T.C. Memo. 2002-10

UNITED STATES TAX COURT

JAMES EDWARD CRAWFORD, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7803-00. Filed January 10, 2002.

James Edward Crawford, pro se.

Stephen R. Takeuchi, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

DAWSON, Judge: This case was assigned to Chief Special

Trial Judge Peter J. Panuthos pursuant to the provisions of

section 7443A(b)(5) in effect when this case commenced, and Rules

180, 181, and 183. Unless otherwise indicated, section

references are to the Internal Revenue Code as in effect for the

tax year for which petitioner seeks abatement of interest. All
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Rule references are to the Tax Court Rules of Practice and

Procedure. The Court agrees with and adopts the opinion of the

Special Trial Judge which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief Special Trial Judge: On April 7, 2000,

respondent issued a notice of final determination denying

petitioner’s claim to abate interest for tax year 1980. 

Petitioner challenged the determination by timely filing a

petition under section 6404(i) and Rule 281. 

The issue for decision is whether respondent abused his

discretion in denying petitioner's request for abatement of

interest assessed from July 1993, through the present date with

respect to petitioner’s 1980 taxable year.

FINDINGS OF FACT

The stipulation of facts and the accompanying exhibits are

incorporated herein by reference. Petitioner resided in Brandon,

Florida, at the time his petition was filed with the Court.

In 1983, petitioner invested in the First Energy Leasing tax

shelter (First Energy) and claimed an investment tax credit of

$10,000, of which he applied $3,670 to his 1983 tax liability. 

He carried back $6,330 of the credit to his 1980 tax year for

which he filed a Form 1045, Application for Tentative Refund,

received by the Cincinnati Service Center on March 20, 1984. 
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Petitioner was issued a refund of $6,330 plus interest of $183.31

for a total of $6,513.31.

In a letter dated July 17, 1984, the Internal Revenue

Service (IRS) notified petitioner that for tax year 1983 First

Energy was an abusive tax shelter the deductions from or credits

for which "are not allowable". On November 4, 1986, the IRS sent

petitioner's attorney a settlement offer regarding First Energy. 

After no response was received, the IRS issued a notice of

deficiency dated July 13, 1987, determining deficiencies in

petitioners’ Federal income taxes for 1980 and 1983 in the

amounts of $6,330 and $5,717, respectively, and additions to tax

for 1980 in the amounts of $316.50 and $1,899 under sections

6653(a) and 6659, respectively. The underpayment of tax for 1980

was determined to be a substantial underpayment attributable to a

tax motivated transaction under section 6621(c).

Petitioner filed a petition with the Court on August 17,

1987, for a redetermination of the deficiencies. After a timely

answer was filed, respondent, on October 15, 1987, sent

petitioner's case to the Appeals Office to give petitioner

another opportunity to accept the "national" settlement offer. 

On January 13, 1988, respondent's counsel wrote to petitioner's

counsel inquiring "whether you intend to litigate all issues, or

only the penalty issues, and whether you will agree to a test

case approach." In a letter dated March 10, 1988, petitioner
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indicated that he wanted to litigate all the issues related to

First Energy and that he was willing to be bound by a test case. 

The following year, in a letter dated January 12, 1989,

petitioner's counsel wrote to respondent's counsel expressing a

desire to "proceed with the government's settlement offer" and

requesting a computation showing the settlement deficiencies. In

a letter dated June 27, 1989, respondent sent to petitioner's

counsel copies of a proposed decision, stipulation, and closing

agreement together with a computation of tax. In this proposed

settlement, petitioner would agree to a deficiency in tax for

1980 of $6,330. He would also agree to a deficiency in tax for

1983 of $4,613, net tax payments of $5,717, and an overpayment of

$1,104. The parties would also make certain concessions as to

additions to tax and additional amounts to be paid under section

6621(c).

Respondent's counsel wrote to petitioner's counsel in a

letter dated October 17, 1989, to inform him that petitioner had

contacted respondent's counsel and alleged that he had not

received the $6,330 refund for 1980 that he had applied for on

Form 1045. In the letter, respondent's counsel also informed

petitioner's counsel that a pretrial conference in unsettled

First Energy cases was being scheduled requiring the receipt of

any agreed decision before November 3, 1989. There was no

acceptance of the offer.
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On July 26, 1990, respondent filed motions to calendar, to

change place of trial, and for pretrial conference. The Court

subsequently granted respondent's motion for pretrial conference

and denied the other two motions.

In response to petitioner's request, respondent's counsel

enclosed in a letter sent to him on or about October 22, 1990, a

Form 3911, Taxpayer Statement Regarding Refund. The form, used

in tracing refund checks, requires the taxpayer to supply certain

information certified to be correct, to the best of his

knowledge, under penalties of perjury. The form states that the

information requested may be provided in a letter. On November

28, 1990, petitioner sent to the Cincinnati Service Center a

letter requesting "a photocopy of a refund check I allegedly

received in July of 1984" in the amount of $6,330. Petitioner

states in the letter that he never received the refund check in

the amount of $6,330. The letter does not contain a statement

that it is certified to be correct, to the best of his knowledge,

under penalties of perjury.

Petitioner's counsel filed a motion to withdraw from his

representation of petitioner on December 17, 1990, which motion

was subsequently granted.

Petitioner was notified of a change in respondent's

settlement position in the First Energy cases in a letter dated
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March 20, 1991, and the new settlement was offered to petitioner

for acceptance within a period of 4 weeks.

The Court issued an order on April 18, 1991, scheduling

petitioner's trial on August 26, 1991, in Chicago, Illinois. On

April 23, 1991, respondent wrote to petitioner, now residing in

Florida, requesting informal discovery of documents related to

his investment in First Energy as well as answers to a number of

questions related to the investment. The following month,

petitioner signed a Form 906, Closing Agreement On Final

Determination Covering Specific Matters, that effectively settled

the issues in his case.

On June 3, 1991, the Court struck petitioner's case from the

August 26, 1991, trial session due to the stipulation of settled

issues resolving the First Energy matter.

On or about September 7, 1991, respondent's counsel inquired

as to the status of petitioner's request for a trace of his 1980

refund check. Petitioner replied in a letter dated September 26,

1991, that "My last written request was submitted in November

1990 asking for a photocopy of the check they allegedly sent me

on July 18, 1984 for $6513.31. As of this date I still have not

received it." On November 8, 1991, petitioner's case was

forwarded to the Appeals Office for a settlement computation.

Petitioner further replied to respondent's counsel, in a

letter dated November 12, 1991, that he was notified that his
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First Energy deductions were abusive "BEFORE they allegedly sent

me the check in question." He acknowledged receiving a document

"indicating that the check was mailed to me on July 18, 1984."

But he questioned "why did the IRS send me a refund check on July

18, 1984 after telling me on July 17, 1984 that I was not

entitled to that refund?" Petitioner also took the position that

just because the check was sent to him and cashed did not mean

that he was the one who cashed it. Respondent's counsel advised

petitioner in a follow-up letter that the issue of his receipt of

the refund check was not an issue triable in his Tax Court case.

On December 16, 1991, the Court granted a motion by

respondent's counsel to change place of trial to Tampa, Florida. 

In a letter dated February 10, 1993, respondent's counsel located

in Jacksonville, Florida, requested petitioner's consideration of

a proposed stipulation of facts and a request for documents,

including petitioner's bank statements for the period July

through December 1984. Respondent's counsel sent petitioner a

followup request for bank statements on April 2, 1993.

Respondent, on April 6, 1993, sent to the Court a trial

memorandum for petitioner's case set on the April 26, 1993, trial

calendar in Tampa, Florida. The memorandum frames the issue for

trial as whether petitioner received the 1980 refund of $6,330 he

claimed on Form 1045, recognizing Naftel v. Commissioner, 85 T.C.

527, 531-532 (1985) as authority for the Court’s having
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jurisdiction to decide the issue. Petitioner agreed to settle

his case. On April 14, 1993, he signed a decision document

agreeing to deficiencies of $6,330 for 1980 and $5,717 for 1983,

and to certain concessions as to additions to tax and an

additional amount under section 6621(c). The decision document

also states, consistent with the settlement computation of June

27, 1989, that petitioner has net tax payments of $5,717 for

1983.

On July 26, 1993, petitioner sent a check for $1,567.51 to

the IRS for his 1980 tax liability. In response to a letter from

petitioner dated February 16, 1994, the Court wrote to him

explaining that jurisdiction did not currently exist to recompute

the statutory interest to be assessed on his 1980 tax deficiency. 

Petitioner alleged in his letter to the Court that the amount he

was now disputing was "the RE-PAYMENT of money the IRS sent me in

error, plus nine (9) years of compounded interest."

In response to petitioner's correspondence to Commissioner

Michael P. Dolan, dated November 13, 1997, the Acting District

Taxpayer Advocate sent petitioner a letter dated January 7, 1998,

attempting to explain petitioner's transcripts of account for

1980 and 1983.

On April 27, 1999, respondent received a Form 843, Claim for

Refund and Request for Abatement, filed by petitioner. In an

attachment to the form, petitioner states that "The two sources
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1 Sec. 6404(i) was formerly designated sec. 6404(g) but was

redesignated sec. 6404(i) by the Internal Revenue Service

Restructuring & Reform Act of 1998, Pub. L. 105-206, secs.

3305(a), 3309(a), 112 Stat. 743, 745.

of the problem are a refund check sent to me in error and a tax

credit I received in the amount of $5,717." Later in the

attachment he alleges that IRS representatives assured him that

if he did not prevail in Tax Court he would get a $5,717 credit

deducted from the $6,330 check he had received. "I would then

owe the difference between the two amounts plus interest. I

would have returned the $6,330 check had I not been given this

assurance. [Emphasis in original.]” The mistake he further

isolates in the attachment is that the IRS sent him the refund

check after First Energy was determined to be abusive and then

provided him with incorrect information. "This improper

information is the source of these interest payments." He

requests further that he receive a "refund" of all interest

payments made since 1993.

The IRS District Director in Jacksonville, Florida denied

petitioner's request for abatement in a letter dated October 25,

1999.

OPINION

Pursuant to section 6404(i),1 the Tax Court has the

authority to review the Commissioner’s denial of a taxpayer’s

request for abatement of interest. The Court may order an
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2 Congress amended sec. 6404(e) in 1996 to permit abatement

of interest for “unreasonable” error or delay in performing a

“ministerial or managerial” act. Taxpayer Bill of Rights 2 (TBOR

2), Pub. L. 104-168, sec. 301(a)(1) and (2), 110 Stat. 1457

(1996). That standard, however, applies to tax years beginning

after July 30, 1996. TBOR 2 sec. 301(c), 110 Stat. 1457.

abatement where the Commissioner’s failure to abate interest was

an abuse of discretion. Sec. 6404(i). The taxpayer must

demonstrate that the Commissioner, in failing to abate interest,

exercised his discretion arbitrarily, capriciously, or without

sound basis in law or fact. Woodral v. Commissioner, 112 T.C.

19, 23 (1999).

Petitioner requests abatement of interest pursuant to

section 6404(e)(1). Section 6404(e)(1), as applicable to

petitioner’s 1980 and 1983 tax years,2 reads as follows:

Sec. 6404(e). Assessments of interest

attributable to errors and delays by Internal Revenue

Service.--

(1) In General.--In the case of any assessment of

interest on–-

 (A) any deficiency attributable in whole or

in part to any error or delay by an officer or

employee of the Internal Revenue Service (acting

in his official capacity) in performing a

ministerial act, or

(B) 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,

the Secretary may abate the assessment of all or any

part of such interest for any period. For purposes of

the preceding sentence, an error or delay shall be
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3 Final regulations under sec. 6404, issued in 1998 and

generally applicable to interest accruing on deficiencies or

payments of tax for taxable years beginning after July 30, 1996,

provide the same definition of ministerial act. Sec. 301.6404-

2(b)(2), Proced. & Admin. Regs. 

taken into account only if no significant aspect of

such error or delay can be attributed to the taxpayer

involved, and after the Internal Revenue Service has

contacted the taxpayer in writing with respect to such

deficiency or payment.

The deficiency or payment, therefore, must be attributable to

an error or delay by an officer or employee of the IRS in the

performance of a ministerial act. Id.

Temporary regulations interpreting section 6404(e) define

the term “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.” Sec. 301.6404-

2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163

(Aug. 13, 1987).3 A decision concerning the proper application

of Federal tax law, or other Federal or State law, is not a

ministerial act. Id. 

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. Yet, Congress intended that abatement would
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be used sparingly, and it did not intend that abatement “be

used routinely to avoid payment of interest.” Id.

Petitioner currently argues that his interest should be

abated because he counted on receiving a tax "credit" of $5,717

from 1983 toward the payment of his 1980 tax deficiency in

accordance with written and oral advice he received from

"several" IRS employees prior to filing a petition in the Tax

Court. He states now that he would have returned the $6,330

check, which he at one time claimed he did not receive, but for

the "erroneous" advice given to him.

Petitioner's statement of the facts in his case has evolved

to its present form. From October 1989 until April of 1993,

petitioner represented to respondent that he had not received

the $6,330 refund he had requested on Form 1045. After signing

a decision document agreeing that there were deficiencies in

his Federal income taxes for 1980 and 1983, he formulated a new

position. His new position is that it was the fault of the IRS

that he received the $6,330 refund "in error". Furthermore, he

now states that he sought a redetermination of his deficiencies

only because several persons at IRS told him that he had a tax

"credit" of $5,717 that would be deducted from the $6,330

refund if he lost his case in Court.

Petitioner has presented no evidence of the "advice" he

claims he received from IRS employees, other than his own
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testimony. He has not even identified the employees who

allegedly gave him the advice. But any advice given to him by

IRS employees, whether accurate or inaccurate, would be a

product of the legal or administrative judgment of the person

giving the advice. Therefore, the oral advice petitioner

testified he received and relied upon does not constitute a

ministerial act. Moreover, petitioner should have known the

"advice" to be erroneous in April 1993. That was when he

signed the decision document agreeing that he had net tax

payments for 1983 of $5,717 on a tax deficiency to be assessed

in the amount of $5,717, and a deficiency in income tax due for

1980 of $6,330.

Petitioner's present request for a "refund" of interest

from 1993 forward conflicts with the evidence of his actual

knowledge or reason to know that he was entitled to neither a

$5,717 refund for 1983 nor a $5,717 tax "credit" from 1983 to

1980.

 In sum, respondent’s refusal to abate interest was not an

abuse of discretion. We have considered all other arguments

advanced by petitioner and, to the extent not discussed above,

have found those arguments to be irrelevant or without merit.

To reflect the foregoing, 

Decision will be entered

for respondent.