T.C. Memo. 1999-419
UNITED STATES TAX COURT
DAVID AND BARBARA KINCAID, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21682-97. Filed December 27, 1999.
David Kincaid and Barbara Kincaid, pro se.
Doreen M. Susi and David W. Otto, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent issued a final determination
disallowing petitioners' claim for abatement of interest relating
to petitioners' 1979 and 1982 tax years. Petitioners timely
filed a petition under section 6404(g)1 and Rule 280.
1
Redesignated sec. 6404(i) by the Internal Revenue Service
(continued...)
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The issues for decision are:
1. Whether respondent’s denial of petitioners' claim for
abatement of interest that accrued after 19872 for petitioners'
1979 and 1982 tax years was an abuse of discretion. We hold that
it was not except as noted herein.
2. Whether we have jurisdiction to review respondent's
failure to abate additional interest for tax-motivated
transactions imposed by section 6621(c) as in effect for the
years in issue. We hold that we do not.
Unless otherwise indicated, section references are to the
Internal Revenue Code. Rule references are to the Tax Court
Rules of Practice and Procedure. References to petitioner are to
David Kincaid.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners lived in Yuma, Arizona, when they filed the
petition to abate interest.
A. Petitioners’ Investment in Signature Associates
In the early 1980's, petitioners invested in Signature
Associates (Signature), a limited partnership, which invested in
1
(...continued)
Restructuring and Reform Act of 1998, Pub. L. 105-206, secs.
3305(a), 3309(a), 112 Stat. 685, 743, 745.
2
Petitioners do not request abatement of interest that
accrued before Jan. 1, 1988.
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Encoder Associates (Encoder), a limited partnership. Encoder was
part of a national group of about 83 energy management systems
limited partnerships (EMS). Respondent audited the EMS
partnerships from 1979 to 1985. Encoder and some of the other
EMS partnerships were subject to the unified partnership audit
and litigation provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),
96 Stat. 324, 648.
EMS taxpayers filed about 1,200 petitions in the Tax Court.
In 1987, an EMS shelter group was formed, and the participants
agreed to have trials in and to be bound by the results of two
EMS test cases.
On October 14, 1987, attorneys from both sides met to plan
an Appeals conference for all Encoder limited partners. The
Appeals conference for all Encoder limited partners was held on
November 10, 1987.
Around 1989, respondent had settlement negotiations with
Encoder. Some of Encoder's limited partners settled, but
Signature did not. On June 4, 1990, respondent sent a final
partnership administrative adjustment (FPAA) to Signature telling
Signature about adjustments to Encoder's 1982 return.
The test cases were tried in May 1991. Decisions in the
test cases became final on September 2, 1993. Decision documents
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based on the outcome of the test cases were filed on March 14,
1994.
The Encoder decision became final on June 12, 1994.
Respondent denied petitioners’ claim for their proportionate
share of credits on their 1982 return and for a carryback of
unused credit to their 1979 return. On May 29, 1995, respondent
assessed tax against petitioners of $3,211 for 1979, and $9,400
for 1982, relating to petitioners' indirect investment in Encoder
through Signature.
B. Respondent's Notices of Deficiency for 1979 and 1982 and
Later Events
Respondent mailed affected items notices of deficiency to
petitioners for 1979 on May 30, 1995, and for 1982 on June 5,
1995. In them, respondent determined that petitioners were
liable for the addition to tax for overvaluation under section
6659 relating to their share of the Signature/Encoder disallowed
credits in 1979 and 1982. Petitioners filed a petition with this
Court on August 28, 1995, disputing the determinations (docket
No. 16805-95). Respondent filed an answer on October 30, 1995.
On January 31, 1996, Patrick Wilcox (Wilcox), respondent's
Appeals officer, sent a letter to petitioners stating that it was
important to meet as soon as possible. On February 2, 1996,
petitioners' daughter telephoned Wilcox to arrange a conference.
On February 3, 1996, petitioners wrote a letter to Wilcox stating
that they were ready to meet.
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On March 19, 1996, petitioners' daughter wrote to Loren
Peterson (Peterson), respondent’s Appeals officer, to ask how
much respondent claimed petitioners owed for 1979 and 1982
including taxes, interest, and penalties.
On March 23, 1996, petitioners filed with the Ogden Service
Center a request to abate interest (Form 843) that had accrued on
their tax liabilities for 1979 and 1982. On May 3, 1996, the
Ogden Service Center notified petitioners that their request for
abatement was being sent to Andover, Massachusetts, for
processing. On June 19, 1996, petitioners received a telephone
call from Larry Landon (Landon) of the Andover Service Center.
Landon said that their request for abatement would be handled by
respondent's Phoenix Appeals office.
On June 20, 1996, petitioners’ daughter wrote Peterson to
ask whether petitioners' request for abatement should be handled
by his office. She asked Peterson for copies of all documents
relating to petitioners' 1979 and 1982 taxes, especially
pertaining to Signature and Encoder. On July 12, 1996,
petitioner met with Peterson.
On November 22, 1996, petitioners signed a second request
for abatement of interest (Form 843) for their 1979 and 1982
years.
A notice of trial on December 9, 1996, was served on
September 18, 1996. On December 9, 1996, the parties reported
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that the case had settled. On March 26, 1997, the Court entered
a stipulated decision in docket No. 16805-95. In it, the parties
agreed that petitioners were liable for additions to tax under
section 6659 of $401 for 1979 and $1,175 for 1982. Petitioners
paid the assessments of those additions to tax and the taxes
assessed as computational adjustments but did not pay the
interest because they believe the process had been unfair.
On July 25, 1997, respondent issued a final determination
denying petitioners’ interest abatement claim.
OPINION
A. Abatement of Interest
1. The Commissioner's Authority To Abate Interest
Under section 6404(e)(1), the Commissioner may abate part or
all of an assessment of interest on any deficiency or payment of
tax if (a) either (1) the deficiency was attributable to an error
or delay by a Service official in performing a ministerial act,
or (2) an error or delay by the taxpayer in paying his or her tax
is attributable to a Service official being erroneous or dilatory
in performing a ministerial act; and (b) the taxpayer caused no
significant aspect of the delay. Interest is abatable only after
the Commissioner has contacted the taxpayer in writing about the
deficiency or payment in question. See sec. 6404(e) (flush
language). We apply an abuse of discretion standard in reviewing
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the Commissioner’s failure to abate interest. See Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
2. Ministerial or Managerial Act
Petitioners contend that we must abate interest which
accrued as a result of an error or delay by an IRS officer or
employee in performing a managerial act as well as a ministerial
act. We disagree.
Congress amended section 6404(e) in 1996 to permit abatement
of interest for unreasonable error and delay in performing a
ministerial or managerial act. Taxpayer Bill of Rights 2 (TBOR
2), Pub. L. 104-168, sec. 301(a)(1) and (2), 110 Stat. 1452, 1457
(1996). However, that standard first applies to tax years
beginning after July 30, 1996. TBOR 2, sec. 301(c), 110 Stat.
1457. Thus, it does not apply here. See Krugman v.
Commissioner, 112 T.C. 230, 239 (1999); Woodral v. Commissioner,
supra at 25 n.8.
Petitioners contend that respondent committed an abuse of
discretion by failing to abate interest relating to their 1979
and 1982 tax years after December 31, 1987.3
a. January 1, 1988, to September 30, 1995
Petitioners contend that respondent should have informed
them before May 30, 1995, and June 5, 1995, that they might be
3
Petitioners concede that they are liable for interest
that accrued from Apr. 15, 1980 (for 1979), and Apr. 15, 1983
(for 1982), to Dec. 31, 1987.
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liable for income tax deficiencies for 1982 and 1979,
respectively. Petitioners contend that the period from 1979, the
earlier year in issue, to 1995, when respondent issued the
notices of deficiency, was simply too long. As to the FPAA sent
on June 4, 1990, petitioners also contend that respondent’s
employees had a ministerial duty to send an FPAA in the Encoder
case to Signature, and that respondent cannot prove that
respondent mailed it to the correct address.
We disagree because petitioners’ arguments relate to the
time before May 30, 1995. The Commissioner may not abate
interest that accrues before the Commissioner first contacts the
taxpayer in writing with respect to the deficiency or payment of
tax. Sec. 6404(e) (flush language); Krugman v. Commissioner,
supra at 239. Respondent first contacted petitioners in writing
about the additions to tax for 1979 and 1982 in the notices of
deficiency for those years, sent on May 30 and June 5, 1995.
Thus, respondent’s refusal to abate interest before those dates
was not an abuse of discretion. See sec. 6404(e) (flush
language); Krugman v. Commissioner, supra.
In addition, based on the detailed testimony of respondent’s
lead project attorney for the EMS litigation, we find that none
of the delays before September 30, 1995, resulted from errors by
respondent's employees in performing a ministerial act.
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Petitioners also contend that they would have agreed to a
settlement in the Encoder partnership case in 1987 and 1988 if
they had been offered one on similar terms to those involving
other limited partnerships in which they were direct or indirect
partners. Petitioners contend that treating them differently
from other taxpayers in their situation was a ministerial error
which requires respondent to abate assessment of accrued interest
from January 1, 1988, to the present. We disagree based on the
testimony of respondent’s lead project attorney for the EMS
litigation.
b. October 1, 1995 to Date
Petitioners contend that respondent's employees gave them
incorrect information and did not respond to them, causing
significant delays in resolving this matter. Petitioner
testified that, around October 1995, respondent's District
Counsel told them that interest would be tolled until the appeal
was decided. Petitioner testified that respondent's Appeals
officer told petitioners' daughter on March 12, 1996, that
interest had not accrued since October. Respondent offered no
evidence to counter petitioner's testimony. We conclude that the
statements by respondent's employees caused petitioners to delay
the payment of interest starting October 1, 1995, and refusal to
abate interest accruing thereafter was an abuse of discretion.
See Douponce v. Commissioner, T.C. Memo. 1999-398.
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B. Tax-Motivated Interest Rate and TEFRA Constitutional Issues
Petitioners contend that they should not be liable for
additional interest under section 6621(c), the 120 percent tax-
motivated interest rate, because it is a penalty. Petitioners
also contend that the TEFRA procedures are unconstitutional
because they do not provide due process, and that the Code
sections which provide for 120 percent tax-motivated interest are
unconstitutional ex post facto laws because Congress enacted them
after petitioners incurred their tax liabilities in 1979 and
1982.
We lack jurisdiction under section 6404(g) to decide whether
petitioners are liable for additional interest under section
6621(c), or to decide issues relating to the constitutionality of
the TEFRA procedures, for the same reasons that we lack
jurisdiction under section 6404(g) to decide whether a taxpayer
is liable for additions to tax. See Krugman v. Commissioner, 112
T.C. at 237.
To reflect the foregoing,
Decision will be entered
under Rule 155.