T.C. Summ ary Opi ni on 20 14 -1 07

UNITED STAT ES TAX COURT

JEFF REY A. PRUSSIN AND JUDITH M. PRUS SIN, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 10 92 9- 13 S. Fi le d Dec em be r 8, 2 01 4.

Je ffre y A. Prus si n a ndJu di th M. Pru ss in , pro ses e. Ju li e L. Payne an d P at sy A. Cla rk e, fo r res po nd en t.

SUMM ARY OPINION KERRIGAN, Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f
se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e p et it io n was fil ed
. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y othe r cas e.- 2 -

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al Rev enue Co de in effe ctat a ll rel ev an t t im es . W e ro un d a ll m on et ary am ou nt s t o the ne ares t do ll ar. Thi s ac ti on was c omm en cedun de r se ct io n 6 40 4( h) inres po ns e to a fi na l de te rm in at io n b y

th e App eal s Off

ic e th atpe ti ti on ers are n oten ti tl edto ab at em en t of in te res t as so ci at edwith the ir 2 00 5 a nd20 06 ex ci se tax li ab il it ie s an d the ir 2 00 6 Fed eral in co m e ta x l iabi li ty. The o nl y is su e fo r ou r co ns id erat io n i s wh ethe r th e App eal s o ffi cer’s d en ia l o f pe ti ti on ers ’ ab at em en t re qu es ts was an abu se of di sc ret io n. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Pe ti ti on ers res id ed in Cal ifo rn iawhen th ey

fil edth e p et it io n. Dur in g 2 00 5 a nd20 06 pe ti ti on er h us ba ndwas the adm in is tra to r of J& JP Fund in g’s p en si on pl an . Res po nd en t’s Ex am in at io n Di vi si onbe ga n a n aud itof J& JP Fund in g. Du rin g the au di t p et it io ne rs ag reedth atth e p en si on pl anwas in vo lv edina pr oh ib it edtra ns act io n fo r th e 2 00 5 a nd20 06 tax y ears . Pet it io ne rs ret ai ne d the Law Offic es of I le ne H. Feren czy, LLC (Fere nc zy ), to aidth em

with the au di t. Fer en czy andres po nd en t ex ch an ge d e m ai ls th ro ug ho ut th e co ur se of t he au di t.- 3 -

As a re su ltof the au di t p et it io ne rs were re qu ire d t o fi le Fo rm s 5 33 0, Re tu rn of Exci se Taxe s R el at edto Em pl oyee Ben efi ts Plans , fortax y ears 20 05 an d 2 00 6. Pet it io ne rs were al so requi redto fil e Fo rm 45 49 -E, Inc om e Tax Dis crep an cy Adju st m en ts , fortax y ear 2 00 6. Pet it io ne rs m ad e a p aym en t o f $2 4,4 88 on Decem be r 12 , 20 08 , for

th e ex ci se tax owedfortax y ear 2 00 5. Th is pa ym en t d idno t i nc lu de in te res t. Res po nd en t s en t p et it io ne r hu sb an d alet te r da te d Jun e 2 2, 2 00 9, wh ic h i nf orm ed hi m th athe owedzero forhi s 2 00 5 e xc is e ta x l iabi li ty. On Oct ob er 1 2, 2 00 9,
res po nd en t s en t p et it io ne r hu sb an d alet te r cl ai m in g h e o wed$4 ,81 9 o f in te res t as
a res ul t o f hi s 2 00 5 e xc is e ta x l iabi li ty. On Ma y 30 , 20 11 , res po nd en t s en t pe ti ti on er h us ba nda le tt er cl ai m in g h e o wed$5 ,13 1 i n i nt eres t. Res po nd en t s en t a th irdlet te r on Ju ne 28 , 20 11 , cla im in g p et it io ne r hu sb an d o wed$5 ,16 0 i n i nt eres t. On Dec em

be r 12 , 20 08 , pet it io ne rs m ad e a p aym en t o f $3 8,3 68 forth e ex ci se tax owedfortax y ear 2 00 6. Th is pa ym en t d idno t i nc lu de in te res t. Res po nd en t s en t p et it io ne r hu sb an d alet te r da te d S ep te m be r 9, 2 00 9, wh ic h in fo rm edhi m

th athe owedzero forhi s 2 00 6 e xc is e ta x l iabi li ty. On J un e 1 3, 20 11 , res po nd en t s en t p et it io ne r hu sb an d alet te r cl ai m in g h e o wedin te res t o f $4 ,18 2 fo r hi s 2 00 6 e xc is e ta x l iabi li ty.- 4 -

Pet it io ne rs fil edti m el y

a 20 06 in di vi du al in co m e ta x re tu rn . As a res ul t o f th e au di t, re sp on de ntcla im edth atpe ti ti on ers ’ in co m e ta x l iabi li ty, in cl ud in g in te res t thr ou gh Octo be r 22 , 20 08 , to ta le d $ 29 8,2 19 . Peti ti on ers m ad e a p aym en t of $2 98 ,28 2 o n Dec em

be r 15 , 20 08 . On May

4, 2 00 9, re sp on de ntsen t p et it io ne rs a le tt er ad vi si ng th em

th atth ey owedad di ti on al in te res t o f $3 ,88 7 a s a r es ul t o f th ei r 20 06 in co m e ta x l iabi li ty. On Ma y 21 , 20 09 , pet it io ne rs m ad e a p aym en t o f $3 ,88 7. On J un e 1 1, 2 01 2, re sp on de ntrece iv edth ree F orm s 8 43 , Cla im forRefu nd
an d R eque stfor

Abat em en t, fro m

pe ti ti on ers . All thr ee Fo rm s 8 43 were d at ed May 25, 2 01 2. Th e fi rs t two Fo rm s 8 43 reque st edab at em en t o f in te res t fo r th e 20 05 an d 2 00 6 e xc is e ta x l iabi li ti es . The thi rdFo rm 84 3 re qu es te d aba te m en t o f th e ad di ti on al accrue d i nt eres t fo r th e 2 00 6 i nc om e ta x l iabi li ty tha t p et it io ne rs ha d al read y pa idon May 21, 2 00 9. On J ul y 30 , 20 12 , res po nd en t m ai le d p et it io ne rs two let te rs . The fi rs t l et te r advi se d p et it io ne rs th atres po nd en t h addi sa ll owe d the ir i nt eres t ab at em en t cl ai m s fo r th e 2 00 5 a nd20 06 ex ci se tax li ab il it ie s. Th e se co ndlet te r advi se d p et it io ne rs th atres po nd en t h addi sa ll owe d the ir i nt eres t ab at em en t cl ai m for th e 2 00 6 i nc om e ta x l iabi li ty. On Au gu st17 , 20 12 , pet it io ne rs m ai le d ach eckfor $9 ,70 2, the
rem ai ni ng am ou ntof i nt eres t due forth e 2 00 5 and20 06 ex ci se tax li ab il it ie s.- 5 -

Pet it io ne rs pro te st edth e d is al lo wan ce o f th ei r in te res t ab at em en t cl ai m s, an d the App eal s Off

ic e rev ie wedth e fac ts an d l aw. On Ma y 2, 2 01 3, re sp on de ntsen t pe ti ti on ers a Fu ll Dis al lo wan ce-- Fi na l Det erm in at io n l et te r di sa ll owi ng pe ti ti on ers ’ in te res t ab at em en t cl ai m s fo r th e 2 00 5 a nd20 06 ex ci se tax li ab il it ie s an d fo r th e 2 00 6 i nc om e ta x l iabi li ty. Dis cu ss io n I. Sect io n 6 40 4 Sect io n 6 40 4( e)(1 ) pr ov id es inrel ev an t p art : (1 ) Inge ne ral .--Inth e cas e o f an y ass es sm en t o f in te res t o n- - (A) an y de fic ie nc y

att rib ut ab le inwho le or i n p artto an y un reas on ab le erro r orde lay by an o ffi cer o r em

pl oyee of th e In te rn al Rev enue Serv ic e (ac ti ng inhi s o ffi ci al cap aci ty) in pe rfo rm in g amin is te ria l o r m an ag eri al act , or (B) any paym en t o f an y

tax de sc rib edinsec ti on 62 12 (a) to th e ex te ntth atan y

un reas on ab le erro r or

de lay insu ch pa ym en t i s at tri bu tabl e to su choff ic er o r em

pl oyee be in g erro ne ou s o r di la to ry

inpe rfo rm in g am in is te ria l o r m an ag eri al act , th e Sec ret ary m ay

ab at e th e as se ss m en t o f al l o r an y part o f su ch in te res t fo r an y

pe rio d. Fo r pu rp os es of t he pre ced in g s en te nc e, an erro r orde lay

sh al l b e ta ke n i nt o a cco un t o nl y if n o s ig ni fic an t as pe ct of su cherro r orde lay

canbe att rib ut edto th e ta xp ay er i nv ol ve d, an d aft er the Int ern al Rev enue Serv ic e h as co nt act edth e ta xp ay er i n writ in g wi th res pe ctto su chde fic ie nc y or p aym en t.- 6 -

Reg ul at io ns pro m

ul ga te d und er s ect io n 6 40 4 d efi ne “ m an ag eri al act ” as “ an adm in is tra ti ve actth atoc curs du rin g the pro ces si ng of atax pay er’s cas e in vo lv in g th e te m po rary or p erm an en t l os s o f rec or ds or the ex erci se of ju dg m en t o r di sc ret io n re la ti ng to m an ag em en t o f pe rs on ne l.” Se c. 30 1.6 40 4- 2( b) (1 ), Pro ced
. & Admin . Reg s. A “ m in is te ria l ac t” is de fin edas “ a p ro cedur al or m ech an ic al act th atdo es no t i nv ol ve th e ex erci se of ju dg m en t o r di sc ret io n, an d tha t o ccu rs du rin g th e p ro ces si ng of atax pay er’s cas e aft er al l p rere qu is it es to th e act , su chas co nf eren ces an d re vi ew by supe rv is or s, h av e ta ke n p la ce.” Se c. 30 1.6 40 4- 2( b) (2 ), Pro ced . & Adm in . Reg s. Th e reg ul at io ns furth er s pe ci fy th at“ [a] dec is io n co nc ern in g the pro pe r ap pl ic at io n o f fed eral tax law (o r ot he r fed eral or s ta te law) ” is ne ithe r a m an ag eri al no r a m in is te ria l ac t. Sec . 30 1.6 40 4- 2( b) (1 ) an d (2 ), Pro ced . & Adm in . Reg s. The Co urt m ay

ord er i nt eres t ab at em en t i f th e Co m m is si on er ab us edhi s o r he r di sc ret io n b y

fai li ng to ab at e in te res t i n afin al de te rm in at io n. Se c. 64 04 (h )(1 );
se e Hin ckv. Un it edSta te s, 5 50 U.S. 50 1, 5 06 (20 07 ) (fi nd in g tha t the Tax C ou rt pr ov id es th e ex cl us iv e fo ru m forjud ic ia l re vi ew of

th e Co m mis si on er’s de te rm in at io n n otto ab at e in te res t u nd er s ect io n 6 40 4( e)(1 )). Inord er t o p rev ai l, a ta xp ay er m

us t p ro ve th atth e Co m

m is si on er ab us edhi s o r he r di sc ret io n b y act in g arb itrari ly, cap ric io us ly, orwitho utso un d b as is infactor l aw. See Woo dr al v.- 7 -

Co m m is si on er, 1 12 T.C. 19 , 23 (19 99 ). The i ss ue be fo re the Co urt i s wh ethe r th e reco rdrev eal s a m an ag eri al or m in is te ria l erro r su chth atres po nd en t’s de te rm in at io n n otto ab at e in te res t was anab us e o f di sc ret io n p er s ect io n 64 04 (h )(1 ). Pet it io ne rs co nt en d tha t re sp on de ntim pr op erl y de te rm in edno t t o aba te th e in te res t p er s ect io n 6 40 4( e)(1 ) on th ei r ex ci se tax li ab il it ie s fo r 20 05 an d 2 00 6 a nd
on th ei r in co m e ta x l iabi li ty for 2 00 6 b ecau se th ey ha d e nt eredin to a se tt le m en t ag reem en t wi th res po nd en t i n wh ic h re sp on de ntim pl ic it ly w ai ve d c ol le ct in g the in te res t atis su e in th is cas e. Res po nd en t co nt en ds th atth e d et erm in at io n n otto ab at e was pro pe r pe r se ct io n 6 40 4( e)(1 ). II. Set tl em en t Ag reem en t The set tl em en t o f di sp ut edtax li ab il it ie s i s g ov ern edby sect io ns 71 21 an d 71 22 , whi chau th or iz e th e Sec ret ary oranau th or iz edde le ga te to set tl e an y tax di sp ut es an d c om

pr om is e an y

civ il or c riminal cas e ari si ng un de r th e in te rn al
rev enue laws . Klei n v . Comm is si on er, 8 99 F.2d11 49 , 11 52 (11 th Cir . 19 90 ). The pr oc edur es un de r th es e p ro vi si on s an d the ap pl ic ab le reg ul at io ns are the ex cl us iv e
m ean s b y whi cha co m

pr om is e o r se tt le m en t wi ll be bi nd in g o n b ot h the tax pa y er an d the Gov ern m en t. Sh um ak er v . Comm is si on er, 6 48 F.2d11 98 , 11 99 -1 20 0 (9 th Ci r. 19 81 ) (fi nd in g tha t the reg ul at io n p ro cedur es are ex cl us iv e), aff ’g inpart,- 8 -

rev ’g inpa rt T.C. M em o. 1 97 9- 71 ; Urb an o v . Comm is si on er, 1 22 T.C. 38 4, 3 93 (2 00 4) . Accor di ng ly, “ ‘no the ory fou nd edup on ge ne ral co nc ep ts of a cco rdan d
sa ti sf act io n c anbe us edto im

pu te a co m

pr om is e se tt le m en t’”. Fin co urt B S he lt on PC v . Comm is si on er, T.C. Mem o. 2 01 3- 27 3, at*9 (qu ot in g B owl in g v . Uni te d St at es , 51 0 F .2d11 2, 1 13 (5t h C ir. 1 97 5) ). Reg ul at io ns un de r se ct io n 7 12 2 c larif y th e p ro cedur es requi redwith re sp ect to anoff er-i n- co m pr om is e an d h ow an off

er m ay be acce pt ed . Sect io n 3 01 .71 22
- 1( d) (1 ), Pro ced . & Adm in . Reg s., requi res th atoff ers -in -co m

pr om is e b e subm it te d in th e fo rm

an d m an ne r pr es cri be d b y th e In te rn al Rev enue Serv ic e (IR S). The pr es cri be d fo rm

foranoff

er-i n- co m pr om is e is Fo rm

65 6, Offe r in Co m

pr om is e. See S ul li va n v . Comm is si on er, T.C. Mem o. 2 00 9- 4, s li p o p. at26 . Sect io n 30 1.7 12 2- 1( d) (1 ), Pro ced . & Adm in . Reg s., al so pro vi de s tha t “ [a]n o fferto
co m pr om is e a t ax li ab il ity

m us t b e m ad e in writ in g, m us t b e si gn edby the ta xp ay er u nd er p en al ty of pe rjury, andm us t co nt ai n a ll of t he in fo rm at io n pr es cri be d o r reque st edby the Secr et ary. ” Pet it io ne rs arg ue th atth ey reac he d abi nd in g s et tl em en t ag reem en t wi th
res po nd en t i n wh ic h re sp on de ntim pl ic it ly w ai ve d the in te res t ch arg es with re sp ect to th e 2 00 5 a nd20 06 ex ci se tax li ab il it ie s an d the 20 06 in co m e ta x l iabi li ty.- 9 -

III. Exc is e Tax Liab il it ie s fo r Tax Years 20 05 an d 2 00 6 Pet it io ne rs tes ti fie d abo utem ai l ex ch an ge s b etweenth ei r co un se l, Fe ren czy, an d re sp on de ntreg ard in g the ba lanc e th atpe ti ti on ers owed . Peti ti on er hus ba nd te st ifi edab ou t b ot h the Ju ne 22 , 20 09 , let te r fro m res po nd en t wh ic h s ta te d tha t pe ti ti on ers owedno th in g fo r th e 2 00 5 e xc is e ta x l iabi li ty andals o the Sep te m be r 9, 2 00 9, l et te r whi chst at edth atpe ti ti on ers ha d azero ba lanc e fo r th e 2 00 6 e xc is e ta x l iabi li ty. Howev er, p et it io ne r hu sb an d t es ti fie d tha t p et it io ne rs di d n otactua ll y si gn an y ag reem en t wi th th e IRS . The rec or d a ls o d oe s n otco nt ai n a ny evi de nc e o f a si gn edFo rm

65 6. Si nc e th e reg ul at io ns di ct at e th e ex cl us iv e m ean s b y whi cha bi nd in g a gr eem en t ca n b e rea ch ed , andth os e reg ul at io ns requi re the si gn in g o f a Fo rm 65 6, the factth atne ithe r fo rm was s ig ne d i s fa ta l t o p et it io ne rs ’ cl ai m . Pet it io ne rs an d re sp on de ntdi d n oten te r in to a bi nd in g a gr eem en t as requi redby th e st atut e. Fo r th e 2 00 5 a nd20 06 ex ci se tax li ab il it ie s, the re i s n o e vi de nc e th atth e pa rti es co m

pl ie d wi th th e p ro cedur es sp eci fie d und er s ect io n 7 12 1 o r 71 22 for ei th er a cl os in g a gr eem en t o r anoff er-i n- co m pr om is e. The fa ct s d o n otsupp ort a le ga ll y bi nd in g c om

pr om is e th atno in te res t i s o wedrel at edto th e 2 00 5 a nd20 06
ex ci se tax li ab il it ie s. See Dorm er v . Commis si on er, T.C. Mem o. 2 00 4- 16 7, s li p- 10 -

op . at 1 6. Inth e ab se nc e o f anen fo rceabl e se tt le m en t o f al l o f th e ex ci se li ab il it ie s fo r 20 05 an d 2 00 6, “ itcan no t b e sa idth atanerro r, m in is te ria l o r ot he rwis e, was co m m it te d i n c om

pu ti ng th e b al an ce due on pe ti ti on er[s ’] acco un t.” I d. at21
. Pet it io ne rs do no t al le ge an y othe r m an ag eri al or m in is te ria l erro rs or d el ay s. Acco rd in gl y , th e App eal s o ffi cer d idno t co m m itanab us e o f di sc ret io n u nd er se ct io n 6 40 4( e) b y

de nyin g p et it io ne rs ’ in te res t ab at em en t cl ai m s. IV. In co m e Tax Liab il ity forTax Yea r 20 06 A reque stfor

a refu ndof i nt eres t p ai d b as edonab at em en t m us t b e fi le d b y th e ta xp ay er wi th inth ree years f ro m th e ti m e th e return was fil edor t wo years fro m th e ti m e th e in te res t was pa id , whi ch ev er p eri odexpi res lat er. See sec s. 64 04 (h )(2 )(B) , 65 12 (b ), 65 11 (a). Fro m th e rec or d b efo re u s, we kno w th at pe ti ti on ers “ ti m el y ” fi le d the ir t ax 20 06 return. As su m in g, i n p et it io ne rs ’ fav or , th atth ey reque st edanex te ns io n a ndfil edby O ct ob er 1 5, 2 00 7, thr ee years fr om th atfil in g d at e wou ldbe Octo be r 15 , 20 10 . Peti ti on ers m ad e th ei r la stin te res t pa ym en t o n M ay

21 , 20 09 . Two y ears fro m th atin te res t p aym en t i s M ay 21 , 20 11
. Si nc e May

21 , 20 11 , was l at er tha n Oct ob er 1 5, 2 01 0, the two -y ear p eri od
co nt ro ls . Peti ti on ers , at earli es t, fi le d the ir F orm 84 3 o n M ay

25 , 20 12 , whi chis well pa stMay 21, 2 01 1. Th e Fo rm 84 3 was no t t im el y . There fo re, the App eal s of fic er d idno t co m

m itanab us e o f di sc ret io n i n d is al lo win g the in te res t ab at em en t- 11 -

cl ai m forth e 2 00 6 i nc om e ta x l iabi li ty. Furth erm or e, ev enif the Fo rm 84 3 h ad be enti m el y , th ere s ti ll was n o abu se of d is cret io n b ecau se th ere was no bi nd in g ag reem en t re ga rd in g the in te res t. See Dorm er v . Comm is si on er, T.C. Mem o. 20 04 -1 67
. Any con te nt io n we h av e n otad dr es se d i s i rrel ev an t, m oo t, o r m eri tl es s. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.