Court Opinion

ID: 4474890
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:11.281173+00
Date Added: 2024-06-11T14:53:51.613651
License: Public Domain

Goeke, J., concurring: I agree with the conclusion of the majority opinion but write separately for two reasons: (1) Applying the record rule to section 6015(f) cases would be contrary to Congress’s mandate that the Commissioner use the Appeals process for administrative hearings in section 6015(f) cases, and (2) an abuse of discretion standard is not the appropriate standard of review in section 6015(f) cases. The Record Rule Is Not Appropriate in Section 6015(f) Cases In addition to the reasons provided by the statutory analysis in the majority opinion, I believe that the Court’s review of section 6015(f) decisions should not be limited to the administrative record because the informal Appeals process by which the Commissioner makes decisions under section 6015(f) is incompatible with a rule that limits the Court’s review to a well-defined administrative record. Any attempt to limit the Court’s review to such a record would be problematic in the vast majority of section 6015(f) cases. The Office of Chief Counsel attempted to define the “administrative record” in section 6015(f) cases in Chief Counsel Notice CC-2004-026 (July 12, 2004): The administrative record is that part of the petitioner’s administrative file that the Service considered, or the petitioner or nonrequesting spouse submitted to the Service for consideration, with respect to petitioner’s claim for relief. This includes, but is not limited to, Form 8857, Request for Innocent Spouse Relief; Form 12507, Innocent Spouse Statement; Form 12508, Questionnaire for Nonrequesting Spouse; Form 12510, Questionnaire for Requesting Spouse; all written correspondence between the petitioner and the Service; all written correspondence between the nonrequest-ing spouse and the Service; any documents presented to the examiner or Appeals officer; the preliminary notice of determination; the final notice of determination; any written analysis by the examiner or Appeals officer; and the Appeals Case Memorandum. Notably, this explanation does not include a record of any hearings or other oral communications between the taxpayer and the settlement officer. In addition, what is characterized as the “administrative record” in fact ranges widely from case to case. In some cases the stipulated administrative record includes draft reports and miscellaneous documents from the Internal Revenue Service’s (IRS) Cincinnati Service Center. In others, the administrative record consists of correspondence sent to the taxpayer and abbreviated notes from telephone conversations with the taxpayer. Another practical problem with the record rule is that the administrative record, however defined, is frequently incomplete. Many taxpayers assume that the settlement officers will request more information if they do not have enough evidence to grant relief, and the taxpayers therefore do not produce all relevant evidence they have because they are not specifically asked for it. In some of these situations, consideration of additional evidence establishes that relief is appropriate even though the settlement officer initially denied relief. See, e.g., Washington v. Commissioner, 120 T.C. 137 (2003). In other cases the financial situations of the taxpayers may deteriorate after the settlement officer denies relief, making it more likely that the taxpayers are eligible for relief on the basis of their economic hardship. While the Court should not relieve taxpayers of their burden of proving that relief is appropriate and coming forward with relevant evidence, it would be inconsistent with the focus of section 6015(f) on equitable relief for the Court to turn a blind eye to any relevant information that the taxpayer can provide unless the taxpayer withholds or conceals the information at the administrative level or otherwise fails to cooperate with the settlement officer. Although the Court has long accepted telephone hearings in both section 6015 and 6330 cases, see, e.g., Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006); Katz v. Commissioner, 115 T.C. 329, 337 (2000); Magee v. Commissioner, T.C. Memo. 2005-263; Hendricks v. Commissioner, T.C. Memo. 2005-72; Pahamotang v. Commissioner, T.C. Memo. 2003-177, the trend toward expediency has made it increasingly difficult to determine the accuracy of representations made about conversations between the taxpayer and the settlement officer. The Court is often left with only the often-cryptic notes of the settlement officer as evidence of those conversations. This is not a criticism of the Commissioner’s administrative practices. The Appeals process is and has been an expedited and efficient means to resolve tax disputes. The Appeals process has never been conducted to create a reviewable administrative record and is ineffective for that purpose. Congress enacted section 6015 as part of the Internal Revenue Service Restructuring and Reform Act (RRA) of 1998, Pub. L. 105-206, sec. 3201, 112 Stat. 734, replacing section 6013(e). In RRA Congress also mandated a reorganization of IRS, particularly the Appeals process: [The reorganization plan shall] ensure an independent appeals function within the Internal Revenue Service, including the prohibition in the plan of ex parte communications between appeals officers and other Internal Revenue Service employees to the extent that such communications appear to compromise the independence of the appeals officers. [RRA sec. 1001(a)(4), 112 Stat. 689.] Furthering this mandate, Senator Roth, Chairman of the Senate Finance Committee, explained in his statement introducing RRA for Senate debate: One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals — one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process. [144 Cong. Rec. 14689 (1998) (Statement of Senator Roth)]. As the Court discussed in Lewis v. Commissioner, 128 T.C. 48, 59-60 (2007), Congress saw the informal Appeals process as serving an important function in resolving tax disputes while giving taxpayers a meaningful opportunity to voice their concerns. But because the Appeals conferences in section 6015(f) cases have always been informal, the information that settlement officers receive from taxpayers to determine whether relief is appropriate is not always well documented. A problem arises when the Commissioner attempts to limit the Court’s review to the evidence contained in the administrative record, but because of the informality of the proceedings, the administrative record does not include a complete and accurate account of the taxpayer’s situation. Applying the Administrative Procedure Act (apa), 5 U.S.C. secs. 551-559, 701-706 (2000), to the administrative procedures under section 6015(f) might be effective if the Commissioner adopted formal procedures to review requests for relief under section 6015(f), but this would be contrary to the congressionally mandated use of the traditional Appeals function, which has never included transcripts of the hearings or records of the proceedings. In Volentine & Littleton v. United States, 136 Ct. Cl. 638, 145 F. Supp. 952 (1956) (arising under the Wunderlich Act, which was the subject of United States v. Carlo Bianchi & Co., 373 U.S. 709 (1963), upon which the Court of Appeals for the Eighth Circuit in Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), revg. 123 T.C. 5 (2004), and the dissent in Ewing v. Commissioner, 122 T.C. 32 (2004), vacated 439 F.3d 1009 (9th Cir. 2006), relied heavily), the Court of Claims considered the Government’s argument that where a department’s decision must be upheld unless it is “fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence”, the court’s review of the department’s decision is limited to the administrative record. The court explained the flaw in the Government’s argument as follows: There is logic in the Government’s position. But we do not adopt it. It would require two trials in many cases involving this question. The first trial would include the presentation of the “administrative record” and its study to determine whether, on the basis of what was in it, the administrative decision was tolerable. But the so-called “administrative record” is in many cases a mythical entity. There is no statutory provision for these administrative decisions or for any procedure in making them. * * * Whoever makes it has no power to put witnesses under oath or to compel the attendance of witnesses or the production of documents. There may or may not be a transcript of the oral testimony. The deciding officer may, and even in the departments maintaining the most formal procedures, does, search out and consult other documents which, it occurs to him, would be enlightening, and without regard to the presence or absence of the claimant. [Volentine & Littleton v. United States, 136 Ct. Cl. at 641-642.] Although Volentine & Littleton arose under a different statute, the logic used therein is compelling in the context of section 6015(f) cases. Even after United States v. Carlo Bianchi & Co., supra, the Court of Claims adhered to the idea that the Supreme Court did not create a rule of general application in that case. Brown v. United States, 184 Ct. Cl. 501, 396 F.2d 989 (1968). The Court of Claims adopted the rule that whether to apply the record rule is a matter that should be determined after considering the relationship between the judicial function and the role of the agency, as well as the adequacy of the administrative record. Id. at 506-517, 396 F.2d at 993-999. In cases such as the one before the Court, where the Court is well equipped to apply section 6015(f) to individual taxpayers and the settlement officer has frequently failed to create an administrative record adequate for the Court’s review, a de novo review of the facts is appropriate. In many of the cases where courts have found it appropriate to limit their review to the administrative record, the administrative record was clearly defined and extensive and, if there was an administrative hearing, closely resembled the record that would be created in one of our own cases. For example, in United States v. Carlo Bianchi & Co., supra at 711, the Board of Claims and Appeals of the Corps of Engineers created a substantial record by holding an adversarial hearing, allowing the parties to offer evidence, and allowing each side the opportunity for cross-examination. In United States v. Iron Mountain Mines, Inc., 987 F. Supp. 1250, 1253-1254 (E.D. Cal. 1997), the smaller of the two administrative records at issue contained 359 documents, including reports from a 2-year investigation, comments and proposals submitted by interested parties, and the agency’s responses to those comments and proposals. The larger of the administrative records contained 2,648 of the same types of documents. Id. at 1254; see also NVE, Inc. v. HHS, 436 F.3d 182 (3d Cir. 2006). The APA itself suggests that hearings conducted under its rules will be well documented. APA section 556, 5 U.S.C. sec. 556, which provides the rules for hearings conducted under APA sections 553 and 554, explains the contents of the record as follows: (e) The transcript of testimony and exhibits, together with all papers and requests filed in the proceeding, constitutes the exclusive record for decision in accordance with section 557 of this title and, on payment of lawfully prescribed costs, shall be made available to the parties. When an agency decision rests on official notice of a material fact not appearing in the evidence in the record, a party is entitled, on timely request, to an opportunity to show the contrary. By contrast, the administrative record in section 6015(f) cases does not include testimony or a transcript of the conference. Furthermore, the administrative record is rarely, if ever, given to the taxpayer in full to allow the taxpayer to present before the Court a case based on the administrative record. Finally, because settlement officers unilaterally decide what information is shared with the taxpayer and generally control what is included in the administrative record, the safeguard available to parties to APA hearings under APA section 556 — to ask for the opportunity to contradict agency findings based on material facts not in the record — would offer little protection to taxpayers in section 6015 cases. While courts have applied the record rule in cases where the procedures are less formal than section 6015(f) conferences, the record rule was generally more appropriate in those cases because the agencies’ decisions did not depend as heavily on informal communication with individuals. See, e.g., Camp v. Pitts, 411 U.S. 138, 140-141 (1973); Holy Land Found. for Relief and Dev. v. Ashcroft, 333 F.3d 156, 163 (D.C. Cir. 2003); Beno v. Shalala, 30 F.3d 1057, 1073-1074 (9th Cir. 1994). In those cases, resolution of the dispute depended largely on written information available to the agency even without substantial evidentiary submissions by the other party, making a clearly defined administrative record unnecessary. By contrast, equitable relief under section 6015(f) depends largely upon statements and evidence provided by the requesting spouse, and the requesting spouse generally has few resources available to ensure that the statements and evidence produced are completely and adequately represented in the record. The Court often receives an incomplete administrative record where the truth of the parties’ claims is difficult to determine. As the majority opinion points out, the Court holds trials de novo under section 6015(e)(1)(A)(i)(II) where a taxpayer petitions the Court 6 months after filing an election for section 6015 relief and has not received a determination, and in such cases the administrative record is generally deficient. The Court also allows intervention by the nonrequesting spouse in both deficiency cases and stand-alone cases, and allows the nonrequesting spouse to present evidence that is not part of the administrative record.1 In the administrative process, the Commissioner recognizes that intervenors have the right to participate; but because intervenors have even less of an opportunity to create a complete and accurate administrative record than requesting spouses, the Court allows intervenors to supplement the record at trial. See King v. Commissioner, 115 T.C. 118, 124-125 (2000). In deficiency cases, the Court accepts evidence outside of the administrative record where taxpayers may raise section 6015(f) as an affirmative defense. The fact that section 6015(e) commits review of innocent spouse cases to the Tax Court confirms that Congress believes that the Court is well equipped to address questions under section 6015(f). Rejecting the record rule does not mean that taxpayers will be free to withhold information at the administrative level and then introduce it at trial. Where the settlement officer has requested relevant facts or documents from the taxpayer and the taxpayer has not cooperated, the Court may exclude evidence that is not part of the administrative record. However, the Court should not assume that because certain facts or evidence are not in the administrative record it necessarily follows that the taxpayer had an adequate opportunity to present them. My concern is that lost in the statutory debate both in our Court and in the Courts of Appeals is the impracticality of the Commissioner’s narrow position and the inconsistency of the Commissioner’s position with decades of administrative practice in the Appeals process. The Standard of Review I agree with Judge Wherry’s concurring opinion that the Court should not apply an abuse of discretion standard of review in section 6015(f) cases. I write separately to explain in greater detail why the Court’s current reliance on Butler v. Commissioner, 114 T.C. 276 (2000), and its progeny as the source of the Court’s standard of review in section 6015(f) cases is misplaced in the light of the amendment to section 6015(e)(1) by the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. C, sec. 408(a), 120 Stat. 3061. After Congress enacted section 6015 in RRA sec. 3201, Butler v. Commissioner, supra, was the first Tax Court case to consider the Court’s jurisdiction to review the Commissioner’s denial of relief under section 6015(f).2 In Butler v. Commissioner, supra at 289, the Court faced the issue of whether the Commissioner’s decision to deny relief under section 6015(f) was subject to judicial review at all or was committed to agency discretion. The Court then concluded that it had jurisdiction to review the Commissioner’s denial of relief under section 6015(f) and stated without discussion that the standard of review was abuse of discretion.3 Id. at 292. Section 6015(f) provides that the Commissioner “may” grant relief under certain circumstances, indicating that the Commissioner’s decision is discretionary. Before 2006 Congress had not specified whether the Court had jurisdiction to review the Commissioner’s decision whether to grant relief under section 6015(f) or, if it did, what standard of review the Court should use. Although section 6015(e) gave the Court jurisdiction to determine appropriate relief under section 6015(b) and (c), it was silent as to section 6015(f). In the absence of any clear guidance from Congress, it was logical for the Court in Butler v. Commissioner, supra, to hold that it did have jurisdiction to review the Commissioner’s decisions but to find that the standard of review was abuse of discretion because of the discretionary language in section 6015(f). After the Court’s Opinion in Billings v. Commissioner, 127 T.C. 7 (2006), Congress amended section 6015(e)(1) to make it clear that the Court has jurisdiction to review taxpayers’ requests for equitable relief under section 6015(f). However, section 6015(e)(1) does not provide the Court with jurisdiction to review the Commissioner’s decision but “to determine the appropriate relief available to the individual under this section”. (Emphasis added.) After section 6015(e)(1) was amended, the Court continued to review the Commissioner’s denial of relief under section 6015(f) using an abuse of discretion standard, relying on Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003), and Butler v. Commissioner, supra. Banderas v. Commissioner, T.C. Memo. 2007-129; Ware v. Commissioner, T.C. Memo. 2007-112; Farmer v. Commissioner, T.C. Memo. 2007-74; Van Arsdalen v. Commissioner, T.C. Memo. 2007-48. The Court in Jonson v. Commissioner, supra at 125, stated that the Court reviews the Commissioner’s denial of relief under section 6015(f) for an abuse of discretion, citing Butler v. Commissioner, supra at 292, as the source of the Court’s jurisdiction. While it was logical for the Court in Butler and other pre-Billings cases to review the Commissioner’s denial of relief under section 6015(f) for an abuse of discretion using the reasoning of Mailman and Gardner, given the ambiguity in section 6015(e)(1) at the time, the amendment to section 6015(e)(1) warrants a reconsideration of our standard of review in section 6015(f) cases. This explicit grant of authority to make determinations under section 6015(f) in section 6015(e)(1) should now be the source of the Court’s standard of review. Colvin, Swift, Foley, Marvel, Wherry, and Kroupa, JJ., agree with this concurring opinion.   While Rev. Proc. 2003-19, 2003-1 C.B. 371, gives the nonrequesting spouse the right to participate at the administrative level, in practice, the nonrequesting spouse frequently suffers from the same problems as the requesting spouse in building a complete administrative record and does not have a statutory right to an in-person or telephone hearing.    Mira v. United States, 245 Bankr. 788 (Bankr. M.D. Pa. 1999), was the first case to address this issue. The court concluded that because of the word “may” in sec. 6015(f), the Commissioner’s determinations were committed to agency discretion by law and therefore were not reviewable by any court. Id. at 792.    In Butler v. Commissioner, 114 T.C. 276, 291 (2000), the Court found that there was an ascertainable standard upon which to review the Commissioner’s discretionary denial of relief pursuant to sec. 6015(f), pointing out that the Court had applied a facts and circumstances analysis in considering the application of former sec. 6013(e)(1)(D), which uses substantially the same language as the current sec. 6015(f). The Court supported this argument by citing cases such as Terzian v. Commissioner, 72 T.C. 1164 (1979), and Kistner v. Commissioner, T.C. Memo. 1995-66, where the Court made de novo determinations of whether the taxpayers satisfied former sec. 6013(e)(1)(D). However, the Court declined to apply the same standard of review to sec. 6015(f) as it had applied to former sec. 6013(e)(1)(D).