UNITED STATES TAX COURT
Agency decision
Ask Donna
What actually matters in this document.
Text
77
so
T.C. Memo. 2020-38
UNITED STATES TAX COURT
RONALD M. GOLDBERG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14294-13L.
Filed April 2, 2020.
Ronald M. Goldberg, for himself.
Michael T. Shelton, for respondent.
CONTENTS
MEMORANDUM FINDINGS OF FACT AND OPINION . . . . . . . . . . . . . . . . . . 8
I.
Issues for decision ............................................ 10
II.
The Form-4549-as-a-contract argument . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
III.
Interest abatement ............................................ 50
SERVED Apr 02 2020
-2[*2] A.
The Goldbergs' 2004 income-tax return and the early stages of the
examination of their 2004 income-tax return . . . . . . . . . . . . . . . . . . 55
B.
C.
Period 1: September 12-20, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
1.
Introduction....................................... 60
2.
Events ........................................... 61
3.
Analysis and holding................................ 62
Period 2: September 20-27, 2007.. . . . . ....... . . . . . . ........ 63
1.
Introduction....................................... 63
2.
Events ........................................... 63
3.
Analysis and holding... . . ..... . .. . . . ...... . . . . . . . . . . 66
D.
Intermediary period: September 28 through November 30, 2007 . . 67
E.
Period 3: December 1, 2007, through January 31, 2008 . . . . . . . . . 68
F.
1.
Introduction....................................... 68
2.
Events ........................................... 68
3.
Analysis and holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Period 4: January 31 through March 11, 2008. . . . . . . . . . . . . . . . . 71
1.
Introduction....................................... 71
2.
Events ........................................... 72
-3[*3]
3.
G.
Analysis and holding................................ 73
Period 5: March 11 through April 28, 2008. . . . . . . . . . . . . . . . . . . 74
1.
Introduction....................................... 74
2.
Events ........................................... 74
3.
Analysis and holding................................ 77
H.
Intermediary period: April 29 through July 17, 2008 . . . . . . . . . . . 78
I.
Period 6: July 18-30,2008................................ 81
1.
Introduction....................................... 81
2.
Events ........................................... 82
3.
Analysis and holding................................ 82
J.
Intermediary period: July 31 through August 7, 2008 . . . . . . . . . . . 83
K.
Period 7: August 8-16,2008............................... 84
1.
Introduction....................................... 84
2.
Events ........................................... 85
3.
Analysis and holding................................ 86
L.
Intermediary period: August 17-26, 2008 . . . . . . . . . . . . . . . . . . . . 88
M.
Period 8: August 27 through September 4, 2008 . . . . . . . . . . . . . . . 88
1.
Introduction....................................... 88
-4[*4]
N.
O.
2.
Events ........................................... 88
3.
Analysis and holding................................ 90
Period 9: September4-22,2008............................ 91
1.
Introduction....................................... 91
2.
Events ........................................... 92
3.
Analysis and holding................................ 95
Period 10: September23-25,2008.......................... 96
1.
Introduction....................................... 96
2.
Events ........................................... 97
3.
Analysis and holding................................ 98
P.
Intermediary period: September 26-28, 2008. . . . . . . . . . . . . . . . . . 99
Q.
Period 11: September 29 through November 13, 2008 . . . . . . . . . 100
R.
1.
Introduction...................................... 100
2.
Events .......................................... 100
3.
Analysis and holding............................... 103
Intermediary period: November 14, 2008, through
May28,2009.......................................... 105
S.
Period 12: May 29 through June 8, 2009 . . . . . . . . . . . . . . . . . . . . 107
-5[*5]
1.
Introduction...................................... 107
2.
Events .......................................... 107
3.
Analysis and holding............................... 109
T.
Intermediary day: June 9,2009. .......................... 111
U.
Period 13: June 10-15,2009.............................. 111
1.
Introduction...................................... 111
2.
Events .......................................... 112
3.
Analysis and holding............................... 112
V.
Intermediary period: June 16-19, 2009 . . . . . . . . . . . . . . . . . . . . . 115
W.
Period 14: June 20 through July 27, 2009 . . . . . . . . . . . . . . . . . . . 116
X.
Y.
1.
Introduction...................................... 116
2.
Events .......................................... 117
3.
Analysis and holding............................... 118
Period 15: July 27, 2009, through August 9, 2010. . . . . . . . . . . . . 119
1.
Introduction...................................... 119
2.
Events .......................................... 120
3.
Analysis and holding............................... 121
Intermediary period: August 10 through November 14, 2010. . . . 122
-6[*6]
Z.
Period 16: November 15 through December 8, 2010. . . . . . . . . . . 122
1.
Introduction...................................... 123
2.
Events .......................................... 124
3.
Analysis and holding............................... 124
AA. Period 17: December 8, 2010, through January 3, 2011 . . . . . . . . 125
1.
Introduction...................................... 125
2.
Events .......................................... 126
3.
Analysis and holding............................... 131
BB.
Intermediary period: January 4-6, 2011 . . . . . . . . . . . . . . . . . . . . . 133
CC.
Period 18: January 7-10, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
1.
Introduction...................................... 134
2.
Events .......................................... 134
3.
Analysis and holding............................... 136
DD. Intermediary period: January 1 1-12, 2011 . . . . . . . . . . . . . . . . . . . 137
EE.
Period 19: January 13 through February 15, 201 1 . . . . . . . . . . . . . 137
1.
Introduction...................................... 137
2.
Events .......................................... 138
3.
Analysis and holding............................... 139
-7[*7]
FF.
Intermediary period: February 16 through March 28, 2011 . . . . . 140
GG. Period 20: March 29 through April 15, 201 1 . . . . . . . . . . . . . . . . . 141
1.
Introduction...................................... 141
2.
Events .......................................... 142
3.
Analysis and holding............................... 143
HH. Intermediary period: April 16-28, 201 1 . . . . . . . . . . . . . . . . . . . . . 144
II.
Period 21: April 29 through August 23, 2011 . . . . . . . . . . . . . . . . 145
JJ.
Period 22: August 24, 2011, through June 26, 2013 . . . . . . . . . . . 147
1.
Introduction...................................... 147
2.
Events .......................................... 147
a.
Final notice of intent to levy and Goldberg's claim
for interest abatement . . . . . . . . . . . . . . . . . . . . . . . . . 148
3.
b.
Contact with Taxpayer Advocate Service . . . . . . . . . 149
c.
IRS files notice of lien . . . . . . . . . . . . . . . . . . . . . . . . 150
d.
Collection-due-process proceedings. . . . . . . . . . . . . . 151
e.
Notice of determination . . . . . . . . . . . . . . . . . . . . . . . 153
Analysis and holding............................... 155
a.
Whether remand is appropriate. . . . . . . . . . . . . . . . . . 156
-8[*8]
IV.
b.
Whether Goldberg is entitled to interest abatement . . 158
Conclusion................................................. 162
MEMORANDUM FINDINGS OF FACT AND OPINION
MORRISON, Judge: On November 1, 2012, the respondent (referred to
here as the IRS) issued to the petitioner, Mr. Ronald M. Goldberg, a notice that it
had filed a notice of lien on his property to help collect his 2004 income-tax
liabilities. Goldberg timely requested a collection-due-process hearing, also
known as a CDP hearing. The IRS Office of Appeals held the hearing and issued
a determination sustaining the lien-notice filing. Goldberg filed a timely petition
with this Court. When he filed his petition, Goldberg was a resident of Illinois.
The Court remanded the case to the Office of Appeals for it to consider
Goldberg's claims for interest abatement. After a supplemental hearing, the Office
of Appeals issued a supplemental detennination rejecting Goldberg's claims for
interest abatement. The Court then held a trial. Our jurisdiction over this case is
established by section 6330(d)(1).¹
¹Unlessotherwise indicated, all references to sections are to the Internal
Revenue Code of 1986, as amended and in effect at the relevant times. All
(continued...)
-9[*9] Our opinion addresses Goldberg's arguments that the Office of Appeals
made various errors in its determination and supplemental determination. The IRS
conceded on post-trial brief that Goldberg is entitled to interest abatement for the
period from April 29 through August 23, 2011 (Period 21). Because of this
concession, we hold that Goldberg is entitled to interest abatement for that period.
Other than that, we sustain the Office of Appeals' determination, as supplemented.
This opinion is divided into four parts. In part I, we determine what issues
to resolve in this case. We conclude that we will resolve only two issues: (1)
whether the Form 4549, "Income Tax Examination Changes", prepared by the IRS
in April 2011 and signed by Goldberg and his wife in May 2011 (which we refer
to as the May 2011 Form 4549) was a binding contract between the IRS and the
Goldbergs under which the Goldbergs owed no interest for the 2004 tax year and
(2) whether Goldberg is entitled to abatement of interest under section 6404(e)(1).
We resolve the first issue in part II, holding that the May 2011 Form 4549 is not a
binding contract under which the Goldbergs owed no interest for 2004, and the
second issue in part III, holding that Goldberg is not entitled to abatement of
interest except for the period stated above. In part IV, we conclude the opinion by
¹(...continued)
references to Rules are to the Tax Court Rules of Practice and Procedure.
- 10 [*10] summarizing our holding that the notice of determination is sustained, as
supplemented, with the exception of the conceded period (Period 21).
I.
Issues for decision
In this part we determine what issues are to be resolved by the Court. For
an initial cut of what issues are to be resolved, we consult Goldberg's briefs. That
is because, as a general rule, a party must raise an issue on brief for the issue to be
properly raised for the Court's consideration. Rule 151(e)(4) and (5). Goldberg
makes the following six arguments:
First, Goldberg argues that his income-tax liability for 2004 must be
determined by a stipulation of settled issues in Captain Douglas J. Brown, Inc. v.
Commissioner, T.C. Dkt. No. 30453-08 (Apr. 29, 2011). As we explain below,
though, we have already considered and rejected his argument in a prior order.
S_e_e infra pt. I, pp. 37-38.
Second, Goldberg argues that the May 2011 Form 4549 is a binding
contract under which the Goldbergs owe no interest for the 2004 tax year. We
consider this argument to be properly before the Court. See infra pt. I, pp. 38-39.
Third, Goldberg argues that the May 2011 Form 4549 entitles him to relief
under a theory of promissory estoppel. As we explain below, though, this issue is
not properly before the Court. See infra pt. I, pp. 39-40.
- 11 [*11] Fourth, Goldberg argues that the May 2011 Form 4549 equitably estopped
the IRS from assessing interest on his 2004 income-tax liability. As we explain
below, though, this issue is not properly before the Court. See infra pt. I,
pp. 39-40.
Fifth, Goldberg argues that the May 2011 Form 4549 should be voided
because he and his wife were induced to sign it through fraud or
misrepresentation. As we explain below, though, this issue is not properly before
the Court. See infra pt. I, pp. 39-40.
Sixth, Goldberg argues that he is entitled to abatement of interest under
section 6404(e)(1). As we explain below, this issue is properly before the Court.
S_e_e infra pt. I, p. 39.
Goldberg's arguments involve various legal principles. Over the next few
pages we discuss these legal principles generally. See infra pt. I, pp. 11-19. A
good starting point is the principle that the IRS cannot collect a tax until it has
made an assessment of the tax. See sec. 6502(a) (assessment is precondition for
imposing levy); sec. 6322 (assessment results in lien); Jordan v. Commissioner,
134 T.C. 1, 12 (2010), supplemented by T.C. Memo. 2011-243; 1 Gerald A.
Kafka, Rita A. Cavanagh & Sean M. Akins, Litigation of Federal Civil Tax
Controversies, para. 3.01, at 3-2 (2d ed. 2016) ("No tax may be collected by the
- 12 [*12] Service until after it has been assessed."); 1 Laurence F. Casey, Federal Tax
Practice, sec. 2.01, at 2-3 to 2-4 (Supp. 2019). The authority of the IRS to assess
is subject to statutory restrictions designed to protect taxpayers. Under section
6501(a), the IRS cannot assess tax more than three years after the return was filed.2
Under section 6213(a), the IRS cannot assess a deficiency--generally the amount
of unreported tax--unless the IRS first mails the taxpayer a notice of deficiency.
S_e_e sec. 6211(a) (defining "deficiency" as the correct tax, minus the tax reported,
with certain exceptions not relevant here). The notice of deficiency gives the
taxpayer the right to file a Tax Court petition to redetermine the amount of the
deficiency. Secs. 6213(a), 6214(a).
At the close of an IRS examination, the revenue agent commonly prepares a
report of the examination's findings. A Form 4549 is sometimes used for this
report (or for a portion of the report). The Form 4549 has spaces for the revenue
agent to enter the taxes, penalties, and interest determined as a result of the IRS
examination. The form is worded such that if the taxpayer signs the form, the
taxpayer agrees to the immediate assessment and collection of any increase to
taxes and penalties therein, plus the interest statutorily imposed on them. Thus, a
2But if the return was filed early, the three-year period starts with the due
date of the return. Sec. 6501(b)(1).
- 13 [*13] taxpayer signing the Form 4549 waives the section 6213(a) prohibition on
the IRS's assessing a tax deficiency without the mailing of a notice of deficiency.
S_e_e sec. 6213(d) (stating that taxpayers may waive restrictions on assessment
provided in sec. 6213(a)). A taxpayer signing the Form 4549 also waives "appeal
rights with the Internal Revenue Service" and the right "to contest in the United
States Tax Court the findings in this report." See Aguirre v. Commissioner, 117
T.C. 324, 327 (2001).
Assessment of tax by the IRS automatically creates a lien on the taxpayer's
property in favor of the United States. Sec. 6322. To establish the priority of the
tax lien against certain other types of creditors, the IRS may file a notice of lien.
Sec. 6323(a), (f). After filing a notice of lien, the IRS is required to give notice to
the taxpayer giving the taxpayer the right to a CDP hearing with the Office of
Appeals. Sec. 6320(a)(1), (3). Both the lien and the notice of lien assist the IRS
in collecting the tax.
The IRS can collect an assessed tax by levy. Secs. 6502(a), 6331(a). Before
it makes the levy, the IRS must give the taxpayer notice of the proposed levy. Sec.
6330(a)(1), (b)(1). This notice gives the taxpayer the right to request a CDP
hearing. Id. A CDP hearing, whether held in conjunction with a levy or the filing
of a notice of lien, is governed by section 6330(c). See sec. 6320(c). Section
- 14 [*14] 6330(c) sets forth the matters to be considered at the CDP hearing. Sec.
6320(c). Section 6330(c)(2)(B) provides that the taxpayer may raise at the hearing
challenges to the existence or amount of the underlying tax liability the IRS is
seeking to collect if the taxpayer did not receive a notice of deficiency or did not
otherwise have an opportunity to dispute such tax liability. Sec. 6320(c).
After a CDP hearing, the Office of Appeals makes a determination. M sec.
6330(c)(3). Section 6330(d)(1) provides that the person may file a Tax Court
petition within 30 days of the notice of determination. The Tax Court then has
jurisdiction to review the determination. M.
In appropriate circumstances, the Tax Court may remand a CDP case to the
Office of Appeals for it to make a supplemental determination. The Tax Court has
jurisdiction to review the determination as supplemented. See LG Kendrick, LLC
v. Commissioner, 146 T.C. 17, 36 (2016), affd, 684 F. App'x 744 (10th Cir.
2017); Kelby v. Commissioner, 130 T.C. 79, 87-88 (2008).
Section 6601(a) provides that interest accrues on any underpayment of tax.
Interest begins to accrue on the date that payment was due. Section 6601(g)
provides that interest "may be assessed and collected at any time during the period
within which the tax to which such interest relates may be collected." Under
section 6502(a)(1), the period of limitations on the collection of tax begins on the
- 15 [*15] date the IRS assesses the tax. Section 6502(a)(1) and section 6601(g) in
combination form the following rule: the assessment of interest may occur only
after the assessment of "the tax to which such interest relates". See also Field v.
United States, 381 F.3d 109, 113 (2d Cir. 2004) ("Since the IRS's assessment of
interest against * * * [the taxpayer-plaintiff] coincided with the commencement of
the collection period, the assessment [of the interest] was no doubt timely."); Priv.
Ltr. Rul. 201319017 (May 10, 2013) ("[T]he Service cannot assess additional
interest on * * * [a] tax liability that was never actually assessed."). By executing
a Form 4549, a taxpayer consents to the immediate assessment and collection of
the tax and the interest to which the tax relates. Aguirre v. Commissioner, 117
T.C. at 327.
Section 6404(e)(1) provides that the IRS may abate assessed interest under
certain conditions that we discuss infra part III. Section 6404(e)(2) provides that
the IRS may abate interest under other conditions not relevant to this case.
Section 6404(h)(1) provides that the Tax Court has jurisdiction over any action
brought by a taxpayer to determine whether the IRS's failure to abate interest
under section 6404(e), including section 6404(e)(1), was an abuse of discretion.
Two prerequisites for jurisdiction under section 6404(h)(1) are (1) the taxpayer's
net worth must not exceed the relevant ceiling, and (2) the action must be brought
- 16 [*16] within 180 days after the date of the mailing of the IRS's final determination
not to abate interest.
As we observed above, in a CDP hearing a taxpayer is permitted to bring a
challenge to the existence and amount of the underlying tax liability the IRS is
seeking to collect through the levy (or the lien-notice filing) that triggered the
CDP hearing. See sec. 6330(c)(2)(B). If the IRS is seeking to collect interest,
then the taxpayer in a CDP hearing can challenge the liability for interest. Urbano
v. Commissioner, 122 T.C. 384, 390 (2004); Montgomery v. Commissioner, 122
T.C. 1, 8 (2004). A challenge to liability for interest can be premised on the
interest-abatement provisions of section 6404(e)(1). See Urbano v.
Commissioner, 122 T.C. at 390; Katz v. Commissioner, 115 T.C. 329, 339 (2000).
The regulations interpreting section 6330 provide that a "taxpayer can only
ask the court to consider an issue, including a challenge to the underlying tax
liability, that was properly raised in the taxpayer's CDP hearing." Sec.
301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs. An issue is properly raised if
the taxpayer requests consideration of the issue by the Office of Appeals and
presents evidence with respect to that issue after being given a reasonable
opportunity to present such evidence. Id.; see also Giamelli v. Commissioner, 129
T.C. 107, 114-115 (2007).
- 17 [*17] In evaluating a determination by the Office of Appeals after a CDP hearing,
the Court's general standard of review for evaluating challenges to the underlying
tax liability is de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000); see
a_lso Perkins v. Commissioner, 129 T.C. 58 (2007); Downing v. Commissioner,
118 T.C. 22, 29 (2002). The underlying tax liability is the liability the IRS is
seeking to collect through the collection action that triggered the taxpayer's right
to request a CDP hearing. Klein v. Commissioner, 149 T.C. 341, 348-349 (2017).
Thus, if the IRS is seeking to collect interest, then interest is the underlying
liability. A taxpayer's challenge to its underlying tax liability is generally
reviewed de novo. Urbano v. Commissioner, 122 T.C. at 393. This rule admits of
an exception when the taxpayer's challenge to interest liability is premised on the
interest-abatement provisions of section 6404(e)(1). In such an instance, we have
reviewed the determination of the Office of Appeals for abuse of discretion. See
Downing v. Commissioner, 118 T.C. at 30; Krehnbrink v. Commissioner, T.C.
Memo. 2019-56, at *17, appeal filed (6th Cir. Aug. 26, 2019); Estate of La Sala v.
Commissioner, T.C. Memo. 2016-42, at *16-*17. Reviewing for abuse of
discretion in that instance appropriately reflects the wording of section 6404(e)(1),
which provides that the Secretary of the Treasury "may" abate an assessment of
interest if the conditions named in section 6404(e)(1) are met. The word "may"
- 18 [*18] signifies that Congress has conferred discretion on the Secretary of the
Treasury. C[ Porter v. Commissioner, 132 T.C. 203, 206-208 (2009), abrogating
Butler v. Commissioner, 114 T.C. 276 (2000); see also id. at 237-238 (Gustafson,
J., dissenting).
In CDP cases with the exception of those cases appealable to the Court of
Appeals for the First, Eighth, or Ninth Circuit, the Tax Court employs a de novo
scope of review. Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev'd, 439
F.3d 455 (8th Cir. 2006); Golsen v. Commissioner, 54 T.C. 742, 757 (1970)
(holding Tax Court follows precedent of circuit to which case would be appealable
to extent precedent is "squarely in point"), M, 445 F.2d 985 (10th Cir. 1971);
Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006), § 125 T.C. 301
(2005); Robinette v. Commissioner, 439 F.3d 455, 459 (8th Cir. 2006), rev'g 123
T.C. 85, 101 (2004); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009),
aff'g in part T.C. Memo. 2006-166, and aff'g in part, vacating in part decisions in
related cases. Goldberg resided in Illinois when he filed his petition. Therefore
our decision will not be appealable to the First, Eighth, or Ninth Circuit. See sec.
7482(a)(1), (b)(1). Therefore, we employ a de novo scope of review. Applying a
- 19 [*19] de novo scope of review means that the Court considers evidence not in the
administrative record.3 Robinette v. Commissioner, 123 T.C. at 101.
In a Tax Court proceeding, the taxpayer has the burden of proof. Rule
142(a).
We now explain the procedural history of this case relevant to determining
what issues are properly before the Court.4
Goldberg and his wife filed joint income-tax returns for 2003 and 2004.
They reported that they owed no tax for either year.
In 2007 the IRS began an examination of the Goldbergs' 2003 and 2004
returns. Revenue Agent Julie Knighton performed the examination. We refer to
her as RA Knighton.
On May 11, 2011, the examination ended with RA Knighton's preparing a
Form 4549, "Income Tax Examination Changes", and the Goldbergs' signing the
3In cases where our jurisdiction is granted by sec. 6404(h)(1), we apply a de
novo scope of review. See, e.g., Goettee v. Commissioner, T.C. Memo. 2003-43,
supplemented by T.C. Memo. 2004-9, afCd, 192 F. App'x 212 (4th Cir. 2006);
Jean v. Commissioner, T.C. Memo. 2002-256; Jacobs v. Commissioner, T.C.
Memo. 2000-123; see also Porter v. Commissioner, 130 T.C. 115, 122-123 (2008)
(noting de novo scope of review for cases brought under sec. 6404(h)(1)).
4The discussion of the procedural history that follows includes some of our
findings of fact. The Court also adopts the parties' stipulation of facts as findings
of fact. Other findings of fact are stated infra part III, in which we discuss
Goldberg's entitlement to interest abatement under sec. 6404(e)(1).
- 20 [*20] form. We have referred to this as the May 2011 Form 4549. There were
prior drafts of this Form 4549, but these drafts are not relevant to what issues are
properly before the Court. Therefore these drafts are not discussed in this part of
the opinion regarding which issues are properly before the Court. These drafts are
relevant to Goldberg's entitlement to interest abatement under section 6404(e)(1).
They are discussed
part III.EE, which is the part of the opinion in which we
discuss Goldberg's entitlement to interest abatement under section 6404(e)(1) for
the period of January 13 through February 15, 2011 (Period 19).
The May 2011 Form 4549 had pre-printed lines to show the following three
amounts due for each tax year: (1) tax, (2) penalties, and (3) interest. For each tax
year the tax due was shown on line 19.a, the penalties due were shown on line
19.b, and the interest due was shown on line 19.c. For 2003, line 19.a showed the
tax due as $10,557; line 19.b (for penalties) was blank; and line 19.c showed the
interest due "computed to 05/29/2011" as zero (specifically "0.00"). The sum of
all three amounts due was shown as $10,557. For 2004, line 19.a showed the tax
due as $46,865; line 19.b (for penalties) was blank; and line 19.c showed the
interest due "computed to 05/29/2011" as zero (specifically "0.00"). The sum of
all three amounts due was shown as $46,865. Below these amounts was the name
- 21 [*21] of the revenue agent, RA Knighton. Below that, the Goldbergs signed the
following statement:
I give my consent to the immediate assessment and collection of any
increase in tax and penalties, and accept any decrease in tax and
penalties shown above, plus additional interest as provided by law. It
is understood that this report is subject to acceptance by the Area
Director, Area Manager, Specialty Tax Program Chief, or Director of
Field Operations.
The statement is a consent to the immediate assessment of the taxes and penalties
shown on the form. See Evans v. Commissioner, T.C. Memo. 1999-66, slip op. at
10 ("By executing the Form 4549, petitioner merely consented to the immediate
assessment and collection of the deficiency proposed therein." (Emphasis added.)).
In its opening brief, the IRS argues that the statement should also be interpreted as
a consent to the assessment of interest on the Goldbergs' 2004 income-tax
liability. The IRS's explanation is as follows:
Accordingly, while petitioner's consent to the assessment of tax and
penalties was limited to the dollar amounts "shown above" on the
Form 4549, petitioner's consent to the assessment of interest was not
limited to the dollar amounts "shown above" on the Form 4549. To
the contrary, petitioner agreed that interest would be assessed "as
provided by law."
Goldberg argues that the May 2011 Form 4549 was a contract, and that
under the terms of the alleged contract, he owed no interest because of the 0.00
entered in the line for interest. He does not directly address the legal effect of the
- 22 [*22] terms "shown above" or "as provided by law".5 However, he has other
arguments about the legal effect of the May 2011 Form 4549 (i.e., his third, fourth,
and fifth arguments referred to supra part I, pp. 10-11).
The $46,865 of tax shown for 2004 on the May 2011 Form 4549 resulted
from various adjustments to the Goldbergs' income asserted in the May 2011
Form 4549. One of these adjustments was an increase in income related to the
Goldbergs' S corporations' participation in a Niche section 419A plan and a
Greater Metropolitan Benefits plan.
On August 1, 2011, the IRS issued the Goldbergs a notice that it had
assessed them interest for tax year 2004 in the amount of $20,210.27.
On August 23, 2011, the Goldbergs paid $50,000 to the IRS. The $50,000
payment was applied in part against the non-interest component of their 2004 tax
liability (and completely eliminated the non-interest component of their 2004 tax
liability). The remainder of the $50,000 was applied to reduce (but not eliminate)
the balance of the $20,210.27 of assessed interest for 2004.
50ur view of the significance of the statement from the May 2011 Form
4549 excerpted above is explained infra part II.
- 23 [*23] On September 5, 2011, the IRS mailed Goldberg a Letter 1058, "Final
Notice of Intent to Levy and Notice of Your Right to a Hearing".6 The letter was
delivered to Goldberg on September 8, 2011. The letter stated that the IRS
intended to levy to collect from Goldberg for his and his wife's joint income-tax
liabilities for 2003 and 2004. For 2004, the letter stated that the amounts sought to
be collected were an assessed balance of $67,075.27, accrued interest of $486.90,
and a late payment penalty of $436.86. These three amounts totaled $67,999.03.
The computations of these amounts apparently did not take into account the
Goldbergs' $50,000 payment described in the paragraph above.
The September 5, 2011 Letter 1058 offered Goldberg an opportunity to
request a CDP hearing. Attached to the Letter 1058 was a Form 12153, "Request
for a Collection Due Process or Equivalent Hearing", which can be used to request
a CDP hearing. Goldberg did not return the Form 12153 to the IRS.
Instead, on or around September 9, 2011, Goldberg filed a Form 843,
"Claim for Refund and Request for Abatement". In the Form 843, Goldberg stated
that there had been managerial delays during the examination. He checked the
box labeled "Interest was assessed as a result of IRS errors or delays", which is
6This September 5, 2011 mailing of the Letter 1058 and all events from
August 24, 2011, through June 26, 2013, are detailed infra part III.JJ.2 (Period
22).
- 24 [*24] essentially a box for taxpayers to check to assert that they are entitled to
interest abatement under section 6404(e)(1). In addition to his claim for interest
abatement, Goldberg contended that the income adjustment in the May 2011 Form
4549 regarding the Niche section 419A and Greater Metropolitan Benefits plans
was in error because it was contrary to the April 29, 2011 stipulation of settled
issues in the Tax Court case Captain Douglas J. Brown, Inc., a consolidated case
involving deficiency actions by 121 petitioners. See Stipulation of Settled Issues
at Ex. A, Captain Douglas J. Brown, Inc. v. Commissioner, T.C. Dkt. No.
30453-08. Neither of the Goldbergs was among those petitioners, see id_, and
Rule 91(e) provides such stipulations "shall be binding and have effect only in the
pending case and not for any other purpose". The IRS eventually denied the
claims made on the Form 843 that Goldberg filed.7 Neither party argues that the
Form 843 filed by Goldberg constituted a request for a CDP hearing. Our
resolution of the case does not depend on whether the Form 843 constituted a
request for a CDP hearing.
On October 30, 2012, the IRS filed a notice of lien with Lake County,
Illinois, against Goldberg's property. According to the notice of lien, its purpose
7We detail the denial and the events surrounding the denial (in the May 28,
2013 notice of determination) in Period 22, infra part III.JJ.2.e.
- 25 [*25] was to secure collection of a $17,071.22 unpaid balance of Federal incometax liabilities for 2004. This amount appears to be the balance of the unpaid
interest that had accrued on the Goldbergs' 2004 underpayment less a portion of
the Goldbergs' $50,000 payment that they had made on August 23, 2011. The
lien-notice filing is discussed in more detail in Period 22, infra part III.JJ.2.c.
On November 1, 2012, the IRS sent a notice to Goldberg that it had filed the
notice of lien on October 30, 2012. This notice gave Goldberg another
opportunity to request a CDP hearing with the Office of Appeals.
On November 14, 2012, Goldberg used a Form 12153 to timely request a
CDP hearing in response to the November 1, 2012 lien-filing notice.8 In the
request, Goldberg contended that he was entitled to abatement of interest because
of alleged unreasonable errors and delays by the IRS in processing his Form 843.
Goldberg described the alleged unreasonable errors or delays in processing his
Form 843 thus:
* * * [Goldberg] filed the [Form] 843 at the recommendation of the
* * * [IRS] in September of 2011. * * * [Goldberg] also filed a
request for abatement [of interest] at the direction of the * * * [IRS]
as * * * [the Goldbergs] had a contract which stated "zero interest".
The * * * [Goldbergs] received several letters from [the IRS's]
collections [unit] stating over and over that it needed more time to
process [Goldberg's] request. * * *
8This hearing is discussed in more detail in Period 22, infra part III.JJ.2.d.
- 26 -
[*26] *
*
*
*
*
*
*
[I]n October 2012, almost 13 months later * * * [Goldberg's Form]
843 was answered by * * * [an] Interest Abatement Coordinator * * *
Thus, the request for interest abatement in the Form 12153 appeared to correspond
to the interest accruing after the date that Goldberg submitted his Form 843 to the
IRS (on or around September 9, 2011). Goldberg also contended in the Form
12153 that the income adjustment in the May 2011 Form 4549 regarding the Niche
section 419A plan was in error because the adjustment was inconsistent with the
stipulation of settled issues in Captain Douglas J. Brown, Inc. As a result of this
error, Goldberg contended in the Form 12153, there was no deficiency for 2004
and there was no interest for 2004. In addition, Goldberg contended in the Form
12153 that the IRS had agreed, as a result of the "0.00" on line 19.c of the May
2011 Form 4549, that there was no interest liability for tax year 2004. In this
Form 12153, Goldberg did not refer to the adjustments relating to the Greater
Metropolitan Benefits plan.
Goldberg's CDP hearing was handled by Marcus Morgan, an Appeals
officer.
On May 28, 2013, the Office of Appeals issued a notice of determination
regarding the CDP hearing concerning the notice of lien filing. The notice of
- 27 [*27] determination rejected Goldberg's argument that the "0.00" amount on line
19.c of the May 2011 Form 4549 fixed the interest due for 2004 at zero.
Addressing Goldberg's interest-abatement claim, the notice of detenmination
stated:
You also advised that you filed an abatement of interest claim via
Form 843, but you really filed an abatement of tax claim (as
confirmed by reviewing the form). The interest abatement unit
confirmed that they closed the case because abatement of interest was
not at issue.
The notice of determination thus characterized Goldberg's Form 843 interestabatement claim as a tax-abatement claim and denied him relief. Because the
notice characterized his Form 843 claim as tax-abatement claim, it seems to have
declined to address the merits of his claim for interest abatement under section
6404(e). Nor did the notice of determination specifically address the Captain
Douglas J. Brown, Inc. argument. However, the notice of determination did state
that Goldberg was generally precluded from disputing his "liability" in the CDP
hearing because he had already had a prior opportunity to do so when he received
the Letter 1058.
On June 26, 2013, Goldberg filed a timely petition for the Court to review
the May 28, 2013 determination of the Office of Appeals.
- 28 [*28] The IRS moved to remand the case to the Office of Appeals. The motion
stated that the Office of Appeals had erroneously refused to consider whether
Goldberg was entitled to interest abatement. On December 17, 2013, the Court
granted the motion and remanded the case to the Office of Appeals to make a
supplemental determination. On remand, Appeals Officer Kathy Keen was
assigned by the Office of Appeals to handle the hearing.
After the case was remanded, Goldberg made a Freedom of Information Act
request pursuant to 5 U.S.C. sec. 552 (2012), in which he sought (among other
things) the examination records of the revenue agent who examined his joint 2004
mcome-tax return. Goldberg received these records. Using these records, he
developed a list of 22 periods for which he sought interest abatement and the
reasons for which he sought interest abatement for each period. We refer to this
list as the 2004 Abatement Schedule. Each period was delineated by Goldberg
with a start date and an end date. The periods on the 2004 Abatement Schedule
are as follows:
- 29 [*29]
Period number
Date period
begins
Date period ends
Number of days
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
9/12/2007
9/20/2007ª
12/1/2007
1/31/2008ª
3/11/2008ª
7/18/2008
8/8/2008
8/27/2008
9/4/2008ª
9/23/2008
9/29/2008
5/29/2009
6/10/2009
6/20/2009
7/27/2009ª
11/15/2010
12/8/2010ª
1/7/2011°
1/13/2011
3/29/2011
4/29/2011
8/24/2011
9/20/2007ª
9/27/2007
1/31/2008ª
3/11/2008ª
4/28/2008
7/30/2008
8/16/2008
9/4/2008ª
9/22/2008
9/25/2008
11/13/2008
6/8/2009
6/15/2009
7/27/2009ª
8/9/2010
12/8/2010ª
1/3/2011
1/10/2011
2/15/2011
4/15/2011
8/23/2011
6/26/2013
9
8
62
41'
496
13
9
9
19
3
46
11
6b
38
3796
24
27
4
34'
18
117b
6736
ª These dates are listed twice in the 2004 Abatement Schedule. Though
there is overlap between periods, when Goldberg listed a date as occurring within
two different periods, he gave a different reason for interest abatement for the
different periods. To consider his different arguments for abating interest for the
same dates, we replicate his date ranges in our analysis.
bThe actual 2004 Abatement Schedule miscalculated the number of days for
each of these periods. We have noted these miscalculations, in certain footnotes in
part III, infra. The number of days in the table are the actual number of days
between the start and end dates even if the number of days in the table is different
- 30 [*30] from than the number of days stated by Goldberg for the period in his 2004
Abatement Schedule.
°In this cell, Goldberg actually wrote "l/7/2010", but he requested four days
of interest abatement. It seems that the entry of a 2010 date was a typographical
error, and Goldberg appears to have intended to write "1/7/2011".
The period numbers are assigned by the Court for convenience. The
number of days in each period includes the beginning and the ending dates.
Goldberg submitted the 2004 Abatement Schedule to Keen, who initially
referred his request for interest abatement to an IRS interest-abatement coordinator
named Lindsay O'Neil. O'Neil concluded that Goldberg was not entitled to
interest abatement for any of the 22 periods. The parties have stipulated that
O'Neil conveyed her conclusions to Keen and that Keen reviewed O'Neil's
conclusions. However, the parties did not stipulate what method was used to
communicate these conclusions. Nor does the record show what method of
communication was used.
O'Neil documented her progress in evaluating Goldberg's claim for interest
abatement in a document titled "Interest Abatement Activity Record". There,
O'Neil wrote that she had been told to draw an "initial conclusion" about whether
Goldberg was entitled to interest abatement and to convey this initial conclusion to
the Office of Appeals "via memorandum".
- 31 [*31] According to the Interest Abatement Activity Record, after O'Neil had
finished her review, she created a .zip file to convey her conclusions and the
information she used in making those conclusions. She sent this .zip file to Keen,
who followed up with O'Neil to ask questions.
According to O'Neil's Interest Abatement Activity Record, the .zip file
included the following documents: "Form 886-A", "reviewer timeline", "iny
control", three of RA Knighton's activity records,9 the information document
requests sent by RA Knighton, and "a couple of * * * [RA Knighton's] letters".
Of the .zip file documents, one of RA Knighton's three activity records (for her
examination of the Goldbergs' returns) is in the record. See supra note 9. The
record does not contain the other two activity records that RA Knighton made.
Some of RA Knighton's correspondence with Goldberg is in the record, but we do
not know specifically to which "letters" O'Neil referred. None of the information
document requests is in the record.¹° The "iny control" appears to mean an
°Specifically the activity records are described as "activity records for all 3
entities". We assume that "all 3 entities" refers to the Goldbergs, Wireless
Distributors, Inc., and another S corporation that was also wholly owned by the
Goldbergs. We discuss Wireless Distributors, Inc. and the other wholly owned S
corporation infra part III.A, pp. 55-58.
¹°Wediscuss the contents of the information document requests and how we
have determined their contents infra part III.A, p. 59.
- 32 [*32] inventory control document, which is not in the record. The "Form 886-A"
is not in the record. We cannot determine whether the "reviewer timeline"" is in
the record.
For CDP determinations that we review for abuse of discretion, we must
determine whether the Appeals officer's determination lacked a sound basis in fact
or law. Woodral v. Commissioner, 112 T.C. 19, 23 (1999). To do so, we
scrutinize the Office of Appeals' reasoning underlying its determination and
consequently the information it relied on in arriving at its determination. See
Magana v. Commissioner, 118 T.C. 488, 493-494 (2002). At first blush, there are
two types of gaps in the record that present the possibility that there is not enough
information in the record to determine whether the Office of Appeals abused its
discretion in denying Goldberg interest abatement. The first type of gap is that we
do not know which fact-type documents Keen received from O'Neil. By fact-type
documents, we mean the documents, used by Keen in making her determination,
related to the events relevant to Goldberg's claims. For example, we do not know
which of RA Knighton's letters O'Neil sent Keen. The second type of gap is that
we do not know the contents of the analysis-type documents that O'Neil sent to
"It is possible that the spreadsheet at Exhibit 83-J is the "reviewer timeline"
that O'Neil mentioned in the Interest Abatement Activity Record. However, as we
explain infra, we need not determine whether it is.
- 33 [*33] Keen. By analysis-type documents we mean the documents possibly relied
on by Keen showing O'Neil's analysis of the claims for interest abatement that
Goldberg made in his supplemental CDP hearing. For example, we cannot
determine the contents of the "Form 886-A" or the "reviewer's timeline" because
the "Form 886-A" is not in the record, and it is not clear that the "reviewer's
timeline" is in the record. And neither document's contents are described in the
record. However, neither of these two types of gaps prevents us from determining
whether the Office of Appeals abused its discretion.
We first address two concerns that arise because we do not know all of the
fact-type documents upon which Keen relied. The first concern is that Keen may
have relied on fact-type documents that are not in the record (i.e., Keen reviewed
documents that the Court has not reviewed). Goldberg has not argued that the
record is incomplete for this reason. We therefore treat the argument that the
record is incomplete for this reason as having been waived. See Mendes v.
Commissioner, 121 T.C. 308, 312-313 (2003).
The second concern regarding fact-type documents is that the record
contains fact-type documents upon which Keen did not rely. Here, Goldberg has
had a proper opportunity for a hearing at the Office of Appeals on the issue of
interest abatement (i.e., the supplemental hearing), and the record before the Court
- 34 [*34] is sufficient to allow us to decide whether the Office of Appeals abused its
discretion in denying Goldberg interest abatement. See Lunsford v.
Commissioner, 117 T.C. 183, 189 (2001); see also Rivas v. Commissioner, T.C.
Memo. 2017-56, at *9-*12. Neither party has argued that the record contains facttype documents that Keen never received or considered. We treat as waived any
argument that the record impermissibly includes fact-type documents upon which
Keen never relied. See Mendes v. Commissioner, 121 T.C. at 312-313.
Nor are we prevented from reviewing the supplemental determination by
any uncertainty as to the analysis-type documents upon which Keen relied. The
supplemental notice of determination ultimately denied Goldberg interest
abatement for each of the 22 periods for which he sought it. Keen authored an
"Appeals Case Memo" that details her determinations in the supplemental notice
of determination. The Appeals Case Memo is appended to the supplemental
notice of determination. In the Appeals Case Memo, Keen adequately articulates
her reasons for denying interest abatement for all 21 periods that the notice denied
and that have not been conceded by the IRS.¹²Neither party urges the Court to
¹²ForPeriod 21, which is conceded by the IRS, Keen wrote in the Appeals
Case Memo that she believed Goldberg was entitled to interest abatement for that
period. Period 21 is coterminous with the 117-day period between the Goldbergs'
signing the May 2011 Form 4549 and their receiving a notice stating interest had
(continued...)
- 35 [*35] focus on O'Neil's decisions and analysis. Under section 6330(d)(1), we
review the Office of Appeals' final determination as to issues raised in a CDP
hearing. The final determination was not contained in anything that O'Neil
provided Keen. The final determination regarding Goldberg's entitlement to
interest abatement was the supplemental notice of determination. See Kelby v.
Commissioner, 130 T.C. at 86-87. Therefore, there is no need to consider what
analysis documents were relied on by Keen, and we review the supplemental
determination.
The supplemental determination denied Goldberg interest abatement for
each of the 22 periods for which he sought interest abatement. With the exception
of Period 22 (August 24, 2011, through June 26, 2013) and Period 21 (which has
been conceded), the Appeals Case Memo did not discuss each period specifically.
Instead, the memorandum addressed the periods in the aggregate. The
memorandum acknowledged that there was "evidence of delay on the part of both
parties." However, the memorandum stated the delays did not entitle Goldberg to
¹²(...continued)
been assessed. Keen wrote that before she finalized the supplemental notice of
determination, she "offered" interest abatement for this period to Goldberg, but he
"declined" it. It is not clear from Keen's notes or any other part of the record what
she wanted from Goldberg in exchange for her "offer". However, because Period
21 has been conceded, we do not need to review Keen's reasons for denying
interest abatement for that period.
- 36 [*36] interest abatement because (1) "there [we]re no unreasonable errors or
delays by the * * * [IRS] in the performance of a ministerial or managerial act"
and (2) certain delays were attributable to Goldberg.¹³It also reiterated the
conclusion in the original notice of determination that the May 2011 Form 4549
did not constitute a binding contract, meaning the "0.00" entered in line 19.c did
not absolve Goldberg and his wife of liability for statutory interest.
The Appeals Case Memo did not take the position that Goldberg's claim for
interest abatement should be considered only for interest accruing during the times
specified in his November 14, 2012 request for a CDP hearing. In that request
Goldberg seemed to request interest abatement for the period starting with
September 9, 2011 (the approximate date on which he submitted his Form 843 to
the IRS). The IRS on brief does not take the position that Goldberg's claims for
interest abatement should be entertained by the Court only for interest accruing
during the times specified in his November 14, 2012 request for a CDP hearing.
We conclude that it is proper for us to review claims for interest abatement for
periods before September 9, 2011. However, we review only the periods that
¹³TheAppeals Case Memo gives examples of delays by Goldberg. The
memorandum states that at various points Goldberg delayed in providing RA
Knighton with information about the Niche sec. 419A plan, the Greater
Metropolitan Benefits plan, and the Goldbergs' bases in their S corporations.
- 37 [*37] Goldberg raised at the Office of Appeals and for which the supplemental
notice of determination disallowed interest abatement. See sec. 301.6330-1(f)(2),
Q&A-F3, Proced. & Admin. Regs. Therefore, we limit our review to Periods
1-22.
On July 21, 2016, Goldberg moved for the Court to again remand the case
to the Office of Appeals. Goldberg asked that the Court order the Office of
Appeals on remand to consider his argument that the income adjustment in the
May 2011 Form 4549 regarding the Niche section 419A plan was in error because
it was contrary to the stipulation of settled issues in Captain Douglas J. Brown,
Inc.
On September 21, 2016, the Court denied Goldberg's July 21, 2016 motion
to remand. The order stated that Goldberg's Captain Douglas J. Brown, Inc.
argument was a challenge to the "underlying tax liability", see sec. 6330(c)(2)(B),
and that he was barred from pressing the argument in the CDP hearing because he
had had a prior opportunity to do so. The order reasoned that had Goldberg not
signed the May 2011 Form 4549, the IRS would have been required to issue him a
notice of deficiency, and this notice of deficiency would have permitted him to
petition the Tax Court to redetermine the deficiency. See Aguirre v.
Commissioner, 117 T.C. at 327; Hall v. Commissioner, T.C. Memo. 2013-93,
- 38 [*38] at *10-*11. In that deficiency litigation Goldberg could have asserted the
Captain Douglas J. Brown, Inc. argument.
We held a trial in Chicago, Illinois, on October 26, 2016. After trial, the
parties submitted briefs on whether the Tax Court should sustain the notice of
determination as supplemented. Goldberg again presses his Captain Douglas J.
Brown, Inc. argument. As we explained in our prior order that is referred to in the
paragraph above, Goldberg's Captain Douglas J. Brown, Inc. argument is a
challenge to the underlying tax liability, he had a prior opportunity to make the
challenge, he waived that opportunity, and he is barred from making this
argument. We have already addressed this argument by order. We do not address
it agam.
On brief, Goldberg also contends that the May 2011 Form 4549 embodies a
binding contract between the Goldbergs and the IRS and that the "0.00" in line
19.c is a term in the contract which prohibits the IRS from assessing interest
liability for tax year 2004. We term this argument the Form-4549-as-a-contract
argument. The IRS does not argue that Goldberg is precluded from making the
Form-4549-as-a-contract argument by the prior opportunity provision of section
6330(c)(2)(B), which we discussed supra part I, p. 14. Therefore we treat the
prior-opportunity argument as waived. See Mendes v. Commissioner, 121 T.C.
- 39 [*39] at 312-313. Nor does the IRS make any other contention as to why we
cannot consider Goldberg's Form-4549-as-a-contract argument. Under these
circumstances, we will consider the argument. We determine that Goldberg loses
the argument on the merits. See infra pt. II.
Goldberg also contends that he is entitled to interest abatement for the 22
periods for which it was denied in the supplemental notice of determination. He
argues that he is entitled to interest abatement because of alleged unreasonable
errors and delays by the IRS. Goldberg's interest-abatement claim was made to
the Office of Appeals pursuant to a CDP hearing, and it was denied in a
supplemental notice of determination. His interest-abatement claim is a challenge
to the liability that the IRS seeks to collect through the lien-notice filing. This
argument is properly before the Court. See infra pt. III.
On brief, Goldberg for the first time makes the following arguments: the
IRS is "equitably estopped" from assessing interest on the deficiency because the
IRS was bound to the "0.00" in line 19.c of the May 2011 Form 4549; Goldberg is
entitled to relief under the doctrine of promissory estoppel because he and his wife
detrimentally relied on the interest being fixed at "0.00"; and, in the alternative,
the May 2011 Form 4549, as a "contract", should be set aside and declared void by
the Tax Court because he and his wife were induced to enter into it due to RA
- 40 [*40] Knighton's alleged fraud or misrepresentation. Because Goldberg did not
raise these arguments at the CDP hearing, we do not address them. See sec.
301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.
On brief, the IRS conceded that Goldberg was entitled to interest abatement
for Period 21, which spanned April 29 through August 23, 2011.¹4 Because of this
concession, the number of periods for which we must evaluate the Office of
Appeals' determination not to abate interest is reduced from the 22 periods in the
2004 Abatement Schedule to 21 periods.
The notice of determination was issued on May 28, 2013. Goldberg filed
his petition on June 26, 2013, which is within 30 days of the initial notice of
detennination. Therefore we have jurisdiction under section 6330(d)(1) to review
the determination as supplemented. See LG Kendrick, LLC v. Commissioner, 146
T.C. at 36; Kelby v. Commissioner, 130 T.C. at 87-88.
The petition is also within the 180-day period for filing suit to review an
IRS denial of interest abatement. See sec. 6404(h). It is unnecessary, however,
for us to determine whether we have jurisdiction under section 6404(h). See
Roudakov v. Commissioner, T.C. Memo. 2017-121, at *7-*12 (holding
¹#Thisis the same period for which Keen "offered" Goldberg interest
abatement before issuing the supplemental notice of determination. See supra note
12.
- 41 [*41] jurisdiction granted by sec. 6330(d)(1)); Norman v. Commissioner, T.C.
Memo. 2016-98, at *8-*10 (same). Jurisdiction under section 6404(h) would not
add to the issues we would resolve, nor would it affect the standard or scope of
review for resolving these issues.
II.
The Form-4549-as-a-contract argument
We turn to the merits of Goldberg's argument that the "0.00" entry on the
May 2011 Form 4549 constituted a term in a binding contract relieving the
Goldbergs of interest on their 2004 income-tax balance. Goldberg raised this
argument at his CDP hearing, at his supplemental CDP hearing, and in his briefs.
Goldberg's contract argument is an argument that he is not liable for interest on
his 2004 underpayment of tax. Because this interest is the liability the IRS seeks
to collect, Goldberg's contract argument is a "challenge to the underlying tax
liability". Sec. 6330(c)(2)(B); Urbano v. Commissioner, 122 T.C. at 393.
Furthermore, Goldberg's contract argument does not involve section 6404(e)(1).
Therefore, we review de novo the determination of the Office of Appeals as to
Goldberg's contract argument. Montgomery v. Commissioner, 122 T.C. at 8;
Goza v. Commissioner, 114 T.C. at 181-182; cf Krehnbrink v. Commissioner,
at *17 (applying abuse-of-discretion standard to sec. 6404(e) interest-abatement
- 42 [*42] claims made in a CDP hearing); Estate of La Sala v. Commissioner,
at *16-*17 (same).
Below we excerpt relevant parts of the May 2011 Form 4549:
1. Adjustments to income
e
a NOL Carryback-Ronald Goldberg from 2005
End
Petfod Emi
Period End
415,334.00
b. NOL Carryback- Gail Goldberg 2006
{1,271,781.00)
c. Sch E-Ine/Loss-Wireless
645,162.00
d. mon carryback-Ronald 2006
(1,018,228.00)
e. NOL Carryforward - 2003 Recapture
415.334.00
f. Other Income- NICHE
394,091.0Á
9. Other Income-Greater Metrpolitan Plan
h. Itemized Deductions
601,328.00
(7,664.00)
..
***
19. Summary of Taxes. Penalties and interest:
a. Balance dueor(Overpayment)Te×es -(Line 16,Page1)
b. Penalties(Line18)-computedio 04/29/2011
10,577 .00
46,865 .00
0.00
0.00
0.00
0.00
to,s77,oo
s,essroo
c. Interest (IRC§6601)-computedte 05/29/2011
d. TMT interest - computed io
05/29/2011
(on TMTunde@ayment)
e. Amountdueer(tefund)-(sumoflJnesa,b,cend4
***
1 Total Adjustments
3. Taxable income Per RetumorasPreviouslyAdjusted
4. ConectedTaxableincome
415, 334 .00
(1,030,488.00)
(615,154.00)
(241, 758 . 00 )
(476,268.00)
(718,026.00)
Tax Method
Tax fasLe
screovns a
Aling Status
Joint
Joint
5. Tax
6. Additional Taxes / Allemative MinimumTax
CorrededTaxUability
o.co
o,oo
10, 571.00
46 , 865 . 00
10,577.00
46,86s.00
We now discuss the excerpts from the May 2011 Form 4549. The form
does not literally state that there is a deficiency. However, the "amounts due"
match the definition of "deficiency", so essentially the Form 4549 shows
deficiencies. See sec. 6211(a). The deficiencies were $10,557 for 2003 and
$46,865 for 2004. The deficiencies came from various adjustments to income.
- 43 [*43] The May 2011 Form 4549 stated negative and positive adjustments to the
Goldbergs' 2004 income-tax liabilities. The negative adjustments included (1) the
Goldbergs' two net-operating-loss (NOL) carrybacks from 2006 to 2004 (one
carryback from Goldberg's 2006 year, and one carryback from his wife's 2006
year) totaling $2,290,009 and (2) a $7,664 increase in the allowance of itemized
deductions. The positive adjustments included (1) a disallowance of a loss in the
amount of $645,162; (2) an NOL carryover recapture from 2003 in the amount of
$415,334; (3) an adjustment of $394,091 related to the Goldbergs' S corporations'
participation in a Niche section 419A plan;¹5and (4) an adjustment of $601,328
related to the Goldbergs' S corporations' participation in a Greater Metropolitan
Benefits plan.
Line 19.c of the May 2011 Form 4549 stated that, for tax year 2004,
"Interest (IRC § 6601)--computed to 05/29/2011" is equal to "0.00".
On April 29, 2011 RA Knighton signed the May 2011 Form 4549. On May
11, 2011, the Goldbergs signed the form. Directly above the Goldbergs'
signatures on the form was the following statement:
¹sWenoted supra part I, p. 37, that Goldberg argued that this case ought to
be remanded to the Office of Appeals because, Goldberg alleged, the income
adjustment was contrary to the stipulation of settled issues in Captain Douglas J.
Brown, Inc. v. Commissioner, T.C. Dkt. No. 30453-08 (Apr. 29, 2011).
- 44 [*44] Consent to Assessment and Collection--I do not wish to exercise my
appeal rights with the Internal Revenue Service or to contest in the
United States Tax Court the findings in this report. Therefore, I give
my consent to the immediate assessment and collection of any
increase in tax and penalties, and accept any decrease in tax and
penalties shown above, plus additional interest as provided by law. It
is understood that this report is subject to acceptance by the Area
Director, Area Manager, Specialty Tax Program Chief Counsel, or
Director of Field Operations.
As explained below, the significance of this statement is that it is a waiver of the
restrictions on assessment.
In general, the IRS may not collect a tax until the tax has been formally and
timely assessed. See sec. 6502(a). To assess an unreported amount of tax (i.e., a
deficiency) the IRS must mail the taxpayer a notice of deficiency, and it must
ordinarily wait 90 days, or if the taxpayer files a petition with the Tax Court, it
must wait until the decision of the Tax Court becomes final. Secs. 6212(a),
6213(a). Underpayment interest, provided for by section 6601, "shall be assessed,
collected, and paid in the same manner as taxes." Sec. 6601(e)(1). Therefore, the
collection of interest can only follow an assessment of interest. Secs. 6502(a),
6601(g). Under section 6502(a)(1), the period of limitations on the collection of
tax begins on the date the IRS assesses the tax. Under section 6601(g), the IRS
may assess interest "at any time during the period within which the tax to which
such interest relates may be collected." Therefore the assessment of interest may
- 45 [*45] occur only after the assessment of "the tax to which such interest relates".
Secs. 6502(a)(1), 6601(g); see also Field, 381 F.3d at 113 ("Since the IRS's
assessment of interest against * * * [the taxpayer-plaintiff] coincided with the
commencement of the collection period, the assessment [of the interest] was no
doubt timely."); Priv. Ltr. Rul. 201319017 (May 10, 2013) ("[T]he Service cannot
assess additional interest on * * * [a] tax liability that was never actually
assessed.").
By executing a Form 4549, a taxpayer waives some of the restrictions on
assessment of the tax and the interest to which the tax relates. Aguirre v.
Commissioner, 117 T.C. at 327. Specifically, the taxpayer (1) waives preassessment review by the Office of Appeals or the Tax Court, (2) waives the right
to receive a notice of deficiency, (3) consents to the immediate assessment and
collection of the tax shown on the form, and (4) consents to the immediate
assessment and collection of the "additional interest" imposed on the tax as
"provided by law". Section 6601 provides that taxpayers are liable for interest on
underpayments of tax that are not paid "on or before the last date prescribed for
payment". Sec. 6601(a). If a Form 4549 shows a positive adjustment to the
taxpayer's tax liability (i.e., a deficiency), by operation of section 6601 interest
will accrue on the deficiency from the date payment was due. Sec. 6601(a). A
- 46 [*46] taxpayer whose deficiency is subject to interest under section 6601 and who
signs the Form 4549 thus consents to the immediate assessment and collection of
the deficiency and the interest on that deficiency.
Goldberg seems to contend that the effect of his and his wife's execution of
the May 2011 Form 4549 was to permanently fix their liability for interest at zero
because line 19.c stated that, for the tax year 2004, "Interest (IRC § 6601)-computed to 5/29/2011" is equal to "0.00". This is not the effect of their signing
the May 2011 Form 4549. Instead, by signing the May 2011 Form 4549, the
Goldbergs consented to the immediate assessment and collection of two amounts
related to their 2004 tax liability: (1) the 2004 deficiency of $46,865 shown on the
May 2011 Form 4549 and (2) the "additional interest" on the deficiency "as
provided by law".
The Goldbergs gave their consent "to the immediate assessment and
collection of * * * additional interest as provided by law." (Emphasis added.)
The word "additional" means "in addition to" something else. See Air Transp.
Ass'n of Am. v. Lenkin, 899 F.2d 1265, 1266 (D.C. Cir. 1990). Applying this
definition of "additional" to interpret the Form 4549, "additional interest" means
interest "in addition to" the interest shown on the Form 4549. Combined with "as
provided by law", the phrase "additional interest as provided by law" means
- 47 [*47] interest in addition to the interest shown on the Form 4549 if that interest
applies by operation of law. The $46,865 deficiency was an underpayment of tax.
By law, section 6601 imposes interest on underpayments of tax, and that interest
begins to accrue on the "last date prescribed for payment". Sec. 6601(a). Thus, by
executing the May 2011 Form 4549, the Goldbergs consented to the immediate
assessment and collection of the interest that section 6601 imposed on the $46,865
deficiency.
Goldberg's argument that the interest was permanently fixed at zero fails
because it is contrary to the terms of the waiver and consent in the May 2011 Form
4549 that he and his wife signed. If the Goldbergs had intended to permanently
fix their interest liability at zero, they could have entered into a closing agreement,
which is subject to the requirements of section 7121. See Urbano v.
Commissioner, 122 T.C. at 393-394.
Section 7121 and the regulations thereunder set forth the exclusive means
and procedures by which an agreement between the IRS and a taxpayer concerning
the latter's tax liability may be accorded finality. See, e.g., Urbano v.
Commissioner, 122 T.C. at 393-394; Hudock v. Commissioner, 65 T.C. 351, 362
(1975). An agreement made pursuant to section 7121 for any taxable period is
final and binding on both the taxpayer and the IRS if the agreement complies with
- 48 [*48] the procedures in section 7121 and the regulations thereunder. Agreements
made pursuant to section 7121 are referred to as closing agreements. M sec.
7121; sec. 601.202(b), Statement of Procedural Rules; sec. 301.7121-1(a), (d)(1),
Proced. & Admin. Regs. Section 301.7121-1(d)(1), Proced. & Admin. Regs.,
provides that closing agreements must be in writing and executed on forms
prescribed by the IRS.
Section 601.202(b), Statement of Procedural Rules, provides that
"generally" the IRS will use one of two forms for closing agreements: Form 866,
"Agreement as to Final Determination of Tax Liability", or Form 906, "Closing
Agreement on Final Determination Covering Specific Matters". Form 866 is used
to determine conclusively a taxpayer's total tax liability for a taxable period. M
Form 906 is used if an agreement relates to one or more separate items affecting
the tax liability of a taxpayer. M
The content of the Forms 866 and 906 is different from the content of the
Form 4549. There are four comparisons between Forms 866 and 906 versus Form
4549 that illustrate the wording characteristic of a closing agreement. First, both
Form 866 and Form 906 contain language indicating the documents embody
agreements. The titles of both Forms 866 and 906 contain the word "agreement",
each document refers to itself as an "agreement", and the parties' signatures certify
- 49 [*49] that both the IRS and the taxpayer "agree" to the documents' terms. By
contrast, Form 4549 lacks the words "agree" or "agreement" altogether. Second,
both Forms 866 and 906 state that the agreements are made pursuant to section
7121, the section that governs agreements accorded finality. Form 4549 does not
contain any mention of section 7121. Third, Forms 866 and 906 both state that
"[t]his agreement is final and conclusive". Form 4549 does not use the word
"final" or "conclusive". In fact, it makes no claim to finality at all. Fourth, above
the parties' signature lines on Forms 866 and 906, both forms provide that by
signing them, the IRS and the taxpayer "have read and agreed to" the terms of the
form. By contrast, nothing on the Form 4549 signed by the Goldbergs indicates
the legal effect of RA Knighton's signature. And Form 4549 purports to affect
only the taxpayers, not the IRS. As compared to Forms 866 and 906, the Form
4549 signed by the Goldbergs and RA Knighton bears none of the linguistic
indicia that would purport to make it final or conclusive under section 7121.
In conclusion, the Goldbergs' execution of a Form 4549 did not
permanently fix their interest liability at zero. Instead, by executing a Form 4549
the Goldbergs consented to the immediate assessment and collection of the
$46,865 deficiency and the interest imposed by law on that deficiency. The type
of finality that Goldberg seeks for the interest for his 2004 tax year can be
- 50 [*50] obtained only under a closing agreement made pursuant to section 7121.
The terms of the Form 4549 bear no resemblance to the terms of the two types of
forms the IRS uses for closing agreements--the Form 866 and the Form 906.
Though there was a "0.00" entered in line 19.c of the Form 4549 signed by the
Goldbergs, the 0.00 did not permanently fix their underpayment interest at zero
because they consented to the immediate assessment and collection of "additional
interest as provided by law".
III.
Interest abatement
Goldberg's remaining argument is that the Office of Appeals erred by
concluding he was not entitled to interest abatement for 22 periods.
Section 6601(a) provides that interest accrues on any underpayment of tax.
Section 6404(e)(1) provides that the IRS "may abate" an assessment of interest
under certain conditions, which we discuss throughout this part, part III. For the
22 periods for which Goldberg seeks abatement of interest, the parties have
limited their arguments to whether section 6404(e)(1) provides grounds for relief.
We thus limit our analysis of Goldberg's remaining claims for interest abatement
to section 6404(e)(1) and the regulations interpreting it. See Nicklaus v.
Commissioner, 117 T.C. 117, 120 n.4 (2001).
- 51 [*51] We review Goldberg's interest-abatement claims for abuse of discretion for
reasons explained in part I. Thus, Goldberg must prove that the IRS's denial of
interest abatement was arbitrary, capricious, or lacked a "sound basis in fact or
law." Woodral v. Commissioner, 112 T.C. at 23.
We turn to section 6404(e)(1), which sets forth the conditions under which
the IRS may abate interest. Section 6404(e)(1) provides that the IRS may abate an
assessment of interest that is attributable to any unreasonable error or delay by an
IRS officer or employee in performing a managerial or ministerial act. The error
or delay is taken into account for purposes of section 6404(e)(1) only if "no
significant aspect of such error or delay can be attributed to the taxpayer
involved."
The Internal Revenue Code does not define "managerial" or "ministerial"
acts, but the regulations do. Sec. 301.6404-2(b), Proced. & Admin. Regs. A
managerial 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 ofjudgment or discretion relating to management of personnel." Id.
subpara. (1). General administrative decisions, "such as the IRS's decision on
how to organize" tax-return processing, are not managerial acts. R A ministerial
act is "a procedural or mechanical act that does not involve the exercise of
- 52 [*52] 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." R subpara. (2). Decisions about the "proper
application" of law are neither managerial nor ministerial acts. R para. (b). The
regulations provide further guidance in examples, id. para. (c), which we discuss
infra where relevant. Before turning to Goldberg's entitlement to interest
abatement for the 21 periods, we briefly address our method for ascertaining
Goldberg's arguments and positions.
Though we would generally refer to a party's briefs to determine its
arguments, here we refer to the 2004 Abatement Schedule to determine Goldberg's
arguments for his entitlement to interest abatement for each of the 21 periods. At
trial, IRS counsel stated it would "accept that those [periods in the 2004
Abatement Schedule] are properly at issue in the case." The IRS also wrote its
briefs and structured its witness examinations to respond to the arguments in the
2004 Abatement Schedule. Moreover, our review for abuse of discretion focuses
on the reasoning and the conclusions drawn in the CDP hearing, which require an
analysis of the arguments Goldberg made in the CDP hearing. See Magana v.
Commissioner, 118 T.C. at 493. The 2004 Abatement Schedule contained those
arguments, and it is those arguments that we address in this opinion. Goldberg's
- 53 [*53] briefs do not contain certain arguments found in the 2004 Abatement
Schedule (although the briefs contain some ambiguous concessions that we
discuss in the paragraph below). Therefore by focusing on Goldberg's 2004
Abatement Schedule, we are not ignoring arguments he raised in his briefs.
In his simultaneous answering brief, Goldberg makes ambiguous
concessions of some days in 7 of the 22 periods for which he had sought and been
denied interest abatement. He stated his concessions as numbers of days in a
period (as opposed to specific dates in a period) for which he no longer seeks
interest abatement. We discuss Period 1 as an example of how Goldberg stated his
concessions on brief. For Period 1, see infra pt. III.B, Goldberg sought nine days
of interest abatement in the supplemental hearing (as he stated on the 2004
Abatement Schedule). In its opening brief, the IRS requested the Court to find
that it "did not commit any unreasonable error or delay in the performance of a
ministerial or managerial act" during the nine days that make up Period 1.
Goldberg answered that he "does not disagree for 8 days", without specifying the
dates of the eight days he concedes and the date of the ninth day he does not
concede. Those attempted concessions do not assist us in resolving the case
because they do not specify which dates are conceded and which dates are still at
issue.
- 54 [*54] The specific dates matter because we look at each event occurring during
each day for which Goldberg seeks interest abatement to determine whether there
was an unreasonable error or delay in performing a managerial or ministerial act.
S_e_e sec. 6404(e)(1). Goldberg's failure to provide specific dates in a period does
not allow us to determine which event Goldberg no longer challenges as involving
errors, delays, managerial acts, or ministerial acts.
We now discuss Goldberg's entitlement to interest abatement for the 21
periods specified by him in his 2004 Abatement Schedule. We also find it
necessary to discuss events occurring in periods other than the 21 periods. Thus
the remainder of this opinion contains two types of sections. The first type of
section discusses events occurring during periods for which Goldberg has not
sought and does not seek interest abatement, or for which the IRS has conceded he
is entitled to interest abatement (Period 21). The second type of section discusses
both events occurring within the periods and our conclusions as to whether
Goldberg is entitled to interest abatement for each of those periods. The second
type of section is subdivided into three parts: Introduction, Events, and Analysis
and holding. There are 21 of the second type of section because we do not
subdivide the conceded period (Period 21) into those three sub-sections. All
sections are in chronological order.
- 55 [*55] A.
The Goldbergs' 2004 income-tax return and the early stages of the
examination of their 2004 income-tax return
Goldberg does not seek interest abatement for this period. We discuss the
events of this period because they provide context to the events for which
Goldberg seeks interest abatement.
The Goldbergs were the sole shareholders of five S corporations. The tax
consequences of the Goldbergs' ownership in two of these S corporations
undergirded each of the three major issues in the examination of their 2004 joint
income-tax return: the carryback and carryover of NOLs, the deductibility of
S corporation losses, and the recognition of income from terminations and
conversions of benefit plans in which the S corporations participated.
On their 2004 joint income-tax return, the Goldbergs claimed a $985,367
NOL carryover deduction from an NOL that arose in 2003. The record does not
show how the NOL arose, though it appears that it was attributable to losses from
one or both of the S corporations they owned.
On their 2004 amended joint income-tax return, the Goldbergs claimed a
carryback of NOLs arising in 2005, 2006, or both years. In the examination of
their 2004 joint income-tax return, the IRS allowed the Goldbergs to carry back
$2,290,009 of NOLs, and required them to recapture $415,334 of the 2003
- 56 [*56] carryover because of proposed adjustments to their 2005 tax liability. The
losses giving rise to the NOLs appear to have passed through to the Goldbergs
from one or more of their S corporations.
One of the Goldbergs' wholly owned S corporations was called Wireless
Distributors, Inc. Wireless Distributors, Inc. had had losses every year since its
inception. Every year, the Goldbergs deducted those losses in full on their
personal income-tax returns, even though those losses exceeded the combined
bases they held in the S corporation's stock and debt. On their 2004 return, the
amount of the Wireless Distributors Inc. loss that the Goldbergs deducted was
$645,617, without regard to basis. In their 2004 examination, the IRS disallowed
the deductions claimed in excess of the Goldbergs' bases.
The Goldbergs' S corporations participated in two benefit plans that gave
rise to income recognition events for the Goldbergs in 2004.¹6 Both plans were
structured such that the participating S corporations each contributed money to a
different trust that had been established by the respective plan's administrator.
These contributions were then used by each plan's trustee to buy life insurance
¹6Throughoutthe audit, the examining agent referred to the two plans as sec.
419 or sec. 419A plans.
- 57 [*57] policies on the lives of Goldberg and his wife. Pursuant to these two plans,
the Goldbergs were each insured by two policies, for a total of four policies.
The first benefit plan was the Niche section 419A plan. One of the
Goldbergs' wholly owned S corporations participated in the plan, but the record
does not show which S corporation it was. Niche was the name of the entity that
sponsored or marketed the first plan. At some point in 2004, the Niche section
419A plan in which the Goldbergs' S corporation participated converted from a
"multiple employer" plan to a "single employer" plan.¹7 In its examination of their
2004 return, the IRS determined this conversion constituted a recognition event
that gave rise to $394,091 of income that the Goldbergs had never reported.
The second plan in which one of the Goldbergs' S corporations participated
was the Greater Metropolitan Benefits plan. RMG Enterprises, Ltd., was an
S corporation wholly owned by the Goldbergs. RMG Enterprises, Ltd.,
participated in the Greater Metropolitan Benefits plan. At some point, either the
Goldbergs withdrew from the Greater Metropolitan Benefits plan or RMG
Enterprises, Ltd., terminated its participation in the Greater Metropolitan Benefits
plan. In its examination of their 2004 return, the IRS determined this withdrawal
¹7Multipleemployer plans have been marketed as providing tax benefits to
participating employers. Notice 95-34, 1995-1 C.B. 309, 309-310.
- 58 [*58] or termination constituted a recognition event that gave rise to $601,328 of
income that the Goldbergs had never reported.
The IRS's examination of the Goldbergs' 2004 joint income-tax return
began in June 2007.¹8 RA Knighton was assigned to the Goldbergs' examination.
The IRS selected the couple's 2004 joint income-tax return for examination
because the IRS had a national initiative to examine returns of taxpayers who, like
the Goldbergs, had involvement with Niche section 419A plans. Though the
Goldbergs' return was selected for examination because of their involvement in
the Niche section 419A plan, the examination was not limited to the Niche issue
for tax year 2004.
The examination focused on three areas: (1) the income arising from the
Goldbergs' involvement in the two benefit plans; (2) the Goldbergs' carrybacks
and carryovers of the NOL deductions; and (3) the deductibility to the Goldbergs
of the losses of their wholly-owned S corporation, Wireless Distributors, Inc.
The first 20 of the 22 periods for which Goldberg requested interest
abatement were during the examination. The examination ended with the signing
of the May 2011 Form 4549. Most of our findings of fact related to these first 20
¹8Theexaminations of their 2003 and 2004 returns were performed
simultaneously, but we focus on only the 2004 tax year.
- 59 [*59] periods are based on testimony given at trial and the activity log that RA
Knighton (the examiner) used to contemporaneously document her actions during
the examination of the Goldbergs' 2004 income-tax return. Unless otherwise
stated, we credit RA Knighton's activity log and her testimony.
On June 20, 2007, RA Knighton "opened [the] case file, prepared the
electronic folder", and mailed the first information document request (IDR) to the
Goldbergs." We refer to this as the June 2007 IDR. Including that IDR, RA
Knighton issued a total of four IDRs throughout this examination. None is in the
record.2° We understand their substance by looking at RA Knighton's activity log
and the correspondence surrounding the issuance of each IDR. This
correspondence includes the emails Goldberg and RA Knighton exchanged to
clarify requests and confirm receipt of information and paper documents.
Though not entirely clear, the record indicates that the June 2007 IDR asked
for information pertaining to contributions that the S corporation had made to the
Niche section 419A plan. Throughout June and early July 2007, Goldberg and RA
"Throughout all periods we discuss, Goldberg generally acted as the
couple's liaison with RA Knighton; we have noted a few instances where the
Goldbergs' representative acted on the couple's behalf.
2°The record also lacks documents such as cover letters (if any existed) that
accompanied the IDRs.
- 60 [*60] Knighton exchanged phone calls, emails, and letters. In these June and July
2007 communications, it seems that RA Knighton sought information from
Goldberg about the Niche section 419A plans, the Goldbergs' businesses, and
their participation in other "retirement plans".2¹
On August 9, 2007, RA Knighton received some of the information she had
requested from Goldberg in the June 2007 IDR. It is not clear when Goldberg
responded to each of the requests in the June 2007 IDR; his responses were
piecemeal.
B.
Period 1: September 12-20, 2007
1.
Introduction
The Office of Appeals denied interest abatement for the nine days from
September 12-20, 2007. On the 2004 Abatement Schedule, which was part of his
submission to the Office of Appeals before the supplemental hearing, Goldberg
argued that abatement should be granted because, he alleged, RA Knighton's
activity log "[i]ndicates she was locked out of" the e-wrap system for nine days.22
2¹Itwas not until April 29, 2008, that RA Knighton learned of the
Goldbergs' involvement with the Greater Metropolitan Benefits plan. See infra pt.
III.H.
22In his simultaneous answering brief, Goldberg seemingly makes a
concession, stating that "Petitioner does not disagree for 8 days" in response to the
(continued...)
- 61 [*61] The e-wrap system is the electronic system that IRS employees working off
site use to connect to the IRS's computer system. The record does not show that
RA Knighton was locked out for nine days, as explained below.
2.
Events
RA Knighton was locked out of the e-wrap system for one day, on
September 17, 2007, not nine days as Goldberg alleges. Even though RA
Knighton was locked out on September 17, 2007, her activity log--which
Goldberg relied on to show his entitlement to interest abatement--shows that RA
Knighton worked for four hours on the Goldbergs' examination that day. It also
states that though Goldberg did deliver some of the necessary documents that she
had requested in the June 2007 IDR, he did not deliver them all. During this
period, Period 1, RA Knighton noted in her activity log that she had found
additional issues in the Goldbergs' 2004 return and amended returns. These
additional issues included the carryover and carryback of NOLs.
22(...continued)
IRS's opening brief, which states that during the nine days of Period 1, the IRS
"did not commit any unreasonable errors or delays in the performance of a
managerial or ministerial act." For the reasons we explained supra part III, pp. 5354, Goldberg's attempt to concede a number of days without providing the
specific dates does not narrow the issues to be decided.
- 62 [*62] For September 18 and 19, 2007, RA Knighton's activity log does not have
any entries for work on the Goldbergs' 2004 examination. On September 20,
2007, RA Knighton worked on the Goldbergs' 2004 examination for three hours.
In conclusion, we do not credit either Goldberg's statement that RA
Knighton was locked out of the e-wrap system for nine days or his implication that
she did not perform any work on his case during Period 1. Instead, we find that
RA Knighton was locked out of the e-wrap system for one day, on that day she
performed four hours of work on the Goldbergs' examination, and she performed a
total of seven hours of work on their examination during this nine-day period.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period. Goldberg bears the burden of proving that RA Knighton made an
unreasonable error or caused an unreasonable delay during this period. See Rule
142(a). Goldberg has not met his burden; he has not proven the facts underlying
his allegation that RA Knighton was locked out of the e-wrap system for nine days
and was thus unable to work for nine days. Instead, RA Knighton's activity log
shows during this period she performed seven hours of work on the Goldbergs'
examination. We do not see any error or delay, let alone an unreasonable error or
delay. Consequently Goldberg has failed to show that the Office of Appeals
- 63 [*63] abused its discretion. See Foote v. Commissioner, T.C. Memo. 2015-187,
at *17, afÕl, 700 F. App'x 760 (9th Cir. 2017).
C.
Period 2: September 20-27, 2007
1.
Introduction
The Office of Appeals denied interest abatement for the eight days from
September 20-27, 2007. Goldberg argued in the 2004 Abatement Schedule that
interest abatement should be granted because allegedly RA Knighton "lacked
knowledge of events or proceedures [sic]", thus delaying the conclusion of the
Goldbergs'examination.23
2.
Events
As stated supra part III.B (Period 1), RA Knighton worked on the
Goldbergs' 2004 examination for three hours on September 20, 2007. On that
day, she spoke to Goldberg "at length" about various issues, including a
developing issue about the Goldbergs' claimed carryback NOL deductions. It
23In his simultaneous answering brief, Goldberg seemingly makes a
concession, stating that "Petitioner does not disagree for 7 days" in response to the
IRS's opening brief, which states that during the eight days of Period 2, the IRS
"did not commit any unreasonable errors or delays in the performance of a
managerial or ministerial act." For the reasons we explained supra part III, pp. 5354, Goldberg's attempt to concede a number of days without providing the
specific dates does not narrow the issues to be decided.
- 64 [*64] seems that for at least one year, 2006 or 2005, or both, the Goldbergs had
filed their income-tax returns as married-filing-separately, whereas for 2004, they
filed jointly. It was not clear to RA Knighton that the Goldbergs could carry back
an NOL arising in a year for which the Goldbergs had filed separately to years for
which the two had filed jointly. RA Knighton indicated in her activity log for
September 20, 2007, that she "need[ed] to research to determine of [sic] this
[carryback] is acceptable."
Also on September 20, 2007, RA Knighton prepared and sent an additional
IDR to the Goldbergs, giving them a two-week due date "with understanding that
additional time may be needed". We refer to this IDR as the September 2007 IDR.
Though it is not exactly clear, the September 2007 IDR seems to have
requested information still outstanding from the June 2007 IDR, including
information about the Niche section 419A plan contributions. The September
2007 IDR also sought information needed to determine the correctness of the
Goldbergs' reported NOL carrybacks and information about the Goldbergs' bases
in their stock and debt in their wholly-owned S corporations.24
24Though the record is not entirely clear on the issue, it seems that Goldberg
did not satisfy the September 2007 IDR's requests for information about the
Goldbergs' bases in their S corporation stock and debt until December 8,
2010--more than three years after RA Knighton had requested it.
- 65 [*65] There are no entries in RA Knighton's activity log for September 21-26,
2007. On September 27, 2007, RA Knighton received a fax from Goldberg with
questions about the September 2007 IDR.
Though it is literally true that RA Knighton "lacked knowledge of events"
relevant to the proper treatment of the Goldbergs' NOL carryback, she lacked this
knowledge because it was a new development in the examination, and she had not
yet received information about it from the Goldbergs. It is also literally true that
RA Knighton "lacked knowledge of * * * [procedures]" for determining the
proper treatment of the NOL carrybacks; however, RA Knighton lacked this
knowledge in part because she did not yet have the underlying facts upon which to
determine how to treat the NOLs. Because she did not yet have all the information
and did not yet know the proper treatment of the NOLs, RA Knighton issued a
second IDR (the September 2007 IDR), and she flagged for further research the
issue (i.e., how an NOL can be carried back from separate returns filed for one
year to a joint return filed for a different year). The September 2007 IDR sought
information she had already requested in the June 2007 IDR and new information
she needed to determine the proper carryback of an NOL. During this period, RA
Knighton waited for Goldberg to provide information necessary for her to perform
the examination.
- 66 [*66]
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period. Goldberg has failed to prove there was a managerial or ministerial act
during this period. The record shows that RA Knighton decided she would need
more information from the Goldbergs about their NOLs, and RA Knighton
decided that she would need to research the proper method of carrying back the
NOLs. Even if we assume these decisions unreasonably delayed the examination
(which we do not), Goldberg's arguments must fail because RA Knighton's
flagging an issue as needing additional information and research involved the
exercise of discretion and regarded the proper application of Federal tax law.
Thus, the hypothetical delay arising from her decisions did not occur in the
performance of a managerial or ministerial act. See sec. 301.6404-2(b), Proced. &
Admin. Regs.
"It is well settled that a decision concerning the proper application of
Federal income tax law necessarily requires the exercise ofjudgment and
discretion" and is not a managerial or ministerial act. Foote v. Commissioner, at
*20; see also sec. 301.6404-2(b), Proced. & Admin. Regs. Section 172 of the
Internal Revenue Code is federal tax law. It provides a deduction for NOLs. Sec.
172(a) and (b). RA Knighton made preliminary determinations about the types of
- 67 [*67] information she would need to determine the proper carryback of the
Goldbergs' NOL deductions. These preliminary determinations necessarily
required RA Knighton to exercise her judgment as to what information she would
need and involved decisions concerning the proper application of federal tax law.
These determinations are neither ministerial nor managerial acts under section
6404(e)(1). See sec. 301.6404-2(b), Proced. & Admin. Regs. Section 6404(e)(1)
gives the IRS the discretion to abate interest only if there is a managerial or
ministerial act. Here there was no managerial or ministerial act. It was not an
abuse of discretion to deny Goldberg interest abatement for this period.
D.
Intermediary period: September 28 through November 30, 2007
Goldberg does not seek interest abatement for this period. We describe the
events of this period to provide a complete background. RA Knighton spoke with
Goldberg on October 10, 2007, about obtaining additional information relating to
his 2004 joint income-tax return. It is not clear what they discussed, except that
RA Knighton explained to Goldberg that she would prefer that he send her
information in bulk as opposed to piecemeal.
- 68 [*68] E.
Period 3: December 1, 2007, through January 31, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 62 days from
December 1, 2007, through January 31, 2008. In the 2004 Abatement Schedule,
Goldberg argued that interest abatement should be granted because allegedly the
"RA's activity records show[] no activity" on his 2004 examination during this
period.25
2.
Events
In December 2007, RA Knighton made an entry in her activity log that she
had received three separate packages from Goldberg with cover letters dated
respectively November 30, December 11, and December 14, 2007. Her activity
log does not have any other entries for December 2007, nor does the record
contain additional information about her activity for the month. The packages
from Goldberg contained some of the information RA Knighton had requested in
25In his simultaneous answering brief, Goldberg seemingly makes a
concession, stating that "Petitioner does not disagree for 60 days" in response to
the IRS's opening brief, which states that during the 62 days of Period 3 the IRS
"did not commit any unreasonable errors or delays in the performance of a
managerial or ministerial act." For the reasons we explained supra part III, pp. 5354, Goldberg's attempt to concede a number of days without providing the
specific dates does not narrow the issues to be decided.
- 69 [*69] the September 2007 IDR. The response to the September 2007 IDR had
been due in early October 2007.26
In the new year, 2008, there is no documented work on the Goldbergs' 2004
examination until January 31, 2008. On January 31, 2008, RA Knighton received
a phone call from Offer-and-Compromise Appeals Officer Karin Banks. This
phone call is discussed in more detail in Period 4, infra part III.F.
Though RA Knighton's activity log reflects little work on the Goldbergs'
2004 examination during December 2007, RA Knighton credibly testified that her
activity log does not reflect her work on the examinations of other taxpayers for
this period. RA Knighton was working on examinations other than the Goldbergs'
2004 and 2003 examinations. She maintained a separate activity log for each year
for each taxpayer whose returns she examined, and she did not always note in her
activity log for one examination that she was working on another examination.
Even though her activity log for the Goldbergs' 2004 examination sometimes
explicitly noted when she was not able to work on the Goldbergs' 2004
examination during other periods (writing, for example, "Delay in case due to RA
26It seems that RA Knighton subsequently determined that those three
packages were insufficient to support the NOL carryback. It seems that RA
Knighton determined that Goldberg did not provide sufficient information to
support the NOL carryback until three years later on December 8, 2010.
- 70 [*70] working older priority cases"), she did not make such a notation for
December 2007 or January 2008.
In conclusion, we find that during Period 3 RA Knighton documented
receiving three packages from Goldberg and spending one hour on a phone call.
Goldberg sent these three packages in response the September 2007 IDR, a
response that was more than a month and a half overdue. RA Knighton also
worked on other cases during this period, work which she did not document in her
activity log for the Goldbergs' 2004 examination.
3.
Analysis and holding
We sustain the Office of Appeals' denial of interest abatement for this
period because Goldberg has failed to allege or prove that any delay during this
period occurred in the performance of a managerial or ministerial act. During this
period, RA Knighton had decided to work on examinations other than the
Goldbergs' 2004 joint income-tax return examination. A revenue agent's
"decision of how and when to work on a case, based on an evaluation of * * *
[her] entire caseload and * * * [her] workload priorities, is not a ministerial act."
Jean v. Commissioner, T.C. Memo. 2002-256, slip op. at 11; see also sec.
301.6404-2(b)(2), Proced. & Admin. Regs. (stating decisions involving "the
exercise ofjudgment or discretion" are not ministerial acts). Nor is such a
- 71 [*71] decision a managerial act. It "is more akin to a general administrative
decision", for which interest cannot be abated under section 6404(e)(1).
Hornbacker v. Commissioner, T.C. Memo. 2016-65, at *19; see also sec.
301.6404-2(c), Examples (7) and (0, Proced. & Admin. Regs. Because RA
Knighton's decisions about how and when to work on the Goldbergs' examination
are neither managerial nor ministerial acts under section 6404(e)(1), abatement of
interest was not allowable. The Office of Appeals' determination not to abate
interest for this period, Period 3, was not an abuse of discretion.
F.
Period 4: January 31 through March 11, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 41 days27 from
January 31 through March 11, 2008. In the 2004 Abatement Schedule, Goldberg
argued that abatement should be granted because the "RA's activity record shows
she was delayed" for the entire 41-day period "due to working on higher priority
cases".
270n the 2004 Abatement Schedule, Goldberg requested interest abatement
for "39" days. The Office of Appeals correctly assumed Goldberg was requesting
41 days of interest abatement on the basis of the start and end dates he provided
for Period 4.
-72[*72]
2.
Events
On January 31, 2008, the first day of this period, RA Knighton documented
speaking with Banks. As we noted in Period 3, supra part III.E, p. 69, Banks had
called RA Knighton. The two spoke about the Goldbergs' examination for one
hour. Banks explained to RA Knighton that Goldberg had made an offer-incompromise for multiple tax years, including 2004. This offer was pending at the
time Banks spoke with RA Knighton. Banks said that once an offer is made for a
specific tax year, the IRS is not "supposed to make any other assessments [of tax]
for that year." The examination of the Goldbergs' 2004 tax year could yield
deficiencies and additions to tax, which would in turn lead to assessments of tax.
If the IRS accepted Goldberg's pending offer-in-compromise while the 2004
examination was still taking place, the IRS would be precluded from later
assessing any deficiencies determined from the examination.28 Banks thus
concluded that Goldberg's offer for the 2004 tax year was premature because the
Goldbergs' 2004 tax liability was still undetermined at the time Goldberg made
the offer.
28According to Banks.
- 73 [*73] During February 2008, RA Knighton did not perform any work on the
examination of the Goldbergs' 2004 return because she was busy "working [on]
older priority cases" of other taxpayers or other tax years of the Goldbergs.
The record does not reflect any activity on the examination of any of the
Goldbergs' returns on March 1-10, 2008. March 11, 2008, is discussed in the next
period, Period 5, infra part III.G.
We find that for most of Period 4, RA Knighton was indeed delayed
working on the Goldbergs' 2004 examination because she was working on other
cases, though she did perform some work on the Goldbergs' 2004 examination on
January 31, 2008.
3.
Analysis and holding
We sustain the Office of Appeals' denial of interest abatement for this
period. Goldberg has neither identified nor proven that any delay during this
period occurred in the performance of a managerial or ministerial act. "The
prioritizing of work and caseloads is not a managerial or ministerial act."
Hornbacker v. Commissioner, at *19; see also sec. 301.6404-2(c), Examples (7)
and (8), Proced. & Admin. Regs. During this period, Period 4, RA Knighton
prioritized working on "older priority cases" instead of working on the Goldbergs'
2004 joint income-tax return. Her decision to prioritize is not a ministerial or
- 74 [*74] managerial act. The Office of Appeals' denial of interest abatement for
Period 4 was not an abuse of discretion.
G.
Period 5: March 11 through April 28, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 49 days29 from
March 11 through April 28, 2008. In the 2004 Abatement Schedule, Goldberg
argued that abatement should be granted because RA Knighton's activity log
shows that she performed no work during this period on the Goldbergs' 2004
examination or on the Goldbergs' returns for other years, or on any other
taxpayers' returns. This argument reflects Goldberg's misunderstanding of how
RA Knighton documented her activities.
2.
Events
On the first and second days of this period, March 11 and 12, 2008,
Goldberg and RA Knighton exchanged voice mails and emails. It appears that
Goldberg told RA Knighton that he needed her to speed up the examination
because he believed the conclusion of his 2004 examination would result in a
290n the 2004 Abatement Schedule, Goldberg requested interest abatement
for "39" days. The Office of Appeals correctly assumed Goldberg was requesting
49 days of interest abatement on the basis of the start and end dates he provided
for Period 5.
- 75 [*75] refund that he believed he could use to reduce interest from accruing on his
unpaid tax liabilities from 1994. This refund, it seems, was claimed on a Form
1040X, "Amended U.S. Individual Income Tax Return", that the Goldbergs had
filed for their 2004 tax year. The record is unclear on the issue, but it appears that
Goldberg believed that he was entitled to a 2004 refund because of the carryback
of NOLs to 2004. RA Knighton told Goldberg that she was unable to "release"
the money to Goldberg unless he planned to settle the entire examination of his
2004 joint income-tax return.
RA Knighton did not document any activity on Goldberg's 2004 joint
income-tax return on March 13-24, 2008.
On March 25, 2008, Goldberg asked for an update on RA Knighton's
progress on the examination. RA Knighton does not seem to have responded to
Goldberg's request for an update, but she recorded in her activity log that she did
not have control over his refund. Her notes do not explain why she lacked control
over his refund, but we gather from other parts of the record that she thought she
could not comply with Goldberg's request because the Form 1040X was for the
year that she was examining, 2004, and she could not release any claimed refunds
for that year until the entire examination was completed.
- 76 [*76] As the examination progressed, RA Knighton realized that the Goldbergs'
involvement in the benefit plans was complex, and she sought assistance from the
IRS's Issue Management Team ("IMT"). RA Knighton explained at trial that the
IMT is a "group of people who are knowledgeable" about a specific issue. On the
same day that Goldberg emailed her about his refund, March 25, 2008, RA
Knighton contacted the IMT and scheduled a meeting with IMT member John
Marien for the end of April 2008.
RA Knighton did not document any activity on the Goldbergs' 2004 joint
income-tax return on March 26-31 or April 1-26, 2008.
On April 27, 2008, RA Knighton responded to another email from Goldberg
about releasing the refund he had claimed on the Form 1040X. She told Goldberg
that she had a three-day work session with an IMT member scheduled for April 29
through May 1, 2008.
On April 28, 2008, RA Knighton organized her case file in preparation for
her three-day session with IMT member Marien.
During this entire period, as with prior periods, RA Knighton had been
working on other cases for different taxpayers, different years of the Goldbergs,
and even different years for the Goldbergs' S corporations. As with Period 3, she
- 77 [*77] did not document her activity for other taxpayers, years, or entities in her
activity log that she kept for the Goldbergs' 2004 examination.
In conclusion, we find that RA Knighton was actively working on the
Goldbergs' 2004 examination during this period, Period 5, and that she was
working on examinations for other years, taxpayers, and entities.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period because Goldberg has failed to prove an unreasonable error or delay in
performing a managerial or ministerial act. Instead of an error or delay, the record
shows that RA Knighton worked diligently on the Goldbergs' examination during
this period. See Foote v. Commissioner, at *27. RA Knighton also chose to work
on other examinations during this period. And even assuming this choice
somehow delayed the Goldbergs' examination, RA Knighton's decision involved
the exercise of discretion, which is not a ministerial act. See Jean v.
Commissioner, slip op. at 11; see also sec. 301.6404-2(b)(2), Proced. & Admin.
Regs. Goldberg has not put forth any evidence that this choice constituted a
managerial act, either. Cf sec. 301.6404-2(b)(1), Proced. & Admin. Regs.
(defining "managerial act" as an administrative act "involving * * * the exercise of
judgment or discretion relating to management of personnel"). Because there was
- 78 [*78] no unreasonable error or delay in performing a managerial or ministerial act,
it was not an abuse of discretion for the Office of Appeals to deny interest
abatement for Period 5.
H.
Intermediary period: April 29 through July 17, 2008
Goldberg does not seek interest abatement for this period. We describe the
events of this period to provide a complete background.
From April 29 through May 1, 2008, RA Knighton and Marien worked a
total of 12 hours on the Goldbergs' 2004 income-tax return, focusing on the
Goldbergs' involvement in two benefit plans. On April 29, 2008, RA Knighton
documented that either she or Marien had determined that the Goldbergs (through
one of their S corporations) were involved in the Greater Metropolitan Benefits
plan. It seems that before this April 29, 2008 notation RA Knighton had believed
that the Goldbergs were involved in only the Niche section 419A plan.
On May 2, 2008, RA Knighton worked for two hours on the issue of if (and
how) the NOLs that arose in a year when the Goldbergs filed separately could be
carried back to 2004, a year for which the couple filed jointly.
From May 5-7, 2008, RA Knighton worked for seven hours on the
Goldbergs' 2004 joint income-tax return. On May 6, 2008, she made two requests
for information from Goldberg. The first request was in the form of a third IDR
- 79 [*79] (the May 2008 IDR), which appears to have sought information she had not
yet asked for in any IDR. It seems (though is not clear) that this first May 6, 2008
request, the May 2008 IDR, sought information about the Goldbergs' involvement
with the Greater Metropolitan Benefits plan. The second request was informally
made via email and appears to have sought S corporation basis information that
she had previously requested in the September 2007 IDR. In the email, RA
Knighton requested that Goldberg provide her certain years' Forms 1120S, "U.S.
Income Tax Return for an S Corporation", for two of the Goldbergs' wholly
owned S corporations: RMG Enterprises, Ltd., and Wireless Distributors, Inc.
RA Knighton explained that her requests were preliminary and that she would
have "specific questions for * * * [Goldberg]" after she received this
information.3° She also let him know that he should expect to receive the May
2008 IDR in the mail.
Six days later on May 12, 2008, Goldberg emailed RA Knighton to confirm
that he had received the May 2008 IDR, which sought information about the
3°It is not clear when Goldberg fulfilled these requests for the Forms 1120S.
They may have been fulfilled on May 30, 2008; August 16, 2008; or September 4,
2008. The requests for this preliminary information in the form of Forms 1120S
seems to have been fulfilled by September 4, 2008, because on that day, RA
Knighton determined that she needed to open examinations for the Goldbergs'
subsequent tax years to determine the propriety of the NOL carrybacks.
- 80 [*80] Greater Metropolitan Benefits plan. He said he would do his best to obtain
the information, even though the "request is overwhelming". Two days later, he
emailed her again, echoing the May 12, 2008 email.
On May 19, 2008, RA Knighton received an email inquiry from Goldberg.
His email seemed to ask questions about the IRS's objection to the Niche section
419A and Greater Metropolitan Benefits plans. She sought Marien's assistance in
responding to the email. The two composed a response, and RA Knighton sent it
to Goldberg. She documented one hour of work on the email inquiry. Goldberg
responded the following day, May 20, 2008, confirming receipt of the email.
A few days later, on May 23, 2008, RA Knighton received an email from
Goldberg listing the information he would send in response to the May 2008 IDR.
In that email, he asked her a question about whether a particular precedent applied
to his examination; RA Knighton forwarded the question to the IMT.
On May 27, 2008, RA Knighton received an email from Goldberg's Niche
section 419A plan sponsor, Judi Carsrud.
On May 30, 2008, RA Knighton received documents from Goldberg that
satisfied at least four of the requests in the May 2008 IDR. These four requests
- 81 [*81] related to the contributions the S corporations had made to either of the two
benefit plans.3¹
In June 2008, RA Knighton documented receiving two emails (on June 2
and 5) from Goldberg about satisfying IDRs. Aside from logging the receipt of
the two emails, it does not appear that RA Knighton performed other work on
Goldberg's 2004 return in June 2008.
During the period July 1-17, 2008, it does not appear that RA Knighton
worked on Goldberg's 2004 joint income-tax return.
I.
Period 6: July 18-30, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 13 days from July
18-30, 2008. In the 2004 Abatement Schedule, Goldberg argued that interest
should be abated because the "RA's activity records show[] that she had to work
with IMT specialist as she was unable to understand" the components of the
Goldbergs' examination, and thus "no work [was] done" on the 2004 examination,
delaying its conclusion.
3¹Theremaining requests in the May 2008 IDR were satisfied partially, if
not fully, on August 16, 2008, over three months later.
-82[*82]
2.
Events
On July 18, 2008, RA Knighton reviewed the information Goldberg
provided in partial satisfaction of the May 2008 IDR. On that same day, RA
Knighton asked Marien for help with the Niche section 419A plan issue, and they
scheduled a meeting for July 30, 2008. The two met on July 30, 2008, and worked
for two hours on Goldberg's 2004 joint income-tax return. They focused on how
the various insurance policies funded the plans.
Also during this time RA Knighton was still waiting for Goldberg to fully
respond to the May 2008 IDR, which sought information about the Greater
Metropolitan Benefits plan.
We conclude that RA Knighton sought help from Marien, and RA Knighton
did perform work during this period.
3.
Analysis and holding
We sustain the Office of Appeals' denial of interest abatement for this
period because Goldberg failed to identify any unreasonable delay that occurred
during this period occurred in the performance of a managerial or ministerial act.
Even assuming that RA Knighton's need to seek advice was unreasonably dilatory
(an assumption that is not borne out by the record), the delay did not occur in the
performance of a managerial or ministerial act because a decision to "request
- 83 [*83] advice is a decision concerning the proper application of federal tax law",
meaning it is "neither a ministerial nor managerial act." Sec. 301.6404-2(c),
Example (9), Proced. & Admin. Regs. RA Knighton's decision to seek assistance
from Marien about the proper treatment of the Niche section 419A plan was a
decision to request advice about federal tax law. As such, it was neither a
managerial nor ministerial act.
Because Goldberg did not prove there was a managerial or ministerial act,
either of which is a predicate act for the IRS's abatement of interest, sec.
6404(e)(1), we find it was not an abuse of discretion for the Office of Appeals to
deny interest abatement for Period 6.
J.
Intermediary period: July 31 through August 7, 2008
Goldberg does not seek interest abatement for this period. We describe the
events of this period to provide a complete background.
On August 1, 2008, RA Knighton worked with Marien to prepare another
IDR (the August 2008 IDR), which RA Knighton sent to Goldberg.32 The August
2008 IDR seems to have pertained to the Niche section 419A plan and the Greater
Metropolitan Benefits plan. RA Knighton wrote that Marien "may want to use
32It is not clear when (if ever) the August 2008 IDR was satisfied.
- 84 [*84] * * * [the Goldbergs'] case as a basis for his inquiries" into the examinations
of other taxpayers who had been involved with Niche section 419A plans.
A few days later, on August 4, 2008, RA Knighton received an email from
Goldberg that indicated he had received a refund on his 2004 return despite her
examination of the return not yet having been completed. The email also indicated
he would "give * * * [the August 2008 IDR his] prompt attention when it is
received." The email suggests therefore that on August 4, 2008, Goldberg had not
yet received the August 2008 IDR.
K.
Period 7: August 8-16, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the nine days from
August 8-16, 2008. Goldberg argued that interest abatement should be granted for
this period because RA Knighton's case activity record shows that another IRS
employee "was too busy to work with" RA Knighton, allegedly delaying the
- 85 [*85] completion of the examination.33 Goldberg did not name this employee, but
it is apparent that he was referring to Marien.
2.
Events
On August 8, 2008, RA Knighton received an email from Goldberg that
confirmed he had received the August 2008 IDR. On August 12, 2008, RA
Knighton received an email from Goldberg informing her that he had sent her a
certified letter.
On August 16, 2008--the last day in this period--RA Knighton received the
certified letter referred to in the August 12, 2008 email. The certified letter was
accompanied by what appears to be the remaining information needed to complete
Goldberg's response to the May 2008 IDR. We note that this information was
received more than three months after it was requested. The information pertained
to the Greater Metropolitan Benefits plan. Upon receiving the certified letter, RA
Knighton called Marien to "schedule a date for review." Marien said he was
unable to participate because he was leaving the IRS for private practice.
33In his simultaneous answering brief, Goldberg seemingly makes a
concession, stating that "Petitioner does not disagree [sic] [for] 8 days" in
response to the IRS's opening brief that during the nine days of Period 7, the IRS
"did not commit any unreasonable errors or delays in the performance of a
managerial or ministerial act." For the reasons we explained supra part III, pp. 5354, Goldberg's attempt to concede a number of days without providing the
specific dates does not narrow the issues to be decided.
- 86 [*86] The record does not show that RA Knighton performed work on the
Goldbergs' 2004 examination on August 9, 10, 11, 13, 14, or 15.
We find that during Period 7 (August 8-16, 2008), RA Knighton was
waiting for Goldberg to deliver the information requested in the May 2008 IDR.34
The documents requested in the May 2008 request had been provided on August
16, 2008, the last day of this period. It appears that these documents, as well as
others that had been requested in the September 2007 IDR, were necessary for RA
Knighton to proceed with the examination. The delay that Goldberg alleges
occurred during this period was attributable to Goldberg's failure to provide these
documents. The delay in completing the examination was not attributable to
Marien's lack of time to meet with RA Knighton.
3.
Analysis and holding
We uphold the IRS's denial of interest abatement for this period because
Goldberg caused a significant aspect of the delay he alleged. Interest may not be
abated if a "significant aspect of such error or delay can be attributed to the
taxpayer involved". Sec. 6404(e)(1). In Foote v. Commissioner, at *25, we found
the taxpayer responsible for significant aspects of the delay where he failed to
34RA Knighton may also have been waiting for information requested in the
August 2008 IDR, but the record is not clear.
- 87 [*87] timely submit all requested documents that the examining agent needed to
proceed with the examination. See also Braun v. Commissioner, T.C. Memo.
2005-221, slip op. at 13-14 (finding various actions by taxpayer constituted
significant aspect of error or delay, including failure to submit all requested
information necessary to move forward with examination); Cosgriff v.
Commissioner, T.C. Memo. 2000-241, slip op. at 8 (finding taxpayer's
cancellation of "scheduled appointments" and "failure to timely produce requested
information" that caused errors or delays were attributable to taxpayer).
Like the taxpayer in Foote, Goldberg has alleged that an IRS employee (RA
Knighton) delayed his examination for a period in which he had not provided her
with the information necessary for her to perform the examination. She was
waiting for information she had requested in the May 2008 IDR.35 He did not
provide this information until the last day of this period. We find Goldberg's
failure to timely provide this information significantly (if not fully) caused any
delay during this period. See sec. 6404(e)(1). We thus hold that the IRS did not
abuse its discretion in denying interest abatement during this period.
35RA Knighton may have also been waiting for information she had
requested in the September 2007 IDR. Goldberg did not deliver all that
information until December 2010.
- 88 [*88] L.
Intermediary period: August 17-26, 2008
Goldberg does not seek interest abatement for this period. We describe the
events of this period to provide a complete background.
The record lacks any information about RA Knighton's work on
Goldberg's 2004 joint income-tax return during this 10-day period.
M.
Period 8: August 27 through September 4, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the nine days from
August 27 through September 4, 2008. In the 2004 Abatement Schedule,
Goldberg argued that interest abatement should be granted for this period because
RA Knighton's "activity record shows that she only worked on this file for less
than 1 hour". This argument reflects Goldberg's misunderstanding of how RA
Knighton documented her time. RA Knighton testified that her activity log
showed she in fact worked 14 hours on his examination during this period.
2.
Events
During the nine-day span of August 27 through September 4, 2008, RA
Knighton documented working 14 hours on the Goldbergs' 2004 joint income-tax
return and spending additional time examining their returns for other years. In her
- 89 [*89] activity log, RA Knighton wrote that she documented the other examinations
in separate activity records, which are not part of the record.
Goldberg's allegation that RA Knighton worked less than an hour during
this period likely arises from his confusion about the way RA Knighton records
her time. The following image is an excerpt from RA Knighton's activity log
during this period, Period 8.
Date
LOC
Time
on
2003
6/27
Time
on
2004
2/38
Remarks, Notes, Actions Taken
RA continued to work on the case organizing information.
8/28
4/42
RA continued to work on the case organizing information.
8/29
4/46
RA continued to work on the case organizing information.
9/2
2/48
RA continued to work on the case organizing information.
9/3
2/50
RA continued to work on the case organizing information.
(including the NOL carry back) the subsequent years for the
taxpayers need to be opened . The time keeping will be
shown on the separate activity records since they no longer
file a joint retum. Case still being worked - time charged to
those entities. Also waiting on determination of paying entity
vs participating entity. Continue to question whether TP will
be s gn ng the 872's
At trial, RA Knighton explained that the numbers Goldberg assumed to be
fractions of an hour in the column labeled "Time on 2004" show the number of
hours she worked on the case for the day (the number to the left of the forward
slash) and the cumulative hours that she had worked on the case to date (the
number to the right of the forward slash). For example, on August 27, 2008, RA
Knighton worked 2 hours; and including those 2 hours, her cumulative time on
Goldberg's 2004 joint income-tax return was 38 hours. On August 28, 2008, she
- 90 [*90] worked 4 hours; and including those 4 hours, her cumulative time on the
Goldbergs' 2004 joint income-tax return was 42 hours. The same pattern
continues for the remaining days. RA Knighton documented her time in the same
way for all periods that we discuss.
Goldberg's contention that RA Knighton worked less than one hour during
the nine-day span seems to arise from the view that the use of slashes connotes
fractions of an hour. If the entries for the nine-day span are interpreted as
fractions in the "Time on 2004" column, with hours as their unit, then their sum is
0.32 hours, which is less than one hour. However, we find that Goldberg's
interpretation was incorrect, and that RA Knighton worked a total of 14 hours
during this nine-day period.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period. Goldberg has failed to identify or prove an error or delay or a managerial
or ministerial act. See sec. 6404(e)(1); see also Foote v. Commissioner, at *23
(denying interest abatement where taxpayers failed to identify predicate act). To
the contrary, the record shows that RA Knighton worked steadily on Goldberg's
2004 examination during this period.
- 91 [*91] Absent an error or delay and a managerial act or a ministerial act, no interest
abatement is available under section 6404(e)(1). We hold that the IRS did not
abuse its discretion in denying interest abatement because Goldberg failed to
prove the predicate conditions under which it may be abated. See Banat v.
Commissioner, T.C. Memo. 2000-141, slip op. at 6 ("[T]he Secretary has no
authority to abate an assessment of interest on a deficiency unless that assessment
is attributable in whole or in part to some error or delay by an officer or employee
* * * of the Service in performing a ministerial act."), aff d, 5 F. App'x 36 (2d Cir.
2001).
N.
Period 9: September 4-22, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 19 days from
September 4-22, 2008. In the 2004 Abatement Schedule, Goldberg argued that
abatement should be granted for this period because RA Knighton's activity
record shows that at that point in his examination, she "was working on something
other than the examination of" the Goldbergs' S corporation's section "419 plan".
The section 419 plan could refer to either the Niche section 419A plan or the
Greater Metropolitan Benefits plan because both were regulated by the provisions
of section 419, and RA Knighton's activity log seems to have referred to them
- 92 [*92] both as section 419 plans. We take Goldberg's argument to be that it was
erroneous or dilatory for RA Knighton to work on anything other than the
treatment of the Niche plan, the Greater Metropolitan Benefits plan, or both at this
point in his examination.
2.
Events
During Period 9, RA Knighton's activity log shows that she was working on
various issues in the examination of the Goldbergs' 2004 joint income-tax return,
including the appropriateness of the claimed carryback and carryover of NOLs.
To correctly determine these carrybacks and carryovers, RA Knighton wrote in her
activity log that she needed to open up examinations for years after tax year 2004.
It also appears that she needed to examine the Form 1120S, "U.S. Income Tax
Return for an S Corporation", that was filed by one of the S corporations of which
the Goldbergs were 100% shareholders. RA Knighton wrote in her activity log for
the Goldbergs' 2004 examination that she documented her examination for the
additional years and entity on separate activity records. These records were not
offered into evidence, though we have no reason to doubt that they existed and
that RA Knighton documented her time in them.
On September 4, 2008, RA Knighton noted that the expiration of the period
of limitations was quickly approaching and she had yet to complete her
- 93 [*93] examination report or receive a Form 872-I, "Consent to Extend the Time to
Assess Tax as Well as Tax Attributable to Items of a Partnership", from the
Goldbergs.36 At some time before the period we are discussing, Period 9, RA
Knighton had sent the Goldbergs a Form 872-I to extend the period of limitations
for assessment to June 30, 2009.
RA Knighton also documented speaking on the phone with Goldberg and
receiving emails from him during this period. On September 19, 2009, RA
Knighton called Goldberg and told him that because the period of limitations for
assessment was imminently expiring and the Goldbergs had not yet signed Forms
872-I to consent to extend the period of limitations, she would be closing the case
36In general, the IRS may not assess tax more than three years from the date
the return is due (if the return was filed on or before that date) or the date the
return was filed (if the return was filed late). Sec. 6501(a) and (b)(1). The general
three-year period can be extended when the IRS and the taxpayer consent in
writing to extension. Sec. 6501(c)(4). This consent is often made in some version
of the Form 872. See sec. 601.105(f), Statement of Procedural Rules; see also
Internal Revenue Manual ("IRM") pt. 8.21.3.1.3.5 (Aug. 14, 2007).
IRS Form 872-I, "Consent to Extend the Time to Assess Tax as Well as Tax
Attributable to Items of a Partnership", allows for the extension of the period for
assessment of tax with respect to both partnership items and nonpartnership items.
Form 872-I (February 2005); see also IRM pt. 4.31.2.6.3(3)(b.) (Mar. 4, 2008).
RA Knighton may have used a Form 872-I because the Goldbergs reported they
owned partnership interests and reported related partnership items on their 2004
Schedule E, "Supplemental Income and Loss". The IRM directed agents to use a
Form 872-I if "the examiner is uncertain as to the TEFRA status of any partnership
in which the taxpayer has invested". IRM pt. 25.6.22.4.3(1) (Mar. 1, 2008).
- 94 [*94] on the basis of the information she presently had in the case file. She seems
to have told him this would affect the amount or possibility of carrying the NOLs
forward and backward. Three days later, on September 22, 2008, Goldberg sent
RA Knighton an email asking her to respond in writing to the various queries he
had earlier put to her, some of which seemed to have been about the applicability
of certain caselaw to his examination.37 RA Knighton did not immediately
respond to the email. She forwarded the email to her group manager and
discussed the case with her group manager in the following period, Period 10, on
September 23, 2009.
Goldberg's allegation that RA Knighton was working on something other
than the examination of the section 419 plans is an accurate statement of RA
Knighton's activities. However, the inference he intends for us to draw from the
statement--that this work created an error or delay--is unsupported. To the
contrary, RA Knighton appears to have spent considerable time on the Goldbergs'
2004 joint income-tax return, including determining the availability of "NOL carry
back[s]". It appears that RA Knighton chose to organize her work during this
period to focus on issues other than section 419 plan issues. It is not clear why she
37Goldberg sent one of these inquiries in a certified letter. The letter is not
in the record. Goldberg sent this letter in response to the August 2008 IDR.
- 95 [*95] made this choice. The record reveals two likely reason: one, Goldberg had
not yet fulfilled the August 2008 IDR, which RA Knighton needed to make
detenminations on the Niche plan, or two, the section 419 issue may have (in the
words of RA Knighton) "gone National", meaning RA Knighton lacked control
over its resolution. Regardless of her reasoning, RA Knighton made a choice to
organize her workload to focus on issues other than the section 419 issue.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period because Goldberg has not shown that it was an error for RA Knighton to
work on issues other than the section 419 plan issue. The record shows that RA
Knighton worked diligently on other issues of the Goldbergs' 2004 examination.
Absent an unreasonable error or delay, the Office of Appeals lacks the discretion
to abate interest under section 6404(e)(1).
Furthermore, Goldberg has failed to show that RA Knighton's decision to
work on issues other than the section 419 issue is a managerial or ministerial act.
We have already explained, supra parts III.E and III.G (Periods 3 and 5,
respectively), that such decisions about how and when to work on a case are
neither managerial nor ministerial acts. M Jean v. Commissioner, slip op. at 11;
Hornbacker v. Commissioner, at *19; see also sec. 301.6404-2(b)(2), (c),
- 96 [*96] Examples (7) and (0, Proced. & Admin. Regs. The record does not show an
error or delay or a managerial or ministerial act. Thus it was not an abuse of
discretion for the IRS to decline to abate interest under section 6404(e)(1).
O.
Period 10: September 23-25, 2008
1.
Introduction
The IRS denied interest abatement for the three days from September 23-25,
2008. In the 2004 Abatement Schedule, Goldberg argued that abatement should
be granted for this period because allegedly RA Knighton's case activity log
shows that she "worked 1/51 of an hour on the file" during this period.38 This
argument reflects Goldberg's misunderstanding of how RA Knighton documented
her time. The same mistake permeated Goldberg's request for interest abatement
for Period 8. See supra pt. III.M.
38In his simultaneous answering brief, Goldberg seemingly makes a
concession, stating that "Petitioner does not disagree for 2 days" in response to the
IRS's opening brief that during the three days of Period 10, the IRS "did not
commit any unreasonable errors or delays in the performance of a managerial or
ministerial act." For the reasons we explained supra part III, pp. 53-54,
Goldberg's attempt to concede a number of days without providing the specific
dates does not narrow the issues to be decided.
-97[*97]
2.
Events
Over the three-day period, RA Knighton documented her time in the same
way as she had during Period 8. The following image is excerpted from RA
Knighton's activity log for Period 10.
Date
LOC
9/23
Time
on
Time
on
2003
2004
Remarks, Notes Ãcikms Taken
Discussed case with GM - meeting in Buffalo on Wednesday
and will review and call TP then -- RA bringing all case fdes to
.
Buffalo
Continued to work on the case. RA received an e-mail that his
advisors have stated he should sign the 872 and he stated he
would if I agreed to work with his professionals. I replied that I
would work with whomever he wanted me to as long as the
appropriate 2848 was completed and filed allowing me to de
so. Requested controls of the 2003 return based on Carry
back of NOL from 2005 returns and then the balance carried
forward.
As we explained for Period 8, supra part III.M, the notations of 1/1 and 1/51 do
not indicate fractions of an hour. Instead the number to the left of the forward
slash indicates the number of hours RA Knighton worked on that day, and the
number to the right of the forward slash indicates the cumulative number of hours
RA Knighton had worked to date. The above figure shows that RA Knighton
worked for one hour on the Goldbergs' 2004 joint income-tax return and one hour
on their 2003 joint return during this period, Period 10. Cumulatively, she had
worked 51 hours on the 2004 joint income-tax return and 1 hour on the 2003 joint
income-tax return. Goldberg's contention that RA Knighton worked less than one
hour during the three-day span seems to arise from his misreading of her activity
record.
- 98 [*98] We find, as we did for Period 8, supra part III.M, that Goldberg's
interpretation of RA Knighton's entries in the case activity record was incorrect,
and RA Knighton worked on the Goldbergs' returns for a total of two hours during
this three-day period: one hour on their 2003 return and one hour on their 2004
return.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period, Period 10, because Goldberg has failed to identify or prove an
unreasonable error or delay. See sec. 6404(e)(1); see also Foote v. Commissioner,
at *23 (denying abatement where taxpayers failed to identify predicate act, i.e., an
error or delay). The record does not show that RA Knighton worked less than an
hour during this period. Instead, the record shows that during Period 10, RA
Knighton worked one hour on the 2003 return and one hour on the 2004 return.
Goldberg has not shown that working for a total of two hours is an unreasonable
error or delay.
Absent an error or delay (that is unreasonable) and a managerial act or
ministerial act, interest abatement is not warranted. See sec. 6404(e)(1). Goldberg
has failed to prove the existence of the predicate conditions for abatement of
- 99 [*99] interest. We hold the IRS did not abuse its discretion in denying interest
abatement for this period, Period 10. See Banat v. Commissioner, slip op. at 6.
P.
Intermediary period: September 26-28, 2008
Goldberg does not seek interest abatement for this period. We describe the
events of this period only to the extent that they bear on the periods at issue.
After Period 10, September 23-25, 2008, the focus of the examination
shifted entirely away from the Goldbergs' involvement in the benefit plans (the
section 419 issue). It seems that because the treatment of the plans had become a
"national issue" RA Knighton had no control over the adjustment of the
Goldbergs' income arising from their involvement with the plans. All periods
after Period 10 that were coextensive with the examination, Periods 11-20,
focused on the Goldbergs' carryover and carryback of NOLs and the
substantiation of their bases in the stock and debt of their S corporations.
On September 26, 2008, RA Knighton recorded that she worked for one
hour on the Goldbergs' 2003 joint income-tax return and one hour on their 2004
jomt mcome-tax return. The following day, on September 27, 2008, she recorded
that she received an email from Goldberg in which he stated: "[I]t will take me a
few days to get the [Form] 2848 to you". Form 2848, "Power of Attorney and
- 100 [*100] Declaration of Representative", is the form by which a taxpayer authorizes
a representative to deal with the IRS.
Q.
Period 11: September 29 through November 13, 2008
1.
Introduction
The Office of Appeals denied interest abatement for the 46 days from
September 29 through November 13, 2008. On the 2004 Abatement Schedule
Goldberg argued that abatement should be granted for this period because
allegedly RA Knighton's "activity record shows that she was working on other
cases" and not the Goldbergs' case during this period.
2.
Events
During this 46-day period, RA Knighton's activity log shows that she was
working on the Goldbergs' examination. Her activity log shows four entries,
dated September 29, October 6 and 10, and November 13, 2008.
On September 29, 2008, RA Knighton received the Goldbergs' signed
Form 872-I. This Form 872-I extended the period of limitations for assessment for
the Goldbergs' 2004 tax year to June 30, 2009. That day, RA Knighton forwarded
the signed Form 872-I to the IRS unit that processes such forms and sent the
Goldbergs an approved copy.
- 101 [*101] She charged a total of three hours, on October 6 and 10, 2008, to
completing and mailing a "report" to the Goldbergs. It seems that the report stated
RA Knighton's findings from her examination for the Goldbergs' 2004 tax year.
However, it was only a preliminary report that RA Knighton developed in
anticipation of the expiration of the period of limitations on assessment for the
Goldbergs' 2004 tax year. It was based on the limited information she had
received from Goldberg. The final report was not developed until April 29, 2011.
It seems likely that RA Knighton may not have been able to do much more with
the Goldbergs' 2004 examination at this time because she was still waiting for
them to submit outstanding information and the Forms 2848, "Power of Attorney
and Declaration of Representative".
Before the start of this period, Period 11 (September 29 to November 13,
2008), Goldberg had asked RA Knighton to work with his representative. He
made this request in an email dated September 25, 2008. See supra pt. III.0, p. 97
(Period 10). RA Knighton replied that she "would work with whomever he
wanted * * * [her] to [work with] as long as the appropriate [Form] 2848 was
completed and filed allowing * * * [her] to do so." In order for the IRS to work
with a representative of the Goldbergs, both Goldberg and his wife would need to
sign a Form 2848 and send it to the IRS. Shortly after Goldberg made his
- 102 [*102] September 25, 2008 request, RA Knighton sent Goldberg two Forms 2848.
Apparently they were blank.
The person who had been the Goldbergs' tax-return preparer was Jeff
Dubow. Jeff Dubow had a son of the same name who was also a tax professional.
The record reveals that Dubow (the father) had passed away as of May 26, 2009,
and he had been alive as of June 2007.
On November 13, 2008, RA Knighton received a completed Form 2848
from lawyers with the law firm of Ryan, Rapp & Underwood, P.L.C., that
authorized those lawyers to represent Goldberg with the IRS regarding the specific
issue of the Niche section 419A plan. This day was the final day of this period,
Period 11. That November 13, 2008 communication was the last that RA
Knighton heard from the Goldbergs or their representatives until six months later,
in May 2009 (a date that is in Period 12).
On June 8, 2009, RA Knighton received from Dubow (the son) a Form 2848
that authorized him to represent the Goldbergs without any limitation to a
particular issue.
In conclusion, we find that RA Knighton did perform work on the
Goldbergs' 2004 examination during this period and that one of the Goldbergs'
representatives provided a Form 2848 on the final day of Period 11, and the other
- 103 [*103] did not provide a Form 2848 until June 2009. We also find that any delay
that occurred during this period was attributable to Goldberg.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period, Period 11. Though a delay occurred, it was not caused by RA Knighton.
Rather, a significant aspect of the delay is attributable to Goldberg.
Under section 6404(e)(1), the IRS may not abate interest where a
"significant aspect of * * * [the] error or delay can be attributed to the taxpayer
involved". See also Braun v. Commissioner, slip op. at 13-14 (noting actions of
both the IRS and taxpayer caused delay, but denying interest abatement because
taxpayer's "actions constituted a significant cause of the delay" (emphasis added)).
The phrase "attributable to" means "due to, caused by, or generated by."
Lawinger v. Commissioner, 103 T.C. 428, 435 (1994). If a significant aspect of an
error or a delay is attributable to the taxpayer's representative, then it is attributed
to the taxpayer. See, e.g., Foote v. Commissioner, at *24-*25.
Section 301.6404-2(c), Example (13), Proced. & Admin. Regs., describes a
situation analogous to Goldberg's. In Example 13, the taxpayer moved from one
state to another in the midst of the IRS's examination of his income-tax return.
The taxpayer asked that the examination be transferred to the IRS office closer to
- 104 [*104] his new address, and the IRS complied with this request. R The taxpayer
moved again and again requested that the examination be transferred. R The IRS
complied with the taxpayer's second request. R Example 13 states that the
taxpayer's repeated moves caused "a delay in the completion of the examination."
IA Therefore, any interest that accrued because of this delay could not be abated
under section 6404(e) "because a significant aspect of this delay is attributable to
the taxpayer." Id.
Significant aspects of the delays during this period, Period 11, were caused
by (1) Goldberg, (2) the Goldbergs' representatives, or (3) both. On September
25, 2008, a few days before the start of this period, Period 11, Goldberg had asked
RA Knighton to work with his representatives to complete the examination. She
agreed and waited to receive the Form 2848. She received Ryan, Rapp &
Underwood's form on the final day of this period (November 13, 2008). She
received Dubow's form more than six months later, on June 9, 2009. Like the
taxpayer in Example 13, Goldberg had asked RA Knighton to perform the
examination in a way that was most convenient for him, and RA Knighton
complied with Goldberg's request. His representatives did not deliver the
necessary consents to allow RA Knighton to move forward with Goldberg's
request to work with his representatives, which in turn caused a delay. Because
- 105 [*105] these delays are fully attributable to Goldberg, abatement of interest is not
available for this period under section 6404(e)(1). See Foote v. Commissioner,
at *25. Thus, we hold it was not an abuse of discretion to deny interest abatement
for this period.
R.
Intermediary period: November 14, 2008, through May 28, 2009
Goldberg does not seek interest abatement for this six-month period. We
describe the events of this period to provide a complete background.
During November 14, 2008, through May 26, 2009, RA Knighton
documented that she had not received any information from Goldberg or the Form
2848 from Dubow (the son) that would authorize him to act on behalf of the
Goldbergs. She experienced radio silence from Goldberg while she worked on
other section 419 cases and on "priority work." During this six-month period, she
worked a total of four hours on the Goldbergs' 2003 examination and three hours
on their 2004 examination.
As of May 12, 2009, RA Knighton was waiting for information about the
Goldbergs' bases in their S corporation shares and debt. This information had
been requested in the September 2007 IDR and in other communications. RA
Knighton was also waiting for the Goldbergs to execute the Form 2848 to grant
powers of attorney to Dubow (the son). She did not receive Form 2848 from
- 106 [*106] Dubow (the son) until June 2009, and Goldberg did not provide all the S
corporation basis information until December 8, 2010.
RA Knighton prepared to both finalize her report and prepare a second
Form 872-I, "Consent to Extend the Time to Assess Tax as Well as Tax
Attributable to Items of a Partnership".3° This report, however, was a preliminary
report seemingly made in anticipation of the expiration of the period of limitations
on assessment for the Goldbergs' 2004 tax year. The final report was not
completed until April 29, 2011.
On May 15, 2009, RA Knighton sent the preliminary report and a second
Form 872-I to the Goldbergs and to Ryan, Rapp & Underwood. Eleven days later
on May 26, 2009, Goldberg emailed RA Knighton to confirm he had received the
preliminary report and the Form 872-I. Goldberg also told RA Knighton that he
thought she was "working with his professionals regarding the resolution of these
matters." Goldberg's "professionals" seem to refer to the people that Goldberg
had intended to act as his and his wife's representatives before the IRS: Dubow
(the son) and attorneys with the firm of Ryan, Rapp & Underwood. Goldberg
seems to have believed that between September 27, 2008 (the last day RA
3°This second Form 872-I extended the period of limitations for assessment
of the Goldbergs' 2004 income tax to December 31, 2010.
- 107 [*107] Knighton and Goldberg had communicated), and May 26, 2009, Dubow
(the son) or attorneys with the firm of Ryan, Rapp & Underwood had been acting
as Goldberg and his wife's representatives and had provided RA Knighton with
the information she had previously requested. Goldberg did not know that Dubow
(the son) had not yet returned a completed Form 2848 to RA Knighton; Goldberg
also seems to not have known that RA Knighton had not yet received any of the
information she had requested in the September 2007 IDR.
RA Knighton and Goldberg teleconferenced the following day, May 27,
2009.
S.
Period 12: May 29 through June 8, 2009
1.
Introduction
The Office of Appeals denied interest abatement for the 11 days from May
29 through June 8, 2009. On the 2004 Abatement Schedule, Goldberg argued that
abatement should be granted for this period. He alleged that RA Knighton's need
"to correct her own error" on a Form 872-I had caused a delay in processing the
Goldbergs'2004examination.
2.
Events
Form 872-I is used to document a taxpayer's consent to extend the period of
limitations on assessment of tax attributable to both partnership and
- 108 [*108] nonpartnership items. Some of the Goldbergs' income and losses may
have come from partnerships in which they were partners. When RA Knighton
received the second signed Form 872-I on May 29, 2009, she realized that she had
prepared the Form 872-I using the wrong date to extend the period of limitations.4°
The following business day (Monday, June 1, 2009) she emailed Goldberg alerting
him of her error, and she faxed him a corrected Form 872-I.4¹ The Goldbergs
returned the corrected Form 872-I by fax three days later on June 4, 2009. RA
Knighton received the hard copies of the completed Form 872-I on June 8, 2009.
At trial, RA Knighton testified that the error in the Form 872-I did not
impede her ability to proceed with the "substantive elements of the * * *
[examination]" during this period. During this 11-day span, RA Knighton
documented six entries, with a total of one hour of work on the Goldbergs' 2004
examination. This one hour was spent communicating with Goldberg to get the
corrected Form 872-I returned. She was not working on the substantive issues,
4°0n brief, counsel for the IRS calls RA Knighton's error a typographical
error. We cannot determine the nature of the error because the erroneous Form
872-I is not in the record.
4¹Attrial, RA Knighton testified that she sent them the corrected form on
May 29, 2008, the same day she discovered the error. However, her activity log
shows that she sent them the corrected form on June 1, 2008. We accord more
weight to the activity log because it was made closer to the time of the activity,
and more than eight years had elapsed between the event and the trial.
- 109 [*109] such as the claimed NOLs, in the Goldbergs' 2004 examination during this
time. We reiterate that RA Knighton had still not received the necessary
shareholder basis information that she requested in (1) the September 2007 IDR;
(2) correspondence surrounding the September 2007 IDR; and (3) a May 6, 2008
email. Also, it was not until the final day of this period (June 8, 2009) that RA
Knighton received the completed Form 2848 for Dubow (the son). Because RA
Knighton had not yet received the shareholder basis information she needed to
complete the examination, her date error could not have prolonged the
examination or impeded her ability to work on the substantive issues of the
examination. The examination was delayed because Goldberg or Dubow (the son)
failed to deliver the needed documents.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period, Period 12. The IRS may abate an assessment of interest that is
"attributable to" an IRS employee's unreasonable error or delay. Sec. 6404(e)(1).
We reiterate that "attributable to" means "due to, caused by, or generated by."
Lawinger v. Commissioner, 103 T.C. at 435. If the accrual of interest is not
caused by an IRS employee's unreasonable error or delay, then the IRS need not
abate interest under section 6404(e)(1).
-110[*110] Goldberg argues RA Knighton's entry of an incorrect date on the Form
872-I delayed the examination by 11 days, which caused 11 days of interest to
accrue during Period 12. The thrust of Goldberg's argument is that RA Knighton
could have proceeded with the examination sooner if on May 29, 2009, she had
received a signed and correct Form 872-I.
Goldberg's allegation that the assessment of 11 days of interest was
attributable to RA Knighton's error is not supported by the record. Instead, the
record shows that RA Knighton could not complete the examination for the
Goldbergs' 2004 tax year without information about the Goldbergs' bases in their
shares and debt of their S corporation. This is information that RA Knighton had
already requested on three separate occasions. Neither Goldberg nor the
Goldbergs' representatives had delivered this information before or during Period
12 (May 29 through June 8, 2009). In fact, RA Knighton did not receive all of this
information until December 8, 2010.
Goldberg has not shown that the assessment of 11 days of interest was
attributable to RA Knighton's error. Even if RA Knighton had received a correct,
signed Form 872-I on May 29, 2008, she could not have proceeded with the
examination because she lacked the necessary information, which she had already
requested multiple times.
- 111 [*111] As the petitioner, Goldberg has the burden of proving his entitlement to
interest abatement under section 6404(e)(1). See Rule 142(a); Woodral v.
Commissioner, 112 T.C. at 23. He did not show that RA Knighton's error caused
interest to accrue during the 11 days of Period 12, a showing required by section
6404(e)(1). It was not an abuse of discretion for the IRS to deny interest
abatement for this period, Period 12.
T.
Intermediary day: June 9, 2009
Goldberg does not request interest abatement for this day. RA Knighton
spent one hour working on the Goldbergs' 2004 joint income-tax return on June 9,
2009.
U.
Period 13: June 10-15, 2009
1.
Introduction
The Office of Appeals denied interest abatement for the six days42 from June
10-15, 2009. In the 2004 Abatement Schedule, Goldberg argued that abatement
should be granted for this period because allegedly "no work" on the Goldbergs'
42On the 2004 Abatement Schedule, Goldberg requested interest abatement
for "5" days. Appeals seems to have correctly assumed Goldberg was requesting
six days of interest abatement on the basis of the start and end dates he provided
for Period 13.
-112[*112] 2004 examination was indicated in RA Knighton's activity records. We
find that work was indeed performed during this period.
Before detailing the events of this period, we first discuss the general
context of RA Knighton's activities during this period. At some point before this
period, RA Knighton communicated to Goldberg the need for him to provide her
with additional information about the Goldbergs' bases in the stock and debt of
their wholly owned S corporation Wireless Distributors, Inc. Three requests for
additional information were made before this period: in the September 2007 IDR;
in correspondence surrounding the issuance of the September 2007 IDR; and in
the May 6, 2008 email. In May 2009, Goldberg asked RA Knighton to work with
Dubow on this issue of basis substantiation. We now discuss the events of
Period 13.
2.
Events
During Period 13, RA Knighton made three entries for work performed on
the Goldbergs' 2004 joint income-tax return. On June 10 and 13, 2009, RA
Knighton and Goldberg exchanged emails about information to substantiate the
Goldbergs' bases in their S corporation shares and debt. On June 15, 2009, the
final day of this period, RA Knighton recorded working one hour on the 2004
examination. In this one hour, as she documented, she talked with the Goldbergs'
- 113 [*113] representative, Dubow (the son), to request--as she already had done in the
September 2007 IDR and by phone and email to Goldberg--information about the
Goldbergs' bases in their shares and debt of their wholly owned S corporations. In
their conversation RA Knighton explained the basis issue to him and again
requested the same information she had asked for a few times before. On June 15,
2009, RA Knighton seems to have emailed Goldberg, Dubow (the son), or both of
them about the information she needed to address the basis issues.
Contrary to Goldberg's assertion, we conclude that RA Knighton did
perform work during this period. We further find that she asked the Goldbergs'
representative to provide information for which she had already repeatedly asked.
3.
Analysis and holding
We uphold the Office of Appeals' denial of interest abatement for this
period because Goldberg has failed to prove the existence of an unreasonable error
or delay attributable to RA Knighton. Furthermore we find any error or delay that
occurred during this period was attributable to Goldberg's failure to provide
information necessary to show the Goldbergs' entitlement to a pass-through
deduction for the losses of Wireless Distributors, Inc.
Wireless Distributors, Inc. was an S corporation. In general, S corporations
are not subject to income tax. Sec. 1363(a). Income and losses of an S
-114[*114] corporation affect its shareholders' tax liabilities because an S
corporation's shareholders generally calculate their tax liabilities by taking into
account their pro-rata share of the corporation's "items of income * * *, loss, [or]
deduction". Sec. 1366(a)(1). The "aggregate amount of [the S corporation's]
losses and deductions taken into account by a shareholder" cannot exceed the sum
of "the adjusted basis of the shareholder's stock in the S corporation" and "the
shareholder's adjusted basis of any indebtedness of the S corporation to the
shareholder", each determined tax year by tax year. Sec. 1366(d)(1). Thus
whether a shareholder can claim a pass-through deduction depends on whether he
or she has a sufficient basis in his or her S corporation shares and debt the S
corporation owes him or her. Id.
A shareholder claiming a pass-through deduction, like the deduction
claimed by the Goldbergs, is required to keep "such records" to substantiate that
he or she has sufficient basis under section 1366(d)(1). Sec. 6001; see also sec.
1.6001-1(a), Income Tax Regs. (providing records must be "sufficient to establish
the amount of gross income, deductions, credits, or other matters required to be
shown by * * * [the taxpayer] in any return of such tax or information"); see also
Gianulis v. Commissioner, T.C. Memo. 2018-187, at *9-*11. The Goldbergs were
- 115 [*115] the only two shareholders in the S corporation, and Goldberg seems to have
been in charge of its operations.
The Goldbergs had claimed deductions for pass-through losses from
Wireless Distributors, Inc., on their 2004 return, and RA Knighton had repeatedly
asked before and during this period that the Goldbergs provide records to
substantiate their bases in their stock in the S corporation and the debt the
S corporation owed them. During this period, specifically on June 15, 2009, RA
Knighton performed work. Contrary to Goldberg's assertion that she did nothing
during this period, she attempted to obtain information to substantiate the
Goldbergs' bases. Goldberg repeatedly failed to provide this information during
this period, as well as in prior and subsequent periods. The record shows that any
delay is fully attributable to Goldberg: he was to provide records to substantiate
his and his wife's bases in the pass-through entities, and he failed to do so despite
repeated requests. Because no interest is abated where a significant aspect of the
error or delay was caused by the taxpayer, sec. 6404(e)(1), the IRS did not abuse
its discretion in declining to abate interest for this period.
V.
Intermediary period: June 16-19, 2009
Goldberg did not request abatement for this period. We describe it only to
lend context to the other periods for which Goldberg requested abatement. The
- 116 [*116] only event documented for this period was RA Knighton's receipt of an
email from Goldberg on June 16, 2009.
W.
Period 14: June 20 through July 27, 2009
1.
Introduction
The Office of Appeals denied interest abatement for the 38 days from June
20 through July 27, 2009. In the 2004 Abatement Schedule, Goldberg argued that
abatement should be granted for this period, alleging RA Knighton's records
reflect "no indication of any work done" on the Goldbergs' 2004 examination.
Before this 38-day period, Goldberg was made aware that RA Knighton was
waiting for him or his and his wife's representative to provide her with the
additional information regarding the Goldbergs' bases in their stock and debt of
their wholly owned S corporations. RA Knighton had informed the Goldbergs'
representative, Dubow (the son), of the need; and RA Knighton had communicated
with Goldberg directly about the need for the information. Without this
information, it appears that during this period, Period 14, RA Knighton could not
work on the proper tax treatment of the items on the Goldbergs' 2004 return.
- 117 [*117]
2.
Events
During this 38-day period, RA Knighton communicated with Goldberg
multiple times, sometimes by email and sometimes by telephone.43 She also
documented one hour processing a Form 872-I that was returned to her by the
group in the IRS that processes them. RA Knighton clarified to Goldberg (after
she had already done so with Dubow, the son) what information was needed and
answered his corollary questions. She needed information about the Goldbergs'
bases in their S corporation shares and debt, which was information that she had
requested in the September 2007 IDR; the correspondence surrounding the
issuance of the September 2007 IDR; a May 6, 2008 email; and a June 15, 2009
email. Despite RA Knighton's reiterations of her need for information, during
these 38 days in 2009 neither Goldberg nor Dubow (the son) provided RA
Knighton with any of the necessary information until over one year later, on
43RA Knighton documented receiving an email, dated July 23, 2009, in
which Goldberg requested the contact information of a "Ms. Buffamonte * * *
regarding a phone call * * * [he] got from her several weeks ago." This may be
the call that RA Knighton, her group manager, and Monika Buffamonte discussed
during Period 17, infra part III.AA. That call apparently pertained to Goldberg's
examination for 1994. There, Buffamonte called Goldberg to ask him to stop
making calls to the home of the IRS employee who was examining his 1994
return.
- 118 [*118] Oc
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.