Minahan v. Commissioner

HAMBLEN, J., concurring and dissenting: I respectfully dissent from the portion of the majority opinion which invalidates section 301.7430-1(b)(1)(i)(B) and section 301.7430-1(f)(2)(i), Proced. & Admin. Regs., insofar as such regulations provide that a taxpayer’s failure to extend the statute of limitations is relevant to our determination as to whether a taxpayer has exhausted administrative remedies available within the Internal Revenue Service as required by section 7430(b)(2). Courts should defer to interpretive regulations if the regulations are “found to ‘implement the congressional mandate in some reasonable manner.’ ” National Muffler Dealers Association v. United States, 440 U.S. 472, 476 (1979). As recently suggested, “It follows from this principle of deference to Treasury regulations that the existence of an interpretive regulation should be decisive in a case in which an interpretive regulation is appropriate and in which reasonable arguments can be made both for a literal interpretation and for a nonliteral contextual interpretation” of the statutory provisions of the Internal Revenue Code. Zelenak, “Thinking About Nonliteral Interpretations of the Internal Revenue Code,” 64 N.C.L. Rev. 623, 673-674 (1986). “The choice among reasonable interpretations is for the Commissioner, not the courts.” National Muffler Dealers Association v. United States, supra at 488 . And we have appropriately announced that we prefer to interpret regulations “so as to uphold their validity.” Graves v. Commissioner, 88 T.C. 28 (1987), and cases cited.

I submit that it is not proper for this Court to strike down interpretative regulations such as these which can be applied without regard to whether the consequences benefit the Government or the taxpayer but which carry out the purpose, indeed the mandate, of the legislation before us. In this respect, I note the majority’s reliance on “our unanimous opinion in Durbin Paper Stock Co. v. Commissioner, 80 T.C. 252, 256-257 (1983),” as the absolute canon of judicial statutory construction in this case. See 88 T.C. at 32-33 . However, as I read the quoted section from Durbin Paper Stock Co. in the majority opinion, it merely confirms that rules of statutory construction may be applied to obtain the objective or result intended. In this respect, I cite National Muffler Dealers Association v. United States, supra, to reach what I believe is the correct standard. It seems, perhaps, that such precepts, like passages from the Bible, can be cited to support diverse propositions or platforms, and it has been observed that such rules are mutually contradictory and may be considered neither generally accepted nor consistently applied by American courts. Zelenak, supra at 630-633. “There Eire no talismanic words that can avoid the process of judgment.” Universal Camera Corp. v. Labor Bd., 340 U.S. 474, 489 (1951). As the courts of old held, rather pragmatically it seems to me, a statute which provides that a prisoner who escapes commits a felony “does not extend to a prisoner who breaks out when the prison is on fire — ‘for he is not to be hanged because he would not stay to be burnt.’ ” Zelenak, supra at 632, quoting United States v. Kirby, 74 U.S. (7 Wall.) 482, 487 (1868). I fear that here the majority condemns innocent regulations because they will not submit them to the test of reasonableness.

In the instant case, I would reach the same result as the majority without the inappropriate and unnecessary invalidation of the pertinent regulation. My view is that respondent’s regulations are reasonable and capable of application in a manner consistent with the intent of Congress, as evidenced within the statute and gleaned from the legislative history. Consequently, the invalidation of paragraphs (b)(l)(i)(B) and (f)(2)(i) of section 301.7430-1, Proced. & Admin. Regs., is neither appropriate nor necessary. In the context of the entitlement to an award of litigation costs, the majority opinion does a great disservice to the entire administrative process of the Internal Revenue Service and obscures a clear congressional preference that cases be resolved in the administrative process rather than the legal forum.

I would determine that petitioners exhausted administrative remedies made available within the Internal Revenue Service for purposes of section 7430(b)(2) notwithstanding the refusal to extend the period for assessment. I submit that respondent’s interpretive regulation, in general, establishes “the circumstances in which the Internal Revenue Service normally will consider such administrative remedies exhausted.” Sec. 301.7430-1(a), Proced. & Admin. Regs. (Emphasis added.) In this context, respondent’s regulation sets forth the standard that a party’s entitlement to an award of litigation costs is dependent upon such party’s agreement “to extend the time for an assessment of tax if necessary to provide the Appeals office with a reasonable time period to consider the tax matter.” Sec. 301.7430-1(b)(1)(i)(B), Proced. & Admin. Regs. (Emphasis added.)

The statute in question and its legislative history are silent as to whether Congress specifically intended that the exhaustion of administrative remedies requirement embody a reasonable extension of the period for assessment. I believe that section 301.7430-1(b)(1)(i)(B), Proced. & Admin. Regs., sets forth a reasonableness standard regarding any request to extend the period for assessment under section 6501(c)(4). I perceive a distinction between the entitlement to an award of litigation costs pursuant to section 7430 and the statute of limitations period prescription within section 6501. An award pursuant to section 7430 is not a fundamental entitlement accorded each taxpayer. Consequently, the scope of section 7430 is necessarily restrictive. In this respect, the exhaustion of administrative remedies requirement is unique to section 7430. I would view respondent’s request in light of the particular facts and circumstances to determine whether such request was necessary to provide the Appeals Office with a reasonable time period to consider the tax matter. An additional factor within respondent's regulation is whether the time period requested within the consent to extend the period for assessment was reasonable in light of the particular facts and circumstances. In the instant case, the record establishes that respondent’s request was not necessary to provide the Appeals Office a reasonable period for review. Respondent’s request was due to dilatory administrative attention in the procurement of the valuation. This fact necessitated additional time to complete the examination. Furthermore, as stated in the majority opinion, the legal theory espoused by respondent to aggregate the transfers of Post common stock for purposes of gift tax valuation had been the subject of previous judicial inquiry. See p. 498-499 supra. Here, I would determine that petitioners’ refusal to extend the period for assessment was reasonable as respondent’s request to extend the period for assessment was not necessary to provide for Appeals Office review but motivated by a desire to extend the examination stage of review.

In sum, my view is that the analysis as to whether a taxpayer is entitled to an award of litigation costs should employ a double-edged inquiry concerning the prevailing party standard of section 7430(c)(2) and the exhaustion of administrative remedies requirement of section 7430(b)(2). Whether a request by respondent that a party extend the period for assessment is necessary to provide the Appeals Office a reasonable period of time to consider the tax matter should be determined from the facts and circumstances of the request. The intent of the exhaustion of administrative remedies request is to impose a limitation to an award of litigation costs upon the taxpayer. The Court should focus upon which party, if any, disabled the stipulation and settlement process at the administrative level. I believe that the request to extend the period for assessment should be a relevant factor in our determination of the exhaustion of administrative remedies requirement. The majority negates any role of the consent to extend the period for assessment and erodes the effectiveness of the administrative appeals process. In this context, I note that Congress enacted section 7430 to “deter abusive actions or overreaching by the Internal Revenue Service” (H. Rept. 97-404, supra at 11), and that respondent’s regulations are necessarily written by the very party that Congress intended to deter. Nonetheless, the intent of Congress is equally clear that the condition of section 7430(b)(2) is “intended to preserve the role that the administrative appeals process plays in the resolution of tax disputes by requiring taxpayers to pursue such remedies prior to litigation.” H. Rept. 97-404, supra at 13. The request to extend the period for assessment is not by definition tantamount to the abuse or overreaching by the Internal Revenue Service which Congress intended to deter, otherwise there would be no purpose for the consent provision. Sec. 6501(c)(4). The consent to extend the period for assessment may play a vital role in the resolution of complicated tax matters at the administrative level such as the numerous tax shelter cases currently awaiting our disposition. The majority ignores the second aspect of the bifurcated congressional intent of section 7430, namely the desire to preserve the administrative appeals process. I believe this has ominous overtones and may precipitate unfavorable results both within and beyond the award of litigation costs.

It is fundamental that this Court should consider congressional empathy regarding the staggering number of petitions comprising our current inventory. Congressional efforts to assist in the management of our caseload are evidenced by the enactment of recent provisions. See secs. 6621(d), 6659, 6661, 6673. Section 7430 should be read and examined correlatively with these penalty provisions if we are to construe and apply correctly the congressional purpose inherent in their concurrent enactment. See Note, “Section 7430 and the Award of Litigation Costs; A Reasonable Position,” 39 Tax Law. 769 , 772 (1986). In connection with the enactment of section 6621(d), the Conference Committee stated that:

The conferees believe that, with this amendment, the Congress has given the Tax Court sufficient tools to manage its docket, and that the responsibility for effectively managing that docket and reducing the backlog now lies with the Tax Court. * * * [H. Rept. 98-861 (Conf.) (1984), 1984-3 C.B. (Vol. 2) 1, 239.]

My stated view is that the request to extend the period for assessment should be a relevant consideration in the context of the exhaustion of administrative remedies requirement. The majority opinion obviates any role which the request to extend the period for assessment could have played to resolve tax matters at the administrative level. As stated, Congress has endeavored to allay the problems confronting this Court in the effective management of its caseload. Considering the totality of the legislative enactments above referred to, and the majority’s rejection of a facts and circumstances test which I believe is inherent in the majority-obviated regulations, I am apprehensive that we are ignoring a charge endowed by the confidence of Congress in our deliberations, for:

It is fair to say that in all this Congress expressed a mopd. And it expressed its mood not merely by oratory but by legislation. As legislation that mood must be respected, even though it can only serve as a standard for judgment and not as a body of rigid rules assuring sameness of application. Enforcement of such broad standards implies subtlety of mind and solidity of judgment. But it is not for us to question that Congress may assume such qualities in the federal judiciary. [Universal Camera Corp. v. Labor Bd., 340 U.S. 474, 487 (1951).]

In the context of the exhaustion of administrative remedies requirement, the majority ignores congressional preference for settlement of tax matters at the administrative level. I find troublesome the prospect that a taxpayer may now opt for the preliminary notice of deficiency and file a protest with the appellate section, but if a consent to extend the period for assessment is necessary to provide for Appeals Office review, the taxpayer may compel the issuance of the statutory notice of deficiency. We must now determine that such a taxpayer has complied with the exhaustion of administrative remedies requirement. The elimination of the consent request to extend the period for assessment in context of an award of litigation costs emasculates the vitality of the exhaustion of administrative remedies requirement and designates an unwarranted advantage to the taxpayer in the intended balance of section 7430 between the prevailing party standard and the exhaustion of administrative remedies requirement. The majority has adopted a facile, albeit appealing, determination to invalidate respondent’s regulations. Nonetheless, it remains inescapable that the Court must delve into the administrative proceedings to determine whether a taxpayer has exhausted administrative remedies as mandated by section 7430(b)(2) without regard to any reasonable request to extend the period for assessment necessary to provide an Appeals Office review. I am confident that our determination disrupts the counterpoise intended by Congress with the enactment of section 7430(b)(2) and consider the following statement of Justice Frankfurter in Universal Camera Corp. v. Labor Bd., 340 U.S. at 488-489 , to be pertinent in that context: “A formula for judicial review of administrative action may afford grounds for certitude but cannot assure certainty of application. Some scope for judicial discretion in applying the formula can be avoided only by falsifying the actual process of judging or by using the formula as an instrument of futile casuistry.”

I am concerned that in voiding these regulations we have forsaken judicial discretion for the sake of pure judicial casuistry.