T.C. Memo. 2004-122
UNITED STATES TAX COURT
ROBERT JAMES JAFFE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11818-02. Filed May 19, 2004.
Robert James Jaffe, pro se.
Jonathan H. Sloat, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: Respondent denied in part petitioner’s
request under section 64041 for abatement of interest on his
Federal income tax deficiencies for 1983 and 1984. The issue for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at the time the petition was
filed, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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decision is whether respondent’s denial was an abuse of
discretion. Because we decide that (1) respondent was not
required to notify petitioner of a TEFRA audit, (2) respondent is
not required to offer petitioner a consistent settlement, and (3)
respondent did not err or delay in performing a ministerial act,
we hold that it was not an abuse of discretion.
FINDINGS OF FACT
Some of the facts are stipulated. The stipulation of facts
and the attached exhibits are incorporated herein by this
reference. At the time the petition was filed, petitioner
resided in Woodland Hills, California.
On his 1983 Federal income tax return, petitioner reported a
loss of $14,056, attributable to his investment in a partnership
called Asher & Associates (Asher). On his 1984 Federal income
tax return, petitioner reported a loss of $757 on Schedule E,
Supplemental Income and Loss, attributable to Asher. Asher was a
limited partner in Wilshire West Associates (Wilshire), one of 50
coal tax shelter partnerships or joint ventures (Swanton
programs) created by Norman Swanton (Mr. Swanton).2 In 1972, Mr.
2
Wilshire and 18 other Swanton partnerships were formed
after the enactment of the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA), Pub. L. 97-248, secs. 402-407(a), 96 Stat.
648, and are subject to the partnership rules of TEFRA. The
remaining 30 Swanton partnerships were formed before the
enactment of TEFRA.
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Swanton cofounded the Swanton Corp., a Delaware corporation
headquartered in New York, which promoted the Swanton programs.3
On July 14, 1986, respondent issued a notice of beginning of
administrative proceeding (NBAP) to Asher with respect to
respondent’s examination of Wilshire under the audit procedures
of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Pub. L. 97-248, secs. 402-407(a), 96 Stat. 648. As a result of
respondent’s examination of the Swanton programs, respondent
recommended that the Department of Justice (DOJ) criminally
prosecute Mr. Swanton. During the criminal investigation,
respondent suspended civil activity with respect to the Swanton
programs. Eventually, the period of limitations for criminal
prosecution of Mr. Swanton expired.4
On June 29, 1990, petitioner’s income tax returns were
identified by respondent and placed in “suspense” mode, pending
the outcome of the Swanton program litigation. This was done in
accordance with Internal Revenue Service (IRS) procedures
regarding taxpayers involved with a TEFRA partnership under
examination. On August 14, 1990, respondent issued Wilshire a
3
For a more detailed discussion of the Swanton programs,
see Kelley v. Commissioner, T.C. Memo. 1993-495.
4
Respondent’s records of the Swanton programs were
destroyed in the terrorist attack on the World Trade Center on
Sept. 11, 2001. We have accepted the uncontradicted testimony
from an Internal Revenue Service (IRS) attorney who worked on the
cases regarding certain details of the events surrounding the
litigation and settlement of the Swanton programs.
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notice of final partnership administrative adjustment (FPAA) with
respect to its 1983 and 1984 years. On September 4, 1990,
respondent issued an FPAA to Asher with respect to each of
Wilshire’s 1983 and 1984 years. On October 26, 1990, Wilshire
filed a petition with this Court with respect to its FPAA.
In May 1991, Moira Sullivan (Ms. Sullivan), an IRS attorney,
was assigned to work on the Swanton programs. In September 1991,
Ms. Sullivan and counsel representing the TEFRA Swanton programs
reached a basis of settlement. Negotiations regarding the terms
of this settlement continued until September 1993. The final
terms of settlement allowed the investors to deduct half their
cash investments, and subjected them to increased interest under
section 6621(c). In addition, the settlement required the
consent of all the Wilshire investors. One Wilshire investor
refused to consent to the settlement, and, eventually, separate
closing agreements were prepared for each Wilshire partner.
Trials for the pre-TEFRA Swanton programs began in the Tax
Court in 1989 and were completed in late 1992. Smith v.
Commissioner, 92 T.C. 1349 (1989); Kelley v. Commissioner, T.C.
Memo. 1993-495. Respondent filed his final brief in the pre-
TEFRA Tax Court litigation on August 14, 1992.5 Respondent
5
The Tax Court docket entry sheet for Kelley v.
Commissioner, supra, docket No. 34982-85, shows this date.
Respondent filed a notice of intent not to file a surrebuttal
brief on Sept. 30, 1992.
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suspended the implementation of the basis of settlement for the
TEFRA Swanton programs until the litigation phase of the pre-
TEFRA cases had concluded.
Asher’s tax matters partner (TMP) signed a closing
agreement with respect to Asher’s tax liabilities on July 9,
1997. It was countersigned by respondent on December 10, 1998.
On August 20, 1999, respondent sent petitioner a letter
explaining that the examination of Wilshire had been completed.
Respondent also sent petitioner Form 4549A-CG, Income Tax
Examination Changes (notice of adjustment), notifying petitioner
that his 1983 taxable income had been adjusted by $12,542 and his
1984 income had been adjusted by $718. These adjustments
resulted in deficiencies of $5,226 for 1983 and $773 for 1984.
In October 1999, petitioner paid the deficiencies. On November
1, 1999, respondent assessed petitioner’s deficiencies and
interest and issued petitioner a letter stating that petitioner
owed $23,915.94 of section 6621(c) interest for 1983. Also on
November 1, 1999, respondent issued petitioner a letter stating
that he owed $2,198.97 of section 6621(c) interest for 1984.
On November 8, 1999, petitioner filed Form 843, Claim for
Refund and Request for Abatement, requesting abatement of the
interest that had accrued from 1983 to 2000. On February 19,
2002, respondent issued a letter entitled “Partial Allowance-
Final Determination” (notice of determination) to petitioner. In
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the notice of determination, respondent granted interest
abatement for the period August 9, 1997 (31 days after the
closing agreement for Asher was signed by Asher’s TMP), through
December 10, 1998 (the date respondent countersigned the closing
agreement), and denied petitioner’s request for interest
abatement for the periods April 15, 1984, through August 9, 1997,
and December 10, 1998, through December 1, 2000. Petitioner
timely filed a petition in this Court, requesting review of
respondent’s determination to deny in part his request for
interest abatement for the period April 15, 1984, through August
1, 1999.
OPINION
As applicable to the years in question, section
6404(e)(1)(B) provides that the Commissioner may abate all or any
part of an assessment of interest on any payment of certain taxes
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”.6 A
ministerial act is a procedural or mechanical act that does not
involve the exercise of judgment or discretion and that occurs
6
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, Pub.
L. 104-168, sec. 301(a), 110 Stat. 1457 (1996). That standard
applies only to tax years beginning after July 30, 1996, and thus
does not apply in the present case. Id. sec. 301(c).
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during the processing of a taxpayer’s case after all
prerequisites to the act, such as conferences and review by
supervisors, have taken place. Lee v. Commissioner, 113 T.C.
145, 150 (1999); see also sec. 301.6404-2T(b)(1), Temporary
Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).
Abatement is available under section 6404(e) only for periods
after the IRS has contacted the taxpayer in writing with respect
to the deficiency or payment. Sec. 6404(e)(1).
This Court may order an abatement of interest only when the
Commissioner has abused his discretion in denying a taxpayer’s
request to abate interest. Sec. 6404(h). To show an abuse of
discretion, a taxpayer must prove that the Commissioner exercised
this discretion arbitrarily, capriciously, or without sound basis
in fact or law. Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
I. Respondent’s Failure To Notify Petitioner
Petitioner argues that it was an abuse of discretion for
respondent to fail to notify him of his 1983 and 1984 tax
deficiencies until August 20, 1999. The TEFRA procedures require
the Commissioner to notify certain partners of the beginning and
ending of a partnership audit. Sec. 6223(a). The Commissioner
is not required to give notice to a partner if the partnership
has more than 100 partners and the partner has less than a 1-
percent profits interest. Sec. 6223(b)(1). In the case of an
indirect partner owning an interest in the partnership through a
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pass-thru entity, the Commissioner is required to give notice to
such partner in lieu of the pass-thru entity that would otherwise
be entitled to notice, if the indirect partner’s name, address,
and profits interest is provided. Sec. 6223(c)(3).
The Commissioner’s duty to notify under section 6223(a) is
triggered only if the names, addresses, and profits interests of
partners and indirect partners are provided to the IRS in one of
two forms described in section 6223(c). They must be furnished
either on the tax return of the partnership being audited, or in
a statement to the IRS that fulfills the requirements of section
301.6223(c)-1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.
6784 (Mar. 5, 1987). Sec. 6223(c). The IRS also may use other
information that is available to it; however, it is not required
to “search its records” to obtain information not provided in the
forms required by section 6223(c). Sec. 301.6223(c)-1T(f),
Temporary Proced. & Admin. Regs., supra.7
In this case, the IRS was required to, and did, notify Asher
of the Wilshire audit. Sec. 6223(a). Wilshire’s partnership
return would have indicated Asher’s name, address, and profits
interest, and would also have indicated the number of partners
that Wilshire had. Nothing in the record indicates that the
Wilshire partnership return listed the individual Asher partners.
7
The temporary regulations were in effect for the year in
issue; the Commissioner published final regulations effective
Oct. 4, 2001. Sec. 301.6223(c)-1(g), Proced. & Admin. Regs.
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Although the IRS could have discovered this information using its
own records, in this case it chose not to. As a result,
petitioner was not entitled to receive personal notification by
the IRS of the Wilshire audit. Instead, Asher’s TMP was required
to notify petitioner of the partnership level proceedings. Sec.
6223(g) and (h)(2).
II. Consistent Settlement Issue
Petitioner next argues that he is entitled to abatement of
interest for the same period that the Commissioner granted
abatement of interest to the taxpayer in Beagles v. Commissioner,
T.C. Memo. 2003-67. Like petitioner, the taxpayer in Beagles was
an indirect investor in Wilshire, through a second-tier
partnership. She requested abatement of interest for the entire
period between 1984 and 2000. The Appeals officer granted her
request for the period May 8, 1992, through April 15, 1999, the
date on which a closing agreement was signed by that second-tier
partnership with respect to its 1983 and 1984 Wilshire
investments.
Section 6224(c) requires the Commissioner to offer
consistent settlement terms to partners with respect to the tax
treatment of partnership items. Petitioner’s liability for
increased interest under section 6621(c) is not a “partnership
item”; it is, instead, an “affected item” that relates to
partnership items but must be determined at the individual level.
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See also Hirshfield v. United States, 88 AFTR 2d 2001-6236, 2001-
2 USTC par. 50,480 (S.D.N.Y. 2001); cf. Sainte-Yves v.
Commissioner, T.C. Memo. 2002-158. Consequently, the
requirements of section 6224(c) do not apply to concessions
involving interest abatement. Cinema ‘84 v. Commissioner, 294
F.3d 432, 439-440 (2d Cir. 2002), affg. 111 T.C. 198 (1998);
Sainte-Yves v. Commissioner, supra. Therefore, section 6224 does
not require respondent to offer the same terms regarding interest
abatement to petitioner that were offered to Mrs. Beagles.
We review respondent’s actions for abuse of discretion.
Petitioner argues that respondent abused his discretion because
he did not offer the same terms to him as were offered to Mrs.
Beagles. Petitioner’s position is inconsistent with the
principle that respondent reviews each case in light of its
specific facts and circumstances. However, if respondent’s
actions with respect to petitioner’s settlement violated the duty
of consistency, which has been recognized by this Court in other
contexts, there is a potential for abuse of discretion.
As stated above, the importance of consistency of tax
compromises has been previously recognized by this Court. Penn-
Field Indus., Inc. v. Commissioner, 74 T.C. 720, 722 (1980);
Fresoli v. Commissioner, T.C. Memo. 1988-384; Avers v.
Commissioner, T.C. Memo. 1988-176. However, this duty must be
balanced against the settlement discretion given to the IRS,
which is “at its heart a discretion to treat similarly situated
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taxpayers differently.” Bunce v. United States, 28 Fed. Cl. 500,
509 (1993), affd. without published opinion 26 F.3d 138 (Fed.
Cir. 1994); see also Fresoli v. Commissioner, supra. In
implementing the balance, this Court requires the taxpayer to
show that: (1) Other similarly situated taxpayers received more
favorable settlements, and (2) the IRS’ discriminatory selection
of it was based on a suspect classification or any irrational or
arbitrary classification. Penn-Field Indus., Inc. v.
Commissioner, supra at 723; Fresoli v. Commissioner, supra.
Disparate treatment of investors in the same venture is
permissible if there is a rational basis for such treatment.
Avers v. Commissioner, supra.
Petitioner has shown that he and Mrs. Beagles invested in
similar partnerships, but not that the facts regarding abatement
were in all respects similar. In addition, petitioner has not
shown that he was denied the same period of interest abatement
that Mrs. Beagles received because of discrimination based on an
impermissible classification. Therefore, we conclude that
petitioner is not entitled to interest abatement on the same
terms that Mrs. Beagles was granted interest abatement.
III. Validity of the Assessment
Petitioner argues in his answering brief that respondent was
barred by the period of limitations from assessing any tax
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against him. He claims that respondent was required to assess
any tax within 1 year from the time Asher signed the closing
agreement on July 9, 1997. Ordinarily, we would not address a
new issue raised on brief. However, we will briefly address it
here because petitioner is a pro se taxpayer and because there is
no merit to the position.
Section 6229(f)(1) provides that, with respect to items
becoming nonpartnership items, “the period for assessing any tax
imposed by subtitle A which is attributable to such items (or any
items affected by such items) shall not expire before the date
which is 1 year after the date on which the items become
nonpartnership items”. The partnership items of a partner become
nonpartnership items when “the Secretary * * * enters into a
settlement agreement with the partner with respect to such
items”. Sec. 6231(b)(1)(C). A settlement agreement is not
entered into until both the partner and the Secretary have signed
it. Therefore, the period of limitations began to run on the
date respondent countersigned Asher’s closing agreement, December
10, 1998, and the assessment, which was made on November 1, 1999,
is valid.
IV. Was There An Abuse of Discretion?
We now examine the events of each relevant period in
petitioner’s case, which are described in the table below.
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Activity Date
Petitioner files his 1983 Apr. 15, 1984
return
Petitioner files his 1984 Aug. 12, 1985
return
Pre-TEFRA test cases begin 1989
in Tax Court
Ms. Sullivan is assigned to May 1991
Swanton programs
Tentative basis of settlement September 1991
is reached for TEFRA
Swanton programs
Respondent files last brief in Aug. 14, 1992
pre-TEFRA Swanton Tax Court
litigation
Final agreement on terms of September 1993
settlement is reached.
Asher’s TMP signs closing July 9, 1997
agreement
Respondent countersigns Dec. 10, 1998
Asher’s closing agreement
Respondent issues notice of Aug. 20, 1999
adjustment to petitioner
A. April 15, 1984, Through May 8, 1992
We held in Beagles v. Commissioner, T.C. Memo. 2003-67, that
the Commissioner was not erroneous or dilatory in performing a
ministerial act with respect to the Swanton programs between
April 15, 1984, and May 8, 1992. See also Deverna v.
Commissioner, T.C. Memo. 2004-80. We will briefly describe the
events that support this holding.
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Respondent suspended his activity with respect to the
Swanton programs from April 1984 until the period of limitations
for criminal prosecution of Mr. Swanton expired because Mr.
Swanton was being criminally investigated by DOJ. We have
previously held that the delay of a civil matter until resolution
of related criminal proceedings is reasonable. Taylor v.
Commissioner, 113 T.C. 206, 212 (1999), affd. 9 Fed. Appx. 700
(9th Cir. 2001). After the criminal investigation of Mr. Swanton
ended, litigation in this Court for the pre-TEFRA Swanton
programs continued until September 1992. See Smith v.
Commissioner, 92 T.C. 1349 (1989); Kelley v. Commissioner, T.C.
Memo. 1993-495. The mere passing of time during the litigation
phase of a tax dispute does not establish error or delay by the
Commissioner in performing a ministerial act, because decisions
about how to proceed in the litigation phase of a case
necessarily involve discretion. Lee v. Commissioner, 113 T.C. at
150. We therefore conclude, as this Court did in Beagles v.
Commissioner, supra, that it was not an abuse of discretion for
respondent to deny abatement of interest for the period April 15,
1984, through May 8, 1992.
Beagles v. Commissioner, supra, does not provide us with
guidance for periods after May 8, 1992, because in that case the
Commissioner granted interest abatement to the taxpayer for the
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period May 8, 1992, through April 15, 1999. We therefore must
review the events that occurred after May 8, 1992, to determine
whether respondent abused his discretion.
B. May 9, 1992, Through September 1993
From May 9 to August 14, 1992, respondent was involved in
litigation before this Court concerning the pre-TEFRA Swanton
programs. In accordance with our holding above, it was not an
abuse of discretion for respondent to deny interest abatement for
that period. See Lee v. Commissioner, supra at 150.
After the completion of the pre-TEFRA Tax Court litigation,
Ms. Sullivan negotiated with counsel for the TEFRA Swanton
programs regarding the final terms of settlement until September
1993. The TEFRA Swanton settlement work was added to Ms.
Sullivan’s normal caseload. According to her testimony, because
she was not assisted by any other attorney, she could not
finalize the terms of settlement while briefing the pre-TEFRA
cases. The settlements could have been completed more quickly if
more than one person had regularly been working on them.
Arguably, respondent made a managerial error when he assigned
only one employee to handle the settlement of all of the TEFRA
partnerships. This managerial decision contributed to the delay
in the resolution of petitioner’s case after the overall
settlement was reached.
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Under current law, section 6404(e) would authorize abatement
of interest during periods in which the settlement of the
Wilshire case was delayed as a result of managerial errors.
However, the language added to section 6404(e) permitting the
abatement of interest for unreasonable errors or delays in
performing managerial acts applies only to tax years beginning
after July 30, 1996, and thus does not apply in the present case.
Taxpayer Bill of Rights 2, Pub. L. 104-168, sec. 301(c), 110
Stat. 1452, 1457 (1996).
For years prior to 1996, section 6404(e) allows interest
abatement only for errors or delays by an officer or employee of
the IRS in performing ministerial acts. Respondent’s decision to
assign only one attorney to the Swanton TEFRA cases was not a
ministerial act, because the decision required discretion and
judgment. See Mekulsia v. Commissioner, T.C. Memo. 2003-138;
Beagles v. Commissioner, supra; Jacobs v. Commissioner, T.C.
Memo. 2000-123; sec. 301.6404-2T(b)(2), Examples (4) and (5),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987). The settlement negotiations that lasted until September
1993 also were not ministerial. Therefore, through September
1993, the delay was not due to a ministerial act. However,
further analysis is necessary in order to determine whether any
ministerial errors by respondent contributed to the subsequent
delays in petitioner’s case.
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C. October 1993 Through July 9, 1997
After the terms of settlement were resolved, it took Ms.
Sullivan a number of years to send out closing agreements to the
Wilshire investors because she was attempting to get the consent
of all the Wilshire investors and settle on the partnership
level. At some point, Ms. Sullivan changed her mind and decided
to send an individual closing agreement to each Wilshire
investor. Because Mrs. Sullivan’s implementation of this
settlement strategy was not ministerial, no abatement is required
for the period when she was attempting to obtain unanimous
consent from the Wilshire partners, including from the
nonconsenting Wilshire investor. Nothing in the record indicates
when Ms. Sullivan made the decision to change the settlement
strategy, or when she actually sent out the individual closing
agreements.
Recently, this Court held that it was not a ministerial
error for respondent to send out closing agreements for a similar
Swanton partnership as late as September 9, 1995. Deverna v.
Commissioner, T.C. Memo. 2004-80. If an even greater delay were
shown, a further examination of respondent’s actions after that
date would be warranted. However, petitioner has not presented
any evidence, from Asher’s TMP or otherwise, that indicates when
respondent sent out Asher’s closing agreement. In fact, the only
date in the record relevant to Asher’s closing agreement is the
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date Asher’s TMP signed it, July 9, 1997. Without more
information about when Asher’s TMP received the closing
agreement, or when Ms. Sullivan sent it out, we cannot find that
there was a delay by respondent in performing a ministerial act,
since the additional delay in this instance was likely the result
of the problem with the nonconsenting Wilshire partner’s
acceptance and the eventual failure of Ms. Sullivan’s settlement
strategy. Therefore, it was not an abuse of discretion for
respondent’s Appeals officer to deny interest abatement for the
period October 1993 through July 9, 1997.
D. December 11, 1998, Through August 1, 1999
After the Asher closing agreement was countersigned,
respondent adjusted petitioner’s 1983 and 1984 returns according
to the terms of the closing agreement and, on August 20, 1999,
issued petitioner the notice of adjustment. Respondent followed
regular IRS procedures in the processing of petitioner’s notice
of adjustment, and there is no evidence that respondent was
dilatory in performing a ministerial act during this period. We
conclude that it was not an abuse of discretion for respondent to
deny petitioner’s request for interest abatement for the period
December 11, 1998, through August 1, 1999.
Decision will be entered
under Rule 155.