Gross v. Commissioner

T.C. Memo. 2000-44

UNITED STATES TAX COURT

HARRY R. GROSS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11839-98. Filed February 10, 2000.

Harry R. Gross, pro se.

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

1
All Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 2 -

The Court agrees with and adopts the opinion of the Special Trial

Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

COUVILLION, Special Trial Judge: Respondent issued a notice

of final determination denying petitioner's claim to abate

interest for his 1988 taxable year. Petitioner filed a timely

petition for review of that determination with this Court. The

sole issue for decision is whether petitioner is entitled to an

abatement of interest pursuant to section 6404(e).2

Background

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. Petitioner's legal

residence at the time the petition was filed was Tampa, Florida.

After receiving an extension of time to file, petitioner

filed his 1988 Federal income tax return timely on August 15,

1989. On the return, petitioner reported adjusted gross income

of $184,222,3 income tax due of $50,742, self-employment tax due

2
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year at issue.
3
Petitioner reported a $241,690 loss and no tax due on
his 1987 Federal income tax return. The $241,690 loss reported
on petitioner's 1987 return was applied as a net operating loss
carryforward in the calculation of petitioner's 1988 adjusted
gross income figure.
 - 3 -

of $5,859, and an addition to tax due of $3,6204 under section

6654(a) for failure to pay estimated taxes. Petitioner made no

Federal tax deposits and had no withholding credit during 1988.

Further, petitioner did not remit a payment with the 1988 return.

On his 1989 Federal income tax return petitioner reported a

$66,742 loss. He filed with his return an IRS Form 1045,

Application for Tentative Refund, computing the net operating

loss for 1989 and electing a carryback of the loss to

petitioner's 1988 tax year. On June 11, 1990, the IRS allowed

the 1989 net operating loss carryback and applied it to

petitioner's 1988 account as of April 18, 1990. The 1989 net

operating loss reduced petitioner's 1988 income tax liability by

$19,519. After the carryback of the 1989 loss to 1988,

petitioner’s account reflected the following amounts still owing

for 1988:

$31,223.00 Income tax
5,859.00 Self-employment tax
2,177.00 Sec. 6654, Failure to pay estimated taxes
6,342.53 Sec. 6651(a)(2), Failure to pay tax
6,929.17 Interest to April 18, 1990
$52,530.70 Total

4
In an amended return, petitioner recalculated the
addition to tax under sec. 6654(a) reducing it to $2,177. For
our purposes here, the amended amount was accepted by the
Internal Revenue Service.
 - 4 -

Petitioner's 1988 balance due was assigned to an IRS revenue

officer in Nashville, Tennessee, where petitioner resided at the

time. The revenue officer worked with petitioner to determine

whether petitioner could satisfy his 1988 tax liability. By

letter dated February 26, 1991, petitioner, among other things

not relevant here, stated that he expected to eliminate his 1988

tax liabilities with a loss he expected to report on his 1990 tax

return. On March 27, 1991, the revenue officer closed his

collection file on petitioner's 1988 account, deeming it

uncollectible, after determining petitioner was unable to pay the

amount due. On that same date, petitioner sent the revenue

officer a letter and a copy of petitioner’s 1990 return.

Petitioner filed his 1990 Federal income tax return timely,

which reported a loss of $319,820. However, petitioner did not

file a Form 1045 with his 1990 return with respect to the net

operating loss he sustained.

In March 1992, petitioner contacted the IRS and learned that

he still owed tax, additions to tax, and interest for 1988. By

letter dated May 4, 1992, petitioner requested the revenue

officer to remove the tax, additions to tax, and interest from

his 1988 account as he thought they had been satisfied by his

1990 loss. The revenue officer, by letter dated June 2, 1992,

responded to petitioner’s letter and provided a summary of

petitioner’s 1988 account balance. While the summary reflected
 - 5 -

that petitioner’s 1989 loss had been carried back to, and that

certain levied amounts had been applied to, petitioner’s 1988

liability, the summary did not reflect that petitioner’s 1990

loss had been carried back. There was no communication between

petitioner and the Nashville revenue officer after this letter.5

At some point between January 1992 and June 1994, petitioner

moved to Tampa, Florida. The collection file relating to

petitioner’s 1988 balance due was reassigned to a revenue officer

in the IRS office at Tampa, Florida. In June 1994, petitioner

began communicating with an Appeals officer in Tampa. After

working with petitioner on his case, the revenue officer referred

petitioner’s case to the IRS Examination Division. Upon

reviewing petitioner’s 1990 return, a revenue agent concluded

that petitioner had a valid net operating loss for 1990, although

the revenue agent did make some adjustments to petitioner’s 1990

return. The parties agreed to the adjustments proposed in the

revenue agent’s report on January 26, 1996, and petitioner

subsequently filed an amended return for 1988 requesting a

carryback of the 1990 net operating loss. On March 11, 1996,

respondent allowed the carryback of the 1990 net operating loss

and posted it to petitioner’s 1988 account as of April 15, 1991,

5
The levied amounts totaled $1,011, and it appears from
the underpayment summary offered into evidence at trial that this
amount was applied toward the self-employment taxes of $5,859,
thus reducing the self-employment taxes to $4,848.
 - 6 -

the date the 1990 net operating loss became available (the date

the 1990 return was due). Petitioner’s 1990 net operating loss

carryback (the 1990 carryback) satisfied all of petitioner’s

income tax liability for 1988. However, petitioner’s 1988

account continued to have a balance due for additions to tax and

interest. Additionally, petitioner continued to have a balance

due for self-employment taxes, since the net operating loss

carryback could not be used to offset self-employment income.

See sec. 1402(a)(4). At this point, petitioner owed the

following amounts for 1988:

$ -0- Income taxes
4,838.00 Self-employment taxes1
2,177.00 Sec. 6654, Failure to pay estimated taxes
6,342.53 Sec. 6651(a)(2), Failure to pay tax
11,970.82 Interest to 4/15/91
$25,328.35 Total
1
On brief, respondent stated that there was a mathematical
error in the application of the $1,011 levied amounts, and the
correct balance of self-employment taxes should have been $4,848
instead of $4,838.

On November 10, 1996, petitioner filed an IRS Form 843,

Claim for Refund and Request for Abatement, with respondent

requesting the Commissioner to abate all interest and penalties

associated with petitioner’s 1988 tax year. On January 9, 1998,

the Commissioner issued a notice of final determination denying

petitioner's claim to abate the interest and penalties for 1988.

On July 2, 1998, petitioner petitioned this Court to review the
 - 7 -

Commissioner's failure to abate the additions to tax and interest

associated with his 1987 and 1988 tax years. At trial and on

brief, petitioner narrowed his request for review to 1988.

Discussion

A. Abatement of Additions to Tax

This Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by

Congress. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

Section 6404(g)6 does not give this Court jurisdiction to review

respondent’s failure to abate additions to income tax. See

Krugman v. Commissioner, 112 T.C. 230, 237 (1999). Therefore, we

may not review the Commissioner’s failure to abate the additions

to tax associated with petitioner’s 1988 tax year.

B. Abatement of Interest

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 by

6
Sec. 6404(g) was redesignated sec. 6404(i) by the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub.L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 743, 745.
 - 8 -

failing to abate interest. See sec. 6404(g); Krugman v.

Commissioner, supra at 239.

Section 6404(e)(1)(B) provides, in pertinent part, that the

Commissioner may abate the assessment of interest on any payment

of tax if an error or delay by the taxpayer in paying his or her

tax is attributable to an officer or employee of the IRS being

erroneous or dilatory in performing a ministerial act.7 For

purposes of section 6404(e)(1), an error or delay is taken into

account only (1) if no significant aspect of such error or delay

can be attributed to the taxpayer, and (2) after the IRS has

contacted the taxpayer in writing with respect to such deficiency

or payment. See sec. 6404(e)(1). Congress intended the

Secretary to abate interest "where failure to abate interest

would be widely perceived as grossly unfair." H. Rept. 99-426

(1985), 1986-3 C.B. (Vol. 2) 844; S. Rept. 99-313 (1985), 1986-3

C.B. (Vol. 3) 208. However, Congress did not intend that

abatement "be used routinely to avoid payment of interest." Id.

7
In 1996, sec. 6404(e) was amended under sec. 301 of the
Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457
(1996), to permit the Secretary to abate interest with respect 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 petitioner's
1988 tax year. Therefore, the amendment is inapplicable to the
case at bar. See Woodral v. Commissioner, 112 T.C. 19, 25 n.8
(1999).
 - 9 -

The regulations, in relevant part, provide 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.

30163 (Aug. 13, 1987).8 The regulations issued by the Secretary

provide several examples of what does and does not constitute a

ministerial act.

Although petitioner requested an abatement of all interest

associated with his 1988 tax year, the acts petitioner contends

delayed the payment of his 1988 tax liability did not occur until

March of 1991 or later. Thus, petitioner’s failure to pay his

1988 tax liability prior to March of 1991 was solely attributable

to petitioner. Therefore, the interest that accrued on

petitioner’s 1988 tax liability before March of 1991 is not

abatable. The Commissioner, therefore, did not abuse his

discretion in refusing to abate the interest for this time

period.

Although the 1990 carryback was not applied to the 1988 tax

year until March 11, 1996, petitioner concedes that no interest

8
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.
 - 10 -

accrued on petitioner’s 1988 income tax liability after the due

date of his 1990 return, April 15, 1991, because of respondent’s

retroactive application of the 1990 carryback on that date.

However, petitioner contends that respondent should abate the

interest that accrued on petitioner’s outstanding self-employment

taxes and additions to tax from April 15, 1991, to the present.

Petitioner claims the revenue officer in respondent's Nashville

office agreed to apply petitioner’s 1990 carryback to eliminate

completely petitioner’s 1988 income and self-employment tax

liabilities, as well as all the additions to tax and interest

associated with petitioner’s 1988 tax year. Petitioner claims

the revenue officer in respondent’s Nashville office told him not

to file a Form 1045 with his 1990 return. While petitioner

conceded at trial that the 1990 carryback could not be used to

eliminate his liability for self-employment taxes, additions to

tax, or interest, petitioner claims he was unaware of this fact

until early 1996. Petitioner claims that, if the revenue agent

had not advised him not to file a Form 1045, or if respondent had

properly applied the 1990 carryback in 1991, then petitioner

would have become aware at that time that the 1990 carryback

could only be used to eliminate income tax liability. Petitioner

claims he could have paid the remaining 1988 liabilities in
 - 11 -

1991.9 Thus, petitioner contends the interest that accrued on

his 1988 account from April 15, 1991, to the present, is

attributable to delays in the performance of ministerial acts by

IRS employees.

There is no evidence other than petitioner’s self-serving

testimony to support his assertion that the IRS revenue officer

made any promises to him or advised him not to file a Form 1045

with his 1990 return. Rather, the record indicates that the

correspondence between petitioner and the revenue officer brought

out the fact that petitioner’s 1990 loss had never been carried

back to the 1988 tax year. As a result of that correspondence,

petitioner’s 1990 income tax return was audited, the amount of

the loss was accepted (with some modifications), and ultimately

applied as of April 15, 1991, to completely offset the 1988

income tax liability. However, the parties never reached an

agreement or compromise on settling the remainder of petitioner’s

1988 liability. Moreover, there is no persuasive evidence that

the revenue agent advised petitioner against filing a Form 1045.

While petitioner claimed the IRS abused and threatened him, his

9
Petitioner made this statement at trial, believing that
his only remaining liability was the self-employment taxes of
$4,838. As he testified, "I perhaps could have found * * *
$6,000, begged or borrowed it from friends, a whole lot easier
than I could have come forward with * * * $40,000." Petitioner,
however, misapprehended what his liability was in 1991. As noted
earlier, petitioner’s total remaining liability as of Apr. 15,
1991, was $25,328.35.
 - 12 -

own correspondence and testimony indicate that the IRS employees

he interacted with were cooperative and patient with petitioner.

Petitioner admits he was aware that the law required him to file

a Form 1045 to elect whether his 1990 loss was to be carried back

or carried forward. However, petitioner did not file a Form 1045

with his 1990 return. Without instruction from petitioner,

respondent did not act on petitioner’s 1990 net operating loss.

More pointedly, petitioner was able to ascertain the nature or

amount of his tax liabilities when he contacted the IRS employees

in March 1992 but did not attempt to pay his liabilities.

Further, when the revenue agent confirmed petitioner’s 1988

account balance by letter in May 1992, petitioner did nothing for

almost 2 years. Petitioner’s delay in paying his 1988 tax

liabilities is solely attributable to petitioner. Thus, the

interest that accrued on petitioner’s 1988 tax liability between

April 15, 1991, and the present is not abatable. 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.