T.C. Summary Opinion 2011-24
UNITED STATES TAX COURT
JOHN J. MALONE, SR., AND KAREN R. MALONE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27815-07S. Filed March 8, 2011.
John J. Malone, Sr., and Karen R. Malone, pro se.
Lisa K. Hunter, for respondent.
PARIS, Judge: This case was heard pursuant to section 74631
of the Internal Revenue Code in effect when the petition was
filed. Pursuant to section 7463(b), the decision to be entered
is not reviewable by any other court, and this opinion shall
1
Subsequent section references are to the Internal Revenue
Code of 1986, as amended, unless otherwise indicated.
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not be treated as precedent for any other case. The issues
before this Court are: (1) Whether respondent can proceed with
collection of petitioners’ 2001 tax liability2 via lien and levy;
(2) whether respondent’s assessment with respect to the
mischaracterization of petitioners’ capital gain as ordinary
income and petitioners’ omission of the Social Security number
needed for a dependency exemption deduction was valid under
section 6213; and (3) whether respondent abused his discretion by
denying petitioners’ request for an abatement of interest for
2001 and 20023 under section 6404(e).
The Court holds the following: (1) Because a portion of the
assessment of petitioners’ 2001 tax liability (the 2001
assessment) was invalid, respondent cannot proceed to collect the
tax attributable to the mathematical error for that tax year via
lien or levy; and (2) the Appeals officer did not abuse his
discretion in denying petitioners’ request for abatement of
interest for 2001 and 2002 under section 6404(e).
2
Although petitioners raised in the petition the issue of
whether respondent can proceed to collect the 2002 tax liability
via lien or levy, this issue is moot. On May 7, 2007, their 2002
tax liability was satisfied after respondent had applied the
credits from 2001 and 2003.
3
Although petitioners’ 2002 tax liability has been
satisfied, this Court still has jurisdiction over petitioners’
request for an abatement of interest for 2002. See Greene-
Thapedi v. Commissioner, 126 T.C. 1, 12-13 (2006); Bucaro v.
Commissioner, T.C. Memo. 2009-247.
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Background
Petitioners
John J. Malone, Sr. (petitioner husband), and Karen R.
Malone (petitioner wife) are husband and wife. Petitioners
resided in Nebraska when the petition was filed.
Tax Returns
Petitioners timely filed two requests to extend the time to
file their 2001 joint Federal income tax return (2001 tax return)
to August 15, 2002, and then, to October 15, 2002, respectively.
Yet they did not file their 2001 tax return until May 19, 2006.
Petitioners also filed a request to extend the time to file
their 2002 joint Federal income tax return (2002 tax return) due
on April 15, 2003, to August 15, 2003. However, petitioners did
not file their 2002 tax return until May 19, 2006, when they
filed their 2001 tax return.
Before filing their tax returns petitioners executed Form
2848, Power of Attorney and Declaration of Representative (POA),
on January 1, 2006, authorizing their certified public accountant
(C.P.A.), Martin D. Hocevar, to receive and inspect confidential
tax information and to perform any and all acts that petitioners
could perform with respect to any matter relating to the 2001 and
2002 tax returns. Their C.P.A. prepared the returns for those
years.
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Petitioners reported on their 2001 tax return $69,806 of
Federal income tax. They did not include a payment with this tax
return but reported the withholding from their wage income for
that year and an estimated payment from a previous tax year.
Petitioners reported on their 2002 tax return $13,945 of Federal
income tax. Petitioners did not include a payment with this tax
return but reported $6,521 of withholding from their wage income
for 2002.
Assessment of Petitioners’ 2001 and 2002 Tax Liabilities
On September 11, 2006, the Internal Revenue Service (IRS)
recorded the 2001 assessment indicating that petitioners owed
$76,179 of Federal income tax, a $15,704.77 late-filing addition
to tax, and a $15,856.50 failure to timely pay addition to tax
for 2001. On the same day, the Internal Revenue Service also
assessed Federal income tax of $13,945 and additions to tax of
$224, $1,670.40, and $1,521.92 for failure to pay estimated tax,
failure to timely file, and failure to timely pay tax,
respectively, for 2002 (the 2002 tax assessment).
14-Month Period Following Assessment
September 29, 2006, to December 2006: Request for Abatement
On September 29, 2006, petitioners and their C.P.A. sought
advice from the Taxpayer Advocate Service (TAS) concerning
abatement of the additions to tax for 2001 and 2002. TAS advised
petitioners to submit a written request for abatement of those
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additions to tax for those tax years, and petitioners did so by
October 13, 2006.
On October 26, 2006, Revenue Officer Sharon Barber (RO
Barber) met with petitioners and orally denied their requests for
abatement of the additions to tax for 2001 and 2002. RO Barber
gave Publication 1660, Collection Appeal Rights, to petitioners,
explained the appeal process, and informed them of their right to
appeal her decision by November 30, 2006. Last, RO Barber
informed petitioners that if they did not pay their 2001 and 2002
tax liabilities on or before November 30, 2006, a Federal tax
lien would be filed for each year.
By letter dated October 30, 2006, RO Barber denied
petitioners’ requests for abatement of the additions to tax for
2001 and 2002 because petitioners failed to prove reasonable
cause for their failure to timely file their tax returns and pay
their tax liabilities. Additionally, the letter informed
petitioners that they owed Federal income tax and interest of
$81,968.23 and $9,401.08 for 2001 and 2002, respectively. Last,
RO Barber indicated that a discrepancy existed as to the amount
of the tax liability petitioners reported on their original 2001
tax return and the amount the IRS assessed. RO Barber explained
further that once she had identified the reason for this
discrepancy an explanatory notice would be issued to petitioners
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and their representative. No prior notice or explanation of
adjustment had been issued.
On November 3, 2006, petitioners filed Form 1040X, Amended
U.S. Individual Income Tax Return (2001 amended return), to amend
their 2001 tax return. On November 6, 2006, RO Barber sent to
petitioners the transcript relating to their 2001 assessment. No
notice of deficiency was issued. The only notice petitioners
received relating to their 2001 assessment was Letter 474C dated
November 28, 2006, stating “per your request * * * [the IRS has]
processed your Amended Return. There was an error in your
figures. * * * [IRS has] adjusted your account.” This letter did
not notify petitioners that the amount of tax in excess of that
shown on the 2001 tax return was due and such an amount due was
computed on the basis of a mathematical or clerical error
appearing on the return, did not specify the mathematical or
clerical error alleged, and did not render an explanation other
than “an error in your figures”. This notice reflected
petitioners’ taxable income and the tax liability as reported on
their 2001 amended return and the IRS’ corrected entries thereof.
By November 30, 2006, petitioners did not appeal RO Barber’s
decision and did not make any payment of their 2001 and 2002 tax
liabilities.
On December 1, 2006, petitioners’ C.P.A., who held a POA,
challenged the 2001 assessment by a faxed letter stating that the
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income reported on petitioners’ Schedule D, Capital Gains and
Losses, was correctly characterized as capital gain, not ordinary
income, and should be taxed at a capital gain rate. In addition,
petitioners’ C.P.A. stated: “also that your [assessed amount of
petitioners’] income is $1,160 higher than the tax return. I
don’t see why that is the case”.
By letter dated December 4, 2006, petitioner husband
provided the reasons the additions to tax for 2001 and 2002
should be abated but did not appeal RO Barber’s decision.
On December 13, 2006, RO Barber issued a Notice of Federal
Tax Lien Filing and Your Right to a Hearing to petitioners
indicating that Federal tax liens were filed on or about December
13, 2006, to collect the tax liabilities of $96,519.30 and
$12,697.23 for 2001 and 2002,4 respectively. The IRS filed the
2001 and 2002 Federal tax liens on December 19, 2006. By
December 30, 2006, petitioners timely submitted a request for a
collection due process hearing (CDP hearing) challenging the
liens.
4
Before the filing of the lien to collect the entire amount
of the 2002 tax liability, most of petitioners’ 2002 tax
liability had been satisfied when respondent had applied credits
from 2001 and 2003. Respondent allocated $4,907.86, $126.08, and
$224 on June 12, July 3, and Sept. 11, 2006, respectively, from
2003, and $1.23 on Dec. 8, 2006, from 2001.
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January to March 2007: CDP Hearing and the Appeal of the
Denial of the Abatement
By fax dated January 12, 2007, petitioner husband belatedly
submitted to Revenue Officer Randall Smith (RO Smith), the
collection group manager, an appeal of RO Barber’s denial of
their request for abatement of the additions to tax for 2001 and
2002. By that same fax petitioner husband reminded RO Smith “to
call * * * [him] this week to set an appointment to discuss
* * * [the] matter * * * [they] had spoke about on the telephone
before the New Year”, because petitioner husband had “misplaced
* * * [RO Smith’s] telephone number, and there * * * [was] no way
to reach * * * [RO Smith] or rediscover it.” Although petitioner
husband and petitioners’ C.P.A. scheduled with Mr. Smith a
meeting on an unknown date, that meeting did not occur because
the parties had a miscommunication as to the time. On January
19, 2007, petitioner husband and petitioners’ C.P.A. attended
another meeting scheduled with RO Smith, who left them a message
upon their arrival that he would be late because of a
teleconference with his superior. After waiting for “50 or 70
minutes” petitioner husband and petitioners’ C.P.A. left. They
immediately sought assistance from Mary Hickey of TAS,
complaining about RO Smith’s “cancellation of the meeting” and
“the difficulties * * * [petitioner husband] had reaching RO
Smith either via telephone or in person.” Ms. Hickey was able to
contact RO Smith immediately, and RO Smith assured her that he
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would contact petitioner husband and reschedule the appointment.
By January 22, 2007, petitioner husband informed TAS that RO
Smith did return his call and he would call RO Smith to
reschedule the appointment.
Because the Letter 474C did not provide any reasons for the
excessive amount of their 2001 assessment, petitioner husband
requested further that Ms. Hickey review the adjustments. Ms.
Hickey soon determined that the 2001 assessment was made for two
reasons: (1) There was a mathematical error based on the
omission of the Social Security number required for the
dependency exemption deduction; and (2) the IRS incorrectly
assumed that an ordinary tax rate applied to a capital gain
petitioners reported on their Schedule D. Petitioner husband
then asked Ms. Hickey to determine the proper amount of the tax,
the additions to tax, and the accumulated interest for that year.
Although petitioners had timely challenged the 2001
assessment under the mathematical error procedure of section 6213
and no notice of deficiency was issued, Officer Gary Herman (RO
Herman) proceeded to collect by levy and issued a Final Notice--
Notice of Intent to Levy and Notice of Your Right (notice of
levy) on February 15, 2007, indicating that on that date,
petitioners had “Unpaid Amount from Prior Notices” of $96,525.30
and $5,273.23 for 2001 and 2002, respectively. The notice of
levy also notified petitioners that their additional interest was
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$1,406.26 and $313.16 for 2001 and 2002, respectively. On that
same day petitioner husband did not attend a scheduled meeting
with RO Herman because of flight problems, and the meeting was
later rescheduled for February 14, 2007. On February 13, 2007,
RO Herman informed TAS that petitioner husband failed to prove
reasonable cause that would justify abatement of the additions to
tax for 2001 and 2002 and failed to submit a timely appeal.
On February 14, 2007, petitioner husband met with RO Smith
and RO Herman with the expectation of appealing RO Barber’s
denial of the additions to tax abatements for 2001 and 2002.
Petitioner husband said that RO Barber “hated him” and was
uncooperative. In response RO Smith and RO Herman reiterated
their reasons for the denial and served him a summons ordering
petitioners to appear and provide financial records on or before
March 8, 2007. Petitioner husband believed the meeting was a
“scheme” to serve him the summons, and he stated that the IRS had
been treating him unfairly. He also challenged the accuracy of
the 2001 assessment and requested that the IRS provide an
accurate accounting of petitioners’ 2001 tax liability. The
revenue officers responded that the 2001 assessment was accurate.
On February 21, 2007, petitioners timely submitted a Request for
a Collection Due Process Hearing to challenge the notice of
collection via levy on the basis that “the IRS collection
personnel have been wrong about the tax amount due and abusive”.
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On February 27, 2007, Ms. Hickey informed the revenue officers of
her view that respondent’s conclusion regarding the amount of
petitioners’ 2001 assessment was incorrect and the assessment
should be reduced.
On March 5, 2007, a TAS case advocate sent an operation
assistance request to the IRS functional unit for an adjustment
of $5,961 because petitioners’ capital gain for the tax year 2001
was mischaracterized as ordinary income and taxed at an improper
rate. That same day petitioner husband sent to TAS a $58,723
payment, and TAS forwarded that payment to the IRS on March 6,
2007, to be applied toward petitioners’ 2001 tax liability,
leaving unpaid a balance of the remaining assessment and the
additions to tax. By March 6, 2007, the summons was withdrawn,
and petitioners’ request for a CDP hearing was forwarded to the
Office of Appeals.
April to August 2007: The Office of Appeals
On April 2, 2007, the IRS recharacterized the ordinary
income as capital gain for 2001 and abated $5,961 of tax,
$1,341.23 of the late-filing addition to tax, $1,490.25 of the
late-payment addition to tax, and $2,414 of interest. A letter
of abatement for that tax year was never issued to petitioners or
their C.P.A., who held a POA, nor was a notice of deficiency
issued after the abatement and reassessment.
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Also, in April 2007 petitioners’ case was assigned to
Settlement Officer Dan Van Grunsven (SO Van Grunsven), who
immediately contacted TAS in regard to a face-to-face hearing.
On April 30, 2007, TAS informed SO Van Grunsven that petitioners
would most likely want a face-to-face conference because they had
paid most of the 2001 tax liability on March 6, 2007. That same
day SO Van Grunsven emailed RO Herman requesting copies of the
correspondence between the revenue officers and petitioners.
By letter dated May 2, 2007, SO Van Grunsven informed
petitioners of the issues that would be addressed during the CDP
hearing and requested that petitioners call to schedule the
hearing. By May 7, 2007, petitioners’ 2002 tax liability was
satisfied after respondent applied credits from 2001 and 2003.
On May 30, 2007, a TAS representative contacted SO Van Grunsven
notifying him that petitioner wife was undergoing cancer
treatment. SO Van Grunsven responded to a TAS representative
that a final response letter would be issued, stating that
petitioners had to contact SO Van Grunsven by June 13, 2007. SO
Van Grunsven sent the final response letter that day.
On June 4, 2007, petitioner husband called SO Van Grunsven
and became upset, stating that he had received “incorrect or
slanderous” information from the Omaha collection department.
Petitioner husband further informed SO Van Grunsven of petitioner
wife’s cancer treatment and TAS’ assurance of no “further action
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taken by Mr. Van Grunsven”. SO Van Grunsven informed petitioner
husband that TAS never advised or made a request to defer the CDP
hearing, so he allowed petitioner husband to reschedule the
hearing.
On July 11, 2007, petitioner husband called SO Van Grunsven
to raise the issue of the abatement of the additions to tax for
2001 and 2002, complained how the Omaha collection department had
taken actions to ruin his life, and requested that Ms. Hickey be
the sole TAS employee on the conference call. Pursuant to this
conversation, petitioner husband and SO Van Grunsven decided that
the CDP hearing would be conducted by telephone. However,
petitioner husband never scheduled the conference call. By email
dated July 18, 2007, a TAS representative informed SO Van
Grunsven that a CDP hearing should be scheduled for July 25,
2007. Petitioners failed to attend that meeting. On July 26,
2007, a TAS representative informed SO Van Grunsven that
petitioner husband had taken pain medicine, causing him to
oversleep and therefore miss the July 25, 2007, meeting. The CDP
hearing was rescheduled for August 16, 2007.
At the hearing SO Van Grunsven allowed petitioners to appeal
the denial of the abatement of the additions to tax for 2001 and
2002, even though it was not properly in issue, with the hearing
on the abatement denial to be conducted separately from the CDP
hearing. Petitioners also asserted that the revenue officers
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failed to provide the accurate amount of their 2001 tax liability
and therefore petitioners had to obtain the amount from TAS.
During the hearing petitioners for the first time requested an
abatement of interest for 2001 and 2002. Petitioners complained
that the amount of tax due the revenue officers provided for 2001
was overstated by $8,000. Petitioners also requested that the
liens to collect the 2001 and 2002 tax liabilities be withdrawn
to allow petitioners to obtain a loan to pay the balance.
Petitioners added that they were facing economic hardship because
they did not have health insurance to defray the medical costs
incurred from petitioner wife’s cancer treatment and therefore
had used most of their funds to pay those bills. Consequently,
SO Van Grunsven informed petitioners that he would decide only
the issues relating to the liens and levies used to collect the
2001 and 2002 tax liabilities and the abatement of interest for
those tax years.
On August 27, 2007, Appeals Officer David L. Torrison (AO
Torrison) conducted a telephone hearing concerning petitioners’
second request for abatement of the additions to tax for 2001 and
2002. AO Torrison issued a determination sustaining the denial
of that abatement. AO Torrison reasoned that petitioners failed
to prove reasonable cause for their failure to timely file their
tax returns and pay their tax liabilities that would justify
abatement.
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Notices of Determination
Two notices of determination (notices) were issued on
November 6, 2007. The notices stated that the 2002 tax liability
had been satisfied and the IRS would not proceed to collect such
a liability via lien or levy. The first notice stated that
respondent would not withdraw the lien filed to collect the 2001
tax liability because all applicable laws and administrative
procedure were followed and the filing of the lien was not
premature. According to the first notice, petitioners could not
raise the underlying liability as an issue. That notice further
stated that petitioners failed to pay the tax due for the tax
year 2001 after receiving other notices demanding payment of the
2001 tax liability in a timely manner. According to that notice,
the abatement of interest for 2001 and 2002 was denied because
the interest was primarily attributable to petitioners’ failure
to address the liabilities and not due to any unreasonable delays
or errors attributable to an IRS officer in performing either a
managerial or ministerial act. The second notice stated that
respondent could collect by levy the tax petitioners owed for the
tax year 2001 and that all applicable laws and administrative
procedures had been satisfied.
Tax Court Petition
On December 3, 2007, petitioners timely filed a petition
with this Court, stating:
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We are entitled to 100% relief from the claims by
the IRS. * * * Specifically, IRS personnel refused
to afford us proper administrative appeals not
only in the additions to tax process, for which
this unjust debt is claimed by the IRS, but failed
to give due consideration to the way we as earners
and therefore taxpayers make our living.
Discussion
I. Appeals Officer’s Determinations To Proceed With the
Collection of Petitioners’ Tax Liability by Lien and Levy
A. Collection Principles and Procedure
In 1998 Congress enacted sections 6320 and 6330 to protect
certain taxpayer rights and to ensure that the IRS uniformly
follows those prescribed procedures. See S. Rept. 105-174, at
67, 73 (1998), 1998-3 C.B. 537, 603, 609. Section 6320 affords
taxpayers the right to a fair hearing upon the filing of a notice
of lien while section 6330 provides the same right when a notice
of levy has been issued. This Court has jurisdiction under
section 6330(d)(1) to review the Appeals officer’s
determinations.
A lien arises after a taxpayer’s tax liability has been
properly assessed and a notice and demand has been made. Sec.
6321. A taxpayer must request a CDP hearing within the
statutorily prescribed period. Sec. 6320(a)(3), (b)(1). The IRS
can also issue a notice to collect the tax owed by levy after the
tax liability has been properly assessed and a notice and demand
has been made. Section 6330(c) governs the CDP hearing where a
taxpayer disputes the notice of a filing of a lien and the notice
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of intent to collect tax by levy. Pursuant to section
6330(c)(1), the Appeals officer must verify whether the
requirements of the applicable law or administrative procedure
have been met.
B. Verification Under Section 6330(c)(1)
This Court has authority to review an issue relating to the
verification requirement of section 6330(c)(1) regardless of
whether a taxpayer raised that issue at the CDP hearing. See
Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008); Marlow v.
Commissioner, T.C. Memo. 2010-113. When a dispute pertains to an
error of law, as it does here, the abuse of discretion standard
should be applied. See Freije v. Commissioner, 125 T.C. 14, 36
(2005); Marlow v. Commissioner, supra. For the reasons set forth
below, this Court holds that the Appeals officer’s determination
to proceed with collection of petitioners’ 2001 tax liability via
a lien and levy was an error of law and thus, an abuse of
discretion.
1. Applicable Law
Section 6501(a) generally provides that a valid assessment
of income tax liability may not be made more than 3 years after
the later of the date the tax return was filed or the due date of
the tax return. However, section 6213 provides that for an
assessment of a deficiency to be valid a notice of deficiency
must first be mailed to a taxpayer at his last known address once
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the Secretary determines a deficiency in respect of the tax owed.
See also Hoyle v. Commissioner, supra at 205. Section 6211(a)
defines a deficiency as the amount by which the correct tax
imposed under the Code exceeds the amount of tax shown on the
return plus the amount of tax previously assessed less any
rebates. Once a notice of deficiency is issued and a taxpayer
timely files a petition with this Court, the Tax Court has
jurisdiction over the redetermination of the deficiency. Sec.
6213(a).
Where an assessment arises from a mathematical or clerical
error appearing on the return, no notice of deficiency is
required under section 6213(b). However, with an exception not
relevant here, a notice of mathematical error generally should be
issued notifying the taxpayer that, on account of a mathematical
or clerical error appearing on the return, an amount of tax in
excess of that shown on the return is due and that an assessment
of the tax has been or will be made on the basis of what would
have been the correct amount of tax but for the mathematical or
clerical error. That notice must set forth the error alleged and
an explanation thereof. Sec. 6213(b)(1); see also Ron Lykins,
Inc. v. Commissioner, 133 T.C. 87, 98 (2009). Section 6213(b)(1)
must be read in conjunction with section 6213(g)(2), which
specifies different types of mathematical errors, including an
incorrect use of any table the IRS provides with respect to any
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return if such incorrect use is apparent from the existence of
other information on the return, or an omission of a correct tax
identification number as required under section 151 for a
personal exemption deduction. Under section 6213(b) this notice
of mathematical error is not considered a notice of deficiency,
and therefore a taxpayer who receives such a notice cannot file a
petition with the Tax Court. Nonetheless, within 60 days after a
taxpayer is sent a mathematical error notice the taxpayer may
request an abatement of the tax liability attributable to the
mathematical error and the Secretary shall abate the assessment.
Sec. 6213(b)(2). A reassessment of the tax with respect to the
abatement shall be subject to the deficiency procedure. Id. No
levy or proceeding for the collection of such an assessment shall
be made, begun, or prosecuted during the period in which the
assessment may be abated. Sec. 6213(b)(2)(B). If a petition is
timely filed, the Tax Court has jurisdiction over the
redetermination of that deficiency arising from that
reassessment. Sec. 6213(b)(2)(A).
2. Parties’ Contentions
Petitioners contend that the 2001 assessment was invalid and
therefore respondent improperly verified the applicable law.
Petitioners argue that respondent failed to issue a notice of
deficiency notwithstanding that petitioners’ 2001 tax liability
constituted a deficiency under section 6211.
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Although respondent concedes that no notice of deficiency
was issued, respondent argues that petitioners’ tax liability as
determined does not constitute a deficiency and arose out of the
mathematical errors on the return. This Court disagrees.
3. Validity of Assessment
This Court has no quarrel over the portion of the assessment
attributable to the tax petitioners reported due on their 2001
tax return. However, this Court holds the following: (1) The
portion of the assessment attributable to respondent’s
mischaracterization of the capital gain is not at issue,
nothwithstanding the fact that the lien was filed to collect the
entire amount of petitioners’ tax liability, and (2) the other
portion attributable to petitioners’ omission of the Social
Security number needed for the dependency exemption deduction is
invalid.
Respondent’s mischaracterization of petitioners’ capital
gain as ordinary income is not a mathematical error under section
6213(g). This adjustment falls squarely within the definition of
deficiency under section 6211(a) and required respondent to issue
a notice of deficiency. Under section 6213 the issuance of the
notice of deficiency would have afforded petitioners the right to
have an opportunity to petition for redetermination of the
deficiency in this Court. See Freije v. Commissioner, 125 T.C.
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at 35-36. However, this portion of petitioners’ 2001 tax
liability is no longer at issue because respondent has abated it.
The portion of the assessment attributable to the omission
of the dependent’s Social Security number is invalid.
Although the omission of the dependent’s Social Security number
needed to claim a dependency exemption deduction is considered a
mathematical error under section 6213(g)(2), Letter 474C issued
to petitioners was improper on its face under section 6213(b)(1).
That letter did not notify petitioners that the amount of tax due
in excess of the amount of tax petitioners reported on their Form
1040X and their adjusted total tax liability were based on a
mathematical error, did not set forth the specific error alleged,
and did not adequately explain such an error. Furthermore,
contrary to the fact that petitioners’ representative timely
challenged the assessment and requested an abatement of the
assessment, respondent failed to follow the procedure under
section 6213(b)(2) by instituting the collection of the
assessment via levy while the abatement process relating to “the
supposed mathematical errors” was occurring. Respondent’s
failures derogate from petitioners’ rights under section 6213,
thereby compelling this Court to void the portion of the
assessment attributable to the omission of the dependent’s Social
Security number. See Freije v. Commissioner, supra at 35-36.
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II. Abatement of Interest
Petitioners requested abatement of the interest accrued from
the due dates of their 2001 and 2002 tax returns until the
assessment of their tax. Under section 6404(e)(1), the
Commissioner may abate part or all of an assessment of interest
on any payment of income, gift, estate, and certain excise taxes
to the extent that any error or delay in payment is attributable
to erroneous or dilatory performance of a ministerial or
managerial act by an officer or employee of the Commissioner. A
taxpayer is entitled to this relief if no significant aspect of
such an error or delay can be attributed to the taxpayer
involved. Id. A taxpayer can make such a request for abatement
of interest only after the IRS has contacted him in writing with
respect to such a deficiency or payment. Id.
The term “ministerial act” means 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 act, such as conferences and review by
supervisors, have taken place. Sec. 301.6404-2(b)(2), Proced. &
Admin. Regs. In contrast, the term “managerial act” means 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.
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Regs. Any decision concerning the proper application of Federal
tax law, State law, or administrative procedure cannot be
considered a managerial or a ministerial act. Sec. 301.6404-
2(b), Proced. & Admin. Regs.
Congress did not intend section 6404(e) to be used routinely
to avoid payment of interest but intended its application where
the failure to do so “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 (1986), 1986-3 C.B. (Vol. 3) 1, 208.
This Court has jurisdiction under section 6404(h) to review
respondent’s decision as to whether petitioners are entitled to
an abatement of interest for the tax year 2001.5 To prevail a
taxpayer must prove that the Commissioner abused his discretion
by exercising it arbitrarily, capriciously, or without sound
basis of fact or law. Woodral v. Commissioner, 112 T.C. 19, 23
(1999). In its review the Court must give due deference to the
Commissioner’s determination. See id.
There is no basis on which to find that any unreasonable
error or delay in petitioners’ payments of interest for 2001 and
2002 is attributable to an officer or employee of respondent
being erroneous or dilatory in performing a managerial or
ministerial act. It is undisputed that petitioners filed their
5
The Court does not have jurisdiction to review respondent’s
determination for abatement of the additions to tax. See sec.
6404(f).
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2001 tax return approximately 3 years and 2 months late and their
2002 tax return approximately 2 years and 4 months late. They
did not submit any payment when they filed those returns. Even
when petitioners amended their 2001 return on November 5, 2007,
they still did not submit any payment. Petitioners knew of the
actual self-assessed amounts of tax liabilities for those tax
years but chose not to pay. Petitioners and their C.P.A. could
have on their own calculated the exact amount of the tax and the
interest for 2001 and 2002. More specifically, petitioners did
not wait for the revenue officers to calculate the interest they
owed for the tax year 2001 and quickly proceeded to pay most of
the liability, including the interest, without providing the
revenue officers an opportunity to do so.
Petitioners also contend that the invalid 2001 assessment
would be a sufficient reason for abatement of interest for that
year. Nonetheless, the improper assessment of petitioners’ tax
liability would be considered neither a managerial nor a
ministerial act under section 6404(e) because any assessment of
tax liability would require the application of Federal law.
Petitioners further argue that an error was attributable to
RO Barber’s failing to notify petitioners of their rights to
appeal her decision. Petitioners’ argument is baseless because
RO Barber properly sent a notice letter on October 30, 2006.
Petitioners also argue that the review of RO Barber’s decision
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was delayed due to RO Smith’s “unavailability and * * * [failure]
to attend meetings he scheduled”. The record does not support
petitioners’ assertions but indicates that petitioners
contributed significantly to the delay in meeting RO Smith.
Petitioner husband was the one who misplaced RO Smith’s telephone
number, he and his C.P.A. would not wait for RO Smith’s arrival
after RO Smith explained his tardiness was based on a prior
commitment, and petitioner husband himself missed a scheduled
meeting. Furthermore, even if RO Smith failed to attend those
meetings, the failure did not cause unreasonable delay in payment
of the tax since it took only 1 month for RO Smith to review RO
Barber’s decision and inform petitioner husband of his decision.
For reasons stated, this Court holds that the settlement
officer did not abuse his discretion by denying petitioners’
request for abatement of interest under section 6404(e).
Conclusion
Although petitioners seek equitable relief from the interest
accrued from the due date of the 2001 tax return until the
payment of their tax liability, this Court is a court of limited
jurisdiction where no such remedy is available. See Commissioner
v. McCoy, 484 U.S. 3, 7 (1987). Thus, the Court holds that
respondent did not abuse his discretion when he denied
petitioners’ request for abatement of interest under section
6404(e). This Court further holds that the Appeals Officer
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abused his discretion in issuing the notices of determination to
proceed with the collection of the 2001 tax liability via lien
and levy, because portions of the assessment attributable to the
mathematical error on petitioners’ 2001 tax return were invalid
under section 6213.
To reflect the foregoing,
An appropriate decision
will be entered.