T.C. Memo. 2004-69
UNITED STATES TAX COURT
JOE NATHAN WRIGHT and LOLA H. WRIGHT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8200-02. Filed March 18, 2004.
Ps submitted multiple offers in compromise with
respect to their reported but unpaid Federal income tax
liabilities for 1993 and 1994. R did not accept any of
Ps’ offers. Ps requested abatement of interest under
sec. 6404(e), I.R.C., on the ground that R unreasonably
delayed the processing of their offers in compromise.
R rejected Ps’ request for interest abatement.
Held: Ps have failed to establish that any delay
in their payment of their 1993 and 1994 tax liabilities
is attributable to any action or inaction on the part
of IRS personnel in processing Ps’ offers in
compromise; therefore, interest is not abatable under
sec. 6404(e), I.R.C., and R did not abuse his
discretion in rejecting Ps’ request for abatement.
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Joe Nathan Wright and Lola H. Wright, pro sese.
Alvin A. Ohm, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: This case is before the Court for review of
respondent’s failure to abate interest. Unless otherwise noted,
all section references are to the Internal Revenue Code of 1986,
as amended.
FINDINGS OF FACT
Some facts are stipulated and are so found. The stipulation
of facts, with accompanying exhibits, is incorporated herein by
this reference. At the time they filed the petition, petitioners
resided in Richardson, Texas.
Petitioners’ 1993 and 1994 Federal Income Tax Returns
Petitioners timely filed Federal income tax returns for
their 1993 and 1994 taxable (calendar) years (the 1993 return and
the 1994 return, respectively). On the 1993 return, petitioners
reported tax of $66,451 and prior payments of $2,000.
Petitioners made an additional $2,000 payment when they filed the
1993 return. On the 1994 return, petitioners reported tax of
$60,325 and prior payments of $2,000. Petitioners made an
additional $1,000 payment when they filed the 1994 return.
Petitioners’ Offers in Compromise
On or before September 18, 1995, respondent received an
offer in compromise from petitioners dated August 30, 1995,
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regarding their 1993 and 1994 tax liabilities. By that time,
petitioners had made additional payments of $20,000 in respect of
their 1993 tax liability and $500 in respect of their 1994 tax
liability. Respondent rejected petitioners’ initial offer in
compromise in March 1996. During the period from March 1996 to
October 1998, petitioners submitted several additional and
revised offers in compromise, none of which respondent accepted.1
During that same period, petitioners made aggregate payments of
$4,500 in respect of their 1993 tax liability and received an
additional $1,476 credit with respect thereto.
Petitioners’ Requests for Abatement
In a letter addressed to Revenue Officer Melvin Chappell
dated September 13, 1997, petitioners requested abatement of
additions to tax asserted by respondent with respect to their
1993 and 1994 taxable years.
On October 8, 1998, petitioners filed separate Forms 843,
Claim for Refund and Request for Abatement, with respect to their
1993 and 1994 taxable years. On the Forms 843, petitioners
requested abatement of both interest and additions to tax. In a
letter submitted with the Forms 843, petitioners claimed that
such interest and additions to tax resulted from unreasonable
1
Petitioners maintain that they submitted a total of five
offers in compromise. Respondent maintains that petitioners
submitted three offers in compromise and two revised or amended
offers. For the sake of clarity, we treat petitioners’
submissions as five separate offers in compromise.
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delays on the part of the Internal Revenue Service (IRS) in
processing their offers in compromise.2 By a notice of final
determination dated October 31, 2001, respondent rejected in full
petitioners’ 1998 requests for abatement.
Filings and Proceedings in This Court
Petitioners timely petitioned this Court for review of
respondent’s failure to abate interest. In the petition,
petitioners also requested the Court to review respondent’s
failure to abate additions to tax. By order dated August 15,
2002, the Court granted respondent’s motion to dismiss for lack
of jurisdiction and to strike insofar as the petition relates to
respondent’s failure to abate additions to tax. The Court
conducted a trial with respect to the interest abatement issue at
its trial session in Dallas, Texas, on February 25, 2003.
OPINION
I. Law
A. Section 6404
As applicable to the years for which petitioners seek
relief, section 6404(e)(1) provided as follows:3
2
Petitioners also complained of erroneous advice provided
by the Internal Revenue Service that resulted in an increased tax
liability for their 1993 taxable year. At trial, petitioners did
not rely on that allegation as a ground for interest abatement.
3
Congress amended sec. 6404(e)(1) in 1996 to apply to
“unreasonable” errors and delays and to “managerial” as well as
ministerial acts. Taxpayer Bill of Rights 2, Pub. L. 104-168,
sec. 301(a), 110 Stat. 1457 (1996). Those amendments apply to
(continued...)
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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 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.
Section 6404(h) authorizes this Court to determine whether the
Secretary’s failure to abate interest under section 6404(e)(1)
was an abuse of discretion and, if the Court so determines, to
order an abatement. “In order to prevail, the taxpayer must
demonstrate that in not abating interest the Secretary exercised
3
(...continued)
interest accruing with respect to deficiencies and payments for
tax years beginning after July 30, 1996. Id. sec. 301(c).
Hereafter, all references to sec. 6404(e)(1) will be to that
section prior to its amendment by the Taxpayer Bill of Rights 2.
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his discretion arbitrarily, capriciously, or without sound basis
in fact or law.” Lee v. Commissioner, 113 T.C. 145, 149 (1999).
B. Application to This Case
As noted above, petitioners reported the tax amounts that
are generating the interest at issue. Accordingly, there are no
deficiencies involved in this case, see sec. 6211(a), and
petitioners can seek interest abatement only pursuant to section
6404(e)(1)(B). Respondent is authorized to abate interest under
section 6404(e)(1)(B) in this case only to the extent any delay
in petitioners’ payment of their 1993 and 1994 tax liabilities is
attributable to the erroneous or dilatory performance of a
ministerial act by an officer or employee of the IRS.
II. Petitioners’ Allegations
At trial, petitioners identified numerous instances of what
they allege to be erroneous or dilatory performance of
ministerial acts by IRS employees during the processing of their
offers in compromise and requests for abatement. Specifically,
petitioners allege that various IRS personnel: (1) Failed to
notify petitioners of the rejection of their second offer in
compromise, (2) ignored petitioners’ request for a report listing
the factors underlying the rejection of their third offer in
compromise, (3) temporarily refused to grant petitioners a
requested Appeals conference following the rejection of their
third offer in compromise, (4) directed petitioners to submit
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their fourth offer in compromise by facsimile letter, only to
inform them several months later that such offer was not in
proper form and therefore could not be considered, (5) took 6
months to deliver copies of requested transcripts of account,
(6) failed to provide petitioners a copy of their “master file”,
as requested in their fourth offer in compromise, (7) did not
accept petitioners’ proposal for an installment agreement, which
called for a monthly payment based on petitioners’ excess monthly
income, as previously determined by IRS personnel, (8) failed to
respond to petitioners’ 1997 letter requesting abatement of
additions to tax, (9) failed to grant petitioners a requested
Appeals conference following the rejection of their fifth offer
in compromise, and (10) ignored petitioners’ requests for copies
of their transcripts of account and an Appeals conference
following the rejection of their 1998 request for abatement of
interest and additions to tax.
III. Analysis
A. Allegations 8-10
We begin with petitioners’ allegations numbered 8, 9, and 10
above. Petitioners did not raise any of those allegations in
their request for interest abatement; indeed, allegations 9 and
10 involve acts and omissions that could not have predated
petitioners’ filing of that request. Furthermore, the record is
devoid of any evidence that petitioners subsequently advised
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respondent, during his consideration of their request, that they
were relying on allegations 8, 9, and 10 as additional grounds
for relief. As we are charged with determining whether
respondent abused his discretion in denying petitioners’ request
for interest abatement, allegations petitioners failed to bring
to respondent’s attention during that consideration process
generally cannot be relevant to our inquiry. See Stewart v.
Commissioner, T.C. Memo. 2003-106 n.5; cf. Magana v.
Commissioner, 118 T.C. 488, 493 (2002) (“it would be anomalous
and improper for us to conclude that respondent’s Appeals Office
abused its discretion under section 6330(c)(3) [collection due
process determination] in failing to grant relief, or in failing
to consider arguments, issues, or other matter not raised by
taxpayers or not otherwise brought to the attention of
respondent’s Appeals Office”). Accordingly, we need not further
evaluate those allegations.
B. Allegations 1-7
Accepting arguendo the veracity of the allegations numbered
1-7 above and that such allegations involve “ministerial acts”
for purposes of section 6404(e), we conclude that petitioners
have failed to demonstrate that respondent abused his discretion
in refusing to abate interest with respect to petitioners’ 1993
and 1994 tax liabilities. We reach that conclusion primarily
because petitioners have failed to establish that they were
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delayed in making any payment of those tax liabilities on account
of an act or omission of IRS personnel. With respect to interest
occasioned by a late payment of tax, the essence of section
6404(e)(1)(B) is that the Secretary may abate that interest if,
but for some act or omission of IRS personnel in performing a
ministerial act, such payment probably would have been made
sooner. If, notwithstanding that act or omission, no earlier
payment would have been made, then no abatement is called for.
We have applied that principle by upholding the Secretary’s
discretion not to abate interest where the taxpayer failed to
establish that he had the financial resources to satisfy the tax
liability when the claimed error occurred. See Harbaugh v.
Commissioner, T.C. Memo. 2003-316; Spurgin v. Commissioner, T.C.
Memo. 2001-290; Hawksley v. Commissioner, T.C. Memo. 2000-354.
Certainly, petitioners cannot claim that the IRS caused any
delay in the payments contemplated in their various offers;
petitioners could have commenced those payments at any time.4
Regarding the balance of their 1993 and 1994 tax liabilities,
petitioners have made no showing that they would have (or could
have) paid those amounts sooner if respondent had rejected their
offers sooner. Among petitioners’ proposed findings of fact are
proposed findings that they had net assets of about $20,000
4
As noted earlier, petitioners indeed made a series of
nine $500 payments in 1998 prior to submitting their final offer
in compromise.
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(including only $5,000 in cash) on each of March 18 and July 19,
1996, and $8,600 (including only $2,100 in cash) on October 8,
1998. Apparently, petitioners did not even have enough cash to
pay the amounts they had offered in compromise. Indeed, there is
no evidence that petitioners ever paid the balances of their 1993
and 1994 tax liabilities. Petitioners have obviously delayed
paying their 1993 and 1994 tax liabilities in full, but the fault
lies with them, not with respondent.
IV. Conclusion
Because the interest at issue is not abatable under section
6404(e), respondent necessarily did not abuse his discretion in
rejecting petitioners’ request for abatement thereof.
To reflect the foregoing,
Decision will be entered
for respondent.