tax notes
®
Like fences, the statutes in subtitle F of the code define
the operational area in which the IRS administers the tax
laws. Statutory words — like pickets — place important
boundaries on IRS action. Statutory silence — the spaces
surrounding the words — can be just as important in
understanding the boundaries. As with any other aspect
ofl anguage, meaning comes from both what is said and
what is not said.
This report examines a dispute over the meaning of
the spousal relief provisions in section 6015 where the
silence is particularly disquieting. The problem is this:
While there is a statutory two-year limitation period for
taxpayers to seek spousal relief under section 6015(b) or
section 6015(c), the statute contains no such limitation
period for those seeking section 6015(f) relief. 2 Only
silence surrounds section 6015(f). The IRS has taken that
silence and, in reg. section 1.6015-5(b)(1), used it to
construct an immovable two-year limitation period that
the IRS applies against any person seeking section 6015(f)
relief. 3 In Lantz v. Commissioner, the Tax Court said the
regulation was invalid. 4 As this report was being submitted, the Seventh Circuit Court of Appeals reversed the
Tax Court, but its opinion is unlikely to settle the issue. 5
As usual, I divide my report up into easily digestible
chunks so you can read part now, part later, and part
never. Part A reviews the statutory context of section
6015(f). Part B presents the facts of Lantz and contrasts the
majority and dissenting Tax Court opinions. Part C offers
my humble (oh please, don’t laugh) thoughts on the
Interpreting Statutory Silence
By Bryan T. Camp
Bryan T. Camp is the George H. Mahon Professor of
Law at Texas Tech University School of Law.
Camp’s articles explore the laws of tax administration to help guide readers with particular procedural
problems while also giving them a sense of the larger
tax administration issues. This report explores a dispute over the meaning of congressional silence in the
spousal relief provisions of section 6015 and whether
the Tax Court was right to strike down a Treasury
regulation interpreting that silence.
Camp thanks Richard Beck, Paul Kohlhoff, Richard
Murphy, Bob Nadler, Lavar Taylor, and the ever-patient
anonymous for reviewing this report and pointing out
the really stupid bits. If errors remain, it is only because
of Camp’s obstinacy, for which he apologizes and
promises to do better next time.
Camp dedicates today’s report to Judge Richard
Posner, whose writings never fail to delight and instruct, even when they occasionally frustrate.
Copyright 2010 Bryan T. Camp.
All rights reserved.
Table of Contents
A.
B.
C.
D.
E.
Statutory Background
. . . . . . . . . . . . . . . . 502
Tilting at Windmills in
Lantz . . . . . . . . . . 505
The Tax Court Got It Right
. . . . . . . . . . . . 507
The Seventh Circuit Got It Wrong
. . . . . . . 512
Conclusion
. . . . . . . . . . . . . . . . . . . . . . . 514
One time there was a picket fence
with space to gaze from hence to thence.
An architect who saw this sight
approached it suddenly one night,
removed the spacesfrom the fence,
and built of them a residence.
The picket fence stood there dumbfounded
with pickets wholly unsurrounded,
a view so loathsome and obscene,
the Senate had to intervene.
— From The Picket Fenceby Christian Morgenstern
1
Max Knight (translator), The Gallows Songs, Christian Morgenstern’s Galgenlieder, University of California Press (1964).
TAX NOTES, August 2, 2010
1
2
You may assume that all statutory citations refer to the IRC,
26 U.S.C. section 1 et seq. unless I say otherwise in the cite.
Section 66(c) contains parallel provisions to section 6015(b) and
(f) for spouses living in community property states and my
analysis of section 6015(b) and (f) should apply equally to
section 66(c).
3
Yes, I know that, technically, this regulation was issued by
the Department of the Treasury and not by the IRS. But the
thinking behind the regulation, its drafting, and its execution all
come from the IRS, with Treasury performing a limited (although important) oversight role, so please indulge me
throughout this report when I attribute this regulation (and
others) to the IRS.
4
132 T.C. 131 (Apr. 7, 2009), Doc 2009-7979, 2009 TNT 65-8 .
5
After all, the Tax Court operates nationally. In CC-2010-005
(Mar. 12, 2010), Doc 2010-5710, 2010 TNT 51-11 , the Office of
Chief Counsel designated this issue for litigation and said it
‘‘will not settle or concede this issue.’’ The notice instructs
attorneys to send section 6015(f) to the IRS for a determination
on the merits (made at the Cincinnati Centralized Innocent
Spouse Operations). Cases that the IRS rejects on the merits are
to be litigated. However, cases in which the IRS says the
requesting spouse should get relief must be coordinated with
the National Office to decide ‘‘the best course of action.’’ Gosh,
I wonder what that can mean if the Office of Chief Counsel will
not ‘‘settle or concede the issue?’’
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SPECIAL REPORT
COMMENTARY / SPECIAL REPORT
A. Statutory Background
1. Overall context.6 Tax administration consists of two
basic tasks: determining tax and collecting tax. The
determination process generally ends when the IRS
records a taxpayer’s liability on its computerized books
of account. That act is called assessing. Because it processes so many returns, the IRS uses an operational
presumption that taxpayers properly report their financial affairs, and so it determines the tax by assessing the
tax reported on properly filed tax returns. Sometimes,
however, the IRS examines a return and decides that the
taxpayer understated his taxes. For income, estate, and
gift returns, that resulting discrepancy is called a deficiency, and the IRS can only assess it once the taxpayer
has a chance to contest it in Tax Court.
The enforced collection process begins only after assessment. It too uses an operational presumption: that
those taxpayers whose assessed taxes remain unpaid are
able but unwilling to pay. They are ‘‘won’t pays.’’ The
highly automated collection system proceeds on that
assumption — searching for and seizing taxpayer assets
— until taxpayers persuade the IRS that they are ‘‘can’t
pays’’; they simply cannot fully pay their assessed liabilities. Taxpayers generally do this by applying for collection alternatives such as installment agreements, offers in
compromise, or currently not collectible (CNC) status.
Taxpayers also have some opportunities during the collection process to persuade the IRS that the liability
determination was incorrect. However, taxpayers generally must fully pay the assessed liability before they can
seek judicial review of the administrative liability determination.
The liability determination process is about how much
tax a taxpayer owes. The collection determination process is about how much of an admittedly owed tax a
taxpayer should be made to pay. Taxpayers who get the
same relief under either a liability or collection determination don’t much care about that difference. Either way,
they’re off the hook. But the differences are important
because of the vastly different substantive and procedural rules that govern each process. Each process
presents a different maze of sharp corners for taxpayers
to navigate. Also, decisions under each process can have
different scope. Section 6015 straddles both processes. It
can apply to either change a previous liability decision or
change a current collection decision.
2. Description of section 6015(b), (c), and (f). Congress
enacted section 6015 as part of the Internal Revenue
6
This is a very brief summation. For those who want more
detail, please see my prior articles, available at http://ssrn.com/
author=364489.
Service Restructuring and Reform Act of 1998 (RRA ’98)
to mitigate some of the harshness of the joint and several
liability for income taxes that attaches to jointly filed
returns.7 As I recount in much greater detail elsewhere,
the final product was a quick and dirty conference
committee compromise.8 The House proposed a straightforward reform of the innocent spouse provisions that
would apply only to deficiencies. The Senate proposed an
opt-out model whereby any taxpayer, whether married
or divorced, could choose to basically undo a previously
filed joint return and elect to be held liable only for his
proportionate share of the liability. The Senate version
would apply to any liability, whether self-reported or part
of a deficiency, and whether previously paid or not. The
compromise was to mix the two together, resulting in
what is commonly viewed as three paths to spousal
relief. Regardless of the specific compromise, however,
the statute’s overall raison d’être is to give taxpayers a
remedy when the sharp corners of the tax code create
hardship or unfairness.9
Specifically, section 6015 marks out three different
substantive paths to relief from joint liability for a spouse
who so requests (requesting spouse). First, section
6015(b) marks the well-trod traditional innocent spouse
route. The requesting spouse must prove that he was (1)
innocent of knowledge about the items giving rise to the
understatement of tax; and (2) innocent of taking benefit
from the understatement.10
7
Internal Revenue Service Restructuring and Reform Act of
1998, P.L. 105-206, 112 Stat. 722.
8
See Bryan T. Camp, ‘‘The Unhappy Marriage of Law and
Equity in Joint Return Liability,’’ Tax Notes, Sept. 12, 2005, p.
1307, Doc 2005-18027, or 2005 TNT 176-31 (exploring the tension
between competing tax policies in context of reviewing the
statutory history of various provisions related to joint returns
from 1913 to present); Bryan T. Camp, ‘‘Between a Rock and a
Hard Place,’’ Tax Notes, July 18, 2005, p. 359, Doc 2005-14239, or
2005 TNT 138-30 (critiquing the Tax Court for taking jurisdiction
on stand-alone 6015(f) petitions as overreaching statutory authority to achieve equity — Congress fixed the jurisdictional
problem the next year). Congress has since fixed section 6015(e)
to give the Tax Court jurisdiction over stand-alone (f) petitions.
Both articles are also available at http://ssrn.com/
author=364489.
9
In the old parlance this is a ‘‘remedial’’ statute, although
that term is not a particularly precise term and carries centuries
of baggage. However, laws that provide a remedy for the
redress of injuries are pretty squarely within anyone’s definition. A good overview of the law can be found in Norman J.
Singer and J.D. Shambie Singer, 3 Sutherland Statutory Construction section 60:2 (264-298) and section 60:5 (307-311) (7th ed.
2008).
10
To satisfy the first element, the requesting spouse must
show that ‘‘he or she did not know, and had no reason to know’’
of the understatement. Section 6015(b)(1)(B). To satisfy the
second element the requesting spouse must show that ‘‘it is
inequitable’’ to be held responsible for the understatement.
Section 6015(b)(1)(D). The equity test here basically involves a
determination of what, if any, benefits the requesting spouse
derived from the understatement. Hayman v. Commissioner, 992
F.2d 1256, 1262 (9th Cir. 1993) (‘‘Although no longer a specific
requirement of the statute, the existence of a significant benefit
to the spouse claiming relief nevertheless is a material factor to
(Footnote continued on next page.)
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TAX NOTES, August 2, 2010
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matter. I submit that Chevron does not provide a helpful
analytical structure for questions about who bears what
responsibility for interpreting tax code administrative
provisions. Finally, Part D looks at Judge Richard Posner’s opinion and explains why it is wrong. My bottom
line is that the IRS’s attempt to appropriate this statutory
silence to suit its (admittedly legitimate) administrative
needs should not be allowed.
COMMENTARY / SPECIAL REPORT
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 section 6015(f) regulations are also very short, and
they basically tell taxpayers to ‘‘see . . . guidance published by the Treasury and the IRS.’’13 That guidance is
currently found in Rev. Proc. 2003-61, 2003-2 C.B. 296, Doc
2003-17345, 2003 TNT 143-10. It is in the revenue procedure that the IRS details what it considers to be the
relevant facts and circumstances for granting relief under
section 6015(f). I will explain those details in the next
subsection.
3. Comparing and contrasting (b) and (c) with (f).
Section 6015(f) differs from section 6015(b) and (c) in
three important respects. First, subsections (b) and (c) are
true liability determinations, but I submit that subsection
(f) is best read as a collection determination, notwithstanding its linguistic similarity to (b) and (c).14 Unlike
(b) and (c), subsection (f) is not limited to relief from the
assessment of a deficiency. It allows a taxpayer to request
relief from underpayments as well as from deficiencies.
Whereas relief under (b) or (c) involves a decision about
a requesting spouse’s true tax liability, relief under (f)
involves a decision that collecting a particular joint
liability from one of the spouses would be unfair, even
when there is no doubt that, legally, the spouse owes the
tax.
One can see this aspect of (f) in the legislative history,
the IRS implementation, and court cases. First, the RRA
’98 conference committee report tells us that:
The conferees intend that the Secretary will consider using the grant of authority to provide equitable relief in appropriate situations to avoid the
inequitable treatment of spouses in such situations
[underpayment of self-reported liabilities]. For example, the conferees intend that equitable relief be
available to a spouse that does not know, and had
no reason to know, that funds intended for the
13
Reg. section 1.6015-4.
All three provisions are written in terms of relieving a
taxpayer’s liability. And certainly in my prior article, supra note
8, I assumed that all three avenues of relief were liability
decisions. Writing this report gave me an opportunity to think
the matter through more carefully and, for the reasons I give
here, I think the better view is that (f) is much more like a
collection determination than it is a liability determination. This
has consequences for how the Tax Court ought to review IRS
determinations as well. The Tax Court generally reviews IRS
liability decisions de novo. See, e.g., section 6214. It generally
reviews IRS collection decisions for abuse of discretion. See, e.g.,
section 6330. The Tax Court has long struggled with the proper
way to review IRS spousal relief decisions. See, e.g., Porter v.
Commissioner, 130 T.C. 115 (2008), Doc 2008-10827, 2008 TNT
96-12. I believe that differentiating between (b) and (c) determinations on one hand, and (f) determinations on the other, is a
good way to resolve the problem of review.
14
be considered in determining whether it would be inequitable to
hold that spouse jointly liable. Although ‘normal support’ is not
considered a significant benefit for this purpose, unusual or
lavish support or gifts to the spouse seeking relief are considered even when the benefit is received ‘several years after the
years in which the omitted item should have been included in
gross income.’’’) (citations and quotes omitted). Courts sometimes confuse the section 6015(b) equity test with the section
6015(f) equity test. See, e.g., Doyle v. Commissioner, 94 Fed. Appx.
949 (3d Cir. 2004), Doc 2004-8522, 2004 TNT 77-11. As I explain
in the text below, they are different tests.
11
Note that although the ‘‘significant benefit’’ does not have
to have happened before the tax return at issue was filed, it still
is a determination of something that either happened or did not
happen before the trial.
12
Reg. section 1.6015-3(c)(3) (emphasis supplied).
TAX NOTES, August 2, 2010
503
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Importantly, relief under section 6015(b) turns on a
determination of prior, unchanging facts. For example,
assume Alex and Blair are married and Blair has a secret
drug-dealing business. They file jointly, and the revenue
agent sniffs out the drug business on audit. To get relief
under section 6015(b), Alex will have to prove: (1) the
understatement of tax was because of Blair’s unreported
income and Alex neither knew about the income nor had
any reason to know about it; and (2) Alex derived no
benefit from that understatement. Both determinations
turn on what happened in the past.11
The second path to relief is through section 6015(c)
apportionment. That section gives a type of ‘‘no fault’’
relief for taxpayers who have divorced or are sufficiently
separated so that it no longer makes sense to treat them
as an economic unit for the liability in question. Section
6015(c) requires the requesting spouse to show the proper
allocation of income and deduction items as between the
spouses. The requesting spouse’s liability is then limited
to just ‘‘the portion of such deficiency properly allocable
to the individual under subsection (d).’’ Once the allocation is made, the relief is granted unless the IRS can show
either (1) the requesting spouse had ‘‘actual knowledge,
at the time such individual signed the return, of any item
giving rise to a deficiency . . . which is not allocable to
such individual’’; or (2) the spouses previously transferred
assets ‘‘as part of a fraudulent scheme’’ (which the
regulations clarify means a scheme to avoid tax and not,
for example, just a scheme to defraud other people).12
Note again that relief under section 6015(c) turns on an
evaluation of past events: what did the requesting spouse
know, when and what asset transfers took place, and
why.
Using the same Alex and Blair example from above, if
Alex and Blair separated or divorced, and the IRS came
after Alex to pay the deficiency, Alex would be able to
elect the section 6015(c) apportionment regime, under
which the unpaid deficiency would most likely be attributed to Blair. Again, this determination would be made
on the basis of past facts, and it would be a determination
that Alex should not be liable for the deficiency.
The third path to relief is through section 6015(f),
which is very short and general. The statute requires the
IRS to create procedures to relieve a taxpayer from joint
and several liability when:
COMMENTARY / SPECIAL REPORT
One also sees this difference in the revenue procedure.
Section 4.01(7) of Rev. Proc. 2003-61 provides that a
requesting spouse must, as a ‘‘threshold condition,’’ not
be liable for the tax the requesting spouse does not want
to pay. That is, the requesting spouse must show that ‘‘the
income tax liability from which the requesting spouse
seeks relief is attributable to an item of the individual
with whom the requesting spouse filed the joint return
(the ‘nonrequesting spouse’).’’
The revenue procedure then sets out several exceptions to this no-liability threshold. One is the ‘‘misappropriated funds’’ exception. That is, the threshold condition
does not apply when ‘‘the requesting spouse did not
know, and had no reason to know, that funds intended
for the payment of tax were misappropriated by the
nonrequesting spouse for the nonrequesting spouse’s
benefit.’’ Tracking the conference committee example, the
IRS might make a decision in such situations to not
collect a tax for which the requesting spouse is legally
liable.
Another exception in Rev. Proc. 2003-61 to the noliability threshold is the ‘‘abuse not amounting to coercion’’ exception. That is, the threshold condition does not
apply when ‘‘the requesting spouse establishes that he
was the victim of abuse before the time the return was
signed, and that, as a result of the prior abuse, the
requesting spouse did not challenge the treatment of any
items on the return for fear of the no requesting spouse’s
retaliation.’’
Case law also treats (f) determinations as akin to
collection decisions and not liability decisions. For example, in Maluda v. Commissioner, T.C. Memo. 2009-281,
Doc 2009-26778, 2009 TNT 233-15, Mr. Maluda asked for
(f) relief because, he claimed, his ex-wife took the money
they had set aside to pay taxes and used it for her own
benefit (thus invoking the misappropriated funds exception). The IRS denied Mr. Maluda subsection (f) relief
from an underpayment of self-reported liabilities on the
grounds that the liabilities were completely attributable
to his activities and not his ex-wife’s activities. The Tax
Court held that the IRS ‘‘inappropriately denied the
requested relief solely because the liability was attributable to petitioner’s income.’’ However, the IRS still won
because the taxpayer’s stipulations failed to prove his
claim of misappropriation.
Understanding (f) as a collection decision is important
because relatively little IRS collection activity involves
the collection of deficiencies. It mostly involves collecting
from taxpayers who self-report the correct tax but simply
underpay.16 Consequently, section 6015(b) and (c) do not
apply in most collection situations because they allow
relief only from deficiencies, not from underpayments. If
15
H. Rept. 105-599 at 254.
16
See Bryan T. Camp, ‘‘Tax Administration as Inquisitorial
Process and the Partial Paradigm Shift in the IRS Restructuring
and Reform Act of 1998,’’ 56 Fla. L. Rev. 1, 115, note 589 (2004).
504
what the IRS is trying to collect is simply a self-reported
but unpaid liability, the requesting spouse cannot invoke
subsections (b) and (c).
The second difference flows from the first. Relief
under subsections (b) and (c) requires a determination of
past facts — which is typical for liability decisions — but
relief under section 6015(f) requires a determination of a
present status — which is typical for collection decisions.
To see this, one must look at how the IRS has implemented the broad command of subsection (f) to take into
account all the facts and circumstances. Once the threshold conditions are met, Rev. Proc. 2003-61 lists various
factors it will use in making an equitable determination
on whether to pursue collection of a tax that the requesting spouse admittedly owes. Six of these factors require a
determination of present status — that is, they are factors
that can change at any time over the 10-year collection
period:
a. Economic hardship. Perhaps the most important
factor for section 6015(f) relief is ‘‘whether the
requesting spouse would suffer economic hardship.
* * * The Service will base its determination of
whether the requesting spouse will suffer economic
hardship on rules similar to those provided in
Treas. Reg. section 301.6343-1(b)(4).’’17
b. Compliance with income tax laws. A second
relevant factor for the IRS is ‘‘whether the requesting spouse has made a good faith effort to comply
with income tax laws in the taxable years following
the taxable year or years to which the request for
relief relates.’’18
c. Mental or physical health. A third relevant factor
that ‘‘if present in a case, will weigh in favor of
equitable relief, but will not weigh against equitable relief if not present’’ is the health of the
requesting spouse at the time the IRS evaluates the
request.19 The revenue procedure says that the IRS
will consider the nature, extent, and duration of
illness when weighing this factor.
d. Nonrequesting spouse’s legal obligation. A
fourth relevant factor is ‘‘whether the nonrequesting spouse has a legal obligation to pay the outstanding income tax liability pursuant to a divorce
decree or agreement.’’20 Note that this factor might
change at any point during the 10-year collection
period.
e. Abuse. Fifth, the IRS will factor in ‘‘whether the
non requesting spouse abused the requesting
spouse.’’ Like the others, this factor is one that can
change at any time.
f. Marital status. A final status factor that can
change over time is whether the requesting spouse
is still part of the economic unit that generated the
17
Rev. Proc. 2003-61 section 4.03(2)(a)(ii), cross-referencing
section 4.02(1)(c).
18
Id. at section 4.03(2)(a)(vi).
19
Id. at section 4.03(2)(b)(ii).
20
Id. at section 4.03(2)(a)(iv).
TAX NOTES, August 2, 2010
(C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
payment of tax were instead taken by the other
spouse for such other spouse’s benefit.15
COMMENTARY / SPECIAL REPORT
says that ‘‘this section 4.03 applies to requesting spouses
who . . . satisfy the threshold conditions of section 4.01.’’
When one looks at section 4.01 (‘‘Eligibility for equitable
relief’’), one finds that one of the ‘‘threshold conditions’’
is that ‘‘relief is not available to the requesting spouse
under section 6015(b) or (c).’’
Further, even if the revenue procedure were not pellucid that it applied only to (f) situations, the factors
listed in it concerning present status have no logical role
to play in the section 6015(b) analysis. The equity analysis
in (b) goes to the innocence of the requesting spouse.
Section (f) relief, by its terms, goes beyond that, at times
giving relief to requesting spouses for whom the equity
determination in (b) would provide no relief. You can see
how this works in Rev. Proc. 2003-61 section 4.03 that lists
‘‘actual knowledge of the item giving rise to the deficiency’’ as a ‘‘strong factor’’ in determining equity but
acknowledges that ‘‘this strong factor may be overcome if
the factors in favor of equitable relief are particularly
compelling.’’
In sum, the (b) analysis is only whether it is fair to
hold a spouse liable for a tax when he had no reason to
know about the income item (for example, drug money)
giving rise to the understatement. The (f) analysis is
about fairness of collecting from an otherwise liable
spouse. While present economic status has much to do
with a collection decision, it has little connection with a
decision about the taxpayer’s true and correct past tax
liability. So the regulation is simply wrong. The nonregulatory guidance on what equitable factors should be used
to evaluate the statutory command ‘‘whether it is inequitable’’ applies only to the (f) situation.
The third difference between (f) and the other two
subsections is the breadth of the congressional command.
Congress gave the IRS well-defined directions in how to
apply subsection (b), which it wrote in light of decades of
case law. Subsection (c) was a new path that Congress
carved out in 1998, and so the directions are even more
detailed. Subsection (f), however, basically just tells the
IRS to ‘‘do the right thing’’ and leaves it up to the agency
to fill in that considerable gap with regulations. Congress
was silent on the contours of what equity means and was
silent as to just how taxpayers were supposed to claim (f)
relief. The question in Lantz and similar cases is whether
one such gap-filling regulation — the one imposing a
two-year limitation period on a requesting spouse — is
permissible exercise of agency authority.
B. Tilting at Windmills in Lantz
Lantz’s is the quintessential case for subsection (f)
relief. She was married to Dr. Chentnik, a dentist who
embezzled money from Medicaid and failed to report the
embezzled funds as income on the couple’s joint 1999
return.24 He was caught in 2000, prosecuted, and sent to
prison for 50 months in 2001. In 2002 the IRS issued a
notice of deficiency against the couple to reflect the
unreported income from the embezzlement. When neither taxpayer contested the deficiency, the IRS assessed
21
Reg. section 301.7122-1(b)(3)(i).
Reg. section 301.7122-1(c)(3)(ii), (3)(iv), Example 1.
Reg. section 1.6015-2(d).
22
23
TAX NOTES, August 2, 2010
24
I take all my facts from the parties’ appellate briefs and
from the Tax Court opinion.
505
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liability in the first place. Generally, when the
marital unit files a return and reports a liability as a
marital unit, the marital unit is liable for the reported liability. But if one is no longer part of that
marital unit, then the IRS will consider that status
change in deciding whether to collect the tax.
Changes in marital status, of course, can occur at
any point during the 10-year collection period.
Of these six present-status determinations, the first
four are typically decisions one finds IRS employees
making during the collection process, not the liability
determination process. The economic hardship factor
explicitly relies on reg. section 301.6343, which concerns
whether to release a levy because of economic hardship.
That reg. section is also used to decide whether to accept
a taxpayer’s offers in compromise based on Effective Tax
Administration (an ETA OIC).21 The investigation into
the current compliance status is redolent of decisions on
whether to accept installment agreements and OICs. The
physical and mental health of the taxpayer is also factored into decisions on whether to grant ETA OICs.22
Finally, and consistent with the Conference Committee
Report, the factor about who was expected to pay for the
joint liability has nothing to do with who is liable for the
tax but has everything to do with whether it is fair to
collect the tax from the requesting spouse.
I cannot overemphasize how each of these status
determinations is dependent on current and everchanging facts. A taxpayer might be flush one year and
destitute the next. A taxpayer might be noncompliant one
year but then come into full compliance in a later year.
And cancer has no respect for time but, indeed, creates its
own limitations period. It is true that some of the (f)
factors are also important for (b) or (c) relief — notably
the inquiry into the requesting spouse’s knowledge about
the items giving rise to the unpaid liability at the time the
return was filed — but the changing nature of the six
factors listed above is unique to the section 6015(f) equity
determination.
It is true that the section 6015(b) also contains an
equity determination, but not one dependent on present
status. The implementing regulation’s explanation of
what goes into the equity determination carries forward
prior law regarding whether the requesting spouse received a significant benefit from the understatement.
None of the other equity factors listed in that regulation
concerns present status.23
It is also true that the section 6015(b) regulation
assumes that what is now contained in Rev. Proc. 2003-61
provides ‘‘guidance concerning the criteria to be used in
determining whether it is inequitable to hold a requesting spouse jointly and severally liable under this section,’’ but no one appears to have told the revenue
procedure authors about that. The revenue procedure, by
its terms, applies only to subsection (f) equity determinations. Look at section 4.03 of Rev. Proc. 2003-61 (‘‘Factors for determining whether to grant equitable relief’’). It
COMMENTARY / SPECIAL REPORT
25
The exact same language is used in section 6015(b)(1)(E)
and (c)(3)(B).
506
first have to convince the Tax Court to push aside this
properly promulgated regulation.26 In light of the considerable deference courts generally give to agency regulations, this was a long shot, at best.
Lantz, however, won in Tax Court. A 12-judge Tax
Court majority found the regulation ‘‘an invalid interpretation of section 6015.’’27 It remanded Lantz’s petition to
the IRS ‘‘to consider all facts and circumstances in
petitioner’s case.’’ The IRS appealed the case to the
Seventh Circuit, and a panel heard oral arguments on
April 9. On appeal, the IRS conceded that Lantz would
qualify for relief under subsection (f), thus narrowing the
issue in the case to whether Treasury may create, by
regulation, a two-year SOL for requesting (f) relief.
The basis for the Tax Court’s decision was that it
thought the statute prohibited the creation of an absolute
limitation period for (f) relief. ‘‘We find that by explicitly
creating a 2-year limitation in subsections (b) and (c) but
not [subsection] (f), Congress has ‘spoken’ by its audible
silence.’’28 And, later, ‘‘the Secretary’s adoption of the
very timing rule that Congress had imposed on subsections (b) and (c), but had specifically omitted from
[subsection] (f) runs directly contrary to the nature of the
relief provided by Congress.’’29
As an alternative holding, the Tax Court decided that
even if the statute were considered ambiguous, the
regulation was an unreasonable interpretation of section
6015(f) because its unyielding nature defied the congressional mandate for a flexible approach. ‘‘While a taxpayer’s delay in applying for relief under section 6015(f)
is a factor to be considered in applying ‘all the facts and
circumstances’ test of section 6015(f), the Secretary must
be reasonable when creating restrictions that categorically
exclude taxpayers from relief . . . it is clear from the
omission of a 2-year limitations period in section 6015(f)
that such a 2-year limitations period is impermissible.’’30
Three of the five Tax Court judges who disagreed with
these holdings wrote dissents. Judges Thornton and
Holmes thought the statute was ambiguous for two
reasons. First, they bought the government’s doublenegative argument that ‘‘Congress didn’t say we couldn’t
create a 2-year SOL.’’ Relying on dicta from a Supreme
Court decision involving a Bureau of Prisons regulation,
they said that the only way a statute such as subsection
(f) — one that grants enormous discretion to an agency to
make administrative adjudications — could be unambiguous was if Congress clearly expressed an intent to
withhold the authority being challenged.31 Second, the
26
Even the most APA-happy lawyers could find no fault in
how these regs were promulgated. Cf. Intermountain Ins. Serv. of
Vail, LLC v. Commissioner, 134 T.C. No. 11 (May 6, 2010), Doc
2010-10163, 2010 TNT 88-12 (where two Judges found temporary regulations invalid for not conforming to the Administrative Procedure Act’s notice and comment requirements).
27
132 T.C. 131, 150. The majority was 11 of the active judges,
along with Senior Judge Haines, who the reporter also listed as
being in the majority. I am not sure why Judge Haines was
listed.
28
Id. at 139.
29
131 T.C. at 140-141.
30
121 T.C. at 148 (emphasis supplied).
31
Id. at 153-155.
TAX NOTES, August 2, 2010
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almost $1 million in taxes, penalties, and interest on
August 12, 2002, for the couple’s 1999 tax year.
The IRS sent both spouses a CDP notice in May 2003
while Dr. Chentnik was in prison. Dr. Chentnik promised
Lantz he would take care of the matter, and he timely
requested a CDP hearing. In his correspondence with the
IRS, he wrote that Lantz was the innocent spouse and
asked for the form he could use to get relief for her. As a
result of his efforts from prison, the Office of Appeals put
his account in currently not collectible (CNC) status in
February 2004. The Appeals officer wrote that ‘‘the taxpayer’s financial condition reflects that the account is
noncollectible at this time. Therefore, serving a levy
would cause undue hardship for the taxpayer at this
time.’’
Lantz had every reason to believe that Dr. Chentnik
had taken care of the problem. He repeatedly assured her,
from prison, that he was working on the matter. After he
was released into a halfway house in early 2004, he sent
her a copy of the Appeals letter placing the account in
CNC status as proof of his good work. He died shortly
thereafter. And when Lantz filed her 2004 return, the IRS
sent her the refund she claimed.
There was only one small problem with Dr. Chentnik’s
efforts: He had done all of this in his name only. He
sought the CDP hearing in his name only, and the letter
from Appeals was addressed just to him. Although he
had asked for a form to relieve Lantz of the liability,
nothing in the record shows that he either received or
sent in a form. So when he died in August 2004, even if
he thought he had taken care of her problem, he had not.
The first indication Lantz received that her late husband had not, after all, kept his promise came in 2006
when, unlike the year before, she did not receive her tax
refund. Instead, the IRS sent her a letter in June 2006
explaining that it had snagged her refund and applied it
to the 1999 joint liability. She then filed a request for
innocent spouse relief.
Lantz’s June 2006 request for spousal relief was too
late to claim section 6015(b) or (c) relief. The statute
requires a requesting spouse to claim (b) or (c) relief ‘‘not
later than two years after the date on which the Secretary
has begun collection activities with respect to the’’ requesting spouse.25 Reg. section 1.6015-5(b)(2) provides
that a CDP notice is a ‘‘collection activity’’ that starts the
running of the statutory two-year period for seeking (b)
or (c) relief. Because Lantz’s request came more than two
years after the May 2003 CDP notice, we will never know
if Lantz would have qualified on the merits for spousal
relief under section 6015(b) or (c).
Lantz’s only hope was for equitable relief under
subsection (f). However, this road to relief was blocked
by reg. section 1.6015-5(b), which subjects requests for (f)
relief to the same two-year limitation period that Congress put in the statute for (b) and (c) relief. Lantz would
COMMENTARY / SPECIAL REPORT
Once they concluded the statute was ambiguous, the
dissent found it easy to conclude that the IRS acted
reasonably in prescribing a deadline identical to the
deadline for equitable relief under section 66(c).33
Judge Halpern added another reason for why he
considered the regulation reasonable: He did not believe
the regulation was inflexible. He interpreted another set
of regulations as giving the IRS discretion to waive the
regulation’s two-year SOL. Accordingly, what looked
nondiscretionary was, in his view, discretionary.34
C. The Tax Court Got It Right
1. I hate Chevron. Everybody starts with Chevron.35 What
a crock. My colleague Ann Graham has persuasively
demonstrated in her study of the Roberts Court that
‘‘classic Chevron analysis is dead — or at least critically
32
131 T.C. at 155-159.
Id. at 159. The Tax Court majority goes through the history
of the regulations implementing section 66. I do not consider
them here because the IRS basically treats requests for relief
made under section 66(c) the same as requests made under
section 6015. If imposition of a two-year SOL in the section 6015
regulation is indeed invalid, I cannot imagine the IRS hanging
on to the section 66(c) regulation.
34
Id. 150-152. Judge Halpern basically went to the regulatory
toolshed, looked around, and said: ‘‘if taxpayers cannot use a
ladder to climb over the SOL barrier, here’s a dandy hammer
they can use.’’ Specifically, Judge Halpern was smitten by the
301.9100-series of regulations. These are regulations designed to
give the IRS flexibility in allowing taxpayers extensions of time
to make any of the myriad substantive elections they are allowed
to make under the code, such as elections to be treated as a
resident alien under section 7701(b) or elections to use certain
inventory accounting methods under section 474 or elections to
forgo the benefits of section 911, and many more. Judge Halpern
thought this series of regulations would apply to spousal relief
because reg. section 301.9100-1(b) says that ‘‘election includes an
application for relief in respect of tax.’’ Although the IRS told the
Tax Court that it would not apply those regulations, Judge
Halpern dismissed that as ‘‘no more than a litigating position.’’
Judge Halpern did not opine on how a taxpayer was supposed
to actually proceed under regulations that the IRS refuses to
apply to subsection (f). One presumes he expects taxpayers to
follow the procedures in the 9100 regs. Even he admits that most
of those procedures ‘‘are of doubtful application to putative
innocent spouses.’’ That would be because the IRS ‘‘litigating
position’’ is actually the truth: The series 9100 regs are simply
not designed nor appropriate for the purpose. It is difficult to
see how taxpayers are supposed to know to use the 9100 reg.
hammer to climb over the SOL erected by the section 6015
regulations. More importantly, reg. section 301.9100-3(e)(5) says
that requests for relief under the series 9100 regs are requests for
letter rulings and must follow the revenue procedures for letter
rulings. Judge Halpern’s position begs the question of whether
the Tax Court has jurisdiction to review an adverse letter ruling
simply because the letter ruling applies to section 6015.
35
Chevron USA Inc. v. NRDC, Inc., 467 U.S. 837 (1984).
33
TAX NOTES, August 2, 2010
wounded.’’36 The classic Chevron two-step is, of course, as
follows: (1) If Congress has directly spoken to the issue
before the court, then the court enforces the statute over
the agency interpretation, but if the statute is not sufficiently clear, then (2) the court must defer to a reasonable
agency interpretation of the ambiguous statute.
These two steps have no analytical bite. The first
problem is that Step 1 is indeterminate. Courts commonly describe the degree of clarity they look for in
terms of ‘‘ambiguity,’’ as did the Tax Court in Lantz:
If Congress has directly spoken to the precise
question at issue, we give effect to the unambiguously expressed intent of Congress. . . . If the statute
is ambiguous with respect to the specific issue, we
determine whether the regulation is a permissible
construction of the statute.37
But ‘‘ambiguity’’ is itself ambiguous. The Chevron
opinion instructs courts to use ‘‘traditional tools of statutory construction’’ in Step 1 to ‘‘reject administrative
constructions which are contrary to clear congressional
intent.’’38 Those tools — embodied in various canons of
statutory construction — are far from precise. If there is
one universal canon of statutory interpretation, it is that
there is no universal canon of statutory interpretation.
There is no unified field theory. In a famous law review
article, Karl Llewellyn demonstrated that each of the
canons of statutory construction has an equal and opposite canon.39 Worse, as Judge Posner put it, there is no
‘‘choice of canon’’ canon.40 The canons can often lead
different judges to different conclusions on the meaning
of a statute, even when each judge strives in good faith to
find the law. Equally smart judges can disagree on
whether Congress has ‘‘directly spoken’’ in the statute to
36
Ann Graham, ‘‘Searching for Chevron in Muddy Watters,’’
60 Admin. L. Rev. 230, 271 (2008). Essentially, Prof. Graham
shows that Chevron is a loser’s argument; it is almost always
invoked only by the dissents.
37
131 T.C. 137-138. The Tax Court majority takes this formulation almost verbatim from Chevron, with one interesting, and
presumably deliberate, omission: in Chevron the Supreme Court
said ‘‘Rather, if the statute is silent or ambiguous with respect to
the specific issue, the question for the court is whether the
agency’s answer is based on a permissible construction of the
statute.’’ 467 U.S. at 843 (emphasis supplied).
38
467 U.S. at 843, note 9. Some might disagree with the
Chevron emphasis on ‘‘intent of Congress.’’ Justice Holmes once
wrote: ‘‘We do not inquire what the legislature meant; we ask
only what the statute means.’’ Oliver Wendell Holmes, ‘‘The
Theory of Legal Interpretation,’’ 12 Harv. L. Rev. 417, 419 (1899).
While some ‘‘textualists’’ might give primacy to the text while
‘‘purposivists’’ give primacy to the motives of those who wrote
the text, the two approaches have much more in common than
their extreme versions suggest, as demonstrated in the following very interesting article: John F. Manning, ‘‘What Divides
Textualists From Purposivists,’’ 106 Colum. L. Rev. 70 (2006).
39
Karl N. Llewellyn, ‘‘Remarks on the Theory of Appellate
Decision and the Rules or Canons About How Statutes Are to Be
Construed,’’ 3 Vand. L. Rev. 395 (1950).
40
Richard A. Posner, ‘‘Statutory Interpretation — in the
Classroom and in the Courtroom,’’ 50 U. Chi. L. Rev. 800, 806
(1983).
507
(C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
duo thought that the language ‘‘under procedures prescribed by the Secretary’’ created an ambiguity because of
the long-standing debate on whether statutes of limitation were procedural or substantive in nature.32
COMMENTARY / SPECIAL REPORT
41
See, e.g., Maislin Industries v. Primary Steel, 497 U.S. 116
(1990) (finding the specific statute at issue ambiguous (Step 1)
but nonetheless finding the agency interpretation contrary to
‘‘the statutory scheme as a whole’’ (Step 2)) 497 U.S. at 131.
Some courts have restricted their Step 1 analysis by using only
certain tools of statutory interpretation, saving the other tools
for their Step 2 analysis. See, e.g., Ball, Ball & Brosamer v. Reich, 24
F.3d 1447, 1451 (D.C. Cir. 1994) (using ‘‘plain meaning’’ analysis
for Step 1 and evaluating Step 2 reasonableness by using the
‘‘language, legislative histories, and policies of the statute’’).
42
There are, of course, other approaches. One article worth
your time makes a very nice argument that Step 2 analysis is
really an arbitrariness review. See Ronald M. Levin, ‘‘The
Anatomy of Chevron: Step Two Reconsidered,’’ 72 Chi.-Kent L.
Rev. 1253 (1997).
43
This is probably a Step 1 argument, but who really knows?
Or cares?
44
Jesse Jackson, quoted in Sheldon R. Gawiser and G. Evans
Witt, A Journalist’s Guide to Public Opinion Polls (1994), p. 111.
Jackson himself most likely was borrowing from Dr. Donald A.
Carson who reportedly has written in his book Exegetical
Fallacies (1984): ‘‘My father used to tell me that a text without a
context becomes a pretext for a proof text.’’ See http://
en.wikipedia.org/wiki/D._A._Carson. I have no doubt the
phrase has even longer antecedents.
508
subsection and did not say in (f) that we couldn’t create a
limitation period for (f) requests.’’ This argument convinced at least four Tax Court judges that the regulation
was valid.
The government’s argument takes the silence out of
statutory context — it removes the space from the
statutory fence — and not just the context of section 6015
as a whole, which is what the Tax Court considered. The
broad powers that Congress gave the IRS, in subsection
(f) itself, to prescribe the procedures for using its discretion to grant (f) relief are powers that are granted within
a much broader statutory context than just section 6015.
As I explained in Part A, an important part of that context
is that determinations made for (f) relief are collection
decisions whereas determinations for (b) and (c) relief are
liability decisions.
Once one sees the difference between (b) and (c)
determinations on one hand, and (f) determinations on
the other hand, one sees how a two-year SOL for (f)
determinations violates the statutory context. The limitations periods in (b) and (c) are in harmony with the types
of limitations imposed on taxpayers and the IRS for
revisiting liability decisions. For example, section 6511
requires a taxpayer to submit a claim for refund within
two years of making a payment or within three years of
filing a return. Likewise, requests for spousal relief under
subsections (b) and (c) are requests to revisit a liability
determination, and the two-year period is akin to that
section 6511 two-year period for refund claims in that
both key off of either an actual payment or an enforced
payment (such as an offset).
Further, the traditional reasons for statutes of limitations apply to requests for relief under section 6015(b)
and (c): Memories grow stale, evidence is lost, and all of
this means that the past facts necessary for adjudication
become less and less discernible as time marches on.
In contrast, the regulation’s two-year SOL for (f)
requests is out of harmony with the corresponding
collection limitations periods. The IRS has, generally, 10
years to collect assessed taxes. During that 10-year period, delinquent taxpayers are presumed to be ‘‘won’t
pays.’’ However, Congress has created several statutory
relief valves that give taxpayers the opportunity to
convince the IRS that they are really ‘‘can’t pays.’’ Those
relief valves are found in section 7122 (OICs), section
6159 (installment agreements), and section 6015(f) (equitable relief). Also, the IRS has administratively created
other relief valves, notably the CNC decision but also
others, like offset refund bypass.45
The term ‘‘can’t pay,’’ of course, masks a whole host of
policy choices that are made by Congress or the IRS but
are generally found in IRS guidance about when it will
45
See Internal Revenue Manual 5.1.12.20.2 (May 20, 2008)
(‘‘Offset Refund Bypass Procedures’’). The offset refund bypass
is basically a way for taxpayers undergoing financial hardship
to stop the otherwise automatic offsets of their tax refunds by
convincing the IRS to manually override the machines. As with
other relief valves, this one requires taxpayers to convince
someone in the IRS that they are ‘‘can’t pays,’’ at least to the
extent of getting their overpayments actually refunded to them
instead of applied to their tax delinquencies.
TAX NOTES, August 2, 2010
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the issue before the court. And yet no court has held that
such a disagreement, ipso facto, makes a statute ambiguous.
The second problem with this formalism is that if one
uses the traditional tools of statutory interpretation in
Step 1, then Step 2 risks being little more than a redundancy. After all, how does one determine the reasonableness of an agency interpretation? Why, by measuring it
against the traditional tools of statutory construction! So
Step 1 and Step 2 analyses begin to look very much alike.
You can see this in some Supreme Court opinions.41 You
can see also it in the Tax Court’s opinion here. Its basic
reason for finding that section 6015(f) is ‘‘clear’’ in Step 1
is also its basic reason for finding that the regulation at
issue is ‘‘impermissible’’ in Step 2: Congress put two-year
limitations periods in subsections (b) and (c) but not in
(f). The Tax Court basically used the same construction of
the statute — interpreting the space between the pickets
as part of the fencing — to analyze both steps of the
Chevron analysis.42
So although I believe the Tax Court’s conclusion is
correct, I honestly don’t know how my reasons fit into the
formal Chevron analysis. I’ll give a stab at where each
reason would go, but I would ask any reader who really
thinks he or she can figure it out to let me know.
2. Why the Tax Court was right. The Tax Court got it
right for three somewhat overlapping reasons: statutory
context, equity, and IRS administrative inconsistency. I
will discuss each in turn.
a. Statutory context.43 One of my favorite quotes is
that ‘‘text, without context, is pretext.’’44 The same can be
said of textual silence, such as the silence in section
6015(f). The government’s best argument on why it can
create a two-year SOL limitation period focuses on contrasting the silence in (f) with the language in (f) and boils
down to the following double-negative argument: ‘‘Congress gave us broad powers in (f) to implement the
COMMENTARY / SPECIAL REPORT
46
Again, a good example is found in IRM 5.1.12.20 which
details the criteria and procedures for IRS personnel to use
when evaluating a request for an offset refund bypass.
47
Brief for the Appellant at 46.
48
Id.
49
Reply Brief for the Appellant at 11.
50
Rev. Proc. 2003-61, section 4.02(1)(c).
51
Brief for the Appellant at 33, n.10.
TAX NOTES, August 2, 2010
the remainder of the 10-year collection period. Lantz’s
briefs to the Seventh Circuit make this point well.52 They
put the argument in terms of symmetry. Because (b) and
(c) are limited to requests for relief from deficiencies, they
are always available to spouses in all instances when the
IRS seeks to impose this additional liability on what has
already been reported. But because (f) relief involves
underpayments, it needs to be available as long as the
collections period is open. To do otherwise violates the
statutory context.
b. Equity.53 Generally, courts recognize that ‘‘it is not a
feasible judicial undertaking to achieve global equity in
taxation * * * And if it were a feasible judicial undertaking, it still would not be a proper one, equity in taxation
being a political rather than a jural concept.’’54 The
question is what happens when Congress makes the
political decision to statutorily command the IRS to do
equity in a given class of cases? How far may the IRS go
to limit or avoid the unpleasant tax administration consequences of that command? That is part of the Lantz
puzzle.
In its explicit statutory reference to equity, section 6015
is unique among the procedural statutes in the code.55 No
other provision explicitly incorporates equitable principles to relieve taxpayers either from liability (part of (b)
determinations) or from payment (the (f) determination).
For example, Congress commonly allows taxpayers to
avoid liability for penalties if they can show some
‘‘reasonable cause’’ for the transgression and also show
they acted in ‘‘good faith.’’56 Yet these defenses are not
equitable in nature, and the courts have had no hesitation
in following the strict statutory contours before allowing
relief.57
Section 7122 is the only other place I can think of
where notions of equity come into play, but that is not
because Congress enacted them into law. Section 7122
52
Lantz has been capably represented throughout the litigation by Rob Nadler of the Legal Aid Society of Middle Tennessee
and Paul Kohlhoff from the Valpariso University Law Clinic.
53
This is probably also a Step 1 argument. But I bet many
would say it’s a Step 2.
54
Kenseth v. Commissioner, 259 F.3d 881, 885 (7th Cir. 2001),
Doc 2001-21203, 2001 TNT 154-9 (citations and quotation omitted).
55
Searching the code on LEXIS for the terms ‘‘equitable’’ or
‘‘inequitable’’ I found only three other statutes in subtitle F
(Procedure and Administration) using the terms: sections 6305
and 6402 which prohibit courts from hearing certain subjects,
whether raised in ‘‘legal or equitable’’ forms; and section 6511
(allowing Tax Court jurisdiction over ‘‘equitable recoupment’’
claims). Also, Congress wrote an off-code provision that is
placed in then notes following section 7804 that uses the term. It
is section 1204 of the Internal Revenue Service Restructuring
and Reform Act of 1998, P.L. 105-206, 112 Stat. 722, which
requires that IRS employees be evaluated, in part, on their ‘‘fair
and equitable treatment of taxpayers.’’
56
See, e.g., sections 6664(c) (‘‘Reasonable Cause Exception for
Underpayments’’); 6694(a)(3) (‘‘Tax Return Preparer Penalty’’).
57
See, e.g., Chaplin v. Commissioner, T.C. Memo. 2007-58, Doc
2007-6198, 2007 TNT 49-16 (rejecting taxpayer’s argument that
imposing section 6662 penalties was unfair because the adjustments had resulted in a huge AMT hit).
509
(C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
grant relief from collections.46 For section 6015(f) determinations, the guidance comes in Rev. Proc. 2003-61
which, as I describe above, says that determining eligibility for (f) relief necessarily involves a determination of
present economic status, present compliance status, and
present health status. Those factors may not be determinative, but they are necessary to consider.
Unlike liability decisions, this ‘‘can’t pay’’ determination is not based on past facts but requires at least three
present status determinations, any of which can change
at any time during the 10-year collection period. So it is
a non sequitur for the Department of Justice to argue on
appeal that the two-year SOL is necessary for (f) determinations because ‘‘the longer the permissible period is
for requesting relief, the more likely it is that memories
will fade and documents will be lost that would have
shed better light on the matter.’’47 That argument simply
makes no sense.
The DOJ also repeats an additional argument first
found in the Tax Court dissent. It argues that ‘‘allowing a
taxpayer to qualify belatedly for relief under subsection
(f) would tend to undercut the statutes of limitations’’ for
subsections (b) and (c).48 It explains that ‘‘if section
6015(f) is to be interpreted to apply to a taxpayer who
would have qualified for relief under section 6015(b), but
simply did not make her election in time, then the statute
of limitations [for section 6015(b) relief] would be nullified.’’49
This argument might be true if subsection (f) were a
liability decision. But subsection (f) is not simply (b)
redux. That is, qualifying for relief under (b) is neither
necessary nor sufficient to qualify for relief under (f). In
the DOJ example, qualifying for (b) relief is not sufficient;
not only must the conditions for (b) relief be satisfied, but
the requesting spouse must also show economic hardship.50 And, as I discussed above, a subsection (f) supplicant who does not qualify for (b) liability relief — either
because of too much knowledge or because of being
responsible for the items giving rise to the liability —
might nonetheless qualify for (f) relief. The DOJ appears
to believe this a horrible result, noting that ‘‘the practical
effect of the Tax Court’s decision is that a taxpayer is
potentially eligible for relief under section 6015(f) as long
as the statute of limitations on collections remains
open.’’51 Yep. That’s the idea, folks. At bottom, subsection
(f) is a decision about the fairness of demanding payment. It is no more horrible than allowing taxpayers to
apply for OICs at any time during the collection period.
The proper limitation period for subsection (f) relief
requests is thus the corresponding collection period.
Imposing a two-year SOL for subsection (f) requests cuts
taxpayers off from showing that they are ‘‘can’t pays’’ for
COMMENTARY / SPECIAL REPORT
58
H. Rep. 105-599 (June 24, 1998) at 289.
Reg. section 301.7122-1(a)(3).
60
Speltz v. Commissioner, 124 T.C. 165.
61
Chase Securities Corp. v. Donaldson, 325 U.S. 304, 314 (1945).
59
510
leavened with an equity command, and for subsection
(c), which is purely a set of legal rules, but not for
subsection (f), which is pure equity.
The equity counterpart to statutes of limitation is the
doctrine of laches, which involves a case-by-case determination. The equitable origins and character of section
6015(f) relief point to laches as the proper doctrinal guide
to cutting off belated efforts to request spousal relief.
Laches is generally used to dismiss plaintiffs from maintaining suits. It requires a finding that the person seeking
relief had no good reason to delay the suit and the delay
would prejudice to the party opposing relief.62 As applied to spousal relief, the nonrequesting spouse is the
natural ‘‘party opposing relief,’’ and so the IRS would
evaluate the prejudice to the nonrequesting spouse, not
simply the prejudice to the federal fisc. That is also
consistent with the conference committee example of
appropriate relief: Where the requesting spouse reasonably expected the nonrequesting spouse to pay the reported tax but the nonrequesting spouse instead used the
money for other purposes.
Understandably, the IRS does not want to perform
laches analysis for every section 6015(f) request. IRS
employees think in terms of bulk processing, and they
design programs accordingly. This is evident from almost
every national taxpayer advocate (NTA) annual report —
the 2008 report is especially illuminating. There, the NTA
demonstrates the IRS tendency to overcentralize operations in a never-ending quest for efficiencies.63 Those
with a masochistic streak can also read a recent article I
wrote that also demonstrates this trend, starting with
World War II.64
In general, it is a well-settled principle of administrative law that agencies can create and apply bright-line
rules in situations in which the agency must adjudicate in
bulk.65 The Social Security ‘‘grid regulations’’ are perhaps
the most notorious example.66 The DOJ seized on this
principle to argue that the regulation at issue was ‘‘justifiable on grounds of ease of administration.’’67 And when
the Seventh Circuit asked, during oral argument, what
was the ‘‘the grave concern that causes [the government]
to want to appeal,’’ the DOJ attorney responded, accurately enough, ‘‘ease of administration.’’68
62
See, e.g., AMTRAK v. Morgan, 536 U.S. 101 (2002); Bensky v.
Powell, 391 F.3d 894 (7th Cir. 2005).
63
National Taxpayer Advocate, ‘‘2008 Annual Report to
Congress,’’ at 260-274, Doc 2009-241, 2009 TNT 4-21.
64
Bryan T. Camp, ‘‘Theory and Practice in Tax Administration,’’ 29 Virginia Tax Review 101 (forthcoming), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1475373.
65
See, e.g., National Petroleum Refiners Ass’n v. FTC, 482 F.2d
672 (D.C. Cir. 1973) (Federal Trade Commission can define the
parameters of acts which constitute ‘‘unfair methods’’ by regulation in interests of administrative efficiency).
66
See Heckler v. Campbell, 461 U.S. 458 (1983) (SSA can define
the types and numbers of jobs that exist in the national economy
by regulation for use in disability determinations in interests of
administrative consistency).
67
Brief for the Appellant at 45.
68
Oral argument available at http://www.ca7.uscourts.gov/
tmp/YB1FFNCU.mp3/.
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allows the IRS to compromise tax liabilities and nowhere
uses the term ‘‘equity’’ or ‘‘equitable.’’ However, the RRA
’98 conference committee report was pretty darned clear
that the taxwriters expected the IRS put some type of
equitable bases for compromises in the regulations.58
And so reg. section 301.7122-1 creates a category of cases
in which the IRS will compromise a tax liability on the
basis of ‘‘effective tax administration’’ (ETA). The concept
is defined in the implementing regulation which makes
the chief basis for an ETA compromise the taxpayer’s
economic hardship (very similar to the economic hardship determination used for granting subsection (f) relief). Also, the regulation allows taxpayers to be relieved
from enforced collection if they can prove up some
‘‘compelling public policy or equity consideration’’ that
‘‘collection of the full liability would undermine public
confidence that the tax laws are being administered in a
fair and equitable manner.’’59
Courts have given the IRS wide latitude to craft the
particulars of what it will consider for an ETA compromise. As the Tax Court put it:
We do not discern in section 7122 an intent of
Congress to override application of specific provisions of the tax laws in every instance in which the
liability is perceived to be unfair or inequitable. * * *
The terms of section 7122, the regulations adopted
under it, and the Internal Revenue Manual are
consistent with the experience and expertise of IRS
personnel in evaluating financial circumstances.
* * * Terms such as ‘‘promotion of effective tax
administration’’, ‘‘special circumstances’’, and
‘‘compelling public policy or equity considerations’’ have a narrower meaning than that
urged by petitioners, and the explanations of those
terms in the regulations and in the Internal Revenue Manual are not unreasonable.60
But notice that although the Tax Court allowed the IRS
great flexibility (that is, discretion) in how to shape to
contours of ETA compromises, the IRS did not there seek
to impose an SOL shorter than the collection period SOL.
Only in implementing section 6015(f) has the IRS sought
to create a categorical timing requirement.
By setting a strict limitations period to administer a
command to do equity, the regulation at issue goes
beyond what the statute permits. In the long history of
equity jurisprudence, statutes of limitation have no place.
That is because statutes of limitation do not ‘‘discriminate
between the just and the unjust claim, or the avoidable
and unavoidable delay. They come into the law not
through the judicial process but through legislation. They
represent a public policy about the privilege to litigate.’’61
Here, Congress has made the explicitly expressed policy
choice that the IRS use equitable principles, to consider
all the facts and circumstances. That is why its silence in
subsection (f) is so important. Congress put in a statutory
SOL for subsection (b), which is a mix of legal rules
COMMENTARY / SPECIAL REPORT
Most importantly, administrative reasonableness is
not the test of whether a regulation is a permissible
interpretation of a statute.71 There are many reasonable
ways the IRS can administer the code. Even accepting the
claim of administrative ease, the IRS must choose to act
consistently with its statutory authority. Ours is not a
system of prerogative regulations, nor does the code
contain any ‘‘Henry VIII clauses.’’72 If choosing to impose
a categorical bar to requests for subsection (f) relief is
beyond the statutory pale, it does not matter how administratively desirable such a rule is. The statutory fences
do not permit it.73
69
The IRS Data Books do not show how many claims for
spousal relief are received each year, but the National Taxpayer
Advocate’s 2005 Annual Report says there were some 56,000
Form 8857 dispositions in FY 2003, 57,000 in FY 2004, and 48,000
in FY 2005. I assume those numbers have remained constant.
70
IRS 2009 Data Book, Table 21, Doc 2010-5330, 2010 TNT
48-18.
71
See generally Ronald M. Levin, ‘‘The Anatomy of Chevron:
Step Two Reconsidered,’’ 72 Chi.-Kent L. Rev. 1253, 1260 (1997)
(arguing that the Court’s step two standard is vague and ‘‘seems
to verge on internal incoherence’’). Under the formalities of
Chevron, the reasonableness inquiry is part of the Step 2 analysis.
72
See generally Noga Morag-Levine, ‘‘Agency Statutory Interpretation and the Rule of Common Law,’’ 2009 Mich. St. L. Rev.
51, 52 (2009). I highly recommend this short and informative
history of agency rulemaking. ‘‘Henry VIII clauses’’ started with
King Henry VIII (as you might have guessed). Parliament
enacted a ‘‘Statute of Proclamations’’ which basically said the
King could issue any proclamations he darned well pleased
‘‘concerning the advancement of his commonwealth and good
quiet of his people.’’ Id. at 57, n. 30. This broad language allowed
the King to make all kinds of laws, insulated from the argument
that they were made in derogation of Parliamentary power. The
statute also was a back-door affirmation by Parliament that it
was the source of legislative authority. In the rise of the British
administrative state in the 1880s, Parliament used similar
clauses to authorize agencies to modify the law when necessary,
which would then be put to Parliament for post hoc approval.
73
If one really wants to put this in Chevron terms, one might
say, as Richard Murphy suggested to me, that the reference to
equity in (f) takes it out of the realm of statutory silence — so no
c. Inconsistent IRS administration.74 The third reason
supporting the Tax Court’s decision has to do with how
the IRS itself has interpreted section 6015(f). It is the IRS
that has interpreted the statute to require the same kind
of present-time status determinations used to grant taxpayers relief from collection in other circumstances. Yet in
those other circumstances, the IRS does not seek to
impose an SOL on those taxpayers but considers requests
for relief from collection throughout the entire period
during which the IRS may collect the tax.
This inconsistency was discernable at oral argument
before the Seventh Circuit, although I don’t think anyone
caught it. One of the judges asked government counsel to
address a hypothetical situation in which the requesting
spouse had been in a coma and had only awoken after
the regulation’s two-year SOL had run. The judge was
evidently concerned to hear what relief the IRS could
provide such a person. Eventually, the government attorney got to the right answer: There are other safety valves
during the collection process when a taxpayer can get a
‘‘can’t pay’’ determination. Such a taxpayer could be put
into CNC status, or might have a case for an ETA OIC.
Both types of relief are used to relieve taxpayers who are
suffering economic hardship and/or severe medical
problems. In the Lantz case itself, the IRS Office of
Appeals had ordered CNC status for Lantz’s husband Dr.
Chentnik.
What no one apparently pursued during oral argument was the reasons for the inconsistency. That is, if the
IRS makes status determinations about taxpayer health
and hardship throughout the entire period during which
it may collect the tax for OIC and CNC purposes, why
not for subsection (f) purposes? Both sets of decisions use
the same present status criteria. It appears inconsistent
for the IRS to impose a two-year cutoff for such determinations for subsection (f) relief. Perhaps if Congress had
mandated such a result, that would explain the inconsistency, but Congress did not. Congress was silent, both as
to the scope of what constitutes equity and as to the
period in which the taxpayer could seek such spousal
relief.
The inconsistency is of the IRS’s own making. The IRS
could have written a regulation that interpreted the scope
of equitable relief narrowly, along the lines of what the
conference committee report suggested: Subsection (f)
relief would be available only in those situations in which
the requesting spouse had good reason to believe — at
the time the liability arose — that the nonrequesting
spouse would pay it. If the IRS had taken that route, then
just as the Tax Court has had no problem in upholding
the OIC regulations defining the scope of the ETA OIC, so
the Tax Court would most likely have no problem
upholding the IRS interpretation over what it means for
need for the Tax Court’s ‘‘audible silence’’ formulation. That is,
by expressly and unusually invoking equity in (f), Congress said
out loud not to use SOLs.
74
I think this is a Step 2 argument. Further, it’s a possible
approach to Step 2 that makes the step distinct from Step 1
because this argument evaluates what the agency has done in
terms of administration, not in terms of statutory command.
(Footnote continued in next column.)
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511
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The government’s claim of administrative imperatives
is open to doubt. First, although the operations are
performed in the Cincinnati Centralized Innocent Spouse
Operations, it is not clear that the number of requests for
relief each year rises to the level of ‘‘bulk.’’ There are
probably about 50,000 requests each year, and it is
reasonable to think that most of those are made within
two years of the first collection action against the requesting spouse.69 The need to eliminate all of these claims by
using a rule because of administrative burden is a stretch.
For example, the IRS Office of Appeals received more
than 125,000 cases of all types during FY2009 and closed
more than 112,000 cases in that time period.70 In contrast,
the IRS must process more than 130 million taxpayer
returns each year. Now that’s bulk processing, and regulations that eliminate classes of returns from being accepted make sense. A claim that processing 50,000
requests creates the same kind of efficiency needs is
much weaker.
COMMENTARY / SPECIAL REPORT
D. The Seventh Circuit Got It Wrong
The Seventh Circuit’s panel opinion is authored by
Judge Posner, the Learned Hand of our era. But even
Judge Hand was wrong sometimes.75 And Judge Posner’s
opinion contains several serious errors. I will first summarize the opinion, then critique it.
One aspect of the opinion I liked was that Judge
Posner buries his single reference to Chevron in a string
cite and does not even try to use its two-step doctrinal
structure. Instead, Judge Posner decides that his job is to
uphold this Treasury regulation unless it was unreasonable.76 The opinion then proceeds to dismiss the various
75
See, e.g., Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951),
on remand at 190 F.2d 429, 431 (2d Cir. 1951) (Frank, J., concurring). (‘‘Recognizing, as only a singularly stupid man would
not, Judge Hand’s superior wisdom, intelligence and learning, I
seldom disagree with him, and then with serious misgivings.’’)
76
Opinion at 4. I think by this Judge Posner means that it
might be either an unreasonable read of the statute or an
reasons given by the Tax Court and the taxpayer on why
the regulation was unreasonable.
First, Judge Posner dismisses the Tax Court’s main
idea that the statutory omission of a limitations period
precluded the IRS from creating one. Judge Posner instead buys into the government’s double-negative argument (‘‘Congress didn’t say we couldn’t’’) that I address
in Part C.2.a. Second, Judge Posner rejects the taxpayer’s
idea that the regulation was unreasonable because it
created an asymmetry with the IRS collection period
(similar to my ‘‘statutory context’’ analysis above). Third,
he rejects the idea that the regulation was unreasonable
because it was inflexible, partly because ‘‘neither party
suggests that laches might be an adequate substitute for
a fixed deadline,’’ but mostly because he buys the government’s argument that a deadline for (f) of longer than
two years would undermine the statutory limitation
periods in (b) and (c).77 The opinion then finishes up with
some miscellaneous thoughts, which do not appear to
have independent importance but instead bolster the
earlier thinking. For example, Judge Posner says that we
must also not overlook the introductory phrase ‘‘under
procedures.’’ That thought is part and parcel of the
government’s double-negative argument.
Judge Posner’s opinion contains three errors. They are,
in order of appearance (but not importance): (1) he
misreads the taxpayer’s symmetry argument (an error
that eviscerates his rationale for rejecting it); (2) he
ignores the critical difference between (f) determinations
on one hand and (b) and (c) determinations on the other;
and (3) he unthinkingly applies the general administrative rule permitting agencies to use rulemaking to increase adjudicatory efficiencies without applying that
rule to the facts of the case before him. I shall briefly
discuss each error in turn.
1. Misreads taxpayer’s argument. Judge Posner says the
taxpayer argued that ‘‘because section 6502 . . . imposes a
10-year deadline on the government’s right to collect
taxes . . . there is a time limit on claims for relief under
section 6015(f).’’78 He then rejects this argument for two
reasons. First, he says ‘‘this argument confuses an external circumstance that as a practical matter creates a time
limit with a statute of limitations.’’79 Second, he says
‘‘more important, the 10-year limit in section 6502 is not
a constraint on taxpayer action. It’s the period within
which the IRS must act to collect a tax . . . if it does act
within this period, section 6502 imposes no time limit on
the taxpayer’s response.’’
Judge Posner fights a straw man here. The taxpayer
never argued that section 6502 imposed a limitation
period on section 6015(f) claims. The taxpayer did argue
that the regulation was unreasonable because it violated
unreasonable implementation. Judge Posner says he is giving
no deference to the Tax Court, but that the panel would reach
the same result even with deference. I do think opinions of the
Tax Court deserve much more respect, because of its unique role
and placement in tax administration. This would be a good
subject for another article. You have been warned.
77
Opinion at 9-11; the quote is on p. 9.
78
Opinion at 6 (emphasis added).
79
Id.
(Footnote continued in next column.)
512
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it to be ‘‘inequitable to hold the individual liable for any
unpaid tax.’’ By taking a narrow view of the scope of
equity in (f), the IRS would have thus limited the
equitable determination to past facts, which would more
strongly support the use of a categorical limitation period.
Instead of a narrow interpretation of subsection (f),
however, the IRS chose, in Rev. Proc. 2003-61, to use
equitable factors that have nothing to do with the requesting spouse’s reliance on the nonrequesting spouse’s
promise to pay the liability (whether the liability was
self-reported or arose from a deficiency). It chose, indeed,
to use the same factors that it uses in making other
collection decisions, such as releasing levies, granting
ETA OICs and classifying accounts as CNC. Having done
so, there appears to be no good reason for imposing a
two-year SOL for the one situation and not the others.
That is to say, the SOL appears to be arbitrary.
It is no answer to say that the two-year SOL is
consistent with the two-year SOLs for subsection (b) and
(c) relief. Those are false comparisons because they are
liability decisions. One must compare apples to apples. A
subsection (f) relief determination is a collection decision,
just like the other ones that use economic hardship,
health status, and current compliance as tests for granting relief from the payment of taxes admittedly owed.
It is also no answer to say that the two-year period is
reasonable because of bulk processing needs or ‘‘ease of
administration.’’ It is the inconsistency that is arbitrary,
not the regulation standing in isolation. It would be
equally reasonable — in the sense of easing the administrative burden — for the IRS to limit all the safety valves
that taxpayers can use to come and convince someone
that they are ‘‘can’t pays.’’ For example, it would be just
as reasonable for the IRS to require taxpayers to submit
OICs within two years of the first collection action. But
the IRS has not done so. By doing so for subsection (f)
determinations and not for similar collection decisions
made in other contexts, the IRS acts inconsistently and
thus, without some good reason for the inconsistency,
arbitrarily.
COMMENTARY / SPECIAL REPORT
80
United States v. Administrative Enterprises Inc., 46 F.3d 670
(7th Cir. 1995), Doc 95-1909, 95 TNT 27-35.
81
See, e.g., Provident Life & Cas. Ins. Co. v. Ginther, 2000 U.S.
Dist. LEXIS 5168 (W.D.N.Y. 2000) (allowing defense of equitable
swer would be that taxpayers are permitted to raise this
equitable defense so long as the IRS can come after them.
I confess total confusion on just why Judge Posner finds
it problematic that ‘‘within [the 10-year collection period], section 6502 imposes no time limit on the taxpayer’s response.’’
2. Ignored the difference between (f) and (b), (c). The
central flaw in Judge Posner’s opinion is that he equates
(f) relief with (b) and (c) relief, based on a startling
misreading of Rev. Proc. 2003-61. Here’s his analysis:
An applicant who manages to satisfy both criteria in
subsection (b) is thus bound to satisfy the criterion in
(f). So, on the Tax Court’s view, the two-year
deadline imposed by subsection (b) drops away;
anyone eligible for relief under (b) is eligible for
relief under (f) no matter when she applies.82
This reading is what undergird’s Judge Posner’s conclusion that laches cannot possibly be a reason why the
regulation is unreasonable:
In short, if there is no deadline in subsection (f), the
two year deadlines in subsections (b) and (c) will be
set largely at naught because the substantive criteria of those sections are virtually the same as those
of (f).
That is absolutely wrong, for two reasons. First, a
taxpayer who satisfies both criteria in subsection (b) is not
‘‘bound to’’ satisfy the criteria in (f). The substantive
criteria of (b) and (c) are not ‘‘virtually the same’’ as (f).
Importantly, Rev. Proc. 2003-61, section 4.02 and section
4.03 incorporate some of the requirements for (b) and (c)
relief, but those requirements are neither necessary nor
sufficient for (f) relief. Thus, a requesting spouse who
meets the threshold requirements of section 4.01 will be
evaluated for relief either under section 4.02 or section
4.03 of the revenue procedure. Under section 4.02, the
requesting spouse must show a current status of economic hardship in addition to the (c) requirement of
being separated or divorced and the (b) requirement of
having had no reason to know of the item giving rise to
the understatement or underpayment. Under section
4.03, the requesting spouse is evaluated on economic
hardship and also on the other present status factors, all
of which may (in admittedly rare circumstances) combine
to override even the spouse’s knowledge.
The second reason Judge Posner is wrong to equate (f)
with (b) and (c) is the obvious point that (f) not only
applies to deficiencies, but also to underpayments. It
makes no sense to claim that the underpayment relief
undercuts (b) and (c) in any way. And, as I showed above,
it is mostly underpayments that the IRS is seeking to
collect.
Finally, Judge Posner’s instinct to consider laches is
absolutely right. But his reasons for rejecting laches gets
recoupment as long as the recoupment related to the conduct
that formed the basis of the plaintiff’s complaint against the
defendant).
82
Opinion at 10, citing to the revenue procedure (Judge
Posner emphasized ‘‘both’’; I emphasized ‘‘bound to’’).
(Footnote continued in next column.)
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the statutory context found in a fair reading of subtitle F,
basically the same argument that I make in Part C.2.a
above, although without all the gory detail about the
difference between collection decisions and liability decisions. Judge Posner should not be faulted for not
following the argument, but it certainly is one reason
why one might think the Tax Court better situated to deal
with these kinds of cases. Even smart people may be very
confused by the technicalities of a system they have
never participated in to any great degree. That should at
least make Tax Court opinions worth more than their face
value to a generalist Court of Appeals.
In the language I quote above, Judge Posner appears
to believe that there must be some time limit shorter than
the collection period for taxpayers to be relieved of their
payment obligations when it would be ‘‘inequitable’’ (the
statutory language, remember) to collect from them.
That’s a darned strange position to take, and Judge
Posner does not here explain what is wrong, either as a
matter of law or policy, for a taxpayer to be able to ask for
(f) relief during the entirety of the collection period.
It might be that Judge Posner thinks every action
permitted by the code should have a limit. However,
empirically we know that not every code provision has a
time limit. For example, once the IRS serves a summons,
there is no limit on the period in which it can petition a
court to enforce the summons. The leading case for that
proposition is none other than another opinion authored
by Judge Posner.80 Somewhat similarly, the limitations
period for filing a refund suit does not start until the IRS
disallows a taxpayer’s administrative claim (or else the
taxpayer signs a waiver of disallowance). So if the IRS
does not send a Notice of Disallowance, the period to file
suit is, in practical effect, unlimited. That has bite because
a taxpayer may make an informal claim for refund that is
never formally disallowed.
It also might be that Judge Posner only means that (f)
relief, specifically, should have a limit. Later in the
opinion he says that to allow taxpayers (f) relief after the
period has run for (b) or (c) relief would undermine those
provisions. I explain that error below.
More important, Judge Posner misconstrues the judicial task here. It is not to find out what limits might be
buried or implied in section 6015(f) to prevent taxpayers
from seeking relief from collection. It is to decide whether
a regulation that creates a categorical imposition of a
two-year SOL for taxpayer’s seeking equitable relief from
collection is unreasonable. Just because this regulation is
invalid does not prevent the government from writing
another regulation that imposes, say, a limitation period
measured by the section 6502 collection period. That
would be a sensible regulation.
Judge Posner is, in effect, demanding to see a limitations period for what is, in effect, an equitable defense. It
is like seeking the proper limitations period for equitable
recoupment.81 In the absence of the regulation, the an-
COMMENTARY / SPECIAL REPORT
83
I am indebted to Lavar Taylor for this thought.
Opinion at 12.
85
I am indebted to Bob Nadler for this thought.
86
This is what Judge Halpern was most likely getting at in his
concurrence, that taxpayers could somehow leverage section
9100 regs to get court review even after the two-year period. I
explain the difficulties with that idea above.
87
See Bryan T. Camp, ‘‘Tax Administration As Inquisitorial
Process and The Partial Paradigm Shift in the IRS Restructuring
and Reform Act of 1998,’’ 56 Fla. L. Rev. 1, 115, note 589 (2004).
84
514
cannot write any kind of limiting regulation, so the
generality of Judge Posner’s question is misleading.
Indeed, the Tax Court opinion explicitly reserves the
question of whether other types of limiting regulations
might be appropriate. The general administrative law
rule that agencies can write regulations to make their
adjudications more efficient is a fine rule as far as it goes.
The proper question is whether that general rule of
administrative law applies in this case. Judge Posner’s
rhetorical question masks his analytical weakness. He
simply concludes that ‘‘one would expect Congress to
leave it up to the Treasury to establish deadlines optimized to the substantive criteria.’’ Oh, sure, but one
would also expect the courts to police the Treasury’s
exercise of that discretion and make sure that the deadlines had some reasonable relationship to the statutory
context, and to the substantive criteria created by the IRS
itself. Here, for the reasons I explain in Part C.2, these
regulations fail on both counts.
E. Conclusion
Statutes, like fences, mark out the boundaries for
agency action. We generally think of courts as interpreting statutes, and we generally think of agencies as
implementing them. Whereas courts interpret statutes ex
post, when an agency is challenged and there is a dispute,
agencies interpret statutes ex ante, in the context of
designing or modifying agency programs or actions. That
is why administrative law junkies have repeatedly observed that ‘‘statutory interpretation is frequently a poor
descriptor of the practice of agencies or the logic of
administrative action.’’88 Put another way, while courts
evaluate agency action in light of the statute, agencies
evaluate the statute in light of administrative imperatives.
In this case, it is not surprising that the IRS would
make choices that best suit its centralized innocent
spouse program and make the program more efficient.
Only after making the regulatory choice would the IRS
check to see whether the choice was permissible under
the statute. Here, the form of that check was notice-andcomment rulemaking and internal review. But that check
was not an adversarial check or a neutral check, even
when made by neutral IRS Office of Chief Counsel
attorneys acting in good faith and with great skill. That is
why we need courts: to perform an adversarial check on
agency action.
From either court or agency perspective, the Tax
Court’s conclusion was correct: The IRS’s understandable
attempt to create a categorical two-year limitation period
for section 6015(f) requests contravenes the most reasonable interpretation of the statute and is an unreasonable
implementation of the statute.
88
Noga Morag-Levine, ‘‘Agency Statutory Interpretation and
the Rule of Common Law,’’ 2009 Mich. St. L. Rev. 51, 52 (2009).
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things completely backwards. Even as applied to deficiency cases, (f) is a safety valve. The whole point of a
safety valve is to allow relief when the literal requirements of the rules in (b) and (c) — including the two-year
SOL — are not met.83 Unlike those subsections, subsection (f) is a pure equity play, and laches is the proper
doctrine for the IRS when it believes a taxpayer’s request
for relief comes too late to fairly evaluate.
3. Misapplied general administrative law rule. I always
warn my students that rhetorical questions are a sign of
weakness. ‘‘Never ask a rhetorical question,’’ I say,
‘‘somebody just might answer you.’’ Judge Posner’s
opinion falls into that rhetorical trap. Part of the government’s double-negative argument is that Congress
granted the IRS a boatload of discretion to write the
‘‘procedures’’ so that it ‘‘may’’ grant equitable relief.
Judge Posner seizes on this to ask:
Since the government can refuse to grant equitable
relief to someone who meets the statutory criteria
and applies within two year of the first collection
action, why can’t it decide to deny relief to a class of
applicants defined as those who waited too long?84
The short answer to Judge Posner’s question is: judicial review.85 While it is true the IRS can deny relief to
someone who meets all the criteria, it is equally true that
such person has a statutory right to petition the Tax Court
for a review of that decision. Forcing the IRS to deny
relief on a case-by-case basis means the taxpayer can
invoke the traditional adversarial check on an agency’s
abuse of its discretion. The regulation not only cuts off
the taxpayer’s ability to seek relief, but also cuts off the
Tax Court’s ability to review that reason for rejecting the
request.86 Without the regulation, IRS decisions about
timeliness are reviewable as they are made, on a case-bycase basis. Indeed, the Tax Court has many times reversed IRS denials of (f) relief. As I have demonstrated in
painful detail elsewhere, Congress gave a significant
push toward requiring adversarial process in tax administration in RRA ’98.87 Section 6015(f) is part of that push.
The longer answer to Judge Posner’s question is that
the statutory context, principles of equity, and the IRS’s
own internal decisions on how to administer this statute
demonstrate that the regulation is an unreasonable
implementation of the statute. I give that answer in Part
C.
Most important, Judge Posner again simply asks the
wrong question. The Tax Court did not hold that the IRS