JACKSON v. COMMISSIONER

T.C. Summary Opinion 2005-12

UNITED STATES TAX COURT

DAVID JACKSON AND BETTY S. JACKSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 525-04S. Filed February 14, 2005.

David and Betty S. Jackson, pro sese.

Vicken Abajian, for respondent.

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of sections 6330(d) and 7463(f)(2) of the Internal

Revenue Code in effect at the time that the petition was filed.1

The decision to be entered is not reviewable by any other court,

1
Unless otherwise indicated, subsequent references to
sections other than secs. 6320 and 6330 are to the Internal
Revenue Code of 1986 in effect for 1995, 1996, 1998, 1999, 2000,
and 2001, the taxable years in issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
 - 2 -

and this opinion should not be cited as authority.

The petition in this case was filed in response to a Notice

of Determination Concerning Collection Action Under Section 63202

for the taxable years 1995, 1996, 1998, 1999, 2000, and 2001

(years in issue). The issues for decision are:

(1) Whether respondent abused his discretion in failing to abate

interest for the years in issue that had accrued from March 27

through November 30, 2003. We hold that he did to the extent

provided herein.

(2) Whether respondent improperly refused to abate assessment

for the addition to tax for failure to timely pay under section

6651(a)(2) for the years in issue. We hold that he did not.

(3) Whether respondent abused his discretion in denying

petitioners’ claim for damages for respondent’s unnecessary

filing of a lien. We hold that the Court lacks jurisdiction to

consider this claim.

Background

Some of the facts have been stipulated, and they are so

found. The stipulation of facts, the supplemental stipulation of

facts, and the attached exhibits are incorporated herein by this

reference.

2
Sec. 6320 is effective with respect to collection actions
initiated more than 180 days after July 22, 1998 (i.e., Jan. 19,
1999). See Internal Revenue Service Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 3401(d), 112 Stat. 750.
 - 3 -

Petitioners resided in Rancho Santa Margarita, California,

at the time that the petition was filed with the Court.

A. Petitioners’ Income Tax Returns

Petitioners filed Federal income tax returns for each year

in issue reporting tax due as follows:

Extension of
Tax Year Date Filed Time to File Tax Due
1995 04/15/1996 -0- $4,528
1996 09/22/1997 08/15/1997 2,327
1998 12/29/1999 08/15/1999 10,965
1999 10/15/2000 08/15/2000 2,431
2000 10/12/2001 10/15/2001 26,144
2001 04/15/2002 -0- 1,826

At the time that they filed each return, petitioners did not pay

the tax shown as due on the return.

Based on the returns filed by petitioners, respondent

assessed the tax shown as due on each return, statutory interest

for the years in issue, an addition to tax for failure to timely

file a return under section 6651(a)(1) for 1996, 1998, and 1999,

an addition to tax for failure to timely pay tax under section

6651(a)(2) for the years in issue, and an addition to tax for

failure to pay estimated tax under section 6654 for the years in

issue.

On May 27, 1999, petitioners entered into an installment

agreement for 1995 and 1996, but defaulted on April 29 and March

25, 2002, respectively. On January 20, 2002, petitioners entered

into an installment agreement for 1998, 1999, and 2000, but

defaulted on April 29, 2002.
 - 4 -

On April 25, 2002, respondent’s Ogden Service Center

received from petitioners a Form 656, Offer in Compromise (OIC),

offering $10,000 to satisfy their income tax liabilities for the

years in issue. Petitioners attached to the OIC a statement

stating, in part: “We are not able to pay the entire amount

owed, but we are refinancing our current assets, borrowing from

friends and family and will use our income to pay the amount we

are offering.”

Although the record does not definitively disclose what

events have transpired since April 2002, it appears that on or

about March 27, 2003, petitioners requested from respondent a

payoff amount. In response, petitioners received from respondent

computer printouts dated March 27, 2003, for each of the years in

issue reflecting their names and Social Security numbers, account

balance, accrued interest, and accrued additions to tax as of

April 7, 2003.

On June 10, 2003, S. Partridge (Ms. Partridge) in

respondent’s Laguna Niguel office sent petitioners a letter

rejecting their OIC. Ms. Partridge determined that petitioners

could pay in full the amount due based on financial information

submitted by them.

To demonstrate that they were obtaining funds to pay their

tax liabilities, petitioners faxed a letter to Ms. Partridge on

June 16, 2003, informing her of the name and phone number of
 - 5 -

their loan officer at World Savings who was handling the

refinancing of their home.

B. Filing of the Notice of Federal Tax Lien

On June 19, 2003, respondent filed a notice of Federal tax

lien against petitioners for income taxes (including interest and

additions to tax) for the years in issue. On June 24, 2003,

respondent sent each petitioner a Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under IRC 6320 for the years

in issue.

On July 3, 2003, petitioners sent a letter to respondent’s

Laguna Niguel office requesting that their case be forwarded to

the Office of Appeals. In their request, petitioners stated that

“Mrs. Partridge stated that she would work with me and not file a

lien if I would refinance” and that “such a filing would impede

my ability to pay taxes”.

On or about July 14, 2003, petitioners submitted to World

Savings a loan application for approximately $60,000 at an

interest rate of 4 percent. On July 16, 2003, World Savings

denied petitioners’ July 14, 2003 loan application because of

petitioners’ “poor credit performance with us [World Savings]”.

On July 27, 2003, petitioners submitted to respondent a Form

12153, Request for a Collection Due Process Hearing. Petitioners

attached to the Form 12153 a statement stating, in part:

I disagree with the filing of the federal tax lien
because it has prohibited me from refinancing to pay
 - 6 -

the tax debt. I notified the Internal Revenue Service
that I was in the process of refinancing. I sent a fax
to them and the lender so that they could check with
the lender to see that this process was in place. * *
* The Internal Revenue told me that they would work
with me and they realized that filing the tax lien
would be a hindrance to me getting a loan. They filed
the tax lien anyway. In addition to the lien causing a
rejection for the loan to pay you it also caused a
rejection for a line of credit for me to even out my
cash flow for the immediate period.

On August 28, 2003, petitioners faxed to the Internal

Revenue Service (IRS) Lien Desk a letter requesting a “payoff for

the attached lien that will be good until September 30, 2003.”

On September 16, 2003, petitioners faxed to Revenue Officer

Gloria Owen (Ms. Owen) in respondent’s Laguna Niguel office a

third request for “a demand to pay off my lien”.

On September 23, 2003, Ms. Owen faxed to petitioners

computer printouts dated September 18, 2003, for each year in

issue reflecting petitioner David Jackson’s Social Security

number and the balance due including accrued interest and accrued

penalties. The first page had a handwritten notation stating:

“total of all years 1995 through 2001 $64,498.17”.

At some point in time, petitioners began working with Carol

Nguyen (Ms. Nguyen), a settlement officer in respondent’s Laguna

Niguel office, to obtain a payoff demand for their lender. On

October 10, 2003, Ms. Nguyen faxed to petitioners a document

signed by R. Bonzer, Lien Advisor, reflecting petitioners’ escrow

number, instructions for payment, and their tax liabilities for
 - 7 -

each year in issue as of November 11, 2003, as follows:3

Unpaid Additions
Tax Year Balance Interest to Tax Payment
1995 $16.00 $2,296.04 -0- $2,312.05
1996 839.96 470.29 $147.06 1,457.31
1998 14,919.06 4,402.99 2,193.00 21,515.05
1999 2,986.59 629.31 437.58 4,053.48
2000 27,551.08 3,163.16 2,490.54 33,204.78
2001 1,931.03 153.89 301.29 2,386.21
Total 64,928.88

In her cover letter, Ms. Nguyen referred to this document as an

“escrow demand letter”. The cover letter also requested

petitioners to sign an offer withdrawal letter concerning their

OIC, which petitioners signed on October 22, 2003.

On or about October 16, 2003, petitioners submitted to World

Savings another loan application along with the escrow demand

letter. World Savings approved the October 16, 2003 loan

application for $64,928.88 at an interest rate of 6.25 percent

with a closing date of October 28, 2003.

C. Petitioners’ Section 6330 Hearing

On October 28, 2003, petitioners attended a hearing before

Appeals Officer J.T. Minor (Mr. Minor). At the hearing,

petitioners requested that respondent release the lien because

they were refinancing their home to pay in full their tax

liabilities, and that respondent abate the additions to tax and

the interest for the period during which respondent delayed

3
Although the document appears to be a standard Internal
Revenue Service form, it does not indicate a form number.
 - 8 -

providing petitioners with an escrow demand letter for their

lender.

Mr. Minor abated for reasonable cause $596.02 of the

addition to tax for failure to timely pay tax accruing from July

31 to November 30, 2003 as follows:

1995, 1996, 1998: No penalty applicable for this
period because the 50-month period for assessment of
this penalty has already expired

1999: $48.62 ($2,431 tax due per return multiplied by
2 percent (i.e., .5 percent for 4 months))

2000: $510.88 ($26,144 tax due per return less $600
general tax credit multiplied by 2 percent)

2001: $36.52 ($1,826 tax due per return multiplied by
2 percent)

On October 31, 2003, petitioners paid in full their

outstanding income tax liabilities for the years in issue of

$64,928.88.

D. Notice of Determination

On December 11, 2003, respondent sent to each petitioner a

Notice Of Determination Concerning Collection Action Under

Section 6320 (notice of determination). In the notice of

determination, respondent denied all of petitioners’ requests.

With respect to petitioners’ request to abate interest,

respondent denied their request because

the Jacksons have not fully paid their liabilities.
They state that the delay of their refinance caused
them to accrue additional interest, but, the refinance
was not secured. Had it been secured, there was
insufficient funds available in the refinance to fully
 - 9 -

pay their delinquent income tax liabilities.

With respect to petitioners’ request to abate the additions to

tax, respondent sustained the abatement of $596.02 of the

addition to tax for late payment because “there was some delay in

providing the taxpayer’s timely information regarding the amounts

due on their delinquent income tax liabilities”.

E. Petition

On January 12, 2004, petitioners filed with the Court a

petition under section 6330(d) disputing respondent’s

determinations. See sec. 6320(c). Paragraph 4 of the petition

states:

I request that I be relieved from all interest and
penalties in connection with the tax years described in
paragraph 2. The CDP Determination Letter attached
indicated that there was delay in providing the
taxpayer timely information and therefore abated a
portion of the failure to pay penalties for reasonable
cause. The $596.02 did not address the IRS action
regarding the lien and other damages and costs incurred
as a result of their actions. I have since acquired a
loan and paid the taxes of $64,928.88 in full. This
amount includes $11,115.68 interest and $5,596.47 in
penalties. I respectfully request a return of the
interest and penalties less the $596.02 for a total of
$16,116.13 for cause and hardship.

F. Release of the Lien

On January 30, 2004, respondent released the Federal tax

lien because petitioners paid in full their tax liabilities

including interest and additions to tax for the years in issue.4

4
The record does not explain why it took respondent 3
(continued...)
 - 10 -

Discussion

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of a taxpayer liable for

unpaid taxes after demand for payment. Within 5 business days

after the day of filing the notice of lien, the Secretary must

notify the taxpayer, in writing, that a tax lien was filed and

inform the taxpayer of his or her right to a hearing before an

impartial Appeals officer. Sec. 6320. Section 6320(c) provides

that the Appeals Office hearing generally shall be conducted

consistent with the procedures set forth in section 6330(c), (d),

and (e). Once the Appeals officer has issued a determination

letter, the taxpayer may seek judicial review of the

Commissioner’s administrative determination. Sec. 6330(d).

A. Abatement of Interest

We have jurisdiction over petitioners’ request for abatement

of interest because such request was made as part of a section

6330 proceeding. See Katz v. Commissioner, 115 T.C. 329, 340-341

(2000).

This Court may order an abatement of interest if the

Commissioner abuses his discretion in failing to abate interest.

Sec. 6404(h)(1).5 The taxpayer must prove that the Commissioner

4
(...continued)
months to release the lien.
5
Sec. 6404(h), formerly sec. 6404(g), is applicable to
(continued...)
 - 11 -

exercised his discretion arbitrarily, capriciously, or without

sound basis in fact or law. See Rule 142(a); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

As applicable to 1995 and 1996, preamendment section

6404(e)(1) permits the Commissioner to abate all or any part of

an assessment of interest on any payment of tax if an 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”, and the taxpayer caused no significant aspect

of the delay.

As applicable to 1998 through 2001, section 6404(e) permits

the Commissioner to abate interest with respect to any

“unreasonable” error or delay resulting from “managerial” or

ministerial acts. See Taxpayer Bill of Rights 2, sec. 301(a)(1)

and (2), Pub. L. 104-168, 110 Stat. 1457 (1996), effective for

interest accruing with respect to tax years beginning after July

30, 1996.

Section 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs.,

52 Fed. Reg. 30163 (Aug. 13, 1987), defines a “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

5
(...continued)
requests for abatement after July 30, 1996. Taxpayer Bill of
Rights 2, Pub. L. 104-168, sec. 302, 110 Stat. 1457 (1996).
 - 12 -

act, such as conferences and review by supervisors, have taken

place.” The final regulations under section 6404(e) provide the

same definition. See sec. 301.6404-2(b)(2), Proced. & Admin.

Regs.6 The final regulations define a “managerial act” as “an

administrative act that occurs during the processing of a

taxpayer’s case involving the temporary or permanent loss of

records or the exercise of judgment or discretion relating to

management of personnel.” Sec. 301.6404-2(b)(1), Proced. &

Admin. Regs.

Petitioners do not dispute that they are liable for the

interest that had accrued on their outstanding tax liabilities.

Petitioners contend, however, that respondent abused his

discretion in not abating interest that had accrued since March

27, 2003, the earliest date that petitioners requested an escrow

demand letter. Petitioners argue that had respondent provided

them with the escrow demand letter at that time, then petitioners

would have been able to refinance their home and to pay in full

their tax liabilities. Thus, petitioners contend that

respondent’s failure to send them the escrow demand letter on

March 27, 2003, was an unreasonable ministerial delay.

On or about March 27, 2003, petitioners requested a payoff

6
The final regulations were issued on Dec. 18, 1998,
generally effective with respect to interest accruing on
deficiencies or payments of tax for tax years beginning after
July 30, 1996.
 - 13 -

amount to refinance their home to pay their tax liabilities.

Respondent sent petitioners a computer printout for each year

disclosing their total outstanding tax liabilities, including

interest and additions to tax. Petitioners, however, did not

submit a loan application for the refinancing of their home until

almost 4 months later on or about July 14, 2003, which was

rejected on July 16, 2003, because of petitioners’ poor

performance with World Savings.7 From March 27 until on or about

July 16, 2003, there was no erroneous or dilatory performance of

a ministerial act by respondent, nor was there any unreasonable

error or delay resulting from any managerial or ministerial act

that contributed to a delay in the payment of petitioners’ tax

liabilities. Under these circumstances, respondent did not abuse

his discretion to refuse to abate interest that accrued for that

period.

For the period July 31 to November 30, 2003, respondent

determined that “there was some delay in providing the taxpayer’s

[sic] timely information regarding the amounts due on their

delinquent income tax liabilities”.8 It is reasonable to assume

that the delay in the payment of petitioners’ tax liabilities for

7
Petitioners allege that World Savings rejected their loan
application because of the lien. The allegation, however, is
unproven.
8
There is no explanation in the record as to the
significance of July 31, 2003.
 - 14 -

this period was caused by respondent’s failure to provide

petitioners with an escrow demand letter.9 See Douponce v.

Commissioner, T.C. Memo. 1999-398 (holding that respondent’s

failure to provide the taxpayer with a correct payoff amount was

a ministerial act that warranted the abatement of interest).

On July 27, 2003, petitioners submitted to respondent a Form

12153 stating that the lien prohibited them from refinancing

their home. On August 28, 2003, petitioners requested another

payoff amount, but they did not receive a response from

respondent. Almost 1 month later, petitioners again requested a

payoff amount, which they received on September 23, 2003, in the

form of computer printouts. After appealing to an Appeals

officer, petitioners finally received an escrow demand letter on

October 10, 2003. Once petitioners received the escrow demand

letter, World Savings promptly approved their October 16, 2003

loan application and assigned a closing date of October 28, 2003.

On October 31, 2003, petitioners paid in full their outstanding

tax liabilities including interest and additions to tax.

9
We note that the Internal Revenue Manual, section
25.17.4.4.2 (Sept. 1, 2004), provides a procedure for preparing a
Form 10492, Notice of Federal Taxes Due, in the case of an escrow
payoff request during a Ch. 13 proceeding. The Form 10492
contains the identity of the taxpayer, the amounts due for taxes
secured by a lien on the property, and calculations for interest
and penalties. Form 10492 enables the escrow company to pay
respondent directly from the escrow funds in a sale or
refinancing of real property. A similar procedure appears
equally applicable to a refinancing of real property in a non-
bankruptcy case.
 - 15 -

Based on the entirety of the record, we conclude that there

was dilatory performance of a ministerial act by respondent that

contributed to an unreasonable delay in the payment of

petitioners’ tax liabilities from July 31 to November 30, 2003.

Accordingly, respondent abused his discretion in refusing to

abate interest that had accrued for the years in issue for that

period.

B. Additions to Tax

The income tax assessments against petitioners include

additions to tax under section 6651(a)(1) for 1996, 1998, and

1999, and sections 6651(a)(2) and 6654 for all the years in

issue. Petitioners did not have an opportunity to dispute the

additions to tax relating to their income tax liabilities;

therefore, they can challenge them during the section 6330

proceeding. Sec. 6330(c)(2)(B). We review de novo respondent’s

determination with respect to these additions to tax. See Goza

v. Commissioner, 114 T.C. 176, 181-182 (2000).

Petitioners first contend that respondent agreed to waive

all additions to tax upon payment in full of their income tax

liabilities (including interest and additions to tax) for the

years in issue. In support of their contention, petitioners rely

on an alleged oral agreement that they had with Ms. Owen wherein

she agreed that respondent would cooperate with petitioners and

not file a tax lien as long as petitioners were moving forward
 - 16 -

and that respondent would waive the additions to tax if

petitioners paid off the total principal balance plus interest.

Consistent with this agreement, petitioners paid in full their

outstanding tax liabilities for the years in issue. Petitioners

allege, however, that respondent did not waive the penalties and

thus failed to comply with the agreement.

Sections 7121 and 7122 and the regulations thereunder set

forth the exclusive means by which closing agreements and

compromises between the Commissioner and a taxpayer concerning

the latter’s tax liability may be accorded finality. Urbano v.

Commissioner, 122 T.C. 384 (2004); Hudock v. Commissioner, 65

T.C. 351, 362 (1975); Rohn v. Commissioner, T.C. Memo. 1994-244;

secs. 301.7121-1, 301.7122-1, Proced. & Admin. Regs. A closing

agreement or compromise must be submitted on special forms

prescribed by the Secretary and is not considered accepted until

the taxpayer is notified of the acceptance in writing. Laurins v.

Commissioner, 889 F.2d 910, 912 (9th Cir. 1989), affg. Norman v.

Commissioner, T.C. Memo. 1987-265; sec. 301.7122-1(d)(1), (3),

Proced. & Admin. Regs.

Petitioners admitted at trial that the purported agreement

was oral and that they do not have any written document or form

to that effect. Based on the record, there was no compliance

with section 7121 or 7122. Accordingly, we hold that petitioners

and respondent did not enter into a binding agreement to waive
 - 17 -

all additions to tax.

In the alternative, petitioners contend that respondent

should abate the addition to tax for late payment that accrued

from March 27 through July 30, 2003.10 Petitioners assert that

they would have paid their outstanding tax liabilities on or

about March 27, 2003, but that respondent failed to timely

provide them with an escrow demand letter. Petitioners’

contention is misplaced.

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount shown as tax on the return on or before the date

prescribed for payment of that tax, unless the failure was due to

reasonable cause and not willful neglect. See sec. 301.6651-

1(c)(1), Proced. & Admin. Regs. Petitioners may demonstrate

reasonable cause for late payment by showing that they exercised

ordinary business care and prudence in providing for payment of

their tax liability and were nevertheless either unable to pay

the tax or would suffer an undue hardship if they paid on the due

date. Sec. 301.6651-1(c), Proced. & Admin. Regs.

At the time that petitioners filed their returns, they

failed to remit the amount shown as tax. Based on the entirety

10
Petitioners concede that they are liable for the
additions to tax for failure to timely file and for failure to
pay estimated tax. Petitioners, however, contend that respondent
should have also abated the addition to tax for failure to pay
from July 31 to Nov. 30, 2003. We note that this addition for
those years did not accrue for that period. See sec. 6651(a)(2).
 - 18 -

of the record, petitioners have not shown that their failure to

timely pay tax was due to reasonable cause and not willful

neglect. Therefore, respondent did not improperly refuse to

abate the addition to tax for late payment from March 27, 2003,

through July 30, 2003.

C. Petitioners’ Claim for Damages

Petitioners claim emotional damages of $10,000 and monetary

compensation of $8,406.56,11 alleging that the premature and

unnecessary filing of the lien adversely affected their credit

rating, which prevented them from refinancing their home and

hindered their ability to pay their tax liabilities; as a result,

the lien caused them to incur a loan at a higher interest rate.

Petitioners, however, do not cite or rely on any specific statute

as a basis for this claim.

Although we recognize that the filing of such a lien may

have the negative effects of creating a cloud on the taxpayer’s

title to property and impairing the taxpayer’s creditworthiness,

see Magana v. Commissioner, 118 T.C. 488, 490 (2002), we

generally have no jurisdiction over such claims, sec. 7433(a);

see Gerakios v. Commissioner, T.C. Memo. 2004-203 (holding that

11
Petitioners calculate this amount as the difference
payable over a 10-year term between the 4-percent interest rate
on the July 14, 2003 loan application and the 6.25 percent
interest rate on the Oct. 16, 2003 loan application (i.e.,
$725.24 ($64,928.88 tax owed at 6.25-percent amortized over 30
years) less $655.19 ($64,928.88 tax owed at 4-percent amortized
over 30 years) multiplied by 10 years equals $8,406.66).
 - 19 -

the Court has no jurisdiction over taxpayer’s compensatory claim

that his credit rating was adversely affected by the filing of a

lien); Chocallo v. Commissioner, T.C. Memo. 2004-152 (holding

that the Court has no jurisdiction over taxpayer’s damages claim

for alleged wrongs committed by respondent’s employees). If

petitioners’ claim for monetary compensation were meant to be

predicated on section 7432 and/or 7433, which provide for civil

damages for failure to release a lien or certain unauthorized

collection actions, respectively, we note that such claims must

be brought in a District Court of the United States.

D. Conclusion

We have considered all of petitioners’ arguments, and, to

the extent that we have not specifically addressed them, we

conclude that they are without merit.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect our disposition of the disputed issues,

Decision will be entered

under Rule 155.