COMMISSIONER OF INTERNAL REVENUE, Petitioner-Appellant, v. Ruth E. NEAL, Respondent-Appellee.
No. 06-14357.
United States Court of Appeals, Eleventh Circuit.
Feb. 10, 2009.
557 F.3d 1262
Before TJOFLAT, HULL and WILSON, Circuit Judges.
John Larry Broyles, J. Larry Broyles, P.C., Augusta, GA, for Respondent-Appellee.
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,
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), 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
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
We summarize
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.
Congress repealed
(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-
able 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.
We start with subpart (f) of
In addition, subpart (e) of
B.
Neal and her ex-husband Alimam Neal (“Alimam“) married in 1976, resided together until 1996, and divorced in 1998.
Neal relied upon Alimam and his accountant to prepare and file the couple‘s joint federal income tax returns. She merely gave Alimam her W-2 forms and then signed the returns once Alimam received them from the accountant.4 Neal never spoke to the accountant nor did she examine the completed tax returns. Neal “imagined” that Alimam properly submitted their financial information to the accountant and filed the returns.
In fact, Alimam mailed the completed returns but, unbeknownst to Neal, assiduously failed to include payment of taxes relating to his income. Thus, while Neal‘s employer appropriately withheld taxes from Neal‘s salary, the portion of the taxes attributable to Alimam‘s business went unpaid.
Neal first learned that the couple owed money to the IRS when they sought bankruptcy protection in 1989. Alimam falsely told Neal that the IRS was a creditor because it disallowed certain tax shelters. The bankruptcy hearings revealed that Alimam had purchased in his name, without informing Neal, a boat, a Colorado villa, six or seven cars, and expensive fine art. After the bankruptcy, their home was foreclosed and their cars were repossessed. Over the next several years, Neal‘s wages were garnished, and she pawned a diamond ring to pay back taxes and a Rolex watch to pay utility bills.
In 1993, the IRS audited the couples’ 1990, 1991, and 1992 returns. Though the couple signed the audit report, they did not make any payments toward the back taxes assessed. The couple again filed for bankruptcy in 1995 and the IRS sought underpaid taxes from 1990 to 1993. Alimam falsely claimed to Neal that the IRS had not permitted certain business expenses resulting in the delinquencies.
The second garnishment of Neal‘s wages in 1996 finally prompted Neal to investigate the reasons underlying the couple‘s financial turmoil. When questioned, the accountant and bankruptcy attorney disclosed that Alimam had never paid his income taxes. The Commissioner had not contested any of the couple‘s joint returns, nor had it asserted any deficiencies. Rather, the Commissioner sought to collect $278,996 in unpaid taxes, including interest and penalties. The back taxes due to the IRS (without interest and penalties) are as follows: for 1993, $52,689; for 1994, $31,191; and, for 1995, $20,039.5
C.
On February 8, 2000, Neal petitioned the Commissioner, under
Neal responded to a written questionnaire sent by the IRS in which she represented that she was not involved with the preparation of tax returns, did not discuss the tax returns with Alimam, and did not review the tax returns. Neal then met with an IRS examining agent and related some of the foregoing facts. Neither a court reporter nor an attorney were present, and no recording was made of this interview. On August 9, 2001, the examining agent denied relief because the agent determined, “[Neal] knew that an underpayment existed when the tax returns were signed; that no economic hardship would exist [if Neal were required to pay the back taxes] and a portion of the tax is attributable to [Neal].”
Neal protested the determination to the IRS Office of Appeals (“Appeals“). Appeals echoed the examining agent‘s conclusions and issued a notice of determination on April 22, 2003, denying Neal‘s request for equitable relief. Appeals found that Neal was aware of the underpayment of taxes because the IRS had been a creditor in the 1989 and 1995 bankruptcy actions, the IRS had garnished her salary twice, and Neal had signed the 1994 audit report which indicated the underpaid amounts. Appeals also found that Neal would not suffer economic hardship if relief was withheld because Neal “enjoy[ed] an upper middle income standard of living” based on her salary of $129,000 per year and child support payments of $36,000 per year.
Neal sued in the Tax Court to contest the Commissioner‘s denial of equitable innocent spouse relief. At a pre-hearing conference with the Tax Court, the Com-
The Tax Court heard the testimony of two witnesses: Ruth Neal and Gloria Spann.6 Neal recited the facts summarized above. In addition, to support her position that payment of back taxes would result in an economic hardship, Neal testified that she earned $174,940 in 2003 and had expenses of $158,570.81 for household necessities in that same year. In response, the Commissioner called Spann, a revenue officer (but not the one who initially reviewed Neal‘s petition for relief). The Commissioner asked Spann to explain the meaning of “economic hardship” according to the Internal Revenue Manual. The Revenue Guidelines specified that individuals with a salary exceeding $5,834 per month were expected to subsist on $2,821 per month. Because Neal spent more than $2,821 per month, Spann testified that requiring Neal to pay the delinquencies would not result in an economic hardship.
After hearing the evidence, the Tax Court issued a Memorandum finding that Neal did not have knowledge of the unpaid taxes because “among other things, the filed tax returns accurately reflected the correct tax liabilities, nonpayment of the balances of the taxes shown to be due on the returns was concealed by Alimam, and [Neal] was not otherwise put on notice of the nonpayment.” The Tax Court also found that the facts before it were “inconclusive as to the degree to which [Neal] would suffer economic hardship if she were denied relief from joint liability.” Taking into account “all the facts and circumstances,” the Tax Court also found that it would be inequitable to hold Neal liable for the tax balances due for 1993, 1994, and 1995 and noted particularly the following:
Alimam‘s legal obligation relating to the unpaid taxes, the fact that the taxes in issue are attributable to Alimam‘s income, Alimam‘s deception with regard to his investments and nonpayment of the taxes due, the absence of any significant benefit to petitioner from Alimam‘s failure to pay the taxes, Alimam‘s exclusion of petitioner from the tax return preparation process and from his financial affairs, petitioner‘s payment of the majority of the family‘s expenses and her continued support of the children, and petitioner‘s payment every year of the Federal income taxes attributable to her income.
The Commissioner timely appealed.
II.
“[W]e review Tax Court decisions ‘in the same manner and to the same
Joint taxpayers are normally jointly and severally liable for the full amount of federal income taxes due, but may be relieved of joint and several liability under the limited circumstances described in
Although the parties agree that the Commissioner‘s denial of equitable relief to Neal under
We first outline the Tax Court‘s reasoning in Ewing and Porter for its conclusion that it may conduct a trial de novo in
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.... Our de novo review of the Commissioner‘s determinations under section 6015(f) gives effect to the congressional mandate [in section 6015(e)] 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.
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 respondent‘s administrative record, and that the APA record rule does not apply to section 6015(f) determinations in this Court.
122 T.C. at 43-44 (citations omitted).
As support for its construction of
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,
§§ 6213 and6214(a) ; and, since 1926, to determine overpayments,§ 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 de-
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).
The Tax Court in Porter emphasized that the jurisdiction granted in
The Code has long provided a specific statutory framework for reviewing deficiency determinations of the Internal Revenue Service. Sections 6213 and 6214; Ewing v. Commissioner, 122 T.C. at 52 (Thornton, J., concurring). Section 6015 is part and parcel of the same 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 “redetermination” 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, 327-28 (1974); see Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir.1989); Raheja v. Commissioner, 725 F.2d 64, 66 (7th Cir.1984), aff‘g. 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.” Ewing v. Commissioner, 122 T.C. at 38. We see no material difference between “determine” in section 6512(b), and “redetermination” in section 6213(a) for purposes of this discussion. Id.
Porter, 2008 WL 2065189, at *3. The Tax Court reasoned that “[w]e 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,” and that “[t]he 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).” Id.9
In both Ewing and Porter, the Tax Court identified procedural anomalies that further justified its conclusion that trials de novo are appropriate in
Second, in deficiency cases, the Tax Court holds a trial de novo even when a taxpayer raises equitable spouse relief under
Third, under
In summary, the Tax Court in Ewing and Porter concluded that Congress intended that taxpayers have the same opportunity for a trial de novo relating to
Finally, and of particular import here, the Tax Court explained why the APA‘s record rule--limiting a reviewing court to the administrative record--does not supplant the Tax Court‘s own longstanding trial de novo procedures and precedent. APA
The fact that the APA (enacted in 1946) predates
The Tax Court also explained that “[a]s a statute of general application, the APA does not supersede specific statutory provisions for judicial review” such as Congress has granted to the Tax Court. Porter, 2008 WL 2065189, at *2. The Tax Court pointed out that “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. at *4.14 Moreover, the Tax Court emphasized that the legislative history of the APA confirms it does not supersede the Tax Court‘s adjudication procedures, stating:
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).
Ewing, 122 T.C. at 53 (Thornton, J., concurring) (alterations in original).15 That the APA effectively exempted the Tax Court does not mean it exempted the Tax Court only as to tax matters extant in 1946.
We are persuaded by the Tax Court‘s reasoning. Congress‘s use of the word “determine” and not “appeal” in
We recognize that the Commissioner does cite the Eighth Circuit‘s decision in Robinette v. Commissioner, 439 F.3d 455, 461 (8th Cir.2006), rev‘g 123 T.C. 85 (2004), but that decision, if anything, helps Neal. Robinette involved a claim under
This “appeal” language in
For all of these reasons, we agree with Neal that the Commissioner has not shown that the Tax Court erred by refusing to limit its consideration to the administrative record and by conducting a trial de novo in this
III.
The Commissioner alternatively contends that even under trial de novo review, the Tax Court erred in concluding that the Commissioner abused his discretion in denying equitable relief to Neal. We disagree.
Section 6015(f) expressly authorizes the Commissioner to prescribe procedures for determining qualification for equitable relief. Under
Here, the Commissioner reasoned that Neal was not entitled to relief because (1) when she signed the return, she should have known that the tax was unpaid based on the couple‘s prior bankruptcy filings, and (2) that no economic hardship would befall her if she had to pay the remaining tax liability. After hearing the evidence at trial, including Neal‘s testimony, the Tax Court found that the record was “inconclusive” as to the existence of economic hardship. But the Tax Court also found that most of the § 4.03 factors weighed in favor of granting Neal relief. First, Alimam has a legal obligation to pay the unpaid taxes. Next, the couple is divorced. Almost all of the underpayments were attributable only to Alimam. Further, Neal received no significant benefit from the unpaid taxes and has made a good faith effort to comply with federal tax laws with regard to her income throughout her marriage and in subsequent years.20 Even now, the only two contested factors are whether Neal knew or should have known about Alimam‘s underpayment, and whether Neal would suffer economic hardship if not granted relief.
In considering “knowledge or reason to know of underpayment,” relevant factors include: “(1) the alleged innocent spouse‘s level of education; (2) the spouse‘s involvement in the family‘s business and financial affairs; (3) the presence of expenditures that appear lavish or unusual when compared to the family‘s past levels of income, standard of income, and spending patterns; and (4) the culpable spouse‘s evasiveness and deceit concerning the couple‘s finances.” Kistner v. Comm‘r, 18 F.3d 1521, 1525 (11th Cir.1994). The Commissioner points to Neal‘s knowledge that Alimam filed for bankruptcy in 1989 and 1995 (and the levying of Neal‘s salary) as evidence that Neal should have known about Alimam‘s lack of trustworthiness as to tax matters. As the Tax Court noted, however, the couple‘s filed tax returns accurately reflected their tax liabilities. The couple also maintained separate personal finances, and, although Neal asked, Alimam refused to share information about his business finances. Further, Alimam lied to Neal about the reason the IRS was a creditor in the 1989 bankruptcy, falsely telling her that the IRS had disallowed certain tax shelters, resulting in a tax deficiency. Because Neal knew others who ended up owing large amounts of taxes after investing in tax shelters, she believed Alimam‘s explanation.21 Although Neal became aware during the 1989 bankruptcy of some of Alimam‘s lavish expenses, Neal did not know how much Alimam made in his anesthesiology practice and real estate investments and thus whether his income
With regard to the economic hardship factor, economic hardship is generally defined as the inability to meet “reasonable basic living expenses.” See
IV.
The Tax Court did not err in conducting a trial de novo in reviewing the Commissioner‘s decision whether Neal was entitled to equitable relief under
AFFIRMED.
TJOFLAT, Circuit Judge, dissenting:
I dissent from the opinion of the court because a careful review of applicable law reveals that neither the plain language nor the legislative history nor the historical practices of the Tax Court in relation to the innocent spousal relief provision,
I.
A.
I begin by stating the obvious: the IRS is an “agency” as defined by the APA, the IRS has made findings of fact in this case, and such findings constitute “agency action.”
Further, the scope of this review must extend to, and be limited by, the “whole record” compiled by the agency, id. at 419, “not some new record made initially in the reviewing court.” Camp v. Pitts, 411 U.S. 138, 142 (1973). The reviewing court may obtain additional explanation of the agency decision through affidavits or testimony of the agency officials, but it may not substitute its own facts for those of the agency. Camp, 411 U.S. at 143.
Under the APA, in limited circumstances, a reviewing court may conduct a de novo hearing and consider whether an agency‘s decisions are “unwarranted by the facts to the extent that the facts are subject to trial de novo.”
Informal agency adjudication--that is, a decision made without a hearing, findings of facts, and other requirements specified in the APA--does not constitute inadequate factfinding sufficient to justify de novo review. See Camp, 411 U.S. at 141-42 (holding factfinding procedures adequate where agency adjudication was based on review of the administrative record without conducting a formal oral hearing or issuing findings of fact); Pacific Architects & Eng‘rs Inc. v. U.S. Dep‘t of State, 906 F.2d 1345, 1348 (9th Cir.1990) (holding factfinding procedures adequate where agency provided notice, company stated objections, and agency rejected objections in a statement of decision); Acumenics Research & Tech. v. U.S. Dep‘t of Justice, 843 F.2d 800, 804-05 (4th Cir.1988) (same). But cf. Porter v. Califano, 592 F.2d 770, 782-84 (5th Cir.1979) (holding agency factfinding procedures were inadequate where the officials accused of corruption by the plaintiff played a “pervasive role” in the factfinding). The informal factfinding procedures undertaken here were adequate and not subject to this de novo exception because Neal had the opportunity to provide information to the examining agent, discuss her claim with that agent, and respond to the agent‘s determination.
B.
In this case, the Tax Court combined a standard and scope of review not contemplated by the APA: an abuse of discretion standard and a de novo scope. Because the innocent spousal relief provision,
We consider the express terms of the statute and then the legislative history in prescribing the appropriate standard and scope of review. See Marcello, 349 U.S. at 310 (holding that the “laborious adaptation” of the APA procedures to deportation proceedings and related legislative history supported exemption from APA); Carlo Bianchi, 373 U.S. at 714 (concluding, based on a review of the statute and its legislative history, that review of Wunderlich Act decisions must be made on the administrative record). Neither the plain language of section 6015(e) or (f) nor its legislative history explicitly address the standard or scope of review.
The court, relying on the Ewing/Porter majority, argues that, in the Internal Revenue Code, the scope of review is identified on the face of the statute by the operative term “determine,” ante at 1274. Ewing v. Comm‘r, 122 T.C. 32, 37 (2004), rev‘d on other grounds, 439 F.3d 1009, 1014 (9th Cir.2006); Porter v. Comm‘r, 130 T.C. No. 10, 2008 WL 2065189, at *2-3 (2008). I do not dispute the fact that the Tax Court has on numerous occasions conducted de novo hearings to “determine” certain issues. However, I am unconvinced by this argument.
First, we must remain cognizant of the fundamental canon of statutory construction that, “unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.” Perrin v. United States, 444 U.S. 37, 42 (1979). The Supreme Court has consistently rejected “narrow common-law definition[s]” of statutory terms in favor of “generic definition[s].” See id. at 49 (rejecting early common law definition of “bribery” and using the “accepted contemporary meaning” in its interpretation of the Travel Act); Taylor v. United States, 495 U.S. 575, 598 (1990) (favoring generic meaning of “burglary“); see also Anderson v. Cagle‘s, Inc., 488 F.3d 945, 955 (11th Cir.2007) (using broad dictionary definition of “clothes” to interpret Fair Labor Standards Act provision); Walton v. Jamko, Inc., 240 F.3d 1312, 1315 (11th Cir.2001) (using dictionary definition of “disbursements” to interpret bankruptcy provision). The dictionary definition of “determination” is “the settling and ending of a controversy esp. by judicial decision” or “the resolving of a question by argument of reasoning” or, in the legal context, “a final decision by a court or administrative agency.” Webster‘s Third New International Dictionary 616 (1993); Black‘s Law Dictionary 460 (7th ed.1999). These definitions make no mention of scope or standard of review.
Second, even in the Internal Revenue Code, “determination” and “determine” do not exclusively reference de novo review. Congress has defined “determination” in sections relating to personal holding company taxes, deficiency dividends, and mitigation of errors in tax returns as a “decision by the Tax Court ... which has become final” without reference to the use of a certain scope of review.
The court, citing the Ewing majority, ignores these provisions, stating instead that the Tax Court‘s long tradition of conducting de novo trials with the term “determine” in
II.
The court posits that we should look beyond the text and legislative history of
It is true that the enactment of the APA did not “limit or repeal additional requirements” of administrative procedure authorized by statute or by common law, but the prior existence of these additional requirements must be “clear.”
A.
Tax law was simple in 1913, the year the Constitution was amended to authorize Congress to “lay and collect taxes on in-
Over the next decade, the tax code became a creature of complexity--the Form 1040 and joint returns were introduced, tax rates were raised, and new types of taxes, like the excise tax and excess profits taxes, were added. Recognizing that increasing complication of the tax code correlated with a rise in tax disputes, in 1924, Congress established the Board of Tax Appeals to allow taxpayers to challenge deficiency determinations prior to paying the contested amount.
The Board was an independent agency in the executive branch of government and limited to hearing appeals of “deficiency determinations.” Id. Congress defined a deficiency as occurring when the amount imposed by the Internal Revenue Code exceeded the amount shown on the individual or corporation‘s tax return.
In appeals to the Board, the Commissioner‘s deficiency determinations were deemed presumptively correct, and the taxpayer had the burden of proving that the ruling was erroneous or arbitrary. Helvering v. Taylor, 293 U.S. 507, 515 (1935); Welch v. Helvering, 290 U.S. 111, 115 (1933). If the Board‘s decision was appealed to a trial court, the findings of the Board were to be considered prima facie evidence in favor of the Board‘s conclusion.
Congress expanded the Board‘s jurisdiction in 1926 to determine overpayment of taxes and again in 1942 to determine refunds of processing taxes.
Four years later, Congress enacted the APA to govern procedure relating to administrative agencies.
Relatedly, a reviewing court could go beyond arbitrary and capricious review, and reverse an agency decision if it was “unwarranted by the facts so far as the [facts] are subject to trial de novo.” APA § 10 (currently codified at
The Fourth Circuit Court of Appeals amplified this legislative history by holding that the Tax Court was generally not subject to the requirements of the APA. O‘Dwyer v. Comm‘r, 266 F.2d 575, 580 (4th Cir.1959). The O‘Dwyer taxpayer sought to compel the Commissioner to produce the entire administrative record based upon the language in the APA directing the reviewing court to consider the “whole record.” Id. at 579. The court concluded that, because the formal adjudication provisions did not apply to IRS proceedings, the Commissioner was not required to compile a record, and, therefore, the Tax Court was not a “reviewing court” that must consider the “whole record.” Id. at 580. Though removing the Tax Court from the ambit of the APA, the Fourth Circuit confirmed that, upon appeal to the Tax Court, the Commissioner‘s assessment was presumed to be correct and the burden was upon the taxpayer to show that the Commissioner‘s determination was erroneous. Id. at 577.
In 1969, the Tax Court took its present form when Congress established an Article I court of record named the “United States Tax Court” to replace the Tax Court of the United States.
B.
I do not decide, as the court does, ante at 1273-74, whether this history reveals that Congress clearly imposed an “additional requirement” on the Tax Court to review deficiency determinations, overpayments, and refunds of processing taxes, using an abuse of discretion standard and de novo scope. I do not decide this issue because it is not before this court. See Access Now, Inc. v. Southwest Airlines Co., 385 F.3d 1324, 1330 (11th Cir.2004) (“[E]valuating an issue on the merits that has not been raised in the initial brief would undermine the very adversarial nature of our appellate system.“). However, assuming that such an additional requirement existed and continues via the application of APA
The Supreme Court‘s holding in Dickinson v. Zurko is instructive. The issue before the Court was whether the Federal Circuit Court of Appeals appropriately reviewed findings of fact made by the Patent and Trademark Office under a clearly erroneous standard, rather than the APA‘s abuse of discretion standard. Dickinson, 527 U.S. at 152. The respondents contended that, prior to the enactment of the APA, patent determinations had been reviewed using the clearly erroneous standard and this additional requirement continued pursuant to APA
must show more than a possibility of a heightened standard [prior to the enactment of the APA], and indeed more than even a bare preponderance of evidence in their favor. Existence of the additional requirement must be clear.
Dickinson, 527 U.S. at 154-55. Permitting departure from the APA based on an ambiguous historical requirement in previous case law would frustrate the purpose of the APA to bring “uniformity to a field full of variation and diversity.” Id. at 155. After analyzing 89 pre-APA decisions reviewing findings of fact of the Patent Office, the Court found ambiguity because most of them used a “manifest error” or “clearly wrong” standard rather than a “clearly erroneous” standard. Id. at 156. Thus, the Court reversed the Federal Circuit and held that the APA‘s abuse of discretion standard should be applied.
In Dickinson, unlike the case at hand, no new statute had been introduced that led to the Supreme Court‘s review; the Federal Circuit sought to review findings of fact of patent and trademark applications in 1998 and the courts had authority to review such findings of fact in 1946. Id. at 154; see also United Transp. Union v. Interstate Commerce Comm‘n, 52 F.3d 1074, 1080 n. 10 (D.C.Cir.1995) (finding declaratory orders relating to Interstate Commerce Act to be an “additional requirement” where the Commission had been using such orders prior to the APA and the Supreme Court had assumed the practice to be proper). On the other hand, here, the Tax Court was granted jurisdiction over a new type of relief in 1998. As discussed in part I, because the innocent spousal relief provision was enacted subsequent to the APA, an exemption from the requirements of the APA must be shown clearly via the text of the statute and the legislative history. In other words, we should not even reach the point of analysis reached by the Dickinson Court, because the statute at issue was not part of the Internal Revenue Code when the APA was enacted.
Even if I blind myself to the inapplicability of the “additional requirements” exemption, I find no clear indication that a de novo scope of review should be used in innocent spousal relief determinations. There is no pre-APA indication as to the standard or scope of review to be used in conjunction with decisions not involving deficiency determinations, overpayments, or refunds of processing taxes because such decisions would have been moot or not ripe for adjudication. I also find unpersuasive the Ewing/Porter majority‘s and Neal‘s reliance on O‘Dwyer, 266 F.2d at 580, because the Fourth Circuit‘s decision was premised on the now-defunct notion that informal agency action need not be reviewed on the administrative record. See part I.A, supra; Camp, 411 U.S. at 142.
Confronted with the same combination of standard and scope of review argued here, our sister circuit held that review of collection due process cases should be limited to the administrative record. Robinette v. Comm‘r, 439 F.3d 455, 461 (8th Cir.2006). The Robinette court explained that, when Congress authorized judicial review of collection determinations to the Tax Court in 1998, the “nature and purpose” of those proceedings were different from deficiency determinations and it was “just as likely” that Congress intended traditional principles of administrative law be used. Id. The Tax Court‘s own decisions in collection due process cases belie the Ewing/Porter majority‘s contention that the record rule does not apply to the Tax Court. Giamelli v. Comm‘r, 129 T.C. 107, 115, 2007 WL 3170471 (2007) (holding that collection proceedings reviewed under an abuse of discretion standard must be limited to the issues raised before Appeals); Magana v. Comm‘r, 118 T.C. 488, 493, 2002 WL 1150745 (2002) (same). The court avoids the reasoning of the Robinette court upon the basis that the statutes at issue are different, ante at 1276. However, the court fails to recognize that here, as in Robinette, the Commissioner seeks to collect unpaid taxes from Neal, not assess a deficiency. These collection due process cases bolster the case for limiting the scope of review to the administrative record. To argue, as the court does, that a collection due process case under
Indeed, that is the same deficiency found in the court‘s argument that limiting review to the administrative record will result in anomalous decisions involving the
I disagree that allowing a de novo scope in X‘s case but limiting the scope of review to the administrative record in Neal‘s case is problematic. The court and Porter/Ewing majority focus erroneously on the status of the court reviewing the decision of the administrative body, rather than the status of the administrative body itself.23 APA
This sound and clearly expressed purpose [of expediting review of agency decisions] would be frustrated if either side were free to withhold evidence at the administrative level and then to introduce it in a judicial proceeding. Moreover, the consequence of such a procedure would in many instances be a needless duplication of evidentiary hearings and a heavy additional burden in the time and expense required to bring litigation to an end.
Carlo Bianchi, 373 U.S. at 717. While both Taxpayer X‘s request for relief and Neal‘s are premised on
I do not deny the possibility that Congress may have intended that the Tax Court continue reviewing all matters in which it is granted jurisdiction using an abuse of discretion standard and de novo scope of review. But, a mere possibility is not sufficient to overwhelm Congressional interest in preserving uniformity and fairness in administrative procedure.
III.
All of this leads to a singular conclusion: allowing the Tax Court carte-blanche authority to override the Commissioner using the vehicle of a de novo trial reveals distrust in the Commissioner‘s decisions and decimates the Commissioner‘s incen-
In the first instance ... it will be the function of the agency to determine the sufficiency of the evidence upon which it acts--and the proper performance of its public duties will require it to undertake this inquiry in a careful and dispassionate manner.... Judicial review is of utmost importance, but it can be operative in relatively few cases because of the cost and general hazards of litigation.... For that reason the agencies must make the first, primary, and most far-reaching effort to comply with the terms and the spirit of this bill.
S.Rep. No. 79-752, at 216-17 (1945), reprinted in Administrative Procedure Act Legislative History at 217 (1944-1946); see also Overton Park, 401 U.S. at 416 (“The court is not empowered to substitute its judgment for that of the agency.“).
Today, the court has given the Tax Court the authority to second-guess the Commissioner at its whim, superimposed upon the farce that the Commissioner‘s determination is given discretionary weight. Under such a scheme, why should the Commissioner conduct his hearings in a careful and diligent manner? Why bother when the Commissioner knows that his review of the facts and law will be ignored? For that matter, why should taxpayers be required to fund and use the IRS appeals process since any conclusions made by those federal officials will dissipate in the Tax Court like whispers in the wind? I have found no satisfactory answers to these questions. Therefore, I respectfully dissent from the court‘s judgment.
Steadroy WILLIAMS, Petitioner-Appellant, v. Walter A. MCNEIL, Secretary, Florida Department of Corrections, Respondent-Appellee.
No. 08-11259.
United States Court of Appeals, Eleventh Circuit.
Feb. 10, 2009.
Notes
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--(i) at any time after the earlier of--
(I) the date the Secretary mails, by certified or registered mail to the taxpayer‘s last known address, notice of the Secretary‘s final determination of relief available to the individual, or
(II) the date which is 6 months after the date such election is filed or request is made with the Secretary, and
(ii) not later than the close of the 90th day after the date described in clause (i)(I).
The Supreme Court‘s opinion in Dickinson v. Zurko, 527 U.S. 150 (1999), discussed by the dissent, does not undercut our reasoning. See Dickinson, 527 U.S. at 152 (concluding that APA
(d) Proceeding after hearing.--(1) Judicial review of determination.--The person may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).
(2) Jurisdiction retained at IRS Office of Appeals.--The Internal Revenue Service Office of Appeals shall retain jurisdiction with respect to any determination made under this section, including subsequent hearings requested by the person who requested the original hearing on issues regarding--
(A) collection actions taken or proposed with respect to such determination; and
(B) after the person has exhausted all administrative remedies, a change in circumstances with respect to such person which affects such determination.
Further, if the spouse has significantly benefitted, beyond normal support, from the unpaid liability, or the requesting spouse has failed to comply with federal income tax laws, those factors would weigh against granting relief.