UNITED STATES TAX COURT

T.C. Memo. 2021-70

UNITED STATES TAX COURT

KANNARKAT P. VERGHESE, DECEASED, ANNIE P. VERGHESE,

PERSONAL REPRESENTATIVE, AND ANNIE P. VERGHESE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25757-15L.

Filed June 7, 2021.

In 1997 and 1998 Ps held investments in partnerships that,

unbeknownst to Ps, reported fraudulent charitable contributions on

their partnership tax returns. The partnerships were subject to the

Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). On

their returns for 1997 and 1998, Ps claimed charitable contribution

deductions consistent with the partnership returns. The IRS audited

the partnership returns and disallowed the charitable contribution

deductions for tax years 1996 through 1998. In June 2000 the

partnerships commenced the first of three TEFRA proceedings in the

Tax Court that were ultimately consolidated for resolution.

Ps’ investments in the partnerships had been actively solicited

by promoters of the partnerships who were criminally prosecuted and

ultimately convicted of crimes of fraud involving the partnerships,

but the criminal prosecutions did not end until 2009. During these

criminal proceedings, the TEFRA proceedings in the Tax Court were

delayed after the parties to the TEFRA proceedings jointly moved for

Served 06/07/21

-2[*2] continuances. The TEFRA proceedings did not conclude until April

2013 when the Tax Court entered stipulated decisions under Tax

Court Rule 248(b).

In May 2014 Ps received IRS Notices CP22E showing

increases in income tax and interest for tax years 1996 through 1998.

Ps thereafter filed Form 843, “Claim for Refund and Request for

Abatement”, requesting abatement of the interest for the years during

which the TEFRA litigation was pending. Their claim was based on

allegations of unfairness and unreasonable delay by the IRS. Ps did

not receive any response from the IRS regarding their abatement

request before the IRS issued a notice of intent to levy based on the

liabilities assessed for tax years 1996 through 1998. Ps requested a

Collection Due Process (“CDP”) hearing before the IRS Office of

Appeals (“Appeals”) and asserted their abatement request in the

context of the CDP hearing. Appeals erroneously determined that the

abatement request could not be considered and issued a notice of

determination denying abatement. Ps timely petitioned the Tax Court

with respect to tax years 1997 and 1998, and the Tax Court

subsequently remanded Ps’ claim to Appeals for supplemental

proceedings for consideration of Ps’ abatement request. Appeals

again denied Ps’ request for abatement, determining that I.R.C. sec.

6404 did not permit abatement under any of the circumstances Ps

alleged.

R moved for summary judgment, arguing that the notice of

determination should be sustained because none of the grounds for

abatement that Ps allege is valid under I.R.C. sec. 6404. Ps contend

that under I.R.C. sec. 6404(a) they are entitled to abatement on the

basis of principles of fairness and that under I.R.C. sec. 6404(e) the

IRS engaged in ministerial or managerial acts that constituted

unreasonable delay for which their abatement request should be

granted.

-3[*3]

Held: I.R.C. sec. 6404(b) precludes a claim under I.R.C. sec.

6404(a) for abatement of interest on income tax. Because Ps’ request

for abatement is for interest assessed on income tax, I.R.C. sec.

6404(a) is inapplicable.

Held, further, with the exception of one period of

approximately five months, the administrative record shows that

Appeals did not abuse its discretion when it determined that there was

no ministerial or managerial act by the IRS sufficient to constitute

unreasonable delay justifying abatement under I.R.C. sec. 6404(e).

R’s motion for summary judgment will be granted in large part but, as

to that five-month period, will be denied in part.

Gerald W. Kelly, Jr., and Daniel S. Heller, for petitioners.

Bartholomew Cirenza and Ryan Z. Sarazin, for respondent.

MEMORANDUM OPINION

GUSTAFSON, Judge: Petitioner Annie P. Verghese and her late husband

Kannarkat P. Verghese filed this suit, pursuant to section 6330(d),1 in response to

the determination of the Office of Appeals (“Appeals”) of the Internal Revenue

1

Unless otherwise indicated, all section references are to the Internal

Revenue Code (26 U.S.C.; “the Code”) in effect at all relevant times, and all Rule

references are to the Tax Court Rules of Practice and Procedure. All monetary

amounts are rounded to the nearest dollar. We refer to Mr. and Mrs. Verghese as

“petitioners” although Mr. Verghese has been substituted for this case by his

estate, with Mrs. Verghese as its representative.

-4[*4] Service (“IRS”) to (a) sustain the issuance to petitioners of a “Final Notice Notice of Intent to Levy” with respect to petitioners’ unpaid liabilities for tax

years 1997 and 1998 and (b) deny petitioners’ request for abatement of almost 13

years’ worth of interest that the IRS assessed in respect of the tax liabilities for

those long-past years. Respondent, the Commissioner of the IRS, has moved for

summary judgment under Rule 121, and petitioners have filed an opposition. For

the reasons explained below, we will grant the Commissioner’s motion in part as

to abatement of interest under section 6404(a) and, as to abatement under section

6404(e), will grant the motion as to most of the interest but will deny it as to

nearly five months’ worth of interest accrued from August 7, 2012, to January 2,

2013, because, under Rule 121(e), petitioners should be allowed to conduct some

discovery as to that five-month period on the issue of whether Appeals abused its

discretion by failing to consider circumstances showing delay by the IRS in

arriving at a settlement with the partners of certain partnerships in which

Mr. Verghese was a partner.

-5Background

[*5]

For purposes of the Commissioner’s motion, we assume correct the facts

asserted by petitioners that are supported by their filings, as well as the facts

demonstrated by the Commissioner that petitioners did not dispute.2

The Heritage partnerships

Mr. Verghese was a partner in each of three different partnerships--Heritage

Memorial Park Associates 1995-2, Heritage Memorial Park Associates 1995-3,

and Heritage Memorial Park Associates 1995-4 (“the Heritage partnerships”), all

of which used the partners’ contributed capital to invest in cemetery plots. The

Heritage partnerships donated the cemetery plots to charity and reported charitable

contributions on their partnership tax returns for the amounts attributed to those

plots. The charitable contributions were “passed through” to the partners of the

partnerships to claim on their individual tax returns. The Heritage partnerships

reported such charitable donations in 1996, 1997, and 1998, while Mr. Verghese

2

Pursuant to Fed. R. Evid. 201, we take judicial notice of the petitions and

further pleadings filed in the following Tax Court cases, discussed below (and

referred to herein as the “Heritage partnership cases”), which were initiated by the

Heritage partnerships: Heritage Mem’l Park Assocs. 1995-2 v. Commissioner,

dkt. No. 7176-00; Heritage Mem’l Park Assocs. 1995-3 v. Commissioner,

dkt. No. 8260-01; and Heritage Mem’l Park Assocs. 1995-4 v. Commissioner,

dkt. No. 10715-02. See Leyshon v. Commissioner, T.C. Memo. 2015-104,

at *14-*15, aff’d per curiam, 649 F. App’x 299 (4th Cir. 2016).

-6[*6] was an investor and partner in the partnerships. (Deductions for 1996 are not

in dispute because petitioners raised in their petition only claims relating to tax

years 1997 and 1998; but we make reference below to facts relevant here

concerning Heritage Memorial Park Associates 1995-2, the partnership through

which deductions were claimed for 1996.)

The investments in the Heritage partnerships were actively marketed to

Mr. Verghese and the other partners who made similar investments. The person

responsible for much of the direct correspondence and solicitation of partner

investments was Paul V. Decker, an alleged investment adviser based in Bowie,

Maryland. In the years at issue, Mr. Verghese purchased partnership interests that

were advertised to him as “units”, which corresponded to a fixed number of

cemetery sites that the partnerships purchased, allowing him to report on his

personal tax returns (jointly filed with Mrs. Verghese) certain shares of the

charitable contributions reported by the partnerships on their returns, for which he

claimed charitable contribution deductions. He and the other partners were

repeatedly assured of the legitimacy of the transactions that generated the

deductions claimed by the Heritage partnerships, as well as the accuracy of the

appraisals that supported them. Such assurances came in the form of repeated

correspondence from Mr. Decker (often advertising the sale of additional units of

-7[*7] supposedly limited availability), as well as lengthy legal correspondence from

the attorney who represented the Heritage partnerships in proceedings under the

unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility

Act of 1982 (“TEFRA”). See infra p. 8, “TEFRA proceedings”.

Tax returns for 1997 and 1998

Petitioners filed joint returns for tax years 1997 and 1998, on which they

claimed charitable contribution deductions from their investments in the Heritage

partnerships.

Civil audits of Heritage partnership returns

The IRS initiated in 1998 a civil audit of the return of Heritage Memorial

Associates 1995-2 (regarding the charitable contribution deduction it reported for

1996). As of June 30, 2000, the IRS had commenced civil audits of the returns of

all three of the Heritage partnerships. Petitioners assert, and we assume, that no

one in the IRS ever informed them that, in connection with any tax liability that

might eventually be determined against them, they could suspend the running of

interest by making a “deposit in the nature of a cash bond” (discussed below in

part I.B). The parties dispute whether, if they had been so informed, petitioners

would have made such a deposit; but for purposes of the Commissioner’s motion,

we assume in their favor that they would have.

-8[*8] Criminal investigation

A grand jury investigation into the activities of certain persons involved in

the Heritage partnerships commenced while the civil audits of the Heritage

partnership returns were still pending. The investors in the partnerships were

aware of the grand jury investigation of at least two of the alleged co-conspirators

in June 2001. The grand jury ultimately returned criminal indictments for four

alleged co-conspirators on September 29, 2005. The four co-conspirators were

convicted and sentenced throughout 2007 and 2008 for crimes relating to the

investigation involving the Heritage partnerships, and not until 2009 did all of the

criminal proceedings ultimately conclude.

TEFRA proceedings

For the two years at issue, the civil issues proceeded to litigation as

follows:3

The Commissioner issued a “Notice of Final Partnership Administrative

Adjustment” (“FPAA”) to Heritage Memorial Park Associates 1995-3 on April 11,

2001, proposing an adjustment of $2,936,700 for tax year 1997 based upon the

3

As to 1996, Heritage Memorial Park Associates 1995-2 filed a petition on

June 27, 2000, challenging the Commissioner’s disallowance in the FPAA of a

charitable contribution deduction the partnership reported for 1996 in docket

No. 7176-00. Because 1996 is not at issue, we need not discuss this litigation

further.

-9[*9] Commissioner’s disallowance of a deduction claimed for a charitable

contribution reported by the partnership. Heritage Memorial Park Associates

1995-3 filed a petition in the Tax Court on June 28, 2001, commencing TEFRA

proceedings in docket No. 8260-01.

The Commissioner issued an FPAA to Heritage Memorial Park Associates

1995-4 on March 29, 2002, proposing an adjustment of $5,282,050 for tax year

1998 based upon the Commissioner’s disallowance of a deduction claimed for a

charitable contribution reported by the partnership. Heritage Memorial Park

Associates 1995-4 filed a petition in the Tax Court on June 25, 2002, commencing

TEFRA proceedings in docket No. 10715-02.

All of the Heritage partnerships initiated their civil TEFRA proceedings

while the criminal investigation was pending and before the issuance of the

criminal indictments of the four co-conspirators. Until 2008 these civil TEFRA

proceedings were essentially paused while the parties therein jointly moved for

continuances. The Commissioner asserts (and petitioners do not dispute) that

during this period the underlying reason for the continuances was the IRS’s

decision to hold the civil TEFRA proceedings in abeyance until the criminal

proceedings related to the activity at issue in the TEFRA litigation were

concluded.

- 10 [*10] On June 27, 2008, the Commissioner moved the Tax Court to remove the

tax matters partner (“TMP”) in the Heritage partnership cases. Those cases were

consolidated in September 2008. On February 3, 2009, a new TMP was

appointed, and the cases were restored to the general docket on June 26, 2009.

The Tax Court issued a notice of trial in January 2010. In June 2010 new counsel

entered an appearance for the Heritage partnerships and requested a continuance

of the trial. In August 2010 the Heritage partnerships moved to amend their

petitions and did amend them in September 2010. Thereafter the parties engaged

in discovery, and in February 2011 the Commissioner moved to dismiss certain

paragraphs of the amended petitions. The parties continued to engage in discovery

and to brief the issues on pending motions.

On March 2, 2012, the Heritage partnerships moved to remove the

designated TMP and appoint a new TMP, which occurred on April 5, 2012. The

parties filed pretrial memoranda on April 30, 2012, and a trial was set for

August 7, 2012. On May 31, 2012, the Heritage partnerships filed motions for

partial summary judgment, to which the Commissioner filed opposing briefs on

June 29, 2012. The Heritage partnerships filed replies on July 13, 2012. The Tax

Court denied the motions on July 24, 2012. On August 6, the day before the trial

session, the Tax Court entered an order striking certain paragraphs of the petitions,

- 11 [*11] and the Heritage partnerships filed amended petitions. The Tax Court held a

hearing on August 7, 2012, during which the parties filed two stipulations of fact

and a stipulation of settled issues; that same day the Tax Court ordered the

Commissioner to file a motion for entry of decision pursuant to Rule 248(b) by

October 9, 2012, with which he complied, and with regard to which the Heritage

partnerships, on October 17, 2012, filed a motion to strike accompanied by a

motion to enforce settlement agreement.

As he acknowledged in his motion to withdraw the pleading on November

21, 2012, the Commissioner’s motion for entry of decision did not accurately

represent the stipulations of fact and the resolution of issues that the parties had

previously reached. The Heritage partnerships had alleged in their motion to

strike that the Commissioner had intentionally made such a filing at the direction

of the IRS National Office. On January 2, 2013, the Commissioner filed a second

motion for entry of decision pursuant to Rule 248(b). The parties made no further

filings in the Tax Court in the Heritage partnership cases at issue; decisions were

accordingly entered on April 1, 2013.

Increase in petitioners’ tax liabilities for 1997 and 1998

On May 26, 2014, petitioners received IRS Notices CP22E showing the

following: for tax year 1997, an increase in tax of $32,389 and an increase in

- 12 [*12] interest of $47,039 (for a total amount due of $79,428); and for tax year

1998, an increase in tax of $21,536 and an increase in interest of $27,844 (for a

total amount due of $49,380). The amounts due had to be paid “by June 16, 2014

to avoid additional penalty and interest charges”.

Requests for abatement of interest

Petitioners filed with the IRS on September 9, 2014, Forms 843, “Claim for

Refund and Request for Abatement”, requesting interest abatement for each of the

tax years 1996, 1997, and 1998. Each Form 843 indicated that the requested

abatement was of interest assessed in respect of income tax and alleged that the

reasons for the request were “[i]nterest was assessed as a result of IRS errors or

delays” and “[r]easonable cause or other reason allowed under the law (other than

erroneous written advice) can be shown for not assessing a penalty or addition to

tax.”

Line 7 of Form 843 prompts the taxpayer to “[e]xplain why you believe this

claim or request should be allowed and show the computation of the amount

shown” for which abatement is requested. For line 7 petitioners attached a lengthy

summary alleging that they had been the victims of a fraudulent scheme and had

been solicited by criminal conspirators to make what petitioners had reasonably

believed were legitimate investments. Petitioners alleged that, unbeknownst to

- 13 [*13] them, “the Conspirators were fabricating and altering documents related to

the tax losses” and making “a substantial profit on the sale of the properties to the

Partners.” Petitioners also alleged that they were “prepared and willing to pay the

total tax principal owed, however, respectfully request the interest be abated.”

Petitioners’ submission attached to each Form 843 set forth six points of

argument, which we summarize as follows: (1) Petitioners were innocent of the

fraudulent scheme in which they were targeted to participate. (2) Their belief in

their innocence was reasonable because of the repeated assurances they received

from their investment adviser, their accountant, and the attorney for the Heritage

partnerships. (3) The interest assessment (which had been accruing during more

than a decade of Tax Court litigation) was significantly greater than the underlying

tax liabilities and was therefore tantamount to a penalty, but petitioners’ conduct

(unlike that of the criminal conspirators) did not warrant punishment. (4) The

TEFRA litigation involving the Heritage partnerships “began in 2000, and was not

completed until 2013”, “last[ing] much longer than was reasonable”; specifically,

the 5-year period from 2008, when the Heritage partnerships obtained new

counsel, until the conclusion of the cases in 2013 “is very indicative of

unreasonable delays” because the end result was a settlement consisting of a

penalty abatement rather than a decrease in liabilities. (5) Petitioners had an

- 14 [*14] otherwise “clean” history reflecting compliance with the Federal tax laws.

And (6) denying interest abatement under such circumstances would violate

“public policy [that] does not promote punishing victims of fraud”, as well as

public policy in favor of considering the decline of Mr. Verghese’s mental health

(as was occurring at the time) “at the very least as a mitigating factor”.

Petitioners did not receive any information from the IRS regarding the

disposition of their abatement requests before the IRS’s initiation of collection

action, which we now describe.

Notice of intent to levy

On February 12, 2015, the Commissioner issued to petitioners a “Notice of

Intent to Levy and Notice of your Right to a Hearing” (“levy notice”) for tax years

1997 and 1998, which instructed them to “pay immediately” and to “send * * *

[the IRS] the amount due of $130,565, or we may seize (levy) your property on or

after March 14, 2015.” The amount due consisted of: for 1997, $74,428 owed4

(including interest of $47,039) plus an additional $1,826 of interest and a $2,129

4

Petitioners made a $5,000 payment to the IRS on August 22, 2014, after

receiving the Notices CP22E. They later made an additional $5,000 payment on

March 5, 2015. At the time of the hearing in this case on the Commissioner’s

motion for summary judgment in January 2020, counsel for the Commissioner

represented in his arguments that “until approximately six months ago--* * *

[petitioners] still hadn’t paid the liability”.

- 15 [*15] additional penalty; for 1998, $49,380 owed (including interest of $27,844)

plus an additional $1,187 of interest and a $1,615 additional penalty. Through

their representative Daniel Heller petitioners timely filed Form 12153, “Request

for a Collection Due Process or Equivalent Hearing”, requesting a collection due

process (“CDP”) or equivalent hearing.5 On a typewritten attachment to their

Form 12153, petitioners argued that for purposes of section 6330(c)(3)(C) the

collection action would be more intrusive than necessary, because they “are

contesting the interest assessed against them, and intend on satisfying the tax

balance owed after their interest claim is resolved.” Petitioners also attached to

the Form 12153 their previously filed Forms 843 and accompanying

documentation.

CDP hearing

On June 23, 2015, Settlement Officer Nathalie Raygosa (“SO Raygosa”)

sent petitioners and Mr. Heller a letter acknowledging receipt of their request for a

CDP hearing and scheduling a telephone conference for July 21, 2015. When SO

Raygosa held the telephone conference with Mr. Heller, she indicated that she did

5

Petitioners also indicated on Form 12153 that they were seeking collection

alternatives by checking boxes corresponding to “installment agreement”, “offer in

compromise”, and “I cannot pay balance”. However, petitioners are not pursuing

review of Appeals’ determination with respect to collection alternatives, so we do

not discuss them further.

- 16 [*16] not think that petitioners could raise the issue of interest abatement because

she believed that they had had a prior opportunity to do so. SO Raygosa reviewed

additional information and legal argument that Mr. Heller provided and discussed

the issue with him again on August 13 and August 20; but Appeals thereafter

issued a “Notice of Determination Concerning Collection Action(s) Under section

6320 and/or 6330 of the Internal Revenue Code” on September 11, 2015,

sustaining the levy action and concluding that she could not consider petitioners’

interest abatement request.

Tax Court petition

Petitioners timely petitioned the Tax Court on October 13, 2015, for review

of the notice of determination. When they filed the petition, petitioners resided in

Maryland. On June 6, 2016, the Commissioner filed a motion for remand on the

grounds that SO Raygosa had erred in determining that petitioners had had a prior

opportunity to litigate the issue of interest abatement. The Court granted the

motion and remanded the case to Appeals on June 7, 2016. On remand an IRS

general attorney advised the Appeals team manager that-The primary issue raised by petitioners is interest abatement

pursuant to * * * [section] 6404(e). The IRS moved to remand the

case because [the] Settlement Officer assigned to petitioner’s initial

CDP Hearing incorrectly determined that petitioners had a prior

- 17 [*17] opportunity to raise the interest abatement issue by virtue of various

partnership-level Tax Court cases.

The supplemental CDP hearing should address petitioner’s

claim for interest abatement on the merits. You should allow

petitioners to submit whatever documentation and testimony they

believe is relevant to the interest abatement issue. Your supplemental

notice of determination should indicate whether petitioners properly

raised the interest abatement issue in their supplemental hearing, and

if so, whether you agreed to abate any portion of the interest assessed

by respondent.

The memorandum further set a deadline of August 16, 2016, by which to conduct

the administrative hearing.

Supplemental CDP hearing

On remand the case was assigned to SO Edwards, who contacted Mr. Heller

on July 21, 2016, by telephone and followed up with a letter indicating that his

understanding of “the purpose of the remand is to review whether interest

abatement is appropriate for tax years 1997 and 1998”. SO Edwards also

indicated that he needed certain documents missing from the administrative file,

including “proof of unreasonable delays by the IRS referenced in your Form 843

claims”, and scheduled a telephone conference for August 16, 2016, to discuss

interest abatement.

On August 3, 2016, SO Edwards received and thereafter considered

documents from Mr. Heller in support of the interest abatement claims for 1997

- 18 [*18] and 1998. He also examined the legal authorities submitted in support of

Mr. Heller’s arguments regarding the availability to petitioners of an abatement

claim under section 6404(a)--i.e., the cases H. & H. Trim & Upholstery Co. v.

Commissioner, T.C. Memo. 2003-9, and King v. Commissioner, T.C. Memo.

2015-36, rev’d, 829 F.3d 795 (7th Cir. 2016).6 Moreover, SO Edwards discussed

the merits of these legal authorities with IRS counsel and with Mr. Heller during

the scheduled telephone conference.

During SO Edwards’s review in consideration of Mr. Heller’s interest

abatement argument under section 6404(e), he conducted additional research

regarding what factors contributed to the delay between the Heritage partnerships’

commencing TEFRA litigation and the conclusion of those cases. In his initial

conversations with IRS counsel on July 20, 2016, SO Edwards noted: “I discussed

notes from the trial * * * that may be needed because of arguments raised by

6

Mr. Heller noted in his correspondence to SO Edwards (and we agree) that

the Court of Appeals for the Seventh Circuit’s reversal of King v. Commissioner,

T.C. Memo. 2015-36, rev’d, 829 F.3d 795 (7th Cir. 2016), is not binding authority

on this Court where, as here, the case is appealable to the Court of Appeals for the

Fourth Circuit. See sec. 7482(b); see also Lardas v. Commissioner, 99 T.C. 490,

495 (1992) (explaining Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445

F.2d 985 (10th Cir. 1971), and stating “[i]t should be emphasized that the logic

behind the Golsen doctrine is not that we lack the authority to render a decision

inconsistent with any Court of Appeals (including the one to which an appeal

would lie), but that it would be futile and wasteful to do so where we would surely

be reversed”).

- 19 [*19] taxpayers [sic] counsel * * * [that] delays in the trial were due to IRS. How

can I evaluate that claim without court docs?”.

SO Edwards held the telephone conference with Mr. Heller on August 16,

2016, during which they discussed the two distinct grounds raised for interest

abatement--“i.e., unreasonable delays and excessive [interest]”. SO Edwards

pointed out that “excessive doesn’t mean there shouldn’t be any interest charged”

and raised the subject of partial abatement, to which Mr. Heller responded that “he

would need to first see how much * * * [SO Edwards] would be willing to abate”.

In correspondence and documents submitted before the telephone conference, Mr.

Heller did not identify to SO Edwards any discrete periods of time that allegedly

constituted the “unreasonable delay” by the IRS other than the generally long

duration of the TEFRA litigation, specifically the period from 2008 through 2013

during which the Heritage partnerships tried to obtain a settlement.

At the end of the telephone conference, Mr. Heller indicated that he would

like a face-to-face meeting, and SO Edwards said he would be willing to discuss

the case in person upon completion of his review. SO Edwards’ case notes further

indicate his “plan of action: [c]omplete review of excessive and unreasonable

delays”.

- 20 [*20] SO Edwards paused his work on the case until January 9, 2017, the date on

which his notes begin with the statement that “[t]he case was delayed due to

another remand case, tax court testimony and other priority cases”. On that day he

again reviewed Mr. Heller’s arguments that: (1) the interest was excessive

because of the “unfair” circumstance that petitioners were the victims of a

calculated fraud; (2) petitioners did not know (because the IRS did not tell them)

that they could post a deposit in the nature of a cash bond which would have

stopped the interest from accruing; and (3) delays by the IRS caused the TEFRA

litigation to remain unresolved until 2013 (thereby prolonging the accrual of

interest). On the issue of the IRS’s delay, SO Edwards reviewed the docket entries

to ascertain “if there were delays and who prompted them”; he then telephoned the

IRS attorney who served as counsel for the Commissioner in the TEFRA

litigation. The IRS attorney told him that there were 12 continuances of the

litigation, some of which were joint motions and all of which were prompted by

the criminal cases against the promoters of the Heritage partnerships, and that the

Department of Justice did not want them to move forward with the cases while the

criminal actions were pending.

- 21 [*21] On February 16, 2017, SO Edwards reviewed the IRS attorney’s TEFRA

litigation files,7 which were consistent with the attorney’s recollection of the cases

and, further, showed that the criminal cases did not conclude until 2009.

SO Edwards also noted that in 2010 the Heritage partnerships obtained new

counsel who filed a motion for partial summary judgment on an issue related to

allowable expenses, which was ultimately denied in 2012. SO Edwards reviewed

Internal Revenue Manual (IRM) pt. 8.7.7.13 (May 15, 2012) (“Abatement of

Interest Claims”) and determined that there were no facts present corresponding to

the criteria for the abatement of interest either during the pendency of the criminal

case, when “the IRS couldn’t pursue the civil matter”, or after the criminal matter

concluded and “there was an ongoing trial with new counsel * * * fighting for

additional expenses” until the motion for partial summary judgment was denied in

late July 2012.

SO Edwards spoke with Mr. Heller on March 23, 2017, and advised him of

his conclusions that “interest abatement is not applicable based on the facts and

circumstances of the case” and explained his conclusions. Mr. Heller again

requested a face-to-face meeting; but SO Edwards said he did not understand what

7

The IRS attorney’s TEFRA litigation files have not been submitted as part

of the administrative record in this CDP case.

- 22 [*22] purpose a face-to-face meeting would serve, and he indicated he would need

to review the order on remand and speak to an IRS attorney to confirm. Later that

day he called Mr. Heller back and left a message offering times for a face-to-face

meeting. On March 27, 2017, Mr. Heller sent SO Edwards a fax stating in

relevant part that “you have made it abundantly clear that even if you were to

humor this meeting, it would serve no purpose for the Taxpayers, we do not

believe it would be prudent or advisable for our office to engage in this meeting

with you at this time”.

On June 14, 2017, Appeals issued to petitioners a “Supplemental Notice of

Determination Concerning Collection Action(s) Under Section 6320 and/or 6330”

for tax years 1997 and 1998, sustaining Appeals’ denial of petitioners’ request for

abatement of interest and consequently sustaining the Levy Notice. In the

supplemental notice of determination SO Edwards listed the requirements of

applicable law and administrative procedure that he verified had been met. On the

issue of interest abatement, he ultimately concluded that “the cases [that

petitioners] cited were not applicable to the facts in the Taxpayers’ case and

therefore [he] determined the interest is not excessive” under section 6404(a). He

arrived at this conclusion because he reasoned that in the cases provided on this

issue, “the fairness test as it relates to excessiveness is a but for test”, meaning that

- 23 [*23] the interest was not excessive (or unfair) unless “but for” reliance on advice

that the IRS gave that was erroneous, the delay would not have occurred. SO

Edwards concluded that the IRS’s conduct in this case did not fulfill that criterion.

SO Edwards further observed that section 6404(e) “allows for the abatement

of interest on any deficiency attributable in whole or in part to any unreasonable

error or delay by an officer or employee of the Internal Revenue Service (acting in

his official capacity) in performing a ministerial or managerial act” and that, upon

his review of the Heritage partnership cases, he believed that the continuances due

to the pending criminal matters were not unreasonable, that many were in fact

“joint in nature”, and that, “once the criminal matters were concluded and a new

* * * [TMP] found, the Tax Court case resumed”. Accordingly, he concluded that

the statutory criteria for abatement under section 6404(e) were not met.

The supplemental notice of determination addressed petitioners’ remaining

arguments for abatement and determined them to be without merit: SO Edwards

determined that petitioners’ allegedly reasonable belief that the deductions they

claimed for the Heritage partnership investments were valid because promoters of

the investments had repeatedly assured them so was not pertinent under

section 6404(e) because it constituted a “reasonable cause argument” prohibited

- 24 [*24] by IRM pt. 8.7.7.13.8 SO Edwards dismissed their assertion that they had

not been informed during the TEFRA litigation that they could post a bond to

suspend interest accrual, because (he concluded) “the statute doesn’t provide for

interest abatement when the IRS doesn’t advise the Taxpayer to post a bond.”

SO Edwards accordingly determined that “the proposed levy balances the efficient

collection of taxes with your legitimate concern that the collection action be no

more intrusive than necessary”.

Further Tax Court proceedings

Proceedings on petitioners’ Tax Court petition resumed in July 2017; trial

was thereafter set for June 4, 2018; and in the interim, the parties engaged in

discovery. The Commissioner filed a motion for summary judgment on April 5,

2018, contending that Appeals did not abuse its discretion when it issued the

supplemental notice of determination denying abatement of interest and sustaining

the Levy Notice. Petitioners filed a notice of objection opposing summary

judgment by highlighting the lack of evidence in the record rather than identifying

specific facts in dispute. With respect to abatement based on unreasonable

8

Internal Revenue Manual pt. 8.7.7.13 (May 15, 2012) includes the

following “[n]ote: See Treasury Regulation section 301.6404-2(c) for examples of

ministerial and managerial acts. Do not abate interest based on ‘reasonable cause

criteria’.”

- 25 [*25] ministerial or managerial delay by the IRS, petitioners argue that in SO

Edwards’ documentation of his review of the TEFRA litigation, he failed to

elucidate the specific reasons that each continuance had been requested and

therefore “SO Edwards’ case history fails to establish a sufficient factual basis that

Petitioners are unable to prove the interest assessment was the result of an

unreasonable delay by Respondent.” Similarly petitioners argue that SO Edwards

did not adequately address the argument that the IRS failed to inform them that

they could post a bond because “he simply states that he could not find proof”

thereof. Finally, they argue that SO Edwards “created a new [and incorrect] legal

standard” in his application of section 6404(a): “[I]t appears that he determined

that I.R.C. § 6404(a) applies only when an interest assessment would not exist ‘but

for’ advice by the IRS.” Petitioners contend that summary judgment would be

premature because-Petitioners believe Respondent has in its possession, custody, or

control, relevant records not currently available to Petitioners, which

further strengthen their claims of unreasonable delay or error, such as

the records SO Edwards reviewed. These records were requested via

formal discovery, and Petitioners are waiting to receive the discovery

responses from Respondent.

Petitioners also raise new issues regarding “respondent’s delays and errors

after the filing of the interest abatement request,” pointing to the six months that

- 26 [*26] elapsed between their initial request for interest abatement and any further

contact from the IRS, the year that elapsed while SO Raygosa mistakenly disposed

of their CDP case without considering interest abatement, and the time that SO

Edwards took to complete his administrative hearing and issue the supplemental

notice of determination, which included at least one 3-month delay he

acknowledged was due to other demands of his caseload.

Petitioners filed a motion to compel on May 7, 2018, seeking, inter alia,

production of documents they requested April 3, 2018, including “[a]ll records

relating to Heritage Park files”. The Court initially granted this request without

directing the Commissioner to file a response. The Commissioner moved for

reconsideration of that ruling, and the Court held a telephone conference with the

parties and subsequently vacated its order compelling the discovery. (The Judge

assigned to the case thereafter retired, and the case was reassigned in

August 2019.)

The Court resumed consideration of the pending motion for summary

judgment and held a hearing on January 14, 2020, during which counsel for the

parties presented oral argument regarding the legal framework of the abatement

claim. At the hearing Mr. Heller appeared for petitioners and urged that they still

had not received access to the records that they sought in order to prove the merits

- 27 [*27] of their abatement claim (i.e., to show that Appeals abused its discretion

when it denied the claim). He also stated that petitioners “had a pretty strong

record” supporting their “excessive unfairness” claims. After the hearing and

pursuant to order of the Court, the parties submitted supplemental briefs on the

issue of whether interest assessed on income tax could properly be the subject of

an abatement under section 6404(a).

Discussion

I.

General legal principles

A.

Summary judgment

The purpose of summary judgment is to expedite litigation and avoid

unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

The Court may grant summary judgment when there is no genuine dispute as to

any material fact and a decision may be rendered as a matter of law. Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965

(7th Cir. 1994). In deciding whether to grant summary judgment, we draw factual

inferences in the light most favorable to the nonmoving party, Sundstrand Corp. v.

Commissioner, 98 T.C. at 520--in this instance, petitioners. “The opposing party

is to be afforded the benefit of all reasonable doubt, and any inference to be drawn

from the underlying facts contained in the record must be viewed in a light most

- 28 [*28] favorable to the party opposing the motion for summary judgment.”

Espinoza v. Commissioner, 78 T.C. 412, 416 (1982).

A party opposing summary judgment “may not rest upon the mere

allegations or denials” but rather “must set forth specific facts showing that there

is a genuine dispute for trial.” Rule 121(d). In a circumstance where such a

showing of facts is not possible, Rule 121(e) provides:

When Affidavits or Declarations Are Unavailable: If it appears from

the affidavits or declarations of a party opposing the motion that such

party cannot for reasons stated present by affidavit or declaration

facts essential to justify such party’s opposition, then the Court may

deny the motion or may order a continuance to permit affidavits or

declarations to be obtained or other steps to be taken or may make

such other order as is just. If it appears from the affidavits or

declarations of a party opposing the motion that such party’s only

legally available method of contravening the facts set forth in the

supporting affidavits or declarations of the moving party is through

cross-examination of such affiants or declarants or the testimony of

third parties from whom affidavits or declarations cannot be secured,

then such a showing may be deemed sufficient to establish that the

facts set forth in such supporting affidavits or declarations are

genuinely disputed.

We have no such affidavit or declaration in our record--only assertions by

petitioners’ counsel that facts they believe exist that would assist their claim have

not yet been discovered, and that they anticipate further discovery and, if

necessary, trial subpoenas for witnesses who may know such facts.

- 29 [*29] Although petitioners did not comply with the precise letter of Rule 121(e),

they did previously file a motion to compel, which the Court first granted and then

denied. Mr. Heller urged at the hearing and in prior proceedings before the Court

that further discovery should be permitted after resolution of the Commissioner’s

motion for summary judgment. Therefore we construe petitioners’ opposition to

include the assertion that they cannot sufficiently oppose the Commissioner’s

factual assertions without further discovery.

B.

Interest on Federal income tax liability

Interest on a Federal income tax underpayment arises automatically under

section 6601. Under section 6601(a) the interest “shall be paid for the period from

* * * [“the last date prescribed for payment”] to the date paid.”

Important to this case, section 6601(e)(1) provides that interest arising

under section 6601 is “treated as tax”; that is, it “shall be paid upon notice and

demand, and shall be assessed, collected, and paid in the same manner as taxes.

Any reference in this title * * * to any tax imposed by this title shall be deemed

also to refer to interest imposed by this section on such tax.”9

9

In text above we elide from the quotation of section 6601(e)(1) an

exception--“except subchapter B of chapter 63, relating to deficiency

procedures”--that is not relevant here.

- 30 [*30] A taxpayer whose liability is in dispute, and who therefore may (or may not)

be incurring a mounting interest obligation while the dispute is pending, has the

option of making a “deposit”. Under section 6603--effective since October 2004-a taxpayer may make a cash deposit before assessment toward “any tax imposed

under subtitle A or B or chapter 41, 42, 43, or 44 which has not been assessed at

the time of the deposit”; and “[t]o the extent that such deposit is used by the

Secretary to pay tax, for purposes of section 6601 (relating to interest on

underpayments), the tax shall be treated as paid when the deposit is made”.

Sec. 6603(a) and (b). Before the enactment of section 6603, the IRS had

prescribed administratively an equivalent method for taxpayers to make and

designate remittances to the IRS as “deposits in the nature of a cash bond” which

were “made merely to stop the running of interest” and not “in satisfaction of a tax

liability”. Rev. Proc. 84-58, secs. 1, 2.03, 1984-2 C.B. 501, 501 supplemented by

Announcement 86-114 (Nov. 24, 1986), 1986-47 I.R.B. 46 (specifying how a

partner in a partnership may make a deposit of tax or interest upon the issuance of

the FPAA), superseded by Rev. Proc. 2005-18, sec. 9, 2005-1 C.B. 798, 801

(“Rev. Proc. 84-58 is superseded, effective with respect to remittances made on or

after March 28, 2005”). Petitioners did not ever make such a deposit, either under

Rev. Proc. 84-58 or its successor or under section 6603. Viewing the facts in the

- 31 [*31] light most favorable to petitioners, we assume for purposes of the

Commissioner’s motion that the IRS did not specifically advise petitioners that

they could suspend the running of interest by making a deposit.

C.

Interest abatement

Congress authorized the IRS to abate interest for reasons specified in

section 6404, and the IRS’s decisions whether to abate interest are subject to

abuse-of-discretion review by this Court. See sec. 6404(h)(1);10 Woodral v.

Commissioner, 112 T.C. 19, 23 (1999); Foote v. Commissioner, T.C. Memo.

2015-187, at *15-*16, aff’d, 700 F. App’x 760 (9th Cir. 2017). With the

exception of this limited power of review over abatement, this Court generally

lacks jurisdiction over issues concerning interest. Urbano v. Commissioner, 122

T.C. 384, 390 (2004); see also Med James, Inc. v. Commissioner, 121 T.C. 147,

151 (2003).

1.

Interest abatement under section 6404(a) (“excessive in

amount”)

Section 6404(a)(1) empowers the IRS to abate the unpaid portion of the

assessment of any tax or any liability in respect thereof that is “excessive in

10

Section 6404(h), by cross-referencing section 7430(c)(4)(A)(ii), imposes a

“net worth” requirement on any taxpayer seeking review in the Tax Court. The

parties have stipulated that petitioners’ net worth meets that requirement.

- 32 [*32] amount”. However, section 6404(b) precludes abatement under section

6404(a)(1) of interest on income tax. Urbano v. Commissioner, 122 T.C. at 395.

That is, as we have observed, “what section 6404(a) gives, section 6404(b) takes

away (in certain circumstances).”11 Adams v. Commissioner, T.C. Memo. 201999, at *8-*9 (citing Urbano v. Commissioner, 122 T.C. at 390), aff’d, 811 F.

App’x 276 (5th Cir. 2020). This is so because section 6404(b) provides that a

taxpayer may not file a claim for abatement “in respect of any assessment of any

tax imposed under subtitle A or B.” As we explain below in part II.A, petitioners

have not persuaded us that we should alter our interpretation of the statute.

11

The text of these paragraphs is as follows:

(a) General rule.--The Secretary is authorized to abate the

unpaid portion of the assessment of any tax or any liability in respect

thereof, which-(1) is excessive in amount, or

(2) is assessed after the expiration of the period of

limitation properly applicable thereto, or

(3) is erroneously or illegally assessed.

(b) No claim for abatement of income, estate, and gift

taxes.--No claim for abatement shall be filed by a taxpayer in respect

of any assessment of any tax imposed under subtitle A or B.

- 33 [*33]

2.

Interest abatement under section 6404(e) (“ministerial” or

“managerial” error or delay)

Section 6404(e)(1)(A) authorizes the Commissioner to abate an assessment

of interest on “any deficiency attributable * * * to any unreasonable error or delay

by an officer or employee of the Internal Revenue Service * * * in performing a

ministerial or managerial act”. “Ministerial act means 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.” 26 C.F.R.

sec. 301.6404-2(b)(2), Proced. & Admin. Regs. A “[m]anagerial act” is “an

administrative act that occurs during the processing of a taxpayer’s case involving

the temporary or permanent loss of records or the exercise of judgment or

discretion relating to management of personnel.” Id. subpara. (1). A decision

concerning the proper application of Federal tax law is neither a managerial nor a

ministerial act. Id. para. (b).

The flush text of section 6404(e)(1) adds two caveats. First, an error or

delay is taken into account only after the IRS has contacted the taxpayer in writing

with respect to the deficiency or the payment. Sec. 6404(e)(1) (flush text). For

purposes of evaluating this requirement with respect to partnership items that are

- 34 [*34] subject to litigation in a TEFRA proceeding, the relevant date occurs when

the Commissioner first contacts the taxpayers in writing regarding the examination

of the partnership. See Larkin v. Commissioner, T.C. Memo. 2010-73, 2010 WL

1490588, at *3. Second, an error or delay is considered “only if” no significant

aspect of the error or delay is attributable to the taxpayer involved.

Sec. 6404(e)(1)(B). We have construed this “attributable to the taxpayer”

exclusion to mean that “no abatement is warranted where, notwithstanding a

mistake by the Commissioner, no earlier payment [of the tax] would have been

made.” See Braun v. Commissioner, T.C. Memo. 2005-221, 2005 WL 2293523,

at *5. This is so because “[i]nterest accruing merely because a taxpayer fails to

pay the assessed tax is not subject to abatement under section 6404(e).” Id.

In addition to these requirements, a request for abatement under section

6404(e) cannot be formulated as a broad request to waive all interest; rather, the

taxpayer must identify a mistake by the Commissioner and must also link the

mistake to a specific period of delay as to which interest should be abated. See

Hancock v. Commissioner, T.C. Memo. 2012-31, 2012 WL 311663, at *4 (citing

Hill v. Commissioner, T.C. Memo. 2009-39, Guerrero v. Commissioner, T.C.

Memo. 2006-201, and Braun v. Commissioner, T.C. Memo. 2005-221). The

“requisite correlation between an error or delay attributable to the Commissioner

- 35 [*35] and a specific period of time is, for the most part, missing where a taxpayer

requests that all interest with respect to the deficiencies be abated.” Braun v.

Commissioner, 2005 WL 2293523, at *5 (citing Donovan v. Commissioner, T.C.

Memo. 2000-220).

D.

Collection review procedure for a proposed levy

If a taxpayer fails to pay any Federal tax liability after notice and demand,

section 6331(a) authorizes the IRS to collect the tax by levy on the taxpayer’s

property. However, Congress has added to chapter 64 of the Code a provision (in

subchapter D, part I) entitled Due Process for Collections”, with which the IRS

must comply before it can proceed with a levy: The IRS must first issue a final

notice of intent to levy and must notify the taxpayer of the right to an

administrative hearing. Sec. 6330(a) and (b)(1). After receiving such a notice, the

taxpayer may request that administrative hearing, which is called a “CDP hearing”

and takes place before Appeals. Sec. 6330(a)(3)(B), (b)(1).

Section 6330(c) sets forth collection-related issues to be considered at the

agency-level CDP hearing, none of which is at issue here. Finally, in some

circumstances12 section 6330(c)(2)(B) permits the taxpayer to contest the existence

12

Section 6330(c)(2)(B) permits a liability challenge only if the taxpayer did

not receive a notice of deficiency or otherwise have an opportunity to dispute the

(continued...)

- 36 [*36] and amount of the underlying tax liability. The Commissioner

acknowledges that petitioners were entitled at the CDP hearing to dispute their

liability for interest by requesting an abatement. The parties agree that this was a

permissible liability challenge, and we so assume.13

E.

Tax Court review

When Appeals issues its determination, the taxpayer may petition the Court

for review, pursuant to section 6330(d)(1), as petitioners have done. Section 6330

does not state what our standard of review should be in CDP cases; but we have

taken our cue from legislative history, see Goza v. Commissioner, 114 T.C. 176,

181-182 (2000), and we follow an abuse-of-discretion standard in some

12

(...continued)

tax liability.

13

Perhaps one could argue that a dispute about the propriety of Appeals’

denying an abatement of interest is not a liability challenge but instead involves an

alleged failure of “verification” under section 6330(c)(1), or constitutes a

“challenge to the appropriateness of collection actions” under

section 6330(c)(2)(A)(ii), or is some other “relevant issue relating to the unpaid

tax or the proposed levy” under section 6330(c)(2)(A). We need not entertain

those possibilities, however, not only because the parties have agreed that this is a

liability challenge but also, and more important, because the principal

consequences of deciding whether an issue is or is not a liability challenge are also

agreed: Deciding whether an issue is a liability issue can affect whether the

challenge is permitted, and the parties agree that here the challenge is permitted.

Deciding whether an issue is a liability issue also usually affects what the Court’s

standard of review should be, and the standard of review here is not in contention.

See infra pt. I.E.

- 37 [*37] circumstances and a de novo standard in others: As to collection-related

issues other than the underlying liability, we review Appeals’ determination for

abuse of discretion, id.; but we have no collection-related issues in dispute here.

When an underlying tax liability is properly at issue, the taxpayer in a CDP case is

usually entitled to de novo review. Id. at 182. However, Appeals’ notice of

determination serves as its final determination on the matter of abatement under

section 6404(h). See Gray v. Commissioner, 138 T.C. 295, 303-305 (2012),

supplemented by 140 T.C. 163 (2013). As we observed in part I.C, section

6404(h)(1) empowers us “to determine whether the Secretary’s failure to abate

interest under this section was an abuse of discretion”. (Emphasis added.)

Applying that abuse-of-discretion standard, we decide whether the

determination was arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006).

II.

Analysis

A.

Abatement under section 6404(a)

The Commissioner contends that SO Edwards’s decision to deny abatement

on equitable grounds under section 6404(a) was neither arbitrary nor capricious,

nor did it lack sound basis in law, because “[t]he disputed interest was assessed on

- 38 [*38] the correct principal amount, and was not assessed erroneously or at

usurious rates”, and (more germane to petitioners’ arguments) because SO

Edwards did not misapply the law. In the supplemental notice of determination he

determined that petitioners did not meet the legal criteria for abatement under

section 6404(a); and the Commissioner argues that regardless of his precise

reasoning--i.e., whether he so concluded because of “the lack of a clear equitable

legal standard” or, as petitioners contend, he erroneously applied a “but-for” test

to determine entitlement to relief under section 6404(a)--his conclusion was

correct and was therefore not an abuse of discretion. We have previously held that

Appeals cannot abuse its discretion where it declines to authorize abatement of

interest that the statute itself does not authorize. See Woodral v. Commissioner,

112 T.C. at 21-25 (holding that section 6404(e) does not authorize abatement for

interest on employment taxes and that “a person with no discretion simply cannot

abuse it”). Accordingly, we turn to the merits of the parties’ arguments regarding

whether section 6404(a) authorizes the IRS to abate interest assessed on income

tax.

Petitioners rely on our opinions in King v. Commissioner, T.C. Memo.

2015-36, and H. & H. Trim & Upholstery Co. v. Commissioner, T.C. Memo.

2003-9, for the proposition that section “6404(a) [provides] grounds for interest

- 39 [*39] abatement when interest is excessive, * * * defined [in King] as “unfair[]

under all facts and circumstances”. But these cases involved assessments of

employment tax pursuant to sections 3102 and 3402 (in subtitle C), not

assessments of income tax under subtitle A (explicitly excluded from

section 6404(a) by section 6404(b)(1)). Moreover, because employment taxes are

not eligible for abatement under section 6404(e), see Woodral v. Commissioner,

112 T.C. at 25, the primary issue in these opinions was whether abatement could

be obtained for employment taxes under section 6404(a). These opinions are thus

inapposite where, as here, petitioners seek an abatement of interest on income tax.

The Commissioner argues that, consistent with our holdings in Urbano v.

Commissioner, 122 T.C. 384, Adams v. Commissioner, T.C. Memo. 2019-99,

Kersh v. Commissioner, T.C. Memo. 2009-260, and Corson v. Commissioner,

T.C. Memo. 2009-95, “section 6404(b) * * * is a categorical bar to the application

of section 6404(a)(1) in all cases pertaining to interest on the assessment of

income taxes”. But petitioners urge that these cases

have generally quickly disposed of Subsection A arguments

contesting interest in income tax cases. However, it is Petitioners’

position that prior decisions were based on a misinterpretation of the

statute. * * *

- 40 [*40] [A] plain reading of Subsection B (and Treas. Reg. § 301.64041(b)[14]) provides taxpayers are generally barred from filing claims for

abatements of taxes imposed under subtitle A (i.e., income tax

principal).

Petitioners argue that the statutory phrase in section 6404(b) “in respect of any

assessment of any tax imposed under subtitle A or B” (emphasis added) means any

assessment of tax only, and that the “silence regarding ‘interest’ controls since

Congress used the phrase ‘assessment of any tax or any liability in respect

thereof’” in section 6404(a). We disagree.

Section 6601(e)(1) provides, with limited exceptions inapplicable here, that

any reference in the Code to any “tax” imposed by the Code “shall be deemed also

to refer to interest imposed by this section on such tax”. Sec. 6601(e)(1).

14

To establish that “tax” means “only tax” and that to implicate interest

requires an explicit statement regarding “interest”, petitioners quote from and

emphasize portions of this regulation as follows:

(b) No claim for abatement may be filed with respect to

income, estate, or gift tax.

(c) Except in case of income, estate, or gift tax, if more than the

correct amount of tax, interest, additional amount, addition to the tax,

or assessable penalty is assessed but not paid to the district director,

the person against whom the assessment is made may file a claim for

abatement of such overassessment.

26 C.F.R. sec. 301.6404-1, Proced. & Admin. Regs. (emphasis added by

petitioners).

- 41 [*41] Applying this principle, we have held that the prohibition of section 6404(b)

that “[n]o claim for abatement shall be filed by a taxpayer in respect of any

assessment of any tax imposed under subtitle A or B” (emphasis added) means

that Congress did not authorize abatement for any tax imposed under subtitle A or

B or for any interest imposed on that tax. Urbano v. Commissioner, 122 T.C.

at 395; see also Goettee v. Commissioner, 192 F. App’x 212, 217 (4th Cir. 2006)

(“Because the excess interest at issue is a liability ‘in respect of’ an income tax

assessment, and because income tax assessments are specifically barred from

consideration, the Tax Court correctly refused to consider the Goettees’ claim

under Section 6404(a).”), aff’g 124 T.C. 286 (2005), and T.C. Memo. 2003-43.

We find similarly unavailing petitioners’ arguments regarding the text of the

regulations that implement section 6404. It is true that, as in the statute itself, only

“tax” is mentioned in the statement of the bar against abatement in 26 C.F.R.

section 301.6404-1(b), Proced. & Admin. Regs. (“No claim for abatement may be

filed with respect to income, estate, or gift tax”). And petitioners point to a

supposed distinction between “tax” and “tax * * * [and] interest” in the description

of the allowance of abatement in section -1(c), which states:

(c) Except in case of income, estate, or gift tax, if more than the

correct amount of tax, interest, additional amount, addition to the tax,

or assessable penalty is assessed but not paid to the district director,

- 42 [*42] the person against whom the assessment is made may file a claim for

abatement of such overassessment. * * * [Emphasis added.]

However, the regulations repeat the provision of section 6601(e) of the

statute to the effect that interest is treated as tax. See 26 C.F.R.

sec. 301.6601-1(f)(1), Proced. & Admin. Regs.15 Not surprisingly, the regulations

follow the statute in construing “tax” to include interest on that tax. If “tax” is

“deemed also to refer to interest imposed * * * on such tax”--as the statute, see

sec. 6601(e)(1), and the regulation, see sec. 301.6601-1(f)(1), Proced. & Admin.

Regs., both provide--then a bar on the abatement of “income tax” and an

allowance of abatement that excepts “income tax” necessarily bars and excepts the

“interest imposed” on income tax.

Appeals cannot abuse its discretion by declining to do something as to

which Congress did not confer discretion, Woodral v. Commissioner, 112 T.C.

at 25; and section 6404(a) does not give the IRS discretion to abate interest on

15

26 C.F.R. section 301.6601-1(f)(1), Proced. & Admin. Regs., provides:

Any interest prescribed by section 6601 shall be assessed and

collected in the same manner as tax and shall be paid upon notice and

demand by the district director or the director of the regional service

center. Any reference in the Code (except in subchapter B, chapter

63, relating to deficiency procedures) to any tax imposed by the Code

shall be deemed also to refer to the interest imposed by section 6601

on such tax. * * * [Emphasis added.]

- 43 [*43] income tax. Accordingly, we will grant the Commissioner’s motion as it

relates to any abatement of interest under section 6404(a).

B.

Abatement under section 6404(e)

Viewing the facts in the light most favorable to petitioners, we assume that

they requested abatement under section 6404(e) for the period constituting the

nearly 13-year duration--from June 27, 2000, through April 1, 2013--of the

TEFRA litigation by the Heritage partnerships.16 We note that the record before

us does not reveal the date on which the Commissioner first contacted petitioners

in writing regarding the examination of the Heritage partnerships’ returns, see sec.

6404(e), but we assume for purposes of summary judgment that it occurred before

the commencement of the TEFRA litigation.

16

Though petitioners now also complain about the delay caused by the CDP

proceeding before SO Raygosa in which she incorrectly concluded they could not

raise the issue of interest abatement and allege additional periods of delay in SO

Edwards’s processing of the case on remand, these issues were not properly placed

before SO Edwards and therefore do not constitute a determination that we are

authorized to review. See Giamelli v. Commissioner, 129 T.C. 107, 114 (2007)

(“[I]ssues under section 6330 must have been raised properly when the Appeals

officer made her determination before we can review those issues in the context of

an appeal of that determination”). And the same applies under section 6404. See

Foote v. Commissioner, T.C. Memo. 2015-187, at *16-*17, aff’d, 700 F. App’x

760 (9th Cir. 2017).

- 44 1.

[*44]

Failure to advise of the opportunity to make a “deposit”

We first address petitioners’ argument that the Commissioner’s failure to

inform them of the opportunity to suspend the running of interest by making a

“deposit” constituted an act of “delay” within the meaning of section 6404(e).

SO Edwards found no evidence that such a “failure” occurred, and moreover

concluded that “the statute doesn’t provide for interest abatement when the IRS

doesn’t advise the Taxpayer to post a bond.” Although (as we have assumed) the

Commissioner did not specifically advise petitioners of the opportunity to post a

cash bond, the IRS has since 1984--long before the years at issue--published

guidance advising all taxpayers of the opportunity to remit to the IRS a deposit in

the nature of a cash bond and (relevant here) has also advised how to do so before

the assessment of the tax upon which interest may be assessed. The accrual of

such interest could be reduced or eliminated by following those procedures. See

Rev. Proc. 84-58, supra, and other published guidance referenced supra part I.B.

Because this information was available to the public, petitioners’ failure to make a

deposit to halt interest accrual cannot be attributed to delay or failure of the IRS to

advise them personally of this information.17 The supposed absence of a personal

17

The Commissioner does not contend that his motion should be granted

because the undisputed facts of record demonstrate that petitioners, in the absence

(continued...)

- 45 [*45] invitation to make a deposit did not give rise to an abuse of discretion when

SO Edwards determined that section 6404(e) does not provide for interest

abatement under such circumstances.

2.

Delay during criminal proceedings

SO Edwards observed (and petitioners do not dispute) that the criminal

proceedings against the conspirators involved in the Heritage partnerships did not

conclude until 2009 (though he did not give a precise date, nor does the record

reveal one). Petitioners argue that the entire duration of the 2000-2013 civil

TEFRA litigation–which, from 2001-2009, was concurrent with the criminal

proceedings--constituted an unreasonable delay. But “[b]road allegations

regarding a lack of timeliness and accuracy” are generally insufficient to identify

an error or delay arising from a ministerial or managerial act of the IRS. Bartelma

v. Commissioner, T.C. Memo. 2005-64, 2005 WL 713798, at *3.

With respect to pending litigation, it is well established that “[t]he mere

passage of time in the litigation phase of a tax dispute does not establish error or

17

(...continued)

of any alleged delay, would nonetheless have failed to pay the liabilities as

required by section 6404(e)(1); and we assume for purposes of the

Commissioner’s motion that petitioners would have paid the liabilities, consistent

with their allegation throughout the CDP proceedings that they would pay the

liabilities once their request for interest abatement was addressed.

- 46 [*46] delay” under section 6404(e). Lee v. Commissioner, 113 T.C. 145, 150

(1999). And delay during civil litigation that is the result of the Commissioner’s

strategy to first dispose of criminal proceedings “necessarily require[s] the

exercise of judgment” and therefore cannot constitute a ministerial act. Id. at 150151; see also Taylor v. Commissioner, 113 T.C. 206, 211-212 (1999) (explaining

the reasons for the IRS’s longstanding policy “to defer civil assessment and

collection until the completion of criminal proceedings” (quoting Badaracco v.

Commissioner, 693 F.2d 298, 302 (3d Cir. 1982), rev’g T.C. Memo. 1981 404,

aff’d, 464 U.S. 386 (1984)), aff’d, 9 F. App’x 700 (9th Cir. 2001); Dadian v.

Commissioner, T.C. Memo. 2004-121, 2004 WL 1118291, at *4 (holding that

denial of interest abatement was not abuse of discretion with respect to period of

delay caused by a related criminal investigation of tax shelter promoter).

Nor does that exercise of judgment constitute a “managerial act” as

contemplated by the statute.18 See Adams v. Commissioner, at *11 n.6; see also

26 C.F.R. sec. 301.6404-2(b)(1) (“Managerial act means an administrative act that

18

Section 6404(e) was amended in 1996, effective only for tax years

beginning after July 30, 1996, to allow relief from interest that piles up because of

“managerial acts” by the IRS. Taxpayer Bill of Rights 2, Pub. L. No. 104-168,

sec. 301(a)(2), 110 Stat. at 1457 (1996). As a result, much of our jurisprudence in

this area evaluates only whether there was a “ministerial act” within the meaning

of section 6404(e).

- 47 [*47] occurs during the processing of a taxpayer’s case involving the temporary or

permanent loss of records or the exercise of judgment or discretion relating to

management of personnel”). Regulatory examples of delay due to managerial acts

that may constitute grounds for abatement include delays in an audit due to the

reassignment of IRS personnel working on the audit, an extended grant of sick

leave to IRS personnel without reassigning the case, and the IRS’s act of

misplacing a case file. See 26 C.F.R. sec. 301.6404-2(c), Examples (4), (5),

and (6). The decision to delay the processing of a taxpayer’s case pending the

completion of an audit of a related return--such as one involving a tax shelter in

which the taxpayer invested--is classified as a “general administrative decision”

which constitutes neither a ministerial nor managerial act. Id. Example (7). We

therefore hold that the Commissioner is entitled to summary judgment under

section 6404(e) for the period from the commencement of the TEFRA litigation

until the conclusion of the criminal proceedings in 2009.

3.

Post-criminal proceeding delay during TEFRA litigation

a.

February 2009 through August 2012

As to the remaining period of the Heritage partnerships’ TEFRA litigation,

the record establishes that a new TMP was appointed pursuant to the

Commissioner’s motion in February 2009, and therefore any allegation of delay on

- 48 [*48] the part of the IRS relating to this appointment would have coincided with

the criminal litigation, the pendency of which precludes entitlement to abatement

for the reasons stated above in part II.B.2. In June 2010 the Heritage partnerships

obtained new counsel who immediately began actively litigating their cases by

engaging in discovery and eventually filing a motion for partial summary

judgment in May 2012. That motion was denied in late July 2012. Mere weeks

later on August 7, 2012, the parties filed the stipulations which ultimately formed

the basis of their settlement. Because the record shows that the passage of time

during this stage of the litigation was due to affirmative litigation efforts of the

Heritage partnerships (and not the IRS), we will grant the Commissioner’s motion

for summary judgment under section 6404(e) as to the period from the end of the

criminal proceedings until August 7, 2012.

b.

August 2012 through January 2013

There is only one period for which we cannot rule out the existence of the

type of managerial or ministerial act that could constitute unreasonable delay

under section 6404(e), and that is the period from the date of the stipulations on

August 7, 2012, until the Commissioner filed his second motion for entry of

decision (after voluntarily withdrawing the first) on January 2, 2013. It appears

from the pleadings in the Heritage partnership cases that some delay occurred that

- 49 [*49] was not clearly due to ongoing litigation efforts or litigation strategy; what

is not apparent is whether such delay constituted a managerial or ministerial act of

the type contemplated by section 6404(e). We have previously held that the IRS’s

nearly five-year delay in the counter-signing of a settlement agreement during the

pendency of partnership litigation constituted an unreasonable delay due to a

ministerial act of the IRS, see Mathia v. Commissioner, T.C. Memo. 2009-120,

2009 WL 1471716, at *15-*17, aff’d, 669 F.3d 1080 (10th Cir. 2012); and we

cannot say whether the shorter delay in this case had the same defect.

It is not apparent that SO Edwards considered this nearly 5-month period

from August 7, 2012, until January 2, 2013, in his evaluation of petitioners’ claim

under section 6404(e). Because we draw all inferences in favor of petitioners and

because we have concluded that they have opposed the Commissioner’s motion

for summary judgment on the basis that they lack affirmative facts necessary to

create a factual dispute, we will not grant the Commissioner’s motion for summary

judgment as to this limited time period. Rather, we will allow further discovery

related to potential delay in entry of the stipulated decisions in the Heritage

partnership cases, limited to this five-month period: August 7, 2012, through

January 2, 2013.

- 50 [*50]

c.

January 2013 through April 2013

The continued pendency of the case from January 2, 2013, until the entry of

decisions on April 1, 2013, was not a product of any action of the IRS but was

rather a function of the time periods required under Rule 248(b). Therefore,

Appeals did not abuse its discretion when it denied abatement under section

6404(e) for interest assessed during that time.

Conclusion

For the reasons stated in this opinion, we will grant the Commissioner’s

motion for summary judgment in part, holding that Appeals did not abuse its

discretion when it declined to offer any collection alternatives, that Appeals did

not abuse its discretion when it denied abatement under section 6404(a), and that

Appeals did not abuse its discretion when it denied abatement under section

6404(e) because of the Commissioner’s supposed failure to inform petitioners of

the opportunity to suspend the running of interest by making a “deposit”, nor when

it denied abatement for the period other than from August 7, 2012, through

January 2, 2013. As to that nearly five-month period, we will deny the

Commissioner’s motion for summary judgment and will order further proceedings.

- 51 [*51] To reflect the foregoing,

An appropriate order will be

issued.