dissenting: This case presents the issue of whether one of the guiding principles of administrative law — the record rule — governs our review of a decision by the Commissioner to deny relief under section 6015(f). The majority concludes that it does not. That conclusion is potentially of great significance because it will likely affect the manner in which we decide other types of cases arising under our expanding nondeficiency jurisdiction.1 Because the majority’s conclusion is contrary to settled principles of administrative law regarding the proper scope of judicial review, and because it misapplies the abuse of discretion standard of review, we respectfully dissent.
Before proceeding, it is important to distinguish between two concepts — “scope of review” and “standard of review”— that delimit judicial review of agency action. As succinctly stated by the U.S. Court of Appeals for the Tenth Circuit:
The scope of judicial review refers merely to the evidence the reviewing court will examine in reviewing an agency decision. The standard of judicial review refers to how the reviewing court will examine that evidence. [Franklin Sav. Association v. Office of Thrift Supervision, 934 F.2d 1127, 1136 (10th Cir. 1991) (emphasis added).]
The majority concludes that the appropriate scope of review in section 6015(f) cases is “de novo”. Used to describe a reviewing court’s scope of review, the term “de novo” signifies that the court is not limited to reviewing the administrative record; rather, the parties are free to create a new evidentiary record upon which the reviewing court will base its decision.2 As for the appropriate standard of review in this case, the parties agree that we should review respondent’s denial of section 6015(f) relief for abuse of discretion. We discuss the disputed scope of review in Part I, and we discuss the majority’s application of the undisputed standard of review in Part II.
I. Our Scope of Review Should Be Limited to the Administrative Record
A. Introduction
1. Identifying the Issue
The specific issue in this case is whether, in reviewing respondent’s decision to deny section 6015(f) relief to petitioner, we (1) are limited by the record rule to consideration of the administrative record, as respondent contends, or (2) may consider evidence adduced at trial, as petitioner contends.3 Following respondent’s lead, the majority opinion and concurring opinion largely frame that issue in terms of whether the judicial review provisions of the Administrative Procedure Act (apa), 5 U.S.C. secs. 701-706 (2000), apply to proceedings in this Court. That characterization is somewhat overbroad, as should be evident from the following introductory discussions of the record rule and the APA. Whether couched in terms of the record rule or the APA, the dispositive inquiry in this case is whether Congress intended our review of respondent’s section 6015(f) determinations to be effected by means of de novo proceedings.
2. Section 6015(f)
Section 6015(f) provides that, if a joint filer does not qualify for relief from joint and several liability under section 6015(b) or (c), the Secretary may, under procedures prescribed by him, grant such relief on equitable grounds. We have jurisdiction to review the Commissioner’s decisions under section 6015(e). Fernandez v. Commissioner, 114 T.C. 324, 330-331 (2000). We have previously held that we review such decisions for abuse of discretion. E.g., Jonson v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181 (10th Cir. 2003). We adopted that standard on the basis of previous Opinions of this Court considering discretionary authority of the Commissioner (i.e., we did so apart from any consideration of the APA judicial review provisions). See id.; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002).
3. The Record Rule
The record rule refers to the general rule of administrative law that a court can engage in judicial review of an agency action based only on consideration of the record amassed by the agency (the administrative record). 2 Pierce, Administrative Law Treatise, sec. 11.6, at 822 (4th ed. 2002). Of course, in situations where Congress has provided for de novo proceedings in the reviewing court, the record rule by its terms does not apply. On the other hand, “in cases where Congress has simply provided for review, without setting forth the standards to be used or the procedures to be followed, this Court [the Supreme Court] has held that consideration is to be confined to the administrative record and that no de novo proceeding may be held.” United States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963) (citing pre-APA cases).4 Similarly, standards of review such as “arbitrary” and “capricious” (terms we have associated with the abuse of discretion standard we adopted for section 6015(f) cases, see Jonson v. Commissioner, supra at 125) have consistently signified a review limited to the administrative record. United States v. Carlo Bianchi & Co., supra at 715. Thus, regardless of the applicability of the APA in this case, the record rule seemingly would apply unless “abuse of discretion” means something different in tax law than it does elsewhere.
4. Administrative Procedure Act
Chapter 7 of the APA, 5 U.S.C. secs. 701-706 (2000), provides rules for judicial review of agency action. The relevant provision for our purposes is APA section 706(2), which lists various circumstances in which a reviewing court must set aside agency action. Two subparagraphs of APA section 706(2) are important here: subparagraph (A), requiring a reviewing court to reverse agency action that it finds is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”; and subparagraph (F), requiring a reviewing court to reverse agency action that it finds is “unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.”5 The Supreme Court has confirmed the applicability of the record rule in cases where APA section 706(2)(A) provides the appropriate standard of review. See Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743-744 (1985); Camp v. Pitts, 411 U.S. 138, 142 (1973); see also Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 162 (D.C. Cir. 2003); Beno v. Shalala, 30 F.3d 1057, 1073-1074 (9th Cir. 1994). Conversely, in cases that fall into the de novo category of APA section 706(2)(F), the record rule by its terms does not apply.
B. Applicability of the APA
1. The Majority Opinion
Although, as discussed above, the issue is not necessarily dispositive, we begin by addressing the majority’s conclusion that the judicial review provisions of the APA are inapplicable in this case. The majority begins with the premise that “[i]t is well established that the APA does not apply to deficiency cases in this Court; that is, cases arising under section 6213 or 6214 in which we may redetermine the taxpayer’s tax liability.” Majority op. p. 37. The majority then concludes that it “[finds] no convincing reason to treat our determinations under section 6015(f) and section 6213(a) differently for purposes of applicability of the APA.” Majority op. p. 37.
2. Applicability of the APA to Deficiency Cases in This Court
We disagree with the majority’s premise that the judicial review provisions of the APA do not apply to ordinary deficiency cases in this Court. It is undoubtedly true that the record rule does not apply to such cases. That is not the consequence of an implied exemption from the APA; rather, it is the consequence of the application of APA section 706(2)(F), which, as discussed above, provides that a reviewing court shall set aside agency action that is “unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.” Both the House report and the Senate report accompanying the APA point to “tax assessments”, which “may involve a trial of the facts in the Tax Court”, as an example of the type of agency action to which APA section 706(2)(F) applies. S. Rept. 752, 79th Cong., 1st Sess. 28 (1945); H. Rept. 1980, 79th Cong., 2d Sess. 45 (1946). Thus, while it may be accurate to say that the enactment of the APA had no practical effect on our scope of review in deficiency cases, the majority’s claim that the APA “does not apply” to such cases is erroneous.6
In support of its premise that the judicial review provisions of the APA do not apply to deficiency cases in this Court, the majority primarily relies on O’Dwyer v. Commissioner, 266 F.2d 575 (4th Cir. 1959), affg. 28 T.C. 698 (1957).7 The taxpayer in O’Dwyer sought to compel the IRS to produce its entire administrative file, based in part on language in APA section 706 directing the reviewing court to “review the whole record”. Id. at 578-580. Perhaps out of concern that judicial review of the “whole record” within the meaning of APA section 706 would be inconsistent with the established Tax Court practice of not “looking behind” statutory notices of deficiency,8 the court felt compelled to conclude that the Tax Court is not a reviewing court for purposes of the APA. Id. at 580. The court based that conclusion on the premise that the APA judicial review provisions (apa sections 701-706) apply only to “formal” adjudications (i.e., those subject to the procedures set forth in APA sections 554, 556, and 557). Id. Given subsequent caselaw establishing that the judicial review provisions of the APA apply to informal, as well as formal, adjudications, e.g., Fla. Power & Light Co. v. Lorion, supra at 744, the continuing relevance of the APA discussion in O’Dwyer is dubious at best.9
3. Applicability of the APA to Section 6015(f) Cases
Given the legislative history discussed above (and the questionable relevance of the ODwyer case), the majority’s premise that the judicial review provisions of the APA do not apply to deficiency cases in this Court cannot stand. Furthermore, APA section 559 would seem to preclude the possibility that such provisions do not apply to our relatively new jurisdiction to review section 6015(f) adjudications: “[A] [subsequent statute may not be held to supersede or modify * * * chapter 7 * * * except to the extent that it does so expressly.” Section 6015(e), of course, makes no mention of the APA (or the appropriate standard or scope of review, for that matter). We would therefore hold that the APA judicial review provisions apply to section 6015(f) cases as well as deficiency cases.
C. APA Section 706(2)(A) vs. APA Section 706(2)(F)
1. The Majority Opinion
Assuming the applicability of the APA judicial review provisions in this case, the relevant inquiry becomes whether Congress intended (as it clearly did in the context of deficiency proceedings) our review of section 6015(f) adjudications to fall into the “trial de novo” category of APA section 706(2)(F). The majority, while framing the issue in terms of the propriety of de novo proceedings rather than the applicability of APA section 706(2)(F), concludes that “Congress intended that we provide an opportunity for a trial de novo in making our determinations under section 6015(f).” Majority op. p. 39. The majority bases that conclusion on the similarity between the words “determine” and “redetermination” appearing in sections 6015(e) and 6213(a), respectively. Specifically, the majority reasons that: (1) Section 6213(a), which establishes our jurisdiction over deficiency cases, uses the term “redeter-mination”, and (2) deficiency cases in this Court are decided by trial de novo, so (3) section 6015(e), which uses the term “determine”, must reflect a congressional intent for us to review section 6015(f) adjudications by trial de novo. In other words, the majority assumes that, when Congress uses the word “determine” (or a variation thereof) in the context of Tax Court review, such word signifies a trial de novo.
, 2. Use of the Word “Determine” in Section 6015(f) Does Not Signify De Novo Proceedings
a. Legislative History of Other Tax Provisions
The legislative history of certain declaratory judgment provisions of the Code contradicts the majority’s assumption regarding Congress’s use of the word “determine”. As the majority recognizes, this Court has jurisdiction to issue declaratory judgments in several situations. Majority op. p. 39 note 7. For example, we have jurisdiction under section 7476 to make a declaration with respect to the initial or continuing qualification of certain retirement plans. In that regard, we have stated that “it is clear that Congress did not expect the Tax Court to conduct a trial de novo and make an independent examination of the facts to determine if the subject plan was qualified.” Tamko Asphalt Prods., Inc. v. Commissioner, 71 T.C. 824, 837 (1979), affd. 658 F.2d 735 (10th Cir. 1981); see also Rule 217(a) and Explanatory Note, 68 T.C. 1031, 1047. While the majority notes that section 7476 authorizes us to make a “declaration” rather than a “determination”, majority op. p. 39 note 7, the House report explaining section 7476 describes the provision in part as follows:
The Court is to base its determination upon the reasons provided by the Internal Revenue Service in its notice to the party making the request for a determination, or based upon any new matter which the Service may wish to introduce at the time of the trial.t10! The Tax Court judgment, however, is to be based upon a redetermination of the Internal Revenue Service’s determination and not on a general examination of the provisions of the plan or related trust. * * *
* * * In order to provide the Court with flexibility in carrying out this provision, the bill authorizes the Chief Judge of the Tax Court to assign the Commissioners of the Tax Court to hear and make determinations with respect to petitions for a declaratory judgment, subject to such conditions and review as the Court may provide.
[H. Rept. 93-779 at 107, 108 (1974), 1974^3 C.B. 244, 350, 351 (emphasis added).]
See also S. Rept. 93-383 at 114, 115 (1974), 1974-3 C.B. (Supp.) 80, 193, 194 (similar). Similar language appears in committee reports describing section 7428 (declaratory judgments relating to section 501(c)(3) status) and former section 7477 (declaratory judgments relating to section 367 transfers). See H. Rept. 94-658 at 244, 245, 285, 288 (1975), 1976-3 C.B. (Vol. 2) 695, 936, 937, 977, 980; S. Rept. 94-938, at 266, 267, 588, 591 (1976), 1976-3 C.B. (Vol. 3) 49, 304, 305, 626, 629. The foregoing would seem to deflate the notion that Congress equates the word “determine” (and variations thereof) with de novo proceedings in the context of Tax Court review.
b. Use of the Word “Determination” Elsewhere
Congress’s use of the word “determination” in a similar, nontax context is also instructive. Section 636(b)(1) of the Federal Magistrates Act, 28 U.S.C. secs. 631-639 (2000), provides that, in the case of certain “dispositive” motions assigned to a magistrate, a district judge “shall make a de novo determination of those portions of the [magistrate’s] report” to which objection is made. In interpreting that provision, the Supreme Court stated:
It should be clear that on these dispositive motions, the statute calls for a de novo determination, not a de novo hearing. We find nothing in the legislative history of the statute to support the contention that the judge is required to rehear the contested testimony in order to * * * make the required “determination.” * * * [United States v. Raddatz, 447 U.S. 667, 674 (1980).]
The Court quoted the following language from the House report accompanying the bill that became the Federal Magistrates Act:
The use of the words “de novo determination” is not intended to require the judge to actually conduct a new hearing on contested issues. Normally, the judge, on application, will consider the record which has been developed before the magistrate and make his own determination on the basis of that record, without being bound to adopt the findings and conclusions of the magistrate. * * * [Id. at 675 (quoting H. Rept. 94-1609, at 3 (1976)).]
Thus, Congress has used the phrase “de novo determination” in the context of other (nontax) trial court proceedings to signify an independent determination (i.e., without deference to the result reached by the initial decisionmaker) by the trial court that is nonetheless based on the record developed by the initial decisionmaker.11
D. The “Abuse of Discretion” Standard of Review in Tax Court Proceedings
1. The Majority Opinion
The majority acknowledges that the standard of review in this case is abuse of discretion. As discussed above at I.A.3., regardless of the applicability of the APA, the abuse of discretion standard traditionally has been associated with the application of the record rule. The majority therefore is forced to take the position that the abuse of discretion standard of review has different evidentiary consequences in the context of Tax Court review than it does elsewhere: “The traditional effect of applying an abuse of discretion standard in this Court is to alter the standard of review, not to restrict what evidence we consider in making our determination.” Majority op. p. 39. The majority proceeds to list six examples of situations in which we have conducted trials de novo to determine whether the Commissioner has abused his discretion: (1) Section 446 cases, (2) section 482 cases, (3) review of the Commissioner’s refusal to waive penalties and additions to tax, (4) review of interest abatement denials, (5) review of the Commissioner’s refusal to grant filing extensions, and (6) review of the Commissioner’s disallowance of a bad debt reserve deduction. Majority op. pp. 40-41.
2. Distinguishing the Majority’s Examples
In all but one of the majority’s examples regarding de novo proceedings in the context of this Court’s abuse of discretion review, the Commissioner’s exercise of discretion is relevant to his determination of the existence or amount of a deficiency in tax or an addition to tax that is subject to our deficiency jurisdiction.12 Our opinion in Estate of Gardner v. Commissioner, 82 T.C. 989, 999, 1000 (1984), is instructive in that regard:
However, once our deficiency jurisdiction has been properly invoked, we will examine de novo the merits of respondent’s deficiency determinations, including his exercise of discretion under section 6081 [filing extension], to the extent that the alleged deficiency and any addition to tax within our deficiency jurisdiction (see sec. 6662) [now section 6665] turn upon respondent’s discretionary actions. * * *
* * * Rather, our review of respondent’s denial of an extension of time to file the estate tax return in this case is necessary for us to determine the merits of respondent’s substantive determination of a deficiency. Here the sole reason for denial of the section 2032A special use election (and hence the basis for the major portion of the asserted deficiency) is the assertion that the estate tax return was not timely filed.
The approach suggested by Estate of Gardner (albeit in the context of whether the Commissioner’s discretion under section 6081 is reviewable at all) is an appropriate and workable means of determining whether our review of an exercise of discretion by the Commissioner is properly the subject of a trial de novo. Applying that test to section 6015(f), the Commissioner’s exercise of discretion under that provision is not relevant to his determination of the existence or amount of a deficiency in tax or an addition to tax that is subject to our deficiency jurisdiction.13 Accordingly, we would hold that this Court’s review of such adjudications is not properly the subject of de novo proceedings.
E. Procedural Consistency
1. In General
The majority opinion states that “[a]doption of respondent’s position would lead to the anomaly of proceedings in some section 6015(f) cases on the basis of the Commissioner’s administrative record and trials de novo in others.” Majority op. p. 42. Assuming that a trial de novo would be appropriate in certain circumstances, see sec. 6015(e)(l)(A)(i)(II),14 we maintain that a de novo determination of eligibility for section 6015(f) relief on one hand, and a review of the Commissioner’s denial of such relief for abuse of discretion on the other, are two fundamentally different judicial exercises for which different procedures are entirely appropriate.
2. Nonrequesting Spouses
We also disagree with the majority’s conclusion that “[t]he fact that Congress provided for intervention by nonrequest-ing spouses in the Tax Court proceeding suggests Congress intended that we conduct trials de novo in making our determinations under section 6015(f)”. Majority op. p. 43. There are numerous examples in administrative law where third parties are allowed to intervene in judicial proceedings involving the review of agency action. See, e.g., Didrickson v. United States Dept. of Interior, 982 F.2d 1332 (9th Cir. 1992). We are not aware of any cases holding that such third parties may introduce matters outside the scope of the relevant administrative record. Cf. Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 549-555 (1978) (upholding Atomic Energy Commission’s refusal to consider conservation alternatives raised by intervenor subsequent to initial licensing decision).
F. Conclusion
We conclude that our scope of review in this case should be limited to the administrative record.
II. Misapplying the Abuse of Discretion Standard
A. Introduction
While we disagree with the majority’s conclusion that the scope of review — a trial de novo — is correct, we recognize that the Court has previously adopted abuse of discretion as the standard of review for section 6015(f) cases. See, e.g., Jonson v. Commissioner, 118 T.C. at 125. Courts generally hold that a decisionmaker abuses his discretion “when it makes an error of law * * * or rests its determination on a clearly erroneous finding of fact * * * [or] applies the correct law to facts which are not clearly erroneous but rules in an irrational manner.” United States v. Sherburne, 249 F.3d 1121, 1125-1126 (9th Cir. 2001); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 402-403 (1990) (same).
The majority describes the abuse of discretion standard as follows: “The taxpayer bears a heavy burden of proof, the Commissioner’s position deserves our deference, and we do not interfere unless the Commissioner’s determination is arbitrary, capricious, clearly unlawful, or without sound basis in fact or law.” Majority op. p. 39. Accepting the majority at its word — the proper approach is de novo review, applying an abuse of discretion standard, majority op. p. 43— we fail to see how the majority has done anything other than ignore its description of the abuse of discretion standard and, instead, substitute its judgment for respondent’s, both as to the procedures prescribed by the Secretary pursuant to section 6015(f) and respondent’s determination of various factual issues in this case. .
B. New Standards
Properly applied, abuse of discretion review recognizes that Congress intended agencies to have considerable leeway in setting standards. Unless those standards are in some way contrary to the statute and so constitute “an error of law”, courts should respect them and not substitute their own. We are bound by the following rule of deference:
Federal courts must defer to any reasonable interpretation given to the statute by the agency charged with its administration, as well as to the agency’s interpretations and application of its regulations and policies in carrying out its statutory duties, unless plainly erroneous. [Wilkins v. Lujan, 995 F.2d 850, 853 (8th Cir. 1993) (citation and internal quotation marks omitted).]
See also Citizens Action League v. Kizer, 887 F.2d 1003 (9th Cir. 1989). Section 6015(f) instructs the Secretary to prescribe procedures for exercising his discretion to provide equitable relief under that section. The Secretary has prescribed the required procedures in Rev. Proc. 2000-15, 2000-1 C.B. 447. Section 4 of the revenue procedure is entitled “General Conditions for Relief”. Section 4.01 thereof lists certain necessary (“threshold”) conditions for relief; section 4.02 lists circumstances under which the Secretary will ordinarily grant equitable relief; and section 4.03, among other things, lists the factors that the Secretary will consider in determining whether he will grant equitable relief in situations where he would not ordinarily grant it under section 4.02. While the majority does not disregard the general conditions listed in section 4 of the revenue procedure, it does not defer to them, treating them, rather, as suggestions, to be respected to the extent that the majority agrees with them.
The majority substitutes its standards for the Secretary’s in at least three ways:
(1) The Secretary does not regard the requesting spouse’s lack of significant benefit from an unpaid liability as weighing in favor of relief. The majority does. Majority op. pp. 44-45;
(2) the Secretary does not regard the failure of a requesting spouse to participate in wrongdoing as weighing in favor of relief. The majority does. Majority op. pp. 46-47;
(3) the Secretary does not regard the fact of a requesting spouse’s status as a newlywed as weighing in favor of relief. The majority does. Majority op. p. 49.
The majority’s standards may be reasonable, but since the majority has made no finding that the Secretary’s are not, we should not substitute ours for his. Whatever force the majority attaches to the abuse of discretion standard under which it labors, that force is not apparent in the majority’s treatment of the Secretary’s prescription in Rev. Proc. 2000-15, supra, of the conditions required for relief under section 6015(f).
C. Commissioner’s Judgment
Moreover, we fail to see how the abuse of discretion standard has any force in connection with the majority’s review of respondent’s fact findings. We are principally concerned by the majority’s failure to defer to respondent’s findings on perhaps the two most important facts that the majority cites in favor of relief — the supposed economic hardship petitioner would suffer were relief not granted, and her supposed lack of knowledge that her husband would not pay his 1995 tax liability under the terms of an installment agreement.
With respect to economic hardship, the majority contradicts respondent’s finding that petitioner had enough assets and income from which to pay the unpaid tax for 1995 and that she failed to show she would suffer economic hardship if relief were denied. Among the facts that the majority finds are: (1) In 2002, petitioner received wages of $79,000, (2) she owned a house in which, at least in 2002, she had equity of $33,000, (3) at the time of trial, she had $13,500 in a savings account, and (4) at the time of trial, she owned a 401(k) retirement account of undetermined amount. Certainly, she had expenses in caring for Mr. Wiwi, but the majority does not tell us what they are. Based on the majority’s findings, it appears that the 1995 unpaid tax is no more than $6,220 (increased by interest). We fail to see how respondent’s finding that petitioner would suffer no economic hardship if relief were denied runs afoul of the majority’s recitation of the abuse of discretion standard: “arbitrary, capricious, clearly unlawful, or without sound basis in fact or law.”15 Majority op. p. 39.
With respect to petitioner’s knowledge, the majority contradicts respondent’s finding that, when petitioner signed the 1995 return, she knew or had reason to know that Mr. Wiwi would not pay the tax for 1995, and that it was not reasonable for petitioner to believe that Mr. Wiwi would pay the tax. The majority finds: “Mr. Wiwi told petitioner * * * that he would pay the unpaid 1995 tax as provided in a proposed installment agreement that he submitted with their 1995 income tax return.” Majority op. p. 34. In finding that petitioner reasonably believed that Mr. Wiwi would pay the tax owed, the majority states:
Mr. Wiwi concealed from petitioner until 1998 that he had failed to pay the unpaid 1995 tax. During those years petitioner did not know and had no reason to know of Mr. Wiwi’s failure to pay that tax. This fit his pattern of deception; Mr. Wiwi had also concealed from her that he owed tax for 1993 and 1994. Respondent offered no contrary evidence on this factor. We conclude that this factor favors petitioner. [Majority op. p. 48 (emphasis added).]
The time for testing petitioner’s belief is when she signed the 1995 return. See majority op. p. 47. At that time, petitioner knew what Mr. Wiwi would not presently pay the unpaid tax. He told her that he would pay the tax pursuant to a “proposed” installment agreement that he was submitting with their joint return. The Commissioner, however, is not obligated to accept an installment agreement. See sec. 6159.
The majority finds nothing to establish petitioner’s evaluations of the probabilities that: (1) The proposed installment agreement would be accepted or (2) Mr. Wiwi could immediately pay the unpaid tax if the proposed installment agreement were rejected. Indeed, the majority’s failure to find that an installment agreement was accepted leads us to believe either that Mr. Wiwi did not actually submit the agreement or that respondent rejected it.16 More importantly, while we acknowledge that reasonable persons could draw different inferences from that portion of the factual record, we do not understand how the majority can conclude that respondent abused his discretion in finding that it was not reasonable for petitioner to believe that Mr. Wiwi would pay the unpaid tax at the time she signed the return.
D. Conclusion
The majority has failed to convince us that respondent’s ultimate finding of fact — that petitioner was not entitled to equitable relief — was “arbitrary, capricious, clearly unlawful, or without sound basis in fact or law”; in other words, an abuse of discretion. See majority op. p. 39.
III. Conclusion
We close by returning to our first point: The scope of our review of the Commissioner’s denial of section 6015(f) relief should be limited to the administrative record, since the Tax Court is not exempt from the ordinary principles of administrative law that bind other courts reviewing agency action. Had the majority so limited the scope of its review, and had it then examined respondent’s denial of relief to petitioner pursuant to a correct application of the abuse of discretion standard, to determine whether it was “arbitrary, clearly unlawful, or without sound basis in fact or law”, we believe that respondent would have prevailed.
See, e.g., secs. 6404(h) (review of interest abatement denials), 6330(d) (review of collection due process determinations). This “review” jurisdiction has become an increasingly large part of our caseload over the last decade.
In the context of a court’s standard of review, the term “de novo” signifies that the reviewing court need not give any deference to the decision reached by the administrative agency; that is, the reviewing court may substitute its judgment for that of the agency (even if such court’s scope of review is the administrative record). See 2 Childress & Davis, Federal Standards of Review, sec. 15.02, at 15-3 to 15-4 (3d ed. 1999).
Judge Colvin, the trier of fact in this case, conducted a trial de novo with the understanding that the subsequent resolution of the record rule’s application would determine whether he could properly consider the evidence adduced at trial in resolving the sec. 6015(f) issue.
The record rule predates, and indeed is not codified in, the APA, which was enacted in 1946. See, e.g., Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 443 (1930); see also 2 Pierce, Administrative Law Treatise, sec. 11.6, at 823 (4th ed. 2002).
Subpars. (B) through (D) of APA sec. 706(2) relate to agency action that is unconstitutional, outside the agency’s scope of authority, or procedurally defective. Subpar. (E) relates to “formal” agency action (i.e., action that is statutorily required to be determined on the record after opportunity for an agency hearing, see APA sec. 554(a)) that is not supported by substantial evidence.
The distinction is important in terms of context. Once it is conceded that the Tax Court has never been “exempt” from the APA judicial review provisions, our conclusion that those provisions have practical consequences in relation to our recently granted jurisdiction to review sec. 6015(f) adjudications does not seem revolutionary.
The majority also cites Nappi v. Commissioner, 58 T.C. 282 (1972). In Nappi, the Court simply concluded that the Tax Court is not an “agency” that is subject to the administrative procedure (as opposed to judicial review) provisions of the APA (APA secs. 551-559). Id. at 284.
To the extent the Court was so concerned, such concern appears to have been unfounded. See S. Rept. 752, 79th Cong., 1st Sess. 28 (1945); H. Rept. 1980, 79th Cong., 2d Sess. 46 (1946) (stating that the requirement of review upon the whole record means simply “that courts may not look only to the case presented by one party, since other evidence may weaken or even indisputably destroy that case”).
In his concurring opinion, Judge Thornton supplements his reliance on the O’Dwyer case with statutory analysis. He implies that the import of APA sec. 704 (which provides in part that “agency action for which there is no other adequate remedy in a court are subject to judicial review”) is that, where there is an existing “adequate remedy in court”, the APA is inapplicable. Concurring op. p. 50. However, as Judge Thornton himself recognizes, the Supreme Court has characterized the import of the above-quoted portion of APA sec. 704 as follows: “When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend * * * to duplicate the previously established special statutory procedures relating to specific agencies.” Bowen v. Massachusetts, 487 U.S. 879, 903 (1988). Thus, for example, a taxpayer who disagrees with a deficiency notice does not have a separate cause of action in Federal District Court under the APA. It does not follow that the APA is “inapplicable” to deficiency cases (see discussion of APA sec. 706(2)(F) above). Similarly, in Beall v. United States, 336 F.3d 419 (5th Cir. 2003), another case cited by Judge Thornton which refers to the Bowen discussion of APA sec. 704, the court merely made the technical point that the taxpayer’s interest abatement claim was cognizable as a refund suit under sec. 7422 rather than as a separate cause of action under the APA. Id. at 427 n.9.
“In raising new matters in a declaratory judgment proceeding under section 7476, the matters are to be based on information contained in the administrative record, not on facts gathered after the administrative record has closed.” Halliburton Co. v. Commissioner, T.C. Memo. 1992-533.
In his concurring opinion, supra p. 52, Judge Thornton concludes that the following statutory language renders our pre-APA de novo trial procedures applicable to sec. 6015(f) cases: “This subchapter, [and] chapter 7 * * * do not limit or repeal additional requirements imposed by statute or otherwise recognized by law.” APA sec. 559. We agree that the enactment of the APA in 1946 did not preempt this Court’s existing de novo trial procedures. See supra note 6 and accompanying text; see also supra note 9. We do not agree that our jurisdiction to review sec. 6015(f) adjudications, created in 1998, can be stitched to our pre-APA deficiency jurisdiction for these purposes. Specifically, we emphatically do not agree that sec. 6015 is “part and parcel” of the “specific statutory framework for reviewing deficiency determinations of the Internal Revenue Service.” Concurring op. p. 52; see infra discussion at I.D.2.
The one exception involves our jurisdiction (conferred in 1996) to review interest abatement adjudications. The majority opinion cites three recent interest abatement cases (each the subject of a Memorandum Opinion) in which we conducted trials de novo. Majority op. p. 38. While the issue is not before us today, we would conclude that, for the same reasons discussed herein, our review of the Commissioner’s interest abatement denials is not properly the subject of de novo proceedings.
That is true even when the taxpayer seeks review of the Commissioner’s denial of sec. 6015(0 relief as part of a deficiency case. In that situation, the Commissioner’s exercise of discretion may determine the taxpayer’s liability for any deficiency ultimately assessed but has no bearing on the existence or amount of that deficiency. If a taxpayer were to challenge the Commissioner’s denial of relief in a subsequent deficiency proceeding, we see no reason why we could not conduct a trial de novo regarding the existence or amount of the deficiency while disposing of any sec. 6015(f) denial on the basis of its administrative record.
The majority cites Butler v. Commissioner, 114 T.C. 276 (2000), in support of the proposition that, if a taxpayer challenges the Commissioner’s denial of sec. 6015(f) relief in a subsequent deficiency proceeding, the trial de novo with respect to the deficiency extends to our disposition of the sec. 6015(f) issue. As explained in note 13, we disagree. The Court, of course, did not address that issue in Butler.
Petitioner’s first lawyer even admitted in his first meeting with respondent’s Appeals Office that his client would not suffer economic hardship were relief not granted. Ex. 10-R at 113.
The administrative record shows no installment agreement, either attached to the return or separate, either in draft or in final form. Indeed, the only mention of an installment agreement is the notation “no installment agreement” in the notes of the Appeals officer from petitioner’s second Appeals conference. Ex. 10-R at 105.