Octavia C. Jones v.  Commissioner of Internal Revenue

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 OCTAVIA C. JONES,
Petitioner-Appellee,
v. No. 10-1985 
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellant. 
Appeal from the United States Tax Court.
(Tax Ct. No. 17359-08)
Argued: May 12, 2011
Decided: June 13, 2011
Before WILKINSON, NIEMEYER, and KEENAN,
Circuit Judges.
Reversed and remanded by published opinion. Judge
Niemeyer wrote the opinion, in which Judge Wilkinson and
Judge Keenan joined.

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COUNSEL
ARGUED: Teresa E. McLaughlin, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appel-
lant. Timothy Lee Jacobs, HUNTON & WILLIAMS, LLP,
Washington, D.C., for Appellee. ON BRIEF: John A.
DiCicco, Acting Assistant Attorney General, Steven Parks,
UNITED STATES DEPARTMENT OF JUSTICE, Washing-
ton, D.C., for Appellant.
OPINION
NIEMEYER, Circuit Judge:
This case presents the question of whether Treasury Regu-
lation § 1.6015-5(b)(1), 26 C.F.R. § 1.6015-5(b)(1), establish-
ing a two-year limitations period within which to request
equitable innocent spouse relief from joint and several income
tax liability under I.R.C. § 6015(f), is a valid regulation.
Robert and Octavia Jones filed a joint income tax return for
the year 2000. After they legally separated, the IRS audited
the return and assessed a deficiency, which Robert Jones
agreed to discharge through an installment payment plan.
When he defaulted, however, the IRS began efforts to collect
the deficiency from both Robert and Octavia Jones.
More than two years after the IRS first began its collection
activities, Octavia Jones requested innocent spouse relief from
her tax liability under I.R.C. § 6015(f). While the IRS agreed
that Octavia would otherwise qualify for such relief, it denied
relief because she made her request more than two years after
the IRS began collection activities and Regulation § 1.6015-
5(b)(1) precludes relief in a situation, like the one in this case,
where the applicant requests relief more than two years after
the IRS began collection activities.
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On her petition to the Tax Court, however, the Tax Court
ruled that Regulation § 1.6015-5(b)(1) was invalid for the rea-
sons it had given earlier in Lantz v. Commissioner, 132 T.C.
131 (2009). The court thus granted Octavia Jones relief from
all tax liability in excess of $450. The Commissioner of Inter-
nal Revenue appealed.
Under the analytical framework established by Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837 (1984), we conclude that I.R.C. § 6015 is ambiguous
with regard to any limitations period applicable to § 6015(f)
and that Treasury Regulation § 1.6015-5(b)(1), fixing a two-
year limitations period within which to request relief under
§ 6015(f), constitutes a permissible interpretation of the stat-
ute. Because we conclude that the regulation is valid, we
reverse the judgment of the Tax Court and remand for further
proceedings.
I
As a general matter, taxpayers filing joint income tax
returns are jointly and severally liable for any tax liability that
arises from their filings and returns. See I.R.C. § 6013(d)(3).
Aware that this liability can sometimes cause inequitable and
harsh results to innocent spouses, Congress set out a means to
permit an innocent spouse to obtain relief from this liability.
Section 6015(b) of the Tax Code provides relief from tax lia-
bility for an individual, who was a joint filer but did not know
or have reason to know that there was an understatement on
the tax return. Section 6015(c) provides similar relief when
the joint filers are legally separated or no longer married
unless the IRS shows that the would-be innocent spouse had
"actual knowledge of any item giving rise to the deficiency."
I.R.C. § 6015(c)(3)(C). The relief available under both
§ 6015(b) and § 6015(c) must be sought within two years of
the IRS’s first collection activity. See I.R.C. §§ 6015(b)(1)(E),
6015(c)(3)(B). If relief is not available under subsection (b)
or subsection (c), a joint taxpayer may also seek equitable
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relief under § 6015(f), which authorizes the Secretary of the
Treasury to grant the innocent spouse relief from any unpaid
tax or any deficiency when holding otherwise would be "ineq-
uitable." Subsection (f) contains no limitations period within
which to seek the equitable relief.
In regulations implementing § 6015, the Secretary promul-
gated Treasury Regulation § 1.6015-5(b)(1), which imposes a
two-year limitations period in which relief requested under
6015(f) must be sought. The regulation provides in part, "[A]
requesting spouse must file Form 8857 or other similar state-
ment with the Internal Revenue Service no later than two
years from the date of the first collection activity against the
requesting spouse . . . with respect to the joint tax liability."
26 C.F.R. § 1.6015-5(b)(1).
Octavia Jones contends that Treasury Regulation § 1.6015-
5(b)(1) is invalid for the reasons given by the Tax Court. The
Commissioner contends that the regulation fixing a limita-
tions period fills a gap in the Tax Code and is a permissible
interpretation of I.R.C. § 6015.
II
Octavia Jones separated from her husband, Robert Jones, in
September 2000, and, under the couple’s separation agree-
ment, the couple filed a joint tax return for the year 2000.
Robert Jones prepared the return, which claimed a loss from
his business and a refund in taxes in the amount of $6,464.
After an audit of the return, however, the IRS determined that
there were errors in the return and, on July 25, 2002, assessed
a deficiency in the amount of $7,630, including interest. To
pay the deficiency, Robert Jones entered into an installment
agreement with the IRS. But when he filed for bankruptcy in
April 2005, he defaulted, and the IRS began collection efforts.
The IRS sent both Robert and Octavia Jones a notice of
default on August 1, 2005, notifying them of its intent to levy
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on their property. In January 2008, Octavia Jones’ bank for-
warded to her an IRS levy on her account, and, shortly there-
after on January 31, 2008, she filed Form 8857, requesting
innocent spouse relief under I.R.C. § 6015(f). At the time, the
outstanding balance on the couple’s tax liability had increased
to $11,957 by reason of interest and penalties. The IRS denied
Octavia Jones’ request for innocent spouse relief by letter
dated April 21, 2008, advising her that her request was made
beyond the two-year limitations period contained in Treasury
Regulation § 1.6015-5(b)(1). Octavia Jones then filed this
petition for relief with the Tax Court, in July 2008.
The Commissioner and Jones stipulated that Jones would
be entitled to equitable innocent spouse relief but for the fact
that she made her request more than two years after the IRS’s
first collection activities. On cross-motions for summary judg-
ment, the Tax Court, by judgment dated May 28, 2010, denied
the Commissioner’s motion for summary judgment and
granted Jones’ motion, holding that the Treasury Regulation
was invalid for the reasons it gave in Lantz v. Commissioner,
132 T.C. 131 (2009) [hereafter Lantz I], even though that
decision was reversed by the Seventh Circuit in Lantz v. Com-
missioner, 607 F.3d 479 (7th Cir. 2010) [hereafter Lantz II].
The Commissioner appeals the Tax Court’s judgment,
requesting that we join the Seventh Circuit’s decision in Lantz
II and the Third Circuit’s subsequent decision in Mannella v.
Commissioner, 631 F.3d 115 (3d Cir. 2011), which followed
Lantz II in holding the regulation valid. The sole question
presented is whether I.R.C. § 6015 is ambiguous and the Sec-
retary acted reasonably in promulgating Treasury Regulation
§ 1.6015-5(b)(1), fixing a two-year limitations period for
seeking equitable innocent spouse relief under I.R.C.
§ 6015(f).
III
The Tax Court’s judgment is based solely on the reasons it
gave in Lantz I, where it found Treasury Regulation 1.6015-
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5(b)(1) invalid, concluding that Congress, in failing to provide
a limitations period for relief under § 6015(f), communicated
unambiguously its intent not to provide a limitations period
for such relief, and therefore any regulation providing one
was inconsistent with Congress’ intent. In Lantz I, the Tax
Court explained:
We find that by explicitly creating a 2-year limita-
tion in subsections (b) and (c) but not subsection (f),
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.
* * *
Had Congress intended a 2-year period of limitations
for equitable relief, then of course it could have eas-
ily included in subsection (f) what it included in sub-
sections (b) and (c). However, Congress imposed no
deadline, yet the Secretary prescribed a period of
limitations identical to the limitations Congress
imposed under § 6015(b) and (c).
Lantz I, 132 T.C. at 139-40.
Octavia Jones contends that the Tax Court was correct. She
argues that a straightforward reading of I.R.C. § 6015 indi-
cates that Congress deliberately omitted a time restriction for
seeking equitable relief under § 6015(f). She states, "Unlike
§ 6015(b) and (c), § 6015(f) does not set forth any mechanical
requirement for relief. Rather § 6015(f) requires the Commis-
sioner to balance all the facts and circumstances and grant
relief, if appropriate." She relies on the general proposition
that "[w]here Congress includes particular language in one
section of a statute but omits it in another section of the same
Act, it is generally presumed that Congress acts intentionally
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and purposely in the disparate inclusion or exclusion," Rus-
sello v. United States, 464 U.S. 16, 23 (1983) (internal quota-
tion marks and citations omitted). She reasons that
congressional intent so ascertained is law that must be given
effect. See Chevron, 467 U.S. at 842-43.
Arguing that the Tax Court erred, the Commissioner con-
tends that § 6015 is ambiguous because silence is inherently
ambiguous and that when Congress gave the Secretary discre-
tion under § 6015(f) to grant relief as a matter of equity, it
also directed the Secretary to adopt, through regulations, pro-
cedural requirements, including time limitations, governing
the presentment of § 6015(f) claims. The Commissioner also
argues more broadly that when Congress specifies no limita-
tion period for making a claim, the administering agency or
the courts are traditionally free to supply one.
The parties agree that the Chevron two-step analysis
applies in resolving the question here.
First, we must determine whether the statute directly
addresses the precise issue before us. "If the intent of
Congress is clear, that is the end of the matter; for
the Court, as well as the Agency, must give effect to
the unambiguously expressed intent of Congress."
Second, if the statute is silent or ambiguous in
expressing congressional intent, we must determine
whether the Agency’s interpretation is based on a
"permissible construction of the statute."
Snowa v. Commissioner, 123 F.3d 190, 195-96 (4th Cir. 1997)
(quoting Chevron, 467 U.S. at 842-43).
Because the meaning of § 6015(f) varies depending on the
interpretative principle that is applied, we conclude that the
statute is ambiguous and therefore that the analysis does not
end at Chevron step one. Under one interpretative principle,
courts have concluded that when a statute omits a limitations
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period, as is the case here, a court or an administrative agency
is free to fill the gap and supply one. As the Second Circuit
explained:
Congress often creates substantive rights without
addressing procedural aspects of their enforcement.
Significantly, Congress frequently fails to address
the issue of a limitations period even where very
important federal rights are involved. . . . Almost all
substantive rights are subject to limitations periods,
and the Supreme Court has many times recognized
the important function they play in an efficient judi-
cial system.
Withey v. Perales, 920 F.2d 156, 159 (2d Cir. 1990) (uphold-
ing a federal agency’s imposition of a limitations period
through a regulation when none was present in the statute);
see also Lantz II, 607 F.3d at 482 ("Agencies . . . being legis-
lative as well as adjudicatory bodies, are not bashful about
making up their own deadlines. And because they are not
bashful, and because it is as likely that Congress knows this
as that it knows that courts like to borrow a statute of limita-
tions when Congress doesn’t specify one, the fact that Con-
gress designated a deadline in two provisions of the same
statute and not in a third is not a compelling argument that
Congress meant to preclude the Treasury Department from
imposing a deadline applicable to cases governed by that third
provision").
Under another interpretive principle, courts have concluded
that when a statute includes particular language in one section
but omits it in another, a court can assume, at least as a gen-
eral matter, that the omission was deliberate. See Russello,
464 U.S. at 23. As we have stated, "The omission by Con-
gress of language in one section of a statute that is included
in another section of the same statute generally reflects Con-
gress’s intentional and purposeful exclusion in the former sec-
tion." NISH v. Cohen, 247 F.3d 197, 203-04 (4th Cir. 2001).
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In this case, however, the second interpretive principle
might be less relevant because of the differing nature of the
provisions juxtapositioned in § 6015. Subsections (b) and (c)
mandate that innocent spouse relief "shall" be given in the cir-
cumstances provided in those sections. See I.R.C. § 6015(b),
(c). In contrast, subsection (f) affords relief on a discretionary
basis, stating that "the Secretary may relieve" an innocent
spouse from liability. I.R.C. § 6015(f) (emphasis added). And
the Secretary’s discretion is reinforced by the authorization
that the Secretary may grant relief "[u]nder procedures pre-
scribed by the Secretary." Id. While it may be debatable
whether a limitations period is, as a general matter, proce-
dural, in § 6015 Congress certainly referred to the limitations
periods in subsections (b) and (c) as procedural. This distinc-
tion between the mandatory relief available in subsections (b)
and (c) and the discretionary relief that may be granted by the
Secretary in subsection (f) under procedures adopted by the
Secretary tends to support application of the Withey interpre-
tive principle here rather than the Russello principle.
In other words, although the absence of a limitations period
in subsection (f) and the presence of one in subsections (b)
and (c) could suggest that Congress intended no limitations
period for subsection (f), it could also suggest that, with
respect to subsection (f), Congress intended to leave a gap so
that the Secretary could adopt a limitations period as a proce-
dure by which the Secretary would administer his discretion-
ary authority under subsection (f). This might be especially so
since subsection (f) begins, "Under procedures prescribed by
the Secretary . . . ." To be sure, similar language is also
included in subsection (b), but that subsection is not discre-
tionary and, at any rate, includes a limitations period.
At bottom, we cannot say that Congress’ intent is "unam-
biguously expressed" as to whether there should be no limita-
tions period in (f) or whether the Secretary should prescribe
one as part of the procedures for administering discretionary
relief. See Chevron, 467 U.S. at 842-43. Because § 6015(f) is
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sufficiently ambiguous to leave room for agency interpreta-
tion, we reach the Chevron step-two question of whether the
Secretary’s interpretation is a "permissible construction of the
statute." Chevron, 467 U.S. at 842-43.
Contending that Regulation § 1.6015-5(b)(1) is not a per-
missible interpretation of I.R.C. § 6015(f), Octavia Jones
focuses mainly on the fact that the Secretary’s interpretation
unnecessarily and inappropriately narrows the relief that Con-
gress intended in § 6015(f) for equitable innocent spouse
relief. She argues that because subsection (f) grants broad
equitable discretion to the Secretary, the discretion was
undoubtedly intended to be exercised on a case-by-case basis,
not through narrow, rigid rules such as a fixed limitations
period. Moreover, she maintains, the language of § 6015(f)
reveals Congress’ intent to broaden the mandatory relief for
innocent spouses established in subsections (b) and (c),
including the time restrictions included in those subsections.
By establishing a hard and fast two-year limitations period for
§ 6015(f) relief, Jones argues, the Secretary has unreasonably
and therefore invalidly narrowed the equitable authority
granted by Congress to the Secretary.
The Commissioner contends that the promulgation of a lim-
itations period for § 6015(f) was a permissible way to resolve
the ambiguity in § 6015, which otherwise could cause confu-
sion and inconsistency. While the Commissioner allows that
Jones’ arguments can legitimately be made, he notes simply
that they are among the several policy arguments properly
considered and rejected by the Secretary in adopting a two-
year limitations period.
The simple question at this stage of the Chevron analysis
is only whether the Secretary’s adoption of the limitations
period was a reasonable approach to resolving the statute’s
ambiguity, and we need not decide whether the Secretary’s
chosen approach is the best one. See Chevron, 467 U.S. at 843
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n.11. For if the Secretary’s interpretation is reasonable, we
will defer to the Secretary. Id. at 844.
We hold first that it was not unreasonable for the Secretary
to conclude that leaving § 6015(f) with no limitations period
could create more uncertainty and uneven results than includ-
ing one. One decisionmaker applying § 6015(f) might never
bar a claim for relief, no matter how remote in time it is filed,
while another might adopt a limitations period from an analo-
gous statute, and yet another might apply the equitable doc-
trine of laches. To regularize these differing approaches
would undoubtedly be a reasonable endeavor, as the Supreme
Court recognized in Lopez v. Davis, 531 U.S. 230 (2001). In
Lopez, the Court observed:
"[E]ven if a statutory scheme requires individualized
determinations," which this scheme does not, "the
decisionmaker has the authority to rely on rulemak-
ing to resolve certain issues of general applicability
unless Congress clearly expresses an intent to with-
hold that authority." . . . [C]ase-by-case decision-
making in thousands of cases each year could invite
favoritism, disunity, and inconsistency. The [agency]
is not required continually to revisit "issues that may
be established fairly and efficiently in a single rule-
making proceeding."
Id. at 244-45 (internal citations omitted).
And if it were reasonable to impose a limitations period, as
opposed to adopting none, then two years is certainly as rea-
sonable as others that might be chosen. Relief under
§ 6015(b) and (c) must be sought within two years or be
barred. If the limitations period selected for subsection (f)
were longer than two years, then the subsection (f) limitations
period would undermine to some extent the two-year limita-
tions periods in subsections (b) and (c), as the broader relief
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available under subsection (f) could be sought after limita-
tions periods of subsections (b) and (c) had expired.
Limitations periods inherently involve some arbitrary line-
drawing, and we must be hesitant in second-guessing an agen-
cy’s judgment concerning the selection of a specific limita-
tions period. Line-drawing undoubtedly provides some
administrative benefit, and it was reasonable in this case for
the Secretary to have drawn that line at two years, which
makes the relief obtainable under subsection (f) parallel with
the narrower relief obtainable under subsections (b) and (c).
In short, we conclude that the Secretary’s adoption of a
two-year time period for requesting relief under § 6015(f) is
a reasonable approach to filling the gap left in § 6015.
Because § 6015(f) is ambiguous as to an appropriate limita-
tions period and Regulation § 1.6015-5(b)(1) is not "arbitrary,
capricious, or manifestly contrary to the statute," Chevron,
467 U.S. at 844, we conclude that it is a valid regulation.
In finding the regulation valid, we join the only other courts
of appeals to have considered the issue. Mannella, 631 F.3d
115 (3d Cir. 2011); Lantz II, 607 F.3d 479 (7th Cir. 2010).
IV
Jones contends alternatively that even if Treasury Regula-
tion § 1.6015-5(b) is a valid interpretation of I.R.C. § 6015,
she should nonetheless be allowed an extension under Trea-
sury Regulation § 301.9100-3. That regulation provides that
the IRS can grant an extension of time to a taxpayer for "regu-
latory elections . . . when the taxpayer provides the evidence
. . . to establish to the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good faith, and the grant
of relief will not prejudice the interests of the Government."
26 C.F.R. § 301.9100-3(a).
The Commissioner contends that Treasury Regulation
§ 301.9100-3 is not applicable to the circumstances of this
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case and that the Tax Court in Lantz I rejected its application
to similar circumstances. See Lantz I, 132 T.C. at 144 n.10.
Jones made a request for extension under Treasury Regula-
tion § 301.9100-3 before the Tax Court and the Commissioner
opposed it there also. The parties agreed by stipulation, how-
ever, that they would submit to the Tax Court the single issue
of whether Treasury Regulation § 1.6015-5(b) is valid. In
their stipulation, they agreed that if the regulation were to be
found valid, the issue of whether Jones was entitled to an
extension would be submitted to the Tax Court.
Agreeing to the procedure stipulated to by the parties, the
Tax Court called for cross-motions for summary judgment on
the validity of Tax Regulation § 1.6015-5(b), and the Tax
Court decided only that issue.
In view of the fact that we now have ruled that Treasury
Regulation § 1.6015-5(b) is valid, we remand the case to the
Tax Court for determining whether Jones was entitled to an
extension under Treasury Regulation § 301.9100-3, as she
requested.
V
Finally, Jones argues, for the first time on appeal, that she
should be relieved from her late request for innocent spouse
relief under the doctrine of equitable tolling. Because she did
not raise this issue before the Tax Court, however, it is
waived, and we will not address it now. See Muth v. United
States, 1 F.3d 246, 250 (4th Cir. 1993) (holding that issues
raised for the first time on appeal are waived absent excep-
tional circumstances).
* * *
For the reasons given, the judgment of the Tax Court is
reversed, and the case is remanded for further proceedings.
REVERSED AND REMANDED
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