Court Opinion

ID: 4332244
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:36:19.519763+00
Date Added: 2024-06-11T14:47:42.785333
License: Public Domain

112 T.C. No. 16

                UNITED STATES TAX COURT

          ELDON HARVEY KRUGMAN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20474-97.               Filed April 28, 1999.

     P filed his 1985 Federal income tax return on Oct.
27, 1992. In July 1993, P signed an installment
agreement for 1985. From August 1993 to March 1995, R
sent 19 monthly payment notices for 1985 to P which
erroneously said they included interest. The notices
also said that P was reducing his unpaid balance for
1985 to zero by making the monthly payments. P timely
paid the installments.

     On Aug. 9, 1995, R sent a notice to P which said
that he owed $6,019.10 for 1985. This notice was
inconsistent with the 19 installment payment notices R
had sent to P. P believed the Aug. 9, 1995, notice was
in error, and he asked R to abate the amount.

     R concedes that P is not liable for interest that
accrued from Apr. 12, 1993 (the day R sent the first
notice which erroneously omitted interest), to Aug. 9,
1995 (the day R told P he owed $6,019.10 for 1985).
                               - 2 -

          R served a notice of levy to P dated Aug. 17,
     1997, for interest for 1985 and for an unspecified
     statutory addition to tax of $147.21. R levied P's
     bank account.

          P filed a petition in which he contended: (1)
     That R should abate additions to tax other than those
     which he paid in installments, (2) that R's levy was
     improper, (3) that he could offset his 1985 income tax
     liability with a refund from 1995, and (4) that R
     should abate certain interest under sec. 6404(e),
     I.R.C. R contends that we lack jurisdiction under sec.
     6404(g), I.R.C. to decide any issue raised by P except
     whether to abate interest and that R's refusal to abate
     interest except as conceded by R was not an abuse of
     discretion.

           Held, we lack jurisdiction under sec. 6404(g),
     I.R.C. to decide whether P is liable for penalties or
     additions to tax relating to his 1985 tax year, whether
     R's levy was improper, and whether P may offset his
     1985 income tax liability with a claimed refund from
     1995.

          Held, further, R's refusal to abate interest that
     accrued before Apr. 12, 1993 (i.e., during the years P
     failed to file and before R began sending erroneous
     monthly notices), was not an abuse of discretion.

     Eldon Harvey Krugman, pro se.

     Mark S. Heroux and Virginia L. Hamilton, for respondent.

     COLVIN, Judge:   On April 10, 1997, respondent issued a final

determination partially disallowing petitioner's claim to abate

interest.   Petitioner timely filed a petition under section

6404(g)1 and Rule 280.

     1
       This was redesignated as sec. 6404(i) by the Internal
Revenue Service Restructuring & Reform Act of 1998 (RRA 1998),
Pub. L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 685, 743, 745.
                                                   (continued...)
                                  - 3 -

       The issues for decision are:

       1.   Whether we have jurisdiction to decide:   (a) Whether

petitioner is liable for additions to tax or penalties other than

those which he paid in installments, (b) whether respondent's

levy was improper, and (c) whether petitioner may offset his 1985

income tax liability with a refund from 1995.     We hold that we do

not.

       2.   Whether respondent's denial of petitioner's request to

abate interest that accrued before April 12, 1993, was an abuse

of discretion.      We hold that it was not.

                            FINDINGS OF FACT

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

A.     Petitioner

       Petitioner lived in Grand Junction, Colorado, when he filed

the petition to abate interest.      He graduated from the University

of Nebraska with degrees in architecture and construction

management.    He worked in energy conservation before 1995 and in

home construction after 1995.

       1
      (...continued)
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended. Rule references are
to the Tax Court Rules of Practice and Procedure.
                               - 4 -

B.   Petitioner's Returns for 1985-91

     On July 21, 1992, petitioner read an article in the Rocky

Mountain News which said that respondent had designed a program

to encourage nonfilers to file late returns without being subject

to criminal penalties.   The program required nonfilers to pay

back taxes and penalties.   The program offered a payment plan for

payment of taxes and penalties.   The article did not mention

interest payments.   On October 27, 1992, in response to the

article, petitioner filed Federal income tax returns for 1985 to

1991.

     Petitioner reported on his 1985 return that he owed $3,199

in tax and that he had not paid any of that amount.    He did not

make any payment with his 1985 return.

C.   Respondent's Notices in 1993

     On April 12, 1993, respondent sent petitioner a notice

stating that petitioner owed tax of $3,416.31 and a penalty of

$854.08 for filing late, for a total of $4,270.39.    The notice

said:

          We changed your 1985 return because: an error was
     made on your return when the amount of your social
     security self employment was transferred from Schedule
     SE (Form 1040).
          As a result of these changes, you owe $4,270.39.
     Please pay the amount you owe by April 22, 1993, to
     avoid more interest and penalties. * * *
                               - 5 -

     On June 21, 1993, respondent notified petitioner that he had

an unpaid tax balance of $3,695.34.    Respondent calculated this

amount by subtracting from $4,270.39 (balance shown on the April

12, 1993, notice), overpayments from petitioner's returns of $238

for 1989 and $337.05 for 1990.2   This notice stated that

petitioner did not owe a late payment penalty or interest.   The

notice said:   "To avoid additional penalties and interest, send

your payment for the amount you owe by 07-01-93."

D.   The Installment Agreement Form and Petitioner's Payments

     In July 1993, petitioner signed a preprinted installment

agreement (Form 433-D), which had no dollar amounts written on

it, and sent it to respondent.3   The Form 433-D that respondent

used in 1993 states in part:

          I/We agree that the Federal taxes shown above,
     PLUS ALL PENALTIES AND INTEREST PROVIDED BY LAW, will
     be paid as follows: [Emphasis in original.]

          $_____ will be paid on _____ and $_____ will be
     paid no later than the _____ of each month thereafter
     until the total liability is paid in full. I/we also
     agree that the above installment payment will be
     increased or decreased as follows:

     2
       Respondent disallowed overpayments for 1986, 1987, and
1988, and offset petitioner's liability for 1985 with
overpayments for 1989 and 1990 (totaling $575.05).
     3
       Respondent cannot find the signed installment agreement.
Petitioner never had a copy of a completed agreement.
                                  - 6 -

Date of increase (or             /     /                /       /
decrease)
Amount of increase       $
(or decrease)
New installment          $
amount

     In July 1993, petitioner paid respondent $1,000 to be

applied to his 1985 tax liability.        On August 16, 1993,

respondent sent petitioner a letter stating in pertinent part the

following:

     We have set up an installment agreement to help you pay
     the amount you owe for the tax period(s) shown above.
     Your payments are $74.87, due on the 15th of each
     month, beginning on Sep. 15, 1993.

               *     *       *    *       *   *    *

     In about six weeks, we will send you a notice showing
     the amount of tax, penalty, and interest you owe. You
     do not have to answer that notice.

     Petitioner did not receive any other correspondence relating

to his 1985 tax liability until around September 1, 1993, when he

received a payment notice which said that he had a monthly

payment of $74.87 due by September 15, 1993.        It said:    "Total

balance owed including penalties and interest: $2,695.34."

     Respondent sent petitioner a statement each month for 19

months which stated the amount of the payment due ($74.87), the

due date of the next installment, and erroneously stated the

"Total balance owed including penalties and interest", with an
                                  - 7 -

amount that declined with each payment.       None of the notices

included interest.

     Petitioner timely paid at least $100 per month, which was

more than respondent's notices said was due.       Respondent's notice

dated March 1, 1995, said that "total balance owed including

penalties and interest" was $180.24.       On March 9, 1995,

petitioner paid $180.24 to respondent.

E.   Respondent's August 9, 1995, Notice of Interest Due and
     Events Thereafter

     On August 7, 1995, respondent assessed interest of $5,284.44

that had accrued for petitioner's 1985 tax year from April 15,

1986, to August 7, 1995.

     Respondent sent petitioner a notice on August 9, 1995, which

stated in part as follows:

                     YOUR NEXT PAYMENT IS DUE SOON

          Your next payment of $74.87 is due on 08-15-95.

          The current status of your account is shown below.
     We apply installment payments to tax periods in the
     order they are assessed.

     FORM NUMBER       CAF   TAX PERIOD ENDED          AMOUNT
        1040            0        12-31-85              $6,019.10

                             Payment due                  $74.87

     The amount shown doesn't include accumulated penalty
     and interest. Please contact us for the total amount
     due.
                                 - 8 -

     On September 14, 1995, petitioner wrote a letter to

respondent in which he stated that he had made his final payment

of $180.24 for his 1985 tax liability and asked respondent to

abate the $6,019.10 claim.   On April 21, 1996, petitioner filed a

Claim for Refund and Request for Abatement (Form 843) for his

1985 tax year, in which he asked respondent to abate interest

that had accrued because of respondent's errors and delays and

additional but unspecified, penalties.   Petitioner contacted

respondent's Problem Resolution Office in August 1996.   The case

was assigned to the Problem Resolution Office by August 29, 1996.

     On September 12, 1996, respondent abated $352.11 of interest

that had accrued from March 1, 1995, to August 7, 1995, but

otherwise rejected petitioner's request without providing any

helpful explanation.   In that letter, respondent's Problem

Resolution Program staff said:

     We are sorry, but we cannot allow your request to
     remove all of the interest charged for the tax period
     shown above [ending December 31, 1985]. This letter is
     your notice that your request is partially disallowed.
     We allowed only $352.11 of the request for the
     following reasons:

     Interest waiver applies from March 1, 1995, through
     August 7, 1995. A notice was issued on March 1, 1995,
     giving you an erroneous payoff amount which you paid.
     The prior notices issued cannot be considered because
     the total payoff amounts were not paid. On August 7,
     1995 a notice was issued giving you a correct payoff
     amount. For your information, enclosed is a detailed
     interest computation of your tax account for 1985.

     The current balance due for the tax period ended
     December 31, 1985, is $5,159.23, which includes
                               - 9 -

     interest computed to October 7, 1996. Interest will
     continue to accrue until the balance due is paid in
     full.

     On October 10, 1996, petitioner wrote to ask respondent's

Appeals Office to consider his case.   On March 4, 1997, an

Appeals officer for respondent wrote to petitioner to acknowledge

that respondent's 19 erroneous notices were "misleading", and

explained that, despite those notices, petitioner was liable for

interest for 1985:

          I received your claim for abatement of interest
     for 1985 in Appeals. The installment agreement states
     the balance owed as of a certain date. The installment
     agreement also states plus all penalties and interest
     provided by law. Thus, interest continues to accrue on
     the unpaid balance during the installment period until
     paid in full. However, the additional interest which
     accrues on the unpaid balance during the installment
     period is not recalculated until the end of the
     installment period. I will agree that the statement on
     your monthly bills "including penalties and interest"
     is misleading and I will attempt to get this language
     revised. However, since you did not pay off the stated
     balance due until March, 1995, I cannot recommend
     abatement of interest in excess of what Examination
     Division has already recommended.

     On April 10, 1997, one of respondent's Appeals officers

issued a final determination of petitioner's claim to abate

interest under section 6404(e).

     On August 17, 1997, respondent issued a levy to petitioner's

bank which stated that he had an unpaid assessment for 1985 of

$5,426.38 and statutory additions of $147.21, for a total of

$5,573.59.   On September 18, 1997, respondent collected $127.96

from the levy.
                                - 10 -

     Interest accrued on petitioner's tax liability for 1985 as

follows:

                       Period                 Interest

           Apr. 15, 1986 - Apr. 11, 1993      $4,022.76
           Apr. 12, 1993 - Aug. 8, 1995        1,106.81
           Aug. 9, 1995 - date of trial        1,354.30

     Petitioner meets the net worth requirements under 28 U.S.C.

section 2412(d)(2)(B) (1994).

     Petitioner petitioned this Court to review respondent's

refusal to abate interest in the amount of $5,426.38.4

Petitioner also alleged in the petition that he is not liable for

additions to tax (other than that which he already paid in

installments), that respondent improperly levied his bank

account, and that he may offset his 1985 income tax liability

with a refund from 1995.   Respondent filed an answer generally

denying the contentions in the petition.

     At trial, respondent filed a motion to dismiss for lack of

jurisdiction over the part of the case with respect to

petitioner's claim for abatement of penalties and wrongful levy.

                                OPINION

A.   Whether We Have Jurisdiction To Decide Petitioner's
     Contentions About a Wrongful Levy, Refund Offset, and
     Liabilities for Additions to Tax or Penalties

     1.    Wrongful Levy

     Petitioner contends that respondent's collection of $127.96

from the levy issued on August 17, 1997, was improper because it

     4
       At trial, the parties stipulated that the correct amount
of assessed accrued interest in dispute is $5,284.44.
                                - 11 -

was issued within 180 days after respondent determined not to

abate interest.     Respondent contends that we lack jurisdiction to

consider petitioner's claim.     We agree with respondent.

     Petitioner's argument is apparently based on his assumption

that the stay of assessment that applies under deficiency

procedures applies in this case.     Generally, respondent may not

assess or collect tax and additions to tax and penalties

pertaining to a deficiency from the time a notice of deficiency

is mailed until the time to file a petition expires (90 days or

150 days if applicable), or until the decision of the Tax Court

becomes final if a petition is filed.5    Sec. 6213(a).   Petitioner

brought this action under section 6404(g), not under section

6213.     Section 6404(g) does not bar assessment, unlike section

6213.     Thus, we lack jurisdiction under section 6404 to decide

petitioner's claim that respondent made a wrongful levy.6

     2.      Refund Offset

     Petitioner contends that he may offset his 1985 tax

liability with a refund of $903.41 from 1995.     Respondent

contends that we lack jurisdiction to consider petitioner's

     5
       Exceptions to restrictions on assessment (not applicable
in this case) include assessments arising from mathematical
errors, tentative carry back or refund adjustments, and amounts
paid as a tax. Sec. 6213(b).
     6
       Effective 180 days after July 22, 1998, the Tax Court has
jurisdiction to review determinations under sec. 6330 relating to
proposed levies. RRA 1998 sec. 3401(b), 112 Stat. 747, adding
sec. 6330.
                                - 12 -

claim.    We agree with respondent.   Section 6404(g) does not give

us jurisdiction to decide whether petitioner is entitled to a

refund offset.

     3.    Liability for Penalties or Additions to Tax

     On April 12, 1993, respondent told petitioner that the

penalty for filing a return late under section 6651 is $854.08.

Petitioner fully paid that amount as part of his monthly

installment payments.

     In the notice of levy that respondent sent on August 17,

1997, respondent said that for 1985, petitioner had unspecified

statutory additions to tax of $147.21.     In his petition,

petitioner contends that respondent improperly failed to abate

the $147.21.     Respondent contends that we lack jurisdiction to

consider petitioner's claim.     We agree with respondent.

     The notice of levy does not state under what authority

respondent imposed the $147.21 addition to tax.     The only penalty

or addition to tax for which respondent has stated petitioner is

liable for 1985 is the addition to tax for failure to timely file

under section 6651.     Section 6404(g) does not give us

jurisdiction to decide whether petitioner is liable for that or

any other addition to tax.     The $147.21 addition to tax would not

be subject to our deficiency procedures if respondent imposed it

under section 6651 because petitioner did not timely file his

return and pay the tax shown as due on his filed return, nor did
                               - 13 -

respondent determine a deficiency in tax.   Sec. 6665(b); Meyer v.

Commissioner, 97 T.C. 555, 562 (1991).

     We conclude that we lack jurisdiction under section 6404(g)

to decide petitioner's claim that respondent improperly refused

to abate the $147.21 addition to tax.

B.   Abatement of Interest

     1.     Contentions of the Parties

     The parties agree that respondent's monthly payment notices

had incorrect payoff figures, but they disagree about the effect

of respondent's error.

     Petitioner contends that he is not liable for interest for

1985 because he fully complied with respondent's payment notices,

in which respondent repeatedly said the payments included

interest.    He contends that respondent should not charge interest

after establishing payment terms which he fully met.   Petitioner

contends that respondent's failure to abate interest that accrued

from April 15, 1986, to April 11, 1993, is an abuse of

discretion.

     Respondent concedes that petitioner is entitled to an

abatement of interest which accrued on his deficiency and

addition to tax from April 12, 1993 (the date that respondent

first told petitioner that he owed tax and an addition to tax,

but incorrectly failed to notify him that he owed interest), to

August 9, 1995 (the day respondent corrected the error and first
                             - 14 -

told petitioner how much interest he owed for 1985).   Respondent

contends that petitioner is not entitled to further abatement of

interest under section 6404(e).

     2.   The Commissioner's Authority To Abate Interest

     Under section 6404(e)(1), the Commissioner may abate part or

all of an assessment of interest on any deficiency or payment of

income, gift, estate, and certain excise tax to the extent that

any error or delay in payment is attributable to erroneous or

dilatory performance of a ministerial act by an officer or

employee of the Commissioner if (a) the Commissioner notified the

taxpayer in writing about the deficiency or payment, and (b) the

taxpayer did not contribute significantly to the error or delay.7

     7
       Sec. 6404(e)(1) as enacted in 1986 and as applicable here
provides:

     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
                                                   (continued...)
                               - 15 -

Congress intended for the Commissioner to abate interest under

section 6404(e) "where failure to abate interest would be widely

perceived as grossly unfair" but not that it "be used routinely

to avoid payment of interest".   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.

     3.   Jurisdiction of the Tax Court

     We have jurisdiction to decide whether respondent's failure

to abate interest under section 6404(e)(1)(B) is an abuse of

discretion because (a) petitioner made a claim under section

6404(e) to abate interest on unpaid tax, (b) after July 30,

1996,8 respondent issued a final determination which disallowed a

part of petitioner's claim to abate interest, and (c) petitioner

     7
      (...continued)
     the preceding sentence, an error or delay shall be
     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.

     Congress amended sec. 6404(e) in 1996 to permit abatement of
interest for "unreasonable" error and 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. 1452, 1457
(1996). However, that standard first applies to tax years
beginning after July 30, 1996. TBOR 2 sec. 301(c), 110 Stat.
1457.
     8
       The Tax Court has jurisdiction under sec. 6404(g) if the
taxpayer asks the Commissioner to abate interest before July 30,
1996, and the Commissioner denies the request after that date.
Banat v. Commissioner, 109 T.C. 92, 94-95 (1997).
                                - 16 -

timely filed a petition to review the failure to abate interest.

Sec. 6404(g)(1).

     4.   Whether Respondent's Refusal To Abate Interest From
          April 15, 1986, to April 11, 1993, Was an Abuse of
          Discretion

          a.      April 15, 1986, to April 11, 1993

     Petitioner's 1985 return was due on April 15, 1986.    He

filed that return on October 27, 1992.    Respondent issued a

notice on April 12, 1993.    Petitioner contends that respondent's

refusal to abate interest from April 15, 1986, to April 11, 1993,

was an abuse of discretion under section 6404(e).

     We disagree with petitioner.    Section 6404(e) applies only

after respondent has contacted the taxpayer in writing about the

deficiency or payment of tax.    Sec. 6404(e)(1) (flush language);

H. Rept. 99-426, supra, 1986-3 C.B. (Vol. 2) at 844 ("This

provision does not therefore permit the abatement of interest for

the period of time between the date the taxpayer files a return

and the date the IRS commences an audit, regardless of the length

of that time period.").    Thus, petitioner is not entitled to

relief under section 6404 for the period from April 15, 1986, to

April 11, 1993.

          b.      April 12, 1993, to August 9, 1995

     Respondent concedes that the failure to include interest on

the notice dated April 12, 1993, was an error, that petitioner is
                             - 17 -

not liable for interest from April 12, 1993, to August 9, 1995,

and that interest for that period should be abated.

     To reflect the foregoing and concessions,

                                        An appropriate order will

                                   be issued.