Commissioner of Internal Revenue v. Ewing, No. 04-73237.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Tashima
• Citation: 439 F.3d 1009
• Parties: COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant, v. Gwendolyn A. EWING, Petitioner-Appellee. Gwendolyn A. Ewing, Petitioner-Appellant, v. Commissioner of Internal Revenue, Respondent-Appellee.
• Docket Number: No. 04-73699.,No. 04-73237.
• Decision Date: 28 February 2006

439 F.3d 1009 COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant,
v.
Gwendolyn A. EWING, Petitioner-Appellee.
Gwendolyn A. Ewing, Petitioner-Appellant,
v.
Commissioner of Internal Revenue, Respondent-Appellee. No. 04-73237. No. 04-73699. United States Court of Appeals, Ninth Circuit. Argued and Submitted November 18, 2005. Filed February 28, 2006.

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Teresa E. McLaughlin, Department of Justice, Tax Division, Washington, D.C., for the respondent-appellant and the cross-appellee.

Karen L. Hawkins, Taggart & Hawkins, Oakland, California, for the petitioner-appellee and the cross-appellant.

Appeals from Decisions of the United States Tax Court.

Before JEROME FARRIS, A. WALLACE TASHIMA, and CONSUELO M. CALLAHAN, Circuit Judges.

TASHIMA, Circuit Judge.

The Commissioner of Internal Revenue challenges a decision of the United States Tax Court, concluding that Gwendolyn Ewing was entitled to relief under the so-called equitable innocent spouse provision of the Internal Revenue Code ("I.R.C."), 26 U.S.C. § 6015(f).¹ The Commissioner further contends that the Tax Court did not have jurisdiction to review Ewing's petition under I.R.C. § 6015(e).² Ewing cross-appeals the Tax Court's failure to order that she be granted a refund of excess taxes paid. We have jurisdiction to review decisions of the Tax Court pursuant to I.R.C. § 7482(a)(1). We conclude that the Tax Court erred in holding that it had jurisdiction because there was no deficiency asserted, as required by I.R.C. § 6015(e). We therefore reverse the decision of the Tax Court.

I

Ewing and Richard Wiwi were married in September 1995. They decided to file a

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joint income tax return, rather than separate returns, for 1995 because the joint return lessened their tax liability. On the return, they reported $57,373 in wages earned by Ewing as a medical technologist, $23,502 in business income earned by Wiwi, who was self-employed as a financial adviser, and $16,892 in taxes due. Ewing had $10,862 withheld from her wages, but Wiwi had made no estimated tax payments; therefore, the return included a form calculating a $190 penalty for underpayment of estimated tax. This penalty was listed on the return, resulting in a liability of $6,220. Ewing and Wiwi both signed the return and included payment in the form of a check from Ewing for $1,069, and a check from Wiwi for $551.

In 1999, Ewing filed a Form 8857, Request for Innocent Spouse Relief, seeking relief from the remaining unpaid 1995 tax liability. "Generally, marital partners who file a joint return are jointly and severally liable for its accuracy and any assessments due." Wiksell v. Comm'r, 90 F.3d 1459, 1461 (9th Cir.1996); see I.R.C. § 6013(d)(3) (providing that, "if a joint return is made, the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several"). However, a spouse may apply for innocent spouse relief from joint and several liability under I.R.C. § 6015, which sets forth three possible avenues for relief.

Form 8857 lists the three possible forms of relief, which correspond to three subsections of § 6015:(1) separation of liability for an understatement of tax, if the taxpayers are divorced, separated, or living apart, see § 6015(c); (2) innocent spouse relief for an understatement of tax due to "erroneous items" of the spouse or former spouse of which the innocent spouse was unaware, see § 6015(b); and (3) equitable relief for an underpayment of tax, if the taxpayer does not qualify for relief under either of the first two options, see § 6015(f). Ewing checked the third option, seeking equitable relief from the 1995 tax liability.

Subsection (f) states in full:

Under procedures prescribed by the Secretary, if —

(1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either); and

(2) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability.

I.R.C. § 6015(f).

In a statement attached to her Form 8857, Ewing stated that, when she married Wiwi on September 9, 1995, she did not know that Wiwi had failed to make estimated tax payments, but he later promised to pay the tax due, and she did not learn that the tax had not been paid until November 1998. She included a computation, showing her 1995 wages, withholdings, and an alleged resultant tax liability of zero.

In a preliminary determination, the Internal Revenue Service ("IRS") denied Ewing relief on the following basis: "You did not meet the requirements for equitable relief in that you were not divorced, separated or lived apart for 12 months prior to the date of the request, lack of hardship and no legal obligation of one spouse over the other." Ewing appealed the preliminary determination.

In a subsequent report, the IRS concluded that Ewing should have known about the deficiency when she signed the return, that she and Wiwi were still married and living together, and that she had sufficient income to pay the liability. Accordingly, the IRS sent Ewing a notice of determination, denying her relief under § 6015. An accompanying memo addressed

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the requirements for relief and gave as reasons for the denial that Ewing "is still married to the nonrequesting spouse, and living with him, there would be no hardship, there is no marital abuse, and no spousal legal obligation. She had knowledge when the joint return was filed that there was a deficiency or understatement due to lack of estimated payments."

Ewing then filed a petition for review in the Tax Court. The Commissioner filed a motion to dismiss for lack of jurisdiction, on the basis that Ewing's petition was not timely filed. The Tax Court sua sponte raised the issue of whether the court lacked jurisdiction under I.R.C. § 6015(e) to review the denial of equitable relief. Ewing v. Comm'r, 118 T.C. 494, 495, 2002 WL 1150775 (2002) ("Ewing I"). The court concluded that it did have jurisdiction over the petition and that the petition was timely.³ Id. at 510.

In a subsequent opinion, the Tax Court addressed the issues of whether, in determining Ewing's eligibility for relief, it can consider evidence introduced at trial that was not included in the administrative record, and whether Ewing was entitled to relief under § 6015(f). Ewing v. Comm'r, 122 T.C. 32, 2004 WL 158177 (2004) ("Ewing II"). The court concluded that a trial de novo was appropriate and that the evidence was not limited to the administrative record. Id. at 44. The court further concluded that Ewing was entitled to equitable relief and that the Commissioner accordingly had abused his discretion in denying her relief. Id. at 49. The Commissioner filed a timely notice of appeal. Ewing filed a cross-appeal requesting a refund.

II

Decisions of the Tax Court are reviewed "in the same manner and to the same extent as decisions of the district court in civil bench trials." Crawford v. Comm'r, 266 F.3d 1120, 1121 (9th Cir.2001) (per curiam). Factual findings are reviewed for clear error, and conclusions of law, including the court's construction of the I.R.C., are reviewed de novo. Suzy's Zoo v. Comm'r, 273 F.3d 875, 878 (9th Cir. 2001). The existence of subject matter jurisdiction is a question of law reviewed de novo. Crawford, 266 F.3d at 1123; see also Maier v. Comm'r, 360 F.3d 361, 363 (2d Cir.2004) (stating that the Tax Court's interpretation of statutes defining the scope of its own jurisdiction is reviewed de novo).

III

The Tax Court, like any federal court, is a court of limited jurisdiction. Estate of Branson v. Comm'r, 264 F.3d 904, 908 (9th Cir.2001); Crawford, 266 F.3d at 1121. As such, it may exercise jurisdiction only to the extent authorized by Congress. Branson, 264 F.3d at 908. "The Tax Court's jurisdiction is defined and limited by Title 26 and it may not use general equitable powers to expand its jurisdictional grant beyond this limited Congressional authorization. It may exercise its authority only within its statutorily defined sphere." Id.; see also Clapp v. Comm'r, 875 F.2d 1396, 1399(9th Cir.1989) ("Congress has granted the Tax Court very narrow, limited jurisdiction.").

Section 6015(e) sets forth the requirements for a petition for review by the Tax Court and states, in pertinent part:

In the case of an individual against whom a...