Billings v. Comm'r

127 T.C. No. 2, 127 T.C. 7, 2006 U.S. Tax Ct. LEXIS 21

• Court: United States Tax Court
• Decided: July 25, 2006
• Docket: No. 6148-03
• Status: Published

Opinions

OPINION

Holmes, Judge:

In 1999, Rosalee Billings began embezzling money from her employer. She kept her husband in the dark about her embezzlement and didn’t report the ill-gotten income on their joint return. After she was caught in 2000, she confessed her theft to him, and together they signed an amended joint return that reported the stolen income and showed a hefty increase in the tax owed. He asked the Commissioner to be relieved of joint liability for the increased tax, but his request was refused because he knew about the embezzled income when he signed the amended return and also knew that the increased tax shown on that amended return was not going to be paid.

Billings began his case in our Court by filing a “nondefi-ciency stand-alone” petition — “nondeficiency” because the IRS accepted his amended return as filed and asserted no deficiency against him, and “stand-alone” because his claim for innocent spouse relief was made under section 6015 and not as part of a deficiency action or in response to an IRS decision to begin collecting his tax debt through liens or levies. The particular part of section 6015 under which he seeks relief is section 6015(f).¹ This subsection is the only one available to spouses against whom the IRS has not asserted a deficiency. In Ewing v. Commissioner, 118 T.C. 494 (2002) (Ewing I),² we held that the Tax Court had jurisdiction over nondefi-ciency stand-alone petitions like Billings’s. The Ninth Circuit has now reversed us, Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg. Ewing I, 118 T.C. 494, vacating 122 T.C. 32 (2004); the Eighth Circuit has adopted the Ninth Circuit’s position, Bartman v. Commissioner, 446 F.3d 785, 787 (8th Cir. 2006), affg. in part and vacating in part T.C. Memo. 2004-93; and the Second Circuit has questioned our decision, see Maier v. Commissioner, 360 F.3d 361, 363 n.1 (2d Cir. 2004), affg. 119 T.C. 267 (2002).

Billings’s case is one of the large number of nondeficiency stand-alone cases that began accumulating on our docket while Ewing I was on appeal. We now revisit the question of whether we have jurisdiction to review the Commissioner’s decisions to deny relief under section 6015(f) when there is no deficiency but tax went unpaid.

Background

David Billings was well into a 30-year career at General Motors when he married Rosalee in 1996. Rosalee herself was a payroll clerk at South Kansas City Electric Co. The Billingses kept two checking accounts, and while both were jointly held, David and Rosalee each kept almost exclusive control over one of them. In 1999, Rosalee began to transfer money from the Electric Company’s payroll account into the checking account that she controlled and into which she had her own pay directly deposited.

Rosalee kept her embezzlement secret from her husband, and she did not report on their 1999 return the nearly $40,000 that she had stolen. The Electric Company discovered the embezzlement in December 2000, fired her, and then notified the authorities. She told her husband what she had done and hired a lawyer, Patrick Wiesner. (Wiesner also represented David in this case and before the IRS.)

In his capacity as Rosalee’s lawyer, Wiesner advised her to report the embezzlement income to the IRS on an amended return. He told her that if she did, a sentencing judge would probably be more lenient and might even depart from the U.S. Sentencing Guidelines. But section 1.6013-l(a)(l) of the income tax regulations created a problem. It prohibits spouses who have already filed a joint return for a particular year from filing amended returns changing their status to married-filing-separately once the deadline to file returns has passed. The due date for the Billingses’ 1999 tax year — April 15, 2000 — was long past, and so Wiesner told David (whether in Wiesner’s capacity as Rosalee’s lawyer or as David’s is unclear) that David also had to sign the amended return, or risk having his wife face a longer sentence in a more unpleasant facility. On March 19, 2001, David signed the amended return.

That return included as taxable income the nearly $40,000 that Rosalee had embezzled in 1999. It also showed an increase in tax of over $16,000. When David signed the amended return, he knew that neither he nor his wife expected to be able to pay the increased tax. Wiesner, however, suggested that David himself might avoid liability for the extra tax by filing for innocent spouse relief under section 6015. He even filled out the required IRS form and had David sign it together with the amended return. The Billingses sent that form to the IRS, but it was never processed.

As the Billingses feared, Rosalee’s embezzlement led to a criminal charge — one count of wire fraud. Less than a month later, in November 2001, she pleaded guilty. Her sentence apparently reflected a downward departure for acceptance of responsibility, though the probation officer who wrote the sentencing report did not mention that the Billingses had filed an amended return.³

In 2002, the Billingses filed for bankruptcy and received a discharge, which of course did not affect Rosalee’s obligation to repay the money she’d embezzled or her own liability for the unpaid 1999 taxes. 11 U.S.C. secs. 523(a)(1), 507(a)(8) (2000). David retired from GM in 2003 and began collecting a pension, though he continues to work two other jobs. He and his wife have filed timely tax returns for later years as they came due.

As the IRS had not processed David’s original request for relief, he filed another one. In November 2002, the IRS denied his request for relief based on “all the facts and circumstances,” but particularly because:

you failed to establish that it was reasonable for you to believe the tax liability was paid or was going to be paid at the time you signed the amended return.

David appealed, and the IRS issued its final determination, again denying him relief because he did not believe when he signed the amended return that the tax would be paid.

The Commissioner argues:

Instead of filing an amended return, * * * [Rosalee] could have contacted respondent and informed him of the unreported embezzlement income. Once informed, respondent could have proceeded with examination procedures and * * * [Rosalee] could have agreed to respondent’s determination of additional tax. [Resp. Br. at 30.]

This would have led to the determination of a deficiency and presumably allowed David to file a petition seeking relief under a different part of section 6015. See, e.g., Haltom v. Commissioner, T.C. Memo. 2005-209.

Even under section 6015(f), Billings’s position is not a weak one. In Rosenthal v. Commissioner, T.C. Memo. 2004-89, the petitioner was a widow who also had no knowledge of omitted income (in her case, an unreported IRA distribution to her late husband) when she signed the original return, but did know about it when she signed the amended return that corrected that omission. We found that the Commissioner had abused his discretion by not giving her innocent spouse relief:

It is unpersuasive to argue, as does respondent, that petitioner’s voluntary filing of an amended 1996 return and her attendant payment of the delinquent taxes attributable to the omission of income from the original 1996 return militate against equitable relief simply because she had to have known of the omission before she filed the amended return and made the payment. [Id.]

Before this case was tried, Billings and the Commissioner fully stipulated the facts under Rule 122. Billings was a resident of Kansas when he filed his petition, which means an appeal lies to the Tenth Circuit unless the parties stipulate differently.

Discussion

A married couple can choose to file their Federal tax return jointly, but if they do, both are then responsible for the return’s accuracy and both are jointly and severally liable for the entire tax due. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). This can lead to harsh results, especially when one spouse hides information from the other, so Congress enacted section 6015, which directs the Commissioner to relieve qualifying “innocent spouses” from that liability. Sec. 6015(a). An innocent spouse may seek either (1) relief from liability under section 6015(b) if he can show that he was justifiably ignorant of unreported income or inflated deductions, or (2) have his tax liability allocated between himself and an estranged or former spouse under section 6015(c). Billings, however, looks to section 6015(f) for relief. Subsection (f) relief is available only to a spouse who is ineligible for relief under subsections (b) and (c) and who shows that “taking into account all the facts and circumstances, it is inequitable to hold [him] liable for any unpaid tax or any deficiency (or any portion of either).”

Billings and the Commissioner stipulated that he did not qualify for relief under either section 6015(b) or (c) because no deficiency was ever asserted against him and his wife. They were right to do so, because both those subsections require a deficiency as a condition of relief. See, e.g., Block v. Commissioner, 120 T.C. 62, 66 (2003). Understanding why the Billingses owed tax but had no “deficiency” after they filed their amended return requires a bit of explanation: Section 6211(a) defines a “deficiency” as the “amount by which the tax imposed * * * exceeds * * * the amount shown as the tax by the taxpayer upon his return.” (Emphasis added.) The Code itself doesn’t tell us what effect the filing of an amended return has, but the related regulation does. It states that “[a]ny amount shown as additional tax on an ‘amended return’ * * * filed after the due date of the return, shall be treated as an amount shown by the taxpayer ‘upon his return’ for purposes of computing the amount of the deficiency.” Sec. 301.6211-l(a), Proced. & Admin. Regs. Because the Billingses’ amended 1999 return was filed well after April 15, 2000, and the Commissioner accepted that return, the increase in tax that it showed has to be treated as an amount shown on their return.

That left Billings able to look only to subsection (f) for relief, and when the Commissioner denied it to him, left him with the problem of where to seek judicial review. He filed in our Court and, under our decision in Ewing I, he was right to do so because we had held that section 6015(e) gave us jurisdiction to grant (f) relief in nondeficiency stand-alone cases like his.

Ewing I in turn built on two other cases. The first was Butler, where we had to decide whether we had jurisdiction to review the Commissioner’s decision to deny 6015(f) relief when a taxpayer filed a petition to redetermine a deficiency asserted against her. We concluded that we did, because we had for a very long time treated claims for innocent spouse relief under old section 6013(e), Act of Jan. 12, 1971, Pub. L. 91-679, 84 Stat. 2063, 2063-2064, repealed by Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201(e)(1), 112 Stat. 685, 740 (1998), as “affirmative defenses” to the Commissioner’s deficiency determination. Butler, 114 T.C. at 287-288. This followed logically from our general rule that a petition to redetermine a deficiency gives us jurisdiction over the entire deficiency and not just the particular items listed in the notice of deficiency.

So unless there had been some change in the law, a taxpayer challenging a notice of deficiency could, after enactment of section 6015, continue to argue that he was an innocent spouse. What made Butler notable is that the Commissioner argued that section 6015(e)⁴ was precisely such a change in the law — that this new section whose words seemed on their face to expand our jurisdiction had an esoteric meaning that shrank it instead. We disagreed, looking instead at the class of those covered by the language of the section — individuals who elect to have subsection (b) or (c) apply — and finding nothing in either section 6015(e)’s language or its legislative history “that precludes our review of the Commissioner’s denial of equitable relief pursuant to section 6015(f) where the taxpayer has made the requisite election for relief pursuant to section 6015(b) or (c).” Butler, 114 T.C. at 290.

Just a short time later, we decided Fernandez v. Commissioner, 114 T.C. 324 (2000). Fernandez, unlike Butler, was a “stand-alone” case; i.e., one in which the claim for innocent spouse relief was not raised as a defense to a deficiency but by itself.⁵ In Fernandez, we held that section 6015(e) also gave us jurisdiction over a stand-alone petition to review the Commissioner’s denial of relief under section 6015(f):

We first look to the prefatory language contained in section 6015(e)(1) which states: “in the case of an individual who elects to have subsection (b) or (c) apply.” We conclude that this language does not contain words of limitation that confine our jurisdiction to review of an election under subsections (b) and/or (c), as respondent contends. Rather, we understand this language to encompass the procedural requirement applicable to all joint filers seeking innocent spouse relief and, therefore, states the prerequisite to seeking our review of such relief, [id. at 330.⁶]

We reasoned that section 6015(e)’s jurisdictional grant to determine “the appropriate relief available to the individual under this section” meant that we could grant relief to a deserving individual under any part of “this section” — meaning relief under subsection (b), (c), or (f) — because the word “section” includes all subsections. Id. at 331.

The problem we faced in Ewing I is that Congress amended section 6015(e) in 2000. It now reads (emphases showing new language):

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—

And here our problem began, because it might seem that the inclusion of the first new phrase was the inclusion of a new condition — that an individual seeking innocent spouse relief must show that the Commissioner is asserting a deficiency against him. We raised the problem sua sponte in Ewing I, but both the Commissioner and Ewing took the position that the amendment did not deprive us of jurisdiction. Ewing I, 118 T.C. at 506.

Given the difficulty of the issue, we analyzed the question at length, reasoning that

Equitable relief under section 6015(f) is, and always has been, available in nondeficiency situations. Under these circumstances, the amendment to section 6015(e)(1) referring to situations where “a deficiency has been asserted” and the retention of the language in that same section giving us jurisdiction over “the appropriate relief available to the individual under this section” creates an ambiguity. [Id. at 504.]

Having found an ambiguity, we then consulted the legislative history and found nothing

indicating that the amendment of section 6015(e) * * * was intended to eliminate our jurisdiction regarding claims for equitable relief under section 6015(f) over which we previously had jurisdiction. The stated purpose for inserting the language “against whom a deficiency has been asserted” into section 6015(e) was to clarify the proper time for a taxpayer to submit a request to the Commissioner for relief under section 6015 regarding underreported taxes. [Id. at 505.]

On appeal, the Commissioner changed his mind about the proper construction of the new language. The Ninth Circuit agreed with him (and the dissent in Ewing I) that the first step in our reasoning — finding that the amendment to section 6015(e) was ambiguous — violated “the basic principle of statutory construction that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.’” Ewing, 439 F.3d at 1014. It concluded that “the Tax Court lacked jurisdiction because no deficiency had been asserted.” Id. at 1013. In Bartman, the Eighth Circuit adopted the Ninth Circuit’s holding, though in doing so, it may have been somewhat imprecise in its use of the terms “assertion”, “determination”, and “assessment” of a deficiency. Id. at 787 (Tax Court has jurisdiction over section 6015 petitions “only where a deficiency has been asserted”); id. (Tax Court has no jurisdiction over section 6015 petitions “where no deficiency has been determined by the IRS”); id. at 788 (no Tax Court jurisdiction “because no deficiency had been assessed against Bartman”).⁷

The opinions from the Eighth and Ninth Circuits create one of the unique problems that our Court sometimes has to face — we have always believed that Congress meant us to decide like cases alike, no matter where in the Nation they arose, so that our precedents could be relied on by all taxpayers. Appeals from our decisions, though, go to twelve different circuit courts and so we have often had to react to appellate reversal by only one of them. We concluded early on that, when that happens, we should keep deciding cases as we think right. Lawrence v. Commissioner, 27 T.C. 713, 717 (1957), revd. 258 F.2d 562 (9th Cir. 1958). And although we also recognize an exception to that rule — we won’t follow our precedent in a case appealable in a circuit where we would surely be reversed, see Lardas v. Commissioner, 99 T.C. 490, 495 (1992), explaining Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971)-we do not always wait for the Supreme Court to restore consistency in construing the Tax Code when one or more circuit courts disagree with us. As we said nearly 50 years ago, we have “no desire to ignore or lightly regard any decisions of those courts,” and have “not infrequently * * * been persuaded by the reasoning of opinions of those courts to change [our] views on various questions being litigated.” Lawrence, 27 T.C. at 717.

The opinions in Ewing I and Bartman change the judicial landscape, see Robinson v. Commissioner, 119 T.C. 44, 51 (2002), and so we now reconsider our earlier reading of section 6015(e). In Ewing I, we thought that reading the key phrase in the amendment — “In the case of an individual against whom a deficiency has been asserted” — as limiting our jurisdiction made little sense if the remaining language, as we had construed it in Butler and Fernandez, continued to allow us to grant subsection (f) relief. This did not read the amendment entirely out of the statute, but led us to view it (especially in light of its legislative history) merely as a new timing requirement aimed at limiting speculative claims for innocent spouse relief. Cf. Lamie v. United States Tr., 540 U.S. 526, 534 (2004) (cautioning against comparisons between amended statutes and their predecessors to find ambiguity).

After the opinions in Ewing I and Bartman, however, this reading becomes problematic, particularly when we consider that “deficiency” itself has a defined meaning — the amount by which the tax imposed by the Internal Revenue Code exceeds the amount reported on a return, including an amended return. We now hold, consistently with those opinions, that the phrase establishes a condition precedent: A petitioner in this Court who seeks judicial review of a denial of relief must show that the Commissioner asserts that he owes more in tax than reported on his return. By amending section 6015 the way it did, Congress narrowed the class of individuals able to invoke our jurisdiction under section 6015(e)(1)(A) to those “against whom a deficiency has been asserted.” We cannot fairly read Congress’s phrasing of this qualification as other than a clear, though perhaps inadvertent, deprivation of our jurisdiction over nondeficiency standalone petitions. Placing that circumscription where it did, the “assertion of a deficiency” has become the “ticket to Tax Court” that notices of deficiency are in redetermination cases.

We similarly continue to adhere to our reading in Ewing I of the amendment’s legislative history as focused on the proper time for a taxpayer to request innocent spouse relief from the IRS. See Ewing I, 118 T.C. at 504. But, though “the amendment was certainly all about timing [it] was also all about deficiencies. So it simply reinforces the idea that the elections in subsections (b) and (c) are also all about deficiencies.” ⁸ The amendment’s history shows no indication that Congress was thinking about nondeficiency relief under subsection (f) at all. And, whatever the merits of using legislative history to overcome the plain language of a statute, the merits of using the absence of legislative history to overcome the plain language of the statute must necessarily be weaker.⁹ Reasoning that a partial repeal of our jurisdiction would have to be in the legislative history to be effective is, we think, a misreckoning after Ewing I and Bartman.

We therefore overrule our holding in Ewing I in light of this subsequent precedent and now construe section 6015(e) as not giving us jurisdiction over nondeficiency stand-alone petitions.¹⁰ But if we now think the disputed phrase is not ambiguous, its effect still seems to us anomalous. The legislative history that we reviewed in Ewing I strongly hints that limiting our jurisdiction was not the purpose Congress had in mind in passing the amendment. Still, “Congress enacts statutes, not purposes, and courts may not depart from the statutory text because they believe some other arrangement would better serve the legislative goals.” In re Cavanaugh, 306 F.3d 726, 731-732 (9th Cir. 2002). Whatever “the gap in the section 6015 procedures that this case highlights is not one that can be closed by judicial fiat.” Drake v. Commissioner, 123 T.C. 320, 326 (2004).

Our reading today may also create some confusion-innocent spouse relief under all subsections of 6015 will remain available in this Court as an affirmative defense in deficiency redetermination cases because of section 6213(a), as a remedy on review of collection due process determinations because of section 6330(d)(1)(A), and as relief in standalone petitions when the Commissioner has asserted a deficiency against a petitioner. But until and unless Congress identifies this as a problem and fixes it legislatively by expanding our jurisdiction to review all denials of innocent spouse relief, it is quite possible that the district courts will be the proper forum for review of the Commissioner’s denials of relief in nondeficiency stand-alone cases.¹¹ Because, however, the 2000 amendment to section 6015(e) eliminated our jurisdiction in such cases,

An order will he entered dismissing the case for lack of jurisdiction.

Reviewed by the Court.

Halpern, Thornton, and Kroupa, JJ., agree with this majority opinion.

1 Section references are to the Internal Revenue Code (Code); Rule references are to the Tax Court Rules of Practice and Procedure.

2 There is yet another Opinion in this case — Ewing v. Commissioner, 122 T.C. 32 (2004) — but it dealt with our power to consider evidence outside the administrative record in reviewing the Commissioner’s decisions.

3 David argues that it was filing the amended return that led Rosalee to be sentenced to less than a year, which qualified her for residence in a halfway house rather than imprisonment. Although filing the amended return may well be one form of accepting responsibility, we found nothing in sentencing guideline precedents that suggests it was the only or most persuasive form. We also note that the Billingses made these decisions in late 2000, long before the Supreme Court held the guidelines to be merely advisory. See United States v. Booker, 543 U.S. 220 (2005).

4 Sec. 6015(e) (as before the 2000 amendment):

SEC. 6015(e). Petition foe Review by Tax Court.—

(1) In general. — In the case of an individual who elects to have subsection (b) or (c) apply—

(A) In GENERAL. — 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 * * *

5 The Commissioner actually had asserted a deficiency against Fernandez, though our Opinion in the case wasn’t clear on the point. See Ewing I, 118 T.C. at 500.

6 The reference to “the procedural requirement applicable to all joint filers seeking innocent spouse relief” alludes to sec. 6015(f)(2), which establishes failure to win relief under subsecs, (b) and (c) as a condition for relief under subsec. (f).

7 We construe Bartman’s holding to be the sentence “We agree with the Ninth Circuit that the tax court lacks jurisdiction under § 6015(e) unless a deficiency was asserted against the individual petitioning for review,” Bartman, 446 F.3d at 787. Future cases may well show that Congress meant to give us jurisdiction when a deficiency was “asserted” because it wanted to allow taxpayers to petition for relief well before the IRS sends out a notice of deficiency or makes an assessment — perhaps as soon as issuance of a revenue agent’s report, or some other time during an examination, when the IRS first “states that additional taxes may be owed.” H. Conf. Rept. 106-1033, at 1023 (2000), 2000-3 C.B. 304, 353 (quoted in Ewing I, 118 T.C. at 504).

The terms “determination” and “assessment” are not customarily regarded as synonyms in tax law. A “determination” is the IRS’s final decision. See, e.g., secs. 6212(a), 6230(a)(3)(B). And an “assessment” is the specific procedure by which the IRS officially records a liability, see sec. 6203, triggering its power to collect taxes administratively. (The Code generally bars the IRS from assessing taxes that are being contested in our Court. See sec. 6213(a).)

We note too that, although notices of deficiency establish jurisdiction in most of our cases, see Bartman, 446 F.3d at 787, Congress has given us jurisdiction over cases in which there need be no deficiency — for example, review of the Commissioner’s determinations after IRS collection due process hearings. Sec. 6330(d)(1). However, because there was no deficiency lurking in this case at all, we need not decide whether an “assertion of deficiency” is synonymous with a “notice of deficiency,” much less an “assessment”, in defining the limits of our jurisdiction under sec. 6015(e). See generally sec. 1.6015-5(b)(5), Income Tax Regs.

8 Camp, “Between a Rock and a Hard Place,” 108 Tax Notes 359, 368 (2005).

9 The taxpayer in Bartman noted in oral argument that there is a presumption against implied repeals of Federal jurisdiction, citing, for example, United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 9 (1st Cir. 2005). See http://www.ca8.uscourts.gov/oralargs/oaFrame.html (case No. 04-2771). But that presumption is an application of the more general presumption disfavoring implied repeal of one statute by another — a presumption irrelevant here because it would amount to using old sec. 6015(e) to rewrite the amendment, and one should not use a “statute that no longer is on the books to defeat the plain language of an effective statute.” Am. Bank & Trust Co. v. Dallas County, 463 U.S. 855, 872-873 (1983); see also 1A Sutherland Statutes and Statutory Construction, sec. 23:12 (6th ed.) (irreconcilable prior provision must yield to amendment).

10 We stress that we are not revisiting our conclusion in Butler that relief under sec. 6015(f) is not committed to the Commissioner’s unreviewable discretion. Butler, 114 T.C. at 290.

11 See generally 5 U.S.C. sec. 703 (2000) (review in absence of special statutory proceeding); Owner-Operators Indep. Drivers Association v. Skinner, 931 F.2d 582, 585 (9th Cir. 1991) (default rule is review in federal district court under general federal question jurisdiction).