                        T.C. Memo. 2008-121



                      UNITED STATES TAX COURT



         ROBERT C. AND PAMELA K. LIEMS, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22253-06.              Filed April 29, 2008.




     Robert C. and Pamela K. Liems, pro sese.

     Jeremy L. McPherson, for respondent.



                         MEMORANDUM OPINION


     HAINES, Judge:   On May 4, 2006, respondent issued a

notice of final determination partially disallowing petitioners’

claim for abatement of interest assessed with respect to their

1995 Federal income tax liability.   Petitioners timely filed a
                                -2-



petition under section 6404(h) contesting the determination.1

The issue for decision is whether respondent’s partial denial of

petitioners’ claim for abatement of interest was an abuse of

discretion.

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioners resided in

California when their petition was filed.

Audit of Petitioners’ 1995 and 1996 Returns

     Petitioners timely filed their Forms 1040, U.S. Individual

Income Tax Return, for 1995 and 1996.    On April 11, 1998,

respondent sent petitioners a Letter 950 (30-day letter)

proposing adjustments to their 1995 and 1996 returns and stating

that petitioners had 30 days in which to request an Appeals

conference.   On August 7, 1998, respondent issued petitioners a

notice of deficiency determining deficiencies of $6,215 and

$4,447 for 1995 and 1996, respectively.    Petitioners received the

notice, but rather than petition this Court for redetermination

of the deficiencies, they wrote to respondent on August 26, 1998,

and again on February 24, 1999, stating simply that they

     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year at issue. Rule
references are to the Tax Court Rules of Practice and Procedure.
Amounts are rounded to the nearest dollar.
                                -3-

“wish[ed] to mandate [their] right to appeal.”    Respondent

assessed the deficiencies on February 8, 1999.

Petitioners’ Offers-in-Compromise

     On January 7, 2003, petitioners submitted to respondent a

Form 656, Offer in Compromise, on the ground of doubt as to

liability.   Petitioners offered to pay zero in satisfaction of

their outstanding 1995 and 1996 liabilities.   On April 17, 2003,

respondent returned the offer-in-compromise to petitioners

without processing it because they did not offer to make any

payment.   On May 19, 2003, petitioners sent a second offer-in-

compromise, offering to pay $100 in satisfaction of their 1995

and 1996 liabilities.

     On June 9, 2003, respondent sent a letter to petitioners

refusing to process the offer-in-compromise because they had not

offered to make any payment.   Petitioners responded on June 12,

2003, stating that the amount offered was $100.    On September 3,

2003, respondent sent petitioners a letter which in substance

said the same thing as the April 17 and June 9, 2003, letters.

     On August 24, 2004, respondent sent an audit report to

petitioners offering to abate portions of the 1995 and 1996

deficiencies.   On September 20, 2004, petitioners’ accountant

wrote to respondent requesting an Appeals conference to protest

the audit report.   On February 15, 2005, respondent sent

petitioners a letter advising them that their $100 offer-in-
                                -4-

compromise was denied.   On March 13, 2005, petitioners sent

respondent a second letter requesting an Appeals conference.

After the second request, petitioners were granted an Appeals

conference.

     On June 2, 2005, Appeals advised petitioners that interest

abatement would not be considered as part of an offer-in-

compromise, but that after an offer was accepted, petitioners

could file an interest abatement claim.   On June 27, 2005,

petitioners submitted a revised offer-in-compromise offering to

pay $10,701 in satisfaction of their 1995 and 1996 liabilities

and remitted that amount.   Respondent applied $6,048 of the

payment to petitioners’ 1995 liability and $4,653 to their 1996

liability.2   On January 30, 2006, Appeals notified petitioners

that the offer was accepted.

Petitioners’ Request for Interest Abatement

     On January 9, 2006, petitioners submitted to respondent a

Form 843, Claim for Refund and Request for Abatement, for 1995.

Petitioners stated:

     IRS examined the 1995 income tax return. The
     examination concluded about July of 1998. Shortly
     thereafter a protest and request for a conference with
     an appeals office was sent to the IRS office where the
     examination took place. Due to some mix up within IRS
     the protest was sent to another office and was then
     declared filed late. Therefore the adjustments were



     2
      $2,947 was applied to interest owed for 1995, and $2,060
was applied to interest owed for 1996.
                               -5-

     assessed without getting a meeting with an appeals
     officer. This is clearly due to an error within IRS.

         *      *       *       *        *         *         *

     The fact is if we had received our due process by
     getting a conference with an appeals officer after the
     original examination in 1998 this whole matter would
     have been resolved well before the year 2000.

         *     *       *        *        *     *            *

     Based on the above we respectfully request abatement of
     the interest accrued by IRS from January 1, 2000 until
     the balance was paid off.

On May 4, 2006, Appeals sent petitioners a final determination

with respect to abatement of interest for 1995.3       Respondent

abated interest from September 27, 2004, when respondent received

petitioners’ Appeals conference request to March 15, 2005, when

Appeals granted petitioners an Appeals conference.       Appeals

denied further interest abatement.

                            Discussion

     Section 6404(e), as in effect for 1995, authorizes the

Commissioner to abate all or any part of an assessment of

interest on (1) any deficiency attributable in whole or in part

to any error or delay by an employee of the Internal Revenue



     3
      Petitioners allege that they also requested abatement of
interest with respect to their 1996 liability. Respondent has no
record of receiving the 1996 Form 843. Accordingly, respondent
did not issue a determination denying interest abatement for
petitioners’ 1996 year. On Oct. 2, 2007, the Court granted
respondent’s motion to dismiss for lack of jurisdiction as to all
years other than 1995. See Bourekis v. Commissioner, 110 T.C.
20, 26 (1998).
                                 -6-

Service, acting in his official capacity, in performing a

ministerial act, and (2) any tax payment to the extent that any

error or delay in the payment is attributable to the employee’s

error or dilatory conduct in performing a ministerial act.4   A

ministerial act means a procedural or mechanical act that does

not involve the exercise of judgment or discretion and occurs

during the processing of a taxpayer’s case after all the

prerequisites to the act, such as conferences and review by

supervisors, have taken place.   See Lee v. Commissioner, 113 T.C.

145, 149-150 (1999); sec. 301.6404-2T(b)(1), Temporary Proced. &

Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).5 A decision

concerning the proper application of Federal tax law is not a

ministerial act.   See sec. 301.6404-2T(b)(1), Temporary Proced. &




     4
      In 1996, sec. 6404(e) was amended by sec. 301 of the
Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-168, 110 Stat.
1457 (1996), to permit the Commissioner to abate interest
attributable to “unreasonable” error or delay resulting from
“managerial” and “ministerial” acts. The new provision applies
to interest accruing with respect to deficiencies or payments for
tax years beginning after July 30, 1996. The amended provision
is not applicable here. See Woodral v. Commissioner, 112 T.C.
19, 25 n.8 (1999).
     5
      The final regulations under sec. 6404 were issued on Dec.
18, 1998. The final regulations generally apply to interest
accruing with respect to deficiencies or payments of tax
described in sec. 6212(a) for taxable years beginning after July
30, 1996. See sec. 301.6404-2(d)(1), Proced. & Admin. Regs. As
a result, sec. 301.6404-2T, Temporary Proced. & Admin. Regs., 52
Fed. Reg. 30163 (Aug. 13, 1987), applies and is effective for
interest accruing with respect to deficiencies for those taxable
years beginning after Dec. 31, 1978, but before July 30, 1996.
See id. par. (c).
                                 -7-

Admin. Regs., supra.    The mere passage of time does not establish

error or delay in performing a ministerial act.    Lee v.

Commissioner, supra at 150.

       Under section 6404(e), an error or delay is taken into

account only if no significant aspect of the error or delay can

be attributed to the taxpayer and only after the Commissioner has

contacted the taxpayer in writing with respect to the deficiency

or payment.    See sec. 6404(e)(1); sec. 301.6404-2T(a)(2),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,

1987); see also Krugman v. Commissioner, 112 T.C. 230, 238

(1999).

       The Commissioner’s authority to abate an assessment of

interest involves the exercise of discretion, and we must give

due deference to the Commissioner’s discretion.    Woodral v.

Commissioner, 112 T.C. 19, 23 (1999); Mailman v. Commissioner, 91

T.C. 1079, 1082 (1988).    In order to prevail a taxpayer must

prove that the Commissioner abused his discretion by exercising

it arbitrarily, capriciously, or without sound basis in fact or

law.    Woodral v. Commissioner, supra at 23; Mailman v.

Commissioner, supra at 1084; see also sec. 6404(h)(1); Rule

142(a).    In order to qualify for relief a taxpayer must

demonstrate a direct link between the error or delay and a

specific period during which interest accrued.    Guerrero v.
                                 -8-

Commissioner, T.C. Memo. 2006-201; Braun v. Commissioner, T.C.

Memo. 2005-221.

       As we evaluate respondent’s exercise of discretion, we are

mindful that Congress intended for the Commissioner to abate

interest under section 6404(e) “where failure to abate interest

would be widely perceived as grossly unfair”, but that the

abatement provision should not “be used routinely to avoid

payment of interest”.    H. Rept. 99-426, at 844 (1985), 1986-3

C.B. (Vol. 2) 1, 844; S. Rept. 99-313, at 208 (1986), 1986-3 C.B.

(Vol. 3) 1, 208; see also Krugman v. Commissioner, supra at 238-

239.

       Petitioners object to the assessment of interest on their

1995 liability because they believe the matter should have been

resolved before January 1, 2000.    Petitioners’ complaint is that

the deficiency was incorrect and that if they had been granted an

Appeals conference after receiving the notice of deficiency in

1998, respondent’s error would have been identified and the

situation resolved.

       Although petitioners submitted requests for an Appeals

conference in 1998 and 1999, those requests were submitted well

after the date provided in their 30-day letter.    Furthermore, to

request an Appeals conference, petitioners were required to

submit “A brief written statement of disputed issues.”    See sec.

601.106(a)(1)(iii), Statement of Procedural Rules.    Petitioners
                                  -9-

did not submit any statement of disputed issues.     They stated

only that they wished to mandate their right to appeal.

       Petitioners’ Appeals requests were submitted after the

issuance of the notice of deficiency.     “After the issuance * * *

of a statutory notice of deficiency, upon the taxpayer’s request,

Appeals may take up the case for settlement and may grant the

taxpayer a conference thereon.”    Sec. 601.106(b), Statement of

Procedural Rules (emphasis added).      The granting of an Appeals

conference after the issuance of a notice of deficiency is within

the Commissioner’s discretion and is therefore not a ministerial

act.

       The proper procedure for disputing a notice of deficiency is

the filing of a petition with this Court.      See sec. 6213(a).

That this matter was not resolved earlier is due to petitioners’

failure to petition this Court for redetermination of the

deficiency.    Petitioners have not identified any alleged error or

dilatory conduct that delayed the resolution of the matter other

than the act that was the basis for the partial abatement of

interest granted by Appeals.    A careful review of the record

reveals that no additional error or dilatory conduct occurred

upon which interest may be abated.

       On June 9 and September 3, 2003, respondent’s Appeals Office

incorrectly refused to process petitioners’ offer-in-compromise

on the ground that petitioners did not offer to make any payment.
                                 -10-

In fact, petitioners had offered to pay $100.      Although the

reason given for rejecting the offer-in-compromise was incorrect,

the rejection of the offer was appropriate.      The $100 offer was

later rejected as insufficient and petitioners ultimately

compromised their liability for $10,701, substantially more than

their original offer.

     The Court sympathizes with petitioners who may have received

bad advice from their tax preparer on how to contest their

deficiency.   However, any error or delay in the resolution of

petitioner’s 1995 tax liability was not caused by the ministerial

act of an Internal Revenue Service employee other than the act

for which abatement was granted by Appeals.      Accordingly, we hold

that respondent did not abuse his discretion by partially denying

petitioners’ request for interest abatement.

     In reaching our holdings herein, we have considered all

arguments made, and, to the extent not mentioned above, we find

them to be moot, irrelevant, or without merit.

     To reflect the foregoing,


                                        Decision will be entered

                                 for respondent.
