T.C. Memo. 2004-125
UNITED STATES TAX COURT
CHARLES DURHAM, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5185-02. Filed May 25, 2004.
Maurice W. Gerard, for petitioner.
Caroline R. Krivacka, for respondent.
MEMORANDUM OPINION
HOLMES, Judge: Section 6404(e) of the Code1 gives the
Commissioner power to abate interest that has accrued on unpaid
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code; Rule references are to the Tax Court
Rules of Practice and Procedure; Constitution references are to
the Constitution of the United States.
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taxes. In 1996, Congress amended the section to allow abatement
more often, but made the amendment effective only for interest
accruing on tax deficiencies or payments for tax years beginning
after the date of enactment--July 30, 1996. Petitioner, Charles
Durham, was under audit for his 1992-94 tax years when the
amendment was enacted. He wants to take advantage of the
amendment’s terms, and so challenges the constitutionality of its
effective date. The case comes to us on cross-motions for
summary judgment.
Background
Before the 1996 amendment, the Commissioner could abate
interest under section 6404(e) only when interest had accrued
because of an IRS employee’s error or delay in performing a
“ministerial act.” Sec. 6404(e) (1994) (“old section 6404(e)”);
see Woodral v. Commissioner, 112 T.C. 19, 24-25 (1999). But
“ministerial act” was narrowly defined as “a procedural or
mechanical act that does not involve the exercise of judgment or
discretion....” Proced. & Admin. Regs., sec. 301.6404-2T(b)(2),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987).2 This definition captured only such bureaucratic snafus
as delays in transferring a case between offices or in issuing an
already agreed-upon notice of deficiency. Id. Examples (1) and
(2).
2
The identical definition carried over to the final
regulations in effect for tax years commencing after July 30,
1996. Proced. & Admin. Regs., sec. 301.6404-2(b)(2).
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Congress came to think that other sorts of delays called for
relief from the relentless accrual of interest. The 1996
amendment (“new section 6404(e)”) therefore empowered the
Commissioner to abate interest caused by any “unreasonable error
or delay by an officer or employee of the Internal Revenue
Service * * * in performing a ministerial or managerial act.”
Taxpayer Bill of Rights 2, Pub. L. 104-168, sec. 301, 110 Stat.
1452, 1457 (1996) (emphases added). “Managerial” acts include
such mistakes as “the temporary or permanent loss of records”
and, more generally, mistakes in the “exercise of judgment or
discretion relating to management of personnel.” Proced. &
Admin. Regs., sec. 301.6404-2(b)(1).
Petitioner’s problems began in April 1995, when the IRS
started to audit his 1992 tax return. The IRS later expanded the
audit to his 1993 and 1994 returns. The audit went slowly: in
January 1996, the IRS reassigned the first revenue agent working
on this case to other matters and didn’t put a second agent on it
until May 1996. A year later, the case went to the IRS’s Appeals
Office. The Appeals officer concluded that the audit needed
additional work and returned the case to the district office in
November 1997, where it went into suspended animation.
Respondent blames this on petitioner’s attorney, and petitioner
blames it on respondent’s personnel assignments and mishandling
of files. Work finally resumed in early 1999, and the parties
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closed the case in March 1999 with petitioner’s agreeing to the
assessment and collection of deficiencies for 1992-94.
In October 1999, petitioner asked respondent to abate at
least part of the accrued interest, citing respondent’s delays in
handling the case. Respondent issued his final determination in
August 2001. It completely disallowed petitioner’s request, and
this appeal followed.
Petitioner has at all relevant times been a resident of
Tennessee, and this case was originally set to be tried in
Knoxville. Before trial, however, both parties moved for summary
judgment. Respondent’s motion was simple: Petitioner’s
allegations of IRS errors all involved “managerial” acts.
Proced. & Admin. Regs., sec. 301.6404-2(b)(1). Section 6404(e)
allows respondent to abate interest for delays caused by
managerial acts, but only for tax years after 1996. The years
involved here were 1992-94. Therefore, respondent could not
abate interest.
Petitioner’s motion agrees with respondent’s, right up to
the “therefore”. He argues that the effective date in the
statute is trumped by the Constitution, whose guarantees of equal
protection make an effective date based on when a tax year
commenced, rather than when IRS misfeasance occurred,
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unconstitutional. He concedes, as he stated in his last filing
with the Court, that “if the effective date . . . was Congress’
intent and does not violate Petitioner’s constitutional rights,
then the acts taken by Respondent would be within the statutory
authority.”
The parties thus agree that, for purposes of these motions,
delays occurred in respondent’s handling of the case, and those
delays were due to “managerial” acts. The parties also agree
that petitioner would not be entitled to an abatement of interest
under old section 6404(e), but would be under new section
6404(e). We therefore need not untangle the parties’
contradictory positions on who and what caused how much delay;
and the case is ripe for decision on this disputed, and
apparently novel, legal issue.3
3
Petitioner’s concession also frees us of having to analyze
whether some of the delay was the result of what we might
consider ministerial acts under the old temporary regulations.
See Palihnich v. Commissioner, T.C. Memo. 2003-297 (IRS’s 11-
year failure to process amended returns after losing them was
“ministerial act” under sec. 301.6404-2T(b)(1), Temporary Proced.
& Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987)).
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Discussion
Although petitioner makes passing efforts to argue that the
effective date doesn’t mean what it says4 or fails to correctly
reflect Congress’s intent,5 his main argument is grounded in
equal protection law.6 He contends that all victims of
managerial errors committed after July 30, 1996 should be treated
equally; and that Congress, by applying new section 6404(e)'s
interest abatement provisions only to tax years beginning after
4
He suggests that the effective date provision was an
oversight by Congress that is capable of judicial revision.
However, we note that new section 6404(e)'s effective date is but
one of many in that section of Taxpayer Bill of Rights 2--notably
including the one governing the right to judicial review
(formerly section 6404(g), now section 6404(h)), Pub. L. 104-168
sec. 302 (effective date based on time of request for interest
abatement). Even if we had a general power of judicial
correction, this close proximity of different effective dates
shows that Congress did pay attention to such provisions and was
capable of making a different choice if it had wished.
5
Petitioner argues that applying the effective date as
written would thwart Congress’s clearly expressed intent that
taxpayers not suffer the ill effects of bureaucratic gaffes by
the IRS. But his only evidence of this intent is a quote that
the purpose of amending section 6404 was “to provide for
increased protections of taxpayer rights in complying with the
Internal Revenue Code . . . .” H. Rept. 104-506 at 22 (1996),
1996-3 C.B. 49, 70. So general a statement of legislative
purpose is insufficient to overcome the plain meaning of the
amendment’s effective date.
6
The Due Process Clause of the Fifth Amendment provides
guarantees against the Federal Government that are essentially
identical to those provided against the States by the Fourteenth
Amendment’s Equal Protection Clause. Bolling v. Sharpe, 347 U.S.
497, 499 (1954).
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that date, unfairly discriminated between two classes of
similarly situated taxpayers.
He asks us to imagine two taxpayers, A and B. A has a
deficiency for the 1996 tax year, and B has one for the 1997 tax
year. A and B are dealing with the same IRS agent, who while
handling their cases is sent for a prolonged bout of training
(clearly a managerial act) that causes unreasonable delays in the
resolution of both cases. If the effective date of new section
6404(e) is constitutional, however, only B would be allowed an
interest abatement, despite A and B’s both being in apparently
identical predicaments. Petitioner contends that no justifica-
tion exists for this disparate treatment.
Petitioner faces daunting odds, though, because such fine
distinctions are common in the law, and particularly common in
tax law. Courts have long held that “[l]egislatures have
especially broad latitude in creating classifications and
distinctions in tax statutes.” Regan v. Taxation With
Representation of Wash., 461 U.S. 540, 547 (1983). And the
burden is on the taxpayer to negate “every conceivable basis
which might support it.” Id. at 547-548.
This judicial deference flows from a recognition that--as a
practical matter--Congress will often have to draw distinctions
between different taxpayers who seem in some ways to be in
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similar positions. “No scheme of taxation, whether the tax is
imposed on property, income, or purchases of goods and services,
has yet been devised which is free of all discriminatory impact.”
San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 42
(1973). As with laws granting economic benefits, drawing dis-
tinctions “inevitably requires that some persons who have an
almost equally strong claim to favored treatment be placed on
different sides of the [same] line . . . .” FCC v. Beach Com-
munications, Inc., 508 U.S. 307, 315-316 (1993).7 Yet courts
have repeatedly held that these distinctions do not violate the
Constitution’s guarantee of equal protection. Instead they re-
flect Congress’s exercise of its legitimate prerogative to enact
laws with an eye to their practical administration and cost to
the fisc.
Petitioner’s argument is thus defective in its implicit
premise that distinctions drawn in tax legislation be entirely
logical. This is not to say that Congress has unbridled
authority to selectively tax the citizenry, but only that courts
7
It might be possible to review new section 6404(e)’s
constitutionality under precedents involving the granting of
economic benefits, instead of those imposing a tax. But this
would have little impact on the analysis, and none on the result.
Ultimately, both “economic benefit” cases and tax classification
cases are subject to “rational basis” review. See, e.g., N.Y.
Rapid Transit Corp. v. City of New York, 303 U.S. 573, 578
(1938).
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will uphold classifications in tax legislation if they have any
rational basis--unless they impinge a fundamental right or use a
suspect classification. See Hamilton v. Commissioner, 68 T.C.
603, 606 (1977). If this case featured one of those classifica-
tions, it would trigger a different kind of scrutiny. As the
Supreme Court noted in Regan, “The case would be different if
Congress were to discriminate invidiously in its subsidies in
such a way as to aim at the suppression of dangerous ideas”
(internal citations omitted). 461 U.S. at 548. See also Hooper
v. Bernalillo County Assessor, 472 U.S. 612, 623 (1985) (greater
scrutiny may be required when tax distinctions are made on the
basis of durational residence requirements).
Petitioner does not argue that Congress was impinging on any
fundamental right or making any suspect classification, but only
that new section 6404(e)'s effective date lacks any rational
basis. And although petitioner’s is the first challenge to the
constitutionality of this particular part of the Code, history
shows that few “rational basis” challenges succeed--the deference
courts pay to legislatures when reviewing any statute for a
rational basis being a “paradigm of judicial restraint,” Beach
Communications, 508 U.S. at 314. While there are even tax laws
struck down under rational basis review, e.g., Allegheny
Pittsburgh Coal Co. v. County Commn. of Webster County, 488 U.S.
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336 (1989), petitioner’s problem is that any rational basis--
whether articulated by Congress or hypothesized by a court--will
suffice.8
One obvious rational basis for new section 6404(e)’s
effective date is simple administrative convenience. In enacting
new section 6404(e), Congress needed to define the situations
that would and would not be subject to its provisions. Taking
into account that income taxes are levied on an annual basis, it
was rational for Congress to restrict the amendment’s application
by tax year, limited to liabilities for tax years beginning after
the date of enactment and so giving the IRS some time to adjust
its own administrative routine at a lower cost to the Government.
Considerations of administrative convenience have long been
recognized as a valid reason for legislative line drawing. See
N.Y. Rapid Transit, 303 U.S. at 580-581; Carmichael v. S. Coal &
Coke Co., 301 U.S. 495, 511 (1937). We need not, indeed we must
not, engage in judicial second-guessing of such a legislative
decision: “The fact that another reasonable classification or
8
Courts have traditionally granted even greater deference
to distinctions drawn by tax laws than they have to distinctions
drawn by laws in other “rational basis” areas. See, e.g., Kelso,
“Equal Protection After the Rational Basis Era: Is it Time to
Reassess the Current Standards of Review?”, 4 U. Pa. J. Const. L.
225, 230-231 (2002) (recognizing that there exists a “second-
order” rational review more stringent than the one applied in
Allegheny Pittsburgh Coal).
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even more reasonable classification exists does not render
violative of due process the classification Congress has chosen.”
Hamilton, 68 T.C. at 608. Because we cannot say that new section
6404(e)'s effective date is without a rational basis,
An order and decision will be
entered granting respondent’s, and
denying petitioner’s, motion
for summary judgment.