Porter v. Comm'r

130 T.C. No. 10, 130 T.C. 115, 2008 U.S. Tax Ct. LEXIS 10

• Court: United States Tax Court
• Decided: May 15, 2008
• Docket: No. 13558-06
• Status: Published

Opinions

Haines, Judge:

The issue for decision is 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.¹

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, the exhibits attached thereto, and the stipulation of settled issues are incorporated herein by this reference. At the time she filed her petition, petitioner resided in Silver Spring, Maryland.

Petitioner and her husband (Mr. Porter) filed a joint Form 1040, U.S. Individual Income Tax Return, for 2003 (2003 return). Mr. Porter prepared the 2003 return. On April 21, 2004, 6 days after petitioner signed the 2003 return, she and Mr. Porter legally separated.²

On June 20, 2005, respondent issued petitioner and Mr. Porter a statutory notice of deficiency for 2003. Neither petitioner nor Mr. Porter petitioned this Court for redetermination of the deficiency.

On December 1, 2005, petitioner submitted a Form 8857, Request for Innocent Spouse Relief. In a June 14, 2006, final determination, respondent’s Appeals officer determined that pursuant to section 6015(c) petitioner was entitled to relief from joint and several liability with respect to the income tax on $12,765 of unreported employee compensation Mr. Porter received in 2003, but denied relief under section 6015(b), (c), and (f) from the 10-percent additional tax of $1,070 imposed by section 72(t) on an IRA distribution of $10,700 reported on the 2003 return. The parties stipulated that petitioner does not qualify for relief from joint and several liability on the 10-percent additional tax under section 6015(b) or (c).

Respondent filed a motion in limine to preclude petitioner from introducing any evidence, documentary or testimonial, which was not available to respondent during the administrative process. The Court took the motion under advisement and permitted petitioner to testify and introduce evidence subject to its ruling on the motion in limine.

OPINION

A. Respondent’s Position and Background

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 only the administrative record (the record rule) in making our determination in this case. See Camp v. Pitts, 411 U.S. 138, 142 (1973); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963). We first stated our position on that issue in Ewing v. Commissioner, 122 T.C. 32 (2004). Respondent urges us to reconsider our position since the U.S. Court of Appeals for the Ninth Circuit vacated our decision in Ewing on jurisdictional grounds. See Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), revg. 118 T.C. 494 (2002), vacating 122 T.C. 32 (2004). However, Congress subsequently confirmed our jurisdiction to determine the appropriate relief available to a taxpayer under section 6015(f) with respect to tax liability remaining unpaid on or after December 20, 2006. Sec. 6015(e)(1)(A); Tax Relief and Healthcare Act of 2006, Pub. L. 109-432, div. C, sec. 408, 120 Stat. 3061.

In Ewing v. Commissioner, 122 T.C. at 44, we held that our determination of whether a taxpayer is entitled to relief under section 6015(f) “is made in a trial de novo and is not limited to matter contained in respondent’s administrative record”. Respondent raises many of the same arguments we considered in Ewing. Consequently, our discussion of this issue draws heavily on the reasoning of the majority opinion in Ewing as well as the reasoning of Judge Thornton’s concurrence. See id. at 50. For the reasons stated more fully herein, we hold that in determining whether a taxpayer is eligible for relief under section 6015(f) we may consider evidence introduced at trial which was not included in the administrative record.

B. The Applicability of the APA Judicial Review Provisions to Tax Court Proceedings Under Section 6015

Since its enactment in 1946 the APA has generally not governed proceedings in this Court (or in its predecessor, the Board of Tax Appeals). See Ewing v. Commissioner, 122 T.C. at 50 (Thornton, J., concurring). The U.S. Court of Appeals for the Fourth Circuit, the Court to which an appeal in this case would lie, has held that “The Tax Court * * * is a court in which the facts are triable de novo” and “the Tax Court is not subject to the Administrative Procedure Act.” O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957). This long-established practice comports with the provisions of the APA and its history. Ewing v. Commissioner, 122 T.C. at 50 (Thornton, J., concurring).

As a statute of general application, the APA does not supersede specific statutory provisions for judicial review. Id. “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.” ³ Bowen v. Massachusetts, 487 U.S. 879, 903 (1988).

The Code has long provided a specific statutory framework for reviewing deficiency determinations of the Internal Revenue Service. Secs. 6213 and 6214; Ewing v. Commissioner, 122 T.C. at 52 (Thornton, J., concurring). Section 6015 is part and parcel of the sáme statutory framework. Our de novo review procedures emanate from that statutory framework.

Our jurisdiction under section 6015 is couched in language similar to that of our deficiency jurisdiction under sections 6213 and 6214. Section 6015(e)(1)(A) authorizes this Court to “determine” the appropriate relief available under section 6015. Section 6213(a) provides that taxpayers who receive a notice of deficiency may petition this Court for a “redeter-mination” of the deficiency. Section 6214(a) provides this Court jurisdiction to “redetermine” the amount of the deficiency.

Congress first granted the Board of Tax Appeals (the predecessor to the Tax Court) jurisdiction to “redetermine” deficiencies and additions to tax in 1924. Ewing v. Commissioner, 122 T.C. at 38. Since 1926 we have also had jurisdiction to “determine” overpayments. Id. These determinations and redeterminations have always been made de novo. O’Dwyer v. Commissioner, supra at 580; Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327-328 (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). Congress has defined the jurisdiction of this Court using the words “determine” and “redetermination”.⁴ Ewing v. Commissioner, 122 T.C. at 38. We see no material difference between “determine” in section 6015(e), “determine” in section 6512(b), and “redetermination” in section 6213(a) for purposes of this discussion. Id.

We can presume that in 1998 when Congress chose to use the word “determine” in section 6015, it did so in full awareness of our long history of de novo review.⁵ 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. Estate of Noel, 380 U.S. 678, 680-681 (1965); United States v. 101.80 Acres, 716 F.2d 714, 721 (9th Cir. 1983). The use of the word “determine” in section 6015(e)(1)(A) suggests that Congress intended that we conduct trials de novo in making our determinations under section 6015(f).

C. The Eighth Circuit Decision in Robinette v. Commissioner Does Not Govern the Decision in This Case

Respondent argues that pursuant to the Court of Appeals for the Eighth Circuit’s decision in Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), revg. 123 T.C. 85 (2004), our review is limited to the administrative record. We disagree.

Robinette involved a claim under section 6330, not section 6015(f). We held that the APA was not applicable to our review of the Commissioner’s determinations under section 6330. The Court of Appeals reversed. The Court of Appeals’ opinion in Robinette, a case brought under section 6330, is distinguishable from the current case brought under section 6015.⁶ Whereas section 6015 provides that we “determine” whether the taxpayer is entitled to relief, section 6330(d) provides for judicial review of the Commissioner’s determination by allowing the taxpayer to “appeal such determination to the Tax Court” and vesting the Tax Court with “jurisdiction with respect to such matter”. As discussed above, the use of the word “determine” suggests that we conduct a trial de novo. That Congress chose not to use’ the word “determine” or some derivation thereof in section 6330(d) distinguishes Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), from cases arising under section 6015.

D. The Scope of Review in Other Areas of Our Jurisdiction

We have jurisdiction to issue declaratory judgments relating to the status, qualification, valuation, or classification of certain section 501(c)(3) organizations, retirement plans, gifts, governmental obligations, and installment payments under section 6166. Secs. 7428, 7476, 7477, 7478, 7479. In contrast to section 6015, none of those sections authorizes us to make a determination; instead, those sections authorize this Court, after the Commissioner has made a determination, to make a declaration with respect to the matter. Our Rules regarding declaratory judgments generally require these actions to be disposed of on the basis of the administrative record.⁷ See Rule 217(a). The reason for this limited review lies in Congress’s 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.

Congress, in full awareness of our history of de novo review, did not impose a similarly restrictive standard on our review of the Commissioner’s determinations under section 6015. Ewing v. Commissioner, 122 T.C. at 55 (Thornton, J., concurring). Unlike the statutes providing our jurisdiction to issue declaratory judgments, nothing in section 6015 or its legislative history indicates that the APA is to apply to section 6015 cases or that we are to restrict our review to the administrative record. Id. Section 6015 expanded the Court’s jurisdiction to review all denials of relief from joint and several liability. Id. 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.

That section 6015 postdates the APA does not render the APA judicial review procedures applicable here. Ewing v. Commissioner, 122 T.C. at 52 (Thornton, J., concurring). 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” within the meaning of APA section 559.⁸ See Ewing v. Commissioner, 122 T.C. at. 38. These de novo trial prodedures, which have remained 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. Ewing v. Commissioner, 122 T.C. at 52-53 (Thornton, J., concurring). Consequently, pursuant to APA section 559, the APA does not limit or repeal our de novo review procedures.⁹ Id. at 53 (Thornton, J., concurring).

E. Abuse of Discretion and De Novo Review

We have reviewed the Commissioner’s denial of relief in cases arising under section 6015(f) for abuse of discretion.¹⁰ Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003); Van Arsdalen v. Commissioner, T.C. Memo. 2007-48. Review for abuse of discretion does not trigger application of the APA record rule or preclude us from conducting a de novo trial. Ewing v. Commissioner, 122 T.C. at 40. 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 include those where we must decide 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, 439 U.S. 522, 533 (1979) (Supreme Court used Tax Court findings in making its determination); Mulholland v. United States, 25 Cl. Ct. 748 (1992); (2) reallocate income or deductions under section 482, 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, e.g., Goettee v. Commissioner, T.C. Memo. 2003-43, affd. 192 Fed. Appx. 212 (4th Cir. 2006); Jean v. Commissioner, T.C. Memo. 2002-256; Jacobs v. Commissioner, T.C. Memo. 2000-123; (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 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).¹¹

F. Neither Magana v. Commissioner nor Giamelli v. Commissioner Governs This Case

Respondent contends that under Magana v. Commissioner, 118 T.C. 488 (2002), 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). In Magana v. Commissioner, supra at 493, 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 officer under section 6330(b). See also Giamelli v. Commissioner, 129 T.C. 107 (2007).

Neither Magana nor Giamelli applies here. See Ewing v. Commissioner, 122 T.C. at 41. First, in Magana v. Commissioner, supra at 494 n.3, 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. In Giamelli, we did not extend our holding to claims under section 6015. Second, we did not say in Magana or Giamelli 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 neither Magana nor Giamelli did we discuss the APA or the record rule. Thus, Magana and Giamelli do not govern here.

G. 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 in other such cases on the basis of trials de novo. See Ewing v. Commissioner, 122 T.C. at 42. Consider two examples.

First, we have jurisdiction to make a determination 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. 6015(e)(1)(A)(i)(II); Ewing v. Commissioner, 122 T.C. at 42. A trial de novo would be necessary and is clearly authorized in this situation; there may be only a skeletal administrative record. 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). Adoption of respondent’s position would cause us to apply different procedures in our determinations in cases under section 6015. See Ewing v. Commissioner, 122 T.C. at 42. We believe that cases in which the taxpayer seeks relief under section 6015(f) should receive similar treatment and, thus, the same scope of review.

The nonrequesting spouse may intervene in the proceeding in which we determine whether the requesting spouse qualifies for relief under section 6015(f). Sec. 6015(e)(4). Intervention by the nonrequesting spouse is available both in deficiency cases in which section 6015 relief is requested and in stand-alone case such as this case. Rule 325; Ewing v. Commissioner, 122 T.C. at 43; King v. Commissioner, 115 T.C. 118, 122—123 (2000); Corson v. Commissioner, 114 T.C. 354, 365 (2000). That Congress provided for intervention by nonrequesting spouses suggests Congress intended that we conduct trials de novo under section 6015(f) to permit the intervenor an opportunity to offer evidence relating to the requesting spouse’s entitlement to relief. See Ewing v. Commissioner, 122 T.C. at 43.

H. Conclusion

We read section 6015(e) and (f) to give effect to both. Ewing v. Commissioner, 122 T.C. at 43. 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, on the basis of all the facts and circumstances, the Secretary may relieve a taxpayer from joint liability. That approach (de novo review, applying an abuse of discretion standard) properly implements the statutory provisions at issue here and has a long history in numerous other areas of Tax Court jurisprudence.

To reflect the foregoing,

An order will be issued denying respondent's motion in limine.

Reviewed by the Court.

Colvin, Cohen, Swift, Wells, Foley, Vasquez, Gale, Thornton, Marvel, Goeke, and Wherry, JJ., agree with this majority opinion.

1 Unless otherwise indicated, section references are to the Internal Revenue Code, as amended. Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar.

2 A Judgment of Absolute Divorce was entered on May 16, 2006.

3 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 sec. 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.’” (quoting 5 U.S.C. sec. 704)). Similarly, in an unpublished opinion involving the validity of the Commissioner’s issuance of a notice of deficiency, the U.S. 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, 116 F.3d 1482 (7th Cir. 1997), affg. without published opinion T.C. Memo. 1996-252; see also Poirier v. Commissioner, 299 F. Supp. 465, 466 (E.D. La. 1969) (rejecting taxpayer’s claim that review to restrain enforcement of IRS summons is governed by APA secs. 703 and 704 because secs. 7602 and 7604 and Reisman v. Caplin, 375 U.S. 440, 443 (1964), “[provide] an adequate remedy’).

4 As another example, sec. 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, affd. 192 Fed. Appx. 212 (4th Cir. 2006); Jean v. Commissioner, T.C. Memo. 2002—256; Jacobs v. Commissioner, T.C. Memo. 2000-123.

5 There are other situations besides the redetermination of deficiencies in which we make determinations de novo. For example, sec. 7436(a) provides that the Tax Court may “determine” whether the Commissioner’s determination regarding an individual’s employment status is correct. The legislative history shows that Congress intended for us to conduct a trial de novo with respect to our determinations regarding employment status. See 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.

6 No inference should be drawn that, by distinguishing Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), we are changing our position in lien and levy cases as expressed in 123 T.C. 85 (2004).

7 Our Rules relating to declaratory judgment cases provide for consideration under various circumstances of evidence not in the administrative record. See Ewing v. Commissioner, 122 T.C. at 39 n.7.

8 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, 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. (Part 2) 67 (over-payments); Revenue Act of 1924, ch. 234, sec. 274, 43 Stat. 297 (deficiencies).

9 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 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).

10 In deciding respondent’s motion in limine relating to our scope of review, we need not decide any issue relating to the standard of review. Our determination of the proper scope of review does not depend on the standard of review applied.

11 This is not to say, however, that we could not or should not, in appropriate circumstances, borrow principles of judicial review embodied in the APA. See Dittler Bros., Inc. v. Commissioner, 72 T.C. 896, 909 (1979) (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 sec. 7477), affd. without published opinion 642 F.2d 1211 (5th Cir. 1981).