Tuesday, June 8, 2010
The Seventh Circuit today, in a unanimous opinion written by Judge Posner, reversed a divided (11-5) Tax Court (132 T.C. No. 8
(Apr. 7, 2009)) and upheld the requirement in Reg § 1.6015-5(b)(1) that claims for innocent spouse relief (Form 8857
) be made with two years of the IRS's commencement of collection action, even though the innocent spouse statute (§ 6015(f)) does not impose such a requirement. Lantz v. Commissioner
, No. 09-3345 (7th Cir. June 8, 2010):
[T]he Tax Court’s basic thought seems to have been that since some statutes (in this case, some provisions of a statute) prescribe deadlines, whenever a statute (or provision) fails to prescribe a deadline, there is none. That is not how statutes that omit a statute of limitations are usually interpreted. Courts “borrow” a statute of limitations from some other statute in order to avoid the absurdity of allowing suits to be filed centuries after the claim on which the suit was based arose.
(UNLV) offers his thoughts on the 7th Cirucit's Lantz
- The Seventh Circuit's decision is correct. There are some flaws in its reasoning, but they are peripheral, not central.
- This case evinces an old pattern. Most judges of the Tax Court have a very cramped view of deference to Treasury regulations in contrast to the expansive view of the circuit courts. In Lantz, the TC purported to apply Chevron. But the spirit in which a court applies a rule is usually more important than the verbal formulation of the rule. The Tax Court's application of Chevron is ungenerous to the agency. In the Tax Court's hands, Chevron is a sword to strike down agency action, not a shield to protect it. The circuit courts, however, understand that Chevron is hospitable to broad agency rulemaking power. For this reason, the Tax Court was reversed in Swallows Holding. It now has been reversed in Lantz. And it will soon be reversed in Mannella.
- In particular, the Seventh Circuit rejected the Tax Court's contention that Congress "speaking by audible silence" supports a Chevron Step One holding against the agency.
- This case illustrates that the playing field isn't level -- the Government has a preferred position as to remedies compared to taxpayers. For example, the Seventh Circuit opinion correctly notes that laches sometimes can be applied by the IRS against taxpayers but that taxpayers probably can't assert laches against the IRS. The "implied or borrowed statute of limitations" issue is similar. Despite the fact that § 6015(f) contains no limitations period as to taxpayer claims, the Seventh Circuit allowed the Treasury to create one or to borrow one from § 6015(b) and (c). In contrast, the § 6700 penalty section contains no statute of limitations, and the courts have held that there is none. E.g., Capozzi v. United States, 980 F.2d 872, 875 (2d Cir. 1992) ("when Congress does not specify whether or not any limitations period applies to a particular provision, the presumption must be that no such limitation was intended."). At first blush, the Capozzi language seems inconsistent with the Seventh Circuit's Lantz opinion. But it's not. Capozzi was rejecting creating or borrowing a limitations period to restrict action by the IRS while Lantz approved creating or borrowing a limitations period to restrict action by taxpayers. Some may think this distinction to be unfair, but it just reflects the fact that the Government (but not taxpayers) is protected by sovereign immunity unless and to the extent that it waives it.
- The Seventh Circuit intoned the traditional boilerplate that specific-authority regulations receive greater deference than general-authority regulations. However, the court spoke about deference to all tax regulations, including general-authority regulations, so expansively that it's hard to see that, as a practical matter, there are cases in which specific-authority regulations would be upheld but the same regulations, if general-authority in nature, would be invalidated.