Porter v. Comm'r

Wells, J., dissenting: I agree with and have joined Judge Gustafson’s thorough and well-reasoned dissent. I respectfully write separately to address an issue that Judge Gustaf-son does not address in his dissent but is raised by concurring Judges and to point to additional reasons for not abandoning the abuse of discretion standard of review in section 6015(f) cases.

Judges Halpern and Holmes indicate that it would be incongruous to apply the abuse of discretion standard of review on the basis of trial evidence that the “Appeals officer” had never seen. 1 They apparently believe that the Commissioner’s exercise of discretion is complete and final before trial. However, in section 6015(f) cases and in other cases where the abuse of discretion standard of review is applied after a trial de novo, I believe that the exercise of discretion that is under review is the Commissioner’s position after all of the evidence is in. The final exercise of discretion by the Commissioner typically is a posttrial brief containing the Commissioner’s reasons and arguments. Indeed, our experience is that the Commissioner often will grant partial or full relief after considering all of the evidence adduced at trial. When, however, the Commissioner finally argues that relief should be denied after all of the trial evidence is considered, it is that position (i.e., the Commissioner’s exercise of discretion at that point) that we review for abuse of discretion.

Additionally, I am concerned that today the Court, on the pretext that a 2006 amendment to section 6015(e) provides an occasion to reconsider our prior rulings, 2 essentially overrules our longstanding precedent that this Court reviews the Commissioner’s denial of section 6015(f) relief for abuse of discretion. That precedent originated with our Opinion in Butler v. Commissioner, 114 T.C. 276 (2000), and was subsequently reaffirmed in three Court-reviewed Opinions, the latest of which was rendered in this very case less than a year ago. Porter v. Commissioner, 130 T.C. 115 (2008) (Porter I); Ewing v. Commissioner, 122 T.C. 32 (2004), vacated 439 F.3d 1009 (9th Cir. 2006); Cheshire v. Commissioner, 115 T.C. 183 (2000), affd. 282 F.3d 326 (5th Cir. 2002).

In overruling this precedent, the majority fails to recognize the opinions of six Courts of Appeals that have affirmed our practice of holding a trial de novo in section 6015(f) relief cases and then applying the abuse of discretion standard of review. Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009), affg. T.C. Memo. 2005-201 ; Capehart v. Commissioner, 204 Fed. Appx. 618 (9th Cir. 2006), affg. T.C. Memo. 2004-268 ; Alt v. Commissioner, 101 Fed. Appx. 34 (6th Cir. 2004), affg. 119 T.C. 306 (2002); Doyle v. Commissioner, 94 Fed. Appx. 949 (3d Cir. 2004), affg. T.C. Memo. 2003-96 ; Mitchell v. Commissioner, 292 F.3d 800 (D.C. Cir. 2002), affg. T.C. Memo. 2000-332 ; Cheshire v. Commissioner, 282 F.3d 326 (5th Cir. 2002). The most recent of these opinions was issued on February 11, 2009, and affirmed what it described as:

the Tax Court’s longstanding rule and practice * * * to hold trials de novo in situations where it makes determination and redeterminations, including § 6015(f) cases. To prevail in the trial de novo, the taxpayer petitioner must show that the Commissioner’s denial of equitable relief was an abuse of discretion. [Commissioner v. Neal, supra at 1268; citations omitted.]

These Courts of Appeals do not appear to have any disagreement with the abuse of discretion standard of review in a trial where evidence is taken de novo.

I also would like to address Judge Gale’s argument in his concurring opinion that the Court of Appeals for the Fourth Circuit would reject a “mismatched standard and scope of review” in section 6015(f) cases, pursuant to its opinion in Sheppard & Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120 (4th Cir. 1994), and that we are bound to follow that outcome under the rule of Golsen v. Commissioner, 54 T.C. 742 , 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971). I believe that Sheppard is not squarely in point and is distinguishable.

As noted by Judge Gale, Sheppard holds that where an abuse of discretion standard of review is applicable to a plan administrator’s action under ERISA, 3 the scope of review is limited to the evidence that was taken into account by the plan administrator at the time it acted. Id. at 25. The Court of Appeals did not hold that it disapproves of any pairing of a de novo scope of review with an abuse of discretion standard of review (a holding that would run headlong into Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532 (1979)), and it made no holding whatsoever about section 6015(f) cases under the Internal Revenue Code. Moreover, under section 6015(f) we are reviewing, pursuant to the statute, the exercise of discretion of a Government agency’s administrator who, as mentioned above, appears as the respondent in every case before us, as opposed to a District Court in an ERISA case reviewing a private entity’s exercise of discretion conferred in a plan document. 4 Consequently, I believe that the Golsen rule has no bearing on the case before us.

Our review of section 6015(f) cases differs from a District Court’s review of a plan administrator’s exercise of discretion in another material respect. Under our precedent in Friday v. Commissioner, 124 T.C. 220, 222 (2005), we have no authority to remand section 6015(f) cases to the Commissioner, whereas in a case arising under ERISA like Sheppard, a District Court has the authority to remand the case to the plan administrator. Sheppard & Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., supra at 125. In response to the criticism that a limited record can hide an abuse of discretion that results from a plan administrator’s failure to consider or admit into the record all of the relevant facts, the Court of Appeals specifies remand as the “proper course” to bring in additional evidence when the record is otherwise lacking: “‘If the court [believes] the administrator lacked adequate evidence, the proper course [is] to remand to the trustees for a new determination . . . not to bring additional evidence before the district court.’ ” Id. at 125 (quoting Berry v. Ciba-Geigy Corp., 761 F.2d 1003, 1007 (4th Cir. 1985)).

In a section 6015(f) case, however, if this Court finds the factual underpinnings of the Commissioner’s determination to be lacking, we have no authority, pursuant to Friday, to remand the case to the Commissioner to bring in additional evidence to allow us to review a sufficient record to test the Commissioner’s exercise of discretion which, as mentioned above, continues throughout the case until all of the evidence is in. Accordingly, in a section 6015(f) case, a de novo scope of review, as we held in Porter I, is the only means by which we can supplement an insufficient record.

Finally, I would like to address the venerable principle of stare decisis. For the reasons cited by Judge Gustafson in his dissent and others discussed here, I think that the correct standard to use in reviewing section 6015(f) cases in this Court is abuse of discretion. Consequently, I do not think it is necessary to rely on stare decisis alone as the reason for continuing to review section 6015(f) cases for abuse of discretion. Nonetheless, stare decisis is additional support for not abandoning the abuse of discretion standard. The majority makes no mention of and gives no consideration to that principle or why it should not apply.

Stare decisis should apply in the instant case for reasons stated in the recent opinion of the Supreme Court in John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 139 (2008) (citations and quotation marks omitted):

stare decisis in respect to statutory interpretation has special force, for Congress remains free to alter what we have done. * * *

* * * Justice Brandéis once observed that in most matters it is more important that the applicable rule of law be settled than that it be settled right. To overturn a decision settling one such matter simply because we might believe that decision is no longer right would inevitably reflect a willingness to reconsider others. And that willingness could itself threaten to substitute disruption, confusion, and uncertainty for necessary legal stability. * * *

In sum, the use of an abuse of discretion standard of review in a de novo trial is consistent with this Court’s precedent, the opinions of the Courts of Appeals I have cited above, the Supreme Court’s holding in Thor Power Tool Co., and stare decisis.

For the foregoing reasons, I dissent.

Cohen, Thornton, and Gustafson, JJ., agree with this dissent. Unlike sec. 6330, sec. 6015 does not require a “hearing” before an “Appeals officer” or that a “determination” against the taxpayer be made before the filing of a petition requesting relief under sec. 6015(f). As noted by Judge Gustafson in his dissent, it is the Secretary, through his delegate the Commissioner, who is vested with the discretion under sec. 6015(f), and it is the Commissioner who appears as the respondent in every case before the Tax Court.

As Judge Gustafson’s dissent explains, the 2006 amendment had nothing to do with changing the standard of review in sec. 6015(f) cases.

ERISA is the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 829, codified as amended not in the Internal Revenue Code (26 U.S.C.) but in 29 U.S.C. secs. 1001-1461 (2006).

Under the Supreme Court’s holding in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), quoted in Sheppard & Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120, 123 (4th Cir. 1994), the plan administrator’s action is reviewed under a de novo standard of review unless the plan document vests the administrator with discretion, in which case, the action is reviewed under an abuse of discretion standard.