TAX COURT OPINION

Case: David P. Gerstenblatt & Arlene Gerstenblatt
Docket Number: 4066-13
Judge: Buch
Opinion Type: bench
Filed: 01/30/2014
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 DAVID P. GERSTENBLATT & ARLENE GERSTENBLATT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 4066-13. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to both petitioners and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Boston, Massachusetts. In accordance with the oral findings of fact and opinion, decision will be entered for respondent.. Dated: Washington, D.C. January 30, 2014 (Signed) Ronald L. Buch Judge SERVED FEB n 3 2014 Capital Reporting Company 3 Bench Opinion by Judge Ronald L. Buch January 9, 2014 David P. & Arlene Gerstenblatt v. Commissioner Docket No. 4066-13 . . THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or Treasury regulations in effect during the years at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Background The Gerstenblatts timely filed their 2002 income tax return and received a refund. On their 2002 return, the Gerstenblatts reported a loss under "Other Income" which included a partnership net operating loss carryforward from 2001. In 2004, their return was selected for examination and respondent determined that the net operating loss was the result of a "Son-of-BOSS" transaction. Respondent assessed additional income tax and a valuation-misstatement penalty under section 6662 (h) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 for 2001 and 2002. Respondent assessed interest on the same day. Respondent was required to manually compute the interest because of the passage of Public Law 108-57 and its related amendments. Public Law 108-57 amended section 6404(g) which requires suspension of interest in certain situations. However, interest originating from listed transactions, such as the Son-of-BOSS transaction is acompted from the general interest 1Û LÓ eycepFJ here, 1 2 3 4 5 6 7 8 9 10 suspension rules and continues to accrue. 11 Accordingly, the interest for the Gerstenblatts' 12 13 14 15 16 17 18 19 20 21 22 liability had to be manually computed because of the requirements of respondent's computer system. Respondent mailed the Gerstenblatts a Notice of Intent to Levy and Notice of Your Right to a Hearing and the Gerstenblatts requested a Collection Due Process hearing in response. The hearing did not result in a formal installment agreement or acceptance of an offer in compromise. However, the Gerstenblatts made periodic payments towards their liabilities and paid off their 2001 liability in full. After respondent filed a Notice of Federal Tax Lien with the 23 Middlesex County (South) Registry of Deeds with 24 respect to the various tax years including 2002, the 25 Gerstenblatts entered into an installment agreement. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 In 2011, the Gerstenblatts' 2002 liability was assigned to Revenue Officer Terry for collection. 3 Mr. Terry mailed the Gerstenblatts a letter 4 5 6 7 8 9 requesting payment for 2002 and then took steps to seize Ms. Gerstenblatt's car. Mr. Terry also mailed levy notices to various financial institutions and received about $8,000 pursuant to the levies. In April 2011, the Gerstenblatts requested a lien payoff figure for their outstanding liabilities. 10 Mr. Terry faxed the Gerstenblatts a document on 11 April 4, 2011 stating that the payoff amount for 2002 12 13 14 15 16 17 18 19 20 21 was $71,445.02. During April, Mr. Terry received additional payments from the Gerstenblatts and levied funds that totaled the payoff amount. Mr. Terry sent the Gerstenblatts another fax on May 13, 2011 informing them that their 2002 liability was paid in full. However, the Gerstenblatts' lien was not removed because they had other outstanding liabilities. At some point in 2011, The Gerstenblatts learned that the lien had not been removed. The 22 Gerstenblatts contacted Mr. Terry and he faxed them a 23 24 25 document on October 18, 2011 explaining that a balance of $31,013.15 remained for 2002 because of accrued interest that was not taken into account when 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 the first payoff amount was given. The Gerstenblatts requested abatement of the additional interest, which 3 Mr. Terry refused. In February 2012, the 4 Gerstenblatts filed a protest with respondent's 5 Office of Appeals requesting abatement of all the 6 7 8 9 interest that accrued after August 23, 2006 and paid the remaining balance in March 2012. On August 21, 2012, the Office of Appeals mailed the Gerstenblatts a final determination letter determining that the 10 Gerstenblatts were only entitled to interest 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 abatement for the period between April 1, 2011 and November 1, 2011. Accordingly, the Gerstenblatts petitioned the Court. Law and Analysis Under section 6404(e) (1), the Commissioner may abate part or all of an assessment of interest on any deficiency or payment of income, estate, gift, or particular excise taxes to the extent that any unreasonable error or delay in payment is attributable to an erroneous or dilatory performance of a ministerial or managerial act by an officer or employee of the Commissioner, as long as no significant aspect of the error or delay can be attributed to the taxpayer. A ministerial act is defined as "a procedural or administrative act that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 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 conference and review by supervisors, have taken place." Treas. Reg. 301.6404-2(b)(2), Proced. And Admin. Regs. Section 6404(h) grants the Court jurisdiction to review whether respondent's failure to abate interest was an abuse of discretion. An abuse of discretion 10 will be found where respondent's action was arbitrary, 11 capricious, or without sound basis in fact or law. 12 Woodral v. Commissioner, 112 T.C. 19, 23 (1999). 13 14 15 16 17 18 19 20 21 22 23 24 25 In Douponce v. Commissioner, T.C. Memo, 1999- 398, the Court addressed a situation quite similar to the one before us now. There the taxpayer requested a payoff amount, which he understood to include all tax due, penalties and interest. However, some of the interest had not been assessed and respondent issued a Notice of Intent to Levy. The taxpayer was denied interest abatement and petitioned the Court. The Court held that prior to obtaining the payoff amount, there was no erroneous or dilatory performance of a ministerial act by an officer or employee of the Commissioner that contributed to an error or delay in the payment of accrued interest. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Additionally, between the time when the payoff amount 2 was requested and when it was paid, there was no 3 ministerial act because the interest accrued "solely 4 5 6 7 8 9 10 11 12 13 due to the taxpayer' failure to pay his outstanding liabilities." However, the Court held that the Commissioner should have abated the interest after the taxpayer made full payment, and the failure to do so was an abuse of discretion. Here, respondent has conceded that the computation of interest was a ministerial act. However, respondent has also already abated the interest that accrued between the time when the erroneous payoff amount was provided and when the 14 Gerstenblatts were informed that they owed additional 15 16 17 18 19 20 21 22 23 24 25 interest. The interest that accrued before April 1 accrued only because of the Gerstenblatts' outstanding liability, not because of any improper action by respondent. The same is true for the interest that accrued after November 1. Accordingly, in keeping with our prior precedents, respondent did not abuse its discretion in refusing to abate the remaining interest. Decision will be entered for respondent. (Whereupon, at 3:13 p.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com