Lantz v. Comm'r Of Internal Revenue

• Decision Date: 08 June 2010
• Docket Number: No. 09-3345.,09-3345.
• Citation: 607 F.3d 479
• Parties: Cathy Marie LANTZ, Petitioner-Appellee,v.COMMISSIONER of INTERNAL REVENUE, Respondent-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

607 F.3d 479

Cathy Marie LANTZ, Petitioner-Appellee,v.COMMISSIONER of INTERNAL REVENUE, Respondent-Appellant.

No. 09-3345.

United States Court of Appeals, Seventh Circuit.

Argued April 9, 2010.

Decided June 8, 2010.

Paul M. Kohlhoff (argued), Valparaiso University Law Clinic, Valparaiso, IN, for Petitioner-Appellee.

Steven W. Parks, Teresa E. McLaughlin (argued), Department of Justice, Washington, DC, for Respondent-Appellant.

A. Lavar Taylor, Santa Ana, CA, for Center for the Fair Administration of Taxes.

Before POSNER, FLAUM, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

Taxpayers filing a joint return are jointly and severally liable for the entire tax liability shown or that should have been shown on their return. 26 U.S.C. § 6013(d)(3). But section 6015 of the Internal Revenue Code sets forth grounds-“innocent spouse” rules first added to the Code in 1971 and liberalized since, Lily Kahng, “Innocent Spouses: A Critique of the New Tax Laws Governing Joint and Several Tax Liability,” 49 Vill. L.Rev. 261, 264-70 (2004); Svetlana G. Attestatova, Comment, “The Bonds of Joint Tax Liability Should Not Be Stronger Than Marriage: Congressional Intent Behind § 6015(c) Separation of Liability Relief,” 78 Wash. L. Rev. 831, 831-41 (2003)-for relieving the signer of a joint return of his or her joint and several liability for understatement or nonpayment of income tax due.

Section 6015(f), captioned “equitable relief,” provides that “under procedures prescribed by the [Department of the Treasury], 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 ...; and (2) relief is not available to such individual under subsection (b) or (c) [of section 6015], the [Department] may relieve such individual of such liability.” By regulation the Treasury has fixed a deadline for filing claims under subsection (f) of two years from the IRS's first action to collect the tax by (for example) issuing a notice of intent to levy on the taxpayer's property. 26 C.F.R. § 1.6015-5(b)(1); see also IRS Rev. Proc.2003-61 § 4.01(3); 26 U.S.C. § 6630(a). The Tax Court in a divided opinion invalidated the deadline in the regulation and the Internal Revenue Service appeals.

The taxpayer, Cathy Lantz, is a financially unsophisticated woman whose husband, a dentist, was arrested for Medicare fraud in 2000, convicted, and imprisoned. They had been married for only six years when he was arrested and there is no suggestion that she was aware of, let alone complicit in, his fraud. The IRS learned that the joint return the couple had filed had understated their federal income tax liability in the last tax year before his arrest, and the Service assessed them more than $900,000 in additional income tax, penalties, and interest.

In 2003 Cathy Lantz received from the IRS-in a packet that included a notice of a proposed levy on her and her husband's property-publications explaining the collection process, alerting the recipient to the possibility of innocent-spouse relief, and citing an IRS publication explaining the rights of such a spouse. Included in the packet was a form for requesting a “collection due process” hearing. The taxpayer can indicate that she is seeking innocent-spouse relief by checking a box on the form and filing an application for such relief. Lantz did not respond to the IRS's communication, however, because her husband (from whom she had been estranged since his conviction) told her he'd deal with the matter. He returned the form requesting a collection due process hearing and asked to be sent the application form for seeking innocent-spouse relief, explaining that his wife was an “innocent spouse.” But, assuming he received that form, he died before filing it.

In 2006 the IRS, unable to collect any of its tax assessment from the husband (and by now he was dead), applied the $3,239 income tax refund for 2005 to which Lantz would otherwise have been entitled to her joint (and now several) liability for 1999, which had grown to more than $1.3 million. Unemployed and impecunious, she applied for innocent-spouse relief but the IRS turned her down because she'd missed the two-year deadline from the date (in 2003) on which the Service had sent her the notice of intent to file a levy on her and her husband's property. The Service concedes that were it not for the deadline, Lantz would be eligible for relief. But the concession does not bear on the validity of the deadline any statute of limitations will cut off some, and often a great many, meritorious claims.

In invalidating the two-year deadline that the Treasury has imposed on claims under subsection (f), the Tax Court noted that each of the two other subsections of 26 U.S.C. § 6015 that we mentioned, (b) and (c), contains a two-year deadline, 26 U.S.C. §§ 6015(b)(1)(E), (c)(3)(B), while subsection (f) does not. From this difference the court inferred that Congress intended subsection (f) to have no deadline. The court said that “by explicitly creating a 2-year limitation in subsections (b) and (c) but not subsection (f), Congress has ‘spoken’ by its audible silence.”

Appellate review of pure legal rulings by the Tax Court, as by a district court, is plenary, 26 U.S.C. § 7482(a)(1); Wellpoint, Inc. v. Commissioner, 599 F.3d 641, 644 (7th Cir.2010); Kikalos v. Commissioner, 434 F.3d 977, 981 (7th Cir.2006); Wright v. Commissioner, 571 F.3d 215, 219 (2d Cir.2009), and administrative regulations issued pursuant to authority delegated by Congress must be upheld unless unreasonable. United States v. Mead Corp., 533 U.S. 218, 228-29, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001); Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 and n. 11, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). But even if our review of statutory interpretations by the Tax Court were deferential, we would not accept “audible silence” as a reliable guide to congressional meaning. “Audible silence,” like Milton's “darkness visible” or the Zen koan “the sound of one hand clapping,” requires rather than guides interpretation. Lantz's brief translates “audible silence” as “plain language,” and adds (mysticism must be catching) that “Congress intended the plain language of the language used in the statute.”

Whatever any of this means, the 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. Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 146-57, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987); DelCostello v. Int'l Brotherhood of Teamsters, 462 U.S. 151, 158-62, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983); Teamsters & Employers Welfare Trust of Illinois v. Gorman Brothers Ready Mix, 283 F.3d 877, 880 (7th Cir.2002). They borrow an existing statute of limitations rather than create one because “the length of a limitations period is arbitrary-you can't reason your way to it-and courts are supposed not to be arbitrary; when they are, they get criticized for it.” Hemmings v. Barian, 822 F.2d 688, 689 (7th Cir.1987). Courts even say that in borrowing a statute of limitations from one statute for use in another they are doing Congress's will: “Given our longstanding practice of borrowing state law, and the congressional awareness of this practice, we can generally assume that Congress intends by its silence that we borrow state law.” Agency Holding Corp. v. Malley-Duff & Associates, Inc., supra, 483 U.S. at 147, 107 S.Ct. 2759.

Agencies, in contrast, being legislative as well as adjudicatory bodies, are not bashful about making up their own deadlines. See, e.g. Johnson v. Gonzales, 478 F.3d 795, 798-800 (7th Cir.2007); Swallows Holding, Ltd. v. Commissioner, 515 F.3d 162, 170-72 (3d Cir.2008); Stearn v. Department of Navy, 280 F.3d 1376, 1381-84 (Fed.Cir.2002); Foroglou v. Reno, 241 F.3d 111, 113 (1st Cir.2001); Withey v. Perales, 920 F.2d 156 (2d Cir.1990). 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 limitations when Congress doesn't specify one, the fact that Congress 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. Whether the Treasury borrowed the two-year limitations period from subsections (b) and (c) or simply decided that two years was the right deadline is thus of no consequence; either way it was doing nothing unusual.

Lantz suggests that because section 6502 of the Code imposes a 10-year deadline on the government's right to collect taxes that it is owed, there is a time limit on claims for relief under section 6015(f)-ten years-and so the absurdity of allowing claims under subsection (f) to be filed until the Day of Judgment is avoided. But this argument confuses an external circumstance that as a practical matter creates a time limit with a statute of limitations. It is true that if after 10 years from the date of assessment, which itself must take place within three years after the tax return was filed, the IRS has not moved to collect the tax by levying on the taxpayer's property or wages or sued to collect the tax, it usually has to give up. 26 U.S.C. §§ 6501(a), 6502(a); United States v. Galletti, 541 U.S. 114, 116, 124 S.Ct. 1548, 158 L.Ed.2d 279 (2004); Clark v. United States, 63 F.3d 83, 84-85 n. 1 (1st Cir.1995). But to call this a statute of limitations for claims...