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Full Opinion
dissenting:
The question presented in this case is one fundamental to administrative law: What is the scope of reviewâand, concomitantly, the standard of reviewâof the Tax Courtâs review of the Secretary of the
The question is of more than passing interest. It goes to the heart of the place of the Tax Court in our administrative system. The question has splintered the Tax Court, which has proceeded along three different paths, dragging four circuit courts with them in the process. The Tax Court initially held that it would review the Secretaryâs exercise of discretion under § 6015(f) for abuse of discretion. Jonson v. Commâr, 118 T.C. 106, 125 (2002), aff'd on other grounds, 353 F.3d 1181 (10th Cir.2003). The D.C. and Fifth Circuits confirmed that position. Mitchell v. Commâr, 292 F.3d 800, 807 (D.C.Cir.2002) (âAs the decision whether to grant this equitable relief is committed by its terms to the discretion of the Secretary, the Tax Court and this Court review such a decision for abuse of discretion.â); Cheshire v. Commâr, 282 F.3d 326, 337-38 (5th Cir. 2002) (reviewing innocent spouse relief under § 6015(c) for clear error by the Tax Court and § 6015(f) for abuse of discretion by the Secretary).
Then, a divided Tax Court changed its mind and held that it would use a de novo scope of reviewâincluding trial de novoâ but an abuse-of-discretion standard of review. Ewing v. Commâr (Ewing II), 122 T.C. 32, 43-44 (2004) (en banc) (â[0]ur 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 [sic] contained in [the Commissionerâs] administrative record, and ... the APA record rule does not apply to section 6015(f) determinations in this Court.â); id. at 50 (Thornton, J., concurring) (âSince its enactment in 1946, the APA has never governed proceedings in this Court (or in its predecessor, the Board of Tax Appeals).â); id. at 71 (Chiechi, J., dissenting) (agreeing with the majority that âthe APA [does not] control[] the proceedingsâ). But see id. at 61 (Halpern, J., dissenting) (â[T]he APA judicial review provisions apply to section 6015(f) cases as well as deficiency cases.â). That position was confirmed by a divided Eleventh Circuit. Commâr v. Neal, 557 F.3d 1262, 1264 (11th Cir.2009) (â[T]he Tax Court did not err in refusing to limit its consideration to the administrative record and in conducting a trial de novo in this § 6015 case.â); id. at 1287 (Tjoflat, J., dissenting) (â[T]he court has given the Tax Court the authority to second-guess the Commissioner at its whim.â).
Finally, a divided Tax Court changed its mind yet again and decided that it was entitled to both a de novo scope of review and a de novo standard of review. Porter II, 132 T.C. at 206-10 (rejecting an abuse-of-discretion standard in favor of de novo review on an open record); id. at 221
The majorityâs position not only departs from the D.C., Fifth, and Eleventh Circuits, but also its reasoning is inconsistent with the Eighth Circuitâs decision in Robinette v. Commissioner. 439 F.3d 455, 459-61 (8th Cir.2006) (rejecting the Tax Courtâs claim to de novo scope of review in proceedings under 26 U.S.C. § 6330 and concluding that the Commissionerâs decision was subject to abuse of discretion review under APA § 706(2)(A)); see also Keller v. Commâr, 568 F.3d 710, 718 (9th Cir.2009) (citing Robinette with approval).
I cannot follow the majority in this convoluted path. Because the Tax Court is a âreviewing courtâ for purposes of the judicial review provisions of the APA, I am persuaded that its scope of review is the administrative record before the IRS, and that the Tax Court can only review the Secretaryâs exercise of discretion for an abuse of discretion pursuant to 5 U.S.C. § 706(2)(A). I respectfully dissent.
I. THE APA AND THE TAX COURT
Let us begin with some first principles of administrative law. The Internal Revenue Service (âIRSâ), located within the Department of the Treasury, is an âauthority of the Government of the United Statesâ and, thus, an âagencyâ subject to the provisions of the Administrative Procedure Act (âAPAâ). See 5 U.S.C. § 701(b)(1); see also id. § 551(1). That means that any person âaggrievedâ by âfinal agency actionâ or â[a]gency action made reviewable by statute,â id. § 704, is âentitled to judicial review ... in a court of the United States,â id. § 702. In general, â[t]he form of proceeding for judicial review is the special statutory review proceeding,â id. § 703, typically found in the agencyâs enabling or organic act. A âspecial statutory review proceedingâ is Congressâs instructions for judicial review of an agencyâs actions. Such judicial review statutes will frequently identify the reviewing court, confer jurisdiction, provide venue, and waive sovereign immunity; although, any particular organic act may not address each of these elements. See, e.g., 15 U.S.C. § 45(c) (judicial review of Federal Trade Commission cease-and-desist orders). âSpecial statutory review proceedingâ statutes may also specify the scope of review and the standard of review. See, e.g., 30 U.S.C. § 1276(a)(1) (âAny action subject to judicial review under this subsection shall be affirmed unless the court concludes that such action is arbitrary, capricious, or otherwise inconsistent with law.â); id. § 1276(b) (âThe court shall hear such petition or complaint solely on the record made before the Secretary. Except as provided in subsection (a) of this section, the findings of the Secretary if supported by substantial evidence on the record considered as a whole, shall be conclusive.â). â[I]n the absence or inadequacyâ of such special statutory review provisions, the APA supplies a default âaction for judicial reviewâ in a âcourt of competent jurisdiction.â 5 U.S.C. § 703. See Bowen v. Massachusetts, 487 U.S. 879, 903, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988); ANA Int'l Inc. v. Way, 393 F.3d 886, 890 (9th Cir.2004). There is a strong presumption favoring the availability of judicial review. Abbott Labs. v. Gardner,
Unless the special statutory review provided for in the agencyâs enabling act specifies a different scope of review, § 706 of the APA supplies both the scope of review and the standard of review. See 5 U.S.C. § 559 (stating that the APA, including its chapter on judicial review, âdo[es] not limit or repeal additional requirements imposed by statute or otherwise recognized by lawâ); Ninilchik Traditional Council v. United States, 227 F.3d 1186, 1194 (9th Cir.2000) (â[Section] 706 of the APA functions as a default judicial review standard.â). Section 706 defines the scope of review as the âwhole recordâ before the agency, while the standard of review depends on the nature of the issue before the court. In most cases, the reviewing court may âhold unlawful and set aside agency action, findings, and conclusionsâ if they are âarbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.â 5 U.S.C. § 706(2)(A). In rare cases, however, a court may set aside agency action if it is âunwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.â Id. § 706(2)(F).
The question before us is not the scope of our review of the Tax Court, but the scope of review and the standard of review of the Tax Courtâs review of the Commissionerâs equitable relief decisions under 26 U.S.C. § 6015(f). Whatever status the Tax Court once enjoyed as the Board of Tax Appeals vis-a-vis the Commissioner, today it is clearly a âcourt of the United Statesâ for purposes of the APA, 5 U.S.C. § 702, and âthe reviewing courtâ in the first instance, id. § 706, for review of IRS actions.
A. The Constitutional Status of the Tax Court
The status of the Tax Court has shifted over time. Created in 1924 as the Board of Tax Appeals (the âBoardâ), the Board was an independent agency within the executive branch that heard appeals from IRS deficiency determinations. Revenue Act of 1924, Pub.L. No. 68-176, § 900, 43 Stat. 253, 336-38; Revenue Act of 1926, Pub.L. No. 69-20, §§ 1000-05, 44 Stat. 9, 105-11; see also Harold Dubroff, The United States Tax Court: An Historical AnalysisâPart II: Creation of the Board of Tax AppealsâThe Revenue Act of 1921, 40 Alb. L.Rev. 7, 53-58 (1976). Thus, the Board was an executive branch agency established to review, through adjudication, the decisions of another executive branch agency. See 5 U.S.C. § 701(b)(1) (â â[Ajgencyâ means each authority of the Government of the United States, whether or not it is within or subject to review by another agency....â); Martin v. Occupational Safely & Health Review Commân, 499 U.S. 144, 151, 111 S.Ct. 1171, 113 L.Ed.2d 117 (1991) (discussing the âunusual regulatory structureâ of âseparating] enforcement and rulemaking powers from adjudicative powers, assigning these respective functions to two different administrative authoritiesâ). The Boardâs deci
The legal status of the Board was not in doubt: âThe Board of Tax Appeals is not a court. It is an executive or administrative board, upon the decision of which the parties are given an opportunity to base a petition for review to the courts after the administrative inquiry of the Board has been had and decided.â Old Colony Trust Co. v. Commâr, 279 U.S. 716, 725, 49 S.Ct. 499, 73 L.Ed. 918 (1929). Nor was the scope of the Boardâs review in question: for deficiency proceedings, its scope of review was âimmediate redetermination of the liabilityâ through âa complete hearing de novo.â Phillips v. Commâr, 283 U.S. 589, 598, 51 S.Ct. 608, 75 L.Ed. 1289 (1931).
In 1942, Congress changed the name of the Board to âThe Tax Court of the United States,â although it continued to identify the Tax Court as âan independent agency in the Executive Branch.â Revenue Act of 1942, Pub.L. No. 77-753, § 504, 56 Stat. 798, 957 (1942) (leaving unchanged all other aspects of the Tax Court, e.g., âjurisdiction, powers, and dutiesâ). Once again, the constitutional status of the Tax Court was not in question. The Supreme Court continued to treat the court as an independent executive agency, whose expertise was unquestioned; indeed, âno administrative decisions [were] entitled to higher credit in the courts.â Dobson v. Commâr, 320 U.S. 489, 498-99, 64 S.Ct. 239, 88 L.Ed. 248 (1943). It was no surprise then, when following the passage of the APA, the Fourth Circuit concluded that âthe Tax Court is not subject to the Administrative Procedure Actâ because it was not a âreviewing courtâ under § 706. OâDwyer v. Commâr, 266 F.2d 575, 580 (4th Cir.1959).
All of that changed in 1969. In recognition of the Tax Courtâs judicial functions, Congress âestablished, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court.â 26 U.S.C. § 7441; see also Harold Dubroff, The United States Tax Court: An Historical AnalysisâPart IV: The Board Becomes a Court, 41 Alb. L.Rev. 1, 40-51 (1977). This time, the Tax Courtâs constitutional status did change. The Supreme Court held in Freytag v. Commissioner that the Tax Court âexercises a portion of the judicial power of the United States ... to the exclusion of any other function.â 501 U.S. 868, 891, 111 S.Ct. 2631, 115 L.Ed.2d 764 (1991); see also Commâr v. Ewing, 439 F.3d 1009,1012 (9th Cir.2006) (âThe Tax Court, like any federal court, is a court of limited jurisdiction.â). The Court found that â[t]he Tax Courtâs function and role in the federal judicial scheme closely resemble those of the federal district courts.â 501 U.S. at 891, 111 S.Ct. 2631. In contrast with its former status within the executive branch, the âTax Court remains independent of the Executive and Legislative Branches.â Id. Accordingly, the courts of appeals may âreview [its] decisions âin the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury,â â a âstandard of review [that] contrasts with the standard applied [under the APA].â Id. (quoting 26 U.S.C. § 7482(a) and citing 5 U.S.C. § 706(2)(A)).
B. The Tax Court as a âReviewing Courtâ Under § 706(2)(A)
Whatever authority the Board of Tax Appeals or the old Tax Court of the United States had as an executive agency to review IRS decisions, the United States Tax
In Dickinson, the Supreme Court faced a similar issue head-on. The question was what standard of review the Federal Circuit should use when reviewing findings made by the Patent and Trademark Office (âPTOâ). 527 U.S. at 152-54, 119 S.Ct. 1816. The Federal Circuit, claiming that its authority predated the adoption of the APA in 1946, reviewed PTO findings for clear error, see Fed.R.Civ.P. 52(a), as though the PTO were a district court. Dickinson, 527 U.S. at 153-54, 119 S.Ct. 1816. The Supreme Court held, however, that the more deferential standard of 5 U.S.C. § 706(2)(A) governed. Id. at 154-55, 119 S.Ct. 1816. The APA, the Court said, is a âuniform approach to judicial review of administrative action,â and any departure from the APAâs strict guidelines âmust be clear.â Id. (citing 5 U.S.C. § 559); see 5 U.S.C. § 559 (â[A]dditional requirements [not contained in the APA must be] imposed by statute or otherwise recognized by law.â); Marcello v. Bonds, 349 U.S. 302, 310, 75 S.Ct. 757, 99 L.Ed. 1107 (1955) (âExemptions from the terms of the [APA] are not lightly to be presumed in view of the statement in [5 U.S.C. § 559] that modifications must be express.... â); see also United States v. Carlo Bianchi & Co., 373 U.S. 709, 715, 83 S.Ct. 1409, 10 L.Ed.2d 652 (1963) (â[W]here Congress has simply provided for review, without setting forth the standards to be used or the procedures to be followed, this Court has held that consideration is to be confined to the administrative record and that no de novo proceeding may be held.â). The Supreme Court squarely rejected the notion that anything less than a clear or express statement would suffice to create an exception to the APA. In âa field full of variation and diversity[, i]t would frustrate [the] purpose [of the APA] to permit divergence on the basis of a requirement ârecognizedâ only as ambiguous.â Dickinson, 527 U.S. at 155, 119 S.Ct. 1816; see also II Richard J. Pierce, Jr., Administrative Law Treatise § 11.1 at 772 (2002) (âThe majority [in Dickinson ] ... seemed to establish a presumption in favor of uniformity in standards for judicial review of agency actions that can be overcome only by âclearâ evidence in support of a departure.â).
In sum, the IRS is an agency for the purposes of the APA. The Tax Court is a âreviewing court,â subject to the scope of review and standard of review provisions of the APA, unless Congress has expressly exempted the Tax Court from such provisions.
II. TAX COURT REVIEW OF EQUITABLE RELIEF UNDER § 6015(f)
The Tax Court claims, and the majority affirms, that it is exempt from following
A. Innocent Spouse Relief Under § 6015
As the majority has ably described, an innocent spouse has long had some form of relief, from unpaid or deficient taxes, available under various provisions of the Internal Revenue Code. See Maj. Op. at 981-84. Currently, 26 U.S.C. § 6015 provides two mechanisms for addressing innocent spouse claims. First, â[u]nder procedures prescribed by the Secretary, if ... there is an understatement of tax attributable to erroneous items of one individual filing the joint return,â the âother individualââie., the âinnocent spouseââmay âestablish[] that in signing the return he or she did not know, and had no reason to know, that there was such understatement.â 26 U.S.C. § 6015(b)(1)(B), (C). Where it would be âinequitableâ to hold the innocent spouse liable, and the innocent spouse elects the benefits of § 6015, the innocent spouse âshall be relieved of liability for tax.â Id. § 6015(b)(1)(D), (E); see also id. § 6015(c) (providing similar relief for taxpayers who are no longer married or are legally separated or not living together). Upon the filing of a petition for review, the Tax Court has jurisdiction to âdetermine the appropriate reliefâ for any individual âagainst whom a deficiency has been asserted.â Id. § 6015(e)(1)(A).
Second, § 6015(f) authorizes the Secretary to grant innocent spouse relief where such relief is not available under § 6015(b) or (c). Section 6015(f) reads in its entirety:
Under procedures prescribed by the Secretary, ifâ
(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.
The Tax Court also has jurisdiction âto determine the appropriate relief availableâ âin the case of an individual who requests equitable relief under subsection (f).â Id. § 6015(e)(1)(A).
I want to begin with a couple of simple observations about the interplay between these two forms of relief. First, the principal procedure for obtaining innocent spouse relief is found in § 6015(b) and (c). That benefit, if the innocent spouse qualifies and elects such relief, is mandatory: The innocent spouse âshall be relieved of liability for tax.â Id. § 6015(b)(1)(E) (emphasis added). This remedy is only available under the conditions specified by Congress in § 6015 and under the regulations or procedures provided by the Secretary, see Treas. Reg. § 1.6015 (2012).
Third, in contrast to relief available under § 6015(b) and (c), § 6015(f) relief is an equitable remedy. Section 6015(b) is titled âProcedures for relief from liability applicable to all joint filers,â while § 6015(f) is simply titled âEquitable relief.â Moreover, the substance of § 6015(f) confirms its equitable nature. See 26 U.S.C. § 6015(f) (â[T]he Secretary may relieve such individual of such liability.â (emphasis added)). âThe word âmayâ customarily connotes discretion.â Jama v. ICE, 543 U.S. 335, 346, 125 S.Ct. 694, 160 L.Ed.2d 708 (2005) (âThat connotation is particularly apt where, as here, âmayâ is used in contraposition to the word âshallâ.... â); Fernandez v. Brock, 840 F.2d 622, 632 (9th Cir.1988) (â âMayâ is a permissive word, and we will construe it to vest discretionary power absent a clear indication from the context that Congress used the word in a mandatory sense.â). Compare 26 U.S.C. § 6015(b)(1)(E) (â[T]he [innocent spouse] shall be relieved of liability for tax....â (emphasis added)), with 26 U.S.C. § 6015(f) (â[T]he Secretary may relieve [the innocent spouse] of such liability.â (emphasis added)). Section 6015(f) relief may be had when other legal remedies fail, and it may not be had as a matter of right. That makes § 6015(f) an equitable remedy to provide relief when an individual cannot obtain relief under either § 6015(b) or (c). 26 U.S.C. § 6015(e)(1) (referring to âequitable relief under subsection (f)â); Cheshire, 282 F.3d at 338.
Fourth, the exercise of discretion is committed to âthe Secretaryââmeaning the Secretary of the Treasuryâwhose de-legee is the Commissioner of the IRS. Treas. Order 150-10 (April 22, 1982) (delegating the Secretary of the Treasuryâs authority to administer and enforce the Internal Revenue laws to the Commissioner of Internal Revenue). That is, Congress has both made the grant of innocent spouse relief a matter of equity and committed it to the discretion of the Secretary of the Treasury or his delegee. See Porter II, 132 T.C. at 226-28 (Gustafson, J., dissenting).
B. The Scope and Standard of Review of § 6015(f) Denials
The Tax Court arrived at its present position through a curious and circuitous route. As the majority explains, Maj. Op. at 984-85, under the original scheme, Congress provided for statutory review where the Commissioner denied innocent spouse relief and assessed a deficiency. That is, as originally enacted in 1998, the âPetition for review by Tax Court,â § 6015(e), only
Nevertheless, in Ewing v. Commâr (Ewing I), 118 T.C. 494 (2002) (en banc), the Tax Court decided that it had jurisdiction to hear a taxpayerâs petition from the Commissionerâs refusal to grant innocent spouse relief where no deficiency had been asserted. Id. at 506-07. In a subsequent opinion in the same case, a divided Tax Court further held that it could conduct a trial de novo to hear additional evidence not in the administrative record before the Commissioner, but that it would review the Commissionerâs decision for an abuse of discretion. Ewing II, 122 T.C. at 43-44.
On appeal to our court, we held that the Tax Court did not have jurisdiction to review the Commissionerâs decision under § 6015(f), because its jurisdiction was limited to petitions âwhen a deficiency has been asserted and the taxpayer has elected relief under [§ 6015(b) or (c) ].â Commâr v. Ewing, 439 F.3d at 1013. The Eighth Circuit followed suit in Bartman v. Commissioner, 446 F.3d 785, 787-88 (8th Cir. 2006) (âWe agree with the Ninth Circuit that the tax court lacks jurisdiction under § 6015(e) unless a deficiency was asserted against the individual petitioning for review.â) After our ruling in Ewing, the Commissionerâs discretion was complete: His decision whether to grant or not grant equitable relief to innocent spouses was not only discretionary, but unreviewable in the Tax Court.
The Tax Court acquiesced in our decision in Ewing and sought a legislative fix. Billings v. Commâr, 127 T.C. 7, 19-20, 2006 WL 2059399 (2006) (â[UJntil and unless Congress identifies this as a problem and fixes it legislatively by expanding our jurisdiction to review all denials of innocent spouse relief, it is quite possible that the district courts will be the proper forum for review of the Commissionerâs denials of relief in nondeficiency stand-alone cases.â). That same year Congress amended § 6015 to address our decision in Ewing and the Eighth Circuitâs decision in Bartman. Tax Relief and Health Care Act of 2006, Pub.L. No. 109^132, § 408, 120 Stat. 2922, 3061-62. The new amendment added language to § 6015(e). Id. This is the relevant portion of that section, with the language added by the 2006 amendments in italics:
(1) In general.âIn 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)â
(A) In general.âIn 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....
26 U.S.C. § 6015(e)(1)(A) (emphasis added).
Again, I have a couple of observations. First, this section confirms that innocent spouse relief offered in § 6015(f) is equitable in nature. And, implicitly, it confirms the Secretaryâs discretion to grant it by repeating that the relief in question is the âequitable relief under subsection (f).â Second, the language added in 2006 cures the jurisdictional defect we identified in Ewing. It does so in the simplest of ways, by referring to subsection (f) in the general clause, which permits an individual to petition the Tax Court, that âshall have jurisdiction.â 26 U.S.C. § 6015(e)(1)(A). Third, and most importantly, this section, as amended and considered as a whole, says absolutely nothing about the scope of review. In fact, it says nothing about
Under the principles of Dickinson and our cases, that should be the end of the matter. Section 6015 falls well short of the âclearâ or âexpressâ language required to create an exception to the APA. Section 6015(e) may be considered a âspecial statutory reviewâ provision for purposes of 5 U.S.C. § 703, but it does nothing more than grant jurisdiction to the Tax Court to review a taxpayerâs innocent spouse claim. Section 6015(e), having failed to supply its own scope of review or to except Tax Court review from the APA, review of § 6015(f) petitions brought under § 6015(e) is governed, by default, by the APA. Thus, the scope of review for the Tax Court is the âwhole recordâ before the Commissioner, and the standard of review of the Commissionerâs exercise of discretion is the familiar standard, âarbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.â 5 U.S.C. § 706(2)(A).