Denise Mannella v. Commissioner IRS

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 10-1308

DENISE MANNELLA

v.

COMMISSIONER OF INTERNAL REVENUE,

Appellant

On Appeal from the United States Tax Court

(Tax Court No. 17531-07)

Tax Court Judges: Hon. Harry Haines

and Hon. Michael B. Thornton

Argued November 17, 2010

BEFORE: AMBRO, FISHER and

GREENBERG, Circuit Judges

(Filed:1/19/2011)

Derek P. Dissinger (argued)

Russell, Krafft & Gruber

930 Red Rose Court

Hempfield Center, Suite 300

Lancaster, PA 17601-0000

Alice L Stewart

Duquesne University School of Law

Low Income Tax Practicum

Room 125

600 Forbes Avenue

Pittsburgh, PA 15282-0000

Raymond C. Vogliano

Eckert, Seamans, Cherin & Mellott

600 Grant Street

44th Floor, U.S. Steel Tower

Pittsburgh, PA 15219-0000

Attorneys for Appellee

John A. DiCicco

Acting Assistant Attorney General

Teresa E. McLaughlin (argued)

Steven W. Parks

Attorneys Tax Division

United States Department of Justice

950 Pennsylvania Avenue, N.W.

P.O. Box 502

Washington, DC 20044-0000

2

William J. Wilkins

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, DC 20224-0000

Attorneys for Appellant

Carlton M. Smith

Director, Benjamin N. Cardozo School of Law Tax Clinic

55 Fifth Avenue

New York, NY 10003

Attorney Pro Se as Amicus Curiae

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before the Court on the

Commissioner of Internal Revenue=s appeal from a

decision of the United States Tax Court entered on

November 5, 2009, in accordance with a Tax Court

opinion dated April 13, 2009, and a stipulation of the

parties dated October 28, 2009, that together provided

that Appellee Denise Mannella did not owe any income

taxes, interest, or penalties for the taxable years 1996

through 2000. In its opinion leading to its decision, the

3

Tax Court invalidated a Treasury Department regulation,

26 C.F.R. ' 1.6015-5(b)(1), that sets a two-year deadline

to file a claim for equitable Ainnocent spouse@ relief under

26 U.S.C. ' 6015(f) from liability resulting from a jointly

filed federal income tax return. We now hold that the

regulation is neither contrary to nor an impermissible

implementation of section 6015, and, therefore,

inasmuch as Denise filed her claim for innocent spouse

relief beyond the regulation=s two-year deadline for

seeking such relief, we will reverse the decision of the

Tax Court. See Chevron U.S.A., Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1984).

We, however, will remand the case to that Court to

consider an equitable tolling contention that Denise

advances on this appeal with respect to the running of

the two-year period.1

II. BACKGROUND

A. Statutory and Regulatory Framework

Before addressing the facts of this case, we first

quote the Court of Appeals for the Seventh Circuit=s

thorough explanation of the relevant portions of the

Internal Revenue Code and the related Treasury

Department regulation at issue:

1

There is no issue raised on this appeal concerning the

calculation of the taxes, interest, or penalties.

4

Taxpayers filing a joint return are jointly and

severally liable for the entire tax liability

shown or that should have been shown on

their return. 26 U.S.C. ' 6013(d)(3). But

section 6015 of the Internal Revenue Code

sets forth grounds->innocent spouse= rules

first added to the Code in 1971 and

liberalized since . . . -for relieving the signer

of a joint return of his or her joint and several

liability for understatement or nonpayment

of income tax due.

Section 6015(f), captioned >equitable relief,=

provides that >under procedures prescribed

by the [Secretary of Treasury], if (1) taking

into account all the facts and circumstances,

it is inequitable to hold the individual liable

for any unpaid tax or any deficiency . . . ; and

(2) relief is not available to such individual

under subsection (b) or (c) [of section 6015],

the [Secretary] may relieve such individual

of such liability.= By regulation the Treasury

has fixed a deadline for filing claims under

subsection (f) of two years from the IRS=s

first action to collect the tax by (for example)

issuing a notice of intent to levy on the

taxpayer=s property. 26 C.F.R. '

1.6015-5(b)(1); see also IRS Rev.

Proc.2003-61 ' 4.01(3); 26 U.S.C. '

6630(a).

5

Lantz v. Commissioner, 607 F.3d 479, 480 (7th Cir.

2010) (internal citations omitted) (alterations in original).

As the foregoing passage indicates, the two-year

deadline for seeking relief under section 6015(f) does not

arise from section 6015 but rather comes from the

Treasury regulation implementing subsection 6015(f).

Subsections (b) and (c) of section 6015 also

provide avenues of relief for innocent spouses, but, in

contrast to subsection (f), both contain two-year filing

deadlines for seeking such relief. Subsection (b)

provides:

Under procedures prescribed by the Secretary [of

Treasury], ifB

(A) a joint return has been made

for a taxable year;

(B) on such return there is an

understatement of tax attributable

to erroneous items of one

individual filing the joint return;

(C) the other individual filing the

joint return establishes that in

signing the return he or she did not

know, and had no reason to know,

that there was such

understatement;

6

(D) taking into account all the

facts and circumstances, it is

inequitable to hold the other

individual liable for the deficiency

in tax for such taxable year

attributable to such

understatement; and

(E) the other individual elects (in

such form as the Secretary may

prescribe) the benefits of this

subsection not later than the date

which is 2 years after the date the

Secretary has begun collection

activities with respect to the

individual making the election,

then the other individual shall be relieved of

liability for tax (including interest, penalties, and

other amounts) for such taxable year to the

extent such liability is attributable to such

understatement.

26 U.S.C. ' 6015(b)(1) (emphasis added). Subsection

(c) provides for an allocation of liability if the signer of a

joint return is divorced, legally separated, or no longer

living in the same household as the individual with whom

the signer filed the joint return. In a provision paralleling

subsection (b)(1)(E), subsection (c) provides that a

taxpayer seeking relief under (c) must elect such relief

Anot later than 2 years after the date on which the

[Secretary] has begun collection activities with respect to

7

the individual making the election.@ 26 U.S.C. '

6015(c)(3)(B).

B. Facts

Denise2 and her husband Anthony Mannella filed

joint federal income tax returns for the years 1996

through 2000. The Mannellas agreed to the

assessment of a deficiency for the year 1996. For the

years 1997, 1998, 1999, and 2000, the Mannellas did not

pay fully the taxes their returns showed as due.

Consequently, the Commissioner on June 4, 2004,

initiated collection procedures to recover the back taxes

that they owed by sending the Mannellas separate

notices of his intent to levy. The notices indicated,

however, that the Mannellas each had the right to a

collection-due-process hearing before such levy.

The notices instructed the Mannellas how to obtain

innocent spouse relief under section 6015 by including

an IRS publication titled AWhat You Should Know About

[t]he IRS Collection Process,@ which contained the

following provision:

2

Our use of Denise Mannella=s first name in this opinion

does not suggest a lack of respect but rather is intended

to keep the opinion clear with respect to the parties=

identification.

8

Help for an innocent spouse C In some

cases, you may not be responsible for

taxes, interest, and penalties on a joint

income tax return. Contact your local IRS

office for more information. For information

about your rights as an innocent spouse,

see Publication 971, Innocent Spouse

Relief. For information on three ways to get

help with the amount you owe, see Form

8857, Request for Innocent Spouse Relief

(And Separation of Liability and Equitable

Relief).

2 App. at 39, 42. The notices also included IRS Form

12153, which states that A[i]f you believe that your

spouse or former spouse should be responsible for all or

a portion of the tax liability from your tax return, check

here [__] and attach Form 8857, Request for Innocent

Spouse Relief, to this request.@ 2 App. at 51.

The IRS sent the notices to the Mannellas= correct

address by certified mail return receipt requested. IRS

records indicate that it received signed return receipts

dated June 17, 2004, for both notices at an IRS Service

Center. Denise asserts, however, that her husband

signed her name on the return receipt and did not inform

her that the notice had arrived until more than two years

after its arrival and the Commissioner does not challenge

this assertion. On November 1, 2006, after learning of

the notice of intent to levy and speaking with an attorney,

Denise filed two Form 8857 applications under section

6015, subsections (b), (c), and (f), for innocent spouse

9

relief from joint and several liability on the Mannellas=

joint returns filed for the years 1996-2000. The

Commissioner, however, issued Denise a notice of

determination dated May 3, 2007, denying her relief

under section 6015 because she had not filed her claim

within two years of June 4, 2004, the date that the

Commissioner took his first collection action against her

by mailing her notice of the intent to levy. Denise does

not contend that the Commissioner misapplied the

statutory and regulatory two-year deadline periods, as

written, as she does not assert that she filed her

applications within the two-year statutory and regulatory

deadlines period allowed for such applications.

C. Procedural History

In response to the Commissioner=s rejection of her

applications, Denise, acting pro se, filed a petition for

relief with the Tax Court, contending in part:

My claim for relief was denied because it

was filed 4 2 months to[o] late. When the

collection process was started against me

[on] June 4, 2004[,] it was immediately

stopped. I was informed by my husband

that everything was handled and that I was

not liable for his tax obligation. The IRS

stopped collection activity against me so I

thought it was taken care of. I was not

aware of any other problems and never

10

received any other papers from the IRS

concerning my liability for his taxes or

anything concerning my rights as an

innocent spouse. I never received any

benefits from my husband not paying his

taxes. . . . Denying my claim because it was

filed late when I was never informed that a

time limit existed is wrong.

2 App. at 4. Denise=s husband was informed of his right

to intervene in the Tax Court proceedings, but did not do

so.

The Commissioner moved for summary judgment

on the sole basis that Denise=s applications for relief

under section 6015 were untimely. She opposed the

motion on the ground that she never received her notice

from her husband and therefore the two-year period for

seeking innocent spouse relief should not have begun to

run against her. Denise represented to the Tax Court

that she and her husband were prepared to testify in

support of her contentions at a trial. She did not argue,

however, that the regulation setting a two-year deadline

for requesting relief under subsection 6015(f) was

invalid.

In an opinion dated April 13, 2009, the Tax Court

granted the Commissioner=s motion for summary

judgment in part and denied it in part. The Court

determined that the mailing of the notice to Denise=s last

known address triggered the running of the two-year

deadline periods under subsections 6015(b) and (c)

11

regardless of whether she actually received the June 4,

2004 notice. Accordingly, the Tax Court granted the

Commissioner=s motion for summary judgment on

Denise=s claims under those subsections.

Nevertheless, the Court sua sponte held that the

two-year regulatory deadline under subsection 6015(f)

was invalid, a conclusion that it based on its prior

decision in Lantz v. Commissioner, 132 T.C. 131 (2009).3

Consequently, the Court concluded that Denise=s

subsection (f) claim was timely and it denied the

Commissioner summary judgment on that claim.

After the Tax Court filed its opinion, the parties

executed a stipulation that if Denise=s subsection (f)

request had been timely, which it was if the regulation

was invalid, Denise Ais entitled to relief from all joint and

several liabilities in income tax, additions to tax, penalties

and assessed interest@ for all the taxable years within the

scope of this action. See 2 App. at 74. Following the

filing of the stipulation, the Tax Court entered a decision

on November 5, 2009, in Denise=s favor, but reserving

the Commissioner=s right to appeal, which he has done.

3

As we discuss below, after the Tax Court filed its opinion

and decision in this case, the Court of Appeals for the

Seventh Circuit reversed the Tax Court decision in Lantz

in an opinion filed June 8, 2010. See 607 F.3d 479. In

this opinion we refer to the Tax Court opinion in that

litigation as Lantz v. Commissioner and the Court of

Appeals opinion as Lantz.

12

III. JURISDICTION AND STANDARD OF REVIEW

The Tax Court had jurisdiction pursuant to 26

U.S.C. '' 6015(e)(1)(A)(ii) and 7442, and we have

jurisdiction to review that Court=s decision granting

summary judgment pursuant to 26 U.S.C. ' 7482(a)(1).

Our review of the Tax Court=s decision is plenary.

Connecticut Gen. Life Ins. Co. v. Comm=r, 177 F.3d 136,

143 (3d Cir. 1999); ACM P=ship v. Comm=r, 157 F.3d 231,

245 (3d Cir. 1998).

IV. DISCUSSION

The primary issue on this appeal is whether the

Secretary validly exercised his rulemaking authority in

adopting the regulation setting a two-year deadline for

requesting relief under subsection 6015(f). In

considering this issue we apply the principles the

Supreme Court set forth in Chevron that we recently

explained as follows:

[U]nder Chevron, we must first determine >if

the statute is silent or ambiguous with

respect to the specific issue of law in the

case, using traditional tools of statutory

construction to determine whether

Congress had an intention on the precise

question at issue.= If congressional intent is

13

clear, >the inquiry ends, as both the agency

and the court must give effect to the plain

language of the statute.= Where, however,

a >statute is silent or ambiguous with respect

to the specific issue, the court proceeds to

step two, where it inquires whether the

agency=s answer is based on a permissible

construction of the statute.=

Lin-Zheng v. Attorney Gen., 557 F.3d 147, 155 (3d Cir.

2009) (en banc) (internal citations omitted). The Tax

Court in this case, following its opinion in Lantz v.

Commissioner in which it had applied Chevron, held that

the regulation conflicts with the clear language of

subsection 6015(f) and that, even if the language of the

statute is ambiguous, the regulation impermissibly

implements that subsection. Denise, with effective

assistance from amicus curiae, supplements the Tax

Court opinion by arguing that even if we uphold the

regulation under Chevron, the two-year filing deadline is

subject to the doctrine of equitable tolling and that there

should be equitable tolling in her case to the end that her

applications were timely. We consider each issue in

turn.

A. Lantz

As we have indicated, in invalidating the regulation

the Tax Court followed its prior decision in Lantz v.

Commissioner in which it stated:

14

[b]y explicitly creating a 2-year limitation in

subsections (b) and (c) but not subsection

(f) [of section 6015], Congress has >spoken=

by its audible silence. Because the

regulation imposes a limitation that

Congress explicitly incorporated into

subsections (b) and (c) but omitted from

subsection (f), it fails the first prong of

Chevron.

132 T.C. at 139. The Tax Court further reasoned that

because subsection (f), in terms, is only available to

taxpayers ineligible for relief under subsections (b) or (c),

Congress, by omitting the two-year time limit in

subsection (f), intended that the subsection be available

to taxpayers who missed the filing deadline under

subsections (b) or (c) as a result of some inequity. Id. at

139-41.

After the Commissioner filed his opening brief on

this appeal, the Court of Appeals for the Seventh Circuit

released the opinion in Lantz, which we quote above,

reversing the decision of the Tax Court in that case and

upholding the two-year regulatory deadline for claims

filed under subsection 6015(f). In its opinion the Court

of Appeals rejected the Tax Court=s theory of Aaudible

silence.@ In so doing, the Court noted that Aif 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 subsections are

virtually the same as those of [subsection] (f).@ Lantz,

607 F.3d at 484. The Court found further support for its

15

decision in several of section 6015=s

provisionsCincluding the introductory phrase of

subsection (f)Cexpressly granting the Secretary

rulemaking authority, and in the circumstance that

subsection (f), rather than requiring the Secretary to

grant relief if certain conditions are met, vests him with

discretion to grant such relief. Id. at 485; see Lopez v.

Davis, 531 U.S. 230, 243-44, 121 S.Ct. 714, 723-24

(2001) (A[E]ven if a statutory scheme requires

individualized determinations . . . the decisionmaker has

the authority to rely on rulemaking to resolve certain

issues of general applicability unless Congress clearly

expresses an intent to withhold that authority.@) (internal

citation and quotation marks omitted).

B. Chevron - Step 1

The Supreme Court in Chevron instructed that

courts, when analyzing administrative regulations to

determine if they are valid, first should look at whether

Congress has Adirectly spoken to the precise question at

issue.@ 467 U.S. at 842, 104 S.Ct. at 2781. Denise

argues that Congress unequivocally has spoken to the

question at issue here and has precluded the Secretary

from adopting a regulation establishing a two-year filing

deadline under subsection (f). She predicates this

contention on the correct observation that Congress did

not include a two-year filing deadline in subsection (f)

equivalent to that it did include in subsections (b) and (c).

Rather, Congress instructed the Secretary to consider all

16

relevant facts and circumstances when deciding whether

to grant relief under subsection (f), and stated that relief

is available under subsection (f) only if unavailable under

(b) and (c). We disagree with Denise on this point.

Section 6015 tells us nothing about when claims

may be brought under subsection (f) as the section does

not address this point. We agree with the Court of

Appeals for the Seventh Circuit that this silence is not

made audible by the presence of deadlines in

subsections (b) and (c). Though we recognize that A[i]t

is generally presumed that Congress acts intentionally

and purposely when it includes particular language in

one section of a statute but omits it in another,@ see City

of Chicago v. Envtl. Def. Fund, 511 U.S. 328, 338, 114

S.Ct. 1588, 1593 (1994) (internal quotation marks and

citation omitted), the absence of a statutory filing

deadline in subsection (f) similar to those in subsections

(b) and (c) does not require us to conclude that the

Secretary cannot impose a two-year deadline by

regulation.

It is important to recognize that there can be

several explanations for Congress=s omission of a

deadline for filing an application for relief under

subsection (f). To start with, Congress may have

intended to defer the issue of timing to the Secretary who

can establish procedures for granting relief under

subsection (f) and can determine whether relief, no

matter when sought, should be granted.4 On the other

4

There is considerable discussion on this appeal

17

hand, it is possible that Congress intended that there not

be a deadline for claims under subsection (f) or,

alternatively, that any deadline imposed by a regulation

under that subsection be greater than the two-year

period provided in subsections (b) and (c). But we

cannot say that section 6015, in terms, requires that we

embrace any particular view of Congress=s intent with

respect to a subsection (f) filing deadline.

between the parties involving the question of whether a

limitations period is procedural or substantive. But we

will not focus on that discussion as we are not concerned

with issues such as the applicability of federal or state

law under Erie R. Co. v. Tomkins, 304 U.S. 64, 58 S.Ct.

817 (1938), or the choice of law when the law of different

states may be implicated in litigation. Rather, we are

concerned with whether Congress intended to authorize

the Secretary to include a filing time deadline among the

Aprocedures@ that he can adopt to implement subsection

6015(f).

18

Nor is the question of whether there can be a two-year

deadline period under subsection (f) answered by its provision

that the Secretary Atak[e] into account all the facts and

circumstances@ when deciding whether to grant relief under

that subsection. See 26 U.S.C. ' 6015(f)(1). Denise argues

that this instruction makes clear that the timing of the request is

a factor that the Secretary must take into account in

considering a claim under subsection 6015(f). Congress,

however, included an identical instruction in subsection (b),

see 26 U.S.C. ' 6015(b)(1)(D), despite the presence of an

explicit filing deadline in that subsection, see subsection

(b)(1)(E), and the requirement that relief be granted if all the

criteria listed in subsection (b)(1) are satisfied. The Secretary

thus cannot grant relief to a taxpayer who elects to seek

subsection (b) relief after the deadline under that subsection

has passed, nor can he consider timing as a factor in a

determination of whether to grant relief if the taxpayer makes a

request for relief within the two-year period. Because the

Secretary is prevented from considering the timing of an

election for relief under subsection (b) notwithstanding

the statutory instruction to Atak[e] into account all the

facts and circumstances,@ we hardly can hold that the

exact same instruction clearly requires the Secretary to

consider the timing of a request for relief on an

individualized basis under subsection (f).

Denise also points to the circumstance that relief

under subsection (f) is limited to individuals ineligible for

relief under subsections (b) and (c). See 26 U.S.C. '

6015(f)(2). Because the requirements for relief under

subsections (b) and (f) are similar, though not identical,

Denise argues that Congress must have intended that

19

relief under subsection (f) be available to persons who

missed the filing deadline under subsection (b). Yet

Denise does not dispute that, regardless of timing, a

taxpayer would be eligible for relief under subsection (f)

but not subsection (b) when the taxpayer is seeking relief

from liability for an underpayment as distinguished from

an understatement of taxes, undoubtedly a very large

category of cases, or when the taxpayer is seeking relief

from an understatement that he or she knew or should

have known was made. Accordingly, subsection (f)=s

exclusion of those eligible for relief under subsection (b)

and (c) sheds little light on the question before us.

What subsection (f)(2) may mean is that for relief

to be granted under subsection (f) it must never have

been available under subsection (b) or (c) whether or not

timely sought under those subsections. Indeed, such a

view of Congress=s intent would be consistent with the

establishment of explicit deadline periods in subsections

(b) and (c). Along this line we point out that it would be

strange if Congress established a deadline for a claim

under one subsection but also provided that a claimant at

a date beyond that deadline could make the same claim

for the same type of relief under another subsection and

thereby effectively by-pass the deadline period. In

addressing this point we reiterate that among the

reasons that relief might be available under subsection

(f) that never was available under subsection (b) or (c) is

that subsection (f) relief may be available for both

understatements and underpayments of taxes whereas

subsections (b) and (c) are limited to understatements.

Therefore, the provision of subsection (f) limiting the

20

availability of that subsection to taxpayers ineligible for

relief under subsection (b) and (c) has real meaning even

if it does not save claims that had been, but no longer

are, within the scope of subsections (b) and (c) because,

if asserted, they would be untimely under those two

subsections. Overall, we see no escape from the

conclusion that section 6015 is ambiguous on the

question of when a request for relief may be brought

under subsection (f).

C. Chevron - Step 2

Inasmuch as Congress has not spoken directly to

the precise question in issue, i.e., can the Secretary by

regulation establish a deadline for a taxpayer to seek

subsection (f) relief, we next must examine whether the

Secretary=s imposition of a two-year deadline for claims

brought under subsection (f) permissibly implements that

subsection. In resolving this question, we defer to the

Secretary=s implementation of the subsection Aunless the

legislative history or the purpose and structure of the act

clearly reveal a contrary intent on the part of Congress.@

Appalachian States Low-Level Radioactive Waste

Comm=n v. O=Leary, 93 F.3d 103, 110 (3d Cir. 1996)

(quoting Chem. Mfrs. Ass=n v. Natural Res. Def. Council,

Inc., 470 U.S. 116, 126, 105 S.Ct. 1102, 1108 (1985)).

ASo long as the regulation bears a fair relationship to the

language of the statute, reflects the views of those who

sought its enactment, and matches the purpose they

articulated, it will merit deference.=@ Id. at 110 (quoting

21

Sekula v. F.D.I.C., 39 F.3d 448, 452 (3d Cir. 1994)). 5

We therefore turn to the legislative history and purpose of

section 6015 to determine whether they reveal that

Congress had an intent in adopting section 6015(f) that

was contrary to the regulation establishing the two-year

deadline. See id.

5

The deference is particularly broad when the regulation

is adopted pursuant to authority in a specific statute as

distinguished from being adopted under general rule

making authority. See Armstrong World Indus. Inc. v.

Comm=r, 974 F.2d 422, 441 (3d Cir. 1992).

22

In her brief, Denise discusses the legislative

history of the provisions at issue at some length. In

particular, she points to statements various Senators

made and passages from a joint conference report to the

effect that Congress intended to expand significantly the

prior innocent spouse provisions in 1998 and 2006. See

appellee=s br. at 25-34. Certainly there is no doubt but

that Congress significantly expanded the circumstances

in which a taxpayer could obtain innocent spouse relief

when it enacted section 6015 in its current form. For

example, the current statute eliminates the previous

requirements that innocent spouse relief be limited to

grossly erroneous items attributable to the other spouse

and that the Secretary grant relief only for

understatements exceeding a certain monetary

threshold. See 26 U.S.C. ' 6013(e), repealed by

Internal Revenue Restructuring and Reform Act of 1998,

(ARRA@), Pub. L. No. 105-206 ' 3201, 112 Stat. 685, 740.

Moreover, the addition of subsection (f), notwithstanding

the Secretary=s adoption of the regulatory two-year

deadline, allows for the possibility of there being relief for

underpayments and for understatements of which the

taxpayer seeking relief knew or should have known.

The closest Denise is able to come to pointing to

any legislative history suggesting that Congress in

enacting subsection 6015(f) had an intent inconsistent

with the terms of the regulation is in the legislative history

of 26 U.S.C. ' 66. That provision of the Internal

Revenue Code addresses the treatment of community

property in community property states when spouses do

not file income tax returns jointly. Congress amended

23

subsection (c) of section 66 by the same act that created

subsection 6015(f) 6 and therefore, not surprisingly,

subsection 66 provides for equitable relief in language

that mirrors that of subsection 6015(f). See 26 U.S.C. '

66(c)(4); RRA Pub. L. No. 105-206 ' 3201, 112 Stat. 685,

740. Some statements in the legislative history of

section 66(c) suggest that the Secretary, when Ataking

into account all the facts and circumstances,@ 26 U.S.C. '

66(c)(4), should consider the timing of the request for

relief.

The foregoing history, which the Tax Court

discussed in its opinion in Lantz v. Commissioner, 132

T.C. at 141-44, lends some support to Denise=s position,

but it fails to overcome the deference that we must give

to Treasury Regulation ' 1.6015-5(b)(1) under Chevron

and it does not clearly demonstrate that Congress

intended that requests for relief under subsection 6015(f)

not be subject to a two-year filing deadline. Accordingly,

the regulation is valid. See also Swallows Holding, Ltd.

v. Comm=r, 515 F.3d 162, 172 (3d Cir. 2008) (ADrawing

[a] temporal line [to claim a tax deduction] is a task

properly within the powers and expertise of the IRS.

Chevron recognizes the notion that the IRS is in a

superior position to make judgments concerning the

administration of the ambiguities in its enabling statute.@).

6

See RRA, Pub. L. No. 105-206, 112 Stat. 685.

24

Finally, in our discussion of Chevron we take note

of Denise=s argument that the inclusion of deadline

periods in subsections (b) and (c) but omission of such a

period in subsection (f) Ademonstrates Congressional

intent that requests for equitable relief not be subject to a

bright-line time limitation, but rather allow the taxpayer to

request relief during the 10-year collection period of [26

U.S.C.] ' 6502.@ Appellee=s br. at 15. But inasmuch as

Section 6502 is a limitation only on the government=s

time for collection, Denise really is arguing that there is

no deadline for filing a subsection (f) claim and that the

Secretary by regulation cannot fill the void that Congress

left by omitting such a deadline. We are reluctant to

reach such a result as it would be inconsistent with the

practice of the federal courts to borrow statutes of

limitations from appropriate sources, even state law, to

fill the void that Congress leaves when it does not

establish a statute of limitations. See, e.g., Lake v.

Arnold, 232 F.3d 360, 366 (3d Cir. 2000). Moreover,

Denise=s argument is hardly consistent with the general

practice of Congress to provide for all sorts of specific

periods for action to be taken under the Internal Revenue

Code.7

7

We have not overlooked our contemporaneous opinion in Rea

v. Federated Investors, No. 10-1440, 2010 U.S. App. LEXIS

25501, at * 7, F.3d , (3d Cir. Dec. 15, 2010), a

case construing a statute dealing with employment protection

to persons who had been or were in bankruptcy enacted in a

format in some ways similar to that in section 6015. There we

would not expand on the limited protection given to persons in

25

private employment from bankruptcy discrimination to include

the more expansive protection from bankruptcy discrimination

given to pubic employees. In Rea we declined to Acontravene

congressional intent by implying statutory language that

Congress omitted.@ But Rea dealt with the construction of a

statute, not with whether a regulation implementing a statute

should be upheld under the principles in Chevron, the issue

involved here. Thus, though we uphold the regulation at issue

here we are not Aimplying@ anything into section 6015.

26

D. Equitable Tolling

Denise lastly argues that even if the regulation is

valid, it is subject to equitable tolling and she urges that

the deadline period be tolled here.8 We have held that

Athe tolling of filing deadlines is appropriate where

principles of equity would make the rigid application of a

limitation period unfair.@ Walker v. Astrue, 593 F.3d

274, 279 (3d Cir. 2010) (internal quotation marks and

citation omitted). There may be equitable tolling A(1)

where the defendant has actively misled the plaintiff

respecting the plaintiff's cause of action; (2) where the

plaintiff in some extraordinary way has been prevented

from asserting his or her rights; or (3) where the plaintiff

has timely asserted his or her rights mistakenly in the

wrong forum.@ Hedges v. United States, 404 F.3d 744,

751 (3d Cir. 2005) (internal quotation marks and citation

omitted). But inasmuch as the Tax Court did not

address the equitable tolling issue and additional facts

not in the record may be material to the issue we think that

that Court should explore the issue in the first instance. We

therefore will remand the case to the Tax Court to decide

whether the Treasury Department regulation at 26 C.F.R. '

1.6015-5(b)(1) is subject to equitable tolling and, if so,

whether Denise meets the equitable tolling standard.

8

In the section of her brief dealing with equitable tolling

Denise does not explain why there should be equitable

tolling in this case. Rather, she concentrates on why

there can be equitable tolling.

27

V. CONCLUSION

For the foregoing reasons we will reverse the decision

of the Tax Court entered November 5, 2009, to the extent that

that decision reflected the Tax Court=s opinion that the

regulatory deadline for claims under subsection 6015(f) is

invalid, and will remand the case to the Tax Court to consider

the equitable tolling issue. The parties will bear their own

costs on this appeal.

AMBRO, Circuit Judge, dissenting

Spouses seeking relief from joint and several liability

for understatements or underpayments of income taxes look to

26 U.S.C. § 6015. Among other things, it spares innocent

spouses when it is equitable to do so. Id. § 6015(b) (dealing

with understatements).9 But to be eligible for relief they must

apply within two years after the IRS begins collection activity.

Id. § 6015(b).

What if an innocent spouse does not qualify because

two years have passed since collection efforts began? It

appears there is a safety-valve (Ms. Mannella’s counsel calls it

a ―catchall‖) ─ § 6015(f). All that it requires, other than

1

Section 6015(c) also provides relief for certain

divorced or separated taxpayers, and for these persons imposes

an explicit two-year statute of limitations. However, it is of

little relevance to our case and is not discussed in this dissent.

28

showing relief is not available under subsection (b), is that it

not be fair to hold the innocent spouse responsible for the other

spouse’s tax liability. The intuitive (indeed, blink) thought,

then, is that the time to file under subsection (f) extends

beyond two years. After all, it can’t logically be less time, as

subsection (b) is available for at least some taxpayers who

elect within two years, and thus, one would think, (f) would be

available for later applicants.

Is it that easy? Well, no. There is a catch (as opposed

to a catchall), we are told. Though subsection (f) enacted by

Congress sets no time limit to seek relief, the Department of

the Treasury 10 has adopted a Regulation ─ 26 C.F.R.

§ 1.6015-5(b)(1), complemented by IRS Rev. Proc. 2003-61

§ 4.01(3)11 ─ that does. It is two years.

The United States Tax Court has overruled that

deadline, Mannella v. C.I.R., 132 T.C. 196 (2009), and the IRS

appeals. Its argument, which won in the Seventh Circuit

Court’s decision in Lantz v. C.I.R., 607 F.3d 479 (7th Cir.

2010), is essentially that Chevron U.S.A., Inc. v. Natural

Resources Defense Council, 467 U.S. 837 (1984), requires us

to defer to its judgment, as that judgment is reasonable.

The Tax Court, whose hands heretofore were tied only

in the Seventh Circuit,12 reasons that the Regulation is invalid

2 I use ―Department of the Treasury,‖ ―Secretary‖ (or

―Secretary of the Treasury‖), the ―Service,‖ and ―IRS‖

interchangeably.

3 See also Rev. Proc. 2000-15 § 4.01(3).

4 See Golsen v. Commissioner, 54 T.C. 742, 1970 WL

2191 (1970), aff’d 445 F.2d 985 (10th Cir. 1971) (determining

29

under step one of Chevron’s procedure for reviewing an

agency’s construction of a statute it administers because

Congress has spoken directly to the issue involved.

Specifically, the Tax Court reasons that the Regulation ―runs

directly contrary to the nature of the relief provided in section

6015(f).‖ 132 T.C. at 202. And even were subsection (f)

deemed silent or ambiguous, ―a 2-year limitations period is not

a permissible construction of [that provision], and therefore

[the Regulation] is invalid under Chevron step 2,‖ id., which

holds that congressional silence or ambiguity on a specific

issue confers on the administrative agency the power to

construe the statute in any way that is permissible (that is,

reasonable).

I agree with my colleagues, and not the Tax Court, that

Congress has not spoken directly on what the timeframe under

subsection (f) must be. Indeed, the subsection is literally

silent.13

In that case, Chevron’s second step comes into play.

My colleagues, and all three members of the panel in Lantz,

hold that the Regulation passes muster. They reason, per

Chevron, that deference is due an agency’s construction of a

statute it implements, i.e., a presumption of validity attends

that construction. Thus, though Ms. Mannella’s position has

that the Tax Court must apply the law of the Court of Appeals

to which an appeal for that case would later lie).

13 That said, the Tax Court’s reasoning is not so

specious that it deserves to be dismissed as simply oxymoronic

by its use of ―audible silence.‖ Lantz, 607 F.3d at 481. That

gibe, however, does sidestep another oxymoron – humble

pedantry.

30

―support,‖ Maj. Op. at 22, and ―[t]he arguments against the

Tax Court’s interpretation of subsection (f) as barring a fixed

deadline . . . are powerful,‖ Lantz, 607 F.3d at 486, they do not

overcome that presumption. Put another way, that some, or

even most, courts would have chosen a different deadline than

that picked by the IRS is irrelevant, as the Supreme Court has

settled since 1984 who gets first call in construing the

statute.14

But that first call must be reasonable. It is hard to say

that is so when the IRS gives no reasons for ―add[ing] a new

threshold requirement,‖ Rev. Proc. 2003-61 §3.01, for

subsection (f) eligibility. ―It is well-established that an

agency’s action must be upheld, if at all, on the basis

articulated by the agency itself.‖ Motor Vehicle Mfrs Ass’n v.

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 50 (1983). Here,

however, the IRS has not advanced any reasoning for its

decision to impose a two-year limitations period on taxpayers

seeking relief under subsection (f), leaving us no basis to

14 As this is settled law, I don’t enter the well-vetted

briarpatch of whether the Supreme Court should have

accorded agencies of the Executive Branch interpretive powers

that courts thought by tradition belonged to them. See

generally Jack M. Beerman, End the Chevron Experiment

Now: How Chevron Has Failed and Why It Can and Should be

Overruled, 42 Conn. L. Rev. 779 (2010); Cass R. Sunstein,

Law and Administration After Chevron, 90 Colum. L. Rev.

2071 (1990); Cynthia R. Farina, Statutory Interpretation and

the Balance of Power in the Administrative State, 89 Colum. L.

Rev. 452 (1989); Joseph F. Weis, Jr., A Judicial Perspective on

Deference to Administrative Agencies: Some Grenades From

the Trenches, 2 Admin. L. J. 301 (1988).

31

conduct the analysis mandated by Chevron step two.

There may exist justifications on which the IRS could

have reasonably relied in order to impose a two-year limit on

subsection (f) relief. The problem is that there are also

arbitrary and capricious reasons that, if articulated by the

Service as the basis for the two-year limit, would require us to

strike down that limit—for example, if the IRS enacted the

two-year deadline based on an incorrect belief that the statute

required it, or based on a factual supposition belied by the

administrative record. See, e.g., Zheng v. Gonzales, 422 F.3d

98, 120 (3d Cir. 2005) (rejecting immigration regulation at

Chevron step two because it was based on an impermissible

reading of the 8 U.S.C. § 1255(a)). Because the IRS has not

articulated its reasoning, we cannot discern whether the

two-year limit falls into the permissible, or the arbitrary and

capricious, category.

Into the vacuum left by the IRS the Lantz Court has

injected reasoning of its own, which my colleagues cite at

length. But it is black-letter law—and a necessary corollary

of the deference owed to agencies—that courts may not

supplement deficient agency reasoning. Sec. & Exch.

Comm’n v. Chenery Corp., 318 U.S. 80, 87 (1943) (―The

grounds upon which an administrative order must be judged

are those upon which the record discloses that its action was

based.‖). Thus, the Lantz Court’s surrogate surmising of

agency reasons does not, I believe, save the two-year limit.15

15 My colleagues largely do not engage in this exercise

(though nothing they write shows disagreement), instead

rejecting Ms. Mannella’s arguments against the two-year limit

because they do not ―clearly demonstrate that Congress

intended that requests for relief under subsection 6015(f) not

32

Further, I do not find Lantz’s reasoning in support of the

two-year limit to be convincing. I will address those reasons,

which my colleagues seemingly endorse, in turn.

1. Reason: The Lantz Court wrote that, absent a

two-year deadline in (f), the two-year deadline in (b) would be

made superfluous, as ―the substantive criteria of th[at]

section[] are virtually the same as those of (f).‖ Lantz, 607

F.3d at 484. Indeed, it took this thought even further by

stating that ―[h]ad the Treasury decided to impose no deadline

on the filing of claims under subsection (f), or even just a

deadline longer than two years, or in lieu of a fixed deadline

the flexible deadline of the laches doctrine, it would have been

undermining the two-year deadline fixed by Congress in

subsection[] (b).‖ Id.

Response: To begin, to the extent that it is correct

that the ―substantive criteria‖ of (b) and (f) are ―virtually the

same,‖ id. at 484, then Lantz’s approach renders subsection (f)

superfluous, which cannot be what Congress intended. As

Lantz later notes, however (and the majority agrees, Maj. Op.

at 18), there is a large class of taxpayers who would be eligible

be subject to a two-year filing deadline.‖ Maj. Op. at 20. By

this approach my colleagues place on Ms. Mannella the burden

(a heavy one, at that) of proving that it is not reasonable to

adopt a deadline backed by no reason. I do not buy this

approach. Moreover, it also ducks the critical

inquiry—whether the IRS’s reason for implementing the

two-year limit was ―arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law.‖ 5

U.S.C. § 706(2)(A). By abjuring reason, the IRS, I believe,

abuses its discretion.

33

for relief under (f), but not (b), because the latter, unlike the

former, applies only to: (i) tax understatements, and not tax

underpayments; id. at 486; and (ii) spouses who lacked actual

or constructive knowledge of the understatement.

Moreover, subsection (f) will not ―undermin[e]‖ the

two-year deadline imposed in subsection (b) even as to those

taxpayers who (but for the two-year limit) might qualify under

both subsections. Of significance, (f) is discretionary,

whereas (b) is mandatory. Compare § 6015(f) (―the Secretary

may relieve [the innocent spouse] of such liability‖), with

§ 6015(b) (―the [innocent spouse] shall be relieved of liability

for tax‖) (emphases added). Thus, even if (f) has no time

limit, taxpayers who might qualify under (b) would be

well-advised to file in time to take advantage of that mandatory

provision instead of waiting to seek discretionary relief under

(f). Put another way, Congress could have chosen to free the

IRS to afford discretionary relief to innocent spouses who

missed the two-year deadline in certain exceptional cases,

while maintaining the two-year limitations period for the

mine-run of cases.

In addition, as my colleagues note, Maj. Op. at 21-22,

Congress amended 26 U.S.C. § 66 (addressing the treatment of

community property when spouses do not file joint returns in

community-property states) by adding a subsection (c) at the

same time it added subsection (f) to § 6015, and the language

of each subsection mirrors the other. Statements in the

legislative history of § 66(c) indicate that the IRS should

consider the timing of the request for relief. H.R. Rep. No.

98-432, pt 2, at 1501 & 03 (1984) (the IRS should consider,

inter alia, ―whether the defense was promptly raised so as to

prevent the period of limitations from running on the other

spouse‖). Moreover, the Tax Court pointed out in its decision

34

now reversed by the Seventh Circuit that, ―[i]n [the]

announcement of the proposed regulations under [§] 66(c), 67

Fed. Reg. 2841 (Jan. 22, 2002), the Secretary [of the Treasury]

observed that the relief provided in sec. 66(c) is analogous to

the relief provision in section 6015(b) *** [and] section

6015(f).‖ Lantz v. C.I.R., 132 T.C. 131, 142 n.9 (2009),

overruled by 607 F.3d 479 (7th Cir. 2010).

2. Reason: The Lantz Court also observed that

―[s]ince the government can refuse to grant equitable relief to

someone who meets the statutory criteria and applies within

two years 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?‖ 607 F.3d at 485 (emphasis in text).

Response: I agree that the answer to this rhetorical

question is that the Secretary can exercise the discretion

granted by subsection (f) either case-by-case or categorically.

Cf. Lopez v. Davis, 531 U.S. 230, 243-44 (2001) (Bureau of

Prisons could exercise its discretion to reduce the sentences of

certain prisoners on a categorical basis). However, because it

is not clear why the IRS promulgated the two-year limit (or

whether it even purported to do so as an exercise of its

discretion at all, rather than out of a misguided perception of

what the statute required), its authority to exercise its

discretion categorically should not save the two-year limit the

Regulation by ukase imposes.

3. Reason: Though ―innocent spouses who fall

through the cracks in (b),‖ Lantz, 607 F.3d at 484., have the

safety protection of (f), ―[t]he details . . . were left to the

Treasury Department to work out . . . .‖ Id. The preamble to

(f) confers on the Secretary of the Treasury the right to

prescribe ―procedures‖ to relieve individuals of liability on

35

joint income tax returns. When claims may be brought is such

a procedure. ―Congress’s authorizing an agency to grant

discretionary relief under procedures that the agency is to

devise itself . . . writes the agency a blank check; and one of

the blanks on the check is the deadline for applying for such

relief.‖ Id. at 485.

Response: If the preamble to both subsections (b)

and (f) is ―[u]nder procedures prescribed by the Secretary,‖

and (b) has a deadline of two years while (f) does not, then is

not that deadline substantive rather than procedural?

Procedures here cover how to go about making a request for

relief, and limitations periods are generally considered

substantive. Cf. Lafferty v. St. Riel, 495 F.3d 72, 76 (3d Cir.

2007) (statutes of limitation are substantive, not procedural,

for purposes of determining whether state or federal law

applies in diversity cases). More specifically, in the tax

context ―a time bar is not simply a procedural rule. In the case

of equity, it has the substantive effect of making one

circumstance, the time of the claim, the only relevant factor.‖

Hall v. C.I.R., 2010 WL 3703837 *3 (U.S. Tax Ct.).

4. Reason: Finally, the Lantz Court observed that

the IRS could impose a deadline for subsection (f) applications

―designed to reduce the flow to manageable proportions.‖

607 F.3d at 486.

Response: While it may be true that the IRS

could impose a deadline in order to reduce the sheer number of

applications for relief under subsection (f), that observation is

of little relevance here, where there is no administrative (or

other) record of an unmanageable flow of late-filed exemption

applications.

36

* * * * *

To deny taxpayers who miss the deadline to invoke

subsection (b) even a chance to make an equitable exemption

claim under (f) is concededly ―harsh.‖ Id. Those taxpayers

are left in a Catch-22 paradox: they are ineligible to seek an

exemption under (f) unless ineligible under (b), but once

ineligible as to timing under the latter they can’t be eligible

under the former. The take-away thought for some may be

that Congress could have drafted directly (or more clearly) but

it didn’t, and now the agency gets to make the gatekeeping

rules. But the agency only gets to do so within reason.

And there’s the rub. It gave no reasons. Courts thus

make up or surmise reasons (and even they underwhelm). Is

this the proper way to review interpretive decisions by

agencies?

The Supreme Court has answered that question in the

negative. To repeat: ―[i]t is well-established that an

agency’s action must be upheld, if at all, on the basis

articulated by the agency itself.‖ Motor Vehicle Mfrs Ass’n,

463 U.S. at 50. When courts ignore that admonition, Chevron

becomes an exit ramp to the twilight zone by ―reliev[ing] the

pressure on agencies to develop a full, expert record . . . .‖

Elizabeth V. Foote, Statutory Interpretation or Public

Administration: How Chevron Misconceives the Function of

Agencies and Why it Matters, 59 Admin. L. Rev. 673, 710 (Fall

2007). In this way, ―[r]eviewing courts can brush off serious

challenges to agency decisions by invoking Chevron without

engaging whether the agency is thwarting imperfectly

expressed congressional intent.‖ Beerman, End the Failed

Chevron Experiment Now: How Chevron Has Failed and Why

It Can and Should be Overruled, 42 Conn. L. Rev. at 784. I

37

believe this is what happened here, and thus respectfully

dissent.

38