Court Opinion

ID: 4474889
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:11.272864+00
Date Added: 2024-06-11T14:53:51.610258
License: Public Domain

Thornton, J., concurring: I agree with the majority opinion and write separately to offer additional historical perspective. A. Status of the Tax Court Under the APA When the APA was enacted in 1946, the Tax Court of the United States was an agency of the executive branch. In substance, however, it functioned as a court. Consequently, for over two decades after the APA’s enactment, there was uncertainty as to whether or how the APA should apply to the Tax Court.1 Partly to resolve that question, in 1969 the U.S. Tax Court, as it was newly renamed, was formally incorporated into the judiciary as an Article I court. Tax Reform Act of 1969, Pub. L. 91-172, secs. 951-962, 83 Stat. 730. Since then, it has been clear that this Court is not subject to the APA rules that govern agency adjudications. Similarly, the APA has never affected this Court’s long-established practice of conducting trials de novo in deficiency actions and most other actions, including those involving claims for relief from joint and several liability. The explanation for this well-established practice lies largely in the history of the Tax Court and of the APA. B. Historical Roots of De Novo Review in the Tax Court The precursor of the Tax Court, the Committee on Appeals and Review (the Committee), was part of the Bureau of Internal Revenue. Dubroff, The United States Tax Court: An Historical Analysis 39 (1979). This Committee was not a fact finder; instead, it operated under its own version of a record rule. “The taxpayer was generally permitted to introduce evidence to the Committee only in affidavit or documentary form and could not adduce evidence that had not been considered by the Income Tax Unit.” Id. at 42. Pressures to replace the Committee resulted largely from two factors: (1) The Committee was not independent of the Bureau of Internal Revenue; and (2) the proceedings in the Committee were not adversary, were not public, and did not permit the introduction of new evidence. Id. at 44. To address these concerns, the Revenue Act of 1924, ch. 234, 43 Stat. 253, replaced the Committee with the Board of Tax Appeals (the Board). Originally, the administration had proposed that the Board be created as an informal hearing body within Treasury. Dubroff, supra at 111. Under the original Administration proposal, the Board was to consider its cases “on the basis of Bureau files. Since under the proposal the Board was to be a part of Treasury, there was no impediment to access by the Board to Bureau files.” Id. at 91. In the 1924 legislation, Congress changed this plan to make the Board an independent agency in the executive branch; it was generally required to follow formal judicial procedures. Id. at 111. Moreover, the Board’s record had to be independently compiled. Id. at 95. “Thus, the Board stressed that ‘[w]hat has been submitted to or considered by the Bureau of Internal Revenue is beyond the ken of this Board .... [E]vidence that has been presented before any other department of the Government must be reintroduced before this Board before we can consider it.’” Id. (quoting Lyon v. Commissioner, 1 B.T.A. 378, 379 (1925)). The Revenue Act of 1924 left the resolution of most procedural and evidentiary issues to the discretion of the Board. Dubroff, supra at 151. In adopting judicial standards for the receipt of evidence, the Board chose to follow the liberal rules of evidence applicable in equity proceedings in the District of Columbia, where most of its cases were tried. Id. at 153-154. In 1926 this evidentiary rule was codified. Revenue Act of 1926, ch. 27, sec. 1000, 44 Stat. 105. Essentially the same provision survives today in section 7453. In 1942 the Board of Tax Appeals was renamed the Tax Court of the United States. This name change did not significantly affect the jurisdiction, powers, or duties that previously had belonged to the Board. Dubroff, supra at 182. In sum, when the APA was enacted in 1946, de novo trials in the deficiency actions and various other matters within the Tax Court’s jurisdiction were well-established practice and fundamental to this Court’s reason for existence. Similarly, it was well-established practice in Federal District Courts to conduct trials de novo in tax refund cases. See, e.g., Lewis v. Reynolds, 284 U.S. 281, 283 (1932). C. Legislative History of the APA In enacting the APA Congress expressly recognized that tax matters were the subject of de novo proceedings in the courts. APA section 554, which defines the procedures that generally govern agency adjudications, applies only in the case of an “adjudication required by statute to be determined on the record after opportunity for an agency hearing”; it excepts all matters that are “subject to a subsequent trial of the law and of the facts de novo in a court”. The associated legislative history states: “The exception of matters subject to a subsequent trial of the law and the facts de novo in any court exempts such matters as the tax functions of the Bureau of Internal Revenue (which are triable de novo in the Tax Court)”. S. Comm, on the Judiciary, 79th Cong., 1st Sess., Administrative Procedure Act (Comm. Print 1945), reprinted in Administrative Procedure Act Legislative History, 1944-1946, at 22 (1946).2  As a corollary to these APA provisions regarding agency adjudications, apa section 706 expressly contemplates that certain types of agency actions will be subject to de novo judicial review. In particular, APA section 706(2)(F) provides that the “reviewing court” shall “hold unlawful and set aside agency action, findings, and conclusions found to be * * * unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.” Although the statute does not otherwise specify the types of cases in which the facts are to be “subject to trial de novo”, the legislative history illuminates this matter. The Senate and House reports state identically: “Thus, where adjudications such as tax assessments are not made upon an administrative hearing and record, contests may involve a trial of the facts in the Tax Court or the United States District Courts.” S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted in Administrative Procedure Act Legislative History, 1944-1946, at 214 (1946); H. Rept. 1980, 79th Cong., 2d Sess. (1946), reprinted in Administrative Procedure Act Legislative History, 1944-1946, at 279 (1946). D. De Novo Review in Deficiency Actions Consistent with this legislative history, the courts have uniformly held that deficiency proceedings in the Tax Court are de novo and not governed by the APA. In O'Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957), the Court of Appeals for the Fourth Circuit stated: The Tax Court is given jurisdiction to redetermine the deficiency asserted by the Commissioner, and in doing so it is empowered to prescribe rules of practice and procedure and is required to apply the rules of evidence applicable to nonjury trials in the United States Court of the District of Columbia and make findings of fact upon such evidence. Secs. 6213, 7453 and 7459, Internal Revenue Code of 1954 * * *. The Tax Court thus renders its decision only upon the evidence produced before it. * * * The Tax Court, rather than being a “reviewing court”, within the meaning of Sec. 10(e) [the APA provision governing scope of judicial review] reviewing the “record”, is a court in which the facts are triable de novo * * *. We agree that the Tax Court is not subject to the Administrative Procedure Act. In a more recent unpublished opinion, the Court of Appeals for the Ninth Circuit reached the same conclusion. Sharon v. Commissioner, 1991 U.S. App. lexis 31395, 1992 WL 8190 (9th Cir. 1992), affg. without published opinion T.C. Memo. 1990-604. The Court of Appeals cited Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989), which states: The Tax Court has as its purpose the redetermination of deficiencies, through a trial on the merits, following a taxpayer petition. It exercises de novo review. * * * The courts carefully review administrative action for arbitrariness when an agency exercises final, statutory decisionmaking authority, such as an agency rulemaking. In tax cases such as this, the Tax Court or United States District Court review the Commissioner’s decision on the merits de novo. Too detailed a substantive review of the Commissioner’s threshold “determination”, undertaken solely for purposes of exercising subject matter jurisdiction would be duplicative and burdensome on the courts and the Commissioner. Similarly, in an unpublished opinion involving the validity of the Commissioner’s issuance of a notice of deficiency, the Court of Appeals for the Seventh Circuit concluded: “The APA is irrelevant, however, because the IRS’s issuance of a notice of tax deficiency and the Tax Court’s review of it are governed by the Internal Revenue Code and the rules and procedures of the Tax Court * * * and not by the APA.” Bratcher v. Commissioner, 116 F.3d 1482 (7th Cir. 1997), affg. without published opinion T.C. Memo. 1996-252. Although some have criticized the rationale of these decisions, even among these critics there appears to be no dispute that the APA does not affect the Tax Court’s long-established practice of conducting trials de novo in deficiency actions.3  E. De Novo Review in Actions Involving Claims for Relief From Joint and Several Liability The original statutory provision for relief from joint and several liability, as contained in former section 6013(e), was enacted in 1971. Although this relief provision postdated enactment of the APA, actions involving claims for relief under former section 6013(e) were subject to de novo review in both the Tax Court and the Federal District Courts, in the same manner as deficiency actions and tax refund actions always had been. See, e.g., Terzian v. Commissioner, 72 T.C. 1164 (1979); Sanders v. United States, 369 F. Supp. 160 (N.D. Ala. 1973), affd. 509 F.2d 162 (5th Cir. 1975). Similarly, claims arising pursuant to the more recently enacted provisions of section 6015(b) and (c) are subject to de novo review. See, e.g., Alt v. Commissioner, 119 T.C. 306 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). Hence, although an action for relief under former section 6013(e) or under section 6015(b) or (c) technically may not constitute a deficiency action, there appears to be no question that such actions are appropriately subject to trial de novo. F. Section 6015(f) Claims for Relief 1. Abuse of Discretion Standard Does Not Preclude De Novo Review Similarly, a claim for relief from joint and several liability that arises under section 6015(f) is appropriately subject to de novo judicial review. This is true even if the standard of review is for abuse of discretion. As the majority opinion discusses supra pages 122-123, this Court has long conducted trials de novo in numerous types of actions in which the pertinent question was whether the Commissioner had abused his or her discretion, for example, in determining that a taxpayer’s method of accounting did not clearly reflect income under section 446 or in reallocating income or deductions under section 482. Some have suggested that actions involving section 6015(f) claims for relief demand different treatment, reasoning that although de novo review of the Commissioner’s exercise of discretion is appropriate with respect to deficiency actions, it is inappropriate with respect to other actions, such as actions involving claims for relief from joint and several liability. Ewing v. Commissioner, 122 T.C. 32, 66 (2004) (Halpern and Holmes, JJ., dissenting), vacated 439 F.3d 1009 (9th Cir. 2006). The premise seems to be that APA section 706(2)(F) contemplates “trials de novo” in income tax deficiency actions but seemingly in no other type of tax proceeding, including actions involving claims for relief from joint and several liability. See id. at 60. No authority has been cited, and none has been discovered, in support of this restrictive view as to the types of tax matters subject to “trials de novo” under APA section 706(2)(F). As shown by the previous discussion, this restrictive view is not supported by the text or legislative history of the APA and is contradicted by the well-established practice of the courts (both the Tax Court and the District Courts) to review de novo claims for relief from joint and several liability. 2. Section 6015(f) Claims Arising in Deficiency Actions In any event, section 6015(f) claims for relief can, and do, arise in deficiency actions, as affirmative defenses. If the taxpayer prevails on his or her claim for section 6015(f) relief, this Court will enter a decision reflecting a reduced deficiency due after application of section 6015(f). Notably, section 6015(f) claims in such cases will not necessarily arise as challenges to administrative determinations made before the commencement of the Tax Court litigation. Section 6015(f) contains no requirement of an Appeals Office hearing. Nor does it fix a specific point from which to measure the Commissioner’s determination. Consequently, while the Commissioner’s determination can be made in response to a Form 8857, Request for Innocent Spouse Relief, it can also be made by way of an answer to a petition in this Court which might raise entitlement to relief under section 6015(f) for the first time as an affirmative defense. See, e.g., Cheshire v. Commissioner, 115 T.C. 183 (2000) (the taxpayer’s claim for equitable relief was initiated in her petition, the Commissioner conceded partial relief before trial, and this Court held that the taxpayer was entitled to additional relief under section 6015(f)), affd. 282 F.3d 326 (5th Cir. 2002); Rowe v. Commissioner, T.C. Memo. 2001-325 (the taxpayer raised section 6015 claims in an amended petition, the Commissioner granted partial relief in his amended answer and subsequently conceded section 6015 relief for other items, and this Court held that the taxpayer was entitled to additional relief under section 6015(f)). 3. Section 6015 Claims Based on Administrative Inaction In other cases, section 6015(f) claims might come before this Court on a stand-alone basis. The statute expressly contemplates that the petition might be filed in the Tax Court before there has been any administrative action; it provides that if the Internal Revenue Service has failed to act on the individual’s request for relief within 6 months, the individual may petition the Tax Court for relief. Sec. 6015(e)(1)(A)(i)(II). Consequently, in a variety of circumstances section 6015(f) claims for relief may be raised in the Tax Court even in the absence of prior administrative action. In such circumstances limiting judicial review to the administrative record would be meaningless. 4. Statutorily Mandated Standards and Procedures Statutorily mandated standards and procedures contemplate that the Tax Court will generally conduct trials de novo in its proceedings, including actions involving claims for relief from joint and several liability. Section 7453 provides that, with limited exceptions not relevant here, “the proceedings of the Tax Court * * * shall be conducted in accordance with such rules of practice and procedure (other than rules of evidence) as the Tax Court may prescribe and in accordance with the rules of evidence applicable in trials without a jury in the United States District Court of the District of Columbia.” As previously discussed, this is substantially the same requirement that has been in effect since the inception of the Board of Tax Appeals in 1924; the requirement was in direct response to the legislative imperative that the Board independently compile the record upon which it decided cases. Moreover, section 7459 requires the Tax Court to make findings of fact in each report upon “any proceeding” instituted before the Tax Court. 5. Jurisdictional Grant Under Section 6015(e) Contemplates Trials De Novo Section 6015(e)(1)(A) grants the Tax Court jurisdiction to “determine the appropriate relief available to the individual” who requests equitable relief under subsection (f). Particularly in the light of this Court’s inability to remand section 6015(f) cases for further administrative consideration, see Friday v. Commissioner, 124 T.C. 220 (2005), a trial de novo is appropriate and often necessary to enable the Court to determine the appropriate relief. In determining the appropriate relief, it is not necessarily sufficient to decide whether the Commissioner abused his or her discretion. For instance, the Court might conclude that the Commissioner had abused his or her discretion in the methodology or procedures employed in denying section 6015(f) relief but still decide after a de novo trial that no relief was appropriate. Or the Court might conclude that the Commissioner had abused his or her discretion and decide on the basis of evidence presented at trial that the taxpayer was entitled to either partial or full relief. As the majority opinion notes, the jurisdictional grant in section 6015(e)(1)(A) for the Tax Court to “determine the appropriate relief available to the individual” differs significantly from its jurisdictional grant in section 6330(d)(1) “with respect to such matters” as may involve an Appeals office determination in a collection proceeding. Moreover, section 6015, unlike section 6330, contains no statutory requirement of an Appeals Office hearing, and there is no assurance of any meaningful record to review with respect to a section 6015(f) request for relief. The jurisdictional grant pursuant to section 6015(e)(1)(A) lies entirely with the Tax Court, so there is no risk of “disparate forms of judicial review depending on which court was reviewing” the claim for relief, as seemed to concern the Court of Appeals in Robinette v. Commissioner, 439 F.3d 455, 461 (8th Cir. 2006), revg. 123 T.C. 85 (2004), with respect to judicial review of collection determinations pursuant to section 6330.4  Colvin, Swift, Wells, Gale, and Marvel, JJ., agree with this concurring opinion.   During consideration of the APA, at the request of the Chairman of the Senate Judiciary Committee, the Attorney General commented on various aspects of the legislation. In his statement, which was later appended to the Senate report, the Attorney General opined that for purposes of the APA the term “Courts” included the Tax Court and that consequently the APA did not apply to its procedures. S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted in Administrative Procedure Act Legislative History, 1944r-1946, at 224. Notwithstanding this authority, contemporary commentators disagreed over whether the APA applied to the Tax Court. Compare Note, “Effect of the Administrative Procedure Act on Decisions of the Tax Court”, 2 Tax L. Rev. 103 (1946) (concluding that the APA applied to the Tax Court), with Gordon, “Reviewability of Tax Court Decisions”, 2 Tax L. Rev. 171 (1947) (concluding that the APA did not apply to the Tax Court). There developed a split in the circuits as to whether the Tax Court was to be considered an agency so as to be subject to the provisions of the APA governing agency adjudications. Compare Kennedy Name Plate Co. v. Commissioner, 170 F.2d 196 (9th Cir. 1948), affg. a Memorandum Opinion of this Court, and Anderson v. Commissioner, 164 F.2d 870 (7th Cir. 1947), affg. 5 T.C. 443 (1945) (both holding that the APA provisions did not apply to the Tax Court), with Lincoln Elec. Co. v. Commissioner, 162 F.2d 379, 382 (6th Cir. 1947) (holding that review of Tax Court decisions was governed by the APA), revg. 6 T.C. 37 (1946).    The Senate and House reports explain this provision in identical terms, noting that it is one of several exceptions affecting “even adjudications otherwise required by statute to be made after hearing. The first [exception], where the adjudication is subject to a judicial trial de novo, is included because whatever judgment the agency makes is effective only in a prima facie sense at most and the party aggrieved is entitled to complete judicial retrial and decision.” S. Rept. 752, 79th Cong., 1st Sess. (1945), reprinted in Administrative Procedure Act Legislative History, 1944-1946, at 202 (1946); H. Rept. 1980, 79th Cong., 2d Sess. (1946), reprinted in Administrative Procedure Act Legislative History, 1944-1946, at 260 (1946).    The decision in O’Dwyer v. Commissioner, 266 F.2d 575 (4th Cir. 1959), affg. 28 T.C. 698 (1957), has been criticized as being “premised on a now-outmoded understanding that informal agency action cannot be reviewed based on an administrative record.” Robinette v. Commissioner, 439 F.3d 455, 461 (8th Cir. 2006), revg. 123 T.C. 85 (2004); see also Ewing v. Commissioner, 122 T.C. 32, 61 (2004) (Halpern and Holmes, JJ., dissenting) (characterizing O'Dwyer as being of “dubious” continuing relevance), vacated 439 F.3d 1009 (9th Cir. 2006). Even these critics of O'Dwyer, however, do not appear to disagree with its holding that deficiency actions in the Tax Court are properly conducted de novo; but apparently they arrive at that conclusion by a different route, construing APA sec. 706(2)(F) narrowly as contemplating “trials de novo” in income tax deficiency proceedings seemingly to the exclusion of all other types of tax proceedings. See Ewing v. Commissioner, supra at 61 (Halpern and Holmes, JJ., dissenting). As discussed infra, this narrow interpretation of APA sec. 706(2)(F).is contrary to the legislative history of the APA and the well-established practice of the Tax Court and the District Courts.    In any event, the Court of Appeals’ concern in this particular regard was addressed by Congress in the Pension Protection Act of 2006, Pub. L. 109-280, sec. 855, 120 Stat. 1019, which gave the Tax Court exclusive jurisdiction in collection matters to hear appeals from notices of determination issued after Oct. 16, 2006.