T.C. Memo. 2000-45
UNITED STATES TAX COURT
RICHARD DUNDORE AND VIRGINIA D'ANNA-DUNDORE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10934-98. Filed February 10, 2000.
Richard Dundore, for petitioners.
Michael D. Zima, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge D. Irvin Couvillion pursuant to Rules 180, 181, and 183.1
The Court agrees with and adopts the opinion of the Special Trial
Judge, which is set forth below.
1
All Rule references are to the Tax Court Rules of
Practice and Procedure.
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OPINION OF THE SPECIAL TRIAL JUDGE
COUVILLION, Special Trial Judge: Respondent issued a notice
of final determination denying petitioners’ claim to abate
interest for their 1989 and 1990 tax years. Petitioners filed a
timely petition for review of that determination with this Court.
The sole issue for decision is whether petitioners are entitled
to an abatement of interest pursuant to section 6404(e).2
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners’ legal
residence at the time the petition was filed was Cape Coral,
Florida.
Petitioners filed their 1989 and 1990 Federal income tax
returns timely. The Internal Revenue Service (IRS) thereafter
commenced an examination of petitioners’ 1989 and 1990 returns.
Despite several attempts by an IRS agent to meet with petitioners
with respect to their returns, petitioners ignored the requests.
Petitioners were then issued a revenue agent’s report, which they
also ignored, and that was followed by issuance of a notice of
deficiency. In that notice, respondent determined deficiencies
of $32,910 and $48,326 and accuracy-related penalties under
section 6662(a) of $6,582 and $9,665, respectively, for
2
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the periods involved.
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petitioners’ 1989 and 1990 tax years. Respondent determined that
petitioners had substantial amounts of unreported income for both
1989 and 1990 as a result of respondent's shifting income from
their closely held business entities to petitioners personally.
Respondent also disallowed two dependency exemptions for 1989 and
1990, as well as all of petitioners' claimed itemized deductions,
rental expenses, and depreciation deductions for 1989 and 1990
for lack of substantiation. Additionally, respondent determined
that petitioners were liable for self-employment taxes and
asserted an accuracy-related penalty under section 6662(b)(1).
Petitioners filed a petition on May 28, 1993, challenging
respondent's determinations. The case was assigned docket No.
10789-93. Respondent thereafter filed an answer.
After the case was docketed, the IRS Appeals Office at
Miami, Florida, on July 6, 1993, contacted petitioners by letter
and advised that they would soon be contacted by an Appeals
officer for a conference. That letter suggested to petitioners
that they contact the Appeals Office either in writing or by
telephone if they had any questions concerning their case.
Petitioners did not respond to this letter. On November 30,
1993, an Appeals officer contacted petitioners by letter and
suggested a meeting on January 24, 1994, at Ft. Myers, Florida,
where petitioners resided. Petitioners responded to this letter
on December 24, 1993, agreeing to the meeting with the Appeals
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officer. The January 24, 1994, meeting was held, and the parties
discussed petitioners' case. The Appeals officer described to
petitioners the nature of respondent’s determinations.
Petitioners explained their position in the matter and produced a
small amount of evidence to support their arguments. The Appeals
officer was not satisfied that petitioners had proven any error
in respondent’s determinations but indicated that he would review
the matter and send petitioners a list of evidence they needed to
produce to overcome respondent’s determinations.
Nothing else transpired until July 5, 1994, when another
Appeals officer advised petitioners by letter that the case had
been reassigned to him because of workload considerations,
suggested a meeting at the Appeals Office at Ft. Lauderdale
possibly to settle the case, and provided his assessment of
petitioners' case. Petitioners responded that they could not
meet on the suggested date and proposed a meeting at Ft. Myers,
Florida, in September 1994. The Appeals officer responded that
he was not going to Ft. Myers until late October and suggested
petitioners come to his Ft. Lauderdale office in late September
or October 1994 to attempt settlement.
In the meantime, on August 5, 1994, the IRS office of
District Counsel advised petitioners by letter that their case
was calendared for trial at this Court’s trial session at Miami,
Florida, commencing December 5, 1994, and it was necessary that
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the parties prepare stipulations for trial, as required by this
Court’s Rules of Practice and Procedure. The IRS attorney
suggested that the parties meet or otherwise correspond by mail
or telephone. Petitioners provided some of the information
respondent’s counsel had requested. Counsel telephoned
petitioners for the additional information and suggested that
they meet with an IRS agent near their home and, if necessary,
counsel was available for a conference call during such a
meeting. Petitioners did not comply with this request. The IRS
counsel then prepared a proposed stipulation of facts that was
forwarded to petitioners along with a request for production of
documents. Petitioners thereafter met with an IRS agent on
October 3, 1994, and presented their case according to the
suggestions in the Appeals Officer's July 5 letter. As a result
of the meeting, the Appeals officer was satisfied that some of
the shifted items of income were properly allocable to
petitioners’ closely held business entities and not to
petitioners personally. Further, the Appeals officer determined
that petitioners were entitled to many of the claimed itemized
deductions, rental expenses, and depreciation deductions.
However, the Appeals officer was satisfied that respondent’s
remaining determinations were proper. Accordingly, the Appeals
officer made petitioners a settlement offer proposing that
respondent’s determinations be adjusted to reflect deficiencies
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and accuracy-related penalties of $40,165 rather than the $97,483
shown in the notice of deficiency. Petitioners, by letter,
declined to accept the settlement proposal and explained that,
while they agreed with some of respondent’s adjustments, they
still did not agree with many of the proposed adjustments.
The Appeals Office then advised petitioners that the case
could not be settled and was being forwarded to respondent’s
counsel for trial preparation. Because petitioners had not
signed the proposed fact stipulations and had not responded to
the request for documents, counsel for respondent filed a motion
and obtained an order that compelled petitioners to produce the
requested documents and show cause why the proposed stipulations
should not be accepted. Petitioners thereafter filed a motion
for continuance, which was granted. Petitioners then employed an
attorney who entered the case, and, over the next few months, the
parties could not agree on settlement. The case was again
calendared for trial on December 4, 1995, and, on that date, a
basis for settlement was reached. A decision entered on December
20, 1995, provided that petitioners were liable for income tax
deficiencies of $10,599 and $9,851 and penalties under section
6662(a) of $2,119.60 and $1,970.20, respectively, for 1989 and
1990. The decision was entered on December 20, 1995.
Petitioners thereafter filed claims for abatement of interest on
the deficiencies for both years, commencing from the date they
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were first contacted by an IRS agent for the audit of their 1989
and 1990 returns, July 8, 1992, to the date the deficiencies were
assessed, March 11, 1996. The Commissioner denied petitioners’
claims. At trial, petitioners narrowed their request for
abatement to the period between July 6, 1993, the date when they
were first contacted by the IRS Appeals Office, to December 20,
1995, the date the decision was entered.
The Commissioner's authority to abate an assessment of
interest involves the exercise of discretion, and this Court
gives due deference to the Commissioner's discretion. See
Woodral v. Commissioner, 112 T.C. 19, 23 (1999); Mailman v.
Commissioner, 91 T.C. 1079, 1082 (1988). However, this Court may
order abatement where the Commissioner abuses his discretion.
See sec. 6404(g);3 Woodral v. Commissioner, supra.
Pursuant to section 6404(e)(1), the Commissioner may abate
part or all of an assessment of interest on any deficiency or
payment of income tax to the extent that any delay in payment is
attributable to any error or delay caused by an officer or
employee of the IRS (acting in an official capacity) in
performing a ministerial act.4 However, an error or delay is
3
Sec. 6404(g) was redesignated sec. 6404(i) by the
Internal Revenue Service Restructuring & Reform Act of 1998, Pub.
L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 743, 745.
4
In 1996, sec. 6404(e) was amended by sec. 301 of the
(continued...)
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taken into account only if it occurs after the IRS has contacted
the taxpayer in writing with respect to such deficiency or
payment, and as long as no significant aspect of such error or
delay can be attributed to the taxpayer. See sec. 6404(e)(1).
Congress intended the Commissioner to abate interest under
section 6404(e) "where failure to abate interest would be widely
perceived as grossly unfair" but not that it "be used to
routinely avoid payment of interest." H. Rept. 99-426, at 844
(1985), 1986-3 C.B. (Vol. 2) 844; S. Rept. 99-313, at 208 (1985),
1986-3 C.B. (Vol. 3) 208.
Petitioners claim that the delay in the consideration of
their case was due to error or delay by employees of IRS, acting
in their official capacity, in performing various ministerial
acts.
The regulations provide, in pertinent part, that the term
"ministerial act" means a procedural or mechanical act that does
not involve the exercise of judgment or discretion. See sec.
301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg.
4
(...continued)
Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457
(1996), to permit the Secretary to abate interest attributable to
an unreasonable error or delay resulting from managerial and
ministerial acts. This amendment, however, applies to interest
accruing with respect to deficiencies or payments for tax years
beginning after July 30, 1996. This case involves petitioners'
1989 and 1990 tax years. Therefore, the amendment is
inapplicable to the case at bar. See Woodral v. Commissioner,
112 T.C. 19, 25 n.8 (1999).
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30163 (Aug. 13, 1987).5 The regulations issued by the Secretary
provide several examples of what does and does not constitute a
ministerial act.
Petitioners argue that, after they received the letter from
the IRS Appeals Office on July 6, 1993, they were not contacted
for nearly 6 months regarding their case and did not have a
meeting for another 2 months after they were finally contacted.
Thus, petitioners contend that the interest that accrued for the
time period between July 6, 1993, when they received their first
letter from the Miami Appeals Office, and January 24, 1994, when
they met with the Appeals officer, was attributable to the
dilatory performance of a ministerial act by IRS employees.
The Court notes that the July 6, 1993, letter to petitioners
provided them with the name and telephone number of a person to
contact in the Miami Appeals Office in the event they had any
questions or concerns about their case. Petitioners acknowledged
that they made no attempt to contact the Miami Appeals Office to
schedule a meeting or voice any concerns over not having been
contacted. Although petitioners contend they desired an earlier
5
The final Treasury regulation under sec. 6404 was
issued on Dec. 18, 1998. The final regulation contains the same
definition of ministerial act as the temporary regulation. See
sec. 301.6404-2(b)(2), Proced. & Admin. Regs. The final
regulation generally applies to interest accruing on deficiencies
or payments of tax described in sec. 6212(a) for tax years
beginning after July 30, 1996. See sec. 301.6404-2(d)(1),
Proced. & Admin. Regs.
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appeals conference, their claim is not supported by their actual
conduct as they made no attempt to schedule an earlier meeting.
Petitioners next contend that the Appeals officer took very
unreasonable legal positions when they met on January 24, 1994.
Petitioners claim they wished to settle the case at that meeting
but were unable to do so because the Appeals officer took
unreasonable positions. Petitioners did not have another meeting
with an IRS employee until their October 3, 1994, meeting, which
was suggested by respondent’s counsel.
A decision concerning the proper application of Federal tax
law is not a ministerial act. See sec. 301.6404-2T(b)(1),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987). Petitioners had not provided respondent with any
documentary evidence relating to the adjustments to their 1989
and 1990 returns before the meeting on January 24, 1994. At that
meeting the revenue agent explained to petitioners the nature of
respondent’s determinations and allowed petitioners to present
their case. Based on petitioners’ presentation, the Appeals
officer was satisfied that respondent’s determinations were
correct. However, he agreed to take the case under further
advisement to allow petitioners to produce additional evidence to
support their claims. The Appeals officer’s analysis of
petitioners’ case clearly required discretion and judgment in
applying Federal tax law to the facts and circumstances of
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petitioners’ case. Therefore, his acts did not constitute a
ministerial act. Since there was no erroneous or dilatory
performance of a ministerial act, the Commissioner lacked the
authority to abate interest for this period.
Finally, petitioners claim that, after their October 3,
1994, meeting with the IRS agent, the Appeals officer and
respondent’s attorney also took unreasonable positions in
discussing settlement options and delayed in preparing for trial,
causing petitioners to have their case continued and to hire an
attorney to represent them. Again, a decision concerning the
proper application of Federal tax law is not a ministerial act.
See sec. 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52
Fed. Reg. 30163 (Aug. 13, 1987). The agent, the Appeals officer,
and respondent’s attorney continually attempted to settle
petitioners’ case. The positions they took regarding the issues
in petitioners’ case were based on their application of Federal
tax law to the facts and circumstances surrounding petitioners’
case. These actions required the exercise of discretion and
judgment. Moreover, petitioners’ lack of cooperation and failure
to respond to IRS counsel’s requests for discovery necessitated
that respondent resort to this Court for an order compelling
petitioners to produce documentation and show cause why proposed
stipulations should not be accepted. Any delays caused by
petitioners’ decision to retain an attorney and to continue their
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case were attributable to petitioners. There was no erroneous or
dilatory performance of a ministerial act by an officer or
employee of respondent during this period and any delays
perceived by petitioners during this period were of petitioners’
own making. Therefore, on this record, the Commissioner’s
refusal to abate interest was not an abuse of discretion under
section 6404(e). Respondent’s determination is sustained.
Decision will be entered
for respondent.