In this 12-3 opinion, the tax court invalidated regulation 1.6015-5(b)(1). This regulation was an interpretation of sec. 6015(f) of the I.R.C.
The taxpayer spouse was pursuing spousal relief from joint tax liability under sec. 6015(f) because the two-year limitation required for relief under 6015(c) had passed. The regulation interpreted 6015(f) to include a two-year limitation period even though no such limitation appears on the face of the statute.
The majority and dissent agree, the appropriate standard of review is Chevron deference (referring to the Supreme Court case that laid out a two-prong test for reviewing a regulation). The test is as follows:
(1) If Congress has directly spoken to the precise question at issue, we give effect to the unambiguously expressed intent of Congress. If the statute is ambiguous, then we continue to the second prong: (2) If the statute is ambiguous with respect to the specific issue, we determine whether the regulation is a permissible construction of the statute. 467 U.S. 837, 842-843.
Prong one is the tough hurdle here. The majority finds Congress's silence on the face of 6015(f) combined with Congress's explicit requirement of a two-year limitation in 6015(c) dispositive of prong one.
The dissent finds enough interstices in 6015(f) to make it ambiguous and continues the analysis under prong two. The dissent looked at legislative history to determine that the Commissioner acted "eminently reasonably" in interpreting 6015(f).
I find the dissent's analysis hard to accept. As I learned from my constitutional law professor, language is inherently interstitial (which means it is filled with gaps). But gaps alone do not make a phrase ambiguous. The IRS got this regulation wrong; adding a 2-year limit to 6015(f) when it already existed in 6015(c) makes 6015(f) surplusage.
A note for practitioners: Based on my own research, Lexis and Westlaw have the regulation updated with this case. CCH Tax Research Network and BNA do not (as of the date of this post).