T.C. Memo. 2001-57

UNITED STATES TAX COURT

ROBERT WISH AND ERIN WISH RIEHS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3037-99. Filed March 9, 2001.

R examined Ps’ 1981 tax return and issued a notice

of deficiency. Anticipating an assessment, Ps posted a

cash bond with R. Ps subsequently filed a refund claim

for the 1985 tax year, the proceeds of which were to be

used to offset any shortfall between the bond and the

assessment. R denied the refund claim, and the

assessment exceeded the bond. Ps then filed a claim

for an abatement of interest for the 1981 tax year. Ps

supported their abatement claim with allegations of

errors or delays occurring during the processing of

their refund claim for 1985. R denied their claim for

abatement of interest.

Held, the delay in payment of the 1981 outstanding

tax liability was not attributable to procedures

involved in the processing of the refund claim for 1985

so as to allow relief under sec. 6404(e), I.R.C., 1986.
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1 References to sec. 6404(e) are to sec. 6404(e) before

amendment by sec. 301 of the Taxpayer Bill of Rights 2, Pub. L.

104-168, 110 Stat. 1452, 1457 (1996). Unless otherwise stated,

all other section references are to the Internal Revenue Code as

amended, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

Joseph E. Mudd and Linas N. Udrys, for petitioners.

Gary M. Slavett, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: On August 19, 1998, respondent issued a

notice of final determination denying petitioners’ request for an

abatement of interest under section 6404(e) for their 1981 tax

year.1 The issue for decision is whether respondent abused his

discretion in failing to abate the assessment of interest.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioners resided in Laguna Hills, California. 

1981 Tax Return

During 1981, petitioners invested in a partnership known as

Hillcrest Securities. Respondent examined petitioners’ 1981 tax

year, concentrating on petitioners’ tax treatment of their

partnership interest in Hillcrest Securities. On October 9,

1986, respondent issued a notice of deficiency for 1981. 
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2 ($81,092 + $4,055 + $116,564.26) - $100,000 + $2,801.10. 

The $2,801.10 represented additional interest accrued from the

date of assessment to the date of the notice. 

On June 16, 1988, anticipating that respondent would assess

a deficiency for the 1981 tax year, petitioners deposited

$100,000 with respondent in the form of a bond. Petitioners

requested that respondent apply $81,092 to the deficiency and

$18,908 to penalties. 

On January 28, 1991, respondent assessed the deficiency for

1981 in the amount of $81,092. Respondent also assessed a

negligence penalty in the amount of $4,055 and interest in the

amount of $116,564.26 pursuant to section 6621(c) (subsequently

repealed by the Omnibus Budget Reconciliation Act of 1989, Pub.

L. 101-239, sec. 7721(b), 103 Stat. 2106, 2399). On April 15,

1991, because the bond was insufficient to offset the deficiency,

interest, and penalty assessed, respondent mailed petitioners a

Reminder of Unpaid Tax for the 1981 tax year. The reminder

stated that petitioners had an outstanding balance of $104,512.36

with regard to the assessment for the 1981 tax year (including

additional interest).2 Petitioners expected to pay the remaining

liability from proceeds of a refund claim for the 1985 tax year. 

On April 13, 1992, respondent issued a notice of intent to

levy with regard to the assessment for the 1981 tax year. In

June 1992, Mr. Wish contacted Specialist Todd Brunk of

respondent’s Problem Resolution Office to request a hold on
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3 Sometime after the date of assessment for the 1981 tax

year and prior to Specialist Brunk's granting Mr. Wish’s request,

petitioners’ attorney had also requested a hold on collection for

petitioners’ 1981 tax year. The IRS granted that request.

collection based upon petitioners’ refund claim for 1985. On

June 22, 1992, Specialist Brunk accommodated petitioners and

placed a collection hold on the outstanding balance for the 1981

tax year until November 28, 1992.3 Because petitioners requested

and were granted extensions, the collection hold remained in

place until at least June 29, 1995. 

1985 and 1988 Amended Tax Returns

On August 11, 1990, petitioners filed a Form 1040X, Amended

U.S. Individual Income Tax Return, for 1985 seeking a refund of

$64,408 by carrying back a $330,000 net operating loss generated

in another tax year. On August 27, 1990, respondent mailed a

notice to petitioners stating that their refund claim was

incomplete and requesting the year in which the net operating

loss allegedly was generated. In conjunction with the 1985

amended return, on October 17, 1990, petitioners filed a Form

1040X for 1988 claiming additional losses of $340,000. The

additional losses created a net operating loss for 1988 in the

amount of $336,097, of which they had carried back $330,000 to

1985. On November 8, 1990, respondent mailed petitioners a

letter stating that the Form 1040X for 1985 was being processed. 

On September 5, 1991, petitioners filed a second Form 1040X for
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4 On the September 5, 1991, Form 1040X, petitioners reduced

the net operating loss carryback (from 1988) to $190,000. This

amendment created a smaller refund request.

5 References to the refund claim for 1985 are to both the

August 11, 1990, Form 1040X and the September 5, 1991, Form

1040X.

1985 claiming a refund of only $36,408.4 

Examination

On January 3, 1992, respondent advised petitioners that

their 1988 amended return and, by implication, their refund claim

for 19855 were being reviewed by Examiner Monte Kruse. Examiner

Kruse issued various information document requests (IDR's) to

petitioners, received the relevant information, and evaluated

several tax issues. On August 1, 1992, Examiner Kruse issued a

30-day letter proposing a deficiency for the 1988 tax year with

regard to various issues. In the 30-day letter, Examiner Kruse

stated that petitioners’ claim for additional losses had been

considered; however, he allowed only $3,090 of those losses.

Because Examiner Kruse proposed additional income items, the

allowed loss did not create a refund or generate net operating

losses to be carried back to 1985. 

Appeals

On August 26, 1992, petitioners verbally requested that

respondent’s Appeals Office (Appeals) review the 1988 tax year. 

On September 8, 1992, Examiner Kruse prepared a Special Handling

Notice to forward petitioners’ materials to Appeals. On 
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September 22, 1992, petitioners filed a written protest and

request for Appeals to review the case. On December 3, 1992,

Appeals received the materials related to petitioners’ case. In

February or March of 1993, because Examiner Kruse had not

prepared a Revenue Agent Report (RAR), the case was sent back to

respondent’s examination division. 

Second Examination

Revenue Agent Jimmy Bose was assigned to petitioners’ case.

Beginning in April 1993, Agent Bose issued IDR's to petitioners

and prepared draft RAR's. On October 8, 1993, Agent Bose

prepared a complete RAR with explanations for the 1988 tax year. 

Petitioners and Agent Bose continued working toward a resolution

of the case. On December 16, 1993, Agent Bose issued another IDR

and, on July 8, 1994, issued a summons to petitioners. On August

17, 1994, Agent Bose prepared a RAR with regard to the 1985 tax

year, disallowing the net operating loss carryback from 1988 and

denying the claimed refund for 1985. 

On October 19, 1994, respondent issued a notice of

deficiency to petitioners for their 1988 tax year. On 

December 16, 1994, petitioners filed a petition with this Court

seeking a redetermination of the deficiency for 1988 as

determined by respondent. On January 23, 1995, respondent issued

an official notice of disallowance of the claimed refund for

1985. On March 21, 1996, the Court entered a stipulated decision
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with regard to the 1988 tax year providing for an overpayment of

$2,194.

Interest Abatement Claim for 1981

On June 27, 1996, petitioners filed a Request For Abatement

Of Interest (interest abatement claim) with respondent. In the

interest abatement claim, petitioners stated that “due to the

appearance that there was a realistic possibility of substantial

refund for 1985 with interest in an amount sufficient to pay all

of the * * * [1981] remaining liability, Problem Resolution

agreed that the case would be placed on hold.” Petitioners

asserted that the “1988 audit, however, became a substantial

comedy of delays.” Petitioners alleged that the audit of the

1988 tax year was neither performed adequately nor timely. As a

result, petitioners argued:

Had the 1988 audit been completed in a reasonable

manner, the tax refunds that would have discharged the

liability, or the lack thereof, would have * * * 

adequately determined the manner in which Mr. Wish

could have and would have paid the entire liability

including interest. As of a matter of fact, as soon as

the liability was determined, Mr. Wish made a

substantial payment on the balance of the income tax

liability.

Respondent found no errors or delays to support an abatement of

interest and therefore denied petitioners’ interest abatement

claim.

OPINION

Section 6404(e)(1) provides that the Commissioner may abate
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6 In 1996, sec. 6404(e) was amended under sec. 301 of the

Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457

(1996), to permit the Commissioner to abate interest with respect

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

and ministerial acts. This amendment, however, applies to

interest accruing with respect to deficiencies or payments for

tax years beginning after July 30, 1996; therefore, the amendment

is inapplicable to the case at bar. See Woodral v. Commissioner,

112 T.C. 19, 25 n.8 (1999). 

7 The Senate Finance Committee stated that the “IRS may

define a ministerial act in regulations.” S. Rept. 99-313, at

209 (1986), 1986-3 C.B. (Vol. 3) 1, 209.

the assessment of interest on: (1) Any deficiency attributable

to any error or delay by an officer or employee of the Internal

Revenue Service (IRS) in performing a ministerial act or (2) any

payment of any tax described in section 6212(a) to the extent

that any error or delay in such payment is attributable to such

officer or employee being erroneous or dilatory in performing a

ministerial act.6 An error or delay is taken into account only

(1) if no significant aspect of such error or delay can be

attributed to the taxpayer and (2) after the IRS has contacted

the taxpayer in writing with respect to such deficiency or

payment. See sec. 6404(e)(1).

The Treasury has interpreted 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 act, such as

conferences and review by supervisors, have taken place.”7 See

sec. 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed.
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8 The final U.S. Treasury regulations under sec. 6404 were

issued on Dec. 18, 1998. See sec. 301.6404-2(b)(2), Proced. &

Admin. Regs., 63 Fed. Reg. 70012, 70013 (Dec. 18, 1998). The

final regulations contain the same definition of a ministerial

act as the temporary regulations. Because the final regulations,

however, incorporate amendments to sec. 6404 pursuant to the

Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457

(1996), they are inapplicable here. See id. at 70012.

Reg. 30162, 30163 (Aug. 13, 1987).8

This Court may order an abatement where the Commissioner’s

failure to abate interest was an abuse of discretion. See sec.

6404(i). In order to prevail, the taxpayer must demonstrate that

in not abating interest, the Commissioner exercised his

discretion arbitrarily, capriciously, or without sound basis in

fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23

(1999).

In enacting section 6404(e), Congress intended for the

Commissioner to abate interest “where failure to abate interest

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. Congress, however, did

not intend that abatement “be used routinely to avoid payment of

interest.” Id.

Petitioners argue that from January 1990 to December 16,

1994, respondent committed errors or delays while processing

their refund claim for 1985; i.e., committed errors or delays in

performing ministerial acts. Petitioners specifically complain
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that their 1985 and 1988 amended returns were referred for

examination on November 19, 1990, but Examiner Kruse delayed the

examination until January 3, 1992, when he first contacted

petitioners. Petitioners also argue that the period involved in

transferring petitioners’ files from Examiner Kruse’s office to

Appeals (September 23, 1992, to December 3, 1992) was excessive. 

Additionally, petitioners claim that between January 1993 and

April 29, 1993, respondent was dilatory in forwarding their files

from Appeals to Agent Bose. Further, petitioners argue that from

May 1993 to October 1994, Agent Bose reaudited the amended

returns instead of simply issuing the RAR. Because petitioners

intended to apply the anticipated refund as payment for any

liabilities outstanding as to the 1981 tax year, petitioners

claim that the alleged errors or delays in the refund claim for

1985 relate to the 1981 tax year. Accordingly, petitioners

contend that they are entitled to an abatement of interest under

section 6404(e) as to the 1981 tax year.

Respondent counters that no errors or delays in performing

ministerial acts occurred during the processing of the refund

claim for 1985. Further, respondent argues that even if any such

errors or delays were committed, petitioners cannot be allowed an

abatement of interest for the 1981 tax year under section 6404(e)

with regard to such errors or delays. In other words, respondent

claims that the errors or delays were not associated with the
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processing of the 1981 tax return. See sec. 301.6404-2T(b)(1),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30162, 30163 (Aug.

13, 1987). Finally, respondent argues that the accrual of

interest during the period in issue is solely attributable to

petitioners’ decision to seek a hold (based on the claim for

refund) on collection and not to pay the outstanding tax

liability.

 In the instant case, petitioners have not specifically

addressed upon which prong of section 6404(e)(1) they base their

claim. In enacting section 6404(e)(1)(A), Congress vested the

Commissioner with discretion to abate interest on any deficiency

attributable in whole or in part to an error or delay committed

by an officer or employee of the IRS in performing ministerial

acts. For example, Congress explained that “a delay in the

issuance of a statutory notice of deficiency after the IRS and

the taxpayer have completed efforts to resolve the matter could

be grounds for abatement of interest.” S. Rept. 99-313, at 209

(1986), supra at 209. Petitioners have not alleged that

respondent committed any errors or delays in determining or

assessing petitioners’ tax deficiency with regard to the 1981 tax

year.

Errors or delays in the determination or assessment of a

deficiency, however, do not constitute the sole basis for relief

under section 6404(e). Congress has also provided relief for any
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errors or delays in the payment of tax to the extent that such

errors or delays are attributable to the Commissioner being

erroneous or dilatory in performing ministerial acts. See sec.

6404(e)(1)(B); Gross v. Commissioner, T.C. Memo. 2000-44. 

 Petitioners claim that respondent’s untimely processing of

their refund claim for 1985 delayed the ultimate payment of their

1981 tax liability. It appears that petitioners seek an

abatement of interest pursuant to section 6404(e)(1)(B). We

therefore analyze petitioners’ claim under that provision.

Petitioners assume that the late payment of the outstanding

tax liability for 1981 and the associated accrual of interest are

attributable (within the meaning of section 6404(e)(1)(B)) to the

various steps they cite with regard to the processing of the

refund claim for 1985. We, however, cannot characterize those

steps as the cause of the delay in payment of the outstanding tax

liability for 1981. The acts described by petitioners are part

of the administrative process of resolving the refund claim for

1985 and not a direct part of the payment process for the 1981

tax year, a different tax year. The only relation between the

refund claim for 1985 and the payment of the 1981 tax liability

is that created by petitioners in deferring the payment of the

1981 tax liability on the assumption that the refund claim for

1985 would be granted. We thus do not find the requisite

connection between the alleged errors or delays in the procedures
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9 This is not the case, for example, in which a claim for

refund was allowed, and, after a specific request by the taxpayer

to apply the refund to the tax year in issue, the Commissioner

failed to act on the taxpayer’s request. See Mankita v.

Commissioner, T.C. Memo. 1999-420 (in which we rejected a

taxpayer’s claim, under the facts of that case, that an abatement

of interest should have been allowed because the Commissioner had

failed to apply a refund to the tax year in issue).

employed for processing the 1985 refund claim and the accrual of

interest that is the subject of petitioners’ interest abatement

claim for the 1981 tax year.9

We note that a significant aspect of the delay in the

ultimate payment of the 1981 tax liability is attributable to

petitioners. They chose to await the determination of the refund

claim for 1985, while all along requesting holds on collection.

We have considered all of the arguments raised by the

parties and to the extent not discussed herein find them to be

moot, irrelevant, or without merit.

To reflect the foregoing, 

Decision will be entered

for respondent.