Court proceeding suggests
Congress intended that we conduct trials de novo in making our
determinations under section 6015(f) to permit the intervenor to
offer evidence to challenge the requesting spouse’s entitlement
to relief.
10
Sec. 6015(e)(4) states in pertinent part that “The Tax
Court shall establish rules which provide the individual * * *
not making the election * * * with adequate notice and an
opportunity to become a party to a proceeding”.
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7. Conclusion
Part of our interpretative responsibility here is to give
proper effect to both section 6015(e) and (f). Courts attempt to
read statutory provisions harmoniously, so as to give proper
effect to all of the words of the statute. See FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (citing FTC v.
Mandel Bros., Inc., 359 U.S. 385, 389 (1959)); Bend v. Hoyt, 38
U.S. 263, 272 (1839). We have done so here. We read these
provisions to give effect to the other. Our de novo review of
the Commissioner’s determinations under section 6015(f) gives
effect to the congressional mandate that we determine whether a
taxpayer is entitled to relief under section 6015. The measure
of deference provided by the abuse of discretion standard is a
proper response to the fact that section 6015(f) authorizes the
Secretary to provide procedures under which, based on 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. See supra pp. 14-16.
We conclude that our determination whether petitioner is
entitled to equitable relief under section 6015(f) is made in a
trial de novo and is not limited to matter contained in
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respondent’s administrative record, and that the APA record rule
does not apply to section 6015(f) determinations in this Court.11
B. Whether Petitioner Is Entitled to Equitable Relief
Respondent contends that, even if we consider matter raised
at trial which was not included in the administrative file,
respondent’s determination that petitioner is not entitled to
equitable relief was not an abuse of discretion. We disagree.
The Commissioner announced a list of factors in Rev. Proc.
2000-15, sec. 4.03, 2000-1 C.B. 447, 448,12 that the Commissioner
11
Our holding herein is consistent with APA provisions
relating to judicial determinations made in connection with
agency actions. Tit. 5 U.S.C. sec. 554 (2000) (“Adjudications”)
does not apply to matters subject to trial of the law and the
facts de novo, such as our redetermination of a deficiency.
O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir. 1959), affg.
28 T.C. 698 (1957). Tit. 5 U.S.C. sec. 706(2)(F) (2000)
provides, inter alia, that a “reviewing court” shall “hold
unlawful and set aside agency action, findings and conclusions
found to be * * * unwarranted by the facts to the extent that the
facts are subject to trial de novo by the reviewing court.” A
matter may be made subject to trial de novo by U.S. Code
provisions applicable to a specific action. See, e.g., 7 U.S.C.
sec. 2023(a)(15) (2000) (suits for judicial review of certain
agency actions under the food stamp program are by “a trial de
novo * * * in which the court shall determine the validity of the
questioned administrative action in issue”). As held herein, our
determinations under sec. 6015(e) are made based on trials de
novo. The legislative history of sec. 6015 does not suggest that
Congress contemplated changing the well-established
inapplicability of the APA to Tax Court determinations. S. Rept.
105-174, at 55-60 (1998), 1998-3 C.B. 537, 591-596; H. Conf.
Rept. 105-599, at 249-255 (1998), 1998-3 C.B. 747, 1003-1008.
12
Respondent’s determination was subject to Rev. Proc.
2000-15, 2000-1 C.B. 447, because it was in effect when
respondent’s Appeals officer evaluated petitioner’s request and
when respondent issued the notice of determination. Rev. Proc.
(continued...)
- 22 -
will consider in deciding whether to grant equitable relief under
section 6015(f). Rev. Proc. 2000-15, supra, lists the following
two facts, which if true, the Commissioner weighs in favor of
granting relief: (1) The taxpayer is separated or divorced from
the nonrequesting spouse; and (2) the taxpayer was abused by his
or her spouse; and the following two facts, which if true, the
Commissioner weighs against granting relief: (3) the taxpayer
received significant benefit from the unpaid liability or the
item giving rise to the deficiency; and (4) the taxpayer has not
made a good faith effort to comply with Federal income tax laws
in the tax years following the tax year to which the request for
relief relates.
Rev. Proc. 2000-15, supra, implies that the Commissioner
will generally not consider the absence of facts (1), (2), (3),
or (4) in determining whether to grant relief under section
6015(f). However, based on caselaw deciding whether it was
equitable to relieve a taxpayer from joint liability under former
section 6013(e)(1)(D), we consider the fact that a taxpayer did
not significantly benefit from the unpaid liability or item
12
(...continued)
2000-15, supra, superseded Notice 98-61, 1998-2 C.B. 756,
effective Jan. 18, 2000. Rev. Proc. 2003-61, 2003-32 I.R.B. 296
(Aug. 11, 2003), superseded Rev. Proc. 2000-15, supra, for
requests for relief under sec. 6015(f) pending on Nov. 1, 2003,
for which no preliminary determination letter had been issued as
of Nov. 1, 2003, and for requests for relief filed on or after
Nov. 1, 2003.
- 23 -
giving rise to the deficiency as a factor in favor of granting
relief to that taxpayer.13 Ferrarese v. Commissioner, T.C. Memo.
2002-249 (citing Belk v. Commissioner, 93 T.C. 434, 440-441
(1989); Foley v. Commissioner, T.C. Memo. 1995-16; Robinson v.
Commissioner, T.C. Memo. 1994-557; Klimenko v. Commissioner, T.C.
Memo. 1993-340; Hillman v. Commissioner, T.C. Memo. 1993-151).
Rev. Proc. 2000-15, supra, lists the following four facts
which, if true, the Commissioner weighs in favor of granting
relief, and if not true, the Commissioner weighs against granting
relief: (5) the taxpayer would suffer economic hardship if relief
is denied; (6) in the case of a liability that was properly
reported but not paid, the taxpayer did not know and had no
reason to know that the liability would not be paid; (7) the
liability for which relief is sought is attributable to the
nonrequesting spouse; and (8) the nonrequesting spouse has a
legal obligation pursuant to a divorce decree or agreement to pay
the outstanding liability (weighs against relief only if the
requesting spouse has the obligation).
Rev. Proc. 2000-15, sec. 4.03(2), supra, also states:
No single factor will be determinative of whether
equitable relief will or will not be granted in any
13
Cases deciding whether a taxpayer was entitled to
equitable relief under sec. 6013(e)(1)(D) are helpful in deciding
whether a taxpayer is entitled to relief under sec. 6015(f).
Mitchell v. Commissioner, 292 F.3d 800, 806 (D.C. Cir. 2002),
affg. T.C. Memo. 2000-332; Cheshire v. Commissioner, 282 F.3d
326, 338 n.29 (5th Cir. 2002), affg. 115 T.C. 183 (2000).
- 24 -
particular case. Rather, all factors will be
considered and weighed appropriately. The list is not
intended to be exhaustive.
As discussed next, none of the factors used by the
Commissioner in making section 6015(f) determinations supports
respondent’s determination in this case.
1. Petitioner’s Marital Status
Petitioner was still married to Mr. Wiwi at the time of
trial. Respondent determined without further explanation, but
did not otherwise argue before the Court, that the marital status
factor weighs against petitioner. We conclude that this factor
is neutral.
2. Spousal Abuse
Mr. Wiwi did not abuse petitioner. Respondent does not
contend that the spousal abuse factor weighs against petitioner.
We conclude that this factor is neutral.
3. Significant Benefit
Respondent does not argue that petitioner significantly
benefited from Mr. Wiwi’s underpayment of tax for 1995.
Petitioner has paid more than one half of her and Mr. Wiwi’s
expenses since the time they were married. Petitioner has not
received any income or other financial benefit from Mr. Wiwi.
Petitioner’s financial situation worsened after 1995 due to Mr.
Wiwi’s financial problems. We conclude that petitioner did not
- 25 -
significantly benefit from Mr. Wiwi’s failure to pay tax on his
income and that this factor favors petitioner.
4. Compliance With Tax Laws
Petitioner filed returns for tax years following 1995 and
has complied with tax laws at least since 1995. Respondent
contends that petitioner was not in compliance with Federal tax
laws because taxes were underwithheld from petitioner’s income
for 1997. We disagree. Although taxes were underwithheld from
petitioner’s income for 1997, petitioner paid an amount equal to
the tax on her income for that year by paying $4,453 with the
1997 joint return she timely filed with Mr. Wiwi. Respondent
does not explain how the fact that petitioner was underwithheld
for one tax year shows that she was noncompliant with the tax
laws; respondent does not contend that petitioner’s payment for
1997 was late or inadequate or that she was underwithheld in any
other year. The fact that taxes were underwithheld from
petitioner for 1997 does not mean that she was not in compliance
with the tax laws. On the contrary, her timely payment of all
taxes she owed for that year shows she complied with the tax
laws.14 Rev. Proc. 2000-15, supra, lists tax compliance as a
factor which the Secretary will consider only against granting
relief. We conclude that this factor is neutral.
14
Respondent does not contend that petitioner is liable for
the penalty under sec. 6654 for failure to pay estimated tax for
1997.
- 26 -
5. Economic Hardship
Respondent contends that petitioner had enough assets and
income from which to pay the unpaid tax for 1995 and that
petitioner failed to show that she would suffer economic hardship
if relief is denied. Petitioner contends that she would suffer
economic hardship if relief were denied because she would be
unable to pay for basic living expenses for herself and Mr. Wiwi.
Petitioner paid all of her and at least half of Mr. Wiwi’s
monthly living expenses, totaling about $2,800, in 1997 and 1998.
During that time, petitioner had only temporary and part-time
jobs, and had no benefits. Mr. Wiwi’s medical condition
worsened, and his ability to earn any income decreased.
Petitioner remained married to Mr. Wiwi and paid his increasing
expenses. Petitioner was prudent in saving some money under
these circumstances. On the facts of this case, we disagree with
respondent that petitioner would not suffer a hardship if she
were required to use her savings, or to borrow against the equity
in her house, to pay the unpaid tax attributable to Mr. Wiwi. We
conclude that this factor favors petitioner.
6. Knowledge or Reason To Know
In determining whether a taxpayer in an underpayment case is
entitled to equitable relief under section 6015(f), we consider
whether the requesting spouse knew, or reason to know, that the
tax would be unpaid when the return was signed. Hopkins v.
- 27 -
Commissioner, 121 T.C. 73, 88 (2003); Wiest v. Commissioner, T.C.
Memo. 2003-91.
Respondent contends that, when petitioner signed the 1995
return, she knew or had reason to know that Mr. Wiwi would not
pay the tax due for 1995, and that it was not reasonable for
petitioner to believe that Mr. Wiwi would pay the tax. We
disagree.
When Mr. Wiwi and petitioner filed their 1995 tax return, he
told her, and she reasonably believed, that he would pay the
unpaid tax for 1995 according to an installment agreement he had
attached to the return. However, Mr. Wiwi failed to pay that tax
or to pay tax according to the installment agreement. Mr. Wiwi
concealed from petitioner until 1998 that he had failed to pay
the unpaid 1995 tax. During those years petitioner did not know
and had no reason to know of Mr. Wiwi’s failure to pay that tax.
This fit his pattern of deception; Mr. Wiwi had also concealed
from her that he owed tax for 1993 and 1994. Respondent offered
no contrary evidence on this factor. We conclude that this
factor favors petitioner.
7. Whether the Underpayment of Tax Is Attributable to
Petitioner’s Husband
Respondent concedes that the underpayment of tax for 1995 is
attributable to Mr. Wiwi.
- 28 -
8. Legal Obligation To Pay Tax
Respondent does not argue that the legal obligation factor
weighs against petitioner. We conclude that the legal obligation
factor does not apply here because petitioner and Mr. Wiwi are
not divorced. Ferrarese v. Commissioner, T.C. Memo. 2002-249;
see Washington v. Commissioner, 120 T.C. 137, 148-149 (2003).
9. Other Factors
A taxpayer is entitled to equitable relief under section
6015(f) if, taking into account all the facts and circumstances,
it is inequitable to hold that individual liable. Rev. Proc.
2000-15, supra, acknowledges that the factors listed therein are
not exhaustive. Despite this, respondent did not consider the
fact, as discussed above, that petitioner did not participate in
any wrongdoing in this case; on the contrary, the problem began
with Mr. Wiwi, who, as discussed above, concealed from petitioner
that he had not paid the unpaid tax for 1995. In deciding
whether it is inequitable to hold a spouse liable under section
6015(b)(1)(D),15 we have considered whether the failure to report
the correct tax liability on the joint return results from
concealment, overreaching, or any other wrongdoing on the part of
the other spouse. Hayman v. Commissioner, 992 F.2d 1256, 1262
15
The equitable factors we consider under sec.
6015(b)(1)(D) are the same equitable factors we consider under
sec. 6015(f). Alt v. Commissioner, 119 T.C. 306, 316 (2002);
Butler v. Commissioner, 114 T.C. 276, 291 (2000).
- 29 -
(2d Cir. 1993), affg. T.C. Memo. 1992-228; Alt v. Commissioner,
119 T.C. 306, 314 (2002); Jonson v. Commissioner, 118 T.C.
119. It is also relevant to petitioner’s claim for relief that
petitioner and Mr. Wiwi were married for less than 4 months in
1995; all of the problems began with Mr. Wiwi in that most of Mr.
Wiwi’s underpayment of tax for 1995 apparently occurred because
he failed to make estimated tax payments before they were
married. These facts support petitioner’s claim that she is
entitled to relief under section 6015(f).
10. Conclusion
Petitioner has presented an especially strong case for
relief from joint liability under factors promulgated by the
Commissioner in Rev. Proc. 2000-15, supra: all of these factors
either weigh in favor of petitioner or are neutral, and none of
those factors weigh against granting relief to petitioner.
Petitioner did not significantly benefit from the underpayment,
the underpayment was solely attributable to Mr. Wiwi, she has
complied with Federal tax laws at least since 1995, she did not
know or have reason to know Mr. Wiwi would not pay the unpaid tax
for 1995, and payment of the tax would cause economic hardship.
The neutral factors include petitioner’s marital status and lack
of spousal abuse. The legal obligation factor does not apply
here because petitioner and Mr. Wiwi are still married. We
determine that respondent’s denial of relief under section
- 30 -
6015(f) was an abuse of discretion, and that, on the basis of all
the facts and circumstances, it would be inequitable to hold
petitioner liable for the underpayment of tax for 1995.
To reflect the foregoing,
Decision will be
entered for petitioner.
Reviewed by the Court.
WELLS, COHEN, SWIFT, GERBER, LARO, VASQUEZ, GALE, THORNTON,
HAINES, GOEKE, and KROUPA, JJ., agree with this majority opinion.
WHERRY, J., concurs in result only.
- 31 -
THORNTON, J., concurring: I agree with the majority and
write separately to address certain points regarding the
application of the Administrative Procedure Act (APA), 5 U.S.C.
secs. 551-559, 701-706 (2000), to Tax Court proceedings and our
application of the abuse of discretion standard in cases for
spousal relief under section 6015.
Since its enactment in 1946, the APA has never governed
proceedings in this Court (or in its predecessor, the Board of
Tax Appeals). See, e.g., O’Dwyer v. Commissioner, 266 F.2d 575,
580 (4th Cir. 1959) (“The Tax Court * * * is a court in which the
facts are triable de novo * * * . We agree that the Tax Court is
not subject to the Administrative Procedure Act.”), affg. 28 T.C.
698 (1957). This long-established practice comports with the
provisions of the APA and its history.
As a statute of general application, the APA does not
supersede specific statutory provisions for judicial review. APA
section 704 provides: “Agency action made reviewable by statute
and final agency action for which there is no other adequate
remedy in a court are subject to judicial review.” 5 U.S.C. sec.
704 (2000). APA section 703 governs the form and venue of
judicial review under the APA. See 5 U.S.C. sec. 703 (2000).
The legislative history of APA section 703 makes clear that where
there is a special statutory review proceeding relevant to the
subject matter, that special statutory review “shall not be
disturbed”. S. Comm. on the Judiciary, 79th Cong., 1st Sess.,
- 32 -
Administrative Procedure Act (Comm. Print 1945), reprinted in
Administrative Procedure Act Legislative History, 1944-46, at 37
(1946);1 see H. Rept. 1980, 79th Cong. 2d Sess. (1946), reprinted
in Administrative Procedure Act Legislative History, 1944-46, at
276 (1946) (same). As the U.S. Supreme Court stated in Bowen v.
Mass., 487 U.S. 879, 903 (1988), “When Congress enacted the APA
to provide a general authorization for review of agency action in
the district courts, it did not intend that general grant of
jurisdiction to duplicate the previously established special
statutory procedures relating to specific agencies.”
Applying these principles, the U.S. Court of Appeals for the
Fifth Circuit has indicated that the APA is not an appropriate
vehicle for challenging the Commissioner’s denial of a request to
abate interest under section 6404. See Beall v. United States,
336 F.3d 419, 427 n.9 (5th Cir. 2003) (“review under the APA is
accordingly available only where ‘there is no other adequate
remedy in a court.’”). Similarly, in an unpublished opinion
involving the validity of the Commissioner’s issuance of a notice
1
The Senate Judiciary Committee Print is part of the
legislative history of the Administrative Procedure Act (APA).
See Dept. of Labor v. Greenwich Collieries, 512 U.S. 267, 278
(1994); Darby v. Cisneros, 509 U.S. 137, 147-148 (1993); Grolier,
Inc. v. FTC, 615 F.2d 1215, 1220 (9th Cir. 1980); Marathon Oil
Co. v. EPA, 564 F.2d 1253, 1260 n.25 (9th Cir. 1977); see also
Carter/Mondale Presidential Comm., Inc. v. Fed. Election Commn.,
711 F.2d 279, 284 n.9 (D.C. Cir. 1983); WWHT, Inc. v. FCC, 656
F.2d 807, 813 n.8 (D.C. Cir. 1981).
- 33 -
of deficiency, the Court of Appeals for the Seventh Circuit
concluded: “The APA is irrelevant, however, because the IRS’s
issuance of a notice of tax deficiency and the Tax Court’s review
of it are governed by the Internal Revenue Code and the rules and
procedures of the Tax Court * * * and not by the APA.” Bratcher
v. Commissioner, 79 AFTR 2d 97-3110, at 97-3112, 97-2 USTC par.
50,495, at 89,016 (7th Cir. 1997), affg. T.C. Memo. 1996-252; see
also Am. Gen. Ins. Co. v. FTC, 359 F. Supp. 887, 893 (S.D. Tex.
1973) (rejecting a jurisdictional claim under the APA because
there was no final agency action and plaintiff had an adequate
remedy at law under the Clayton Act), affd. 496 F.2d 197 (5th
Cir. 1974); Armstrong & Armstrong, Inc. v. United States, 356 F.
Supp. 514, 521 (E.D. Wash. 1973) (“As relief is at least
available * * * under 28 U.S.C. § 1491 (1970), judicial review
may not be predicated on the Administrative Procedure Act.”),
affd. 514 F.2d 402 (9th Cir. 1975); Poirier v. Commissioner, 299
F. Supp. 465, 466 (D.C. La. 1969) (rejecting taxpayer’s claim
that review to restrain enforcement of IRS summons is governed by
APA sections 703 and 704 because sections 7602 and 7604 and
Reisman v. Caplin, 375 U.S. 440 (1964) “[provide] an adequate
remedy”).2
2
Similarly, it is well established that the APA does not
override sec. 7421(a) (known as the Anti-Injunction Act, 26
U.S.C. sec. 7421(a) (2000)), which provides that “no suit for the
purpose of restraining the assessment or collection of any tax
(continued...)
- 34 -
The Tax Code has long provided a specific statutory
framework for reviewing deficiency determinations of the Internal
Revenue Service. Section 6015 is part and parcel of this
statutory framework. This Court’s de novo review procedures
emanate from this statutory framework. Accordingly, the APA
judicial review procedures do not supplant this Court’s
longstanding de novo review procedures in cases arising under
section 6015.
Moreover, the fact that section 6015 postdates the APA does
not render the APA judicial review procedures applicable here.
APA section 559 provides that the APA does “not limit or repeal
additional requirements imposed by statute or otherwise
recognized by law.” 5 U.S.C. sec. 559 (2000). When the APA was
enacted in 1946, this Court’s de novo procedures for reviewing
IRS functions were well established and “recognized by law”
2
(...continued)
shall be maintained in any court by any person”. This provision
is “part of a specific statutory framework intended by Congress
as limitations not negated by the APA.” Fostvedt v. United
States, 978 F.2d 1201, 1204 (10th Cir. 1992); see McCarty v.
United States, 929 F.2d 1085, 1088 (5th Cir. 1991) (precluding
relief under the APA because sec. 7421 is a specific statute that
bars the requested relief); Lonsdale v. United States, 919 F.2d
1440, 1444 (10th Cir. 1990) (“Congress has provided express
methods by which proposed deficiencies, assessments, or
collections of taxes may be challenged, and express prohibition
in the Anti-Injunction Act, 26 U.S.C. § 7421(a) against suits
brought for the purpose of restraining the assessment or
collection of any tax except in the prescribed manner.”); cf. 5
U.S.C. sec. 702 (2000) (“Nothing herein * * * confers authority
to grant relief if any other statute that grants consent to suit
expressly or impliedly forbids the relief which is sought.”).
- 35 -
within the meaning of APA section 559.3 See, e.g., Phillips v.
Commissioner, 283 U.S. 589, 598, 600 (1931) (stating that in
deficiency proceedings before the Board of Tax Appeals, “there is
a complete hearing de novo * * *. The adequacy of the scope of
review * * * is now thoroughly established.”); Blair v.
Oesterlein Machine Co., 17 F.2d 663, 665 (D.C. Cir. 1927) (“the
Board [of Tax Appeals] is vested with full reviewing jurisdiction
over the findings of the Commissioner * * *. The appellate power
includes the authority, not only to review, but to investigate de
novo, the matters in controversy between the government and the
taxpayer”).4 These de novo trial procedures, which have remained
3
When the APA was enacted, this Court had jurisdiction not
only to redetermine deficiencies, but also to determine certain
overpayments, to redetermine excessive profits on defense
contracts as previously determined by the Secretary of the
Treasury, and to hear claims for refunds of processing taxes; all
these matters were reviewed de novo. See Revenue Act of 1943,
ch. 63, sec. 701(e), 58 Stat. 86 (excessive profits); Revenue Act
of 1942, ch. 619, secs. 504, 510(b), 56 Stat. 957, 967 (refunds
of processing taxes); Revenue Act of 1926, ch. 27, sec. 284(e),
44 Stat. 67 (overpayments); Revenue Act of 1924, ch. 234, sec.
274, 43 Stat. 297 (deficiencies).
4
In one of its earliest decisions, the Board of Tax Appeals
characterized its scope of review in deficiency proceedings as
follows:
When a taxpayer brings his case before the Board
he proceeds by trial de novo. The record of the case
made in the Internal Revenue Bureau is not before the
Board except in so far as it may be properly placed in
evidence by the taxpayer or by the Commissioner. The
Board must decide each case upon the record made at the
hearing before it, and, in order that it may properly
do so, the taxpayer must be permitted to fully present
(continued...)
- 36 -
essentially unchanged since the APA’s enactment, provide a
stricter scope of review of the Commissioner’s determinations
than would obtain under APA review procedures. Consequently,
pursuant to APA section 559, the APA does not limit or repeal
“additional requirements” arising from this Court’s de novo
review procedures.
The legislative history of the APA confirms this
understanding. See S. Comm. on the Judiciary, 79th Cong., 1st
Sess., Administrative Procedure Act (Comm. Print 1945), reprinted
in Administrative Procedure Act Legislative History, 1944-46, at
22 (1946) (stating that there are exempted from APA formal
adjudication requirements matters that are subject to de novo
review of facts and law such “as the tax functions of the Bureau
of Internal Revenue (which are triable de novo in The Tax
Court)”); S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted
in Administrative Procedure Act Legislative History, 1944-46, at
214 (1946) (explaining that pursuant to APA provisions governing
the scope of judicial review, courts establish facts de novo
4
(...continued)
any questions relating to his tax liability which may
be necessary to a correct determination of the
deficiency. To say that the taxpayer who brings his
case before the Board is limited to questions presented
before the Commissioner, and that the Board in its
determination of the case is restricted to a decision
of issues raised in the Internal Revenue Bureau would
be to deny the taxpayer a full and complete hearing and
an open and neutral consideration of his case. [Barry
v. Commissioner, 1 B.T.A. 156, 157 (1924).]
- 37 -
where the agency adjudication is not subject to APA formal
adjudication provisions “such as tax assessments * * * not made
upon an administrative hearing and record, [where] contests may
involve a trial of the facts in the Tax Court”); H. Rept. 1980,
79th Cong., 2d Sess. (1946), reprinted in Administrative
Procedure Act Legislative History, 1944-46, at 279 (1946) (same).
The mere fact that judicial review is for abuse of
discretion in a spousal relief case arising under section 6015(f)
does not trigger application of the APA record rule or preclude
this Court from conducting a de novo trial. As the majority
opinion correctly notes, this Court has a long tradition of
providing trials when reviewing the Commissioner’s determinations
under an abuse of discretion standard. For example, when
reviewing for abuse of discretion the Commissioner’s refusal to
abate interest under section 6404, this Court has consistently
conducted trials. See, e.g., Goettee v. Commissioner, T.C. Memo.
2003-43; Jean v. Commissioner, T.C. Memo. 2002-256; Jacobs v.
Commissioner, T.C. Memo. 2000-123.
In sum, the APA does not disturb or supersede this Court’s
longstanding de novo judicial review procedures for cases
involving spousal relief under section 6015. This is not to say,
however, that this Court could not or should not, in appropriate
circumstances, borrow principles of judicial review embodied in
the APA. Indeed, on occasion this Court has done so. For
- 38 -
instance, in Dittler Bros., Inc. v. Commissioner, this Court
looked to APA caselaw in adopting a “substantial evidence” rule
as the appropriate measure for reviewing the reasonableness of
the Commissioner’s determination as to tax avoidance in a
declaratory judgment action arising under former section 7477.
Dittler Bros., Inc. v. Commissioner, 72 T.C. 896, 909 (1979),
affd. without published opinion 642 F.2d 1211 (5th Cir. 1981).
The Court based its decision partly on the legislative history of
former section 7477, which made it “clear that Congress did not
intend the Court’s judgment to be a mere de novo redetermination”
but rather a review of the Commissioner’s determination. Id.;
see also Mailman v. Commissioner, 91 T.C. 1079, 1082 (1988)
(holding that the Commissioner’s exercise of administrative
discretion in failing to waive additions to tax under former
section 6661 is subject to judicial review); Estate of Gardner v.
Commissioner, 82 T.C. 989, 994 (1984) (looking to principles of
administrative law, “now incorporated into the Administrative
Procedure Act”, as supporting a presumption that the
Commissioner’s discretionary actions in denying a request for a
filing extension under section 2032A were subject to judicial
review).
As the majority opinion notes, this Court’s rules regarding
declaratory judgments involving retirement plans and exempt
organizations generally require these actions to be disposed of
- 39 -
on the basis of the administrative record. See Rule 217(a).
Again, much as in Dittler Bros., Inc. v. Commissioner, supra, the
reason for this limited review procedure lies in a legislative
directive that “The court is to base its determination upon the
reasons provided by the Internal Revenue Service in its notice to
the party making the request for a determination, or based upon
any new matter which the Service may wish to introduce at the
time of trial.” H. Rept. 93-807, at 108 (1974), 1974-3 C.B.
(Supp.) 236, 343; see Rule 217(a), Explanatory Note, 68 T.C.
1048.5
By contrast, Congress has not imposed a restrictive standard
for this Court’s review of the Commissioner’s determinations
under section 6015. Clearly, when it enacted section 6015,
Congress was aware that this is a trial court that has
historically resolved cases by taking evidence and has never been
governed by the APA. Nothing in the statute or the legislative
history indicates that the APA is to apply to section 6015 cases
5
When Congress acted in 1976 to expand this Court’s
declaratory judgment jurisdiction to include matters involving
exempt organizations, the report of the Senate Finance Committee
stated: “The judgment of the court in a declaratory judgment
proceeding is to be * * * based upon the facts as presented to
the court”. S. Rept. 94-938, pt. 1, at 588 (1976), 1976-3 C.B.
(Vol. 3) 49, 626. In a footnote to this sentence, the report
added: “In many cases, this would be essentially the
administrative record before the Internal Revenue Service” and
cited the notes to the Tax Court’s rules. Id. at n.7, 1976-3
C.B. (Vol. 3) at 626. Notably, the legislative history makes no
reference to APA procedures, from which we infer that Congress
did not contemplate that APA procedures would apply.
- 40 -
or that we are to restrict our review to the administrative
record. Section 6015 expanded the Court’s jurisdiction to review
all denials of relief from joint and several liability. As
described in the conference report, the House bill “specifically
provides that the Tax Court has jurisdiction to review any denial
of innocent spouse relief.” H. Conf. Rept. 105-599, at 250
(1998), 1998-3 C.B. 747, 1004. Similarly, under the Senate
amendment, “The Tax Court has jurisdiction of disputes arising
from the separate liability election.” Id. at 251, 1998-3 C.B.
at 1005. The conference agreement “follows the House bill and
the Senate amendment in establishing jurisdiction in the Tax
Court over disputes arising in this area.” Id.
The legislative purpose in enacting section 6015 was to
provide spouses with broader access to relief from joint and
several tax liabilities. See id. at 249, 1998-3 C.B. at 1003.
In light of that fact, it seems unlikely that Congress would have
intended Tax Court review of a spouse’s claim to be governed by
the more restrictive APA judicial review procedures rather than
by the Tax Court’s customary de novo review procedures.
In conclusion, I believe that the majority opinion, in its
rejection of the APA record rule and in its application of the
abuse of discretion standard, is consistent with this Court’s
- 41 -
well-established practice and appropriately implements
legislative intent to provide spouses open and neutral
consideration of their claims under section 6015.
WELLS, COHEN, SWIFT, GERBER, LARO, VASQUEZ, GALE, MARVEL,
HAINES, GOEKE, and COLVIN, JJ., agree with this concurring
opinion.
- 42 -
HALPERN and HOLMES, JJ., dissenting: This case presents the
issue of whether one of the guiding principles of administrative
law–-the record rule–-governs our review of a decision by the
Commissioner to deny relief under section 6015(f). The majority
concludes that it does not. That conclusion is potentially of
great significance because it will likely affect the manner in
which we decide other types of cases arising under our expanding
nondeficiency jurisdiction.1 Because the majority’s conclusion
is contrary to settled principles of administrative law regarding
the proper scope of judicial review, and because it misapplies
the abuse of discretion standard of review, we respectfully
dissent.
Before proceeding, it is important to distinguish between
two concepts--“scope of review” and “standard of review”--that
delimit judicial review of agency action. As succinctly stated
by the U.S. Court of Appeals for the Tenth Circuit:
The scope of judicial review refers merely to the
evidence the reviewing court will examine in reviewing
an agency decision. The standard of judicial review
refers to how the reviewing court will examine that
evidence.
Franklin Sav. Association v. Office of Thrift Supervision, 934
F.2d 1127, 1136 (10th Cir. 1991) (emphasis added). The majority
concludes that the appropriate scope of review in section 6015(f)
1
See, e.g., secs. 6404(h) (review of interest abatement
denials) and 6330(d) (review of collection due process
determinations). This “review” jurisdiction has become an
increasingly large part of our caseload over the last decade.
- 43 -
cases is “de novo”. Used to describe a reviewing court’s scope
of review, the term “de novo” signifies that the court is not
limited to reviewing the administrative record; rather, the
parties are free to create a new evidentiary record upon which
the reviewing court will base its decision.2 As for the
appropriate standard of review in this case, the parties agree
that we should review respondent’s denial of section 6015(f)
relief for abuse of discretion. We discuss the disputed scope of
review in Part I, and we discuss the majority’s application of
the undisputed standard of review in Part II.
I. Our Scope of Review Should Be Limited to the Administrative
Record
A. Introduction
1. Identifying the Issue
The specific issue in this case is whether, in reviewing
respondent’s decision to deny section 6015(f) relief to
petitioner, we (1) are limited by the record rule to
consideration of the administrative record, as respondent
contends, or (2) may consider evidence adduced at trial, as
2
In the context of a court’s standard of review, the term
“de novo” signifies that the reviewing court need not give any
deference to the decision reached by the administrative agency;
that is, the reviewing court may substitute its judgment for that
of the agency (even if such court’s scope of review is the
administrative record). See 2 Childress & Davis, Federal
Standards of Review, sec. 15.02, at 15-3 – 15-4 (3d ed. 1999).
- 44 -
petitioner contends.3 Following respondent’s lead, the majority
opinion and concurring opinion largely frame that issue in terms
of whether the judicial review provisions of the Administrative
Procedure Act (APA), 5 U.S.C. secs. 701-706 (2000), apply to
proceedings in this Court. That characterization is somewhat
overbroad, as should be evident from the following introductory
discussions of the record rule and the APA. Whether couched in
terms of the record rule or the APA, the dispositive inquiry in
this case is whether Congress intended our review of respondent’s
section 6015(f) determinations to be effected by means of de novo
proceedings.
2. Section 6015(f)
Section 6015(f) provides that, if a joint filer does not
qualify for relief from joint and several liability under section
6015(b) or (c), the Secretary may, under procedures prescribed by
him, grant such relief on equitable grounds. We have
jurisdiction to review the Commissioner’s decisions under section
6015(e). Fernandez v. Commissioner, 114 T.C. 324, 330-331
(2000). We have previously held that we review such decisions
for abuse of discretion. E.g., Jonson v. Commissioner, 118 T.C.
106, 125 (2002). We adopted that standard on the basis of
3
Judge Colvin, the trier of fact in this case, conducted a
trial de novo with the understanding that the subsequent
resolution of the record rule’s application would determine
whether he could properly consider the evidence adduced at trial
in resolving the sec. 6015(f) issue.
- 45 -
previous opinions of this Court considering discretionary
authority of the Commissioner (i.e., we did so apart from any
consideration of the APA judicial review provisions). See id.;
Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282
F.3d 326 (5th Cir. 2002).
3. The Record Rule
The record rule refers to the general rule of administrative
law that a court can engage in judicial review of an agency
action based only on consideration of the record amassed by the
agency (the administrative record). 2 Pierce, Administrative Law
Treatise, sec. 11.6, at 822 (4th ed. 2002). Of course, in
situations where Congress has provided for de novo proceedings in
the reviewing court, the record rule by its terms does not apply.
On the other hand, “in cases where Congress has simply provided
for review, without setting forth the standards to be used or the
procedures to be followed, this Court [the Supreme Court] has
held that consideration is to be confined to the administrative
record and that no de novo proceeding may be held.” United
States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963) (citing
pre-APA cases).4 Similarly, standards of review such as
“arbitrary” and “capricious” (terms we have associated with the
4
The record rule predates, and indeed is not codified in,
the APA, which was enacted in 1946. See, e.g., Tagg Bros. &
Moorhead v. United States, 280 U.S. 420, 443 (1930); see also 2
Pierce, Administrative Law Treatise, sec. 11.6, at 823 (4th ed.
2002).
- 46 -
abuse of discretion standard we adopted for section 6015(f)
cases, see Jonson v. Commissioner, supra at 125) have
consistently signified a review limited to the administrative
record. United States v. Carlo Bianchi & Co., supra at 715.
Thus, regardless of the applicability of the APA in this case,
the record rule seemingly would apply unless “abuse of
discretion” means something different in tax law than it does
elsewhere.
4. Administrative Procedure Act
Chapter 7 of the APA, 5 U.S.C. secs. 701-706 (2000),
provides rules for judicial review of agency action. The
relevant provision for our purposes is APA section 706(2), which
lists various circumstances in which a reviewing court must set
aside agency action. Two paragraphs of APA section 706(2) are
important here: paragraph (A), requiring a reviewing court to
reverse agency action that it finds is “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law”;
and paragraph (F), requiring a reviewing court to reverse agency
action that it finds is “unwarranted by the facts to the extent
that the facts are subject to trial de novo by the reviewing
court.”5 The Supreme Court has confirmed the applicability of
5
Pars. (B) through (D) of APA sec. 706(2) relate to agency
action that is unconstitutional, outside the agency’s scope of
authority, or procedurally defective. Par. (E) relates to
“formal” agency action (i.e., action that is statutorily required
(continued...)
- 47 -
the record rule in cases where APA section 706(2)(A) provides the
appropriate standard of review. See Fla. Power & Light Co. v.
Lorion, 470 U.S. 729, 743-744 (1985); Camp v. Pitts, 411 U.S.
138, 142 (1973); see also Holy Land Found. for Relief & Dev. v.
Ashcroft, 333 F.3d 156, 162 (D.C. Cir. 2003); Beno v. Shalala, 30
F.3d 1057, 1073-1074 (9th Cir. 1994). Conversely, in cases that
fall into the de novo category of APA section 706(2)(F), the
record rule by its terms does not apply.
B. Applicability of the APA
1. The Majority Opinion
Although, as discussed above, the issue is not necessarily
dispositive, we begin by addressing the majority’s conclusion
that the judicial review provisions of the APA are inapplicable
in this case. The majority begins with the premise that “[i]t is
well established that the APA does not apply to deficiency cases
in this Court; that is, cases arising under sections 6213 or 6214
in which we may redetermine the taxpayer’s tax liability.”
Majority op. p. 9. The majority then concludes that it “[finds]
no convincing reason to treat our determinations under section
6015(f) and section 6213(a) differently for purposes of
applicability of the APA.” Majority op. p. 10.
5
(...continued)
to be determined on the record after opportunity for an agency
hearing, see APA sec. 554(a)) that is not supported by
substantial evidence.
- 48 -
2. Applicability of the APA to Deficiency Cases in
This Court
We disagree with the majority’s premise that the judicial
review provisions of the APA do not apply to ordinary deficiency
cases in this Court. It is undoubtedly true that the record rule
does not apply to such cases. That is not the consequence of an
implied exemption from the APA; rather, it is the consequence of
the application of APA section 706(2)(F), which, as discussed
above, provides that a reviewing court shall set aside agency
action that is “unwarranted by the facts to the extent that the
facts are subject to trial de novo by the reviewing court.” Both
the House report and the Senate report accompanying the APA point
to “tax assessments”, which “may involve a trial of the facts in
the Tax Court”, as an example of the type of agency action to
which APA section 706(2)(F) applies. S. Rept. 752, 79th Cong.,
1st Sess. 28 (1945); H. Rept. 1980, 79th Cong., 2d Sess. 45
(1946). Thus, while it may be accurate to say that the enactment
of the APA had no practical effect on our scope of review in
deficiency cases, the majority’s claim that the APA “does not
apply” to such cases is erroneous.6
6
The distinction is important in terms of context. Once
it is conceded that the Tax Court has never been “exempt” from
the APA judicial review provisions, our conclusion that those
provisions have practical consequences in relation to our
recently granted jurisdiction to review sec. 6015(f)
adjudications does not seem revolutionary.
- 49 -
In support of its premise that the judicial review
provisions of the APA do not apply to deficiency cases in this
Court, the majority primarily relies on O’Dwyer v. Commissioner,
266 F.2d 575 (4th Cir. 1959), affg. 28 T.C. 698 (1957).7 The
taxpayer in O’Dwyer sought to compel the IRS to produce its
entire administrative file, based in part on language in APA
section 706 directing the reviewing court to “review the whole
record”. Id. at 578-580. Perhaps out of concern that judicial
review of the “whole record” within the meaning of APA section
706 would be inconsistent with the established Tax Court practice
of not “looking behind” statutory notices of deficiency,8 the
court felt compelled to conclude that the Tax Court is not a
reviewing court for purposes of the APA. Id. at 580. The court
based that conclusion on the premise that the APA judicial review
provisions (APA sections 701-706) apply only to “formal”
adjudications (i.e., those subject to the procedures set forth in
APA sections 554, 556, and 557). Id. Given subsequent caselaw
7
The majority also cites Nappi v. Commissioner, 58 T.C.
282 (1972). In Nappi, the Court simply concluded that the Tax
Court is not an “agency” that is subject to the administrative
procedure (as opposed to judicial review) provisions of the APA
(APA secs. 551-559). Id. at 284.
8
To the extent the Court was so concerned, such concern
appears to have been unfounded. See S. Rept. 752, 79th Cong.,
1st Sess. 28 (1945); H. Rept. 1980, 79th Cong., 2d Sess. 46
(1946) (stating that the requirement of review upon the whole
record means simply “that courts may not look only to the case
presented by one party, since other evidence may weaken or even
indisputably destroy that case”).
- 50 -
establishing that the judicial review provisions of the APA apply
to informal, as well as formal, adjudications, e.g., Fla. Power &
Light Co. v. Lorion, supra at 744, the continuing relevance of
the APA discussion in O’Dwyer is dubious at best.9
3. Applicability of the APA to Section 6015(f) Cases
Given the legislative history discussed above (and the
questionable relevance of the O’Dwyer case), the majority’s
premise that the judicial review provisions of the APA do not
apply to deficiency cases in this Court cannot stand.
Furthermore, APA section 559 would seem to preclude the
possibility that such provisions do not apply to our relatively
9
In his concurring opinion, Judge Thornton supplements his
reliance on the O’Dwyer case with statutory analysis. He implies
that the import of APA sec. 704 (which provides in part that
“agency action for which there is no other adequate remedy in a
court are subject to judicial review”) is that, where there is an
existing “adequate remedy in court”, the APA is inapplicable.
Concurring op. pp. 31-32. However, as Judge Thornton himself
recognizes, the Supreme Court has characterized the import of the
above-quoted portion of APA sec. 704 as follows: “When Congress
enacted the APA to provide a general authorization for review of
agency action in the district courts, it did not intend * * * to
duplicate the previously established special statutory procedures
relating to specific agencies.” Bowen v. Mass., 487 U.S. 879,
903 (1988). Thus, for example, a taxpayer who disagrees with a
deficiency notice does not have a separate cause of action in
Federal district court under the APA. It does not follow that
the APA is “inapplicable” to deficiency cases (see discussion of
APA sec. 706(2)(F) above). Similarly, in Beall v. United States,
336 F.3d 419 (5th Cir. 2003), another case cited by Judge
Thornton which refers to the Bowen discussion of APA sec. 704,
the court merely made the technical point that the taxpayer’s
interest abatement claim was cognizable as a refund suit under
sec. 7422 rather than as a separate cause of action under the
APA. Id. at 427 n.9.
- 51 -
new jurisdiction to review section 6015(f) adjudications: “[A]
[s]ubsequent statute may not be held to supersede or modify * * *
chapter 7 * * * except to the extent that it does so expressly.”
Section 6015(e), of course, makes no mention of the APA (or the
appropriate standard or scope of review, for that matter). We
would therefore hold that the APA judicial review provisions
apply to section 6015(f) cases as well as deficiency cases.
C. APA Section 706(2)(A) vs. APA Section 706(2)(F)
1. The Majority Opinion
Assuming the applicability of the APA judicial review
provisions in this case, the relevant inquiry becomes whether
Congress intended (as it clearly did in the context of deficiency
proceedings) our review of section 6015(f) adjudications to fall
into the “trial de novo” category of APA section 706(2)(F). The
majority, while framing the issue in terms of the propriety of de
novo proceedings rather than the applicability of APA section
706(2)(F), concludes that “Congress intended that we provide an
opportunity for a trial de novo in making our determinations
under section 6015(f).” Majority op. p. 12. The majority bases
that conclusion on the similarity between the words “determine”
and “redetermination” appearing in sections 6015(e) and 6213(a),
respectively. Specifically, the majority reasons that: (1)
Section 6213(a), which establishes our jurisdiction over
deficiency cases, uses the term “redetermination”, and (2)
- 52 -
deficiency cases in this Court are decided by trial de novo, so
(3) section 6015(e), which uses the term “determine”, must
reflect a congressional intent for us to review section 6015(f)
adjudications by trial de novo. In other words, the majority
assumes that, when Congress uses the word “determine” (or a
variation thereof) in the context of Tax Court review, such word
signifies a trial de novo.
2. Use of the Word “Determine” in Section 6015(f)
Does Not Signify De Novo Proceedings
a. Legislative History of Other Tax Provisions
The legislative history of certain declaratory judgment
provisions of the Code contradicts the majority’s assumption
regarding Congress’s use of the word “determine”. As the
majority recognizes, this Court has jurisdiction to issue
declaratory judgments in several situations. Majority op. p. 12
note 7. For example, we have jurisdiction under section 7476 to
make a declaration with respect to the initial or continuing
qualification of certain retirement plans. In that regard, we
have stated that “it is clear that Congress did not expect the
Tax Court to conduct a trial de novo and make an independent
examination of the facts to determine if the subject plan was
qualified.” Tamko Asphalt Prods., Inc. v. Commissioner, 71 T.C.
824, 837 (1979), affd. 658 F.2d 735 (10th Cir. 1981); see also
Rule 217(a) and Explanatory Note, 68 T.C. 1031, 1047. While the
majority notes that section 7476 authorizes us to make a
- 53 -
“declaration” rather than a “determination”, majority op. p. 12
note 7, the House report explaining section 7476 describes the
provision in part as follows:
The Court is to base its determination upon the reasons
provided by the Internal Revenue Service in its notice
to the party making the request for a determination, or
based upon any new matter which the Service may wish to
introduce at the time of the trial.[10] The Tax Court
judgment, however, is to be based upon a
redetermination of the Internal Revenue Service’s
determination and not on a general examination of the
provisions of the plan or related trust. * * *
* * * * * * *
* * * In order to provide the Court with flexibility in
carrying out this provision, the bill authorizes the
Chief Judge of the Tax Court to assign the
Commissioners of the Tax Court to hear and make
determinations with respect to petitions for a
declaratory judgment, subject to such conditions and
review as the Court may provide.
H. Rept. 93-779 at 107, 108 (1974), 1974-3 C.B. 244, 350, 351
(emphasis added); see also S. Rept. 93-383 at 114, 115 (1974),
1974-3 C.B. (Supp.) 80, 193, 194 (similar). Similar language
appears in committee reports describing section 7428 (declaratory
judgments relating to section 501(c)(3) status) and former
section 7477 (declaratory judgments relating to section 367
transfers). See H. Rept. 94-658 at 244, 245, 285, 288 (1975),
1976-3 C.B. (Vol. 2) 695, 936, 937, 977, 980; S. Rept. 94-938 at
10
“In raising new matters in a declaratory judgment
proceeding under section 7476, the matters are to be based on
information contained in the administrative record, not on facts
gathered after the administrative record has closed.”
Halliburton Co. v. Commissioner, T.C. Memo. 1992-533.
- 54 -
266, 267, 588, 591 (1976), 1976-3 C.B. (Vol. 3) 49, 304, 305,
626, 629. The foregoing would seem to deflate the notion that
Congress equates the word “determine” (and variations thereof)
with de novo proceedings in the context of Tax Court review.
b. Use of the Word “Determination” Elsewhere
Congress’s use of the word “determination” in a similar,
non-tax context is also instructive. Section 636(b)(1) of the
Federal Magistrates Act, 28 U.S.C. secs. 631-639 (2000), provides
that, in the case of certain “dispositive” motions assigned to a
magistrate, a district judge “shall make a de novo determination
of those portions of the [magistrate’s] report” to which
objection is made. In interpreting that provision, the Supreme
Court stated:
It should be clear that on these dispositive
motions, the statute calls for a de novo determination,
not a de novo hearing. We find nothing in the
legislative history of the statute to support the
contention that the judge is required to rehear the
contested testimony in order to * * * make the required
“determination.” * * *
United States v. Raddatz, 447 U.S. 667, 674 (1980). The Court
quoted the following language from the House report accompanying
the bill that became the Federal Magistrates Act:
The use of the words “de novo determination” is
not intended to require the judge to actually conduct a
new hearing on contested issues. Normally, the judge,
on application, will consider the record which has been
developed before the magistrate and make his own
determination on the basis of that record, without
being bound to adopt the findings and conclusions of
the magistrate. * * *
- 55 -
Id. at 675 (quoting H. Rept. 94-1609 at 3 (1976)). Thus,
Congress has used the phrase “de novo determination” in the
context of other (non-tax) trial court proceedings to signify an
independent determination (i.e., without deference to the result
reached by the initial decisionmaker) by the trial court that is
nonetheless based on the record developed by the initial
decisionmaker.11
D. The “Abuse of Discretion” Standard of Review in Tax
Court Proceedings
1. The Majority Opinion
The majority acknowledges that the standard of review in
this case is abuse of discretion. As discussed above at I.A.3.,
regardless of the applicability of the APA, the abuse of
discretion standard traditionally has been associated with the
application of the record rule. The majority therefore is forced
11
In his concurring opinion, supra p. 34, Judge Thornton
concludes that the following statutory language renders our pre-
APA de novo trial procedures applicable to sec. 6015(f) cases:
“This subchapter, [and] chapter 7 * * * do not limit or repeal
additional requirements imposed by statute or otherwise
recognized by law.” APA sec. 559. We agree that the enactment
of the APA in 1946 did not preempt this Court’s existing de novo
trial procedures. See supra note 6 and accompanying text; see
also supra note 9. We do not agree that our jurisdiction to
review sec. 6015(f) adjudications, created in 1998, can be
stitched to our pre-APA deficiency jurisdiction for these
purposes. Specifically, we emphatically do not agree that sec.
6015 is “part and parcel” of the “specific statutory framework
for reviewing deficiency determinations of the Internal Revenue
Service.” Concurring op. supra p. 34; see infra discussion at
I.D.2.
- 56 -
to take the position that the abuse of discretion standard of
review has different evidentiary consequences in the context of
Tax Court review than it does elsewhere: “The traditional effect
of applying an abuse of discretion standard in this Court is to
alter the standard of review, not to restrict what evidence we
consider in making our determination.” Majority op. p. 13. The
majority proceeds to list six examples of situations in which we
have conducted trials de novo to determine whether the
Commissioner has abused his discretion: (1) Section 446 cases,
(2) section 482 cases, (3) review of the Commissioner’s refusal
to waive penalties and additions to tax, (4) review of interest
abatement denials, (5) review of the Commissioner’s refusal to
grant filing extensions, and (6) review of the Commissioner’s
disallowance of a bad debt reserve deduction. Majority op. pp.
14-16.
2. Distinguishing the Majority’s Examples
In all but one of the majority’s examples regarding de novo
proceedings in the context of this Court’s abuse of discretion
review, the Commissioner’s exercise of discretion is relevant to
his determination of the existence or amount of a deficiency in
tax or an addition to tax that is subject to our deficiency
jurisdiction.12 Our opinion in Estate of Gardner v.
12
The one exception involves our jurisdiction (conferred
in 1996) to review interest abatement adjudications. The
(continued...)
- 57 -
Commissioner, 82 T.C. 989, 999, 1000 (1984), is instructive in
that regard:
However, once our deficiency jurisdiction has been
properly invoked, we will examine de novo the merits of
respondent’s deficiency determinations, including his
exercise of discretion under section 6081 [filing
extension], to the extent that the alleged deficiency
and any addition to tax within our deficiency
jurisdiction (see sec. 6662) [now sec. 6665] turn upon
respondent’s discretionary actions. * * *
* * * Rather, our review of respondent’s denial of an
extension of time to file the estate tax return in this
case is necessary for us to determine the merits of
respondent’s substantive determination of a deficiency.
Here the sole reason for denial of the section 2032A
special use election (and hence the basis for the major
portion of the asserted deficiency) is the assertion
that the estate tax return was not timely filed.
The approach suggested by Estate of Gardner (albeit in the
context of whether the Commissioner’s discretion under section
6081 is reviewable at all) is an appropriate and workable means
of determining whether our review of an exercise of discretion by
the Commissioner is properly the subject of a trial de novo.
Applying that test to section 6015(f), the Commissioner’s
exercise of discretion under that provision is not relevant to
his determination of the existence or amount of a deficiency in
12
(...continued)
majority opinion cites three recent interest abatement cases
(each the subject of a memorandum opinion) in which we conducted
trials de novo. Majority op. p. 12. While the issue is not
before us today, we would conclude that, for the same reasons
discussed herein, our review of the Commissioner’s interest
abatement denials is not properly the subject of de novo
proceedings.
- 58 -
tax or an addition to tax that is subject to our deficiency
jurisdiction.13 Accordingly, we would hold that this Court’s
review of such adjudications is not properly the subject of de
novo proceedings.
E. Procedural Consistency
1. In General
The majority opinion states that “[a]doption of respondent’s
position would lead to the anomaly of proceedings in some section
6015(f) cases on the basis of the Commissioner’s administrative
record and trials de novo in others.” Majority op. p. 17.
Assuming that a trial de novo would be appropriate in certain
circumstances, see sec. 6015(e)(1)(A)(i)(II),14 we maintain that a
de novo determination of eligibility for section 6015(f) relief
on one hand, and a review of the Commissioner’s denial of such
13
That is true even when the taxpayer seeks review of the
Commissioner’s denial of sec. 6015(f) relief as part of a
deficiency case. In that situation, the Commissioner’s exercise
of discretion may determine the taxpayer’s liability for any
deficiency ultimately assessed but has no bearing on the
existence or amount of that deficiency. If a taxpayer were to
challenge the Commissioner’s denial of relief in a subsequent
deficiency proceeding, we see no reason why we could not conduct
a trial de novo regarding the existence or amount of the
deficiency while disposing of any sec. 6015(f) denial on the
basis of its administrative record.
14
The majority cites Butler v. Commissioner, 114 T.C. 276
(2000), in support of the proposition that, if a taxpayer
challenges the Commissioner’s denial of sec. 6015(f) relief in a
subsequent deficiency proceeding, the trial de novo with respect
to the deficiency extends to our disposition of the sec. 6015(f)
issue. As explained in note 13, we disagree. The Court, of
course, did not address that issue in Butler.
- 59 -
relief for abuse of discretion on the other, are two
fundamentally different judicial exercises for which different
procedures are entirely appropriate.
2. Nonrequesting Spouses
We also disagree with the majority’s conclusion that “[t]he
fact that Congress provided for intervention by nonrequesting
spouses in the Tax Court proceeding suggests Congress intended
that we conduct trials de novo in making our determinations under
section 6015(f)”. Majority op. p. 19. There are numerous
examples in administrative law where third parties are allowed to
intervene in judicial proceedings involving the review of agency
action. See, e.g., Didrickson v. United States Dept. of
Interior, 982 F.2d 1332 (9th Cir. 1992). We are not aware of any
cases holding that such third parties may introduce matters
outside the scope of the relevant administrative record. Cf. Vt.
Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc.,
435 U.S. 519, 549-555 (1978) (upholding Atomic Energy
Commission’s refusal to consider conservation alternatives raised
by intervenor subsequent to initial licensing decision).
F. Conclusion
We conclude that our scope of review in this case should be
limited to the administrative record.
- 60 -
II. Misapplying the Abuse of Discretion Standard
A. Introduction
While we disagree with the majority’s conclusion that the
scope of review–-a trial de novo-–is correct, we recognize that
the Court has previously adopted abuse of discretion as the
standard of review for section 6015(f) cases. See, e.g., Jonson
v. Commissioner, 118 T.C. 125. Courts generally hold that a
decisionmaker abuses his discretion “when it makes an error of
law * * * or rests its determination on a clearly erroneous
finding of fact * * * [or] applies the correct law to facts which
are not clearly erroneous but rules in an irrational manner.”
United States v. Sherburne, 249 F.3d 1121, 1125-1126 (9th Cir.
2001); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
402-403 (1990) (same).
The majority describes the abuse of discretion standard as
follows: “The taxpayer bears a heavy burden of proof, the
Commissioner’s position deserves our deference, and we do not
interfere unless the Commissioner’s determination is arbitrary,
capricious, clearly unlawful, or without sound basis in fact or
law.” Majority op. pp. 13-14. Accepting the majority at its
word–-the proper approach is de novo review, applying an abuse of
discretion standard, majority op. p. 20–-we fail to see how the
majority has done anything other than ignore its description of
the abuse of discretion standard and, instead, substitute its
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judgment for respondent’s, both as to the procedures prescribed
by the Secretary pursuant to section 6015(f) and respondent’s
determination of various factual issues in this case.
B. New Standards
Properly applied, abuse of discretion review recognizes that
Congress intended agencies to have considerable leeway in setting
standards. Unless those standards are in some way contrary to
the statute and so constitute “an error of law”, courts should
respect them and not substitute their own. We are bound by the
following rule of deference:
Federal courts must defer to any reasonable
interpretation given to the statute by the agency
charged with its administration, as well as to the
agency’s interpretations and application of its
regulations and policies in carrying out its statutory
duties, unless plainly erroneous.
Wilkins v. Lujan, 995 F.2d 850, 853 (8th Cir. 1993) (citation and
internal quotation marks omitted); see also Citizens Action
League v. Kizer, 887 F.2d 1003 (9th Cir. 1989).
Section 6015(f) instructs the Secretary to prescribe
procedures for exercising his discretion to provide equitable
relief under that section. The Secretary has prescribed the
required procedures in Rev. Proc. 2000-15, 2000-1 C.B. 447.
Section 4 of the revenue procedure is entitled “General
Conditions for Relief”. Section 4.01 thereof lists certain
necessary (“threshold”) conditions for relief; section 4.02 lists
circumstances under which the Secretary will ordinarily grant
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equitable relief; and section 4.03, among other things, lists the
factors that the Secretary will consider in determining whether
he will grant equitable relief in situations where he would not
ordinarily grant it under section 4.02. While the majority does
not disregard the general conditions listed in section 4 of the
revenue procedure, it does not defer to them, treating them,
rather, as suggestions, to be respected to the extent that the
majority agrees with them.
The majority substitutes its standards for the Secretary’s
in at least three ways:
(1) The Secretary does not regard the requesting spouse’s
lack of significant benefit from an unpaid liability as weighing
in favor of relief. The majority does. Majority op. pp. 22-23.
(2) The Secretary does not regard the failure of a
requesting spouse to participate in wrongdoing as weighing in
favor of relief. The majority does. Majority op. p. 25.
(3) The Secretary does not regard the fact of a requesting
spouse’s status as a newlywed as weighing in favor of relief.
The majority does. Majority op. p. 29.
The majority’s standards may be reasonable, but since the
majority has made no finding that the Secretary’s are not, we
should not substitute ours for his. Whatever force the majority
attaches to the abuse of discretion standard under which it
labors, that force is not apparent in the majority’s treatment of
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the Secretary’s prescription in Rev. Proc. 2000-15, supra, of the
conditions required for relief under section 6015(f).
C. Commissioner’s Judgment
Moreover, we fail to see how the abuse of discretion
standard has any force in connection with the majority’s review
of respondent’s fact findings. We are principally concerned by
the majority’s failure to defer to respondent’s findings on
perhaps the two most important facts that the majority cites in
favor of relief--the supposed economic hardship petitioner would
suffer were relief not granted, and her supposed lack of
knowledge that her husband would not pay his 1995 tax liability
under the terms of an installment agreement.
With respect to economic hardship, the majority contradicts
respondent’s finding that petitioner had enough assets and income
from which to pay the unpaid tax for 1995 and that she failed to
show she would suffer economic hardship if relief were denied.
Among the facts that the majority finds are: (1) In 2002,
petitioner received wages of $79,000, (2) she owned a house in
which, at least in 2002, she had equity of $33,000, (3) at the
time of trial, she had $13,500 in a savings account, and (4) at
the time of trial, she owned a 401(k) retirement account of
undetermined amount. Certainly, she had expenses in caring for
Mr. Wiwi, but the majority does not tell us what they are. Based
on the majority’s findings, it appears that the 1995 unpaid tax
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is no more than $6,220 (increased by interest). We fail to see
how respondent’s finding that petitioner would suffer no economic
hardship if relief were denied runs afoul of the majority’s
recitation of the abuse of discretion standard: “arbitrary,
capricious, clearly unlawful, or without sound basis in fact or
law.”15 Majority op. p. 14.
With respect to petitioner’s knowledge, the majority
contradicts respondent’s finding that, when petitioner signed the
1995 return, she knew or had reason to know that Mr. Wiwi would
not pay the tax for 1995, and that it was not reasonable for
petitioner to believe that Mr. Wiwi would pay the tax. The
majority finds: “Mr. Wiwi told petitioner * * * that he would
pay the unpaid 1995 tax as provided in a proposed installment
agreement that he submitted with their 1995 income tax return.”
Majority op. p. 4. In finding that petitioner reasonably
believed that Mr. Wiwi would pay the tax owed, the majority
states:
Mr. Wiwi concealed from petitioner until 1998 that he
had failed to pay the unpaid 1995 tax. During those
years petitioner did not know and had no reason to know
of Mr. Wiwi’s failure to pay that tax. This fit his
pattern of deception; Mr. Wiwi had also concealed from
her that he owed tax for 1993 and 1994. Respondent
15
Petitioner’s first lawyer even admitted in his first
meeting with respondent’s Appeals Office that his client would
not suffer economic hardship were relief not granted. Ex. 10-R
at 113.
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offered no contrary evidence on this factor. We
conclude that this factor favors petitioner.
Majority op. p. 27 (emphasis added).
The time for testing petitioner’s belief is when she signed
the 1995 return. See majority op. p. 26. At that time,
petitioner knew that Mr. Wiwi would not presently pay the unpaid
tax. He told her that he would pay the tax pursuant to a
“proposed” installment agreement that he was submitting with
their joint return. The Commissioner, however, is not obligated
to accept an installment agreement. See sec. 6159.
The majority finds nothing to establish petitioner’s
evaluations of the probabilities that: (1) The proposed
installment agreement would be accepted or (2) Mr. Wiwi could
immediately pay the unpaid tax if the proposed installment
agreement were rejected. Indeed, the majority’s failure to find
that an installment agreement was accepted leads us to believe
either that Mr. Wiwi did not actually submit the agreement or
that respondent rejected it.16 More importantly, while we
acknowledge that reasonable persons could draw different
inferences from that portion of the factual record, we do not
16
The administrative record shows no installment
agreement, either attached to the return or separate, either in
draft or in final form. Indeed, the only mention of an
installment agreement is the notation “no installment agreement”
in the notes of the Appeals officer from petitioner’s second
Appeals conference. Ex. 10-R at 105.
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understand how the majority can conclude that respondent abused
his discretion in finding that it was not reasonable for
petitioner to believe that Mr. Wiwi would pay the unpaid tax at
the time she signed the return.
D. Conclusion
The majority has failed to convince us that respondent’s
ultimate finding of fact--that petitioner was not entitled to
equitable relief--was “arbitrary, capricious, clearly unlawful,
or without sound basis in fact or law”; in other words, an abuse
of discretion. See majority op. pp. 13-14.
III. Conclusion
We close by returning to our first point: The scope of our
review of the Commissioner’s denial of section 6015(f) relief
should be limited to the administrative record, since the Tax
Court is not exempt from the ordinary principles of
administrative law that bind other courts reviewing agency
action. Had the majority so limited the scope of its review, and
had it then examined respondent’s denial of relief to petitioner
pursuant to a correct application of the abuse of discretion
standard, to determine whether it was “arbitrary, clearly
unlawful, or without sound basis in fact or law”, we believe that
respondent would have prevailed.
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CHIECHI, J., dissenting: I agree with the majority
opinion’s rejection of respondent’s argument that the APA
controls the proceedings in the instant case. However, that
conclusion does not require the majority opinion to hold, as it
does, nor does it logically lead to holdings (1) that, in
determining whether to grant relief under section 6015(f), the
Court may consider matters raised at trial that petitioner did
not raise with respondent’s Appeals Office and (2) that
petitioner is entitled to equitable relief under section 6015(f).
I dissent from those holdings and disagree with the rationales
that the majority opinion offers in support of them.
With respect to the majority opinion’s holding that, in
determining whether to grant relief under section 6015(f), the
Court may consider matters raised at trial that petitioner did
not raise with respondent’s Appeals Office, nothing in section
6015 requires the Court, in exercising its jurisdiction under
section 6015(e)(1)(A) “to determine the appropriate relief
available to” petitioner under section 6015(f), to consider
matters raised at trial that petitioner did not raise with
respondent’s Appeals Office. To consider such matters in
determining whether respondent abused respondent’s discretion in
denying relief under section 6015(f) has the effect of vitiating
the abuse-of-discretion standard that the Court held in Butler v.
Commissioner, 114 T.C. 276, 292 (2000), and its progeny is
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applicable where a taxpayer claims equitable relief under that
section. If a taxpayer seeking relief under section 6015(f) does
not raise a matter with, or present sufficient information to,
respondent’s Appeals Office and if, after reasonable inquiry,
respondent’s Appeals Office has been unable to ascertain such
matter or sufficient information that would support such relief,
it would be improper for the Court to permit the taxpayer to
present such matter or such information at trial. Moreover, it
would be illogical and inappropriate for the Court to conclude in
such circumstances that respondent abused respondent’s discretion
in denying relief under section 6015(f).
With respect to the majority opinion’s holding that
petitioners are entitled to equitable relief under section
6015(f), the majority opinion purports to have applied an abuse-
of-discretion standard in reaching that holding. I do not
believe that the majority opinion has in fact applied such a
standard in the instant case. Instead, the majority opinion,
based upon evidence introduced at trial, has substituted the
judgment of the majority for the judgment of respondent. In so
doing, the majority opinion offers no explanations about why the
conclusions of respondent’s Appeals Office as to the effect of
the presence or the absence of certain factors set forth in Rev.
Proc. 2000-15, 2000-1 C.B. 447, constitute an abuse of discretion
by respondent.
FOLEY, J., agrees with this dissenting opinion.