Commissioner v. Neal

557 F.3d 1262, 103 A.F.T.R.2d (RIA) 801, 2009 U.S. App. LEXIS 2611, 2009 WL 311294
CourtCourt of Appeals for the Eleventh Circuit
DecidedFebruary 10, 2009
Docket06-14357
StatusPublished
Cited by37 cases

This text of 557 F.3d 1262 (Commissioner v. Neal) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Commissioner v. Neal, 557 F.3d 1262, 103 A.F.T.R.2d (RIA) 801, 2009 U.S. App. LEXIS 2611, 2009 WL 311294 (11th Cir. 2009).

Opinions

WILSON, Circuit Judge:

The Commissioner of the Internal Revenue Service (the “IRS”) appeals the decision of the Tax Court granting Ruth E. Neal equitable relief pursuant to the innocent spouse provision of Internal Revenue Code, 26 U.S.C. § 6015(f), for the portion of unpaid federal income taxes attributable to the income of Neal’s ex-husband for tax years 1993, 1994, and 1995. The total amount in controversy, exclusive of interest and penalties, is $278,996.

In this case, the Tax Court conducted a trial and granted Neal equitable relief. Both parties agree that the Tax Court appropriately used an abuse of discretion standard of review and that Neal at trial had to establish the Commissioner abused its discretion in denying her relief. They disagree about whether the Tax Court at trial may consider evidence not included in the administrative record or is limited to consideration of the administrative record.

Neal submits that the Tax Court properly followed its precedent in Ewing v. Commissioner, 122 T.C. 32, 2004 WL 158177 (2004), rev’d on other grounds, 439 F.3d 1009, 1014 (9th Cir.2006), and Porter v. Commissioner, 130 T.C. No. 10, 2008 WL 2065189 (2008), wherein the Tax Court held that in § 6015(f) cases it may conduct a “trial de novo” and consider evidence not included in the administrative record before the Commissioner. The Tax Court uses the term “trial de novo” to describe the form of its proceeding and applies an abuse of discretion standard of review in that trial de novo proceeding. However, the Commissioner contends that the Administrative Procedure Act (“APA”) governs all agency proceedings and thus, the scope of the Tax Court’s inquiry is confined strictly to the administrative record.

This issue has divided the fourteen members of the Tax Court: the twelve judges in the Ewing/Porter majority concluded the Tax Court’s determination of equitable relief in § 6015 cases is made in a trial de novo and is not confined to the administrative record. Eleven of these twelve believe that (1) a trial de novo gives [1264]*1264effect to the congressional mandate in § 6015(e) that the Tax Court “determine the appropriate relief available to [an] individual” in § 6015 equitable relief cases, (2) the Tax Court’s 75-year history of conducting trials de novo under other statutes authorizing the Tax Court to make “determinations” of relief was well established when Congress enacted § 6015(e) using the “determine” language, and (3) the APA’s record rule, limiting review to the administrative record, does not apply to the Tax Court’s § 6015(e) determinations. Two members dissented and prefer a scope of Tax Court review limited to the administrative record.

We summarize § 6015, the statute at issue, the facts, and the procedural history in Part I. In Part II, we hold that the Tax Court did not err in refusing to limit its consideration to the administrative record and in conducting a trial de novo in this § 6015 case. In Parts III and IV, respectively, we hold that the Tax Court did not abuse its discretion in determining that Neal is entitled to equitable relief and we affirm the Tax Court’s judgment.

I.

A.

Section 6015, through which Neal seeks relief, was added to the Internal Revenue Code in 1998 to broaden existing innocent spouse relief from joint and several liability. Congress first imposed joint and several liability on joint filers of tax returns in 1938. Revenue Act of 1938, Pub.L. No. 75-289, § 51(b), 52 Stat. 447, 476 (1938). Until the 1960s, the fairness of this concept was rarely questioned. In 1961, the Supreme Court held that embezzled funds were taxable. James v. United States, 366 U.S. 213, 221, 241, 81 S.Ct. 1052, 1056, 1067, 6 L.Ed.2d 246 (1961). Because many embezzlers were insolvent, the IRS began assessing underpayment of taxes to the joint filers of embezzlers, even if the spouses knew nothing of the embezzlement and had received none of the embezzled funds. See, e.g., Huelsman v. Comm’r, 416 F.2d 477, 478 (6th Cir.1969); Horn v. Comm’r, 387 F.2d 621, 622-23 (5th Cir.1967); Moore v. United States, 360 F.2d 353, 357 (4th Cir.1966). Congress responded by adding to the I.R.C. § 6013(e), which allowed relief from joint liability in certain cases if (1) the underpayment was due to fraud on the part of the taxpayer’s spouse; (2) the taxpayer did not know and had no reason to know of the underpayment; and (3) after considering the facts and circumstances, including whether the taxpayer benefitted from the underpayment, it was inequitable to hold the innocent spouse liable for the underpayment. Innocent Spouse Act of 1971, Pub.L. No. 91-679, 84 Stat. 2063, 2063-64 (1971). In 1984, Congress amended § 6013(e) and slightly broadened the grant of relief. Pub.L. No. 98-369, § 424(a), 98 Stat. 494, 801 (1984).

Congress repealed § 6013(e) and enacted § 6015 in the Internal Revenue Service Restructuring and Reform Act of 1998 to make “innocent spouse status easier to obtain.” H.R.Rep. No. 105-599, at 249-51 (1998) (Conf. Rep.), reprinted in 1998 U.S.C.C.A.N. 288. Because this case involves § 6015(e) and (f), we quote those two subparts, which provide in pertinent part:

(e) Petition for review by Tax Court.—
(1) In general. — In the case of an individual against whom a deficiency has been asserted and who elects to have subsection (b) or (c) apply, or in the case of an individual who requests equitable relief under subsection (f)—
(A) In general. — In addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief avail[1265]*1265able to the individual under this section ....
(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.

26 U.S.C. § 6015(e) and (f).

We start with subpart (f) of § 6015, which authorizes the Commissioner to grant equitable relief. Specifically, the Commissioner may grant relief to a taxpayer if, under procedures prescribed by the Commissioner, it would be “inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either)” and relief would not be available under subsection (b) or (c). 26 U.S.C. § 6015(f). The parties agree that relief is not available to Neal under § 6015(b) and (c), and that Neal may properly seek equitable relief under § 6015(f) as an alleged innocent spouse.1

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Cite This Page — Counsel Stack

Bluebook (online)
557 F.3d 1262, 103 A.F.T.R.2d (RIA) 801, 2009 U.S. App. LEXIS 2611, 2009 WL 311294, Counsel Stack Legal Research, https://law.counselstack.com/opinion/commissioner-v-neal-ca11-2009.