The opinion
T.C. Memo. 2004-80
UNITED STATES TAX COURT
CHARLES DEVERNA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7870-02. Filed March 22, 2004.
Donald Jay Pols, for petitioner.
Patricia A. Riegger, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: The petition in this case was filed in
response to a notice of determination denying petitioner’s
request to abate interest on income tax liabilities for 1982,
1983, and 1984 pursuant to section 6404(e). The issue for
decision is whether the failure to abate interest between
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October 12, 1993, and September or October 1998 was an abuse of discretion.
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Garden City, New York, at the time the
petition in this case was filed.
During 1982 through 1984, petitioner was an investor in
Manhattan Associates, a coal mining partnership. Petitioner’s
former wife, Barbara Deverna (B. Deverna), filed a joint Federal
tax return with petitioner. B. Deverna was granted relief from
joint and several liability for the assessments resulting from
investments in Manhattan Associates for 1982 through 1984.
Manhattan Associates was a partnership subject to the
procedures of the Tax Equity & Fiscal Responsibility Act of 1982,
Pub. L. 97-248, 96 Stat. 324 (TEFRA), provisions found in
sections 6221-6233. Robert Brown (Brown) was the tax matters
partner (TMP) for Manhattan Associates.
Thirty coal mining partnerships were promoted by Norman
Swanton (Swanton) prior to 1982, and 20, including Manhattan
Associates, were formed subsequent to the effective date of TEFRA
(TEFRA partnerships). Test cases involving pre-TEFRA
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partnerships were selected for litigation of the Swanton coal
programs in the Tax Court. The remaining 20 TEFRA partnerships
agreed to be bound by the outcome of the test cases. Matthew
D. Lerner (Lerner) of Zapruder & Odell represented 17 of the
TEFRA partnerships associated with Swanton, but did not represent
Manhattan Associates. Lerner agreed to act for Manhattan
Associates in a limited capacity in reviewing and signing
decision documents and Forms 906, Closing Agreement on Final
Determination Covering Specific Matters.
On May 18, 1984, the Internal Revenue Service (IRS) sent a
letter to petitioner to notify him that Manhattan Associates was
selected for examination (notice). The notice stated that the
IRS was not required to notify partners individually of
conferences or other events during the TEFRA proceeding. The
notice further stated that the TMP was “responsible for notifying
partners of the more important events during the proceeding, but
the results of the proceeding generally apply to all partners
even if the tax matters partner does not provide that
information.” The IRS and the TMP were unable to reach a
settlement for Manhattan Associates.
On August 3, 1990, the IRS sent to Manhattan Associates and
Brown a Notice of Final Partnership Adjustment (FPAA). On
August 20, 1990, the IRS sent to petitioner an FPAA.
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On October 26, 1990, Brown filed a petition in response to the
FPAA, and the case was docketed in the Tax Court at docket No.
24099-90.
Settlement Negotiations
In September 1991, while waiting for the decisions of the
Court in the earlier test cases, the legal representatives of the
20 TEFRA partnerships reached a basis for settlement with the
IRS. The parties agreed to general settlement terms which then
had to be applied individually to each of the 20 TEFRA
partnerships and then to each limited partner within each
partnership. The general basis of settlement, in part, was as
follows:
(a) taxpayers would be entitled to deduct 1/2 of
the out of pocket cash paid to the partnership in the
year the cash was paid;
(b) the Internal Revenue Service agreed to waive
any penalties asserted in the FPAA; and
(c) the I.R.C. section 6621(c) rate of interest
would apply to any deficiency.
The basis of the settlement for all of the TEFRA
partnerships was the same. For the IRS to credit nearly 1,000
limited partners in the TEFRA partnerships with the proper
settlement, individual computations were necessary first at the
partnership level. Each of the TEFRA partnership’s tax returns
was different from the other partnerships’ returns, and each of
the limited partner’s deductions on their individual tax returns
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was different. As a result of these differences, each
partnership, and then each limited partner, was addressed one at
a time.
Before the individual computations could be done, the IRS
had to determine: (a) How much cash was contributed by each
limited partner; (b) in which tax years the contributions were
made; (c) whether the limited partners received any
distributions; (d) in which tax years any distributions were
made; (e) whether each limited partner contributed cash towards a
“Note Settlement Agreement” in 1987; (f) and how much cash, if
any, was contributed by each limited partner towards the Note
Settlement Agreement in 1987. The answer to each of the six
questions was needed to determine the deficiencies and/or credits
for each of the nearly 1,000 limited partners in the 20 TEFRA
partnerships. After the above was determined, a computation had
to be prepared by an Appeals officer from the Manhattan Appeals
Office before a proposed decision document could be submitted to
the Court.
On October 12, 1993, Lerner sent to “All Swanton TEFRA
Partners” a letter notifying them of the settlement with the IRS
(October 1993 letter). The letter, in part, stated that the IRS
would begin sending decision documents and closing agreements to
the partners within 1 to 2 months after October 1993. The letter
further stated that, within 1 year after the partnership’s
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decision document is “filed”, the IRS would send the partner a
“bill” for any additional tax due. The letter mentioned several
additional steps to be taken before individual computations could
be completed.
In July 1994, the Manhattan Appeals Office (Manhattan
Appeals) prepared computations for the settlement. A proposed
decision document based on the computations had to be prepared by
IRS District Counsel attorney Moira Sullivan (Sullivan).
Proposed computations and a proposed decision document were sent
to Lerner on September 9, 1995, and Lerner returned the signed
decision document to District Counsel on November 7, 1996. On
September 11, 1995, the IRS sent to Brown his first set of
closing agreements to be sent to the individual partners in
Manhattan Associates. Brown had the opportunity to send the
computations to the limited partners for their approval of the
settlement as reflected in the computations. The closing
agreements included a request that Brown’s wife also sign the
documents. On June 27, 1996, Brown returned the closing
agreements, but his wife did not sign them. On November 26,
1996, a second package of closing agreements was sent to Brown,
with a request that both he and his wife sign the documents.
After Brown received the second package of closing agreements, he
informed District Counsel that he was not married to his wife in
1982 and 1983. On January 3, 1997, revised closing agreements
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were sent to Brown and his wife. Between January 3 and
November 24, 1997, Brown signed the revised closing agreements
and returned them to District Counsel’s office. The agreements
had to be signed by Manhattan Appeals, however, and not by
District Counsel. The closing agreements were countersigned by
Manhattan Appeals and then returned to District Counsel’s office.
On November 24, 1997, after District Counsel’s office
received the signed closing agreements from Manhattan Appeals,
the Manhattan Associates decision document was sent to the Tax
Court. On December 2, 1997, a decision was entered in the
Manhattan Associates case by the Court under Rule 248(a) for 1982
through 1984. On March 2, 1998, the decision became final under
section 7481. The Manhattan Associates case was sent to
Manhattan Appeals for closing and assessment. The case was sent
to the controlling IRS service center for the Swanton coal
programs for processing and forwarded to the TEFRA unit of the
IRS service center where the taxpayers filed their returns so
that the taxpayers could be assessed.
On September 9, 1998, Forms 4549-A, Income Tax Examination
Changes, were sent to petitioner for 1984. On October 13, 1998,
Forms 4549-A were sent to petitioner for 1982. On October 29,
1998, Forms 4549-A were sent to petitioner for 1983.
As a result of the changes to petitioner’s account due to
the Manhattan Associates TEFRA proceedings, the IRS assessed
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$22,773 on November 16, 1998, $29,485 on January 11, 1999, and
$3,063 on October 5, 1998, for 1982, 1983, and 1984,
respectively. Petitioner failed fully to pay the Federal income
tax liabilities for 1982 through 1984.
Request for Abatement of Interest
On December 17, 1998, C. Edmonds Allen (Allen) sent a letter
to Nancy L. Jones at the IRS Kansas City Service Center
requesting a correction in the calculation of petitioner’s
interest. The letter erroneously claimed that the TEFRA
partnership settlement stated that the partnerships were not
subject to the tax-motivated penalty under section 6621(c).
Further, the letter argued that interest was overassessed for
1982. The letter suggested that Sullivan be contacted for
documentation and verification of the settlement. Sullivan was
contacted and confirmed that section 6621(c) interest applied.
On January 12, 1999, Tax Examining Assistant Fred Fuqua
(Fuqua) responded in a letter to petitioner stating that Allen
was not an authorized representative to handle petitioner’s tax
matters. On February 4, 1999, Fuqua sent to petitioner an
additional letter notifying petitioner that interest based on
tax-motivated transactions was correct but that the amount of the
interest for 1982 would be adjusted because it was overassessed.
On July 12, 1999, the IRS sent to petitioner a Final Notice
of Intent to Levy and Notice of Your Right to a Hearing. On
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July 27, 1999, petitioner filed Form 12153, Request for a
Collection Due Process Hearing (request). The request states:
“The taxes were assessed based upon an information return (1065)
[sic]. My deposition [sic] was agreed to many years ago. The
tax assessments were not billed until recently. The interest
should be abated based upon Rev. Proc. 87-42.” Petitioner’s
request was assigned to Appeals Officer Warren Vogel (Vogel) of
the Long Island Appeals Office. Vogel handled petitioner’s
request from August 6, 1999, through October 17, 2000. On
October 17, 2000, petitioner’s request was transferred to Appeals
Settlement Officer Gerard Ohrtman (Ohrtman).
On October 25, 1999, John R. Serpico sent to Vogel a letter
setting forth petitioner’s position. The letter enclosed a
Form 2848, Power of Attorney and Declaration of Representative,
dated December 30, 1998, giving power of attorney to
John R. Serpico, John G. Serpico, and Jeffrey S. Ehrlich
(Ehrlich). In particular, the letter stated:
His matter was settled several years prior to the
issuance of RARs. There were other partnerships that
went to Tax Court and the IRS failed to perform the
ministerial act of issuing an RAR to Mr. Deverna until
all the cases were settled. Cases that had no
relationship to Mr. Deverna’s settlement in the early
1990s [sic].
No documentary support for the alleged settlement was provided.
On March 27, 2001, Ohrtman sent to petitioner’s
representative a letter informing him that the issue petitioner
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raised was not relevant for inclusion in a collection due process
hearing. Ohrtman further stated that he would maintain
jurisdiction over the case but that he had arranged for another
Appeals officer to conduct a hearing on the interest abatement
issue. He suggested that proof of the items stated in the claim
should be made available when the Appeals officer made contact.
On August 1, 2001, an Appeals officer called to speak to
John R. Serpico. Ehrlich stated that John R. Serpico had passed
away. Ehrlich requested that the Appeals officer refrain from
working on petitioner’s case until the law firm could determine
which of the representatives would handle petitioner’s case. As
a result of the destruction of the World Trade Center on
September 11, 2001, both the administrative and legal files
regarding the Manhattan Associates case were destroyed.
On October 25, 2001, the Appeals officer called Ehrlich
because he had not yet been contacted by a member of Ehrlich’s
firm. Ehrlich informed the Appeals officer that the firm still
had not decided who would handle petitioner’s case. The Appeals
officer informed Ehrlich that, if the firm did not call him back,
he would make a determination on petitioner’s case based on the
information in the file. Ehrlich did not call the Appeals
officer. The Appeals officer reviewed petitioner’s case file,
including the transcripts of petitioner’s tax accounts.
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On January 8, 2002, the IRS sent to petitioner a Full
Disallowance - Final Determination disallowing petitioner’s claim
for interest abatement. The request for abatement was denied
because the IRS “did not find any errors or delays on our part
that merit abatement of interest in our review of available
records and other information.”
OPINION
Under section 6404(e)(1), the Commissioner may abate the
assessment of interest on any deficiency if the interest is
attributable to an error or delay by an officer or employee of
the IRS (acting in his official capacity) in performing a
ministerial act. (Amendments to section 6404(e) in 1996 do not
apply to this case because they apply only to interest accruing
with respect to deficiencies or payments for tax years beginning
after July 30, 1996.) A “ministerial act” is 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 have taken place. Sec.
301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg.
30163 (Aug. 13, 1987). The “mere passage of time” during a tax
dispute does not establish error or delay in performing a
ministerial act. Lee v. Commissioner, 113 T.C. 145, 150 (1999).
The Court may order abatement where the Commissioner abuses his
discretion by failing to abate interest. Sec. 6404(h)(1). In
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order to prevail, a taxpayer must prove that the Commissioner
exercised this discretion arbitrarily, capriciously, or without
sound basis in fact or law. Lee v. Commissioner, supra at 149;
Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Petitioner contends that respondent “failed to perform the
ministerial act of issuing an RAR to Mr. Deverna until all cases
were settled.” Specifically, petitioner argues that, when he
received the October 1993 letter from Lerner, the case was
settled and assessments should have been made at that time.
Petitioner argues that interest should be abated from the date of
the October 1993 letter until the dates of the assessments in
1998. Petitioner testified at trial that he received the October
1993 letter and thought that, based on the letter’s contents, the
case was settled with the IRS.
The letter, however, was prepared by Lerner, a
representative of some of the TEFRA partnerships, but not a
representative of Manhattan Associates. It is unclear from the
record whether the October 1993 letter was sent in response to a
specific correspondence between respondent and Lerner. There is
no evidence that petitioner did any of the things described in
the letter as prerequisites to assessments against individual
partners. The letter was not presented to Vogel or Ohrtman as a
basis for petitioner’s allegations that he had settled his case.
The letter was not presented to respondent for consideration
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until after preparation for trial commenced, on May 5, 2003. As
a result, Vogel and Ohrtman did not review the letter on which
petitioner allegedly relied and had no information regarding the
settlement of petitioner’s case any earlier than when documents
were sent to Brown in 1995. Moreover, respondent is not bound
by a letter that was not sent by the IRS.
In any event, the passage of time from October 1993 until
September or October 1998 was attributable to the complexity and
the extent of the Swanton coal programs and not due to a
ministerial error. Sullivan testified during trial as to the
complex issues and lengthy procedures involved in settling the
Swanton coal programs. After lengthy settlement negotiations, in
1994, the Appeals Office prepared computations, and District
Counsel prepared proposed decision documents for all partnerships
involved. During 1995 and 1996, the computations and decision
documents were sent to the TMPs.
Part of the responsibility for the delay falls on
petitioner’s representatives. Sullivan testified that Brown was
generally uncooperative with the IRS, and Sullivan was forced to
speak through intermediaries when dealing with Brown. Sullivan
also needed to send multiple decision documents to Brown before
he signed and returned the documents.
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In 1997, the decision documents were sent to the Court, and
the decision was entered. The decision became final in 1998, and
the assessments followed.
Petitioner also argues that there was an abuse of discretion
in denying petitioner’s request without considering “pertinent
evidence”, examining “relevant factors”, and articulating “a
satisfactory explanation”. Petitioner relies on Beagles v.
Commissioner, T.C. Memo. 2003-67, in arguing that the
Commissioner allowed a partial abatement of interest in a
different partnership associated with the Swanton coal programs.
In Beagles, however, the partner became terminally ill and the
surviving spouse presented relevant documents to the Appeals
officer. Here, petitioner did not provide any evidence during
the administrative process to support his claim that he settled
his case several years prior to the assessments. His spouse was
given relief under section 6015. In any event, as in Beagles, we
conclude that the delays involved in this case were not
attributable to ministerial acts. Relief given administratively
in different circumstances does not establish abuse of
discretion. See Fargo v. Commissioner, T.C. Memo. 2004-13;
Mekulsia v. Commissioner, T.C. Memo. 2003-138.
Petitioner also complains that Vogel and Ohrtman did not
contact Sullivan regarding the Swanton coal programs.
Petitioner and his representatives failed to contact Ohrtman
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during his review of the interest abatement request and did not
comply with the requests of the Appeals officer with whom Ohrtman
was coordinating the case. They did not provide the letter on
which petitioner claims reliance. Thus, the Appeals officer and
Ohrtman relied on the information that remained in petitioner’s
file after the destruction of the World Trade Center. Nothing in
Sullivan’s trial testimony supported petitioner’s arguments, and
the failure to contact her would not have affected the
determination.
We have considered petitioner’s other arguments. They are
unpersuasive. We therefore uphold respondent’s determination not
to abate interest in this case.
To reflect the foregoing,
An appropriate order
and decision will be entered.