                         T.C. Memo. 2005-78



                       UNITED STATES TAX COURT



                BEATRICE GOBLIRSCH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14659-02L.             Filed April 7, 2005.


     Beatrice Goblirsch, pro se.

     Rebecca Duewer-Grenville, for respondent.



                         MEMORANDUM OPINION


     VASQUEZ, Judge:    Petitioner filed a petition in response to

respondent’s Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination) for 1995.1    The issues for decision are whether



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
                                - 2 -

petitioner is liable for income tax on the gain from sale of her

residence in 1995 and whether petitioner is entitled to have

interest abated on her tax liability.

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.    Petitioner resided in

Tokyo, Japan, at the time she filed her petition.

     Petitioner sold her residence in Modesto, California, on

April 18, 1995.    Petitioner did not make a payment of tax related

to the sale of her residence with her 1995 Federal income tax

return.    Petitioner attached to her return a Form 2119, Sale of

Your Home, on which she reported a gain on the sale of $126,097.

Petitioner also indicated on the Form 2119 that she intended to

replace her home within the “replacement period”.

     Petitioner moved to Japan and has lived there continuously

since April 5, 1997.

     On May 12, 2000, petitioner went to respondent’s Modesto,

California, office and spoke with Group Manager Timothy Herrera.

Mr. Herrera told petitioner that she should pay the tax liability

for the 1995 sale of her residence.     Petitioner paid respondent

$32,0602 for the tax liability related to the sale of her

residence.


     2
          All amounts are rounded to the nearest dollar.
                                - 3 -

       On June 26, 2000, respondent sent petitioner a Notice of Tax

Due on Federal Tax Return for the 1995 taxable year.      The notice

stated that petitioner owed $13,577 of interest and credited

petitioner with the $32,060 payment that satisfied her additional

tax.

       On November 28, 2001, respondent sent petitioner a notice of

intent to levy for the 1995 taxable year.    On December 14, 2001,

petitioner filed a request for a collection due process hearing

for the 1995 taxable year.

       At petitioner’s request, a hearing was conducted via

correspondence.    On August 19, 2002, respondent sent petitioner

the notice of determination sustaining respondent’s right to levy

in connection with petitioner’s 1995 tax liability.

       Petitioner had not purchased a replacement residence as of

the date of trial, May 17, 2004.

Discussion

       Standard of Review for Underlying Liability

       Petitioner did not receive a statutory notice of deficiency

for 1995.    Respondent ultimately assessed petitioner’s 1995 tax

on the basis of petitioner’s discussion with and payment to Mr.

Herrera.    Petitioner raised the issue of her underlying liability

for 1995 in the correspondence hearing.    Accordingly,
                                 - 4 -

petitioner’s underlying liability for 1995 is properly before the

Court, and we review that issue de novo.       See Montgomery v.

Commissioner, 122 T.C. 1 (2004).

     1995 Residence Sale

     Section 61(a)(3) provides that a taxpayer must include in

gross income gains derived from dealings in property.       Section

1001(c) generally requires a taxpayer to recognize the entire

amount of gain or loss realized on the sale or exchange of

property.   Section 1034 provides an exception to this general

rule and allows a taxpayer to defer recognition of all or part of

any gain realized on the sale of a principal residence if other

property is purchased and used by the taxpayer as a new principal

residence within the period beginning 2 years before the date of

the sale and ending 2 years after that date (the replacement

period).    Under section 1034(a), gain is recognized only to the

extent that the adjusted sale price of the old property exceeds

the cost of purchasing the new property.

     The running of the period of time to purchase a replacement

residence is suspended for the period during which the taxpayer

has a “tax home” outside the United States, except that the

replacement period cannot extend beyond 4 years after the date of

the sale of the old residence.    Sec. 1034(k).     The term “tax

home” means with respect to any individual, the individual’s home

for purposes of section 162(a)(2).       Sec. 911(d)(3).
                               - 5 -

     Petitioner sold her residence on April 18, 1995, and has

lived in Tokyo, Japan, continuously since April 5, 1997.

Petitioner indicated on her Form 2119 that she intended to

replace her home within the replacement period.   The replacement

period was suspended for the maximum of 4 years because

petitioner had a tax home outside the United States during that

time.   The replacement period thus ended on April 18, 1999.

Petitioner had not replaced her home as of the date of trial, May

17, 2004.   Therefore, petitioner did not replace her residence

within the replacement period and is liable for the capital gains

tax on the 1995 residence sale as calculated by Mr. Herrera and

paid on May 12, 2000.

     Petitioner alleges that an employee of respondent’s in

Tokyo, Japan, gave her incorrect advice about the termination

date of the replacement period related to the 1995 residence

sale.   Petitioner testified that she consulted the employee

“probably around June 15 [1999].”   We note that according to

petitioner’s testimony, her contact with the employee was 2

months after the expiration of the replacement period.

     Interest Abatement

     Section 6404(e)(1) provides, in pertinent part, that the

Commissioner may abate the assessment of interest on any

deficiency attributable to any error or delay by an officer or

employee of the Internal Revenue Service (IRS) (acting in his
                              - 6 -

official capacity) in performing a ministerial act.3   Woodral v.

Commissioner, 112 T.C. 19, 24-25 (1999).   Section

301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg.

30163 (Aug. 13, 1987), provides in part:

     The term “ministerial act” means a procedural or
     mechanical act that does not involve the exercise of
     judgment or discretion, and that occurs during the
     processing of a taxpayer’s case after all prerequisites
     to the act, such as conferences and review by
     supervisors, have taken place. A decision concerning
     the proper application of federal tax law (or other
     federal or state law) is not a ministerial act.

See also Lee v. Commissioner, 113 T.C. 145 (1999); Donovan v.

Commissioner, T.C. Memo. 2000-220.

     This Court may order abatement where the Commissioner abuses

his discretion by failing to abate interest.   Sec. 6404(h)(1).4

In order to prevail, a taxpayer must prove that the Commissioner




     3
        The Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-168,
sec. 301(a), 110 Stat. 1457 (1996), amended sec. 6404(e) to
permit abatement of interest for “unreasonable” error and delay
in the performance of a “ministerial or managerial” act. The
amendments to sec. 6404(e) apply to interest accruing with
respect to deficiencies or payments for taxable years beginning
after July 30, 1996. See TBOR 2 sec. 301(c), 110 Stat. 1457.
Thus, the amendments do not apply to the instant case. See
Woodral v. Commissioner, 112 T.C. 19, 25 n.8 (1999).

     4
        Sec. 6404(h) was formerly designated sec. 6404(i), and
before that sec. 6404(g). Sec. 6404(h) is applicable to requests
for abatement after July 30, 1996. We have jurisdiction over
petitioner’s request for abatement of interest because her
request was made as part of a sec. 6330 proceeding. See Katz v.
Commissioner, 115 T.C. 329, 340-341 (2000).
                                   - 7 -

exercised this discretion arbitrarily, capriciously, or without

sound basis in fact or law.    Woodral v. Commissioner, supra at

23.

       Petitioner does not allege that the interest resulting from

the 1995 residence sale is attributable to any error or delay by

an officer or employee of the IRS in performing a ministerial

act.    Therefore, respondent did not abuse his discretion by

failing to abate interest.

       To reflect the foregoing,


                                               Decision will be

                                           entered for respondent.
