The Eighth Circuit today, in Robinette v. Commissioner, No. 04-3600 (8th Cir. Mar. 8, 2006), reversed the Tax Court (123 T.C. No. 5 (2004)):
After James M. Robinette was found to be in default of an offer-in-compromise, the Internal Revenue Service (“IRS”) imposed a levy for the amount remaining due on his original compromised liability. See 26 U.S.C. §§ 6330, 6331. Robinette filed a petition for review in the United States Tax Court, and the Tax Court agreed with Robinette that the IRS had abused its discretion in imposing the levy. The Commissioner of the IRS appeals, and we reverse….
The Tax Court found that Robinette had not filed his 1998 return in a timely manner, but that his failure to do so was not material to his offer-in-compromise. Since the breach was immaterial, the Tax Court reasoned, the offer should not have been defaulted, and the decision to proceed with collection was an abuse of discretion. The case generated five concurring opinions, a dissenting opinion of two judges, and a third dissenting vote….
There is a substantial dispute in this case, however, concerning the scope of the record on which this deferential judicial review should take place. Robinette argues, and a majority of the Tax Court held, that the Tax Court may receive new evidence in the course of reviewing whether an appeals officer abused his discretion in denying relief during a collection due process hearing. Indeed, a significant portion of the Tax Court’s analysis that the appeals officer abused his discretion in this case was based on evidence not presented during the administrative appeal. The Commissioner contends this was error, and that consistent with general principles of administrative law and the Administrative Procedure Act (“APA”), judicial review of the agency’s decision should be limited to the administrative record developed at the hearing before the appeals officer….
Nothing in the text or history of the Restructuring and Reform Act of 1998 clearly indicates an intent by Congress to permit trials de novo in the Tax Court when that court reviews decisions of IRS appeals officers under § 6330. If anything, the available evidence suggests the opposite. The agreed-upon standard of review itself implies that review is limited to the administrative record, for as the Tax Court seemingly recognized in another case, it would be incongruous to hold that review is limited to determining whether an appeals officer “abused his discretion,” but also to conclude that the appeals officer committed such an “abuse” by failing to weigh information that was never even presented to him….
Basing our review on the information that was before the appeals officer, we next consider whether the IRS abused its discretion in proceeding with collection of Robinette’s tax liability. The Tax Court believed that the appeals officer “did not have an open mind” to Robinette’s arguments, and that he should have independently analyzed whether the offer-in-compromise had been “materially breached.” 123 T.C. at 112. We disagree….
The Tax Court’s decision was based in part on what we conclude was an erroneous application of administrative law and contract law. As to the balancing of considerations identified by § 6330(c)(3)(C), we believe that given the absence in this record of “taxpayer abuse and unfairness by the IRS,” Living Care, 411 F.3d at 631, and under the appropriate standard and scope of review, it was inappropriate for the Tax Court to set aside the decision of the IRS appeals officer.
Update: Steve Johnson (UNLV) shares his thoughts on the case:
The Eighth Circuit reversed (properly in my estimation) the Tax Court in this CDP case. The circuit court’s opinion is significant in several larger respects
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To what extent does the Admin. Proc. Act apply to review of tax proceedings? This is an important question not yet satisfactorily resolved by the courts, which have been content to resolve particular cases without clearly addressing the broad issue. Robinette provides more grist for the mill. Though tantalizing in places, the circuit court opinion again avoids taking a clear position on this question.
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All courts, of course, are "results oriented" (as opposed to principled) in their decisional behavior, to greater or lesser degree. Nonetheless, I’ve been increasingly distressed in recent years by the degree to which the Tax Court seems to contort or fracture principles of jurisdiction, deference, and review to reach desired results. The earlier reversals in Redlark and Tate & Lyle, the recent reversal in Ewing, and today’s reversal in Robinette all are examples of the appellate courts trying to rein in this tendency. Some, though not me, also might cite Ballard as an example. We may get another example shortly since, I predict, Swallows Holding will be reversed if appealed.
