T.C. Memo. 2002-266
UNITED STATES TAX COURT
DENNY’S AUTO SALES, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11150-01. Filed October 18, 2002.
Ronald Lawson and Dennis F. Lawson (officers), for
petitioner.
John A. Freeman and Robert D. Kaiser, for respondent.
MEMORANDUM OPINION
THORNTON, Judge: Respondent issued a notice of final
determination denying petitioner’s request to abate interest for
its 1995 tax year. Petitioner timely filed a petition pursuant
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to section 6404(i) and Rule 280.1 The sole issue for decision is
whether respondent abused his discretion in denying petitioner’s
request for abatement of interest.
Background
The parties have stipulated some of the facts, which we
incorporate in our findings by this reference. Petitioner is a
Kentucky corporation. When the petition was filed, petitioner’s
principal place of business was in South Shore, Kentucky.
On its 1995 Form 1120, U.S. Corporation Income Tax Return,
petitioner claimed a $188,660 depreciation deduction with respect
to certain used cars that were part of its car-rental program
(the used cars). In calculating this depreciation deduction,
petitioner assigned the used cars zero salvage value.
On June 18, 1997, respondent’s revenue agent first contacted
petitioner concerning its 1995 Federal income tax return. On
July 14, 1998, the revenue agent issued her report, proposing
that petitioner’s claimed depreciation deduction should be
reduced by $166,358, based on her conclusion that the salvage
value of the used cars was 89 percent of original cost.
On February 16, 1999, respondent granted petitioner’s
request for an Appeals conference. On or about January 10, 2000,
petitioner and the Appeals officer reached a settlement, agreeing
1
Unless otherwise stated, all section references are to the
Internal Revenue Code as amended, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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that the used cars should be assigned a 20-percent salvage value.
The settlement resulted in a 1995 deficiency of $9,030 (after
application of a 1998 net operating loss carryback). On May 22,
2000, respondent assessed $8,535.33 of interest on the 1995
deficiency. On June 16, 2000, petitioner paid the 1995
deficiency, exclusive of interest.
On September 18, 2000, petitioner filed a Form 843, Claim
for Refund and Request for Abatement, requesting abatement of
$5,210.10 of the then-accrued interest. By way of explanation,
petitioner stated on the Form 843:
The taxpayer believes a reasonable period to resolve
the issue should have been one year. Therefore, the
taxpayer [requests] an abatement of the interest in the
amount of $5,210.10. Leaving a balance due of
$3,437.40. This amount represents a reasonable amount
of interest on the balance owed of $9,030.
On February 1, 2001, petitioner paid $3,473.40 of the interest.
On July 13, 2001, respondent issued a Notice of Final
Determination disallowing petitioner’s request for abatement of
interest.
Discussion
Under section 6404(e)(1), the Secretary may abate interest
on any deficiency or payment of income, gift, estate, and certain
excise taxes to the extent that the deficiency or any error or
delay in such payment is attributable to erroneous or dilatory
performance of a ministerial act by an officer or employee of the
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Internal Revenue Service (IRS).2 Such an error or delay in
performing a ministerial act is taken into account only if it is
in no significant aspect attributable to the taxpayer and only if
it occurs after the IRS has contacted the taxpayer in writing
regarding the deficiency or payment.
Congress did not intend section 6404(e) to be “used
routinely to avoid payment of interest”; rather, it is to be
“utilized in instances 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
(1985), 1986-3 C.B. (Vol. 3) 1, 208.
For interest abatement claims made after July 30, 1996, the
Tax Court has jurisdiction to determine whether the
Commissioner’s failure to abate interest under section 6404(e)
was an abuse of discretion. See sec. 6404(i)(1);3 Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
In the petition, petitioner contends that respondent took an
“excessive amount of time in concluding the audit” and argues
2
In 1996, sec. 6404(e) was amended to permit abatement of
interest for “unreasonable” error or delay resulting from the
performance of ministerial or “managerial” acts. Taxpayer Bill
of Rights 2, Pub. L. 104-168, sec. 301(a)(1) and (2), 110 Stat.
1457 (1996). The amendment applies to tax years beginning after
July 30, 1996. Id. at sec. 301(c), 110 Stat. 1457. Therefore,
the amendment is inapplicable to the instant case.
3
Sec. 6404(i) was redesignated sec. 6404(h) by the Victims
of Terrorism Tax Relief Act of 2001, Pub. L. 107-134, sec.
112(d)(1)(B), 115 Stat. 2434-2435.
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that “if the IRS had not taken such an unreasonable position in
the beginning of the audit, then the delays on their part would
have been drastically reduced”. The mere passage of time,
however, does not establish that the Commissioner has erred or
delayed in performing a ministerial act. See Lee v.
Commissioner, 113 T.C. 145, 150 (1999). Similarly, the actions
of respondent’s agents in applying Federal tax law to
petitioner’s facts and circumstances required the exercise of
judgment and discretion and so did not constitute ministerial
actions that could provide a basis for abating interest. See
sec. 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed.
Reg. 30163 (Aug. 13, 1987).
At trial, petitioner’s certified public accountant, Gary
Fyffe (Fyffe), testified that on several occasions he requested,
on petitioner’s behalf, a meeting with the revenue agent’s group
manager to discuss the revenue agent’s proposed adjustments.
Fyffe testified that “basically I was told that * * * I wasn’t
going to get the meeting for different reasons, but * * * the
reason I remember most was for some reason she wasn’t available.”
Having failed to obtain a meeting with the group manager,
petitioner requested and received an Appeals conference. Fyffe
opined that because the salvage value used by the revenue agent
was “flawed”, petitioner “would have probably been a little more
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successful as far as getting a more reasonable adjustment” if the
case had been reviewed by a group manager.
Petitioner contends that the group manager’s failure to meet
with Fyffe to discuss the revenue agent’s proposed adjustments
constituted error in performing a ministerial act. In support of
this contention, petitioner relies on Internal Revenue Manual
section 4255.1(2)(b), which states:
If the taxpayer disagrees with the proposed
changes, either by letter or in person at the
originating office, the group manager, will on a
priority basis, and at his/her discretion, discuss the
disputed adjustments with the taxpayer in a further
attempt to resolve the issues and obtain the taxpayer’s
agreement. * * * [1 Audit, Internal Revenue Manual
(CCH), sec. 4255.1(2)(b), at 7709; emphasis added.]
This provision of the Internal Revenue Manual plainly
indicates that the group manager’s discussion of disputed
adjustments with the taxpayer is discretionary. Accordingly, the
nonoccurrence of such a discussion does not establish error in
performing a ministerial act.
In any event, we cannot assume that a meeting with the group
manager, if it had occurred, would have accelerated, rather than
protracted, resolution of petitioner’s tax controversy. It is
purely conjectural whether the group manager would have resolved
the disputed issue any more expeditiously than the Appeals
officer or any more to petitioner’s satisfaction; we cannot
assume that, even after meeting with the group manager,
petitioner would not have requested an Appeals conference, or
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that the final outcome of this more protracted administrative
proceeding would have been any more in petitioner’s favor.
Accordingly, there is no basis to conclude that any of the
interest on petitioner’s 1995 deficiency was attributable to the
group manager’s failure to meet with petitioner.
In sum, the record does not show that there was any
erroneous or dilatory performance of a ministerial act by
respondent that caused or contributed to the delay in
petitioner’s payment of the 1995 tax liability. Consequently,
respondent’s denial of petitioner’s request to abate interest
under section 6404 was not an abuse of discretion.
Decision will be entered
for respondent.