T.C. Memo. 2002-10
UNITED STATES TAX COURT
JAMES EDWARD CRAWFORD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7803-00. Filed January 10, 2002.
James Edward Crawford, pro se.
Stephen R. Takeuchi, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON, Judge: This case was assigned to Chief Special
Trial Judge Peter J. Panuthos 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 year for which petitioner seeks abatement of interest. All
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Rule 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
PANUTHOS, Chief Special Trial Judge: On April 7, 2000,
respondent issued a notice of final determination denying
petitioner’s claim to abate interest for tax year 1980.
Petitioner challenged the determination by timely filing a
petition under section 6404(i) and Rule 281.
The issue for decision is whether respondent abused his
discretion in denying petitioner's request for abatement of
interest assessed from July 1993, through the present date with
respect to petitioner’s 1980 taxable year.
FINDINGS OF FACT
The stipulation of facts and the accompanying exhibits are
incorporated herein by reference. Petitioner resided in Brandon,
Florida, at the time his petition was filed with the Court.
In 1983, petitioner invested in the First Energy Leasing tax
shelter (First Energy) and claimed an investment tax credit of
$10,000, of which he applied $3,670 to his 1983 tax liability.
He carried back $6,330 of the credit to his 1980 tax year for
which he filed a Form 1045, Application for Tentative Refund,
received by the Cincinnati Service Center on March 20, 1984.
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Petitioner was issued a refund of $6,330 plus interest of $183.31
for a total of $6,513.31.
In a letter dated July 17, 1984, the Internal Revenue
Service (IRS) notified petitioner that for tax year 1983 First
Energy was an abusive tax shelter the deductions from or credits
for which "are not allowable". On November 4, 1986, the IRS sent
petitioner's attorney a settlement offer regarding First Energy.
After no response was received, the IRS issued a notice of
deficiency dated July 13, 1987, determining deficiencies in
petitioners’ Federal income taxes for 1980 and 1983 in the
amounts of $6,330 and $5,717, respectively, and additions to tax
for 1980 in the amounts of $316.50 and $1,899 under sections
6653(a) and 6659, respectively. The underpayment of tax for 1980
was determined to be a substantial underpayment attributable to a
tax motivated transaction under section 6621(c).
Petitioner filed a petition with the Court on August 17,
1987, for a redetermination of the deficiencies. After a timely
answer was filed, respondent, on October 15, 1987, sent
petitioner's case to the Appeals Office to give petitioner
another opportunity to accept the "national" settlement offer.
On January 13, 1988, respondent's counsel wrote to petitioner's
counsel inquiring "whether you intend to litigate all issues, or
only the penalty issues, and whether you will agree to a test
case approach." In a letter dated March 10, 1988, petitioner
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indicated that he wanted to litigate all the issues related to
First Energy and that he was willing to be bound by a test case.
The following year, in a letter dated January 12, 1989,
petitioner's counsel wrote to respondent's counsel expressing a
desire to "proceed with the government's settlement offer" and
requesting a computation showing the settlement deficiencies. In
a letter dated June 27, 1989, respondent sent to petitioner's
counsel copies of a proposed decision, stipulation, and closing
agreement together with a computation of tax. In this proposed
settlement, petitioner would agree to a deficiency in tax for
1980 of $6,330. He would also agree to a deficiency in tax for
1983 of $4,613, net tax payments of $5,717, and an overpayment of
$1,104. The parties would also make certain concessions as to
additions to tax and additional amounts to be paid under section
6621(c).
Respondent's counsel wrote to petitioner's counsel in a
letter dated October 17, 1989, to inform him that petitioner had
contacted respondent's counsel and alleged that he had not
received the $6,330 refund for 1980 that he had applied for on
Form 1045. In the letter, respondent's counsel also informed
petitioner's counsel that a pretrial conference in unsettled
First Energy cases was being scheduled requiring the receipt of
any agreed decision before November 3, 1989. There was no
acceptance of the offer.
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On July 26, 1990, respondent filed motions to calendar, to
change place of trial, and for pretrial conference. The Court
subsequently granted respondent's motion for pretrial conference
and denied the other two motions.
In response to petitioner's request, respondent's counsel
enclosed in a letter sent to him on or about October 22, 1990, a
Form 3911, Taxpayer Statement Regarding Refund. The form, used
in tracing refund checks, requires the taxpayer to supply certain
information certified to be correct, to the best of his
knowledge, under penalties of perjury. The form states that the
information requested may be provided in a letter. On November
28, 1990, petitioner sent to the Cincinnati Service Center a
letter requesting "a photocopy of a refund check I allegedly
received in July of 1984" in the amount of $6,330. Petitioner
states in the letter that he never received the refund check in
the amount of $6,330. The letter does not contain a statement
that it is certified to be correct, to the best of his knowledge,
under penalties of perjury.
Petitioner's counsel filed a motion to withdraw from his
representation of petitioner on December 17, 1990, which motion
was subsequently granted.
Petitioner was notified of a change in respondent's
settlement position in the First Energy cases in a letter dated
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March 20, 1991, and the new settlement was offered to petitioner
for acceptance within a period of 4 weeks.
The Court issued an order on April 18, 1991, scheduling
petitioner's trial on August 26, 1991, in Chicago, Illinois. On
April 23, 1991, respondent wrote to petitioner, now residing in
Florida, requesting informal discovery of documents related to
his investment in First Energy as well as answers to a number of
questions related to the investment. The following month,
petitioner signed a Form 906, Closing Agreement On Final
Determination Covering Specific Matters, that effectively settled
the issues in his case.
On June 3, 1991, the Court struck petitioner's case from the
August 26, 1991, trial session due to the stipulation of settled
issues resolving the First Energy matter.
On or about September 7, 1991, respondent's counsel inquired
as to the status of petitioner's request for a trace of his 1980
refund check. Petitioner replied in a letter dated September 26,
1991, that "My last written request was submitted in November
1990 asking for a photocopy of the check they allegedly sent me
on July 18, 1984 for $6513.31. As of this date I still have not
received it." On November 8, 1991, petitioner's case was
forwarded to the Appeals Office for a settlement computation.
Petitioner further replied to respondent's counsel, in a
letter dated November 12, 1991, that he was notified that his
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First Energy deductions were abusive "BEFORE they allegedly sent
me the check in question." He acknowledged receiving a document
"indicating that the check was mailed to me on July 18, 1984."
But he questioned "why did the IRS send me a refund check on July
18, 1984 after telling me on July 17, 1984 that I was not
entitled to that refund?" Petitioner also took the position that
just because the check was sent to him and cashed did not mean
that he was the one who cashed it. Respondent's counsel advised
petitioner in a follow-up letter that the issue of his receipt of
the refund check was not an issue triable in his Tax Court case.
On December 16, 1991, the Court granted a motion by
respondent's counsel to change place of trial to Tampa, Florida.
In a letter dated February 10, 1993, respondent's counsel located
in Jacksonville, Florida, requested petitioner's consideration of
a proposed stipulation of facts and a request for documents,
including petitioner's bank statements for the period July
through December 1984. Respondent's counsel sent petitioner a
followup request for bank statements on April 2, 1993.
Respondent, on April 6, 1993, sent to the Court a trial
memorandum for petitioner's case set on the April 26, 1993, trial
calendar in Tampa, Florida. The memorandum frames the issue for
trial as whether petitioner received the 1980 refund of $6,330 he
claimed on Form 1045, recognizing Naftel v. Commissioner, 85 T.C.
527, 531-532 (1985) as authority for the Court’s having
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jurisdiction to decide the issue. Petitioner agreed to settle
his case. On April 14, 1993, he signed a decision document
agreeing to deficiencies of $6,330 for 1980 and $5,717 for 1983,
and to certain concessions as to additions to tax and an
additional amount under section 6621(c). The decision document
also states, consistent with the settlement computation of June
27, 1989, that petitioner has net tax payments of $5,717 for
1983.
On July 26, 1993, petitioner sent a check for $1,567.51 to
the IRS for his 1980 tax liability. In response to a letter from
petitioner dated February 16, 1994, the Court wrote to him
explaining that jurisdiction did not currently exist to recompute
the statutory interest to be assessed on his 1980 tax deficiency.
Petitioner alleged in his letter to the Court that the amount he
was now disputing was "the RE-PAYMENT of money the IRS sent me in
error, plus nine (9) years of compounded interest."
In response to petitioner's correspondence to Commissioner
Michael P. Dolan, dated November 13, 1997, the Acting District
Taxpayer Advocate sent petitioner a letter dated January 7, 1998,
attempting to explain petitioner's transcripts of account for
1980 and 1983.
On April 27, 1999, respondent received a Form 843, Claim for
Refund and Request for Abatement, filed by petitioner. In an
attachment to the form, petitioner states that "The two sources
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of the problem are a refund check sent to me in error and a tax
credit I received in the amount of $5,717." Later in the
attachment he alleges that IRS representatives assured him that
if he did not prevail in Tax Court he would get a $5,717 credit
deducted from the $6,330 check he had received. "I would then
owe the difference between the two amounts plus interest. I
would have returned the $6,330 check had I not been given this
assurance. [Emphasis in original.]” The mistake he further
isolates in the attachment is that the IRS sent him the refund
check after First Energy was determined to be abusive and then
provided him with incorrect information. "This improper
information is the source of these interest payments." He
requests further that he receive a "refund" of all interest
payments made since 1993.
The IRS District Director in Jacksonville, Florida denied
petitioner's request for abatement in a letter dated October 25,
1999.
OPINION
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
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. 743, 745.
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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).
Petitioner requests abatement of interest pursuant to
section 6404(e)(1). Section 6404(e)(1), as applicable to
petitioner’s 1980 and 1983 tax years,2 reads as follows:
Sec. 6404(e). Assessments of interest
attributable to errors and delays by Internal Revenue
Service.--
(1) In General.--In the case of any assessment of
interest on–-
(A) any deficiency attributable in whole or
in part to any error or delay by an officer or
employee of the Internal Revenue Service (acting
in his official capacity) in performing a
ministerial act, or
(B) any payment of any tax described in
section 6212(a) to the extent that any error or
delay in such payment is attributable to such
officer or employee being erroneous or dilatory in
performing a ministerial act,
the Secretary may abate the assessment of all or any
part of such interest for any period. For purposes of
the preceding sentence, an error or delay shall be
2
Congress amended sec. 6404(e) in 1996 to permit abatement
of interest for “unreasonable” error or 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. 1457
(1996). That standard, however, applies to tax years beginning
after July 30, 1996. TBOR 2 sec. 301(c), 110 Stat. 1457.
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taken into account only if no significant aspect of
such error or delay can be attributed to the taxpayer
involved, and after the Internal Revenue Service has
contacted the taxpayer in writing with respect to such
deficiency or payment.
The deficiency or payment, therefore, must be attributable to
an error or delay by an officer or employee of the IRS in the
performance of a ministerial act. Id.
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).3 A decision concerning the proper application
of Federal tax law, or other Federal or State law, is not a
ministerial act. Id.
Congress intended for the Commissioner to abate interest
“where failure to abate interest would be widely perceived as
grossly unfair.” 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. Yet, Congress intended that abatement would
3
Final regulations under sec. 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.
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be used sparingly, and it did not intend that abatement “be
used routinely to avoid payment of interest.” Id.
Petitioner currently argues that his interest should be
abated because he counted on receiving a tax "credit" of $5,717
from 1983 toward the payment of his 1980 tax deficiency in
accordance with written and oral advice he received from
"several" IRS employees prior to filing a petition in the Tax
Court. He states now that he would have returned the $6,330
check, which he at one time claimed he did not receive, but for
the "erroneous" advice given to him.
Petitioner's statement of the facts in his case has evolved
to its present form. From October 1989 until April of 1993,
petitioner represented to respondent that he had not received
the $6,330 refund he had requested on Form 1045. After signing
a decision document agreeing that there were deficiencies in
his Federal income taxes for 1980 and 1983, he formulated a new
position. His new position is that it was the fault of the IRS
that he received the $6,330 refund "in error". Furthermore, he
now states that he sought a redetermination of his deficiencies
only because several persons at IRS told him that he had a tax
"credit" of $5,717 that would be deducted from the $6,330
refund if he lost his case in Court.
Petitioner has presented no evidence of the "advice" he
claims he received from IRS employees, other than his own
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testimony. He has not even identified the employees who
allegedly gave him the advice. But any advice given to him by
IRS employees, whether accurate or inaccurate, would be a
product of the legal or administrative judgment of the person
giving the advice. Therefore, the oral advice petitioner
testified he received and relied upon does not constitute a
ministerial act. Moreover, petitioner should have known the
"advice" to be erroneous in April 1993. That was when he
signed the decision document agreeing that he had net tax
payments for 1983 of $5,717 on a tax deficiency to be assessed
in the amount of $5,717, and a deficiency in income tax due for
1980 of $6,330.
Petitioner's present request for a "refund" of interest
from 1993 forward conflicts with the evidence of his actual
knowledge or reason to know that he was entitled to neither a
$5,717 refund for 1983 nor a $5,717 tax "credit" from 1983 to
1980.
In sum, respondent’s refusal to abate interest was not an
abuse of discretion. We have considered all other arguments
advanced by petitioner 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.