KUPERSMIT v. COMMISSIONER

T.C. Memo. 2001-221

UNITED STATES TAX COURT

HAROLD AND BARBARA KUPERSMIT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8981-00. Filed August 14, 2001.

Harold and Barbara Kupersmit, pro sese.

David A. Breen, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge John F. Dean pursuant to the provisions of section

7443A(b)(5) in effect when this case commenced, and Rules 180,

181, and 183. Unless otherwise indicated, section references are

to the Internal Revenue Code as in effect for the tax years for

which petitioners seek abatement of interest. All Rule
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references are to the Tax Court Rules of Practice and Procedure.

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

Judge which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

DEAN, Special Trial Judge: On July 14, 2000, respondent

issued a notice of final determination denying petitioners’ claim

to abate interest for tax years 1996 and 1997. Petitioners

challenged the determination by timely filing a petition under

section 6404(i), as in effect at the time the petition was filed,

and Rule 281.

The issue for decision is whether respondent committed an

abuse of discretion by failing to abate assessments of interest

relating to petitioners’ 1996 and 1997 tax years.

Background

The stipulation of facts and the accompanying exhibits are

incorporated herein by reference. Petitioners resided in

Yardley, Pennsylvania, at the time their petition was filed with

the Court.

Petitioners were issued a notice of deficiency for their

1994 tax year in 1997, and on June 24, 1997, the Court received

and filed a petition for petitioners’ 1994 tax year. The

adjustments made to petitioners’ 1994 income tax return primarily

concerned unreported gambling income and the taxability of the

Social Security income petitioner Harold Kupersmit (Mr.
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Kupersmit) received on account of his disability. On July 28,

1997, petitioners wrote to the Court and requested permission to

combine tax years 1994, 1995, and 1996 in one proceeding because

the same issues were involved in all 3 years. Petitioners

received a written response dated August 5, 1997, from a staff

attorney at the Court stating that they could not amend their

petition to include tax years for which they had not received a

notice of deficiency.

Thereafter petitioners received a notice of deficiency with

respect to their 1995 tax year. Petitioners and respondent

reached agreements with respect to their 1994 and 1995 tax years,

and decisions were entered by the Court in February 1998.

Petitioners were first contacted by the Internal Revenue

Service (IRS) with respect to their 1996 Federal income tax

return on July 29, 1998, and a notice of deficiency was issued

for 1996 on November 18, 1998. With respect to their 1997

return, petitioners were first contacted by the IRS on January

13, 1999, and a notice of deficiency was issued for 1997 on April

7, 1999. The notices of deficiency for petitioners’ 1996 and

1997 tax years were based on adjustments to petitioners’ income

for unreported gambling winnings and taxable Social Security

benefits, similar to the adjustments made to petitioners’ 1994

and 1995 tax years.
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Petitioners filed petitions with the Court for the 1996 and

1997 tax years, and the docketed cases were assigned to an IRS

Appeals officer. On July 19, 1999, petitioners wrote to the

Appeals officer and submitted documentation to support their

gambling losses. On July 29, 1999, the Appeals officer wrote to

petitioners informing them that she accepted the documentation

for gambling losses and would allow the losses as itemized

deductions up to the amount of petitioners’ gambling winnings.

She also agreed to waive penalties if petitioners agreed to the

gambling adjustments and to the adjustments for their Social

Security income for both years.

Petitioners did not reach a settlement with the Appeals

officer, and the 1996 and 1997 cases were transferred to the IRS

Chief Counsel’s office in Philadelphia, Pennsylvania, for trial

preparation. The cases were settled by the IRS trial attorney on

the same terms as the offer made by the Appeals officer, and

decisions were entered on September 23, 1999, for tax year 1996

and October 4, 1999, for tax year 1997. Petitioners are

currently paying their 1996 and 1997 tax liabilities through an

installment agreement. The penalties listed in petitioners’

monthly statement from the IRS are failure to pay penalties.

Petitioners contend that they are entitled to have their

interest abated because the IRS delayed adjusting their 1996 and

1997 income tax liabilities. Mr. Kupersmit argued at trial that
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had he “been allowed to consolidate all four years, this matter

would be settled and I wouldn’t be here today.” Petitioners

further contend that their failure to include Social Security

income on their returns was the result of erroneous verbal advice

Barbara Kupersmit received from the “IRS Walk-In Service Center”

in Trenton, New Jersey, when they were completing their 1994

return. Petitioners also suggest they are entitled to interest

abatement because respondent assessed penalties against them for

their failure to make payments in accordance with their

installment agreement despite the fact that respondent conceded

that petitioners were not liable for section 6662 penalties.

Discussion

Pursuant to section 6404(i),1 the Tax Court has the

authority to review the Commissioner’s denial of a taxpayer’s

request for abatement of interest. The Court may order an

abatement where the Commissioner’s failure to abate interest was

an abuse of discretion. Sec. 6404(i). The taxpayer must

demonstrate that the Commissioner, in failing to abate interest,

exercised his discretion arbitrarily, capriciously, or without

sound basis in law or fact. Woodral v. Commissioner, 112 T.C.

19, 23 (1999).

1
Sec. 6404(i) was formerly designated sec. 6404(g) but 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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Section 6404(e)(1), as applicable to petitioners’ 1996 tax

year, authorizes the Commissioner to abate the assessment of

interest on: (1) Any deficiency attributable in whole or in part

to any error or delay by an officer or employee of the IRS in

performing a ministerial act, or (2) any payment of tax described

in section 6212(a) to the extent that any error or delay in such

payment is attributable to an officer or employee of the IRS

being erroneous or dilatory in performing a ministerial act. In

1996, section 6404(e) was amended by section 301 of the Taxpayer

Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1457 (1996), to

permit the Commissioner to abate interest with respect to an

“unreasonable” error or delay resulting from “managerial” and

ministerial acts. This amendment applies to interest accruing

with respect to deficiencies or payments for tax years beginning

after July 30, 1996. Woodral v. Commissioner, supra at 25 n.8.

Accordingly, the amendment is applicable to petitioners’ 1997 tax

year.

An error or delay by an officer or employee of the IRS is

taken into account only if no significant aspect of the error or

delay can be attributed to the taxpayer involved. Sec.

6404(e)(1). Moreover, only errors or delays occurring after the

IRS has contacted the taxpayer in writing with respect to the

deficiency or payment are taken into account. Id. Thus,

abatement of interest for the period between the date a taxpayer
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files a return and the date the Commissioner commences an audit

is not permitted under section 6404(e). Sims v. Commissioner,

T.C. Memo. 1999-414 (quoting H. Rept. 99-426, at 844 (1986),

1986-3 C.B. (Vol. 2) 1, 844).

Temporary regulations interpreting section 6404(e) define

the term “ministerial act” as “a procedural or mechanical act

that does not involve the exercise of judgment or discretion, and

that occurs during the processing of a taxpayer's case after all

prerequisites to the act, such as conferences and review by

supervisors, have taken place.” Sec. 301.6404-2T(b)(1),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,

1987). A decision concerning the proper application of law,

either Federal or State, is not a ministerial act. Id. Final

regulations under section 6404, issued in 1998 and generally

applicable to interest accruing on deficiencies or payments of

tax for taxable years beginning after July 30, 1996, provide the

same definition of ministerial act. Sec. 301.6404-2(b)(2),

Proced. & Admin. Regs.

A managerial act is defined in the final regulations as “an

administrative act that occurs during the processing of a

taxpayer’s case involving the temporary or permanent loss of

records or the exercise of judgment or discretion relating to

management of personnel.” Sec. 301.6404-2(b)(1), Proced. &

Admin. Regs. A general administrative decision, such as the
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IRS’s decision on how to organize the processing of tax returns

or its delay in implementing an improved computer system, is not

a managerial act for which interest can be abated. Id.

Petitioners have stipulated that their claim for abatement

of interest is not based on the allegation that the assessment of

interest is on any deficiency attributable to any unreasonable

error or delay by an officer or employee of the IRS in performing

a ministerial or managerial act. We thus consider whether any

error or delay by petitioners in paying their tax is attributable

to an employee of the IRS being erroneous or dilatory in

performing a ministerial or managerial act.

Petitioners have failed to establish any incidence of error

or delay, unreasonable or otherwise, by an officer or an employee

of the IRS in performing either ministerial or managerial acts

that gave rise to assessments of interest on either deficiencies

or payments for their 1996 and 1997 taxable years. When

petitioners met with Mr. Bibb, the IRS Appeals officer assigned

to petitioners’ 1994 and 1995 tax years, on October 7, 1997, Mr.

Bibb reviewed petitioners’ receipts of gambling winnings and

losses and verified petitioners’ gambling losses. He also

informed petitioners that the Social Security income they had

received on account of Mr. Kupersmit’s disability was taxable.

Petitioners recall that they then informed Mr. Bibb that they had

treated their gambling winnings and disability income on their
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1996 and 1997 tax returns in the same manner that they had in

1994 and 1995. They recall that they informed Mr. Bibb that they

would like to resolve their 1996 and 1997 tax years at that time.

Mr. Kupersmit testified that they were told by Mr. Bibb to file

amended returns. Mr. Bibb testified that he probably had advised

petitioners to file an amended return for 1996, but he pointed

out that on October 7, 1997, petitioners would not yet have filed

their 1997 return.

Although petitioners would like to have resolved all their

tax years at the same time, Mr. Bibb committed no error or delay

in reviewing only those tax years assigned to him. Furthermore,

at the time petitioners met with Mr. Bibb, the IRS had not

contacted petitioners regarding their 1996 tax year, and

petitioners had yet to file their 1997 return. Thus, Mr. Bibb’s

actions are not to be taken into account with respect to interest

accruing for petitioners’ 1996 and 1997 tax years. Sec.

6404(e)(1).

Petitioners also appear to argue that their interest should

be abated because they completed their 1996 and 1997 returns in

accordance with verbal advice they received from an IRS employee

in 1995 regarding the taxability of their Social Security income.

Petitioners may be seeking relief under section 6404(f)(1), which

generally calls for the abatement of any portion of any penalty

or addition to tax attributable to erroneous advice furnished to
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a taxpayer in writing by an officer or employee of the IRS,

acting in his or her official capacity. Petitioners, however, do

not allege that they have been assessed any penalty or addition

to tax attributable to written advice.

The advice petitioners testified they received and relied

upon does not constitute a ministerial or managerial act, and it

was received well before petitioners were contacted by the IRS

regarding their 1996 and 1997 tax years. Moreover, petitioners

learned in 1997 when they met with Mr. Bibb that the advice was

erroneous.

Finally, petitioners contend that respondent erroneously

assessed penalties against them for tax years 1996 and 1997 in

disregard of the terms of their settlement agreement and the

decision documents entered in their cases. Petitioners have

stipulated that the penalties listed on their monthly statement

from the IRS are penalties for failure to make payments under

the terms of their installment agreement. These penalties are

unrelated to the section 6662(a) penalties conceded by respondent

in settling petitioners’ cases.

The record does not support the existence of any erroneous

or dilatory ministerial or managerial actions on the part of

respondent, unreasonable or otherwise, which gave rise to

assessments of interest with respect to petitioners’ 1996 and
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1997 tax years. We therefore hold that respondent’s failure to

abate interest was not an abuse of discretion.

We have considered all other arguments advanced by

petitioners and, to the extent not discussed above, have found

those arguments to be irrelevant or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.