T.C. Memo. 2000-220
UNITED STATES TAX COURT
WILLIAM M. DONOVAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 18855-97, 23139-97. Filed July 21, 2000.
Alyce C. Halchak, for petitioner.
Julia A. Cannarozzi, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: These cases were assigned to Special Trial
Judge Lewis R. Carluzzo pursuant to section 7443A(b)(4) and 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
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect at the time that the petitions
were filed in these cases. Rule references are to the Tax Court
Rules of Practice and Procedure.
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OPINION OF THE SPECIAL TRIAL JUDGE
CARLUZZO, Special Trial Judge: On March 25, 1997,
respondent issued a notice of final determination denying
petitioner’s request to abate interest on deficiencies for the
years 1980 and 1981. On June 16, 1997, respondent issued a
notice of final determination denying petitioner’s request to
abate interest on deficiencies for the years 1982 and 1983. In
response to each notice a timely petition was filed pursuant to
section 6404(g)2. The two abatement cases were consolidated for
trial, briefing, and opinion.
The issue for decision is whether respondent’s failure to
abate accrued interest assessed on deficiencies for the years
1980 through 1983, inclusive, as requested in petitioner’s claims
for abatement was an abuse of discretion.
Background
Some of the facts have been stipulated and are so found. At
the time the petitions in these cases were filed, petitioner
resided in New Canaan, Connecticut.
Although not readily apparent from the magnitude of the
record in these cases, which includes 109 exhibits and the
2
After the petitions were filed in these cases, 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. 685, 743, 745.
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testimony of four witnesses over 2 days of trial, the relevant
facts are not in dispute and are easily summarized.
During 1980, 1981, 1982, and 1983, petitioner invested in
certain tax shelter partnerships (the tax shelters). Deductions
or losses stemming from the tax shelters were claimed on his
Federal income tax returns for those years. A deficiency was
determined for each of those years (the deficiency years). On
August 8, 1985, petitioner petitioned this Court for a
redetermination of the 1981 deficiency, and on June 5, 1986,
petitioner petitioned this Court for redeterminations of the
1980, 1982, and 1983 deficiencies (the deficiency cases).
The tax shelters generated approximately 1,100 Tax Court
cases. Most of the taxpayers involved in those cases were
represented by two attorneys (the project attorneys). Petitioner
was not. Instead, petitioner was represented by Attorney Robert
W. Taylor. After various pretrial proceedings and arrangements,
in 1987 a settlement was negotiated between the project attorneys
and respondent. Although not represented by the project
attorneys, petitioner was given the opportunity in 1987 to settle
the deficiency cases upon the same terms that the project
attorneys negotiated for their clients. Upon the advice and
recommendation of Mr. Taylor, petitioner rejected the settlement.
Seven years later, in 1994 petitioner accepted the settlement
offered to him in 1987. Stipulated decision documents reflecting
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the redetermined deficiencies (the deficiencies) were entered in
1994. Petitioner paid the 1980 and 1982 deficiencies on
September 19, 1994; he paid the 1983 deficiency on September 20,
1994; and he paid the 1981 deficiency on November 28, 1994. None
of the interest that has accrued on any of the deficiencies has
been paid.
In claims for abatement originally made in December 1994 and
resubmitted in February 1997, petitioner requested abatements of
all of the interest that had accrued on the deficiencies. As
noted above, petitioner’s claims were denied in notices of final
determination issued by respondent in 1997.
Discussion
Subject to exceptions not relevant here, interest on a
deficiency begins to accrue on the due date of the return and
continues to accrue, compounding daily, until payment is made.
See secs. 6601(a), 6622.
The Commissioner has the authority to abate the assessment
of interest on a deficiency if the accrual of such interest is
attributable to an error or delay by an official or employee of
the Internal Revenue Service in performing a ministerial act.
See sec. 6404(e)(1).3 A ministerial act means a procedural or
3
Sec. 6404(e) was amended by sec. 301 of the Taxpayer Bill
of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457 (1996), to
permit respondent to abate interest with respect to an
“unreasonable” error or delay resulting from “managerial” or
(continued...)
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mechanical act that does not involve the exercise of judgment.
See Lee v. Commissioner, 113 T.C. 145 (1999); sec. 301.6404-2T,
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987). Subject to various procedural and other requirements set
forth in the statute and not here in dispute, the Court has
jurisdiction over any action brought by a taxpayer to determine
whether the Commissioner’s failure to abate interest was an abuse
of discretion. See sec. 6404(g).
As a preliminary point, we note that interest is defined as
“compensation for the use or forbearance of money”. Deputy v.
Dupont, 308 U.S. 488, 498 (1940). “Use or forbearance” connotes
the passage of time. Consistent with the definition of interest,
section 6404(e) requires not only the identification of an error
or delay caused by a ministerial act on the Commissioner’s part,
but the identification of a specific period of time over which
interest should be abated as a result of the error or delay.
See, e.g., Krugman v. Commissioner, 112 T.C. 230 (1999); Douponce
v. Commissioner, T.C. Memo. 1999-398.
The expected correlation between the error or delay
attributable to a ministerial act on respondent’s part and a
specific period of time is, for the most part, missing in these
3
(...continued)
ministerial acts. The amendment is effective for interest
accruing with respect to deficiencies or payments for tax years
beginning after July 30, 1996, and is therefore inapplicable
here.
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cases because petitioner requests that all interest with respect
to the deficiencies be abated.4 In effect, petitioner is not so
much seeking an abatement of interest as he is an exemption from
it. Characterized in that manner, and among other infirmities5,
the scope of petitioner’s request, simply put, is beyond that
contemplated by the statute, which the Congress did not intend
would “be used routinely to avoid payment of interest”. H. Rept.
99-426, at 844 (1985), 1986-3 C.B. (Vol. 2) 1, 844; S. Rept. 99-
313, at 208 (1986), 1986-3 C.B. (Vol. 3) 1, 208. Respondent’s
failure to abate interest as requested in petitioner’s claims is
supported not only by the overly broad scope of those claims, but
for other reasons, as discussed below in the context of specific
time frames.
Subject to other requirements, under 6404(e) a taxpayer is
entitled to an abatement of assessed interest on a deficiency
only for any period starting “after the Internal Revenue Service
has contacted the taxpayer in writing with respect to such
4
There are variances between the relief requested in
petitioner’s claims for abatement and the relief requested in
petitioner’s brief. Because we review respondent’s failure to
abate interest for abuse of discretion, we focus upon the claims
for abatement. Cf. Sego v. Commissioner, 114 T.C. ___ (2000).
5
The petitions suggest that because the deficiencies
reflected in the stipulated decisions entered in the deficiency
cases are less than the deficiencies determined in the notices of
deficiency upon which those cases were based, respondent erred
within the meaning of section 6404(e)(1). The pure folly of this
position is reflected by its abandonment on brief.
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deficiency”. Sec. 6404(e)(1). Stated differently, section
6404(e)(1) does not provide for the abatement of interest
assessed on a deficiency for the period between the dates that
the return is due and the taxpayer is contacted in writing with
respect to the deficiency. In his brief, petitioner appears to
have recognized this limitation, but he does not expressly
concede entitlement to abatements of interest that accrued prior
to the relevant dates, which are not in dispute. In any event,
for each of the deficiency years, respondent’s failure to abate
interest for the period that ran from the due date of the return
until respondent contacted petitioner in writing with respect to
the deficiency is consistent with the statute. Because the
statute does not authorize an abatement of interest for such
period, respondent’s failure to do so is not an abuse of
discretion.
Petitioner’s primary contention is that interest on the
deficiencies should be abated because of respondent’s conduct in
connection with the deficiency cases. According to petitioner,
the deficiency cases could have been concluded much sooner than
they were if not for certain actions on respondent’s part.
First, we disagree with petitioner’s suggestion that progress in
the deficiency cases was controlled by respondent. More
importantly, to the extent that petitioner identified specific
actions taken by respondent in the deficiency cases, such actions
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were not ministerial acts within the meaning of section 6404(e).
See Taylor v. Commissioner, 113 T.C. 206 (1999); Lee v.
Commissioner, supra.
Furthermore, section 6404(e) applies “only if no significant
aspect of such error or delay can be attributed to the taxpayer
involved.” As we view the matter, petitioner’s conduct, more so
than respondent’s, resulted in the length of time that the
deficiency cases were pending before this Court. Petitioner
could have settled the deficiency cases within 1 year after the
second case was filed. Instead, he waited approximately 7 years
to do so. Mr. Taylor (petitioner’s attorney in the deficiency
cases) testified that at the time he did not understand
respondent’s settlement offer and the delay in accepting it was
due to respondent’s failure, or refusal, to explain it to him.
Mr. Taylor’s explanation for the delay is less than compelling
considering his testimony long after the fact that, in his
opinion, petitioner should not have accepted respondent’s offer
because of the weaknesses in respondent’s positions in the
deficiency cases. Nevertheless, even if respondent had some
obligation to explain the settlement proposal to petitioner’s
attorney in the deficiency cases, an obligation assumed by
petitioner but unsupported by any authority, and even if
respondent failed to do so, respondent’s failure does not
constitute a ministerial act.
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We have considered all of petitioner’s complaints regarding
respondent’s conduct in connection with the deficiency cases,
including the claim made in petitioner’s brief that the 1981
deficiency was erroneously overstated in the stipulated decision
entered in the case involving that year, and find that none
supports a ground for relief under section 6404(e). Respondent’s
conduct in connection with the deficiency cases provides no basis
to conclude that respondent’s failure to abate interest was an
abuse of discretion.
Petitioner paid the deficiencies on various dates between
September 19 and November 28, 1994. None of the interest has
been paid. As of the date that each of the deficiencies was
paid, interest ceased to run on the underlying tax. However,
because no interest was paid, and because interest that accrued
after December 31, 1982, is compounded daily, interest continued
to accrue (and continues to accrue) after the dates that the
deficiencies were paid. Interest accruing after the dates that
the deficiencies were paid is due to petitioner’s failure to pay
the outstanding interest obligations and not due to a ministerial
act on respondent’s part. See Douponce v. Commissioner, T.C.
Memo. 1999-398. Respondent’s failure to abate interest for any
period after the dates that the deficiencies were paid was not an
abuse of discretion.
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To reflect the foregoing,
Decisions will be entered
for respondent.