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 15 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. 16 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. 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. CHIECHI, J., dissenting: I agree with the majority opinion's rejection of respondent's argument that the APA controls the proceedings in the instant case. However, that conclusion does not require the majority opinion to hold, as it does, nor does it logically lead to holdings (1) that, in determining whether to grant relief under section 6015(f), the Court may consider matters raised at trial that petitioner did not raise with respondent's Appeals Office and (2) that petitioner is entitled to equitable relief under section 6015(f). I dissent from those holdings and disagree with the rationales that the majority opinion offers in support of them. With respect to the majority opinion's holding that, in determining whether to grant relief under section 6015(f), the Court may consider matters raised at trial that petitioner did not raise with respondent's Appeals Office, nothing in section 6015 requires the Court, in exercising its jurisdiction under section 6015(e)(1)(A) "to determine the appropriate relief available to" petitioner under section 6015(f), to consider matters raised at trial that petitioner did not raise with respondent's Appeals Office. To consider such matters in determining whether respondent abused respondent's discretion in denying relief under section 6015(f) has the effect of vitiating the abuse-of-discretion standard that the Court held in Butler v. Commissioner, 114 T.C. 276, 292 (2000), and its progeny is applicable where a taxpayer claims equitable relief under that section. If a taxpayer seeking relief under section 6015(f) does not raise a matter with, or present sufficient information to, respondent's Appeals Office and if, after reasonable inquiry, respondent's Appeals Office has been unable to ascertain such matter or sufficient information that would support such relief, it would be improper for the Court to permit the taxpayer to present such matter or such information at trial. Moreover, it would be illogical and inappropriate for the Court to conclude in such circumstances that respondent abused respondent's discretion in denying relief under section 6015(f). With respect to the majority opinion's holding that petitioners are entitled to equitable relief under section 6015(f), the majority opinion purports to have applied an abuse-of-discretion standard in reaching that holding. I do not believe that the majority opinion has in fact applied such a standard in the instant case. Instead, the majority opinion, based upon evidence introduced at trial, has substituted the judgment of the majority for the judgment of respondent. In so doing, the majority opinion offers no explanations about why the conclusions of respondent's Appeals Office as to the effect of the presence or the absence of certain factors set forth in Rev. Proc. 2000-15, 2000-1 C.B. 447, constitute an abuse of discretion by respondent. FOLEY, J., agrees with this dissenting opinion. FLORIDA COUNTRY CLUBS, INC., A FLORIDA CORPORATION, SUNCOAST COUNTRY CLUBS, INC., A FLORIDA CORPORATION, DEBORAH A. HAMILTON, AND JAMES R. MIKES, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 9160-02. Filed February 3, 2004. Petitioners (Ps), two S corporations and two shareholders of those corporations, received letters of proposed deficiency with respect to their 1993 and 1994 Federal income tax returns, which allowed Ps an opportunity for administrative review in Respondent's (R) Appeals Office. After Ps protested the proposed deficiencies with the Appeals Office, the parties settled without R's issuing either an Appeals Office notice of decision or a notice of deficiency. Ps filed a petition with this Court under sec. 7430(f), I.R.C., and Rule 271, Tax Court Rules of Practice and Procedure, for reasonable administrative costs. R moved for a summary judgment that Ps are not entitled to an award of administrative costs as a matter of law. 1. Held: R never took a position in the administrative proceeding as provided by sec. 7430(c)(7)(B), I.R.C., because Ps never received a notice of decision from the Appeals Office and R never sent Ps a notice of deficiency. Consequently, Ps do not qualify as prevailing parties under sec. 7430(c)(4), I.R.C. 2. Held, further, the meaning of the term "notice of deficiency" under sec. 7430(c)(7), I.R.C., is the same as its meaning under sec. 6212(a), I.R.C. 3. Held, further, the proposed notice of deficiency that was James R. Mikes, for petitioners. OPINION KROUPA, Judge: This matter is before the Court on respondent's motion for summary judgment under Rule 121.1 The sole issue for decision is whether petitioners are entitled to reasonable administrative costs under section 7430 for expenses incurred in proceedings within the Internal Revenue Service (IRS) regarding their 1993 and 1994 Federal income taxes. For the reasons explained below, we find that petitioners are not entitled to administrative costs. 1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section, chapter, and subtitle references are to the Internal Revenue Code. Background Petitioners are James R. Mikes (Mikes), Deborah A. Hamilton (Hamilton), Florida Country Clubs, Inc. (FCC), and Suncoast Country Clubs, Inc. (SCC). FCC and SCC are corporations that elected to be taxed under subchapter S for 1993, 1994, and 1995. Mikes and Hamilton were married and filed joint returns for those years, and they were shareholders of the corporations.2 Respondent commenced an audit of FCC for the years 1993 and 1994 in December 1995 to examine, inter alia, certain claimed depreciation expenses and a possible understatement of gross receipts. In 1996 respondent expanded the audit for those years to include Mikes, Hamilton, and scc. The audit encompassed, in addition to the depreciation deductions, the deductibility of net operating losses as well as interest income and expenses claimed by petitioners on account of certain loans. In May 1999, the audit was further widened to include the year 1995 for all petitioners. On September 23, 1997, respondent sent petitioner FCC a 30-day letter proposing to increase the income reported on its 1993 and 1994 returns in the amounts of $1,168,554 and $44,219, respectively. On October 3, 1997, 30-day letters were sent to scc, Mikes, and Hamilton. The letters proposed to increase Mikes's and Hamilton's income for 1993 and 1994 by the amounts of $2,680,313 and $2,253,256 respectively and to increase the income of scc by $272,840 for 1993 and $74,426 for 1994. Those proposed changes would have resulted in deficiencies for Mikes and Hamilton of $398,101 for 1993 and $130,892 for 1994. On March 27, 1998, a reviewer in respondent's Quality Measurement Staff submitted a proposed notice of deficiency (the reviewer's proposal) with respect to the 1993 and 1994 Federal income tax returns of Mikes and Hamilton. The reviewer's proposal was to be reviewed by the Office of District Counsel (District Counsel) in Jacksonville, Florida. The reviewer's proposal recommended an increase in the income reported on the 1993 and 1994 returns of FCC and SCC and also proposed increases to the income reported on the 1993 2 At the time the petition was filed, petitioners Hamilton and Mikes resided in Florida and the principal place of business of the corporate petitioners, FCC and SCC, was also in Florida. |