The United States Tax Court (hereinafter, “Tax Court”) recently issued three seminal opinions1 regarding innocent spouse relief pursuant to Section 6015 of the Internal Revenue Code (hereinafter, “Code”). Each decision helped clarify relief under Code Section 6015(f), commonly referred to as “equitable relief.”
When married taxpayers file a joint Form 1040 income tax return, they are jointly and severally liable for any amount owing.2 However, Section 6015 of the Internal Revenue Code provides three different forms of relief from joint and several liability, Section 6015(b), (c), and (f). To qualify for relief under Section 6015(b) and (c), a taxpayer must meet each of the listed statutory requirements. In contrast, the Internal Revenue Service (hereinafter, “IRS”) grants Section 6015(f) relief to a taxpayer if, under its prescribed procedures, it is inequitable when considering all of the facts and circumstances to hold the taxpayer jointly and severally liable for the tax owed.3
Lantz v. Comm’r, 132 T.C. ____, No. 25078-06, 2009 WL 928241 (February 12, 2009).
One of the requirements to qualify for relief from joint and several liability under Sections 6015(b) and (c) is that the taxpayer must request relief within the two-year period following the first IRS collection activity (hereinafter, “limitation period”). Section 6015(f) does not include this limitation period restriction. However, when the IRS established procedures for determining when a taxpayer qualifies for relief under 6015(f), it adopted Treasury Regulations Section 1.6015-5(b)(1). Section 1.6015-5(b)(1) required a taxpayer to request equitable relief within the limitation period. The IRS incorporated this requirement into Revenue Procedure 2003-61.4
In Lantz v. Comm’r, the Tax Court addressed the validity of the limitation period for equitable relief. Petitioner filed her request for equitable relief after the limitation period passed. The IRS denied her equitable relief solely because she did not make her claim within that period. She appealed the IRS’s decision to the Tax Court, arguing that Treasury Regulation Section 1.6015-5(b)(1) was invalid on its face.
In Chevron, the Supreme Court announced a two-prong test for determining the validity of treasury regulations.5 If Congress has directly spoken to the question at issue, the courts must give effect to the unambiguously expressed intent of Congress.6 If Congress has not directly spoken, then the court asks whether the treasury regulation is a permissible construction of the statute.7
The Lantz court, in an en banc decision, decided 12-5 in favor of invalidating Treasury Regulations Section 1.6015-5(b)(1) under the Chevron test. The majority opinion held that the regulation was invalid because Congress had directly spoken on the limitation period issue when it passed Section 6015(f). The court reasoned that because Congress explicitly included the limitation period in Sections 6015(b) and (c), and it did not include the requirement in Section 6015(f), that Congress “spoke through its audible silence.”8 Furthermore, because the language in Section 6015(f) is very broad, Congress intended relief to be more broadly available.9 Thus, the court invalidated the regulation requiring that a taxpayer request relief within the limitation period because Treasury Regulations Section 1.6015-5(b)(1) did not meet the first prong of the Chevron test .10
The court also held that it would invalidate the limitation period requirement under the second prong of Chevron. In arguing that the regulation is an impermissible construction of Section 6015(f), the court pointed out that the regulations for Section 66 of the Code, the counterpart to Section 6015 for taxpayers in community property states, prescribe a longer limitation period for taxpayers seeking “equitable relief” instead of “traditional relief.”11 In contrast, the IRS only created one length of time, two-years, for all three types of relief under Section 6015, which is inconsistent with Congress’s intent to make equitable relief more broadly available. The court also highlighted the fact that it was contrary to the intent of Congress to allow the IRS to avoid consideration of all facts and circumstances by imposing a limitation period.12 The court held that the taxpayer’s delay in applying for relief under section 6015(f) should only be one of the factors considered when examining all facts and circumstances.13
Four judges issued a dissenting opinion.14 The dissent argued that the distinctive quality allowing the IRS to prescribe a limitation period is that Congress expressly granted the IRS discretion to grant equitable relief, and did not do so for relief under Section 6015(b) or (c).15 The relevant language of Section 6015(f) states, “Under procedures prescribed by the Secretary… the Secretary may relieve such individual….” However, the dissent pointed out, Section 6015(b) and (c) state that the Secretary shall grant relief when such individual meets the specified conditions.16 This difference, the dissent argued, granted the IRS the authority to promulgate rules for deciding when to grant equitable relief. Furthermore, the dissent argued that Congress’s silence as to the limitation period in Section 6015(f) supports that it intended to delegate the procedural requirements for obtaining relief to the IRS.17 Therefore, the regulation was valid under the first prong of Chevron because Congress did not directly speak to the limitation period.
The dissenting judges also argued that the regulation is valid under the second prong of the Chevron test. They stated that including the limitation period requirement was a permissible construction of the statute because the regulation was consistent with the legislative grant of authority to the Secretary.18 The dissent relied upon the legislative history of Section 6015(f), arguing that the statute’s history suggests that Congress enacted it to grant a means for relief for taxpayers who underpaid taxes as opposed to understated taxes.19 The legislative history did not address the permissibility of a limitation period. The dissent stated, “[h]olding that the Secretary cannot exercise his discretion to set a common deadline isn’t a reasonable inference; it’s the usurpation of the authority that Congress delegated to the Secretary, not [the Tax Court].”20 Therefore, the dissent would uphold the limitation period in Treasury Regulations Section 1.6015-5(b)(1).
The IRS has not announced whether it will appeal the Lantz decision.
Chief Counsel Notice CC-2009-012, (April 17, 2009).
The IRS Counsel addresses the holding in Lantz in Chief Counsel Notice CC-2009-012. It will continue to argue that relief is unavailable under Section 6015(f) when the taxpayer files the claim after the limitation period, but will no longer file summary judgment motions. The IRS will also now consider the merits of any cases where it denied relief solely based upon the limitation period.
Porter II: Porter v. Comm’r, 132 T.C. ____, No. 13558-06, 2009 WL 1098488, (April 23, 2009).
In Porter I, the Tax Court held that the scope of its review in Section 6015(f) cases is de novo, and, therefore, it will consider evidence introduced at trial that was not included in the administrative records.21 In Porter II, the Tax Court revisited its holding in Butler, where it held that the proper standard of review for an IRS determination under Section 6015(f) is for an abuse of discretion.22 In an en banc decision, the Porter II court decided 11-6 in favor of reviewing the IRS’s Section 6015(f) determinations de novo.23
The majority opinion cited four reasons for applying a de novo standard of review for Section 6015(f) determinations. First, the court argued that Congress’s amendments to Section 6015(e), which grants the Tax Court jurisdiction to hear all Section 6015 claims, suggest that the proper standard of review is de novo.24 The statute states, “the Court has jurisdiction to determine the appropriate relief available to the individual under [Section 6015(f)].”25 The court argued that the use of the word “determine” indicates that Congress intended the Tax Court give no deference to the IRS when determining a taxpayer’s eligibility for equitable releif.26
Second, Congress, in the past, had included language to limit the standard of review in similar statutes.27 In 2002, Congress amended the statute for interest abatement claims, explicitly providing that the courts review for an abuse of discretion.28 The majority opinion reasoned that, because Congress did not include language limiting the standard of review for equitable relief claims as it did for interest abatement claims, Congress intended the courts to apply a de novo standard of review.29
Third, the court pointed out that Section 6015(f) cases cannot be remanded to the IRS for reconsideration. It was concerned about the IRS’s inability to consider changes in a taxpayer’s circumstances during the time between the IRS’s determination and a final disposition in court.30
Finally, the court stated that it reviews Section 6015(b) and (c) cases de novo. Therefore, it is only fair and consistent to apply a de novo standard of review.31
Six judges dissented from the majority opinion, favoring an abuse of discretion standard in Section 6015(f) cases. The dissent contended that two distinctive features of the language in Section 6015(f) support an abuse of discretion standard. First, Section 6015(f) states, in part, “the Secretary may relieve such individual of such liability.”32 “May,” the dissent argued, is discretionary language.33 Second, Section 6015(f) expressly names the decision-maker, the Secretary, which implies that the courts should give deference to that decision-maker.34
The dissent, in addition, contrasted Congress’s use of the word “elect” in Sections 6015(b) and (c) with the word “request” in Section 6015(f). The dissent stated that “to elect” relief means to exercise a right to relief. In contrast, “to request” relief simply implies that the IRS may choose who is eligible for relief.35
Like the majority, the dissent examined the language for equitable relief in Code Section 66, Section 6015’s counterpart for community property states. The dissent pointed out that the language for determining equitable relief in Section 66 is identical to the language in Section 6015(f). The courts review Section 66 equitable relief cases for abuse of discretion. Therefore, the dissent reasoned, it is inconsistent to apply a different standard for Section 6015(f) equitable relief cases.36
The dissent also scrutinized the court’s reasons for abandoning the abuse of discretion standard. First, the majority placed great weight on Congress’s 2006 amendment to Section 6015(e), which expanded the Tax Court’s jurisdiction to hear equitable relief cases. The dissent noted that the language amended in the statute did not implicate a change in the proper standard of review.37
Second, the use of the word “determine” does not necessarily implicate a de novo standard of review. The dissent mentioned that a form of “determine” appears in the Tax Court’s principal jurisdiction statute. Section 6015(e) grants the Tax Court the power to issue a “redetermination of the deficiency.” The dissent noted that even though it has the power to redetermine a deficiency, it still must apply different standards of review depending on the nature of the case.38
Third, although Congress specified the standard of review in interest abatement cases, the dissent lists examples where the courts review for abuse of discretion even when the statute does not explicitly state the standard of review.39
Fourth, the Tax Court’s decision not to remand equitable relief cases, coupled with an abuse of discretion standard of review, may not leave the Tax Court with the simplest system in application. But, the dissent argued, Congress could fix this inconsistency by giving the Tax Court the power to remand equitable relief cases to the IRS if it so chooses.40
Last, the dissent again cited the language differences between Sections 6015(b) and (c) to combat the majority’s argument that it is inconsistent to apply a different standard of review for Section 6015(f) cases.41
The IRS has not announced whether it will appeal the decision in Porter II.
Pollock v. Comm’r, 132 T.C. ____, No. 17755-07, 2009 WL 349743, (February 12, 2009).
In Pollock, the Tax Court clarified its jurisdictional boundaries in equitable relief cases. Petitioner filed for relief under Section 6015(f) from joint and several liability sometime before 2006. On April 27, 2006, the IRS denied Petitioner relief and mailed its statutory notice of deficiency. The notice stated that Petitioner had 90 days to file a petition in Tax Court. Only days later, the Eighth Circuit Court of Appeals held that the Tax Court did not have jurisdiction to hear cases under Section 6015(f) where a Petitioner is seeking relief from joint and several liability for an underpayment of tax (a special kind of equitable relief case referred to as “nondeficiency stand-alone” cases).42 The Tax Court, shortly thereafter, adopted the Eighth Circuit’s position, denying itself jurisdiction in nondeficiency stand-alone cases.43 Therefore, Petitioner had no forum to bring her nondeficiency stand-alone case and did not file a petition in Tax Court within her 90-day period. Petitioner, instead, filed a claim in United States District Court challenging a lien-enforcement action and asked the District Court to consider her nondeficiency stand-alone claim.
On December 20, 2006, Congress amended Section 6015(e).44 The amendment granted the Tax Court jurisdiction to hear nondeficiency stand-alone cases for tax liabilities “arising or remaining unpaid on or after the date of enactment” if the petitioner files his/her petition within 90 days of the statutory notice of deficiency.45 In 2007, the District Court dismissed Petitioner’s nondeficiency stand-alone claim, but granted her 30 days to bring this claim in Tax Court, as Petitioner did not have a forum to bring her claim during her initial 90-day window. Petitioner filed her petition with the Tax Court during those 30 days. The issue facing the Tax Court was whether it had jurisdiction to hear Petitioner’s nondeficiency stand-alone claim after her 90-day period passed, and/or pursuant to the decision of the District Court.
The Pollock court held that it did not have jurisdiction to hear Petitioner’s case for four reasons. First, the majority ruled that the District Court’s order granting Petitioner 30 days to file a petition with the Tax Court violated the jurisdictional boundaries set by Congress. The court examined the “Law of the Case” doctrine, which states that a court may review the previous decision of another court on the same issue when the initial decision is “clearly erroneous and would work a manifest injustice.”46 The court believed that expanding its jurisdiction in accordance with the District Court’s order would be contrary to public policy.47
Second, as the 90-day limit for filing a petition in Tax Court is jurisdictional, and not a statute of limitations, the Tax Court could not apply the doctrine of “equitable tolling” to extend the 90-day deadline for Petitioner. Section 6015(e) states that the “individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine appropriate relief…. “not later than the close of the 90th day after the [IRS’s final determination letter].”48 Congress’s use of the word “jurisdiction” in the statute, the court explained, was evidence of its intent for this requirement to be jurisdictional and not a statute of limitations.49 Because the doctrine of equitable tolling cannot apply to jurisdictional limitations, the court could not toll the statute to allow for Petitioner’s claim.50
Third, the Tax Court could not construe the language of Section 6015(e), either before or after the Congressional amendment in 2006, to give itself jurisdiction. According to the court, the language of Section 6015 is unambiguous and not capable of more than one interpretation. It requires that a petitioner file his or her petition within the 90-day window.51
Finally, the Tax Court rejected Petitioner’s argument that her 90-day filing period did not commence until Congress granted the Tax Court jurisdiction to hear her case. The court reasoned that Congress had the power to amend the statute to allow for a grace period for taxpayers in the Petitioner’s position, but it chose not to include this Petitioner, and others in her same situation, within the group of taxpayers who may seek relief.52
Based on these reasons, the Tax Court dismissed Petitioner’s case for lack of jurisdiction.
1. All page numbers in the three decisions examined are referenced to Westlaw, as these cases are still in the process of being published.
2. I.R.C. § 6013.
3. Code section 6015(f) provides: 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.
4. Revenue Procedure 2003-61 prescribes seven threshold conditions that a taxpayer must satisfy before the IRS will consider granting him or her relief. One of these threshold conditions was submitting a request for relief within the limitation period.
5. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, (1984).
6. Id., at 842-43.
8. Lantz v. Comm’r, 132 T.C. ____, No. 25078-06, 2009 WL 928241, *5 (February 12, 2009).
9. Id., at *5-6.
10. Id, at *6.
11. Id., at *7-8. Section 66 of the Code offers two types of relief, traditional relief and equitable relief, for taxpayers who live in community property states. The limitation period for taxpayers who seek traditional relief is six months in contrast to the two-year limitation period for taxpayers seeking equitable relief.
12. Id., at *9. The court equated the IRS’s decision to impose a limitation period requirement upon taxpayers seeking equitable relief to declining to consider all of the factors necessary before making a decision on the merits. It points to the language in Woodall v. Fed. Bureau of Prisons, 432 F.3d 235, 245 (3d. Cir. 2005), where the court held an administrative regulation invalid for imposing a maximum time period for the eligibility of prisoners for Community Correctional Center placement because the Bureau of Prisons would not be considering each factor in its determination.
13. Id., at *10.
14. Judge Gale dissented, but did not write an opinion. Judge Halpern wrote a separate dissenting opinion, highlighting that the limitation period is not an unreasonable or burdensome restriction.
15. Lantz, at *12-13.
16. Id., at *13.
17. Id., at *14.
18. Id., at *15.
21. Porter v. Comm’r, 130 T.C. 115, 117 (2008). (Porter I). The Eleventh Circuit adopted the same position in Comm’r v.Neal, 557 F.3d 1262, (11th Cir. 2009).
22. Butler v. Comm’r, 114 T.C. 276, 291-92 (2000).
23. Judge Gale issued a separate concurring opinion, underscoring three reasons for reviewing Section 6015(f) cases de novo. First, the statute is ambiguous as to the proper standard of review. Second, the legislative history and Congress’s discontentment with the IRS’s application of Section 6015 suggest that Congress intended for broader availability of relief. Third, because the statute allows for the intervention of the nonrequesting spouse, Congress expected that the Tax Court would review evidence and legal arguments not available to the IRS when it made its determination. Therefore, Judge Gale reasoned, it is inconsistent to pair an abuse of discretion standard of review for the IRS’s determination with a de novo scope of review for the administrative record. Judges Halpern and Holmes, who dissented in Porter I’s decision to allow for a de novo scope of review in Section 6015(f) cases, also issued a concurring opinion. They concurred with the majority opinion in Porter II because it is only consistent to apply a de novo scope of review with a de novo standard of review.
24. Porter v. Comm’r, 132 T.C. ____, No. 13558-06, 2009 WL 1098488, *4 (April 23, 2009). (Porter II)
25. I.R.C. § 6015(e).
26. Porter II, at *4.
28. See I.R.C. § 6404.
29. Porter II, at *4-5.
30. Id., at *5.
32. Id., at *15-16.
33. Id., at *16.
35. Id., at *17.
37. Id., at *21-22.
38. Id., at *23.
39. Id. Also see, e.g. Thor Power Tool Co. v. Comm’r, 439 U.S. 522, 533 (1979).
40. Porter II, at *24.
42. Bartman v. Comm’r, 446 F.3d 785, 787 (8th. Cir. 2006).
43. Billings v. Comm’r, 127 T.C. 7 (2006).
44. Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, § 408, 120 Stat. 2922, 3061-62 (2006).
45. I.R.C. § 6015(e).
46. Pollock v. Comm’r, 132 T.C. ____, No. 17755-07, 2009 WL 349743, *5 (February 12, 2009) (citing Christianson v. Cold Indus. Operating Corp., 486 U.S. 800, 817 (1988)).
48. I.R.C. § 6015(e).
49. Pollock, at *7-8.
50. Id., at *8.
51. Id., at *8-9.
52. Id., at *9-10.